What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-09 compared with 2022-03-01 · 1371 added, 467 removed, 644 unchanged (74% of the section changed)

3 unchanged sentences

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.

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

2 unchanged sentences

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, 2022.

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.

On May 13, 2022, we completed a purchase of substantially all of the assets of GVB’s business dedicated to hemp-based cannabinoid extraction, refinement, contract manufacturing and product development (the “Transaction”).

As the Transaction occurred in the middle of 2022, the scope of our evaluation of the effectiveness of internal control over financial reporting does not include GVB.

This exclusion is in accordance with the SEC's general guidance that an assessment of a recently acquired business may be omitted from our scope for a period not to exceed one year from the date of the acquisition.

The financial results of GVB are included in our consolidated financial statements from the date of acquisition.

The financial results of GVB constituted 19% of total assets, 35% of revenues, net and 25% of net loss of the consolidated financial statement amounts as of and for the year ended December 31, 2022.

The Company is in the process of evaluating the existing controls and procedures of the acquired business and integrating the acquired business into its system of internal control over financial reporting.

As a result, management was unable, without incurring unreasonable effort or expense, to conduct an assessment of internal control over financial reporting for the acquired business.

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.

2 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to a permanent exemption for smaller reporting companies.

Changes in Internal Controls over Financial Reporting

There was no change in 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.

During the fourth quarter of 2022, we continued the process of evaluating the existing controls and procedures of GVB and integrating into its system of internal control over financial reporting.

Other than with respect to the integration of GVB, there was no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Other Information.

2 unchanged sentences

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.

Officers and Directors

Set forth below is information regarding our directors, executive officers, and key personnel as of March 1, 2023:

Chief Executive Officer and Director

Michael Zercher

President and Chief Operating Officer

Chief Financial Officer

John Franzino

Chief Administrative Officer

President, Tobacco Division

Chief Financial Officer

Chief Legal Officer

Michael Koganov

Anthony Johnson

(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.

Mish, Chief Executive Officer.

Mish has served as our Chief Executive Officer since June 22, 2020 and as a director since January 2022.

He has an outstanding track record of delivering profitable growth at both privately-held and publicly-traded science-driven companies with a focus on pharmaceutical and consumer products commercialization.

Prior to joining 22nd Century, he served as President and Chief Executive Officer of Purisys, a synthetic cannabinoid API, ingredients and solutions provider to pharmaceutical and consumer products companies, from 2019 to 2020 and Noramco, a global leader in the production of controlled substances for the pharmaceutical industry, from 2016 to 2019.

Mish led the private equity carve out of Noramco from Johnson & Johnson/Janssen Pharmaceuticals and spearheaded the subsequent creation and spinoff of Purisys from Noramco.

Mish began his career at Pfizer in research and development before holding positions of increasing responsibility at several companies including as President of Ashland Specialty Ingredients - Consumer Specialties, a major division of Ashland Corporation, a premier, global specialty materials company serving customers in a wide range of consumer and industrial markets from 2008 to 2016.

Mish has a M.B.A.

from The Wharton School of the University of Pennsylvania and a Bachelor of Science in Physics and Chemistry from Pennsylvania State University.

Mish’s strong leadership skills and pharmaceutical and consumer products experience led to our conclusion that he should serve as a director.

Fleet has served as a director since his appointment on August 3, 2019 by the Board to fill a vacancy in the Class I director position resulting from the resignation of Henry Sicignano, III as of July 26, 2019.

Fleet also served as the President and Chief Executive Officer of the Company from August 3, 2019 until December 13, 2019, at which time he resigned, effective on December 31, 2019.

Fleet also served as a strategic advisor consultant to the Company from December 2018 to August 3, 2019.

Fleet currently serves as the President and CEO of the Colonial Williamsburg Foundation, the world’s largest living history museum and a national leader in American education.

Prior to the Colonial Williamsburg Foundation, Mr.

Fleet served as the President and CEO of 22nd Century Group.

From 1995 to 2017 Mr.

Fleet worked at Altria Group (NYSE:

MO), serving in a variety of senior-level management positions in

Finance, Operations, Marketing, and Business Strategy and Development.

From 2013 to 2017, Mr.

Fleet served as the President and CEO of Philip Morris USA, Altria’s largest subsidiary, when he ran Philip Morris USA, the nation’s largest tobacco company, and John Middleton, a leading machine-made cigar manufacturer.

During his tenure he led both organizations to business success in highly regulated environments.

In addition, Mr.

Fleet is an adjunct professor at the College of William & Mary teaching in the business school.

Fleet holds a Bachelor of Arts, Master of Arts, Master of Business Administration and Juris Doctor from the College of William & Mary.

Fleet’s extensive experience in the tobacco industry led to our conclusion that he should serve as a director.

Anthony Johnson .

Johnson has served as a director since August 2021 and is co-founder, President, and CEO of Kodikaz Therapeutic Solutions, a world-class next-generation non-viral gene therapy company since 2019.

He is also a founding partner of Buffalo Biosciences in 2006, a life science strategic business management firm that supports the evaluation and commercialization of bioscience technologies from concept to market.

Previously he was president and CEO of Empire Genomics, where he transformed a concept formed at a university lab into a preeminent oncology molecular testing enterprise, from 2006 - 2019.

He also served as the business leader of the stem cell and regenerative medicine franchise for Thermo Fisher (Invitrogen Corporation).

Johnson is an Aspen Institute Health Innovation Fellow and a member of the Aspen Global Leadership Network.

He currently serves on the boards of several organizations including the WNED/PBS broadcasting service of Western New York.

He has leveraged his business experience and board positions to mentor numerous technology startups and entrepreneurs, spur state and local job creation, and introduce STEM curriculum into early childhood education.

Johnson is also a founding board member of the Communities of Giving Legacy Initiative, which works to create positive change in the lives of low-income youth of color via access to people, places, and experiences that help them achieve their life goals.

Additionally, he serves as Michigan Street African-American Heritage Corridor Commissioner and was an Opportunities Council member for University of Buffalo.

Formerly, he was a 15-year volunteer with the Big Brother Big Sister Foundation.

Johnson holds an MBA from Manchester Business School, Manchester, UK, with an emphasis in international strategy, and a BA in biology from Fisk University, Nashville, TN.

Johnson’s experience commercializing bioscience technologies and life sciences experience led to our conclusion that he should serve as a director.

Michael Koganov.

Koganov has served as a director since September 11, 2020.

Koganov is recognized as a leading expert in the development of natural products using plant biotechnology and has achieved considerable accomplishments in physico-chemistry, biochemistry, bioelectrochemistry, and biotechnology.

He is credited with developing Electro-Membrane technology for the comprehensive processing of plants to produce protein concentrates and secondary metabolites.

Koganov co-founded Intellebio LLC, which developed the proprietary and sustainable Zeta Fraction™ technology that selectively isolates efficacious components from living plants and marine sources to produce a wide range of biofunctional ingredients.

After the award-winning technology was acquired by AkzoNobel and then Ashland Global Holdings Inc., Dr.

Koganov directed the research, product development, and commercialization of patented multifunctional bioactive Zeta Fractions that are used as key, signature ingredients in numerous products of global companies in the OTC and personal care spaces;

and various synergistic compositions of Zeta Fractions obtained from living plants from twelve major plant families.

He is the 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.

Koganov received his Master of Science degree in Biochemistry from the State University, Dnipropetrovsk, USSR;

in Bioelectrochemistry from Institute of Chemical Technology, Dnipropetrovsk, USSR;

and Full Doctor of Sciences (Sc.D.) degree in biotechnology from the Higher Attestation Commission of the USSR’s Council of Ministers.

He has written more than 70 publications, secured over 100 granted patents, and is the author of two books.

Koganov’s expertise in the area of plant biotechnology and experience developing novel technologies led to our conclusion that he should serve as a director.

O’Brien has served as a director since his appointment on January 10, 2020 by the Board to fill a vacancy in the Class II director position resulting from the death of Dr.

Dunn on November 30, 2019.

O’Brien has served since 2000 as 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, marketing and strategy development.

From 1998 to 1999, Mr.

O’Brien served as the Chief Operating Officer of Ultralife Batteries, Inc.

ULBI) and from 1991 to 1996, he was the Chief Executive Officer and a major shareholder of Holotek Ltd., a high-technology company with a proprietary position in the design, development, manufacture and sales of laser imaging systems worldwide.

Previously, Mr.

served as a senior executive for Exxon Venture Capital, Tenneco Automotive and as an early officer of Sun Microsystems (NASDAQ:

SUN) prior to the company’s acquisition by Oracle Corporation.

O’Brien is currently a member of the Board of Directors of Innovative Technology Solutions and Bristol-ID Technologies, Inc.

In addition, Mr.

O’Brien is an adjunct professor at the Rochester Institute of Technology, where he is a graduate instructor in Rochester, New York and in Croatia.

O’Brien holds a Bachelor of Science degree in Nuclear Engineering from New York University and an MBA degree from The Wharton School of the University of Pennsylvania.

O’Brien’s experience with strategic advisory consulting and his prior public company experience led to our conclusion that he should serve as a director.

Lucille Salhany .

Salhany became a director in September 2022 pursuant to the terms of the Reorganization and Acquisition Agreement with GVB Biopharma.

Salhany has served as President and Chief Executive Officer of JHMedia, a consulting company she founded, since 1997.

She was also one of the founding partners of Echo Bridge Entertainment and CEO & President of LifeFX Networks, Inc.

After serving as Chairperson of the Twentieth Television division of Fox, Ms.

Salhany was appointed as the Chairmanship of Fox Broadcasting.

After chairing Fox, Ms.

Salhany accepted the post of Chief Executive Officer and President of United Paramount Network (UPN), launching and growing UPN to become the fifth major broadcast network.

She also previously served on the Board of Directors for Echo Bridge Entertainment, Compaq / Hewlett-Packard, Fox, Inc., Avid Technologies, and American Media, Inc.

Salhany was also a trustee of Emerson College and Lasell College, where she received Honorary Doctorates.

Salhany’s well-established track record of success in business and strong background in and knowledge of the media industry led to our conclusion that she should serve as a director.

Sanders has served as a director since December 9, 2013.

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.

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.

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.

O’Brien has also served as an officer of several publicly held companies, including Sun Microsystems and Ultralife Batteries, Inc.

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.

From January 2002 until June 2009, Mr.

Sanders served as President and CEO of Santa Fe Natural Tobacco Company (“SFNTC”), a division of Reynolds American, Inc., which manufactures and markets the Natural American Spirit cigarette brand.

During his 7-year tenure as head of SFNTC, Mr.

Sanders tripled Natural American Spirit’s market share and SFNTC’s operating earnings and directed the successful expansion of Natural American Spirit into international markets in Western Europe and Asia.

Prior to directing SFNTC’s robust growth, Mr.

Sanders worked for R.J.

Reynolds Tobacco Company where he began his career as a marketing assistant in 1977.

From 1987 to 2002, he served in a wide spectrum of executive positions including,

among others, Senior Vice President of Marketing and Vice President of Sales.

A native of Minneapolis, Mr.

Sanders earned a Bachelor’s Degree in political science from Hamline University in St.

Paul and an M.B.A.

Degree in Marketing from Washington University in St.

Louis, Missouri.

Sanders’ deep experience in the tobacco industry and expertise in management and marketing led to our conclusion that he should serve as a director.

Sullivan has served as a director since May 18, 2015.

Sullivan is also currently President of Sullivan Capital Partners, LLC, a financial services company providing investment banking and mergers and acquisitions services to companies seeking acquisitive growth, strategic partnerships and joint venture relationships.

Her experience includes the development and advancement of strategic initiatives and the implementation of best practice governance policies.

Prior to founding Sullivan Capital Partners in 2004, Ms.

Sullivan worked for Citigroup Private Bank from 2000 to 2004, providing capital markets and wealth management services to high net worth individuals and institutional clients.

From 1995 to 1999, Ms.

Sullivan was Executive Vice President of Rand Capital Corporation (NASDAQ:

RAND), a publicly traded closed-end investment management company providing capital and managerial expertise to small and mid-size businesses.

Sullivan is also a member of the Boards of Directors of Evans Bancorp, Inc.

(NYSE American:

EVBN), Robinson Home Products, and Rosina Food Products.

She is also a member of the Investment Committee of the Patrick P Lee Foundation, Chairman of the Technology Transfer Committee of the Roswell Park Comprehensive Cancer Center, and a member of the Board of Directors of the Cortland College Foundation.

Sullivan holds an M.B.A.

Degree in Finance and International Business from Columbia University Graduate School of Business and a Juris Doctor degree from the University of Buffalo School of Law.

Sullivan’s expertise in finance and corporate governance, experience with mergers and acquisitions and status as an audit committee financial expert led to our conclusion that she should serve as a director.

Executive Officers :

For information with respect to Mr.

Mish, please refer to the Directors section above.

Hugh Kinsman , Chief Financial Officer .

Kinsman has served as our Chief Financial Officer since June 2022.

Prior to that time, he was serving as Chief Financial Officer of GVB Biopharma and served in this role since March, 2020 Since 2017, Mr.

Kinsman has served as a Director at TerraNova Capital Partners, a boutique investment banking firm, where he has served as CFO of several portfolio companies including iQ International, a leading manufacturer and distributor of highly efficient lead acid batteries for the global automotive and storage markets from 2017 to 2020.

Previously, Mr.

Kinsman served as a member of the Structured Finance group at GE Capital (NYSE:

Kinsman was also a senior accountant at Asher & Company, CPAs (now BDO).

Kinsman received his B.S.

in Finance from Pennsylvania State University and his Master’s in Business Administration from Cornell University.

Miller , President of Tobacco .

Miller has served as our President of Tobacco since November 2022.

Prior to that time, he was the President and CEO of Swisher International, Inc., a manufacturer and exporter of cigars and smokeless tobacco products in America.

Miller joined Swisher in November of 2012 as Senior Vice President of Sales & Marketing, was promoted to President in 2017 and named CEO in March 2021 until his retirement in September 2021.

Miller’s experience also includes more than 20 years in various management positions at US Smokeless Tobacco Co.

Miller holds a Bachelor of Science Degree in Finance from UNLV and earned an MBA from Pepperdine University, The George L.

Graziadio School of Business Management.

John Franzino, Chief Administrative Officer .

Franzino served as our Chief Financial Officer from June 3, 2020 until November 2021 when he transitioned to Chief Administrative Officer.

He has a successful track record of strategic financial leadership in high-growth, highly regulated, consumer-facing industries as well as not-for-profit higher education organizations.

Most recently, Mr.

Franzino served as Chief Financial Officer of the West Point Association of Graduates, which supports the U.S.

Military Academy at West Point.

Prior to his experience in higher education, Mr.

Franzino served as Chief Financial Officer of Santa Fe Natural Tobacco Company, a subsidiary of Reynolds American, Inc., and as Chief Financial Officer of Labatt USA, a subsidiary of Anheuser-Busch.

In both roles, he was responsible for the financial planning and control function as well as information systems and technology.

Franzino is a certified public accountant and holds a Master of Business Administration from Fairleigh Dickinson University and a Bachelor of Arts degree from the University of Maine at Farmington.

Peter Ferola, Chief Legal Officer .

Ferola was promoted to the position of Chief Legal Officer in February 2023.

Ferola has served as our General Counsel and Secretary since November 2022.

Ferola has over 30 years of progressive leadership experience in business management, legal affairs and corporate governance.

Most recently, he served as Project Counsel in Greenberg Traurig LLP’s corporate securities group.

From 2011 to 2020 he served as Senior Vice President and General Counsel at BioTelemetry, Inc.

From 2009 to 2011, Mr.

Ferola served as Vice President, General Counsel and Secretary of Nipro Diagnostics, Inc.

(formerly Home Diagnostics, Inc., NASDAQ:

Prior to joining Home Diagnostics, Mr.

Ferola worked as a corporate and securities attorney with Greenberg Traurig, LLP and with Dilworth Paxson, LLP in Washington, D.C., focusing on mergers, acquisitions, public securities offerings and corporate governance matters.

From 1989 to 2002, Mr.

Ferola worked in executive management roles for an American Stock Exchange listed company, most recently serving as Vice President—Administration and Corporate Secretary, overseeing the company’s administrative functions, legal matters and investor relations.

Ferola earned a Bachelor of Science and Juris Doctor degree from Nova Southeastern University and a Master of Laws in Securities and Financial Regulation from Georgetown University Law Center.

Ferola has authored numerous articles on corporate and securities laws, with a particular focus on audit committees and regulations implemented in the wake of the Sarbanes-Oxley Act.

Ferola also serves as a FINRA arbitrator and a panelist on the NASDAQ Listing Qualifications Panel.

Corporate Governance

The Company’s Board of Directors is classified into three classes of directors, with one class of directors being elected at each annual meeting of stockholders of the Company to serve for a term of three years or until the earlier of:

(i) expiration of the term of their class of directors;

or (ii) until their successors are elected and take office.

The Bylaws of the Company provide that the Board will determine the number of directors to serve on the Board.

The number of authorized directors of the Company as of March 1, 2023 is eight, with eight persons currently serving as directors (three Class II directors, two Class I directors and two Class III directors).

There are no family relationships among our directors.

Our Board held 8 meetings during 2022.

All directors attended at least 75% of all meetings of the Board and Board committees on which they served during 2022.

We do not have a formal policy requiring directors to attend annual meetings of stockholders.

However, all of our directors attended our 2022 annual meeting and we anticipate that all of continuing directors will attend the 2023 annual meeting.

Our Board of Directors currently has three standing committees:

(i) an Audit Committee, (ii) a Compensation Committee, and (iii) a Corporate Governance and Nominating Committee.

Each of these Board committees are described below.

Members of these committees are elected annually by the Board.

The charters of each committee are each available on the investor relations section of our website at www.xxiicentury.com.

In addition, we have a Scientific Advisory Board which is chaired by Michael Koganov.

Audit Committee

KEY RESPONSIBILITIES

Sullivan*, Chair

Anthony Johnson

Michael Koganov

The Board has determined that each member of the audit committee is independent as defined under the applicable listing standards of the Nasdaq Stock Market and Rule 10A-3 under the Securities Exchange Act of 1934, as amended.

Assists the Board in monitoring the integrity of financial statements and our compliance with legal and regulatory requirements;

Reviews the independence and performance of our internal and external auditors;

Has the ultimate authority and responsibility to select, evaluate, terminate and replace our independent registered public accounting firm;

Has oversight of the Company’s policies with respect to risk assessment and risk management;

Approves the Audit Committee Report.

The report further details the Audit Committee’s responsibilities.

*Audit Committee Financial Expert:

Our Board has determined that Ms.

Sullivan qualifies as an “audit committee financial expert” as defined by the rules of the Securities and Exchange Commission.

Furthermore, all members of the Audit Committee meet the financial literacy requirements of the Nasdaq Stock Market and no members of the Audit Committee serves on the Audit Committee of more than three public companies.

The Committee met

4 times in 2022

Compensation Committee

KEY RESPONSIBILITIES

Sanders, Chair

Michael Koganov

Lucille Salhany

The Board has determined that each member of the Compensation Committee is independent within the meaning of the Company’s independence standards and applicable listing standards of the Nasdaq Stock Market.

Establishes and regularly reviews our compensation and benefits philosophy and program in a manner consistent with corporate financial goals and objectives;

Approves compensation arrangements for senior management, including annual incentive and long-term compensation;

Administers grants under our equity incentive plans;

Evaluates our CEO’s performance;

Reviews leadership development and succession planning.

The Committee met

7 times in 2022

Corporate Governance and Nominating Committee

KEY RESPONSIBILITIES

Anthony Johnson, Chair

Lucille Salhany

The Board has determined that each member of the Corporate Governance and Nominating Committee is independent within the meaning of the Company’s independence standards and applicable listing standards of the Nasdaq Stock Market.

Assists our Board in establishing criteria and qualifications for potential Board members;

Identifies high quality individuals who have the core competencies, characteristics and experience to become members of our Board;

Establishes corporate governance practices in compliance with applicable regulatory requirements and consistent with the highest standards, and recommends to the Board the corporate governance guidelines applicable to us;

Leads the Board in its annual review of the Board’s performance;

Recommends nominees for each committee of the Board;

Oversees the Company’s Environmental Social and Governance (“ESG”) policies and practices.

The Committee met

6 times in 2022

Scientific Advisory Board

KEY RESPONSIBILITIES

Michael Koganov, Chair

Anthony Johnson

Provides advice and recommendations to the Board regarding :

Company scientific research, technology and innovation strategies;

opportunities including potential partnerships and M&A;

emerging science and technology issues and trends.

The Scientific Advisory Board met 1 time in 2022

Director Nominee Selection Process

Our Corporate Governance and Nominating Committee evaluates the specific personal and professional attributes of each director candidate versus those of existing Board members to ensure diversity of competencies, experience, personal history and background, thought, skills and expertise across the full Board.

In the evaluation of director candidates, our Corporate Governance and Nominating Committee gives consideration to diversity in terms of gender, ethnic background, age and other similar attributes that could contribute to Board perspective and effectiveness.

The Corporate Governance and Nominating Committee also assesses diversity through its annual assessment of Board structure and composition and annual Board and committee performance self-assessment process.

We believe that fostering Board diversity best serves the needs of the Company and the interests of its stockholders, and it is one of the many factors considered when identifying individuals for Board membership.

We believe that diversity with respect to gender, ethnicity, tenure, experience and expertise is important to provide both fresh perspectives and deep experience and knowledge of the Company.

When vacancies develop, the Corporate Governance and Nominating Committee solicits input regarding potential new candidates from a variety of sources, including existing directors and senior management.

From time to time, we have used an executive search firm in search of candidates that have diversity in experience, skills and perspective.

Through these and other means, the Board has continued to refresh the Board by adding directors who bring a sufficient range of different perspectives, generate appropriate challenge and discussion, and fulfill its oversight responsibilities to foster significant value creation for our stockholders.

The Committee evaluates potential candidates based on their background, experiences and qualifications and also arranges personal interviews of qualified candidates by one or more committee members, other Board members and senior management.

Stockholder Recommendations for Potential Director Nominees

Nominations of persons for election to the Board at the annual meeting may also be made by any stockholder entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in our bylaws.

Such nominations by any stockholder shall be made pursuant to timely notice in writing to the Secretary.

To be timely, a stockholder’s notice shall be delivered to the Secretary at our principal executive offices not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting;

provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act, requires our executive officers, directors, and “beneficial owners” of more than 10% of our common stock to file stock ownership reports and reports of changes in ownership with the SEC.

Based on a review of those reports and written representations from the reporting persons, we believe that during 2022, all transactions were reported on a timely basis except for a late Form 3 by R.

Hugh Kinsman reporting his initial ownership and a late Form 4 (filed on Form 5) by James A.

Mish reporting the withholding of shares to satisfy tax liability upon the vesting of restricted stock.

Code of Ethics

1 unchanged sentence

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

Seneca Street, Suite 507, Buffalo, New York 14204.

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 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.

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.

Executive Compensation

Compensation Discussion and Analysis

This compensation discussion and analysis describes the material elements of compensation awarded to, earned by, or paid to each of our named executive officers, whom we refer to as our “NEOs,” during 2022 and describes our policies and decisions made with respect to the information contained in the following tables, related footnotes and narrative for 2022.

The NEOs are identified below under “Our Named Executive Officers.” In this compensation discussion and analysis, we also describe various actions regarding NEO compensation taken before or after 2022 when we believe it enhances the understanding of our executive compensation program.

Our Named Executive Officers

Chief Executive Officer

Chief Financial Officer

President of Tobacco Division

John Franzino

Chief Administrative Officer

2022 Financial Highlights

2022 was a strong year for us, as we shifted our business to commercial activity, positioned ourselves to meet and out-perform our long-term strategic financial metrics, and accomplished acquisitions intended to strengthen our position in key markets.

In April, we commenced a successful Chicago-area pilot program for our VLN ® reduced nicotine content tobacco cigarettes with our partner, Circle K, after which we leveraged the pilot results into additional consumer market testing, allowing us to expand distribution to both Illinois and Colorado.

In addition to this, our success in those markets has led to the announcement of plans for our launch in Arizona, New Mexico and Utah.

We acquired GVB Biopharma in May 2022, which we believe to be the North American leader in cannabinoid supply by volume, commencing revenue

operations in our hemp/cannabis business unit and adding a comprehensive CDMO capability.

This acquisition expanded our vertically integrated supply chain capabilities from receptor science to finished white label goods.

We remain confident in the prospect of a robust financial performance in 2023, and intend to achieve such goals, in part, by accelerating the VLN ® launch with key national distribution agreements, such that we anticipate selling VLN ® in up to eighteen (18) states, representing in excess of 50% of the addressable combustible tobacco cigarette market in the U.S.

prior to year-end 2023.

We also anticipate scaling GVB revenue and gross margin to achieve cash-positive operating results in 2023, as well as the ability to expand capital to fuel growth through our new $21.1M lending facility.

Our Executive Compensation Philosophy and Design

Our executive compensation programs are driven by a pay-for-performance philosophy that is directly linked to our business strategies and company-wide goals.

Prior to the FDA’s authorization of the marketing of our VLN ® King and VLN ® Menthol King reduced nicotine content cigarettes as modified risk tobacco products (MRTPs) in December 2021 and our May 2022 acquisition of GVB Biopharma, our business had historically been focused on developing products through research and development and securing regulatory approval to market and sell such products.

While we had limited revenues through the sale of SPECTRUM ® research cigarettes and contract manufacturing of cigarettes and filtered cigars, we believe the primary driver of stockholder value was derived from the success of our rollout of our new our VLN ® King and VLN ® Menthol King reduced nicotine content cigarettes as well as the development of disruptive, plant-based solutions for the life science, consumer product, and pharmaceutical markets that we license to third parties and/or manufacture and sell.

Accordingly, our compensation program has historically focused less on objective financial metrics typically applicable to other companies.

As our Company transitions from a research and development based platform to a revenue generating business model, the Compensation Committee, after thoughtful deliberations, intends to update the compensation program for 2023 for further alignment with long-term interests of stockholders.

Specifically, metrics to assess performance of the named executive officers will be based on more objective quantitative metrics including but not limited to revenue and other financial metrics.

Our Pay for Performance Philosophy

Our Compensation Committee seeks to attract and retain executive officers who have the experience, temperament, talents and convictions to drive our future success.

Our compensation programs are designed to:

● motivate our executives by providing compensation that is directly linked to both our short- and long-term performance;

● tightly align their incentives and economic interests with our stockholders to build long-term stockholder value by delivering a substantial portion of our executive officer’s compensation through equity awards;

● ensure that our executive compensation program is designed and administered in a manner that appropriately manages risk to safeguard the interests of our stockholders’, as well as our employees’.

We have designed our executive compensation program with specific features to help achieve these goals and to promote related objectives that are important to our long-term success.

Roles and Responsibilities

Our Compensation Committee has primary responsibility for, among other things, determining our compensation philosophy, evaluating the performance of our executive officers, setting the compensation and other benefits of our executive officers, overseeing the Company’s response to the outcome of the advisory votes of stockholders on executive compensation (as discussed below), assessing the relative enterprise risk of our compensation program and administering our incentive compensation plans.

Our Board, our Compensation Committee and our CEO each play a role in setting the compensation of our NEOs.

Our Board appoints the members of our Compensation Committee and delegates to the Compensation Committee the direct responsibility for overseeing the design and administration of our executive compensation program.

Our Board and our Compensation Committee value the opinions of our stockholders and are committed to ongoing engagement with our stockholders on executive compensation practices.

As discussed below, the Compensation Committee specifically considers the results from the annual stockholder advisory vote on executive compensation in making compensation decisions.

In February 2022, our Compensation Committee engaged the governance consulting firm of Morrow Sodali to assist with Say-on-Pay and the election of new directors.

In August 2022, our Compensation Committee engaged the compensation consulting firm of Pay Governance to assist the Committee in developing a peer group to benchmark executive compensation against other biotechnology, pharmaceutical and life science companies with similar revenues and market capitalizations.

Pay Governance then reviewed our current executive compensation program and made recommendations with respect to future compensation decisions.

To assure independence, the Compensation Committee pre-approves all other work unrelated to executive compensation proposed to be provided by any compensation consultant it engages and considers all factors relevant to their independence from management, including but not limited to the following factors:

● The provision of other services that the consultant provides to us;

● The amount of fees received from us as a percentage of the consultant’s total revenue;

● The consultant’s policies and procedures designed to prevent conflicts of interest;

● Business or personal relationships of the consultant with our Compensation Committee members;

● The amount of our stock owned by the consultant;

● Business or personal relationships of the consultant with our executive officers.

Our Say-on-Pay Vote;

Stockholder Outreach

The Board and Compensation Committee are committed to soliciting feedback to inform the Board’s decisions and guide our compensation program.

Our stockholder outreach in 2021, 2022 and into 2023 provided the Board with valuable insights into our stockholders’ perspectives on our executive compensation.

We are committed to sound compensation practices and will continue to enhance our compensation program as a result of stockholder input.

We have followed a consistent approach to the design of our executive compensation program for many years.

The history of our Say-on-Pay results before 2020 generally demonstrated stockholder support for our program over several years.

At our 2022 Annual Meeting of Stockholders, approximately 10.5% of our outstanding shares voted against our 2022 executive compensation resolution.

As noted below, we conducted a Board-driven stockholder outreach and engaged with our top holders to better understand their concerns.

Following the 2022 Annual Meeting of Stockholders, the Compensation Committee commenced a stockholder outreach program.

This outreach focused on better understanding the perspectives of our stockholders with regard to our executive compensation program structures and best practices in aligning executive compensation to the interests of our stockholders.

The executive compensation outreach initiative is in addition to our regular ongoing stockholder engagement.

As part of our ongoing outreach efforts to inform our corporate policies, the Company proactively reached out to filing institutional stockholders to discuss the Company’s executive compensation philosophy, goals and plans and to obtain an understanding of our stockholders’ concerns in advance of this filing.

Approximately 19.4% of the Company’s outstanding shares of common stock were owned by filing institutional stockholders.

By The Numbers:

Stockholder Engagement

We contacted 15 of our top institutional stockholders, representing approximately 10% of our total shares outstanding and approximately 53% of our shares held by institutional stockholders, with invitations to meet with our management and directors.

These institutional stockholders represent the majority of our institutional investors at this time.

Our Independent Board Chair and Chair of our Compensation Committee participated in all of the stockholder engagement meetings.

Feedback from Stockholder Engagement

We heard a range of perspectives on our executive compensation program from stockholders during our outreach, all of which were considered by our Compensation Committee and the Board.

Our stockholders expressed a continuing desire to understand the specifics behind our executive compensation plan design including, rationale, key performance indicators, and qualitative metrics that align to both the short, mid and long-term strategy of the Company.

What We Heard

How We Are Responding

Desire to see expanded disclosure of our compensation philosophy, design and rationale.

We have greatly expanded our Compensation Discussion and Analysis to provide more specific details into our compensation programs and philosophy and the rationale behind our compensation decisions.

Our work to solicit stockholder feedback into our executive compensation program continues into the future.

Following each annual meeting of stockholders, our Compensation Committee will review the Say-on-Pay results and engage with our stockholders to solicit feedback on our compensation program.

Our Compensation Committee will use the stockholder feedback to inform and guide its compensation decisions for the following year.

Our annual compensation cycle is generally as follows:

Elements of Executive Compensation

Our compensation program consists of the following three primary elements:

(1) Base Salary.

We provide a base salary for each NEO based on their job description and scope of responsibilities of that position.

We target the base salary for each NEO at the 50 th percentile range of our peer group (discussed below) for each position.

Our philosophy is to have a significant portion of each NEO’s total cash compensation “at-risk.”

(2) Annual Cash Bonus Opportunity .

The annual cash bonus is our primary short-term performance incentive.

Our NEO target bonus awards range from 75% to 150% of their base pay, representing the “at risk” portion of the NEO’s total cash compensation.

The Compensation Committee aims to set performance goals for cash bonuses that align pay with performance.

During 2022 and in prior years, our Compensation Committee prioritized the accomplishment of critical strategic and operational milestones.

With the Company entering into its revenue phase with the roll-out of its VLN cigarettes and acquisition of GVB Biopharma, the Compensation Committee expects to focus performance measures in 2023 and in the future on more objective quantitative metrics including but not limited to revenue and other financial metrics.

(3) Long-Term Incentive Awards .

Long-term incentive awards are our primary retention tool and serve to provide for the continuity of key executives with incentives that align our executives’ interests with those of our stockholders’.

For 2021 and 2022, these long-term incentive awards were generally comprised of restricted stock units with multi-year vesting, subject to continued service with us.

Beginning in 2023, we expect to enhance our Long-Term Incentive Program by introducing performance-based equity awards to the award mix.

We endeavor to set total compensation, which consists of base salary, annual cash bonuses and the expected value of long-term incentives, for target performance levels in range of the expected median of peer companies, depending on various factors including the experience level of the individual executive and competitive market conditions.

We use our peer group median compensation values to help determine the optimal compensation mix and as a general guide to determine salary recommendations, target annual cash bonus opportunity, and target annual long-term incentive value for each executive position.

Compensation for top executives can be highly variable due to heavy weighting toward incentive compensation rather than fixed components.

With the assistance of Pay Governance, during late 2022, our Compensation Committee established a peer group consisting primarily of similarly situated biotechnology, pharmaceutical and life science companies with revenues and a market capitalization similar to ours.

The peer group established consists of the following companies:

Achieve Life Sciences

AquaBounty Technologies

Avid Bioservices

Charlotte’s Web Holdings

ChromaDex Corporation

GreenLight Biosciences

Jushi Holdings

Laird Superfood

Landec Corporation

Pear Therapeutics

Societal CDMO

The Valens Company

TILT Holdings

Village Farms International

Zynerba Pharmaceuticals

We pay our NEOs a base salary to compensate them for services rendered and to provide them with a steady source of income for living expenses throughout the year.

We have historically determined the base salary of each NEO based on the job description and scope of responsibilities of that position and assign each position a target annual salary equal to the base salary in the 50 th percentile range of the Survey Group.

After a base salary is set initially, we have historically provided a base salary increase of 0% - 5% annually depending on the performance of the NEO during the prior year and taking into account any other factors, such as recent salary increases, bonuses or other compensation.

Every two to three years, we generally reviewed each NEO’s salary against a peer group of similarly situated companies and made salary increases to the extent necessary to maintain a base salary in the 50 th percentile range of such group.

In 2023 and into the future, we expect to target annual salary equal to the base salary in the 50th percentile range of the peer group described above.

For 2022, we took the following actions with respect to the base salaries of our NEOs:

● James Mish’s base salary increased from $450,000 to $472,500, a 4% increase.

● John Franzino’s base salary increased from $315,000 to $330,750, a 5% increase.

● John Miller joined the Company in 2022 with a base salary of $425,000.

Hugh Kinsman joined the Company in 2022 with a base salary of $290,000.

In February 2023, our Compensation Committee reviewed the 2022 base salaries our NEOs in connection with the establishment of the new peer group.

Other than Mr.

Kinsman, no other NEO received a base salary increase because our NEOs base salaries were generally within the 50th percentile range of the peer group described above for their respective positions.

Hugh Kinsman’s salary was increased based on his individual performance and in order to bring his salary closer to the 50 th percentile range for CFO’s in the established peer group.

The base salaries of each of our NEOs for 2023 is as follows:

2023 Base Salary

Percentage Increase Over

2022 Base Salary

John Franzino

2022 Annual Cash Bonus Opportunity

In general, our NEO target bonus awards range from 75% - 150% of an NEOs base salary depending on their position.

The Compensation Committee aims to set performance goals for cash bonuses that align pay with performance.

A number of factors are considered when calibrating goals, including the Company’s business strategies and company-wide goals.

Prior to entering into its revenue phase, our Compensation Committee believed that the primary driver of stockholder value was derived from the development of disruptive, plant-based solutions for the life science, consumer product, and pharmaceutical markets that we license to third parties and/or manufacture and sell.

Accordingly, our compensation program has historically focused less on objective metrics typically applicable to other companies.

In 2023, with the Company entering into its revenue phase with the roll-out of its VLN ® cigarettes and acquisition of GVB Biopharma, the Compensation Committee intends to introduce quantitative performance measures such as revenue and other financial metrics for a direct link to executive pay.

For 2022, we did not weight individual goals or achievements in setting our potential cash bonus awards because our Compensation Committee desired to maintain flexibility in awarding cash bonuses to our NEOs for their performance during the year and to provide flexibility to our NEOs to advance our strategic position or goals as a company in one or more areas opportunistically.

In addition, our cash bonus awards included an element of discretion as relegated to the Compensation Committee in order to compensate NEOs that performed extraordinarily well and incentivize and motivate our NEOs.

For 2022, our Compensation Committee challenged our NEOs with a number of strategic goals and objectives for 2022, including but not limited to:

● Launch of VLN ® reduced nicotine content cigarettes internationally;

● Launch of VLN ® reduced nicotine content cigarettes nationally following the successful pilot launch;

● Increase gross profit for cigar and cigarette contract manufacturing operations by $1,000,000;

● Advance VLN ® through securing strategic partnerships;

● Increase regulatory and legislative advocacy for VLN ® , as well as within the hemp and cannabis business units;

● Develop intellectual property for next generation VLN ® blends;

● Develop merger & acquisition strategy and business plan for hemp cannabis division;

● Develop innovative intellectual property for hemp cannabis, tobacco and hops products;

● Increase cash position though capital markets activities;

● Enhance operational finance process/reports;

● Improve human resources and IT functions and processes;

● Establish compensation benchmarking.

At the end of the year, the Compensation Committee reviews each NEO’s individual performance objectives and goals against their performance during the year, which performance is rated by both the individual NEO through a self-assessment as well as a review of performance by the CEO (for NEOs other than himself) and the Compensation Committee.

The target cash bonus amounts (and percentage of base salary) and the actual cash bonuses earned by our NEOs for 2022 are as follows:

Target Cash Bonus (and percentage of Base Salary)

Actual Cash Bonus Earned

Bonus Earned as a % of Target

$708,750 (150%)

John Franzino

$248,062 (75%)

$217,500 (75%)

$318,750 (75%)

2022 Long-Term Incentive Program Awards

Our Compensation Committee strongly believes that using equity awards with multi-year vesting periods reinforces the alignment of the interests of executives with those of stockholders and assists us to retain our executives.

We maintain our omnibus incentive plan for the purpose of granting various types of equity awards, including restricted stock units, to provide incentives for management to increase stockholder value.

In addition, the multi-year nature of the vesting periods encourages executives to stay with the Company, which is important to us in light of the competitive labor market for talented executives.

Our Compensation Committee has authority to determine eligible participants, the types of awards and the terms and conditions of awards.

As part of their total compensation package, each NEO is assigned an annual dollar value target for these long-term incentive plan awards that is adjusted up or down depending on the individual’s and the Company’s actual performance during the prior year.

For 2021 and 2022, NEOs were generally awarded restricted stock units with a three-year vesting period, subject to continued service with us.

The number of restricted stock units for each award is determined by converting the dollar value into a number of shares based on our average closing stock price during the six months preceding the award date.

The Compensation Committee expects to continue this practice in 2023.

During 2022, Mr.

Miller received an award of 750,000 performance shares, with one-third of such shares vesting annually in 2023, 2024 and 2025 provided that our tobacco business plan revenue objectives and other performance requirements are satisfied.

The performance shares were issued to incentivize Mr.

Miller to successfully roll-out our VLN ® pilot program.

For 2022, our Compensation Committee determined that Mr.

Miller earned 150,000 of the initial one-third tranche of such shares in light of his performance in consulting and then ultimately leading our VLN ® roll-out strategy and business plan.

In addition, during 2022, Mr.

Mish received a special equity award of 950,000 restricted stock units vesting annually over a two-year period plus his normal three-year vesting award.

The special equity award was issued to Mr.

Mish as a catch-up issuance from 2020 and 2021.

The long-term incentive plan awards are used to motivate and retain employees as well as promote employee stock ownership.

We do not issue the shares until the vesting conditions have been satisfied.

We currently do not use stock options as part of our compensation package.

Since we grant fewer shares with these types of awards than we would have granted in the form of options, stock grants help us manage dilution that we would otherwise experience in granting options.

As we continue to grow, our Compensation Committee is committed to exploring ways to further and more directly tie future long-term incentive plan award vesting to performance and the achievement of future company and individual goals.

For 2022, we awarded our NEOs the following RSUs:

RSU Grant Value

Number of Shares

John Franzino

John Miller (2)

Hugh Kinsman (3)

(1) Comprises a one-time RSU grant of 950,000 vesting 50% over two (2) years and an annual grant of 431,730 vesting over three (3) years.

(2) Represents performance shares, as discussed above.

(3) Due to the timing of his appointment, Mr.

Kinsman was not awarded a long-term equity incentive award during 2022.

S UMMARY COMPENSATION TABLE FOR 2022

The following table summarizes the compensation of our NEOs for 2022.

The amounts reported for stock awards may not represent the amounts that the NEOs will actually realize from the awards.

Whether, and to what extent, a named executive officer realizes value will depend on our performance, stock price and continued employment.

Name and Principal Position

Chief Executive Officer

Hugh Kinsman (4)

Chief Financial Officer

President of Tobacco

John Franzino

Chief Administrative Officer

Former President and Chief Operating Officer

Richard Fitzgerald

Former Chief Financial Officer

(1) Represents the grant date fair value computed in accordance with FASB ASC 718.

The assumptions used for the option awards are set forth in Note 15 “Equity Based Compensation” of the Notes to the Consolidated Financial Statements contained in Item 8 of this report.

(2) The fair value of each restricted stock unit is based on the stock price of the Company’s common stock on the grant date of the award.

(3) All Other Compensation consists of the following:

Contributions

John Franzino

Richard Fitzgerald

* Includes Company paid premiums for health insurance, dental insurance, group-term life insurance, and long-term disability insurance.

Kinsman joined the Company in May 2022.

Miller joined the Company in May 2022.

CEO Pay Ratio

We have estimated the ratio between our 2022 Chief Executive Officer’s total compensation and the median annual total compensation of all employees (except the Chief Executive Officer).

In searching for the median employee we considered taxable compensation totals in 2022.

We identified the “Median Employee” based on the taxable compensation of all active full-time and part-time employees employed by us on December 31, 2022 (annualizing salaries for hires made mid-year), then we calculated the Median Employee’s compensation under the Summary Compensation Table rules.

Our Chief Executive Officer had annual total compensation in 2022 of $4,011,094 and our Median Employee had annual total compensation of $55,150.

Therefore, we estimate that our Chief Executive Officer’s annual total compensation in 2022 is 73 times that of the median of the annual total compensation of all of our employees.

Grants of Plan-Based Awards

GRANTS OF PLAN BASED AWARDS DURING 2022

As described above in the Compensation Discussion and Analysis, we granted restricted stock units to our NEOs in 2022.

The following table sets forth information regarding all such awards:

Date of Board

Awards ($) (2)

John Franzino

Richard Fitzgerald

(1) Represents RSUs which vest in equal increments over three years on March 21, 2023, 2024 and 2025, subject to continued service.

(2) Represents RSUs which vest in equal increments over two years on March 21, 2023 and 2024, subject to continued service.

(3) Represent an award of 750,000 performance shares, with one-third of such shares vesting on each of May 1, 2023, 2024 and 2025 provided that our tobacco business plan revenue objectives and other performance requirements are satisfied at such times

Outstanding Equity Awards

The following table sets forth information about outstanding equity awards held on December 31, 2022 by our NEOs.

Equity Incentive

Payout Value of

Equity Incentive Plan

Restricted Stock

Unearned Shares,

Units or Other

Restricted Stock Units or

Unexercisable

Other Rights That Have

Have Not Vested

Not Vested (#)

John Franzino

Richard Fitzgerald

(1) Represents RSUs which vest in equal increments over three years on March 21, 2023, 2024 and 2025.

(2) Represents RSUs which vest in equal increments over two years on March 21, 2023 and 2024.

(3) Represents RSUs which vest in equal increments over two years on March 19, 2023 and 2024.

(4) Represents performance shares, with one-third of such shares vesting on each of May 1, 2023, 2024 and 2025 provided that our tobacco business plan revenue objectives and other performance requirements are satisfied at such times.

(5) The amounts in this column are based on the closing stock price of the Company’s common stock on December 31, 2022.

These amounts do not reflect the actual amounts that may be realized.

Option Exercises and Stock Vested in 2022

Option Awards

John Franzino

Richard Fitzgerald

(1) The value realized on vesting is based on the closing stock price of the Company’s common stock on the date of vesting or date of exercise.

The amount does not reflect the actual amount that may be realized.

Pay for Performance

Value of Initial

Actually Paid

Table Total for

Actually Paid to

(1) Consists of compensation payable to our CEO, James A.

(2) Total summary compensation amount is adjusted as (i) less total equity compensation, (ii) plus the fair value of unvested shares as of December 31, 2022 of current year equity awards, (iii) plus or minus the change in fair value of unvested shares as of December 31, 2022 of prior year equity awards, (iv) plus or minus the change in fair value of vested shares during 2022 of prior year equity awards as of the vesting date, (v) plus the fair value of equity awards granted and vested in the current year, as of the vesting date.

(3) For 2022, consists of compensation payable to John Franzino, Michael J.

Hugh Kinsman, John J.

Miller and Richard Fitzgerald.

For 2021, consists of compensation payable to Richard Fitzgerald, John Franzino and Michael J.

Employment Agreements with Named Executive Officers

We have entered into employment agreements with each of our NEOs as follows:

Pursuant to the employment agreement entered into between James A.

Mish and the Company on May 22, 2020, Mr.

Mish will earn an initial base salary of $450,000 (which has been increased to $491,400) and shall be eligible for future cash bonuses and awards of performance units as a percentage of base salary based on the achievement of performance targets to be established by the Company.

As a one-time inducement, the Company agreed to an award of 150,000 RSUs, vesting on the one-year anniversary of the date of grant, subject to continued service.

Mish’s employment is terminated by the Company without Cause or by such executive for Good Reason (as such terms are defined in the employment agreement), then he will be entitled to a severance benefit in the form of (i) a continuation of his then-base salary for a period ending on the earlier of 12 months or the remaining term of the employment agreement (plus continuing health care coverage during such period) and (ii) the payment of a pro-rated bonus award.

Hugh Kinsman.

Pursuant to the employment agreement entered into between R.

High Kinsman and the Company on June 15, 2022, Mr.

Kinsman will earn an initial base salary of $290,000 (which has been increased to $301,600) and he shall be eligible for future cash bonuses and awards of performance units as a percentage of base salary based on the achievement of performance targets to be established by the Company.

Kinsman’s employment is terminated by the Company without Cause (as defined in the employment agreement), then he will be entitled to a severance benefit in the

form of a continuation of his then-base salary for a period of 12 months (plus continuing health care coverage during such period).

John Franzino.

Pursuant to the employment agreement entered into between John Franzino and the Company dated April 8, 2020, Mr.

Franzino earned an initial base salary of $250,000 (which has been increased to $343,980) and shall be eligible for future cash bonuses and equity awards.

As a one-time inducement, the Company agreed to an award of 100,000 RSUs, with 50,000 RSUs vesting on the one-year anniversary of the date of grant and 50,000 RSUs vesting on the two-year anniversary of the grant date, subject to continued service.

Franzino’s employment is terminated by the Company without Cause or by such executive for Good Reason (as such terms are defined in the employment agreement), then he will be entitled to a severance benefit in the form of (i) a continuation of his then-base salary for a period of 12 months and (ii) the payment of any earned but unpaid bonus award.

The employment agreement of Mr.

Franzino also provides that in the event of a change in control (as defined in his employment agreement) of our Company, then during the three (3)-year period following such change in control if certain triggering events occur, such as if he is terminated other than for Cause (as defined in his employment agreement), death or disability, or if his responsibilities are diminished after the change in control as compared to his responsibilities prior to the change in control, or if his base salary or benefits are reduced, or he is required to relocate more than twenty-five (25) miles from his then current place of employment, then in any such events he will have the option, exercisable within ninety (90) days of the occurrence of such an event, to resign his employment with us, in which case he will be entitled to receive:

(a) his base salary for twelve (12) months thereafter;

and (b) the immediate vesting of all options and/or restricted stock grants previously granted or to be granted to him.

John Miller .

We entered into an employment agreement with Mr.

Miller for an initial term until May 2025 pursuant to which he earns an annual base salary of approximately $425,000 and previously received an award of 750,000 performance shares, with one-third of such shares vesting on each of May 1, 2023, 2024 and 2025 provided that the Company’s tobacco business plan revenue objectives and other performance requirements are satisfied at such times.

The performance shares shall automatically vest upon the occurrence of change in control of the Company or similar event or in the event Mr.

Miller terminates his employment for “Good Cause”;

which means either an involuntary reduction in pay, change in reporting structure or a requirement to relocate.

Compensation on Termination of Employment

The following table illustrates the additional compensation that we estimate would be payable to each of our NEOs on termination of employment under each of the circumstances described above, assuming the termination occurred on December 31, 2022.

The amounts shown are estimates and do not necessarily reflect the actual amounts that these individuals would receive on termination of employment.

Estimated Additional Compensation Triggered by Termination of

Employment If Termination on the Last Business Day of 2022

Termination by the Company Without Cause or by the Executive for Good Reason

John Franzino

Death or Disability

John Franzino

Change of Control with Triggering Event

John Franzino

(1) Health and dental insurance payments and group-term life insurance and long-term disability insurance payments have been estimated based on current rates for a period of 12 months.

(2) The dollar amount is calculated based on the closing price of our common stock on December 31, 2022.

Compensation Committee Report

For the year ended December 31, 2022, the Compensation Committee reviewed and discussed the CD&A with our management.

Based on this review and discussion, the Compensation Committee recommended to our Board of directors that the CD&A be included in this Annual Report on Form 10-K.

Sanders, Chair

Anthony Johnson

Roger O’Brien

Compensation Committee Interlocks and Insider Participation

During the last fiscal year, no member of the Compensation Committee had a relationship with us that required disclosure under Item 404 of Regulation S-K.

During the past fiscal year, none of our executive officers served as a member of the Board of Directors or Compensation Committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who served as members of our Board of Directors or our Compensation Committee.

None of the members of our Compensation Committee is an officer or employee of our Company, nor have they ever been an officer or employee of our Company.

Director Compensation

Non-employee directors are compensated for their service on our Board as shown below.

Directors who are employees of the Company receive no additional compensation for serving as directors.

The Compensation Committee periodically reviews the compensation of our non-employee directors and considers market practices.

In February 2021, the Compensation Committee retained Korn Ferry (“KF”) to conduct an independent assessment of our director compensation versus the competitive market and the “fit” of our compensation program to our pay philosophy.

To establish the competitive market for directors, KF identified a comparator group of 17 publicly traded companies in the United States and Canada within the biotechnology and pharmaceuticals industries with median revenues of $95 million and median market capitalizations of $1.2 billion.

Based on the KF review, the Compensation Committee recommended, and the Board approved, the following director compensation for 2022:

Annual cash retainer:

Additional annual cash retainer for:

Chair of the Board

Chair of a Board Committee

Member of a Board Committee

Annual RSU award value:

During 2022, the Compensation Committee retained Pay Governance LLC (“Pay Governance”) to conduct an independent assessment of our director compensation versus a peer group that was developed (see “Compensation Discussion and Analysis – Peer Group” for a discussion of our peer group).

Based on the Pay Governance review, the Compensation Committee approved maintaining the 2022 level of non-employee director compensation for 2023.

As with many small cap companies, our stock price has been volatile historically.

For example, between January 1, 2019 and December 31, 2022, our stock price ranged from a low of $0.55 per share to a high of $6.07 per share.

In order to eliminate some of the volatility from our stock price when making equity awards, in 2020 our Compensation Committee decided to implement a policy to determine the number of RSUs to issue for annual awards by dividing the annual RSU award value approved by the Compensation Committee ($135,000) with the average closing stock price over the six months prior to the date of the award.

As a result of this policy, the grant date fair value of our RSU awards reported in our Director Compensation table below will vary (up or down) from the annual RSU award value approved by the Compensation Committee depending on the closing market price on the date of the award and the average market price over the prior six months.

Our Compensation Committee expects to adhere to this policy for director RSU awards made during 2023 and will evaluate the policy annually.

NON-EMPLOYEE DIRECTOR COMPENSATION FOR 2022

Anthony Johnson

Michael Koganov

(1) The fair value of each restricted stock unit is based on the stock price of the Company’s common stock on the grant date of the award.

Salhany was appointed as a director on September 7, 2022 and received pro rata compensation for service during 2022.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth information regarding the beneficial ownership of our common stock as of March 1, 2023, by (i) each of our current directors and executive officers, and (ii) all our current directors and executive officers as a group.

To our knowledge, no person owns more than 5% of our common stock, Derivative securities exercisable or convertible into shares of our common stock within sixty (60) days of March 1, 2023 are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding securities but are not deemed outstanding for computing the percentage of any other person.

Beneficial ownership representing less than 1% is denoted with an asterisk (*).

The address of named beneficial owners that are officers and/or directors of the Company is:

c/o 22nd Century Group, Inc., 500 Seneca Street, Suite 507, Buffalo, New York 14204.

The following table is based upon information supplied by officers and directors, and with respect to 5% or greater stockholders who are not officers or directors, information filed with the SEC.

Name of Beneficial Owner

Officers and Directors:

John Franzino (3)

John Miller (4)

Sullivan (5) (7)

Sanders (6) (7)

Michael Koganov (7)

Anthony Johnson (7)

Lucille Salhany(8)

All directors, director nominees and executive officers as a group (11 persons) (2) - (8)

(1) Based on 215,704,036 shares of common stock issued and outstanding as of March 1, 2023.

(2) 1,681,730 restricted stock units are not included in the number of beneficially owned shares because they do not vest within 60 days of March 1, 2023.

(3) 265,884 restricted stock units are not included in the number of beneficially owned shares because they do not vest within 60 days of March 1, 2023.

(4) Excludes 750,000 performance shares, with one-third of such shares vesting on each of May 1, 2023, 2024 and 2025 provided that the Company’s tobacco business plan revenue objectives and other performance requirements are satisfied at such times.

(5) Consists of (a) 748,707 shares of common stock held directly and (b) 201,724 shares of common stock issuable upon exercise of stock options.

(6) Consists of (a) 444,344 shares of common stock held directly and (b) 151,724 shares of common stock issuable upon exercise of stock options.

(7) Includes 51,808 restricted stock units vesting on March 21, 2023, subject to continued service.

(8) Consists of restricted stock units vesting on March 21, 2023, subject to continued service.

Certain Relationships and Related Transactions, and Director Independence.

Related Party Transactions

Our policy is to enter into transactions with related persons on terms that, on the whole, are no less favorable to us than those available from unaffiliated third parties.

Our Board of Directors has adopted written policies and procedures regarding related person transactions.

For purposes of these policies and procedures:

● A “related person” means any of our directors, executive officers, nominees for director, holder of 5% or more of our common stock or any of their immediate family members;

● A “related person transaction” generally is a transaction (including any indebtedness or a guarantee of indebtedness) in which we were or are to be a participant and the amount involved exceeds $120,000 and in which a related person had or will have a direct or indirect material interest.

Each of our executive officers, directors or nominees for director is required to disclose to our Audit Committee certain information relating to related person transactions for review, approval or ratification by our Audit Committee.

In making a determination about approval or ratification of a related person transaction, our Audit Committee will consider the information provided regarding the related person transaction and whether consummation of the transaction is believed by the Audit Committee to be in our best interests.

Our Audit Committee may take into account the effect of a director’s related person transaction on the director’s status as in independent member of our Board of Directors and eligibility to serve on committees of our Board under SEC rules and the listing standards of the Nasdaq Stock Market.

Any related person transaction must be disclosed to our full Board of Directors.

There were no related party transactions in 2022 and 2021.

Independent Directors

Our Board of Directors has determined that Anthony Johnson, Dr.

Michael Koganov, Roger D.

O’Brien, Lucille S.

Salhany, Richard M.

Sanders and Nora B.

Sullivan are “independent” as defined by applicable Nasdaq Stock Market listing standards.

The Board annually reviews all business and other relationships of directors and determines whether directors meet these categorical independence tests.

In addition, each member of our Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee is “independent” as defined by applicable Nasdaq Stock Market listing standards and applicable SEC rules for service on such committee.

Principal Accounting Fees and Services.

The following table shows the fees billed to us for the audits and other services provided by Freed Maxick CPAs, P.C.

(“Freed”), our independent registered certified public accounting firm, for the fiscal years ended December 31, 2022 and 2021, respectively.

Audit-related fees

All other fees

Audit Fees consist of the aggregate fees billed for professional services rendered for the audit of our consolidated annual financial statements and the quarterly reviews of financial statements and for any other services that are normally provided by our independent registered public accountants in connection with our statutory and regulatory filings or engagements.

Audit Committee Policies and Procedures For Pre-Approval of Independent Auditor Services

The Audit Committee, in accordance with its charter, must pre-approve all non-audit services provided by our independent registered public accountants.

The Audit Committee generally pre-approves specified series in the defined categories of audit services, audit related services and tax services up to specified amounts.

Pre-approval may also be given as part of our Audit Committee’s approval of the scope of the engagement of the independent registered public accountants or on an individual, explicit case-by-case basis before the independent auditor is engaged to provide each service.

The Audit Committee has considered whether the provision of the services not related to the audit of the financial statements acknowledged in the table above was compatible with maintaining the independence of Freed and is of the opinion that the provision of these services was compatible with maintaining Freed’s independence.

Exhibits and Financial Statement Schedules.

7 unchanged sentences

Notes to Consolidated Financial Statements

(b) Financial Statement Schedules

Form 10-K Summary.

(a) (2) Financial Statement Schedules

Financial statement schedules have been omitted because they are not required.

Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index below following the Financial Statements, which are incorporated herein by this reference.

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

Opinion on the Financial Statements

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.

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

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.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits 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

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.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

2 unchanged sentences

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

Business acquisition

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.

As discussed in Note 2 of the consolidated financial statements, during the year ended December 31, 2022, the Company completed a business acquisition of GVB Biopharma (GVB) for an aggregate purchase price of approximately $53 million.

As discussed in Note 1 of the consolidated financial statements, the Company applies the acquisition method of accounting for business combinations.

Under this method, identifiable assets acquired, liabilities assumed, and consideration transferred are measured at their acquisition-date fair value.

Any purchase price in excess of the net assets is recorded as goodwill.

As discussed in Note 2 to the consolidated financial statements, various assumptions that require management’s judgement were used to determine the fair value of the assets acquired.

The judgments made in the determination of the estimated fair values assigned to the assets acquired and the liabilities assumed, as well as the estimated useful life of certain assets and liabilities, can materially impact the financial statements in the current period, as well as periods after acquisition.

Due to the subjectivity involved we identified the fair value estimate of assets acquired as a critical audit matter, which required a higher degree of auditor judgement as well as the use of professionals with specialized skill and knowledge.

How the Critical Audit Matter Was Addressed in the Audit

Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

The primary procedures we performed include:

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

obtaining an understanding of the process and implemented controls as it relates to the determination of the fair value of assets acquired;

identifying key inputs and assumptions used by management to estimate the fair values of the assets purchased;

and testing the completeness and accuracy of source information used, mathematical accuracy of management’s calculations, and reviewing assumptions for reasonableness.

Impairment tests for indefinite-lived intangible assets and goodwill

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)

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.

As discussed in Note 1 of the consolidated financial statements, indefinite-lived intangible assets and goodwill are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that it is more likely than not that an impairment exists.

As discussed in Notes 6 and 19, the GVB fire, as well as shifts in strategy and changes in expected cash flows resulted in changes in circumstances captured in the annual impairment tests of the tradename and goodwill.

As discussed in Notes 1 and 8 to the consolidated financial statements, various assumptions that require management’s judgement were used to determine the fair value of the tradename and goodwill.

The judgments made in the determination of the estimated fair values assigned to the asset and reporting unit can materially impact the financial statements.

Due to the subjectivity involved we identified the fair value estimate of the assets and reporting unit tested for impairment as a critical audit matter, which required a higher degree of auditor judgement as well as the use of professionals with specialized skill and knowledge.

How the Critical Audit Matter Was Addressed in the Audit

Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

The primary procedures we performed include:

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.

obtaining an understanding of the process and implemented controls as it relates to management’s impairment analysis;

identifying key inputs and assumptions used by management to estimate the fair values;

and testing the completeness and accuracy of source information used, mathematical accuracy of management’s calculations, and reviewing assumptions for reasonableness.

/s/ Freed Maxick, CPAs, P.C.

5 unchanged sentences

CONSOLIDATED BALANCE SHEETS

($ in thousands, except per-share data)

(amounts in thousands, except share and per-share data)

Current assets:

2 unchanged sentences

Accounts receivable, net

Inventory, net

Prepaid expenses and other assets

Insurance recoveries

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net

Operating leases right-of-use assets, net

Operating lease right-of-use assets, net

Intangible assets, net

1 unchanged sentence

Current liabilities:

Notes payable

Notes and loans payable - current

Operating lease obligations

3 unchanged sentences

Accrued excise taxes and fees

Accrued severance

Deferred income

Other current liabilities

Total current liabilities

Long-term liabilities:

Notes and loans payable

Operating lease obligations

Severance obligations

Other long-term liabilities

Total liabilities

7 unchanged sentences

Capital in excess of par value

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Accumulated deficit

5 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

($ in thousands, except per-share data)

Sale of products, net

Cost of goods sold (exclusive of depreciation shown separately below):

Gross profit (loss)

(amounts in thousands, except per-share data)

Revenues, net

Cost of goods sold

Operating expenses:

Research and development

Research and development - MRTP

Sales, general and administrative

Impairment of intangible assets

Research and development

Other operating expense, net

Total operating expenses

1 unchanged sentence

Other income (expense):

Unrealized gain (loss) on investments

Impairment of Panacea investment

Gain on Panacea investment conversion

Realized gain (loss) on short-term investment securities

Litigation settlement

Gain on the sale of property, plant and equipment

Unrealized loss on investments

Realized (loss) gain on Panacea investment

Realized loss on short-term investment securities

Other income, net

Interest income, net

Interest expense

Total other income (expense)

Total other expense

Loss before income taxes

Other comprehensive income (loss):

Unrealized gain (loss) on short-term investment securities

Reclassification of (gain) loss to net loss

Other comprehensive income (loss)

Comprehensive loss

(Benefit) provision for income taxes

Net loss per common share - basic and diluted

Weighted average common shares outstanding - basic and diluted (in thousands)

Other comprehensive loss:

Unrealized loss on short-term investment securities

Foreign currency translation

Reclassification of realized losses to net loss

Other comprehensive income (loss)

Comprehensive loss

See accompanying notes to consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

($ in thousands)

(amounts in thousands, except share amounts)

Years Ended December 31, 2022 and 2021

2 unchanged sentences

Income (Loss)

Balance at December 31, 2018

Balance at January 1, 2021

Stock issued in connection with warrant exercises

Stock issued in connection with option exercises

Stock issued in connection with RSU vesting

Equity-based compensation

Stock issued in connection with litigation expense

Stock issued in connection with Panacea investment

Unrealized gain (loss) on short-term investment securities

Reclassification of losses (gains) to net loss

Balance at December 31, 2019

Stock issued in connection with option exercises

Stock issued in connection with RSU vesting

Stock issued in connection with RSU vesting, net of shares withheld for taxes

Stock issued in connection with capital raise

Equity-based compensation

Unrealized gain (loss) on short-term investment securities

Reclassification of losses (gains) to net loss

Other comprehensive loss

Balance at December 31, 2021

Stock issued in connection with warrant exercises

Stock issued in connection with option exercises

Stock issued in connection with RSU vesting, net of shares withheld for taxes

Stock issued in connection with capital raise

Stock issued in connection with acquisition

Stock issued in connection with capital raise, net of issuance costs of 2,516

Equity-based compensation

Unrealized gain (loss) on short-term investment securities

Other comprehensive income

Balance at December 31, 2022

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

(amounts in thousands)

Cash flows from operating activities:

1 unchanged sentence

Impairment of intangible assets

Impairment of Panacea investment

Amortization and depreciation

Amortization of license fees

Amortization of ROU Asset

Unrealized (gain) loss on investment

Realized (gain) loss on short-term investment securities

Litigation settlement

Amortization of right-of-use asset

Amortization of inventory step-up

Unrealized loss on investment

GVB fire write-offs

Realized loss on short-term investment securities

Change in allowance for doubtful accounts

Gain on the sale of machinery and equipment

Gain on Panacea investment conversion

Accretion of non-cash interest expense (income)

Realized loss (gain) on Panacea investment

Accretion of non-cash interest expense (income), net

Equity-based employee compensation expense

Deferred income taxes

Inventory write-off

(Increase) decrease in assets:

Changes in operating assets and liabilities, net of acquisition:

Accounts receivable

Prepaid expenses and other assets

Increase (decrease) in liabilities:

Operating lease obligations

Accounts payable

2 unchanged sentences

Accrued excise taxes and fees

Accrued severance

Deferred income

Net cash provided by (used in) operating activities

Other liabilities

Net cash used in operating activities

Cash flows from investing activities:

2 unchanged sentences

Proceeds from the sale of machinery and equipment

Investment in Panacea

Acquisition, net of cash acquired and debt assumed

Investment in Change Agronomy Ltd.

Sales and maturities of short-term investment securities

4 unchanged sentences

Proceeds from note payable issuance

Other financing activities

Net proceeds from option exercise

Net proceeds from warrant exercise

Net proceeds from issuance of common stock

Proceeds from issuance of common stock

Payment of common stock issuance costs

Taxes paid related to net share settlement of RSUs

Proceeds from SBA loan

Repayment of SBA loan

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents - beginning of period

3 unchanged sentences

Cash paid during the period for interest

Cash paid during the period for income taxes

Non-cash transactions:

Patent and trademark additions included in accounts payable

Property, plant and equipment additions included in accounts payable

Capital expenditures incurred but not yet paid

Right-of-use assets and corresponding operating lease obligations

Patent and trademark additions included in accrued expenses

Stock issued in connection with investment

Panacea investment conversion

Stock issued in connection with acquisition

See accompanying notes to consolidated financial statements.

4 unchanged sentences

Amounts in thousands, except for share and per share data

– 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.

– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

22nd Century Group, Inc.

(together with its consolidated subsidiaries, “22 nd Century Group” or the “Company”) is a publicly traded Nevada corporation on the NASDAQ Capital Market under the symbol “XXII.” 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.

Basis of Presentation and Principles of Consolidation – The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of 22 nd Century Group and its wholly owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

As described in Note 2, on May 13, 2022, the Company acquired substantially all of the assets of GVB Biopharma’s (“GVB”) business dedicated to hemp-based cannabinoid extraction, refinement, contract manufacturing and product development, which allows the Company to leverage its expertise in receptor and plant science to develop its hemp/cannabis franchise.

As a result of the acquisition of GVB and ongoing evaluation of the Company’s strategy across our plant science and intellectual property platform, the Company reevaluated its operating and reporting segments, which was finalized during the fourth quarter of 2022.

T he Company now organizes its business into two reportable segments:

(1) Tobacco and (2) Hemp/cannabis.

This segment structure reflects the financial information and reports used by the Company’s management, specifically its Chief Operating Decision Maker (“CODM”), to make decisions regarding the Company’s business, including resource allocations and performance assessments.

This segment structure reflects the Company’s current operating focus in compliance with Accounting Standards Codification (“ASC”) 280, Segment Reporting .

As a result of the new segment reporting structure, the Company has reclassified prior year amounts to conform them to the current year presentation.

The revised segment structure and the related presentation changes did not impact consolidated net loss, earnings (loss) per share, total current assets, total assets or total stockholders’ equity.

Refer to Note 17 “Segment and Geographic Information,” for additional information on the Company’s reportable segments.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.

Actual results could differ from those estimates.

Reclassifications – As a result of the acquisition of GVB (see Note 2), the Company has revised the presentation and classification of depreciation and amortization in the Consolidated Statement of Operations and Comprehensive Loss to conform with the acquiree, as follows:

December 31, 2021

As originally

Revenues, net

Cost of goods sold

Operating expenses:

Sales, general and administrative

Research and development

Impairment of intangible assets

Other operating expenses, net

Total operating expenses

Operating loss

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.

2 unchanged sentences

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.

The resulting translation adjustments are recognized as a component of Accumulated other comprehensive loss.

Gains or losses resulting from foreign currency denominated transactions are included in Other income (expense) in the Consolidated Statement of Operations and Comprehensive Loss.

Concentration of Credit Risk – Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in financial institutions.

6 unchanged sentences

government agency bonds, U.S.

securities, and commercial paper with maturities greater than three months at the time of acquisition.

treasury securities, and commercial paper with maturities that may extend beyond 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.

1 unchanged sentence

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.

Some of the Company’s short-term investment securities are fixed-income debt instruments, and accordingly, 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.

Accounts receivable, net – 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.

The Company recorded an allowance for doubtful accounts of $ 372 and $ 0 for years ended December 31, 2022 and December 31, 2021.

Inventories – Inventories are valued at the lower of historical cost or net realizable value.

Cost is determined using an average cost method for tobacco leaf inventory and raw materials inventory.

Standard cost is primarily used for finished goods inventory.

Cost of hemp biomass consists of initial third-party acquisition costs plus analytical testing costs.

Costs of extracted and hemp oil inventory are comprised of initial acquisition cost of the biomass and all direct and indirect processing costs including labor related costs, consumables, materials, packaging supplies, utilities, facility costs, analytical testing costs, and production related depreciation.

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.

2 unchanged sentences

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 following table shows estimated useful lives of property, plant and equipment:

Classification

Estimated Useful Lives

25 to 40 years

Laboratory equipment

Land improvements

Leasehold improvements

shorter of 20 years or lease term

Manufacturing equipment

5 to 15 years

Office furniture, fixtures and equipment

3 to 10 years

Acquisitions - The Company accounts for acquisitions under the acquisition method of accounting for business combinations.

Results of operations of acquired companies are included in the Company’s results of operations as of the respective acquisition dates.

The purchase price of each acquisition is allocated to the net assets acquired based on estimates of their fair values at the date of the acquisition.

Any purchase price in excess of these net assets is recorded as goodwill.

The allocation of purchase price in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date.

All direct acquisition-related costs are expensed as incurred and are recognized in Other operating expenses, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss.

Goodwill - Goodwill represents the excess of cost over the fair value of identifiable net assets of a business acquired and is assigned to one or more reporting units.

The Company’s reporting units are the same as its reportable segments, Tobacco and Hemp/cannabis.

The Company tests its reporting unit’s goodwill for impairment at least annually as of the measurement date and between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount.

In conducting its goodwill test, the Company either performs a qualitative assessment or a quantitative assessment.

A qualitative assessment requires that the Company consider events or circumstances including, but not limited to, macro-economic conditions, market and industry conditions, cost factors, competitive environment, changes in strategy, changes in customers, changes in the Company’s stock price, results of the last impairment test, and the operational stability and the overall financial performance of the reporting units.

If, after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair values of its reporting units are greater than the carrying amounts, then the quantitative goodwill impairment test is not performed.

The Company may elect to bypass the qualitative analysis and perform a quantitative analysis.

If the qualitative assessment indicates that the quantitative analysis should be performed or if management elects to bypass a qualitative analysis to perform a quantitative analysis, the Company then evaluates goodwill for impairment by comparing the fair value of each of its reporting units to its carrying value, including the associated goodwill.

To determine the fair values, the Company uses a weighted combination of the market approach based on comparable publicly traded companies and the income approach based on estimated discounted future cash flows.

The cash flow assumptions consider historical and forecasted revenue, operating costs and other relevant factors.

The Company completed its annual goodwill impairment test as of December 1, 2022 and determined, after performing a quantitative assessment of its Hemp/cannabis reporting unit, the fair value of the Hemp/cannabis reporting unit exceeded its carrying amount.

Intangible Assets – Intangible assets recorded at fair value as a component of purchase accounting consist of purchased customer relationships and tradename.

Definite lived intangible assets related to customer relationship is amortized on an accelerated basis, which approximates the projected cash flows used to determine the fair value of the definite-lived intangible asset at the time of acquisition.

The tradename asset is considered indefinite-lived and is not amortized.

Other definite lived intangible assets are recorded at cost and consist primarily of (1) expenditures incurred with third-parties related to the processing of patent claims and trademarks with government authorities, as well as costs to acquire patent rights from third-parties, (2) license fees paid for third-party intellectual property, (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.

16 unchanged sentences

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 Company completed its annual impairment test as of December 1, 2022 of indefinite lived intangible assets and determined, after performing a quantitative assessment using the relief from royalty method, the fair value was below its carrying amount and accordingly recorded an impairment charge.

Refer to Note 6 “Goodwill and Other Intangible Assets, Net” for further details of the Company’s goodwill and other intangible assets and Note 8 “Fair Value Measurements” for further details of the inputs and assumptions utilized in managements quantitative assessment of indefinite lived intangible assets.

Leases – The Company determines if an arrangement is, or contains, a lease at inception and classifies it as operating or finance.

The Company has operating and finance leases for office and manufacturing facilities, machinery and vehicles.

Finance lease assets and corresponding liabilities are not material to the consolidated financial statements.

Any operating lease having a lease term greater than twelve months will be recognized on the Consolidated Balance Sheets as a right-of-use (ROU) asset with an associated lease obligation—all other leases are considered short-term in nature and will be expensed on a month-to-month basis.

The ROU assets and lease obligations are recognized as of the commencement date at the net present value of the fixed minimum lease payments for the lease term.

16 unchanged sentences

For additional discussion on revenue recognition, refer to Note 18.

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.

Fair Value of Financial Instruments – FASB ASC 820 - Fair Value Measurements and Disclosures establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value.

This hierarchy prioritizes the inputs into three broad levels as follows:

● Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

● Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument;

● 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 Company estimates that the carrying amounts reported on the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, contract assets, promissory note receivable, accounts payable and accrued expenses, and notes and loans payable approximate their fair value due to the short-term nature of these items.

Note 8 contains additional information on assets and liabilities recorded at fair value in the Consolidated Financial Statements.

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.

Research and Development – Research and development costs are expensed as incurred.

3 unchanged sentences

Refer to Note 13 for additional information.

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.

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.

Gain and Loss Contingencies – The Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable.

In such cases, there may be an exposure to loss in excess of any amounts accrued.

4 unchanged sentences

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.

The Company maintains general liability insurance policies for its facilities.

Under the terms of our insurance policies, in the case of loss to a property, the Company follows the guidance in ASC 610-30, Other Income —Gains and Losses on Involuntary Conversions, for the conversion of nonmonetary assets (the properties) to monetary assets (insurance recoveries).

Under ASC 610-30, once the recovery is deemed probable the Company recognizes an asset for the insurance recovery receivable in the Consolidated Balance Sheets, with corresponding income that is offsetting to the casualty losses recorded in the Consolidated Statements of Operations and Comprehensive Loss.

If the insurance recovery is less than the amount of the casualty charges recognized, the Company will recognize a loss whereas if the insurance recovery is greater than the amount of casualty loss recognized, the Company will only recognize a recovery up to the amount of the casualty loss and will account for the excess as a gain contingency in accordance with ASC 450-30, Gain Contingencies.

Business interruption insurance is treated as a gain contingency.

Gain contingencies are recognized when earned and realized, which typically will occur at the time of final settlement or when cash is received.

Refer to further discussion of all commitments and contingencies in Note 12.

Severance charges - From time to time, the Company evaluates its resources and optimizes its business plan to align to changing needs of executing on its strategy.

These actions may result in voluntary or involuntary employee termination benefits.

Voluntary termination benefits are accrued when an employee accepts the related offer.

Involuntary termination benefits are accrued upon the commitment to a termination plan and the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination.

The following table summarizes the change in accrued liabilities, presented within Other current liabilities and Other long-term liabilities Consolidated Balance Sheets:

Balance at January 1, 2022

Cash payments

Balance at December 31, 2022

Total severance liability

In addition, during the year ended December 31, 2022, the Company recorded $ 1,237 of accelerated equity compensation expense in connection with the vesting of an employee’s outstanding equity awards as part of the termination severance agreement.

Amounts are recorded as Selling, general and administrative in the Consolidated Statements of Operations and Comprehensive Loss.

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 provisions of the ASU have an effective date for the Company beginning after December 15, 2022 and interim periods within those fiscal years.

The standard was effective for the Company on January 1, 2023 and will be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings.

The Company does not expect the new credit loss standard to have a material impact to the Consolidated Financial Statements.

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.

Inventories at December 31, 2021 and December 31, 2020 consisted of the following:

Inventory - tobacco leaf

Inventory - hemp/cannabis

Inventory - finished goods

Cigarettes and filtered cigars

Inventory - raw materials

Cigarette and filtered cigar components

inventory reserve

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.)

– BUSINESS ACQUISITIONS

On May 13, 2022, the Company entered into and closed the transactions contemplated by the Reorganization and Acquisition Agreement (the “Reorganization Agreement”) with GVB.

Under the terms of the Reorganization Agreement, the Company acquired substantially all of the assets of GVB’s business dedicated to hemp-based cannabinoid extraction, refinement, contract manufacturing and product development (the “Transaction”).

The acquisition of GVB allows the Company to leverage its expertise in receptor and plant science to develop its hemp/cannabis franchise and add significant scale.

GVB is included in the Company’s Hemp/cannabis reportable segment.

The aggregate consideration for the Transaction consisted of (i) the assumption of approximately $ 4,637 of debt, (ii) the assumption and direct payment of certain third-party transaction costs incurred by GVB in connection with the Transaction totaling approximately $ 1,753 and (iii) the issuance to GVB of 32,900,000 unregistered shares of common stock of the Company (the “Shares”) with a fair value of $ 51,653 .

The fair value of the Company’s common stock issued as part of the consideration was determined based upon the opening stock price of the Company’s shares as of the acquisition date.

The Shares are subject to a lock-up and restrictions on transfer for at least six months following closing and thereafter, one -third of the Shares will be released from the lock-up after six months , one -third will be released from the lock-up after nine months and the remainder will be released after one year .

The Transaction was structured as a tax-free re-organization pursuant to Internal Revenue Code Section 368(a)(1)(c).

Accordingly, the tax basis of net assets acquired retain their carry over tax basis and holding period in purchase accounting.

The Company recorded provisional estimated fair values for the assets purchased, liabilities assumed and purchase consideration as of the date of the acquisition during the second quarter of 2022, resulting in goodwill of $ 44,200 .

The determination of estimated fair value required management to make significant estimates and assumptions based on information that was available at the time the Consolidated Financial Statements were prepared.

During the measurement period, the preliminary fair values of the assets acquired and liabilities assumed as of May 13, 2022 were adjusted to reflect the ongoing acquisition valuation analysis procedures of property and equipment, intangible assets, deferred taxes, and working capital adjustments.

These adjustments resulted in a combined reduction to goodwill of $ 11,040 .

The impact of depreciation and amortization to Operating loss recorded in the third quarter of 2022 as a result of completing valuation procedures for property and equipment and intangible assets, that would have been recorded in the prior period since the date of acquisition was $ 70 .

The amounts reported are considered provisional as the Company is finalizing the valuations that are required to allocate the purchase price through the measurement period, which remains open as of December 31, 2022, as the final stub period income tax returns have not yet been completed.

As a result, the allocation of the provisional purchase price may change in the future, which could be material.

The following table presents management’s purchase price allocation:

Accounts receivable

Property, plant & equipment

Operating leases right-of-use assets, net

Customer relationships

Accounts payable and accrued expenses

Other current liabilities

Lease liabilities

Deferred tax liability

Fair value of net assets acquired

The fair values of the assets acquired were determined using one of three valuation approaches:

market, income or cost.

The selection of a particular method for a given asset depended on the reliability of available data and the nature of the asset, among other considerations.

The market approach estimates the value for a subject asset based on available market pricing for comparable assets.

The income approach estimates the value for a subject asset based on the present value of cash flows projected to be generated by the asset.

The projected cash flows were discounted at a required rate of return that reflects the relative risk of the asset and the time value of money.

The projected cash flows for each asset considered multiple factors from the perspective of a marketplace participant including revenue projections from existing customers, attrition trends, tradename life-cycle assumptions, marginal tax rates and expected profit margins giving consideration to historical and expected margins.

The cost approach estimates the value for a subject asset based on the cost to replace the asset and reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation or obsolescence, with specific consideration given to economic obsolescence if indicated.

These fair value measurement approaches are based on significant unobservable inputs, including management estimates and assumptions.

Current Assets and Liabilities

The fair value of current assets and liabilities, excluding inventory, was assumed to approximate their carrying value as of the acquisition date due to the short-term nature of these assets and liabilities.

The fair value of in-process and finished goods inventory acquired was estimated by applying a version of the income approach called the comparable sales method.

This approach estimates the fair value of the assets by calculating the potential revenue generated from selling the inventory and subtracting from it the costs related to the completion and sale of that inventory and a reasonable profit allowance for these remaining efforts.

Based upon this methodology, the Company recorded the inventory acquired at fair value resulting in an increase in inventory of $ 978 , which was fully amortized in the three month period ended June 30, 2022 in the Consolidated Statement of Operations and Comprehensive Loss.

Property, Plant and Equipment

The fair value of PP&E acquired was estimated by applying the cost approach for personal property and leasehold improvements.

The cost approach was applied by developing a replacement cost and adjusting for economic depreciation and obsolescence.

The Company recognized operating lease liabilities and operating lease right-of-use assets for office and manufacturing facilities in (i) Las Vegas, Nevada (ii) Grass Valley, Oregon (iii) Prineville, Oregon, and (iv) Tygh Valley, Oregon, accordance with ASC 842, Leases .

The following table summarizes the Company’s discount rate and remaining lease terms as of the acquisition date:

Weighted average remaining lease term in years

Weighted average discount rate

The Company concluded there were no off-market lease intangibles on the date of acquisition based on an evaluation of market rents per square foot, geographic location and nature of use of the underlying asset, among other considerations.

Intangible assets

The purchase price was allocated to intangible assets as follows:

Weighted Average

Amortization Period

Weighted Average

Definite-lived Intangible Assets

Discount Rate

Customer relationships

Customer Relationships

Customer relationships represent the estimated fair value of contractual and non-contractual customer relationships GVB had as of the acquisition date.

These relationships were valued separately from goodwill at the amount that an independent third party would be willing to pay for these relationships.

The fair value of customer relationships was determined using the multi-period excess-earnings method, a form of the income approach.

The estimated useful life of the existing customer base was based upon the historical customer annual attrition rate of 20 %, as well as management’s understanding of the industry and product life cycles.

Tradename represents the estimated fair value of GVB’s corporate and product names.

The acquired tradename was valued separately from goodwill at the amount that an independent third party would be willing to pay for use of these names.

The fair value of the tradename was determined by utilizing the relief from royalty method, a form of the income approach, with a royalty rate of 1.0 %.

The GVB tradename was assumed to have an indefinite useful life based upon long-term management expectations and future operating plans.

Deferred Taxes

The Company determined the deferred tax position to be recorded at the time of the GVB acquisition in accordance with ASC Topic 740, Income Taxes , resulting in recognition of deferred tax liabilities for future reversing of taxable temporary differences primarily for intangible assets and property, plant and equipment.

This resulted in a preliminary net deferred tax liability of $ 627 , which includes the carryover basis of historical recognized deferred tax assets, liabilities and valuation allowance.

The net deferred tax liabilities recorded as a result of the acquisition of GVB was determined by the Company to also provide future taxable temporary differences that allow for the Company to utilize certain previously fully reserved deferred tax assets.

Accordingly, the Company recognized a reduction to its valuation allowance resulting in a net tax benefit of approximately $ 434 for the year ended December 31, 2022.

The excess of the purchase price over the fair value of net tangible and intangible assets acquired and liabilities assumed was allocated to goodwill.

A variety of factors contributed to the goodwill recognized, including the value of GVB’s assembled work force, the incremental value resulting from GVB’s capabilities in hemp/cannabis, operational synergies across the plant science platform, and the expected revenue growth over time that is attributable to increased market share from future products and customers.

Goodwill recorded in the transaction will be non-deductible.

Actual and Pro Forma (unaudited) disclosures

The results of operations and assets from the GVB acquisition have been included in the Company’s consolidated financial statements since the acquisition date.

For the year ended December 31, 2022, net revenues related to GVB were $ 21,610 , and net loss was $ 14,771 .

The following unaudited pro forma information presents the consolidated results of operations of the Company and assumes the acquisition occurred on January 1, 2021:

Three Months Ended

(in thousands, except for per-share data)

Revenues, net

Net loss per common share - basic and diluted

Weighted average common shares outstanding - basic and diluted

The unaudited pro forma results are presented for illustrative purposes only and do not reflect the realization of potential cost savings, and any related integration costs.

Certain costs savings may result from the acquisition;

however, there can be no assurance that these cost savings will be achieved.

These unaudited pro forma results do not purport to be indicative of the results that would have been obtained, or to be a projection of results that may be obtained in the future.

These unaudited pro forma results include certain adjustments, primarily due to amortization expense due to the fair value adjustment of inventory, acquisition related costs and the impact of income taxes on the pro forma adjustments.

Acquisition costs

During the year ended December 31, 2022, direct costs incurred as a result of the acquisition of GVB of $ 1,046 were expensed as incurred and included in Other operating expenses, net in the Consolidated Statements of Operations and Comprehensive Loss.

– INVENTORIES

Inventories at December 31, 2022 and 2021 consisted of the following:

Raw materials

Work in process

Finished goods

During the year ended December 31, 2022, the Company wrote off inventory totaling $ 4,236 ( $ 3,999 related to the GVB fire as discussed in Note 19) which is included within Other operating expenses, net on the Company’s Consolidated Statement of Operations and Comprehensive Loss and $ 281 which is included with Cost of goods sold on the Company’s Consolidated Statement of Operations and Comprehensive Loss.

During the year ended December 31, 2021, the Company wrote off inventory totaling $ 317 which is included within Cost of goods sold on the Company’s Consolidated Statement of Operations and Comprehensive Loss.

– PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net at December 31, 2021 and December 31, 2020 consisted of the following:

Building and leasehold improvements

7 to 40 years

Property, plant and equipment, net at December 31, 2022 and 2021 consisted of the following:

Land improvements

Laboratory equipment

Leasehold improvements

Manufacturing equipment

3 to 10 years

Office furniture, fixtures and equipment

Laboratory equipment

Construction in progress

1 unchanged sentence

Property, plant and equipment, net

Depreciation expense was $ 633 , $ 688 , and $ 589 for the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2022, the Construction in progress balance primarily relates to the ongoing development of the Prineville, Oregon crude extraction facility, anticipated to be placed in service in the first quarter of 2023.

As of December 31, 2021, Construction in progress primarily related to tobacco machinery and equipment, which was placed in service during 2022.

Depreciation expense was $ 2,178 and $ 633 for the year ended December 31, 2022 and 2021, respectively.

Due to the GVB fire in 2022 (see Note 19), total property, plant and equipment write offs amounted to $ 5,499 which is included within Other operating expenses, net on the Company’s Consolidated Statement of Operations and Comprehensive Loss.

– 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.

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 Company leases office space, laboratory space and manufacturing facilities in (i) Mocksville, North Carolina, (ii) Buffalo, New York, (iii) Rockville, Maryland, (iv) Las Vegas, Nevada, (v) Prineville, Oregon, and (vi) multiple locations in Madras, Oregon.

The following table summarized the Company’s discount rate and remaining lease terms as of December 31, 2022:

4 unchanged sentences

imputed interest

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.

Present value of lease liabilities

current portion of lease liabilities

Total long-term lease liabilities

Operating lease costs for the year ended December 31, 2022 and 2021, were $ 891 and $ 301 , respectively.

Supplemental cash flow information for leases for fiscal years 2022 and 2021 are comprised of the following:

Cash paid for operating leases

Assets acquired under operating leases

During the fiscal year ended December 31, 2022, the Company extended the lease terms for one of its manufacturing facilities.

As a result of these lease modifications, the Company re-measured the lease liability and adjusted the ROU asset on the modification dates.

– GOODWILL AND OTHER INTANGIBLE ASSETS, NET

The change in the carrying amount of goodwill during fiscal year 2022 was as follows:

Balance at January 1, 2022

GVB acquisition (see Note 2)

Measurement period adjustments

Balance at December 31, 2022

Intangible Assets

Our intangible assets at December 31, 2021 and December 31, 2020 consisted of the following:

Intangible assets, net

Patent and trademark costs

accumulated amortization

Patent and trademark costs, net

accumulated amortization

License fees, net

Our intangible assets at December 31, 2022 and 2021 consisted of the following:

December 31, 2022

Carrying Amount

Definite-lived:

Customer relationships

Total amortizing intangible assets

Indefinite-lived:

Tradename and trademarks

MSA signatory costs

License fee for predicate cigarette brand

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 .

Total indefinite-lived intangible assets

Total intangible assets, net

December 31, 2021

Carrying Amount

Definite-lived:

Total amortizing intangible assets

Indefinite-lived:

Tradename and trademarks

MSA signatory costs

License fee for predicate cigarette brand

Total indefinite-lived intangible assets

Total intangible assets, net

See Note 2 “Business Acquisitions” for additional details regarding goodwill and intangible assets acquired during 2022 as a result of the acquisition of GVB, including measurement period adjustments.

Aggregate intangible asset amortization expense comprises of the following:

Cost of goods sold

Sales, general, and administrative

Research and development

Total amortization expense

During the year ended December 31, 2022, the Company incurred impairment charges of $ 1,488 , primarily related to write-down of tradename, as a result of a shift in strategy and changes in expected future cash flows for certain contracts supporting the associated tradename (see Note 19).

During the year ended December 31, 2021, the Company incurred a charge of $ 78 related to a write-down of our trademarks, as a result of abandonment of the trademark as it no longer aligned to Company strategic objectives.

The impairment charges are included in Other operating expenses, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss.

Estimated future intangible asset amortization expense based on the carrying value as of December 31, 2022 is as follows:

Amortization expense

– INVESTMENTS & OTHER ASSETS

The carrying value of the Company’s investments at December 31, 2022 and 2021 consisted of the following:

Panacea Life Sciences Holdings, Inc.

Aurora stock warrants

Change Agronomy Ltd.

ordinary shares

Total investments

Investment in Panacea Life Sciences, Inc.

20 unchanged sentences

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.

1 unchanged sentence

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.

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.

4 unchanged sentences

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:

12 unchanged sentences

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 Promissory note receivable was originally 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.

6 unchanged sentences

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:

Panacea preferred stock

Panacea stock warrant

Accrued interest on convertible note receivable

(included within prepaid expenses and other assets)

Convertible note receivable

Promissory note receivable

Panacea Investment – Settlement Agreement:

On December 31, 2022, the Company and Panacea Life Sciences Holdings, Inc.

entered into a settlement agreement in which the Company agreed to forfeit and return all PLSH common stock outstanding with a fair value of $ 229 and reduction to the face value of the Promissory note receivable of $ 500 , in exchange for resolution to all contractual requirements from the June 30, 2021 Promissory Note Exchange Agreement and Securities Exchange Agreement surrounding the investment and business relationship.

The total charge of $ 2,789 recorded in connection with the settlement agreement and change in fair value during the year ended December 31, 2022 is included within Realized (loss) gain on Panacea investment on the Consolidated Statements of Operations and Comprehensive Loss and is comprised of change in fair value and write-off of PLSH common stock of $ 2,340 and extinguishment of note receivable of $ 500 less adjusted discount of $ 51 .

As of December 31, 2022, the total carrying value of the Company’s investment in Panacea is outlined below:

Panacea Holdings common stock

Promissory note receivable

Investment in Aurora Cannabis, Inc.

6 unchanged sentences

See Note 8 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:

Aurora stock warrants

Panacea preferred stock

Panacea stock warrant

Panacea Holdings common stock

Total Investments

Convertible note receivable

Promissory note receivable

Investment in Change Agronomy Ltd.

On December 10, 2021, the Company 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 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 equated to approximately 1.8 % of CAL’s total equity.

In accordance with ASU 2019-04, a foreign currency-denominated equity investments that are measured using the measurement alternative are nonmonetary items that should be remeasured using their historical exchange rates.

Accordingly, for the year ended December 31, 2022, there is no foreign currency exchange gain or loss recorded in the Consolidated Statement of Operations and Comprehensive Loss related to the investment in Change Agronomy Ltd.

During the years ended December 31, 2022 and 2021, respectively, there were no impairment triggering events identified for investments.

– 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;

● 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:

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period).

For the Company, these financial assets and liabilities include its short-term investment securities and equity investments.

The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis.

.The following table presents information about our assets and liabilities measured at fair value at December 31, 2022 and 2021, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

December 31, 2022

2 unchanged sentences

Corporate bonds

treasury securities

Total short-term investment securities

Investment - Aurora stock warrants

Investment - Panacea Holdings common shares

Change Agronomy Ltd.

ordinary shares

Total investments

December 31, 2021

3 unchanged sentences

Total short-term investment securities

Investment - Aurora stock warrants

Investment - Panacea preferred stock

Convertible note receivable

Panacea Life Sciences Holdings, Inc.

common shares

Aurora stock warrants

Total investments

Money market mutual funds are valued at their daily closing price as reported by the fund.

1 unchanged sentence

On a daily basis the fund’s NAV is determined by the fund based on the amortized cost of the funds underlying investments.

The Company classifies its money market funds within Level 1 because it uses quoted market prices to determine their fair value.

The Company classifies its commercial paper, corporate notes, certificates of deposit, and U.S.

government bonds within Level 2 because it uses quoted prices for similar assets or liabilities in active markets and each has a specified term and all level 2 inputs are observable for substantially the full term of each instrument.

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 .

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 change in fair value for the years ended December 31, 2022, and 2021 were losses of $ 2,112 and $ 6,761 , respectively.

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, 2022.

Fair Value at December 31, 2019

Unrealized loss as a result of change in fair value

Accretion of interest on Panacea investment

Fair Value at December 31, 2020

Fair Value at January 1, 2022

Unrealized loss on Aurora stock warrants

Accretion of interest on Panacea preferred stock

Panacea investment conversion

Investment in Change Agronomy Ltd.

ordinary shares

Fair Value at December 31, 2022

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:

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, 2022 and 2021:

Available for Sale Debt Securities

4 unchanged sentences

Corporate bonds

Convertible note receivable

Investment - Panacea preferred stock

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:

The following table sets forth a summary of the Company’s available-for-sale debt securities at amortized cost basis and fair value by contractual maturity as of December 31, 2022 and December 31, 2021:

Available for Sale Debt Securities

3 unchanged sentences

Due after one year through five years

– NOTES PAYABLE

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

The Company recognized interest income on short-term investment securities recorded in Interest income, net on the Consolidated Statement of Operations and Comprehensive Loss during the years ended December 31, 2022 and 2021 of $ 546 and $ 483 , respectively.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Fair value standards also apply to certain assets and liabilities that are measured at fair value on a nonrecurring basis.

The Company’s non-recurring fair value measurement as of December 31, 2022, consisted of the fair value of impaired indefinite-lived intangible asset that was determined by utilizing the relief from royalty method with Level 3 inputs, including royalty rate of 1.0 % and discount rate of 24.5 %.

During the years ended December 31, 2022 and 2021, t he Company did not have any other financial assets or liabilities measured at fair value on a nonrecurring basis.

– NOTES AND LOANS PAYABLE

The table below outlines our notes payable balances as of December 31, 2022 and 2021:

Insurance loans payable

Vehicle loans

Total current notes and loans payable

Vehicle loans

Total long-term notes and loans payable

Insurance loans payable

During the second quarter of 2022, the Company renewed its Director and Officer (“D&O”) insurance for a one-year policy premium totaling $ 2,394 .

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.

The Company paid $ 400 as a premium down payment and financed the remaining $ 1,994 of policy premiums over ten months at a 3.25 % annual percentage rate.

Additionally, during the third quarter of 2022, the Company expanded its D&O coverage as a result of the acquisition of GVB, resulting in an additional premium down payment of $ 90 and financing of $ 168 , under the same terms as the original one-year policy.

During the second quarter of 2021, the Company renewed its 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.

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:

D&O Insurance

Total current notes payable

The Company also has other insurance loans payables related to pollution, and general liability for GVB.

Vehicle Loans

The Company has various vehicle loans with monthly payments ranging from $ 0.5 to $ 2.1 , interest rates ranging from 0 % to 11 %, and maturity dates ranging from March 2023 to September 2026.

GVB Bridge Note

In connection with the acquisition of GVB (see Note 2), the Company assumed the outstanding principal balance of 12 % secured promissory note in the principal amount of $ 4,250 (“GVB Bridge Note”).

On October 31, 2022, the Company repaid $ 1,899 (outstanding principal of $ 1,750 and accrued interest of $ 149 ).

The remaining outstanding principal of $ 2,500 and accrued interest was refinanced and has a maturity date of May 1, 2024 (see Note 21).

Accretion of non-cash interest expense amounted to $ 0 and $ 7 for the years ended December 31, 2022 and 2021, respectively.

– 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

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.

Estimated future principal payments to be made under the above notes and loans payable as of December 31, 2022 are as follows:

– 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.

2022 Capital Raise

On July 21, 2022, the Company and certain institutional investors (the “Investors”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) relating to the issuance and sale of shares of common stock pursuant to a registered direct offering (the “Registered Offering” and, together with the Private Placement (as defined below), the “Offerings”).

The Investors purchased approximately $ 35,000 of shares, consisting of an aggregate of 17,073,175 shares of common stock at a purchase price of $ 2.05 per share, subject to certain restrictions.

The net proceeds to the Company from the Offerings, after deducting the fees and the Company’s offering expenses, were $ 32,484 .

The Offerings closed on July 25, 2022.

Pursuant to the Securities Purchase Agreement, in a concurrent private placement, the Company issued and sold to the Investors warrants (the “Warrants”) to purchase up to 17,073,175 shares of common stock (the “Private Placement”).

The Warrants are exercisable immediately upon issuance at an exercise price of $ 2.05 per share of common stock, subject to adjustment in certain circumstances, and expire on July 25, 2027.

2021 Capital Raise

On June 7, 2021, the Company and an 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.

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.

Warrant Exercise

During the first quarter of 2021, the Company’s warrant holders exercised 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:

Warrants outstanding at December 31, 2018

The following table summarizes the Company’s warrant activity since January 1, 2021:

Warrants outstanding at January 1, 2021

( 11,293,211 )

1 unchanged sentence

Warrants outstanding at December 31, 2022

( 11,293,211 )

Warrants outstanding at December 31, 2021

– RETIREMENT PLAN

15 unchanged sentences

License Agreement

Annual royalty fee

License Agreement

Minimum annual royalty

License Agreement

Minimum annual royalty

Research Agreement

Sublicense Agreement

2 unchanged sentences

Annual license fee

Research Agreement

Hemp / Cannabis

License Agreement

Hemp / Cannabis

Minimum annual royalty

Growing Agreements

Consulting Agreements

(1) Exclusive agreement with the Company with respect to the Cannabis Sativa L.

plant (the "Field").

(1) Exclusive agreement with the Company in the field of the Cannabis Sativa L.

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.

On March 30, 2022, the Company and KeyGene entered into a new Framework Collaborative Research Agreement for a term of three years at an aggregate cost of $ 1,830 in the field related to the hops plant.

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.

The Company will pay royalties in varying amounts to KeyGene relating to the Company's commercialization in the stated fields of each agreement.

The Company has also granted KeyGene a license to commercialize the Results outside of each field and KeyGene will pay royalties in varying amounts to the Company relating to KeyGene's commercialization of the Results outside of each field.

(2) The minimum annual royalty fee is credited against running royalties on sales of licensed products.

The Company is also responsible for reimbursing NCSU for actual third-party patent costs incurred, including capitalized patent costs and patent maintenance costs.

These costs vary from year to year and the Company has certain rights to direct the activities that result in these costs.

(3) On August 19, 2022, the Company entered into a one-year Sponsored Project Agreement with NCSU for continued research of tobacco alkaloid formation.

(4) 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.

(5) On March 11, 2022, the Company expanded its research agreement with Cannametrix for hemp/cannabis product development, formulation, and validation for a three-year period at an aggregate cost of $ 2,000 .

(6) The minimum annual royalty fee is credited against running royalties from the sales of goods or services based on Project IP and/or Background IP.

(7) Various R&D growing agreements for hemp / cannabis and tobacco.

(8) General corporate consulting agreements.

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.

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.

Insurance recoveries – In connection with the Grass Valley fire, the Company has recorded $ 5,000 asset as Insurance recoveries on the Consolidated Balance Sheets and as income offsetting property, plant and equipment and inventory casualty losses in Other operating expenses, net in the Statement of Operations and Comprehensive Loss (see Note 19).

The insurance recoveries related to property, plant and equipment of $ 3,500 is a non-cash investing activity.

Additional business interruption insurance coverage with limits of $ 15,000 remains pending as of December 31, 2022, and will be recognized as income when all contingencies have been resolved.

Litigation - The Company is subject to litigation arising from time to time in the ordinary course of its business.

The Company does not expect that the ultimate resolution of any pending legal actions will have a material effect on its consolidated results of operations, financial position, or cash flows.

However, litigation is subject to inherent uncertainties.

As such, there can be no assurance that any pending legal action, which the Company currently believes to be immaterial, will not become material in the future.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable.

In such cases, there may be an exposure to loss in excess of any amounts accrued.

When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.

As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable.

If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable.

When a loss contingency related to a litigation or regulatory matter is deemed to be both probable and estimable, the Company will establish an accrued liability with respect to such loss contingency and record a corresponding amount of related expenses.

The Company will then continue to monitor the matter for further developments that could affect the amount of any such accrued liability.

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.

25 unchanged sentences

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.

On January 14, 2021, the Court granted the 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.

On May 24, 2022, after briefing and oral argument, the Second Circuit issued an order affirming in part, and reversing in part, the District Court’s dismissal order.

The Second Circuit affirmed the District Court’s dismissal of the claims relating to the non-disclosure of stock promotion articles, but reversed the District Court’s dismissal order of the claims alleging the non-disclosure of an SEC investigation.

The Second Circuit noted in its opinion, however, that the District Court had not addressed certain arguments raised by the Company and Messrs.

Sicignano and Brodfuehrer in the Motion to Dismiss the Amended Complaint as to these remaining claims, and remanded the case to the District Court to address these arguments for the dismissal of the remaining claims.

On August 8, 2022, the Company and Messrs.

Sicignano and Brodfuehrer filed a renewed motion to dismiss the remaining claims in the Amended Complaint to address the arguments not previously addressed by the District Court.

On September 22, 2022, Plaintiffs filed a brief in opposition to the motion.

On October 12, 2022, the Company and Messrs.

Sicignano and Brodfuehrer filed a reply brief in further support of the motion.

On January 6, 2023, the District Court denied the motion to dismiss, and the case will proceed forward on the remaining claims.

No trial date has been set.

The parties have scheduled a mediation during March 2023.

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.

Sicignano and Brodfuehrer have substantial legal and factual defenses to the remaining claims.

We intend to vigorously defend the Company and Messrs.

22 unchanged sentences

Sullivan and 22nd Century Group, Inc., Index No.

801786/2019 .

Mathew brings this action derivatively generally alleging the same allegations as in the Klein case.

2 unchanged sentences

1-19-cv-0513).

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.

On May 3, 2019, the Court ordered the Mathew case stayed.

This stay was applied to the Consolidated Action pursuant to the Court’s August 15, 2019 Order Consolidated Related Shareholder Derivative Actions and Establishing a Leadership Structure.

As a result of the Court’s denial of the renewed Motion to Dismiss the Amended Complaint, the May 3, 2019 stay will be lifted.

No trial date has been set.

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 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:

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.

3 unchanged sentences

Cornell, John T.

Brodfuehrer, and 22nd Century Group, Inc.

807214/2019 .

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.

Brodfuehrer, and 22nd Century Group, Inc., Index No.

Rowley brought the action derivatively alleging that the director defendants supposedly breached their fiduciary duties by allegedly allowing the Company to make false statements.

The Complaint sought 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.

1 unchanged sentence

On September 13, 2019, the Court ordered the litigation stayed pursuant to a joint stipulation by the parties.

On August 3, 2022, Plaintiff dismissed the case with prejudice by filing a stipulation of discontinuance with the Court.

This dismissal was not pursuant to a settlement.

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.

16 unchanged sentences

Brodfuehrer, Case No.

Wayne brings this action derivatively alleging generally the same allegations as the Brocutto case.

Wayne brings this action derivatively alleging generally the same allegations as the Broccuto 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.

On March 25, 2020, the Court ordered the Broccuto and Wayne cases consolidated and stayed pursuant to a joint stipulation from the parties.

On June 27, 2022, the Court ordered that the stay continue until thirty (30) days after the District Court rules on the renewed Motion to Dismiss the Amended Complaint in the Noto Class Action case.

As a result of the Court’s denial of the Motion to Dismiss the Amended Complaint, the June 27, 2022 stay will be lifted.

No trial date has been set.

The parties have scheduled a mediation during March 2023.

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.

8 unchanged sentences

Restricted stock units

– ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table is a summary of the components and activity of Accumulated Other Comprehensive Income (Loss) (“AOCI”) as of and for the year-ended December 31, 2022 and 2021, respectively:

Years Ended December 31, 2022 and 2021

Balance at January 1, 2021

Unrealized loss on short-term investment securities

Balance at December 31, 2021

Unrealized loss on short-term investment securities

Foreign currency translation

Reclassification of realized losses to net loss

Balance at December 31, 2022

– EQUITY BASED COMPENSATION

Stock Compensation Plan

On May 20, 2021, the stockholders of 22nd Century Group, Inc.

4 unchanged sentences

As of December 31, 2022, the Company had available 4,461,984 shares remaining for future awards under the 2021 Plan.

Compensation Expense

The Company recognized the following compensation costs, net of actual forfeitures, related to RSUs and stock options:

Sales, general, and administrative

Research and development

Total RSUs and stock option compensation

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.

The following table summarizes the changes in unvested RSUs from January 1, 2021 through December 31, 2022.

Unvested RSUs

Unvested at December 31, 2018

Unvested at December 31, 2019

Unvested at January 1, 2021

Unvested at December 31, 2021

1 unchanged sentence

The fair value of RSUs that vested during the years ended December 31, 2022 and 2021 was approximately $ 4,505 and $ 5,262 , respectively, based on the stock price at the time of vesting.

As of December 31, 2022, unrecognized compensation expense for RSUs amounted to $ 4,189 which is expected to be recognized over a weighted average period of approximately 0.8 years.

In addition, there is approximately $ 1,310 of unrecognized compensation expense that requires the achievement of certain milestones which are not yet probable.

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:

Outstanding at December 31, 2018

Outstanding at December 31, 2019

A summary of all stock option activity since January 1, 2021 is as follows:

Outstanding at January 1, 2021

Outstanding at December 31, 2021

4 unchanged sentences

No option awards were granted in 2022.

The following assumptions were used for the years ended December 31, 2021 and 2019:

The following assumptions were used for the year ended December 31, 2021:

Risk-free interest rate (1)

8 unchanged sentences

(4) The expected term represents the period of time that options granted are expected to be outstanding based on vesting date and contractual term.

Compensation Expense .

The Company recognized the following compensation costs, net of actual forfeitures, related to RSUs and stock options:

Sales, general, and administrative

Research and Development

Total RSUs and stock option compensation

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.

As of December 31, 2022, there is approximately $ 190 of unrecognized compensation expense for stock options that requires the achievement of certain milestones which are not yet probable.

– 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:

Total current

Total deferred

The following is a summary of the components giving rise to the income tax (benefit) provision for the years ended December 31, 2022 and 2021:

Total current provision

Total deferred benefit

Change in valuation allowance

Total income taxes

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.

Total income tax (benefit) / provision

The (benefit) provision for income tax varies from that which would be expected based on applying the statutory federal rate to pre-tax book loss, including the effect of the change in the U.S.

corporate income tax rates, as follows:

Statutory federal rate

Litigation Settlement

Derivative liability

Stock based compensation

Research and development credit carryforward

State tax provision, net of federal benefit

Equity investment

Federal tax rate change

State tax, net of federal benefit

162(m) limitation

Valuation allowance

Effective tax rate (benefit) provision

Effective tax rate

Individual components of deferred taxes consist of the following as of December 31:

2 unchanged sentences

Stock-based compensation

Investment in Panacea Life Sciences, Inc.

Investment in Aurora Cannabis, Inc.

Start-up expenditures

2 unchanged sentences

Severance liability

Unrealized loss on investments

Allowance for doubtful accounts

Research and development costs

Operating lease obligations

Capital loss on investment

Capitalized legal fees

Deferred tax liabilities:

1 unchanged sentence

Patents and trademarks

Gain on investment

Accrued expense

Operating lease right-of-use assets

5 unchanged sentences

As of December 31, 2022, the Company has a research and development credit carryforward of approximately $ 1,205 that begins to expire in 2030.

The Company has a capital loss carryover of approximately $ 510 as of December 31, 2021, which expires in 2026.

The Company generated a capital loss carryover of approximately $ 9,271 as of December 31, 2022, that begins to expire 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.

1 unchanged sentence

These carryforwards are included in the net deferred tax asset that has been fully offset by the valuation allowance.

The valuation allowance increased by $ 15,873 and $ 7,581 for the years ended December 31, 2022, and 2021, respectively.

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, 2022.

– SEGMENT AND GEOGRAPHIC INFORMATION

The Company organizes its business into two reportable segments:

(1) Tobacco and (2) Hemp/Cannabis.

This segment structure reflects the financial information and reports used by the Company’s management, specifically its Chief Operating Decision Maker, to make decisions regarding the Company’s business, including resource allocations and performance assessments.

This segment structure reflects the Company’s current operating focus in compliance with ASC 280, Segment Reporting .

The Company defines segment income from operations as revenues, net less cost of goods sold and expenses attributable to segment-specific selling, general, administrative, research, development, and other operating activities.

The remaining unallocated operating and other income and expenses are primarily administrative corporate overhead expenses such as corporate personnel costs, equity compensation, investor relations, strategic consulting, research and development costs that apply broadly to the overall plant science platform, and that are not allocated to reportable segments.

Unallocated corporate assets consist of cash and cash equivalents, short-term investment securities, prepaid and other assets, property and equipment, and intangible assets.

Transactions between the two segments are not significant.

The following table presents revenues, net by segment for fiscal years ended December 31, 2022 and 2021:

Hemp/cannabis

Total revenues, net

The following table presents income from continuing operations for the Company’s reportable segments for fiscal years ended December 31, 2022 and 2021:

Hemp/cannabis

Total segment operating loss

Unallocated operating expenses

Operating loss

Hemp/cannabis other (income) expense, net

Unallocated other (income) expense, net

Loss before income taxes

(1) In the fourth quarter of 2022, the Company recorded pre-tax charges and other expenses of $ 4,799 related to the Grass Valley fire.

These charges were included in Other operating expenses, net as described in Note 19.

The following table presents depreciation and amortization expense for the Company’s reportable segments for fiscal years ended December 31, 2022 and 2021:

Hemp/cannabis

Total depreciation and amortization included in segment operating loss

Unallocated depreciation and amortization

Total depreciation and amortization

The following table presents total assets for the Company’s reportable segments as of December 31, 2022 and 2021:

Hemp/cannabis

Total reportable segments

Unallocated assets

The following table presents capital expenditures for the Company’s reportable segments for fiscal years ended December 31, 2022 and 2021:

Hemp/cannabis

Total reportable segments

Unallocated expenditures for long-lived tangible assets

Total expenditures

Geographic Area Information

For the years ended December 31, 2022 and 2021, substantially all third-party sales of product are shipped to customers in the United States.

Additionally, as of December 31, 2022, and 2021, substantially all long-lived assets are physically located or domiciled in the United States.

– REVENUE RECOGNITION

The Company’s tobacco reportable segment revenues are derived primarily from contract manufacturing organization (“CMO”) customer contracts that consist of obligations to manufacture the customers’ branded filtered cigars and cigarettes.

Additional revenues are generated from sale of the Company’s proprietary low nicotine content cigarettes, sold under the brand name VLN ® , or research cigarettes sold under the brand name SPECTRUM®.

The Company 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.

For certain CMO contracts, the performance obligation is satisfied over time as the Company determines, due to contract restrictions, it does not have an alternative use of the product and it has an enforceable right to payment as the product is manufactured.

The Company recognizes revenue under those contracts at the unit price stated in the contract based on the units 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

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.

Tobacco revenue from the sale of the Company’s products, which include 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, 2022 and December 31, 2021.

Excise taxes recorded in Cost of Goods Sold on the Consolidated Statement of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021 was $ 12,619 and $ 10,135 , respectively.

Hemp/Cannabis

The Company’s hemp/cannabis reportable segment revenues are derived primarily from a CBD wholesale extracts and bulk ingredient distillate or isolate.

Additional revenues are generated from private/white label contract manufacturing.

The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer.

Revenue is recorded at the estimated amount of consideration to which the Company expects to be entitled.

For certain sales where the company licenses its formulations for hemp-based products, it recognizes revenue once the products have been sold to customers by the licensee.

When applicable, the Company pays imports duties in the various countries to which it sends products to and bills the customer for such import costs.

The Company recognizes the import duties as part of revenue in accordance with ASC 606.

There are no material sales provisions or volume discounts that provide variability in recording revenue amounts.

Disaggregation of Revenue

The Company’s net revenue is derived from customers located primarily in the United States and is disaggregated by major product line because the Company believes it best depicts the nature, amount, and timing of revenue and cash flows.

Revenue recognized from Tobacco products transferred to customers over time represented 74 % and 68 %, for the year ended December 31, 2022 and 2021, respectively.

Revenue recognized from Hemp/cannabis products transferred to customers over time represented 4 % and 0 %, for the year ended December 31, 2022 and 2021, respectively.

Hemp/cannabis

Total revenues, net

The following table presents net revenues by significant customers, which are defined as any customer who individually represents 10% or more of disaggregated product line net revenues:

Hemp/cannabis

All other customers

_____________

*Less than 10% of product line’s total revenues for the period.

Contract Assets and Liabilities

2 unchanged sentences

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.

Deferred Revenue (contract liabilities) relate 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.

2 unchanged sentences

Deferred revenue

Net contract assets

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.

Net sales-over time

Net sales-point in time

Total Revenue

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.

– 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.

Financial Statement Schedules

22nd CENTURY GROUP, INC.

AND SUBSIDIARIES

SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

($ in thousands)

Balance at beginning of period

Charged to costs and expenses

Charged to other accounts

Balance at end of period

Valuation allowance on net deferred tax assets:

Year Ended December 31, 2021

Year Ended December 31, 2020

Year Ended December 31, 2019

Allowance for slow moving or obsolete inventory:

Year Ended December 31, 2021

Year Ended December 31, 2020

Year Ended December 31, 2019

Net contract assets (liabilities)

During the years ended December 31, 2022 and 2021, the Company recognized $ 59 and $ 77 of revenue that was included in the contract asset balance as of December 31, 2021 and 2020 respectively.

– OTHER OPERATING EXPENSES, NET

The components of “Other operating expenses, net” were as follows:

Grass Valley fire:

Fixed asset write-offs

Inventory charges

Compensation & benefits

Professional services

Lease obligations

Insurance recoveries

Total Grass Valley fire

Acquisition costs

Impairment of intangible assets

Impairment of inventory

(Gain) loss on sale or disposal of property, plant and equipment

Total other operating expenses, net

Grass Valley Fire

In November 2022, there was a fire at our Grass Valley manufacturing facility in Oregon, which manufactures bulk ingredients, primarily CBD isolate and distillate.

We recognized fixed asset write-offs and inventory charges of $ 5,550 , $ 3,998 , respectively, related to property destroyed in the fire in the fourth quarter of 2022.

The associated lease ROU asset and lease liability were also written-off, with remaining lease obligation of $ 20 being recorded for December rent.

We have incurred certain fees for various professional services in 2022 in connection with the assessment of the fire and the efforts to rebuild and resume operations.

Further, we incurred $ 195 of compensation and benefits in 2022 for Grass Valley manufacturing employees, subsequent to the fire.

In connection with the Grass Valley fire, we have recognized anticipated insurance recoveries deemed probable

of collection of $ 5,000 in 2022 related to our ongoing insurance claim for property damage, which the corresponding receivable is recorded as Prepaids and other current assets on the Consolidated Balance Sheet as of December 31, 2022.

Additional business interruption insurance coverage with limits of $ 15,000 remains pending as of December 31, 2022, and will be recognized as income when all contingencies have been resolved.

Acquisition Costs

During 2022, acquisition costs include $ 1,046 primarily related to the acquisition of GVB Biopharma and consist primarily of professional fees and others costs.

Other general charges

During 2022 and 2021, the Company recorded other impairment charges in connection with intangible assets subject to amortization that are periodically reviewed for strategic importance and commercialization opportunity prior to expiration and we recorded an impairment charge for the tradename intangible asset impacted by changes to expect future cash flows of $ 1,453 .

Additionally, the Company recorded an inventory write-down in the fourth quarter in connection with unavoidable casualty from a weather event that resulted in hemp/cannabis crop loss.

– QUARTERLY REVENUE AND EARNINGS DATA – UNAUDITED

Three Months Ended

September 30,

Revenues, net

Gross profit (loss)

Net loss per common share - basic and diluted (2)

Three Months Ended

September 30,

Revenues, net

Net loss per common share - basic and diluted

(1) In the fourth quarter of 2022, the Company recorded pre-tax charges and other expenses of $ 4,799 related to the Grass Valley fire.

These charges were included in Other operating expenses, net as described in Note 19.

(2) The quarterly per share data in this table has been rounded to the nearest $ 0.01 and therefore may not sum to total year-to-date EPS.

– SUBSEQUENT EVENTS

Acquisition of RX Pharmatech Ltd

On January 19, 2023, the Company acquired RX Pharmatech Ltd (“RXP”) a privately held distributor of cannabinoids with 1,276 novel food applications with the U.K.

Food Standards Agency (“FSA”).

RXP’s products include CBD isolate and numerous variations of finished products like gummies, oils, drops, candies, tinctures, sprays, capsules and others.

The Company paid $ 200 in cash and $ 450 in stock and may pay up to an additional $ 1,550 of contingent earn out over the next three years based on specified conditions being met.

The Company expects to determine the preliminary purchase price allocation prior to the end of the first quarter of 2023.

Insurance Recoveries

During the first quarter of 2023, the Company received $ 5,000 of casualty loss insurance recoveries from the Grass Valley fire.

New Senior Secured Credit Facility

On March 3, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with each of the purchasers party thereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”) and JGB Collateral, LLC, a Delaware limited liability company, as collateral agent for the Purchasers (the “Agent”).

Pursuant to the Purchase Agreement, the Company agreed to sell to the Purchasers (i) 5 % Original Issue Discount Senior Secured Debentures (the “Debentures”) with an aggregate principal amount of $ 21,052,632 and (ii) warrants to purchase up to 5,000,000 shares of the Company’s common stock, par value $ 0.00001 per share (the “Common Stock”), for an exercise price of $ 1.275 per share, a 50 % premium to the VWAP on the closing date (the “JGB Warrants”), subject to adjustments as set forth in the JGB Warrants, for a total purchase price of $ 20,000,000 .

The Debentures bear interest at a rate of 7 % per annum, payable monthly in arrears as of the last trading day of each month and on the maturity date.

The Debentures mature on March 3, 2026.

At the Company’s election, subject to certain conditions, interest can be paid in cash, shares of the Company’s common stock, or a combination thereof.

The Debentures are subject to an exit payment equal to 5 % of the original principal amount, or $ 1,052,632 , payable on the maturity date or the date the Debentures are paid in full (the “Exit Payment”).

Any time after, March 3, 2024, the Company may irrevocably elect to redeem all of the then outstanding principal amount of the Debentures for cash in an amount equal to the entire outstanding principal balance, including accrued and unpaid interest, the Exit Payment and a prepayment premium in an amount equal to 3 % of the outstanding principal balance as of the prepayment date (collectively, the “Prepayment Amount”).

Upon the entry into a definitive agreement that would effect a change in control (as defined in the Debentures) of the Company, the Agent may require the Company to prepay the outstanding principal balance in an amount equal to the Prepayment Amount.

Commencing on March 3, 2024, at its option, the holder of a Debenture may require the Company to redeem 2 % of the original principal amount of the Debentures per calendar month which amount may at the Company’s election, subject to certain exceptions, be paid in cash, shares of the Company’s common stock, or a combination thereof.

The JGB Warrants are exercisable for five years from September 3, 2023, at an exercise price of $ 1.275 per share, a 50 % premium to the VWAP on the closing date, subject, with certain exceptions, to adjustments in the event of stock splits, dividends, subsequent dilutive offerings and certain fundamental transactions, as more fully described in the JGB Warrant.

GVB Bridge Loan

On March 3, 2023, the Company executed a Subordinated Promissory Note (the “Subordinated Note”) with a principal amount of $ 2,864,767 in favor of Omnia Ventures, LP (“Omnia”).

The Subordinated Note refinanced the 12 % Secured Promissory Note with a principal amount of $ 1,000,000 dated as of October 29, 2021 payable to Omnia (the “October Note”) and the 12 % Secured Promissory Note with a principal amount of $ 1,500,000 dated as of January 14, 2022 payable to Omnia (the “January Note”, and together with the October Note, the “Original Notes”), which were

assumed by the Company in connection with the acquisition of GVB Biopharma.

The maturity date of the Subordinated Note is May 1, 2024.

Under the terms of the Subordinated Note, the Company is obligated to make interest payments in-kind (the “PIK Interest”).

The PIK Interest accrues at a rate of 26.5 % per annum, payable monthly.

The Company is not permitted to prepay all or any portion of the outstanding balance on the Subordinated Note prior to maturity.

In connection with the Subordinated Note, the Company issued to Omnia, warrants to purchase up to 675,000 shares of the Company’s Common Stock (the “Omnia Warrants”).

The Omnia Warrants are exercisable for seven years from September 3, 2023, at an exercise price of $ 0.855 per share, subject, with certain exceptions, to adjustments in the event of stock splits, dividends, subsequent dilutive offerings and certain fundamental transactions, as more fully described in the Omnia Warrants.

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.

8 unchanged sentences

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 .

Reorganization and Acquisition Agreement between the Company and GVB Biopharma (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the Commission on May 18, 2022).

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 unchanged sentences

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).

Description of Securities Registered Pursuant to Section 12

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).

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)

Description of Securities Registered Pursuant to Section 12 (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K filed on March 1, 2022)

Form of Warrant (incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on July 25, 2022).

Form of Original Issue Discount Senior Secured Debentures dated March 3, 2023

Form of JGB Warrant

Form of Omnia Warrant

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).

1 unchanged sentence

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).

Form of Restricted Stock Award Agreement (incorporated by reference to Form 10-Q filed on May 10, 2013).

Form of Stock Option Award Agreement (incorporated by reference to Form 10-Q filed on May 10, 2013).

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).

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).

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).

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).

16 unchanged sentences

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).

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).

Securities Exchange Agreement between 22nd Century Group, Inc.

1 unchanged sentence

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).

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).

Employment Agreement between the Company and R.

Hugh Kinsman (incorporated by reference to exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on June 15, 2022).

Employment Agreement between the Company and John J.

Miller dated November 11, 2022

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)

Employment Agreement between the Company and Peter Ferola dated September 20, 2022

Securities Purchase Agreement dated March 3, 2023 with each of the purchasers party thereto and JGB Collateral, LLC, a Delaware limited liability company, as collateral agent for the Purchasers

Subordinated Promissory Noted dated March 3, 2023

Consent of Freed Maxick CPAs, P.C.

16 unchanged sentences

†††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.

Form 10-K Summary.

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.

4 unchanged sentences

March 9, 2023

/s/ Richard F.

Chief Financial Officer

13 unchanged sentences

Anthony Johnson

March 9, 2023

/s/ Lucille S.

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

What changed 10-K

Item 9A. Controls and Procedures