1 unchanged sentence
Evaluation of Disclosure Controls and Procedures
−Removed: Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
+Added: Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms.
−Removed: 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.
+Added: These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
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, 2023.
−Removed: 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”).
−Removed: 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.
−Removed: 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.
−Removed: The financial results of GVB are included in our consolidated financial statements from the date of acquisition.
−Removed: 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.
−Removed: 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.
−Removed: 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.
4 unchanged sentences
Changes in Internal Controls over Financial Reporting
−Removed: 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.
−Removed: 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.
+Added: 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, 2023 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
Other Information.
−Removed: Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
+Added: Disclosure Regarding Foreign Jurisdictions that Prevent Inspectio n
Not applicable.
Directors, Executive Officers and Corporate Governance.
−Removed: Officers and Directors
−Removed: Set forth below is information regarding our directors, executive officers, and key personnel as of March 1, 2023:
−Removed: Chief Executive Officer and Director
−Removed: John Franzino
−Removed: Chief Administrative Officer
−Removed: President, Tobacco Division
−Removed: Chief Financial Officer
−Removed: Chief Legal Officer
−Removed: Michael Koganov
−Removed: Anthony Johnson
−Removed: Mish, Chief Executive Officer.
−Removed: Mish has served as our Chief Executive Officer since June 22, 2020 and as a director since January 2022.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Mish has a M.B.A.
−Removed: from The Wharton School of the University of Pennsylvania and a Bachelor of Science in Physics and Chemistry from Pennsylvania State University.
−Removed: Mish’s strong leadership skills and pharmaceutical and consumer products experience led to our conclusion that he should serve as a director.
−Removed: 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.
−Removed: 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.
−Removed: Fleet also served as a strategic advisor consultant to the Company from December 2018 to August 3, 2019.
−Removed: 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.
−Removed: Prior to the Colonial Williamsburg Foundation, Mr.
−Removed: Fleet served as the President and CEO of 22nd Century Group.
−Removed: From 1995 to 2017 Mr.
−Removed: Fleet worked at Altria Group (NYSE:
−Removed: MO), serving in a variety of senior-level management positions in
−Removed: Finance, Operations, Marketing, and Business Strategy and Development.
−Removed: From 2013 to 2017, Mr.
−Removed: 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.
−Removed: During his tenure he led both organizations to business success in highly regulated environments.
−Removed: In addition, Mr.
−Removed: Fleet is an adjunct professor at the College of William & Mary teaching in the business school.
−Removed: Fleet holds a Bachelor of Arts, Master of Arts, Master of Business Administration and Juris Doctor from the College of William & Mary.
−Removed: Fleet’s extensive experience in the tobacco industry led to our conclusion that he should serve as a director.
−Removed: Anthony Johnson .
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: He also served as the business leader of the stem cell and regenerative medicine franchise for Thermo Fisher (Invitrogen Corporation).
−Removed: Johnson is an Aspen Institute Health Innovation Fellow and a member of the Aspen Global Leadership Network.
−Removed: He currently serves on the boards of several organizations including the WNED/PBS broadcasting service of Western New York.
−Removed: 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.
−Removed: 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.
−Removed: Additionally, he serves as Michigan Street African-American Heritage Corridor Commissioner and was an Opportunities Council member for University of Buffalo.
−Removed: Formerly, he was a 15-year volunteer with the Big Brother Big Sister Foundation.
−Removed: 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.
−Removed: Johnson’s experience commercializing bioscience technologies and life sciences experience led to our conclusion that he should serve as a director.
−Removed: Michael Koganov.
−Removed: Koganov has served as a director since September 11, 2020.
−Removed: 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.
−Removed: He is credited with developing Electro-Membrane technology for the comprehensive processing of plants to produce protein concentrates and secondary metabolites.
−Removed: 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.
−Removed: After the award-winning technology was acquired by AkzoNobel and then Ashland Global Holdings Inc., Dr.
−Removed: 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;
−Removed: and various synergistic compositions of Zeta Fractions obtained from living plants from twelve major plant families.
−Removed: 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.
−Removed: Koganov received his Master of Science degree in Biochemistry from the State University, Dnipropetrovsk, USSR;
−Removed: in Bioelectrochemistry from Institute of Chemical Technology, Dnipropetrovsk, USSR;
−Removed: and Full Doctor of Sciences (Sc.D.) degree in biotechnology from the Higher Attestation Commission of the USSR’s Council of Ministers.
−Removed: He has written more than 70 publications, secured over 100 granted patents, and is the author of two books.
−Removed: 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.
−Removed: 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.
−Removed: Dunn on November 30, 2019.
−Removed: 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.
−Removed: From 1998 to 1999, Mr.
−Removed: O’Brien served as the Chief Operating Officer of Ultralife Batteries, Inc.
−Removed: 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.
−Removed: Previously, Mr.
−Removed: served as a senior executive for Exxon Venture Capital, Tenneco Automotive and as an early officer of Sun Microsystems (NASDAQ:
−Removed: SUN) prior to the company’s acquisition by Oracle Corporation.
−Removed: O’Brien is currently a member of the Board of Directors of Innovative Technology Solutions and Bristol-ID Technologies, Inc.
−Removed: In addition, Mr.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Lucille Salhany .
−Removed: Salhany became a director in September 2022 pursuant to the terms of the Reorganization and Acquisition Agreement with GVB Biopharma.
−Removed: Salhany has served as President and Chief Executive Officer of JHMedia, a consulting company she founded, since 1997.
−Removed: She was also one of the founding partners of Echo Bridge Entertainment and CEO & President of LifeFX Networks, Inc.
−Removed: After serving as Chairperson of the Twentieth Television division of Fox, Ms.
−Removed: Salhany was appointed as the Chairmanship of Fox Broadcasting.
−Removed: After chairing Fox, Ms.
−Removed: 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.
−Removed: She also previously served on the Board of Directors for Echo Bridge Entertainment, Compaq / Hewlett-Packard, Fox, Inc., Avid Technologies, and American Media, Inc.
−Removed: Salhany was also a trustee of Emerson College and Lasell College, where she received Honorary Doctorates.
−Removed: 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.
−Removed: Sanders has served as a director since December 9, 2013.
−Removed: Since August 2009, Mr.
−Removed: 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.
−Removed: From January 2002 until June 2009, Mr.
−Removed: 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.
−Removed: During his 7-year tenure as head of SFNTC, Mr.
−Removed: 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.
−Removed: Prior to directing SFNTC’s robust growth, Mr.
−Removed: Sanders worked for R.J.
−Removed: Reynolds Tobacco Company where he began his career as a marketing assistant in 1977.
−Removed: From 1987 to 2002, he served in a wide spectrum of executive positions including,
−Removed: among others, Senior Vice President of Marketing and Vice President of Sales.
−Removed: A native of Minneapolis, Mr.
−Removed: Sanders earned a Bachelor’s Degree in political science from Hamline University in St.
−Removed: Paul and an M.B.A.
−Removed: Degree in Marketing from Washington University in St.
−Removed: Louis, Missouri.
−Removed: Sanders’ deep experience in the tobacco industry and expertise in management and marketing led to our conclusion that he should serve as a director.
−Removed: Sullivan has served as a director since May 18, 2015.
−Removed: 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.
−Removed: Her experience includes the development and advancement of strategic initiatives and the implementation of best practice governance policies.
−Removed: Prior to founding Sullivan Capital Partners in 2004, Ms.
−Removed: 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.
−Removed: From 1995 to 1999, Ms.
−Removed: Sullivan was Executive Vice President of Rand Capital Corporation (NASDAQ:
−Removed: RAND), a publicly traded closed-end investment management company providing capital and managerial expertise to small and mid-size businesses.
−Removed: Sullivan is also a member of the Boards of Directors of Evans Bancorp, Inc.
−Removed: (NYSE American:
−Removed: EVBN), Robinson Home Products, and Rosina Food Products.
−Removed: 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.
−Removed: Sullivan holds an M.B.A.
−Removed: 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.
−Removed: 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.
−Removed: Executive Officers :
−Removed: For information with respect to Mr.
−Removed: Mish, please refer to the Directors section above.
−Removed: Hugh Kinsman , Chief Financial Officer .
−Removed: Kinsman has served as our Chief Financial Officer since June 2022.
−Removed: 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.
−Removed: 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.
−Removed: Previously, Mr.
−Removed: Kinsman served as a member of the Structured Finance group at GE Capital (NYSE:
−Removed: Kinsman was also a senior accountant at Asher & Company, CPAs (now BDO).
−Removed: Kinsman received his B.S.
−Removed: in Finance from Pennsylvania State University and his Master’s in Business Administration from Cornell University.
−Removed: Miller , President of Tobacco .
−Removed: Miller has served as our President of Tobacco since November 2022.
−Removed: 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.
−Removed: 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.
−Removed: Miller’s experience also includes more than 20 years in various management positions at US Smokeless Tobacco Co.
−Removed: Miller holds a Bachelor of Science Degree in Finance from UNLV and earned an MBA from Pepperdine University, The George L.
−Removed: Graziadio School of Business Management.
−Removed: John Franzino, Chief Administrative Officer .
−Removed: Franzino served as our Chief Financial Officer from June 3, 2020 until November 2021 when he transitioned to Chief Administrative Officer.
−Removed: 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.
−Removed: Most recently, Mr.
−Removed: Franzino served as Chief Financial Officer of the West Point Association of Graduates, which supports the U.S.
−Removed: Military Academy at West Point.
−Removed: Prior to his experience in higher education, Mr.
−Removed: 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.
−Removed: In both roles, he was responsible for the financial planning and control function as well as information systems and technology.
−Removed: 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.
−Removed: Peter Ferola, Chief Legal Officer .
−Removed: Ferola was promoted to the position of Chief Legal Officer in February 2023.
−Removed: Ferola has served as our General Counsel and Secretary since November 2022.
−Removed: Ferola has over 30 years of progressive leadership experience in business management, legal affairs and corporate governance.
−Removed: Most recently, he served as Project Counsel in Greenberg Traurig LLP’s corporate securities group.
−Removed: From 2011 to 2020 he served as Senior Vice President and General Counsel at BioTelemetry, Inc.
−Removed: From 2009 to 2011, Mr.
−Removed: Ferola served as Vice President, General Counsel and Secretary of Nipro Diagnostics, Inc.
−Removed: (formerly Home Diagnostics, Inc., NASDAQ:
−Removed: Prior to joining Home Diagnostics, Mr.
−Removed: 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.
−Removed: From 1989 to 2002, Mr.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Ferola also serves as a FINRA arbitrator and a panelist on the NASDAQ Listing Qualifications Panel.
−Removed: Corporate Governance
−Removed: 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:
−Removed: (i) expiration of the term of their class of directors;
−Removed: or (ii) until their successors are elected and take office.
−Removed: The Bylaws of the Company provide that the Board will determine the number of directors to serve on the Board.
−Removed: 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).
−Removed: There are no family relationships among our directors.
−Removed: Our Board held 8 meetings during 2022.
−Removed: All directors attended at least 75% of all meetings of the Board and Board committees on which they served during 2022.
−Removed: We do not have a formal policy requiring directors to attend annual meetings of stockholders.
−Removed: However, all of our directors attended our 2022 annual meeting and we anticipate that all of continuing directors will attend the 2023 annual meeting.
−Removed: Our Board of Directors currently has three standing committees:
−Removed: (i) an Audit Committee, (ii) a Compensation Committee, and (iii) a Corporate Governance and Nominating Committee.
−Removed: Each of these Board committees are described below.
−Removed: Members of these committees are elected annually by the Board.
−Removed: The charters of each committee are each available on the investor relations section of our website at www.xxiicentury.com.
−Removed: In addition, we have a Scientific Advisory Board which is chaired by Michael Koganov.
−Removed: Audit Committee
−Removed: KEY RESPONSIBILITIES
−Removed: Sullivan*, Chair
−Removed: Anthony Johnson
−Removed: Michael Koganov
−Removed: 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.
−Removed: Assists the Board in monitoring the integrity of financial statements and our compliance with legal and regulatory requirements;
−Removed: Reviews the independence and performance of our internal and external auditors;
−Removed: Has the ultimate authority and responsibility to select, evaluate, terminate and replace our independent registered public accounting firm;
−Removed: Has oversight of the Company’s policies with respect to risk assessment and risk management;
−Removed: Approves the Audit Committee Report.
−Removed: The report further details the Audit Committee’s responsibilities.
−Removed: *Audit Committee Financial Expert:
−Removed: Our Board has determined that Ms.
−Removed: Sullivan qualifies as an “audit committee financial expert” as defined by the rules of the Securities and Exchange Commission.
−Removed: 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.
−Removed: The Committee met
−Removed: 4 times in 2022
−Removed: Compensation Committee
−Removed: KEY RESPONSIBILITIES
−Removed: Sanders, Chair
−Removed: Michael Koganov
−Removed: Lucille Salhany
−Removed: 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.
−Removed: Establishes and regularly reviews our compensation and benefits philosophy and program in a manner consistent with corporate financial goals and objectives;
−Removed: Approves compensation arrangements for senior management, including annual incentive and long-term compensation;
−Removed: Administers grants under our equity incentive plans;
−Removed: Evaluates our CEO’s performance;
−Removed: Reviews leadership development and succession planning.
−Removed: The Committee met
−Removed: 7 times in 2022
−Removed: Corporate Governance and Nominating Committee
−Removed: KEY RESPONSIBILITIES
−Removed: Anthony Johnson, Chair
−Removed: Lucille Salhany
−Removed: 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.
−Removed: Assists our Board in establishing criteria and qualifications for potential Board members;
−Removed: Identifies high quality individuals who have the core competencies, characteristics and experience to become members of our Board;
−Removed: 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;
−Removed: Leads the Board in its annual review of the Board’s performance;
−Removed: Recommends nominees for each committee of the Board;
−Removed: Oversees the Company’s Environmental Social and Governance (“ESG”) policies and practices.
−Removed: The Committee met
−Removed: 6 times in 2022
−Removed: Scientific Advisory Board
−Removed: KEY RESPONSIBILITIES
−Removed: Michael Koganov, Chair
−Removed: Anthony Johnson
−Removed: Provides advice and recommendations to the Board regarding :
−Removed: Company scientific research, technology and innovation strategies;
−Removed: opportunities including potential partnerships and M&A;
−Removed: emerging science and technology issues and trends.
−Removed: The Scientific Advisory Board met 1 time in 2022
−Removed: Director Nominee Selection Process
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: From time to time, we have used an executive search firm in search of candidates that have diversity in experience, skills and perspective.
−Removed: 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.
−Removed: 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.
−Removed: Stockholder Recommendations for Potential Director Nominees
−Removed: 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.
−Removed: Such nominations by any stockholder shall be made pursuant to timely notice in writing to the Secretary.
−Removed: 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;
−Removed: 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.
−Removed: Delinquent Section 16(a) Reports
−Removed: 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.
−Removed: 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.
−Removed: Hugh Kinsman reporting his initial ownership and a late Form 4 (filed on Form 5) by James A.
−Removed: Mish reporting the withholding of shares to satisfy tax liability upon the vesting of restricted stock.
−Removed: Code of Ethics
−Removed: We adopted a Code of Ethics that applies to all our employees.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Executive Compensation.
+Added: 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 2024 Annual Meeting of Stockholders.
+Added: Code of Business Conduct and Corporate Ethics
+Added: Our Board of Directors has long maintained a Code of Ethics that applies to all our directors, officers, and employees.
+Added: A copy of our Code of Ethics is available on our website at http://www.xxiicentury.com .
+Added: We intend to satisfy any disclosure requirements pursuant to Item 5.05 of Form 8-K regarding any amendment to, or waiver from, certain provisions of the Code of Ethics by posting such information on our website.
Executive Compensation.
−Removed: Compensation Discussion and Analysis
−Removed: 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.
−Removed: 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.
−Removed: Our Named Executive Officers
−Removed: Chief Executive Officer
−Removed: Chief Financial Officer
−Removed: President of Tobacco Division
−Removed: John Franzino
−Removed: Chief Administrative Officer
−Removed: 2022 Financial Highlights
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: We acquired GVB Biopharma in May 2022, which we believe to be the North American leader in cannabinoid supply by volume, commencing revenue
−Removed: operations in our hemp/cannabis business unit and adding a comprehensive CDMO capability.
−Removed: This acquisition expanded our vertically integrated supply chain capabilities from receptor science to finished white label goods.
−Removed: 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.
−Removed: prior to year-end 2023.
−Removed: 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.
−Removed: Our Executive Compensation Philosophy and Design
−Removed: Our executive compensation programs are driven by a pay-for-performance philosophy that is directly linked to our business strategies and company-wide goals.
−Removed: 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.
−Removed: 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.
−Removed: Accordingly, our compensation program has historically focused less on objective financial metrics typically applicable to other companies.
−Removed: 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.
−Removed: 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.
−Removed: Our Pay for Performance Philosophy
−Removed: Our Compensation Committee seeks to attract and retain executive officers who have the experience, temperament, talents and convictions to drive our future success.
−Removed: Our compensation programs are designed to:
−Removed: ● motivate our executives by providing compensation that is directly linked to both our short- and long-term performance;
−Removed: ● 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;
−Removed: ● 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’.
−Removed: 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.
−Removed: Roles and Responsibilities
−Removed: 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.
−Removed: Our Board, our Compensation Committee and our CEO each play a role in setting the compensation of our NEOs.
−Removed: 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.
−Removed: 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.
−Removed: As discussed below, the Compensation Committee specifically considers the results from the annual stockholder advisory vote on executive compensation in making compensation decisions.
−Removed: 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.
−Removed: 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.
−Removed: Pay Governance then reviewed our current executive compensation program and made recommendations with respect to future compensation decisions.
−Removed: 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:
−Removed: ● The provision of other services that the consultant provides to us;
−Removed: ● The amount of fees received from us as a percentage of the consultant’s total revenue;
−Removed: ● The consultant’s policies and procedures designed to prevent conflicts of interest;
−Removed: ● Business or personal relationships of the consultant with our Compensation Committee members;
−Removed: ● The amount of our stock owned by the consultant;
−Removed: ● Business or personal relationships of the consultant with our executive officers.
−Removed: Our Say-on-Pay Vote;
−Removed: Stockholder Outreach
−Removed: The Board and Compensation Committee are committed to soliciting feedback to inform the Board’s decisions and guide our compensation program.
−Removed: Our stockholder outreach in 2021, 2022 and into 2023 provided the Board with valuable insights into our stockholders’ perspectives on our executive compensation.
−Removed: We are committed to sound compensation practices and will continue to enhance our compensation program as a result of stockholder input.
−Removed: We have followed a consistent approach to the design of our executive compensation program for many years.
−Removed: The history of our Say-on-Pay results before 2020 generally demonstrated stockholder support for our program over several years.
−Removed: At our 2022 Annual Meeting of Stockholders, approximately 10.5% of our outstanding shares voted against our 2022 executive compensation resolution.
−Removed: As noted below, we conducted a Board-driven stockholder outreach and engaged with our top holders to better understand their concerns.
−Removed: Following the 2022 Annual Meeting of Stockholders, the Compensation Committee commenced a stockholder outreach program.
−Removed: 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.
−Removed: The executive compensation outreach initiative is in addition to our regular ongoing stockholder engagement.
−Removed: 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.
−Removed: Approximately 19.4% of the Company’s outstanding shares of common stock were owned by filing institutional stockholders.
−Removed: By The Numbers:
−Removed: Stockholder Engagement
−Removed: 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.
−Removed: These institutional stockholders represent the majority of our institutional investors at this time.
−Removed: Our Independent Board Chair and Chair of our Compensation Committee participated in all of the stockholder engagement meetings.
−Removed: Feedback from Stockholder Engagement
−Removed: 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.
−Removed: 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.
−Removed: What We Heard
−Removed: How We Are Responding
−Removed: Desire to see expanded disclosure of our compensation philosophy, design and rationale.
−Removed: 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.
−Removed: Our work to solicit stockholder feedback into our executive compensation program continues into the future.
−Removed: 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.
−Removed: Our Compensation Committee will use the stockholder feedback to inform and guide its compensation decisions for the following year.
−Removed: Our annual compensation cycle is generally as follows:
−Removed: Elements of Executive Compensation
−Removed: Our compensation program consists of the following three primary elements:
−Removed: (1) Base Salary.
−Removed: We provide a base salary for each NEO based on their job description and scope of responsibilities of that position.
−Removed: We target the base salary for each NEO at the 50 th percentile range of our peer group (discussed below) for each position.
−Removed: Our philosophy is to have a significant portion of each NEO’s total cash compensation “at-risk.”
−Removed: (2) Annual Cash Bonus Opportunity .
−Removed: The annual cash bonus is our primary short-term performance incentive.
−Removed: 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.
−Removed: The Compensation Committee aims to set performance goals for cash bonuses that align pay with performance.
−Removed: During 2022 and in prior years, our Compensation Committee prioritized the accomplishment of critical strategic and operational milestones.
−Removed: 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.
−Removed: (3) Long-Term Incentive Awards .
−Removed: 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’.
−Removed: 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.
−Removed: Beginning in 2023, we expect to enhance our Long-Term Incentive Program by introducing performance-based equity awards to the award mix.
−Removed: 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.
−Removed: 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.
−Removed: Compensation for top executives can be highly variable due to heavy weighting toward incentive compensation rather than fixed components.
−Removed: 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.
−Removed: The peer group established consists of the following companies:
−Removed: Achieve Life Sciences
−Removed: AquaBounty Technologies
−Removed: Avid Bioservices
−Removed: Charlotte’s Web Holdings
−Removed: ChromaDex Corporation
−Removed: GreenLight Biosciences
−Removed: Jushi Holdings
−Removed: Laird Superfood
−Removed: Landec Corporation
−Removed: Pear Therapeutics
−Removed: Societal CDMO
−Removed: The Valens Company
−Removed: TILT Holdings
−Removed: Village Farms International
−Removed: Zynerba Pharmaceuticals
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: For 2022, we took the following actions with respect to the base salaries of our NEOs:
−Removed: ● James Mish’s base salary increased from $450,000 to $472,500, a 4% increase.
−Removed: ● John Franzino’s base salary increased from $315,000 to $330,750, a 5% increase.
−Removed: ● John Miller joined the Company in 2022 with a base salary of $425,000.
−Removed: Hugh Kinsman joined the Company in 2022 with a base salary of $290,000.
−Removed: In February 2023, our Compensation Committee reviewed the 2022 base salaries our NEOs in connection with the establishment of the new peer group.
−Removed: Other than Mr.
−Removed: 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.
−Removed: 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.
−Removed: The base salaries of each of our NEOs for 2023 is as follows:
−Removed: 2023 Base Salary
−Removed: Percentage Increase Over
−Removed: 2022 Base Salary
−Removed: John Franzino
−Removed: 2022 Annual Cash Bonus Opportunity
−Removed: In general, our NEO target bonus awards range from 75% - 150% of an NEOs base salary depending on their position.
−Removed: The Compensation Committee aims to set performance goals for cash bonuses that align pay with performance.
−Removed: A number of factors are considered when calibrating goals, including the Company’s business strategies and company-wide goals.
−Removed: 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.
−Removed: Accordingly, our compensation program has historically focused less on objective metrics typically applicable to other companies.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: For 2022, our Compensation Committee challenged our NEOs with a number of strategic goals and objectives for 2022, including but not limited to:
−Removed: ● Launch of VLN ® reduced nicotine content cigarettes internationally;
−Removed: ● Launch of VLN ® reduced nicotine content cigarettes nationally following the successful pilot launch;
−Removed: ● Increase gross profit for cigar and cigarette contract manufacturing operations by $1,000,000;
−Removed: ● Advance VLN ® through securing strategic partnerships;
−Removed: ● Increase regulatory and legislative advocacy for VLN ® , as well as within the hemp and cannabis business units;
−Removed: ● Develop intellectual property for next generation VLN ® blends;
−Removed: ● Develop merger & acquisition strategy and business plan for hemp cannabis division;
−Removed: ● Develop innovative intellectual property for hemp cannabis, tobacco and hops products;
−Removed: ● Increase cash position though capital markets activities;
−Removed: ● Enhance operational finance process/reports;
−Removed: ● Improve human resources and IT functions and processes;
−Removed: ● Establish compensation benchmarking.
−Removed: 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.
−Removed: The target cash bonus amounts (and percentage of base salary) and the actual cash bonuses earned by our NEOs for 2022 are as follows:
−Removed: Target Cash Bonus (and percentage of Base Salary)
−Removed: Actual Cash Bonus Earned
−Removed: Bonus Earned as a % of Target
−Removed: $708,750 (150%)
−Removed: John Franzino
−Removed: $248,062 (75%)
−Removed: $217,500 (75%)
−Removed: $318,750 (75%)
−Removed: 2022 Long-Term Incentive Program Awards
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Our Compensation Committee has authority to determine eligible participants, the types of awards and the terms and conditions of awards.
−Removed: 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.
−Removed: For 2021 and 2022, NEOs were generally awarded restricted stock units with a three-year vesting period, subject to continued service with us.
−Removed: 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.
−Removed: The Compensation Committee expects to continue this practice in 2023.
−Removed: During 2022, Mr.
−Removed: 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.
−Removed: The performance shares were issued to incentivize Mr.
−Removed: Miller to successfully roll-out our VLN ® pilot program.
−Removed: For 2022, our Compensation Committee determined that Mr.
−Removed: 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.
−Removed: In addition, during 2022, Mr.
−Removed: 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.
−Removed: The special equity award was issued to Mr.
−Removed: Mish as a catch-up issuance from 2020 and 2021.
−Removed: The long-term incentive plan awards are used to motivate and retain employees as well as promote employee stock ownership.
−Removed: We do not issue the shares until the vesting conditions have been satisfied.
−Removed: We currently do not use stock options as part of our compensation package.
−Removed: 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.
−Removed: 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.
−Removed: For 2022, we awarded our NEOs the following RSUs:
−Removed: RSU Grant Value
−Removed: Number of Shares
−Removed: John Franzino
−Removed: John Miller (2)
−Removed: Hugh Kinsman (3)
−Removed: (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.
−Removed: (2) Represents performance shares, as discussed above.
−Removed: (3) Due to the timing of his appointment, Mr.
−Removed: Kinsman was not awarded a long-term equity incentive award during 2022.
−Removed: S UMMARY COMPENSATION TABLE FOR 2022
−Removed: The following table summarizes the compensation of our NEOs for 2022.
−Removed: The amounts reported for stock awards may not represent the amounts that the NEOs will actually realize from the awards.
−Removed: Whether, and to what extent, a named executive officer realizes value will depend on our performance, stock price and continued employment.
−Removed: Name and Principal Position
−Removed: Chief Executive Officer
−Removed: Hugh Kinsman (4)
−Removed: Chief Financial Officer
−Removed: President of Tobacco
−Removed: John Franzino
−Removed: Chief Administrative Officer
−Removed: Former President and Chief Operating Officer
−Removed: Richard Fitzgerald
−Removed: Former Chief Financial Officer
−Removed: (1) Represents the grant date fair value computed in accordance with FASB ASC 718.
−Removed: 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.
−Removed: (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.
−Removed: (3) All Other Compensation consists of the following:
−Removed: Contributions
−Removed: John Franzino
−Removed: Richard Fitzgerald
−Removed: * Includes Company paid premiums for health insurance, dental insurance, group-term life insurance, and long-term disability insurance.
−Removed: Kinsman joined the Company in May 2022.
−Removed: Miller joined the Company in May 2022.
−Removed: CEO Pay Ratio
−Removed: 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).
−Removed: In searching for the median employee we considered taxable compensation totals in 2022.
−Removed: 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.
−Removed: Our Chief Executive Officer had annual total compensation in 2022 of $4,011,094 and our Median Employee had annual total compensation of $55,150.
−Removed: Therefore, we estimate that our Chief Executive Officer’s annual total compensation in 2022 is 73 times that of the median of the annual total compensation of all of our employees.
−Removed: Grants of Plan-Based Awards
−Removed: GRANTS OF PLAN BASED AWARDS DURING 2022
−Removed: As described above in the Compensation Discussion and Analysis, we granted restricted stock units to our NEOs in 2022.
−Removed: The following table sets forth information regarding all such awards:
−Removed: Date of Board
−Removed: Awards ($) (2)
−Removed: John Franzino
−Removed: Richard Fitzgerald
−Removed: (1) Represents RSUs which vest in equal increments over three years on March 21, 2023, 2024 and 2025, subject to continued service.
−Removed: (2) Represents RSUs which vest in equal increments over two years on March 21, 2023 and 2024, subject to continued service.
−Removed: (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
−Removed: Outstanding Equity Awards
−Removed: The following table sets forth information about outstanding equity awards held on December 31, 2022 by our NEOs.
−Removed: Equity Incentive
−Removed: Payout Value of
−Removed: Equity Incentive Plan
−Removed: Restricted Stock
−Removed: Unearned Shares,
−Removed: Units or Other
−Removed: Restricted Stock Units or
−Removed: Unexercisable
−Removed: Other Rights That Have
−Removed: Have Not Vested
−Removed: Not Vested (#)
−Removed: John Franzino
−Removed: Richard Fitzgerald
−Removed: (1) Represents RSUs which vest in equal increments over three years on March 21, 2023, 2024 and 2025.
−Removed: (2) Represents RSUs which vest in equal increments over two years on March 21, 2023 and 2024.
−Removed: (3) Represents RSUs which vest in equal increments over two years on March 19, 2023 and 2024.
−Removed: (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.
−Removed: (5) The amounts in this column are based on the closing stock price of the Company’s common stock on December 31, 2022.
−Removed: These amounts do not reflect the actual amounts that may be realized.
−Removed: Option Exercises and Stock Vested in 2022
−Removed: Option Awards
−Removed: John Franzino
−Removed: Richard Fitzgerald
−Removed: (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.
−Removed: The amount does not reflect the actual amount that may be realized.
−Removed: Pay for Performance
−Removed: Value of Initial
−Removed: Actually Paid
−Removed: Table Total for
−Removed: Actually Paid to
−Removed: (1) Consists of compensation payable to our CEO, James A.
−Removed: (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.
−Removed: (3) For 2022, consists of compensation payable to John Franzino, Michael J.
−Removed: Hugh Kinsman, John J.
−Removed: Miller and Richard Fitzgerald.
−Removed: For 2021, consists of compensation payable to Richard Fitzgerald, John Franzino and Michael J.
−Removed: Employment Agreements with Named Executive Officers
−Removed: We have entered into employment agreements with each of our NEOs as follows:
−Removed: Pursuant to the employment agreement entered into between James A.
−Removed: Mish and the Company on May 22, 2020, Mr.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Hugh Kinsman.
−Removed: Pursuant to the employment agreement entered into between R.
−Removed: High Kinsman and the Company on June 15, 2022, Mr.
−Removed: 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.
−Removed: 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
−Removed: form of a continuation of his then-base salary for a period of 12 months (plus continuing health care coverage during such period).
−Removed: John Franzino.
−Removed: Pursuant to the employment agreement entered into between John Franzino and the Company dated April 8, 2020, Mr.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The employment agreement of Mr.
−Removed: 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:
−Removed: (a) his base salary for twelve (12) months thereafter;
−Removed: and (b) the immediate vesting of all options and/or restricted stock grants previously granted or to be granted to him.
−Removed: John Miller .
−Removed: We entered into an employment agreement with Mr.
−Removed: 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.
−Removed: The performance shares shall automatically vest upon the occurrence of change in control of the Company or similar event or in the event Mr.
−Removed: Miller terminates his employment for “Good Cause”;
−Removed: which means either an involuntary reduction in pay, change in reporting structure or a requirement to relocate.
−Removed: Compensation on Termination of Employment
−Removed: 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.
−Removed: The amounts shown are estimates and do not necessarily reflect the actual amounts that these individuals would receive on termination of employment.
−Removed: Estimated Additional Compensation Triggered by Termination of
−Removed: Employment If Termination on the Last Business Day of 2022
−Removed: Termination by the Company Without Cause or by the Executive for Good Reason
−Removed: John Franzino
−Removed: Death or Disability
−Removed: John Franzino
−Removed: Change of Control with Triggering Event
−Removed: John Franzino
−Removed: (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.
−Removed: (2) The dollar amount is calculated based on the closing price of our common stock on December 31, 2022.
−Removed: Compensation Committee Report
−Removed: For the year ended December 31, 2022, the Compensation Committee reviewed and discussed the CD&A with our management.
−Removed: 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.
−Removed: Sanders, Chair
−Removed: Anthony Johnson
−Removed: Roger O’Brien
−Removed: Compensation Committee Interlocks and Insider Participation
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Director Compensation
−Removed: Non-employee directors are compensated for their service on our Board as shown below.
−Removed: Directors who are employees of the Company receive no additional compensation for serving as directors.
−Removed: The Compensation Committee periodically reviews the compensation of our non-employee directors and considers market practices.
−Removed: 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.
−Removed: 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.
−Removed: Based on the KF review, the Compensation Committee recommended, and the Board approved, the following director compensation for 2022:
−Removed: Annual cash retainer:
−Removed: Additional annual cash retainer for:
−Removed: Chair of the Board
−Removed: Chair of a Board Committee
−Removed: Member of a Board Committee
−Removed: Annual RSU award value:
−Removed: 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).
−Removed: Based on the Pay Governance review, the Compensation Committee approved maintaining the 2022 level of non-employee director compensation for 2023.
−Removed: As with many small cap companies, our stock price has been volatile historically.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Our Compensation Committee expects to adhere to this policy for director RSU awards made during 2023 and will evaluate the policy annually.
−Removed: NON-EMPLOYEE DIRECTOR COMPENSATION FOR 2022
−Removed: Anthony Johnson
−Removed: Michael Koganov
−Removed: (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.
−Removed: Salhany was appointed as a director on September 7, 2022 and received pro rata compensation for service during 2022.
+Added: 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 2024 Annual Meeting of Stockholders.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
−Removed: 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.
−Removed: 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.
−Removed: Beneficial ownership representing less than 1% is denoted with an asterisk (*).
−Removed: The address of named beneficial owners that are officers and/or directors of the Company is:
−Removed: c/o 22nd Century Group, Inc., 500 Seneca Street, Suite 507, Buffalo, New York 14204.
−Removed: 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.
−Removed: Name of Beneficial Owner
−Removed: Officers and Directors:
−Removed: John Franzino (3)
−Removed: John Miller (4)
−Removed: Sullivan (5) (7)
−Removed: Sanders (6) (7)
−Removed: Michael Koganov (7)
−Removed: Anthony Johnson (7)
−Removed: Lucille Salhany(8)
−Removed: All directors, director nominees and executive officers as a group (11 persons) (2) - (8)
−Removed: (1) Based on 215,704,036 shares of common stock issued and outstanding as of March 1, 2023.
−Removed: (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.
−Removed: (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.
−Removed: (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.
−Removed: (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.
−Removed: (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.
−Removed: (7) Includes 51,808 restricted stock units vesting on March 21, 2023, subject to continued service.
−Removed: (8) Consists of restricted stock units vesting on March 21, 2023, subject to continued service.
+Added: 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 2024 Annual Meeting of Stockholders.
Certain Relationships and Related Transactions, and Director Independence.
−Removed: Related Party Transactions
−Removed: 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.
−Removed: Our Board of Directors has adopted written policies and procedures regarding related person transactions.
−Removed: For purposes of these policies and procedures:
−Removed: ● 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;
−Removed: ● 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Any related person transaction must be disclosed to our full Board of Directors.
−Removed: There were no related party transactions in 2022 and 2021.
−Removed: Independent Directors
−Removed: Our Board of Directors has determined that Anthony Johnson, Dr.
−Removed: Michael Koganov, Roger D.
−Removed: O’Brien, Lucille S.
−Removed: Salhany, Richard M.
−Removed: Sanders and Nora B.
−Removed: Sullivan are “independent” as defined by applicable Nasdaq Stock Market listing standards.
−Removed: The Board annually reviews all business and other relationships of directors and determines whether directors meet these categorical independence tests.
−Removed: 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.
+Added: 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 2024 Annual Meeting of Stockholders.
Principal Accounting Fees and Services.
−Removed: The following table shows the fees billed to us for the audits and other services provided by Freed Maxick CPAs, P.C.
−Removed: (“Freed”), our independent registered certified public accounting firm, for the fiscal years ended December 31, 2022 and 2021, respectively.
−Removed: Audit-related fees
−Removed: All other fees
−Removed: 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.
−Removed: Audit Committee Policies and Procedures For Pre-Approval of Independent Auditor Services
−Removed: The Audit Committee, in accordance with its charter, must pre-approve all non-audit services provided by our independent registered public accountants.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: 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 2024 Annual Meeting of Stockholders.
Exhibits and Financial Statement Schedules.
16 unchanged sentences
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, 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.
+Added: Going Concern
+Added: The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
+Added: As discussed in Note 1 to the financial statements, the Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue and profit in its tobacco business.
+Added: Further, the Company has negative working capital and a shareholders’ deficit as of December 31, 2023.
+Added: This raises substantial doubt about the Company's ability to continue as a going concern.
+Added: Management's plans in regard to these matters also are described in Note 1.
+Added: The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
16 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.
−Removed: Business acquisition
+Added: Debt related accounting, classification, and valuation
Critical Audit Matter description
−Removed: 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.
−Removed: As discussed in Note 1 of the consolidated financial statements, the Company applies the acquisition method of accounting for business combinations.
−Removed: Under this method, identifiable assets acquired, liabilities assumed, and consideration transferred are measured at their acquisition-date fair value.
−Removed: Any purchase price in excess of the net assets is recorded as goodwill.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: As discussed in Note 1 and 13 of the consolidated financial statements, during the year ended December 31, 2023, prior to the amendments described in Note 13, the Company entered into a senior secured credit facility, which consisted of a three-year debenture with a principal amount of $21,053 (as defined in Note 13) and a $2,865 subordinated promissory note (the “Subordinated Note).
+Added: The Debentures were issued at a 5% original issuance discount and are subject to a 5% exit payment.
+Added: In connection with the issuance with the Debentures and the Subordinated Note, the Company issued warrants to purchase common stock (“Detachable Warrants")
+Added: The Debenture, Subordinated Note, and Detachable Warrants included various terms that required evaluation at the issuance date.
+Added: Further, a portion of the Detachable Warrants met the criteria for equity classification (Note 10), while a portion are treated as liabilities (Note 9) due to holder put features applicable to only a portion of the warrants issued.
+Added: The fair value of both classes of warrants was determined at the date of issuance and recorded as a debt discount.
+Added: The liability classified warrants were subsequently adjusted to fair value at the end of each reporting period.
+Added: We identified the accounting for the terms of the Debentures (prior to amendments), Subordinated Note, and Detachable Warrants as well as the valuation and classification of the same as a critical audit matter.
+Added: Auditing the accounting for these was especially challenging due to the inherent complexity of the agreements and the related valuation models.
+Added: Auditing these elements required an increased level of audit effort, including the involvement of professionals with specialized skill and knowledge.
How the Critical Audit Matter was addressed in the Audit
1 unchanged sentence
The primary procedures we performed include:
−Removed: obtaining an understanding of the process and implemented controls as it relates to the determination of the fair value of assets acquired;
−Removed: identifying key inputs and assumptions used by management to estimate the fair values of the assets purchased;
−Removed: and testing the completeness and accuracy of source information used, mathematical accuracy of management’s calculations, and reviewing assumptions for reasonableness.
−Removed: Impairment tests for indefinite-lived intangible assets and goodwill
+Added: Inspecting the underlying agreements and ensuring appropriate application of the relevant accounting literature to the terms of the Debentures and Subordinated Note;
+Added: evaluating the appropriateness of the fair value and classification of the Detachable Warrants;
+Added: and utilizing personnel with specialized skill and knowledge in valuation to assist in assessing the fair value determined.
+Added: Debt extinguishment, conversion option and fair value measurement
Critical Audit Matter description
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The judgments made in the determination of the estimated fair values assigned to the asset and reporting unit can materially impact the financial statements.
−Removed: 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.
+Added: During the year ended December 31, 2023, the Company amended the Debentures (as defined in Note 13) with its lenders.
+Added: The terms of the amendments are described in Note 13.
+Added: For each amendment, the Company was required to evaluate troubled debt restructuring applicability and debt modification versus extinguishment analysis.
+Added: Neither qualified as a troubled debt restructuring and the first was a modification while the second was extinguishment, primarily resulting from the addition of conversion feature.
+Added: Further, the conversion feature did require bifurcation from the debt host.
+Added: Therefore, both the conversion feature (Note 9) and the Debentures post-extinguishment were subject to fair market measurement.
+Added: The derivative liability is subsequently adjusted to fair value at the end of each reporting period.
+Added: We identified the accounting for the amended terms as well as the valuations related to the conversion option and Debentures post extinguishment as a critical audit matter.
+Added: Auditing the accounting for these items was especially challenging due to the inherent complexity of the agreements and the related valuation models.
+Added: Auditing these elements required an increased level of audit effort, including the involvement of professionals with specialized skill and knowledge.
How the Critical Audit Matter was addressed in the Audit
1 unchanged sentence
The primary procedures we performed include:
−Removed: obtaining an understanding of the process and implemented controls as it relates to management’s impairment analysis;
−Removed: identifying key inputs and assumptions used by management to estimate the fair values;
−Removed: and testing the completeness and accuracy of source information used, mathematical accuracy of management’s calculations, and reviewing assumptions for reasonableness.
+Added: Inspecting the underlying agreements and ensuring appropriate application of the relevant accounting literature to the terms of the amended Debentures;
+Added: evaluating the appropriateness of the fair value for the bifurcated conversion option derivative and the amended Debentures post-extinguishment utilizing personnel with specialized skill and knowledge in valuation to assist in assessing the fair values determined.
+Added: Discontinued Operations
+Added: Critical Audit Matter description
+Added: As discussed in Notes 1, and 2 of the consolidated financial statements, during the year ended December 31, 2023, the Company divested substantially all of its assets in the GVB hemp/cannabis business and recorded impairment charges.
+Added: As a result of the agreement management determined the hemp/cannabis disposal group has met the requirements to be presented as held for sale and discontinued operations for all periods presented.
+Added: The Company has not segregated the statement of cash flows.
+Added: We identified the reporting of discontinued operations and the impairment charges as a critical audit matter, which required extensive effort and a higher degree of auditor judgement.
+Added: How the Critical Audit Matter was addressed in the audit
+Added: Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.
+Added: The primary procedures we performed include:
+Added: assessed management’s conclusion regarding discontinued operations treatment, obtained and read the related agreements and compared the terms of that agreement to the identification of the assets and liabilities included in the disposal group, reviewed management assumptions and judgment for determining historical numbers related to discontinued operations, reviewed and recomputed the loss on disposal of discontinued operations and related income tax benefit, and assessed the completeness and accuracy of the presentation and disclosures.
/s/ Freed Maxick, CPAs, P.C.
11 unchanged sentences
Insurance recoveries
+Added: GVB promissory note
Prepaid expenses and other current assets
+Added: Current assets of discontinued operations held for sale
Total current assets
2 unchanged sentences
Intangible assets, net
+Added: Noncurrent assets of discontinued operations held for sale
LIABILITIES AND SHAREHOLDERS' EQUITY
1 unchanged sentence
Notes and loans payable - current
+Added: Current portion of long-term debt
Operating lease obligations
1 unchanged sentence
Accrued expenses
+Added: Accrued litigation
Accrued payroll
2 unchanged sentences
Other current liabilities
+Added: Current liabilities of discontinued operations held for sale
Total current liabilities
Long-term liabilities:
−Removed: Notes and loans payable
Operating lease obligations
+Added: Long-term debt
Other long-term liabilities
+Added: Noncurrent liabilities of discontinued operations held for sale
Total liabilities
Commitments and contingencies (Note 12)
−Removed: Shareholders' equity
+Added: Shareholders' equity (deficit)
Preferred stock, $ .00001 par value, 10,000,000 shares authorized
6 unchanged sentences
Accumulated deficit
−Removed: Total shareholders' equity
−Removed: Total liabilities and shareholders’ equity
+Added: Total shareholders' equity (deficit)
+Added: Total liabilities and shareholders’ equity (deficit)
See accompanying notes to consolidated financial statements.
5 unchanged sentences
Cost of goods sold
+Added: Gross (loss) profit
Operating expenses:
1 unchanged sentence
Research and development
−Removed: Other operating expense, net
+Added: Other operating expense (income), net
Total operating expenses
−Removed: Operating loss
+Added: Operating loss from continuing operations
Other income (expense):
−Removed: Unrealized loss on investments
−Removed: Realized (loss) gain on Panacea investment
−Removed: Realized loss on short-term investment securities
−Removed: Other income, net
+Added: Realized loss on Panacea investment
+Added: Other income (expense), net
+Added: Loss on transfer of promissory note
Interest income, net
1 unchanged sentence
Total other expense
−Removed: Loss before income taxes
−Removed: (Benefit) provision for income taxes
−Removed: Net loss per common share - basic and diluted
−Removed: Weighted average common shares outstanding - basic and diluted (in thousands)
−Removed: Other comprehensive loss:
−Removed: Unrealized loss on short-term investment securities
+Added: Loss from continuing operations before income taxes
+Added: Provision for income taxes
+Added: Net loss from continuing operations
+Added: Discontinued operations:
+Added: Loss from discontinued operations before income taxes
+Added: Provision (benefit) for income taxes
+Added: Net loss from discontinued operations
+Added: Deemed dividends
+Added: Net loss available to common shareholders
+Added: Basic and diluted loss per common share from continuing operations
+Added: Basic and diluted loss per common share from discontinued operations
+Added: Basic and diluted loss per common share from deemed dividends
+Added: Basic and diluted loss per common share
+Added: Weighted average common shares outstanding - basic and diluted
+Added: Other comprehensive income:
+Added: Unrealized gain (loss) on short-term investment securities
Foreign currency translation
Reclassification of realized losses to net loss
−Removed: Other comprehensive income (loss)
+Added: Other comprehensive income
Comprehensive loss
9 unchanged sentences
Balance at January 1, 2022
−Removed: 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
−Removed: Stock issued in connection with capital raise
+Added: Stock issued in connection with acquisition
+Added: Stock issued in connection with capital raise, net of issuance costs of 2,516
Equity-based compensation
−Removed: Other comprehensive loss
+Added: Other comprehensive income
Balance at December 31, 2022
−Removed: 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 acquisition
−Removed: Stock issued in connection with capital raise, net of issuance costs of 2,516
+Added: Stock issued in connection with ATM, net of fees of $ 178
+Added: Stock issued in connection with licensing arrangement
+Added: Stock issued in connection with capital raises, net of issuance costs of 2,279
+Added: Stock issued in connection with warrant exercises, net of fees of $ 292
+Added: Equity detachable warrants
+Added: Adoption of ASU 2016-13
+Added: Fractional shares issued for reverse stock split
Equity-based compensation
8 unchanged sentences
Adjustments to reconcile net loss to cash used in operating activities:
−Removed: Impairment of intangible assets
+Added: Impairment of long-lived assets
Amortization and depreciation
3 unchanged sentences
GVB fire write-offs
−Removed: Realized loss on short-term investment securities
−Removed: Change in allowance for doubtful accounts
−Removed: Gain on the sale of machinery and equipment
+Added: Other non-cash (gains) and losses
+Added: Provision for credit losses
+Added: (Gain) loss on the sale of machinery and equipment
Realized loss (gain) on Panacea investment
−Removed: Accretion of non-cash interest expense (income), net
+Added: Inventory write-off
+Added: Debt related charges included in interest expense
Equity-based employee compensation expense
+Added: Gain on change of contingent consideration
+Added: Change in fair value of warrant liabilities
+Added: Change in fair value of derivative liability
+Added: Loss on disposal of discontinued operations
+Added: Loss on transfer of promissory note
Deferred income taxes
−Removed: Inventory write-off
+Added: Increase in inventory reserves
Changes in operating assets and liabilities, net of acquisition:
10 unchanged sentences
Acquisition of property, plant and equipment
−Removed: Proceeds from the sale of machinery and equipment
−Removed: Acquisition, net of cash acquired and debt assumed
+Added: Proceeds from the sale of property, plant and equipment
+Added: Acquisition, net of cash acquired
+Added: Proceeds from sale of discontinued operations
Investment in Change Agronomy Ltd.
+Added: Property, plant and equipment insurance proceeds
Sales and maturities of short-term investment securities
Purchase of short-term investment securities
−Removed: Net cash provided by (used in) investing activities
+Added: Net cash provided by investing activities
Cash flows from financing activities:
−Removed: Payment on note payable
−Removed: Proceeds from note payable issuance
+Added: Payments on notes payable
+Added: Proceeds from issuance of notes payable
Other financing activities
+Added: Payments of long-term debt
+Added: Proceeds from issuance of long-term debt
+Added: Payment of debt issuance costs
+Added: Proceeds from issuance of detachable warrants
Net proceeds from option exercise
Net proceeds from warrant exercise
+Added: Proceeds from issuance of common stock related to the ATM
+Added: Payment of common stock issuance costs related to the ATM
Proceeds from issuance of common stock
2 unchanged sentences
Net cash provided by financing activities
−Removed: Net increase in cash and cash equivalents
+Added: Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents - beginning of period
7 unchanged sentences
Right-of-use assets and corresponding operating lease obligations
−Removed: Panacea investment conversion
+Added: Non-cash assignment of PLSH Promissory Note
+Added: Insurance/litigation gross up
+Added: Non-cash proceeds from sale of discontinued operations
+Added: Deemed dividends
Stock issued in connection with acquisition
+Added: Non-cash consideration RXP acquisition
+Added: Non-cash licensing arrangement
See accompanying notes to consolidated financial statements .
6 unchanged sentences
22nd Century Group, Inc.
−Removed: (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.
+Added: (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 tobacco products company with sales and distribution of the Company’s own proprietary new reduced nicotine tobacco products authorized as Modified Risk Tobacco Products by the FDA.
+Added: Additionally, the Company provides contract manufacturing services for conventional combustible tobacco products for third-party brands.
Basis of Presentation and Principles of Consolidation – The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of 22 nd Century Group and its wholly owned subsidiaries.
All intercompany balances and transactions have been eliminated in consolidation.
−Removed: 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.
−Removed: 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.
−Removed: T he Company now organizes its business into two reportable segments:
−Removed: (1) Tobacco and (2) Hemp/cannabis.
+Added: As described in Note 2, on December 22, 2023, the Company divested substantially all of the assets of GVB Biopharma’s (“GVB”) business within its former hemp/cannabis segment.
+Added: As a result of the divestiture of GVB and strategic shift away from hemp/cannabis, the Company has realigned its corporate and management reporting structure to focus solely on its tobacco business.
+Added: As a result, during the fourth quarter of 2023, the Company reorganized its business to become a single reportable segment:
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.
−Removed: This segment structure reflects the Company’s current operating focus in compliance with Accounting Standards Codification (“ASC”) 280, Segment Reporting .
−Removed: As a result of the new segment reporting structure, the Company has reclassified prior year amounts to conform them to the current year presentation.
−Removed: 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.
−Removed: Refer to Note 17 “Segment and Geographic Information,” for additional information on the Company’s reportable segments.
+Added: All assets and continuing operations of the Company are physically located or domiciled in the United States.
+Added: The results of operations of the former hemp/cannabis segment are reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for all periods presented and the related assets and liabilities associated with the discontinued operations are classified as held for sale in the Consolidated Balance Sheets as of December 31, 2023, and 2022, respectively.
+Added: The Consolidated Statements of Cash Flows includes cash flows related to the discontinued operations due to 22 nd Century’s (parent) centralized treasury and cash management processes, and, accordingly, cash flow amounts for discontinued operations are disclosed in Note 2 “Discontinued Operations and Divestitures.” All results and information in the Consolidated Financial Statements are presented as continuing operations and exclude the former hemp/cannabis segment unless otherwise noted specifically as discontinued operations.
Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
−Removed: 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:
−Removed: December 31, 2021
−Removed: As originally
−Removed: Revenues, net
−Removed: Cost of goods sold
−Removed: Operating expenses:
−Removed: Sales, general and administrative
−Removed: Research and development
−Removed: Impairment of intangible assets
−Removed: Other operating expenses, net
−Removed: Total operating expenses
−Removed: Operating loss
+Added: Liquidity and Capital Resources – These Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
+Added: The Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue and profit in its tobacco business.
+Added: The Company had negative cash flow from operations of $ 54,987 and $ 51,714 for the years ended December 31, 2023 and 2022, respectively, and an accumulated deficit of $ 378,707 and $ 237,814 as of December 31, 2023 and December 31, 2022, respectively.
+Added: As of December 31, 2023, the Company had cash and cash equivalents of $ 2,058 .
+Added: Subsequent to December 31, 2023, the Company completed a warrant inducement offering with gross proceeds to the Company of approximately $ 2,421 , before deducting the placement agent fees of $ 165 (see Note 21 “Subsequent Events”).
+Added: Given the Company’s projected operating requirements and its existing cash and cash equivalents, there is substantial doubt about the Company’s ability to continue as a going concern through one year following the date that the Consolidated Financial Statements are issued.
+Added: In response to these conditions, management is currently evaluating different strategies for reducing expenses, as well as pursuing financing strategies which include raising additional funds through the issuance of securities, asset sales, and through arrangements with strategic partners.
+Added: If capital is not available to the Company when, and in the amounts needed, it could be required to liquidate inventory or assets, cease or curtail operations, or seek protection under applicable bankruptcy laws or similar state proceedings.
+Added: There can be no assurance that the Company will be able to raise the capital it needs to continue operations.
+Added: Management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern through one year following the date that the Consolidated Financial Statements are issued.
+Added: The Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
+Added: Other Significant Risks and Uncertainties - The Company is subject to a number of risks, including, but not limited to, the lack of available capital;
+Added: the possible delisting of its common stock from Nasdaq;
+Added: future covenant non-compliance with respect to the Company’s Senior Secured Credit Facility giving rise to an event of default;
+Added: inability to identify or consummate any strategic initiatives and transactions;
+Added: unsuccessful commercialization strategy and launch plans for the Company’s products or market acceptance of the Company’s products;
+Added: risks inherent in litigation, including purported class actions;
+Added: and protection of proprietary technology.
+Added: Reverse Stock Split – On July 5, 2023, the Company effected a 1-for-15 reverse stock split of its common stock in order to regain compliance with Nasdaq's continued listing requirements.
+Added: Fractional shares resulting from the reverse stock split were rounded up to the nearest whole share, which resulted in the issuance of a total of 66,035 shares of common stock to implement the reverse stock split.
+Added: All share and per share amounts, and exercise prices of stock options, and warrants in the Consolidated Financial Statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split.
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.
−Removed: Foreign currency translation– The functional currency of our foreign subsidiaries is generally the respective local currency.
−Removed: The translation from the applicable foreign currencies to U.S.
−Removed: 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.
−Removed: The resulting translation adjustments are recognized as a component of Accumulated other comprehensive loss.
−Removed: 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.
13 unchanged sentences
Interest income is recorded on the accrual basis and presented net of investment related fees.
−Removed: Accounts receivable, net – The Company extends credit to customers in the normal course of business.
−Removed: Trade accounts receivable are recorded at their invoiced amounts, net of allowance for doubtful accounts.
−Removed: The Company periodically reviews aged account balances for collectability.
−Removed: The Company recorded an allowance for doubtful accounts of $ 372 and $ 0 for years ended December 31, 2022 and December 31, 2021.
+Added: Trade Accounts Receivable and Provision for Current Expected Credit Losses – The Company provides credit, in the normal course of business, to its tobacco customers in the form of trade receivables.
+Added: Credit is extended based on evaluation of a customer’s financial condition and collateral is not required.
+Added: The Company maintains a provision for those trade receivables that it does not expect to collect.
+Added: In accordance with Accounting Standards Codification (“ASC”) Topic 326, the Company accrues its estimated losses from uncollectable accounts receivable to the provision based upon recent historical experience, the length of time the receivable has been outstanding, other specific information as it becomes available, and reasonable and supportable forecasts not already reflected in the historical loss information.
+Added: Provisions for current expected credit losses are charged to current operating expenses.
+Added: Actual losses are charged against the provision when incurred.
+Added: As of December 31, 2023, and 2022, the Company recorded a provision for credit losses of $ 8 and $ 0 , respectively.
Inventories – Inventories are valued at the lower of historical cost or net realizable value.
1 unchanged sentence
Standard cost is primarily used for finished goods inventory.
−Removed: Cost of hemp biomass consists of initial third-party acquisition costs plus analytical testing costs.
−Removed: 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.
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Estimated Useful Lives
−Removed: 25 to 40 years
−Removed: Laboratory equipment
−Removed: Land improvements
Leasehold improvements
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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.
−Removed: 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.
+Added: Discontinued Operations - In determining whether a group of assets which has been disposed of (or is to be disposed of) should be presented as a discontinued operation, the Company analyzes whether the group of assets being disposed of represented a component of the entity;
+Added: that is, whether it had historic operations and cash flows that were clearly distinguished (both operationally and for financial reporting purposes).
+Added: In addition, the Company considers whether the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.
+Added: The assets and liabilities of a discontinued operation held for sale, other than goodwill, are measured at the lower of carrying amount or fair value less cost to sell.
+Added: The Company allocates interest to discontinued operations if the interest is directly attributable to the discontinued operations or is interest on debt that is required to be repaid as a result of the disposal transaction.
+Added: Contingent Consideration - Contingent consideration arising from a business acquisition is included as part of the purchase price and is recorded at fair value as of the acquisition date.
+Added: Subsequent to the acquisition date, the Company remeasures contingent consideration arrangements at fair value at each reporting period until the contingency is resolved.
+Added: The changes in fair value are recognized within Other operating expenses (income), net in the Company’s Consolidated Statement of Operations and Comprehensive Loss.
+Added: Changes in fair values reflect new information about the likelihood of the payment of the contingent consideration and the passage of time.
+Added: See Note 3 “Business Acquisitions” for the contingent consideration arising from the acquisition of RX Pharmatech Ltd.
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.
−Removed: The Company’s reporting units are the same as its reportable segments, Tobacco and Hemp/cannabis.
−Removed: 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.
−Removed: In conducting its goodwill test, the Company either performs a qualitative assessment or a quantitative assessment.
−Removed: 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.
−Removed: 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.
−Removed: The Company may elect to bypass the qualitative analysis and perform a quantitative analysis.
−Removed: 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.
−Removed: 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.
−Removed: The cash flow assumptions consider historical and forecasted revenue, operating costs and other relevant factors.
−Removed: 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.
−Removed: Intangible Assets – Intangible assets recorded at fair value as a component of purchase accounting consist of purchased customer relationships and tradename.
−Removed: 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.
−Removed: The tradename asset is considered indefinite-lived and is not amortized.
−Removed: 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.
+Added: The Company tests its reporting unit’s goodwill for impairment at least annually as of the measurement date year 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.
+Added: The Company concluded an interim impairment trigger event occurred and tested its goodwill for impairment during the quarter ended September 30, 2023 and concluded that goodwill impairment existed.
+Added: No goodwill remained as of December 31, 2023.
+Added: See Note 2 “Discontinued Operations and Divestitures” for additional information.
+Added: Intangible Assets – Definite lived intangible assets are recorded at cost and consist primarily of (1) expenditures incurred with third-parties related to the processing of patent claims and trademarks with government authorities, as well as costs to acquire patent rights from third-parties, (2) license fees paid for third-party intellectual property.
The amounts capitalized relate to intellectual property that the Company owns or to which it has rights to use.
3 unchanged sentences
License fees paid for third-party intellectual property are amortized on a straight-line basis over the last to expire patents, which have expected expiration dates from 2028 through 2043.
−Removed: The Company believes that costs associated with becoming a signatory to the MSA, costs related to the acquisition of a predicate cigarette brand and trademarks have indefinite lives.
−Removed: As such, no amortization is taken.
−Removed: At each reporting period, the Company evaluates whether events and circumstances continue to support the indefinite-lived classification.
−Removed: Impairment of Long-Lived Assets – The Company reviews the carrying value of its amortizing long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be recoverable.
−Removed: On at least an annual basis, the Company assesses whether events or changes in circumstances indicate that the carrying amount may not be recoverable.
−Removed: If any such indicators are present, the Company will test for recoverability in accordance with ASC 360- Property, plant, and equipment or ASC 350- Intangibles, Goodwill, and Other .
−Removed: Intangible assets subject to amortization are reviewed for strategic importance and commercialization opportunity prior to expiration.
+Added: The Company believes that costs associated with becoming a signatory to the master settlement agreement “MSA”, costs related to the acquisition of a predicate cigarette brand, and tobacco brand related trademarks have indefinite lives.
+Added: At each reporting period, the Company evaluates whether the nature and use of the asset continue to support the indefinite-lived classification.
+Added: Impairment of Long-Lived Assets – The Company reviews the carrying value of its long-lived assets at each reporting period to determine if impairment indicators are present in accordance with ASC 360- Property, plant, and equipment or ASC 350- Intangibles, Goodwill, and Other .
+Added: Definite lived intangible assets subject to amortization are reviewed for strategic importance and commercialization opportunity prior to expiration.
If it is determined that the asset no longer supports the Company’s strategic objectives and/or will not be commercially viable prior to expiration, the asset is impaired.
In addition, the Company will assess the expected future undiscounted cash flows for its intellectual property based on consideration of future market and economic conditions, competition, federal and state regulations, and licensing opportunities.
−Removed: If the carrying value of such assets are not recoverable, the carrying value will be reduced to fair value and record the difference as an impairment.
+Added: If the carrying value of such assets are not recoverable, the carrying value will be reduced to fair value and the difference is recorded as impairment.
Indefinite-lived intangible asset carrying values are reviewed at least annually or more frequently if events or changes in circumstances indicate that it is more likely than not that an impairment exists.
1 unchanged sentence
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.
−Removed: 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.
−Removed: 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.
5 unchanged sentences
The discount rate used is the interest rate implicit in the lease, if available, or the Company’s incremental borrowing rate which is determined using a base line rate plus an applicable spread.
−Removed: Refer to Note 5 for additional information regarding our ROU assets and liabilities.
−Removed: Income Taxes – The Company recognizes deferred tax assets and liabilities for any basis differences in its assets and liabilities between tax and U.S.
−Removed: GAAP reporting, and for operating loss and credit carry-forwards.
−Removed: As a result of the Company’s history of cumulative net operating losses and the uncertainty of their future utilization, the Company has established a valuation allowance to fully offset its net deferred tax assets as of December 31, 2022 and December 31, 2021.
−Removed: Additionally, the Company has elected to present other comprehensive income items relating to net unrealized gains on short-term investment securities gross and not net of taxes.
−Removed: The Company’s federal and state tax returns for the years ended December 31, 2019 through December 31, 2021 are currently open to audit under the statutes of limitations.
−Removed: There are no pending audits as of December 31, 2022.
−Removed: Stock Based Compensation – The Company’s Omnibus Incentive Plan allows for various types of equity-based incentive awards.
−Removed: Stock based compensation expense is based on awards that are expected to vest over the requisite service periods and are based on the fair value of the award measured on the grant date.
−Removed: Vesting requirements vary for directors, officers, and employees.
−Removed: In general, time-based awards fully vest after one year for directors and vest in equal annual installments over a three-year period for officers and employees.
−Removed: Performance-based awards vest upon achievement of certain milestones.
−Removed: Forfeitures are accounted for when they occur.
−Removed: Revenue Recognition – The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer.
−Removed: For additional discussion on revenue recognition, refer to Note 18.
+Added: Refer to Note 6 “Right-of-use Assets, Lease Obligations, and Other Leases” for additional information.
Fair Value of Financial Instruments – FASB ASC 820 - Fair Value Measurements and Disclosures establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value.
5 unchanged sentences
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.
−Removed: Note 8 contains additional information on assets and liabilities recorded at fair value in the Consolidated Financial Statements.
−Removed: Investments –The Company’s equity securities are recorded at fair value with changes in fair value included within the statement of operations.
−Removed: 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.
−Removed: 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.
+Added: Note 9 “Fair Value Measurements” contains additional information on assets and liabilities recorded at fair value in the Consolidated Financial Statements.
+Added: Warrants - The Company accounts for stock warrants as either equity instruments, derivative liabilities, or liabilities in accordance with ASC 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815) depending on the specific terms of the warrant agreement.
+Added: The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification.
+Added: This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
+Added: Warrants that the Company may be required to redeem through payment of cash or other assets outside its control are classified as liabilities pursuant to ASC 480 and are initially and subsequently measured at their estimated fair values.
+Added: Changes in subsequent measurement fair value are recorded in Other income (expense), net of the Company’s Consolidated Statements of Operations and Comprehensive Loss.
+Added: For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in
+Added: capital at the time of issuance.
+Added: For additional discussion on warrants, see Note 9 “Fair Value Measurements” and Note 10 “Capital Raise and Warrants for Common Stock”.
+Added: Deemed dividends associated with anti-dilution or down round provisions (commonly referred to as “ratchets”) represent the economic transfer of value to holders of equity-classified freestanding financial instruments when these provisions are triggered.
+Added: These deemed dividends are presented as a reduction in net income or an increase in net loss available to common stockholders and a corresponding increase to additional paid-in-capital resulting in no change to stockholders’ equity/deficit.
+Added: The incremental value of modifications to warrants as a result of the trigger of down round provisions in connection with equity financings was $ 3,029 , the incremental value of replacement warrants was $ 6,596 , and the incremental value of modifications to warrants as a result of the trigger of anti-dilution provisions of the JGB warrants was $ 367 .
+Added: Such amounts were determined using Monte-Carlo valuation models and are recorded as Deemed dividends for the year ended December 31, 2023 on the Consolidated Statement of Operations and Comprehensive Loss.
+Added: Debt Issued with Detachable Warrants - The Company considers guidance within ASC 470-20, Debt (ASC 470), ASC 480, and ASC 815 when accounting for the issuance of debt with detachable warrants.
+Added: As described above under the caption “Warrants” , the Company classifies stock warrants as either equity instruments, derivative liabilities, or liabilities depending on the specific terms of the warrant agreement.
+Added: In circumstances in which debt is issued with detachable warrants, the proceeds from the issuance of the debt are first allocated to the warrants at their full estimated fair value with a corresponding debt discount.
+Added: The remaining proceeds, as further reduced by discounts (including those created by the bifurcation of embedded derivatives), is allocated to the debt.
+Added: The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount from the allocation of proceeds, to interest expense using the effective interest method over the expected term of the debt instrument pursuant to ASC 835, Interest (ASC 835).
+Added: Embedded Derivatives - The Company considers whether there are any embedded features in debt instruments that require bifurcation and separate accounting as derivative financial instruments pursuant to ASC 815.
+Added: Embedded derivatives are initially and subsequently measured at fair value.
+Added: With the exception of the bifurcated embedded conversion option as described in Note 13 “Debt”, the embedded derivatives associated with the Company’s Senior Secured Credit Facility and Subordinated Note are not material.
+Added: Debt Issuance Costs and Discounts - Debt issuance costs and discounts associated with the issuance of debt by the Company are deferred and amortized over the term of the related debt.
+Added: Debt issuance costs and discounts related to the Company’s Senior Secured Credit Facility and Subordinated Note are recorded as a reduction of the carrying value of the related debt and are amortized to Interest expense using the effective interest method over the period from the date of issuance to the maturity date, whichever is earlier.
+Added: The amortization of debt issuance costs and discounts are included in Debt related charges included in interest expense in the Consolidated Statements of Cash Flows.
+Added: Note 13 “Debt” contains additional information on the Company’s debt issuance costs and discounts.
+Added: Transfers of Financial Assets – The Company accounts for transfers of financial assets as sales when it has surrendered control over the related assets.
+Added: Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of the Company’s continuing involvement with the assets transferred.
+Added: Gains and losses resulting from transfers reported as sales are included as a component of Other income (expense) in the Consolidated Statement of Operations and Comprehensive Loss.
+Added: Gain/Loss on Debt Extinguishment – Gain or loss on debt extinguishment is generally recorded upon an extinguishment of a debt instrument.
+Added: Gain or loss on extinguishment of debt is calculated as the difference between the reacquisition price and net carrying amount of the debt, which includes unamortized debt issuance costs.
+Added: Gains and losses on debt extinguishment are included as a component of Interest expense in the Consolidated Statement of Operations and Comprehensive Loss.
+Added: Revenue Recognition – The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer.
+Added: For additional discussion on revenue recognition, refer to Note 17 “Revenue Recognition”.
Research and Development – Research and development costs are expensed as incurred.
+Added: Stock Based Compensation – The Company’s Omnibus Incentive Plan allows for various types of equity-based incentive awards.
+Added: Stock based compensation expense is based on awards that are expected to vest over the requisite service periods and are based on the fair value of the award measured on the grant date.
+Added: Vesting requirements vary for directors, officers, and employees.
+Added: In general, time-based awards fully vest after one year for directors and vest in equal annual installments over a three-year period for officers and employees.
+Added: Performance-based awards vest upon achievement of certain milestones.
+Added: Forfeitures are accounted for when they occur.
+Added: Income Taxes – The Company recognizes deferred tax assets and liabilities for any basis differences in its assets and liabilities between tax and U.S.
+Added: GAAP reporting, and for operating loss and credit carry-forwards.
+Added: As a result of the Company’s history of cumulative net operating losses and the uncertainty of their future utilization, the Company has established a valuation allowance to fully offset its net deferred tax assets as of December 31, 2023, and December 31, 2022.
+Added: The Company’s federal and state tax returns for the years ended December 31, 2020 through December 31, 2022 are currently open to audit under the statutes of limitations.
+Added: There are no pending audits as of December 31, 2023.
Loss Per Common Share – Basic loss per common share is computed using the weighted-average number of common shares outstanding.
1 unchanged sentence
Potential common shares outstanding are excluded from the computation if their effect is anti-dilutive.
−Removed: Refer to Note 13 for additional information.
+Added: Refer to Note 16 “Loss Per Common Share” for additional information.
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.
11 unchanged sentences
Gain contingencies are recognized when earned and realized, which typically will occur at the time of final settlement or when cash is received.
−Removed: Refer to further discussion of all commitments and contingencies in Note 12.
+Added: Refer to Note 12 “Commitments and Contingencies”.
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.
6 unchanged sentences
Balance at December 31, 2022
+Added: Reversal from settlement
+Added: Cash payments
+Added: Balance at December 31, 2023
Total severance liability
−Removed: 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.
−Removed: Amounts are recorded as Selling, general and administrative in the Consolidated Statements of Operations and Comprehensive Loss.
−Removed: Recent Accounting Pronouncement(s) – In June 2016, the FASB issued ASU 2016-13, “ Measurement of Credit Losses on Financial Instruments.
−Removed: ” 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.
−Removed: The provisions of the ASU have an effective date for the Company beginning after December 15, 2022 and interim periods within those fiscal years.
−Removed: 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.
−Removed: The Company does not expect the new credit loss standard to have a material impact to the Consolidated Financial Statements.
+Added: Sales, general, and administrative
+Added: Other operating expense, net
+Added: Total severance charges
+Added: Recent Accounting Pronouncement(s) –
+Added: The Company adopted ASU 2016-13, or ASC 326 Financial Instruments-Credit Losses , effective January 1, 2023 under a modified retrospective approach.
+Added: Under the current expected credit losses (“CECL”) model, the Company immediately recognizes an estimate of credit losses expected to occur over the life of the financial asset at the time the financial asset is originated or acquired.
+Added: Estimated credit losses are determined by taking into consideration historical loss conditions, current conditions and reasonable and supportable forecasts.
+Added: Changes to the expected lifetime credit losses are recognized each period.
+Added: The new guidance applies to the Company’s trade receivables and contract asset balances.
+Added: Due to the nature of business operations and contracts with customers, the Company has historically not experienced significant bad debt expense or write-offs and as a result, the adoption of ASC 326 did not have a material impact to the Company’s Consolidated Financial Statements.
+Added: In connection with the adoption of ASC 326, the Company recorded a provision for credit losses of $ 118 with an offsetting cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2023.
+Added: Accounting Guidance Not Yet Elected or Adopted
+Added: In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)-Improvements to Reportable Segment Disclosures .
+Added: The ASU enhances disclosure of significant segment expenses by requiring disclosure of significant segment expenses regularly provided to the chief operating decision maker, extend certain annual disclosures to interim periods, and permits more than one measure of segment profit or loss to be reported under certain conditions.
+Added: The amendments are effective for the Company in years beginning after December 15, 2023, and interim periods within years beginning after December 15, 2024.
+Added: Early adoption of the ASU is permitted, including adoption in any interim period for which financial statements have not been issued.
+Added: The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated financial statements.
+Added: In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)-Improvements to Income Tax Disclosures.
+Added: The ASU requires additional quantitative and qualitative income tax disclosures to allow readers of the consolidated financial statements to assess how the Company’s operations, related tax risks and tax planning affect its tax rate and prospects for future cash flows.
+Added: For public business entities, the ASU is effective for annual periods beginning after December 15, 2024.
+Added: The Company is currently evaluating the impact that the adoption of this ASU will have on its 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.
+Added: – DISCONTINUED OPERATIONS AND DIVESTITURES
+Added: Provision for Impairment of GVB Hemp/Cannabis Business
+Added: During the third quarter of 2023, the Company identified certain events and circumstances that could potentially be an impairment triggering event for both the tobacco and hemp/cannabis reporting units in connection with (1) the announcement of initiating a process to evaluate strategic alternatives for the Company’s assets, and (2) announcement of cost cut initiatives intended to yield significant cash savings on an annual basis.
+Added: The initiation of these two processes was in response to the sustained decline in the Company's market capitalization, operating losses and negative cash flows from operations, and current liquidity position, and is intended to monetize the value or more effectively expand the market reach of our products.
+Added: Accordingly, the Company evaluated the impact on each of its reporting units to assess whether there was an impairment triggering event requiring it to perform a goodwill impairment test.
+Added: The Company had no recorded goodwill in its tobacco reporting unit.
+Added: For the hemp/cannabis reporting unit, as part of this impairment test, the Company considered certain qualitative factors, such as the Company’s performance, business forecasts, and strategic plans.
+Added: It reviewed key assumptions, including projected cash flows and future revenues.
+Added: After reviewing the qualitative assessment, the Company determined a quantitative assessment was required to be performed.
+Added: Using the income approach, with the discount rate selected considering and capturing the related risk associated with the forecast, the Company compared the fair value of the reporting unit to carrying value.
+Added: Based on the results, the carrying value of the hemp/cannabis reporting unit exceeded its fair value and the goodwill was determined to be impaired and $ 33,360 , representing the full amount of goodwill recorded to the hemp/cannabis reporting unit, was written off as impaired during the quarter ended September 30, 2023.
+Added: The impairment charge is the result of the Company's Step-1 goodwill impairment test for the former hemp/cannabis reporting unit, which reflected a decrease in the future expected cash flows related to bulk ingredient and CDMO+D product sales, along with increases in discount rates to reflect the uncertainty of future cash flows.
+Added: Estimating the fair value of goodwill requires the use of estimates and significant judgments that are based on a number of factors, including unobservable level 3 inputs.
+Added: These estimates and judgments may not be within the control of the Company and accordingly it is reasonably possible that the judgments and estimates could change in future periods.
+Added: The Company also evaluated the recoverability of its hemp/cannabis segment other intangible assets, net and long-lived assets to determine whether any assets or asset groups were impaired.
+Added: The Company determined that the carrying value of certain tradenames, patents and license intangible assets, net were greater than their fair value, as these intangible assets related to hemp/cannabis operations.
+Added: Therefore, the Company recorded additional provision for impairment in the amount of $ 10,879 , the Cookies license acquired in the second quarter of 2023 was written-off and fully impaired in the amount of $ 3,037 , and a loss on equity investments of $ 682 .
+Added: Additionally, through a similar analysis, the Company recorded provision for impairment of $ 7,418 for property, plant and equipment and $ 5,038 for operating lease right-of-use assets related to manufacturing and lab facilities.
+Added: The undiscounted cash flow analysis and fair value determination requires the use of estimates and significant judgments that are based on a number of factors, including unobservable level 3 inputs.
+Added: For the year ended December 31, 2023, total impairment charges for other intangibles and long-lived assets is $ 25,189 .
+Added: Discontinued Operations and Divestiture of GVB Hemp/Cannabis Business
+Added: On November 20, 2023, the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Specialty Acquisition Corporation, a Nevada corporation (the “Buyer”) pursuant to which the Company agreed to sell substantially all of its equity interests in its GVB hemp/cannabis business (the “Purchased Interests”) for a purchase price of $ 2,250 (the “Purchase Price”).
+Added: On December 22, 2023, the Company and the Buyer entered into an Amendment to Equity Purchase Agreement (the “GVB Amendment”) pursuant to which the Company and the Buyer increased the Purchase Price to $ 3,100 (the “New Purchase Price”) which consisted of (i) a cash payment of $ 1,100 to the Company’s senior lender, on behalf of and at the direction of the Company and (ii) a 12 % secured promissory note issued by the Buyer to the Company’s senior lender, on behalf of and at the direction of the Company, in an aggregate principal amount of $ 2,000 (the “GVB Note”).
+Added: Until repaid to the senior lender, the GVB Note is recorded as a current asset and corresponding amount is pledged as Current portion of long term debt on the Consolidated Balance Sheet as of December 31, 2023.
+Added: The parties previously agreed that the Company would retain any insurance proceeds received in connection with the fire at the Grass Valley manufacturing facility, if any (the “Insurance Proceeds”) and up to the first $ 2,000 of the Insurance Proceeds would be used to offset the Buyer’s portion of certain shared liabilities.
+Added: Pursuant to the terms of the GVB Amendment, the Buyer will be entitled to offset its portion of certain shared contingent liabilities up to $ 1,000 ;
+Added: provided that, the Insurance Proceeds exceed $ 5,000 .
+Added: In connection with the closing of the transaction on December 22, 2023, but prior to any adjustments for Insurance Proceeds and certain shared liabilities, after selling expenses of $ 434 , the Company recognized a loss on disposal of discontinued operations of $ 58,521 during the year ended December 31, 2023, which includes the third quarter impairment charges described above.
+Added: For disposal transactions, a component of an entity that is anticipated to be sold in the future is reported in discontinued operations after it meets the criteria for held-for-sale classification, and if the disposition represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results.
+Added: The Company evaluated the quantitative and qualitative factors related to the expected sale of the GVB hemp/cannabis business and exit from the hemp/cannabis space, and concluded that it met the held-for-sale criteria and that all other conditions for discontinued operations presentation were not met until November 30, 2023.
+Added: Property, plant and equipment are not depreciated, and intangibles assets are not amortized once classified as held-for-sale.
+Added: As a result, the operating results of the hemp/cannabis disposal group have been classified as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for all periods presented and the assets and liabilities of the hemp/cannabis disposal group have been classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheets at December 31, 2023 and 2022, respectively.
+Added: See additional information in Note 3, “Business Acquisitions” related to GVB And RXP, including the date of transactions and periods that operating results of the acquired business are included in the Consolidated Financial Statements.
+Added: The assets and liabilities of a discontinued operation held for sale, other than goodwill, are measured at the lower of carrying amount or fair value less cost to sell.
+Added: Following the provision for impairment charges recorded during the third quarter of 2023 as described above, the Company concluded the carrying value of assets and liabilities of the GVB hemp/cannabis business approximated fair value when deemed held for sale based on the purchase price consideration of $ 3,100 .
+Added: As of December 31, 2023, all assets and liabilities of the hemp/cannabis disposal group are presented as current in the Consolidated Balance Sheet as management believes the remaining disposal and exit from hemp/cannabis is deemed probable and will occur within one year.
+Added: The carrying amounts of the hemp/cannabis disposal group assets and liabilities that were classified as assets and liabilities of discontinued operations held for sale were as follows:
+Added: Cash and cash equivalents
+Added: Accounts receivable, net
+Added: Insurance recoveries
+Added: Prepaid expenses and other current assets
+Added: Property, plant and equipment, net - current
+Added: Other current assets
+Added: Current assets of discontinued operations held for sale
+Added: Property, plant and equipment, net
+Added: Operating lease right-of-use assets, net
+Added: Intangible assets, net
+Added: Noncurrent assets of discontinued operations held for sale
+Added: Notes and loans payable - current
+Added: Operating lease obligations
+Added: Accounts payable
+Added: Accrued expenses
+Added: Accrued payroll
+Added: Deferred income
+Added: Other current liabilities
+Added: Current liabilities of discontinued operations held for sale
+Added: Notes and loans payable
+Added: Operating lease obligations
+Added: Other long-term liabilities
+Added: Noncurrent liabilities of discontinued operations held for sale
+Added: Net (liabilities) assets
+Added: Net loss from discontinued operations for year ended December 31, 2023 and 2022 was as follows:
+Added: Revenues, net
+Added: Cost of goods sold
+Added: Operating expenses:
+Added: Sales, general and administrative
+Added: Research and development
+Added: Other operating expense, net (1)
+Added: Loss on disposal of discontinued operations
+Added: Total operating expenses
+Added: Operating loss from discontinued operations
+Added: Other income (expense):
+Added: Other income, net
+Added: Interest expense (2)
+Added: Total other expense
+Added: Loss from discontinued operations before income taxes
+Added: Provision (benefit) for income taxes
+Added: Net loss from discontinued operations
+Added: (1) The Company recorded $ 25,189 of impairment charges in Other operating expenses, net and recorded $ 33,360 of Goodwill impairment from discontinued operations during the three months ended September 30, 2023, which were reclassified to Loss on disposal of discontinued operations during the three months ended December 31, 2023.
+Added: (2) The Company allocates interest to discontinued operations if the interest is directly attributable to the discontinued operations or is interest on debt that is required to be repaid as a result of the disposal transaction.
+Added: Interest expense included in discontinued operations reflects an estimate of interest expense related to the $ 3,100 principal balance of debt that is required to be repaid with the proceeds from the sale of the GVB hemp/cannabis business.
+Added: The components of discontinued operations “Other operating expenses, net” were as follows:
+Added: Grass Valley fire:
+Added: Fixed asset write-offs
+Added: Inventory charges
+Added: Lease obligations
+Added: Professional services
+Added: Compensation & benefits
+Added: Insurance recoveries
+Added: Total Grass Valley fire
+Added: Impairment of intangible assets
+Added: Gain on change in contingent consideration
+Added: Needlerock Farms settlement
+Added: Impairment of inventory
+Added: Gain on sale or disposal of property, plant and equipment
+Added: Acquisition costs
+Added: Total other operating expenses, net
+Added: Grass Valley fire
+Added: In November 2022, there was a fire at our Grass Valley manufacturing facility in Oregon, which manufactures bulk ingredients, primarily CBD isolate and distillate.
+Added: The Company has incurred continuous expenses throughout 2023 related to consulting, legal and demolition at this facility.
+Added: Cash flow information from discontinued operations for years ended December 31, 2023 and 2022 was as follows:
+Added: Cash used in operating activities
+Added: Cash used in investing activities
+Added: Depreciation and amortization
+Added: Capital expenditures
– BUSINESS ACQUISITIONS
+Added: The following acquisitions occurring during the years ended December 31, 2023, and 2022, respectively, are included in the Company’s former hemp/cannabis reportable segment.
+Added: Accordingly, the results of operations are reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for all periods presented.
+Added: See Note 2 “Discontinued Operations and Divestitures” for additional information.
+Added: RX Pharmatech, Ltd.
+Added: On January 19, 2023, the Company acquired RX Pharmatech Ltd (“RXP”) pursuant to a share purchase agreement ("SPA”) a privately held distributor of cannabinoids with 1,276 novel food applications with the U.K.
+Added: Food Standards Agency (“FSA”).
+Added: RXP’s products include CBD isolate and numerous variations of finished products like gummies, oils, drops, candies, tinctures, sprays, capsules and others.
+Added: The initial consideration paid to acquire RXP included $ 200 in cash and $ 503 in common stock (consisting of 31,056 unregistered shares of common stock), and an initial estimate of target working capital true-up of $ 286 .
+Added: 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.
+Added: Additionally, the contingent consideration in the transaction represents the estimated fair value of the Company’s obligation, under the share purchase agreement, to make additional equity based payments of up to $ 1,550 over the next three years based on specified conditions being met, which has an initial fair value of contingent consideration of $ 1,138 .
+Added: The fair value of the aggregate consideration in the transaction is $ 2,127 .
+Added: Based on the preliminary purchase price allocation, the assets acquired and liabilities assumed principally comprise $ 1,744 of intangible assets, and other immaterial working capital items representing a net asset of $ 93 (net of cash acquired of $ 290 ).
+Added: There was no excess purchase price and therefore no goodwill recorded as part of the business combination.
+Added: 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.
+Added: Intangible assets include the intellectual property associated with the 1,276 novel food applications with the FSA, which is determined to be indefinite lived.
+Added: The preliminary fair value was determined by utilizing the cost approach and considered market data to evaluate the replacement cost per application.
+Added: The intellectual property is included in the former hemp/cannabis reportable segment.
+Added: The Company utilizes third-party valuation experts to assist in estimating the fair value of the contingent consideration and develops estimates by considering weighted-average probabilities of likely outcomes and discounted cash flow analysis.
+Added: These estimates require the Company to make various assumptions about forecasted revenues and discount rates, which are unobservable and considered Level 3 inputs in the fair value hierarchy.
+Added: A change in these inputs to a different amount might result in a significantly higher or lower fair value measurement at the reporting date.
+Added: The following table provides quantitative information associated with the initial fair value measurement of the Company’s liabilities for contingent consideration as of January 19, 2023:
+Added: Maximum Payout
+Added: Weighted Average
+Added: Contingency Type
+Added: (undiscounted)
+Added: Unobservable Inputs
+Added: Revenue-based payments
+Added: Discount rate
+Added: Projected year(s) of payment
+Added: During the third quarter of 2023, the Company finalized amounts recorded as purchase price allocation and recorded measurement period adjustments of $ 53 , resulting from an increase of the working capital true-up amount based on final payment made to the sellers.
+Added: On December 22, 2023, concurrent with the GVB divestiture (as described in Note 2) which included RXP, the Company entered into a binding letter agreement to terminate its’ remaining contingent consideration obligation payable in shares under the SPA with the sellers of RXP.
+Added: Accordingly, for the year-ended December 31, 2023, the Company recognized within discontinued operations a gain of $ 1,138 in Other operating expenses, net in connection with the change in fair value of the contingent consideration.
+Added: GVB Biopharma
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”).
−Removed: 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.
−Removed: 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 2,193,334 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.
−Removed: 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).
2 unchanged sentences
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.
−Removed: 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.
+Added: Following the initial acquisition accounting, the Company recorded final measurement period adjustments, in which 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 $ 10,840 .
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 .
−Removed: 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.
−Removed: 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:
26 unchanged sentences
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 .
+Added: All facilities were subsequently divested as part of the GVB sale discussed in Note 2 “Discontinued Operations and Divestitures.”
The following table summarizes the Company’s discount rate and remaining lease terms as of the acquisition date:
27 unchanged sentences
Goodwill recorded in the transaction will be non-deductible.
−Removed: Actual and Pro Forma (unaudited) disclosures
−Removed: The results of operations and assets from the GVB acquisition have been included in the Company’s consolidated financial statements since the acquisition date.
−Removed: For the year ended December 31, 2022, net revenues related to GVB were $ 21,610 , and net loss was $ 14,771 .
−Removed: The following unaudited pro forma information presents the consolidated results of operations of the Company and assumes the acquisition occurred on January 1, 2021:
−Removed: Three Months Ended
−Removed: (in thousands, except for per-share data)
−Removed: Revenues, net
−Removed: Net loss per common share - basic and diluted
−Removed: Weighted average common shares outstanding - basic and diluted
−Removed: 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.
−Removed: Certain costs savings may result from the acquisition;
−Removed: however, there can be no assurance that these cost savings will be achieved.
−Removed: 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.
−Removed: 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
−Removed: 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.
+Added: During the year ended December 31, 2023, direct costs incurred as a result of the acquisition of RXP were $ 130 , compared to direct costs incurred as a result of the acquisition of GVB of $ 1,046 during the year ended December 31, 2022.
+Added: Acquisition costs are expensed as incurred and included in Other operating expenses, net in the Consolidated Statements of Operations and Comprehensive Loss.
– INVENTORIES
3 unchanged sentences
Finished goods
−Removed: 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.
−Removed: 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.
+Added: During the year ended December 31, 2023, the Company reserved certain leaf inventory totaling $ 7,720 resulting from restructuring initiatives implemented, as described in Note 18 “Other Operating Expenses, Net”.
+Added: Inventory charges are 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, 2023 and 2022 consisted of the following:
−Removed: Land improvements
−Removed: Laboratory equipment
Leasehold improvements
1 unchanged sentence
Office furniture, fixtures and equipment
−Removed: Construction in progress
accumulated depreciation
Property, plant and equipment, net
−Removed: 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.
−Removed: 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 $ 852 and $ 673 for the year ended December 31, 2023 and 2022, respectively.
−Removed: 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
−Removed: 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.
−Removed: The following table summarized the Company’s discount rate and remaining lease terms as of December 31, 2022:
+Added: The Company leases a manufacturing facility in Mocksville, North Carolina and an inventory storage facility in Winston-Salem, North Carolina.
+Added: On January 1, 2023, the Company signed the lease agreement for the inventory storage facility.
+Added: The lease has an initial monthly base rent of $ 15 (escalating 3.0 % annually after the first year), an initial term of 36 months – with two twenty-four-month optional renewal options at the Company’s discretion.
+Added: On March 31, 2023, the Company extended the lease terms for its manufacturing facility.
+Added: As a result of this lease modification, the Company re-measured the lease liability and adjusted the ROU asset on the modification dates.
+Added: The following table summarizes the Company’s discount rate and remaining lease terms as of December 31, 2023:
Weighted average remaining lease term in years
10 unchanged sentences
Assets acquired under operating leases
−Removed: During the fiscal year ended December 31, 2022, the Company extended the lease terms for one of its manufacturing facilities.
−Removed: As a result of these lease modifications, the Company re-measured the lease liability and adjusted the ROU asset on the modification dates.
−Removed: – GOODWILL AND OTHER INTANGIBLE ASSETS, NET
−Removed: The change in the carrying amount of goodwill during fiscal year 2022 was as follows:
−Removed: Balance at January 1, 2022
−Removed: GVB acquisition (see Note 2)
−Removed: Measurement period adjustments
−Removed: Balance at December 31, 2022
−Removed: Intangible Assets
+Added: – INTANGIBLE ASSETS, NET
Our intangible assets at December 31, 2023 and 2022 consisted of the following:
2 unchanged sentences
Definite-lived:
−Removed: Customer relationships
Total amortizing intangible assets
Indefinite-lived:
−Removed: Tradename and trademarks
MSA signatory costs
7 unchanged sentences
Indefinite-lived:
−Removed: Tradename and trademarks
MSA signatory costs
2 unchanged sentences
Total intangible assets, net
−Removed: 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
−Removed: Sales, general, and administrative
Research and development
Total amortization expense
−Removed: 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).
−Removed: 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.
+Added: During the years ended December 31, 2023 and 2022, the Company incurred impairment charges of $ 1,375 and $ 35 , respectively, related to write-downs and disposals of patents, licenses and trademarks as a result of a shift in strategy related to the nature and use of the related assets.
+Added: Impairment charges during the year-ended December 31, 2023 consisted of $ 552 for patents and trademarks the Company continues to hold but does not align with its current strategy, $ 772 was related to disposals of patents abandoned from future maintenance and renewal and $ 51 was related to disposals of trademarks abandoned.
+Added: The Company also disposed of $ 1,501 of patents that had a net book value of $ 0 .
The impairment charges are included in Other operating expenses, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss.
2 unchanged sentences
– INVESTMENTS & OTHER ASSETS
−Removed: The carrying value of the Company’s investments at December 31, 2022 and 2021 consisted of the following:
−Removed: Panacea Life Sciences Holdings, Inc.
−Removed: Aurora stock warrants
−Removed: Change Agronomy Ltd.
−Removed: ordinary shares
−Removed: Total investments
−Removed: Investment in Panacea Life Sciences, Inc.
−Removed: Initial Investment:
−Removed: On December 3, 2019, the Company entered into a securities purchase agreement with Panacea Life Sciences, Inc.
−Removed: (“Panacea”) for consideration valued at $ 13,297 ( $ 12,000 cash and $ 1,297 of the Company’s shares of common stock valued at $ 1 per share) in exchange for a 15.8 % ownership interest.
−Removed: The Company’s investment consisted of three instruments:
−Removed: shares of Series B preferred stock (“preferred stock”);
−Removed: a convertible note receivable with a $ 7,000 face value;
−Removed: and a warrant (“stock warrant”) to purchase additional shares of Series B preferred stock, to obtain 51 % ownership of Panacea, at an exercise price of $ 2.344 per share.
−Removed: The convertible note receivable had a term of five years , interest of 10 % per annum, and could be converted to shares of Series B preferred stock at the Company’s discretion.
−Removed: The embedded conversion option was not considered a derivative instrument for accounting purposes.
−Removed: The preferred stock carried an annual 10 % cumulative dividend, compounded annually, and had an implicit put option after the fifth anniversary date so long that the stock warrants had not been exercised.
−Removed: The put option was not considered a derivative instrument for accounting purposes.
−Removed: The stock warrant was exercisable at any time after the fifth anniversary date and would be accelerated if Panacea achieved certain sales targets for two consecutive years.
−Removed: The Series B preferred stock also included first priority equity preferences in the event of a liquidation, sale, or transfer of Panacea assets.
−Removed: These rights entitled the Company to the original Series B issuance price of $ 7,000 plus any unpaid accrued dividends.
−Removed: To allocate the cost of the stock warrant, the Company calculated a fair value based on the following assumptions:
−Removed: volatility of 70 %, discount of 25 % for lack of marketability, and a risk-free rate of 2 %.
−Removed: The value of the stock warrant was allocated to the preferred stock and the convertible note receivable, equally, at a discount to the acquisition price.
−Removed: The discount on the preferred stock was determined to be for lack of control and the discount on the convertible note receivable was determined to be for issuing the note at a below market interest rate for similar instruments.
−Removed: The convertible note receivable and the preferred stock investment were considered available for sale debt securities with a private company that was not traded in active markets.
−Removed: Since observable price quotations were not available at acquisition, fair value was estimated based on cost less an appropriate discount upon acquisition.
−Removed: 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.
−Removed: The stock warrant was recorded at its cost basis in accordance with the practicability exception under ASU 2016-01.
−Removed: Impairment of Panacea Investment:
−Removed: 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.
−Removed: 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.
−Removed: As of December 31, 2020, the Company adjusted certain assets to represent the fair value outlined in the non-binding agreement.
−Removed: The Company’s non-binding agreement with Panacea to restructure the investment and business relationship generally provided for (i) the transfer of $ 7,170 in operational assets, including an agricultural facility and various extraction and distillation equipment, from Panacea to the Company in exchange for the cancellation of the $7,000 convertible note receivable plus accrued interest;
−Removed: (ii) an amendment of transaction documents to remove any future investment rights and obligations of the Company in Panacea, (iii) cancellation of the stock warrant to purchase additional Series B preferred stock;
−Removed: and (iv) various other amendments to Panacea’s charter to amend various investors rights therein.
−Removed: As a result of the expected outcome of this non-binding agreement, the Company determined that the carrying value of the stock warrant and the convertible note receivable plus accrued interest exceeded the fair value outlined in the non-binding agreement.
−Removed: 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.
−Removed: In accordance with ASC 326- Financial Instruments-Credit Losses , the Company reviewed the fair value of its preferred stock investment and considered the following:
−Removed: (i) increased competition in the cannabinoid industry;
−Removed: (ii) the Company’s preferred stock priority equity preferences;
−Removed: and (iii) other macroeconomic factors.
−Removed: Based on the assessment performed, it was determined that no credit loss existed for the preferred stock available-for-sale debt security.
−Removed: Conversion of Panacea Investment:
−Removed: On June 30, 2021, the Company entered into a Promissory Note Exchange Agreement with Panacea and a Securities Exchange Agreement with Panacea, Exactus, Inc.
−Removed: (“Exactus”) (OTCQB:EXDI) and certain other Panacea shareholders.
−Removed: Pursuant to the Securities Exchange Agreement, Exactus fully acquired Panacea.
−Removed: These transactions effected the (i) conversion of all of the Company’s Series B Preferred Stock in Panacea into 91,016,026 shares of common stock in Exactus valued at $ 9,102 as of June 30, 2021 and (ii) the conversion of the Company’s existing debt in Panacea by converting the outstanding $ 7,000 principal balance convertible note receivable and all accrued but unpaid interest thereon for fee simple ownership of Needle Rock Farms ( 224 acres in Delta County, Colorado) and equipment valued at $ 2,248 , $ 500 in Panacea’s Series B Preferred Stock (which was subsequently converted to Exactus common stock under the Securities Exchange Agreement;
−Removed: this balance is reflected in final shares as stated above), and a new $ 4,300 promissory note (the “Promissory note receivable”) with a maturity date of June 30, 2026 and a 0 % interest rate.
−Removed: The Promissory note receivable is with a related party of Panacea and is fully secured by a first priority lien on Panacea’s headquarters located in Golden, Colorado.
−Removed: All other rights and obligations of the Company in Panacea and Panacea’s affiliate, Quintel-MC Incorporated, were terminated by this transaction—including all warrant rights and obligations for future investment.
−Removed: 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.”
−Removed: 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.
−Removed: The ownership of Needle Rock Farms and related equipment is included within “Property, plant, and equipment, net” on the Consolidated Balance Sheets.
−Removed: The common shares of Exactus, Inc.
−Removed: are considered equity securities in accordance with ASC 321 and are recorded at fair value—changes in fair value will be included within the statement of operations.
−Removed: See Note 7 for additional information on the fair value measurements.
−Removed: On October 25, 2021, Exactus announced the completion of a 1 for 28 reverse stock split as well as an entity name change to Panacea Life Sciences Holdings, Inc (OTCQB:
−Removed: Panacea Life Sciences Holdings, Inc.
−Removed: was assigned a temporary stock symbol of “EXDID” which formally changed to “PLSH” after twenty business days.
−Removed: As a result of the reverse stock split, our 91,016,026 shares were adjusted to 3,250,573 shares.
−Removed: Panacea Investment – Settlement Agreement:
−Removed: On December 31, 2022, the Company and Panacea Life Sciences Holdings, Inc.
−Removed: 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.
−Removed: 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 .
−Removed: As of December 31, 2022, the total carrying value of the Company’s investment in Panacea is outlined below:
−Removed: Panacea Holdings common stock
−Removed: Promissory note receivable
−Removed: Investment in Aurora Cannabis, Inc.
−Removed: In 2018, in connection with the sale of its investment in a Canadian plant biotechnology company, the Company acquired stock warrants to purchase 973,971 common stock of Aurora Cannabis, Inc.
−Removed: (“Aurora”), a Canadian company (NYSE:
−Removed: The stock warrants have a five-year contractual term ending August 8, 2023 and had an exercise price of $ 9.37 Canadian Dollars (CAD) per share.
−Removed: During the second quarter of 2020, Aurora announced a 12 -to-1 reverse stock split which adjusted our total warrant to purchase 81,164 shares of Aurora common stock (from 973,971 ) at an exercise price of $ 112.44 CAD per share (from $ 9.37 CAD per share).
−Removed: The warrants are considered equity securities in accordance with ASC 321 – Investments – Equity Securities and a derivative instrument under ASC 815 – Derivatives and Hedging.
−Removed: The stock warrants are not designated as a hedging instrument, and in accordance with ASC 815, the Company’s investment in stock warrants are recorded at fair value with changes in fair value recorded to unrealized gain/loss as shown within the Company’s Consolidated Statements of Operations and Comprehensive Loss.
−Removed: See Note 8 for additional information on the fair value measurements.
−Removed: Investment in Change Agronomy Ltd.
−Removed: 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.
−Removed: (“CAL”), a private company existing under the laws of England, at a price per share of £ 0.84333 .
−Removed: 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.
−Removed: CAL presently has operations in Manitoba, Canada, and Italy.
−Removed: 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.
−Removed: Approximately U.S.
−Removed: $ 682 in funds were wired to CAL on January 26, 2022, and our investment equated to approximately 1.8 % of CAL’s total equity.
−Removed: 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.
−Removed: 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.
−Removed: During the years ended December 31, 2022 and 2021, respectively, there were no impairment triggering events identified for investments.
−Removed: – FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS
+Added: Panacea Investment – Promissory Note:
+Added: On June 30, 2021, the Company entered into a Promissory Note Exchange Agreement with Panacea Life Sciences Holdings, Inc.
+Added: (“PLSH”) as a component of various investment transactions with PLSH.
+Added: The promissory note was issued in the amount of $ 4,300 (the “Promissory note receivable”) with a maturity date of June 30, 2026 and a 0 % interest rate.
+Added: The Promissory note receivable is with J&N Real Estate Company, L.L.C., a related party of Panacea and is fully secured by a first priority lien on Panacea’s headquarters located in Golden, Colorado.
+Added: 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.” Subsequently, on December 31, 2022 the Company and PLSH entered into a settlement agreement in which the Company agreed to a reduction to the face value of the Promissory note receivable of $ 500 , in exchange for resolution to all contractual requirements surrounding the investment and business relationship.
+Added: Accordingly, the Company recognized an extinguishment charge of note receivable of $ 500 less adjusted discount of $ 51 during the year-ended December 31, 2022.
+Added: As of October 16, 2023, the $ 3,800 Promissory note receivable was fully assigned in connection with the Senior Secured Credit Facility Amendment and Waiver.
+Added: The remaining discount of $ 305 was extinguished and after recognizing consideration of $ 2,600 , resulted in a loss on transfer of financial asset of $ 895 recorded as a component of Other income (expense) on the Consolidated Statement of Operations and Comprehensive Loss.
+Added: Refer to Note 13 “Debt.” Through the date of assignment, the C ompany intended to hold the remaining outstanding Promissory note receivable to maturity and the associated discount will be amortized into interest income over the term of the note.
+Added: – FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
4 unchanged sentences
December 31, 2023
−Removed: Short-term investment securities:
−Removed: Money market funds
−Removed: Corporate bonds
−Removed: treasury securities
−Removed: Total short-term investment securities
−Removed: Change Agronomy Ltd.
−Removed: ordinary shares
−Removed: Total investments
+Added: Detachable warrants
+Added: Derivative liability
+Added: Total liabilities
December 31, 2022
−Removed: Short-term investment securities:
Money market funds
Corporate bonds
−Removed: Total short-term investment securities
−Removed: Panacea Life Sciences Holdings, Inc.
−Removed: common shares
−Removed: Aurora stock warrants
−Removed: Total investments
+Added: treasury securities
Money market mutual funds are valued at their daily closing price as reported by the fund.
5 unchanged sentences
Corporate bonds are valued using pricing models maximizing the use of observable inputs for similar securities.
−Removed: The investment in Panacea Holdings common shares is considered an equity security with a readily determinable fair value.
−Removed: The fair value is determined using the quotable market price as of the last trading day of the fiscal quarter.
−Removed: The change in fair value for the years ended December 31, 2022, and 2021 were losses of $ 2,112 and $ 6,761 , respectively.
−Removed: 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.
−Removed: Fair Value at January 1, 2022
−Removed: Unrealized loss on Aurora stock warrants
−Removed: Investment in Change Agronomy Ltd.
−Removed: ordinary shares
−Removed: Fair Value at December 31, 2022
−Removed: 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:
−Removed: Available for Sale Debt Securities
−Removed: December 31, 2022
−Removed: Corporate bonds
+Added: 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:
Available for Sale Debt Securities
1 unchanged sentence
Corporate bonds
−Removed: 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:
−Removed: Available for Sale Debt Securities
−Removed: December 31, 2022
+Added: 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:
December 31, 2022
Due in one year or less
−Removed: Due after one year through five years
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, 2023 and 2022 of $ 52 and $ 546 , respectively.
+Added: Detachable Warrants
+Added: The following table sets forth a summary of the changes in fair value of the Company’s stock warrants accounted for as liabilities (Level 3 asset) for the period ended December 31, 2023:
+Added: Fair value measurement at January 1, 2023
+Added: Initial measurement (see Note 1 and 10)
+Added: Fair value measurement adjustment
+Added: JGB redemption of 166,667 warrants
+Added: Fair value measurement at December 31, 2023
+Added: The Omnia detachable warrants were measured at December 31, 2023 using a Monte Carlo valuation model with the following assumptions:
+Added: Risk-free interest rate per year
+Added: Expected volatility per year
+Added: Expected dividend yield
+Added: Contractual expiration
+Added: Exercise price
+Added: The detachable warrants are measured at fair value using certain estimated factors which are classified within Level 3 of the valuation hierarchy.
+Added: Significant unobservable inputs that are used in the fair value measurement of the Company’s detachable warrants include the volatility factor, anti-dilution provisions, and contingent put option.
+Added: Significant increases or decreases in the volatility factor would have resulted in a significantly higher or lower fair value measurement.
+Added: Additionally, a change in probability regarding the anti-dilution provision or put option would have resulted in a significantly higher or lower fair value measurement.
+Added: Derivative Liability
+Added: The derivative liability related to the debentures and embedded conversion option using was measured at December 31, 2023 using a binomial lattice valuation model under a “with and without” approach and contained the following assumptions:
+Added: Stock price volatility
+Added: Expected term
+Added: Stock price as of measurement date (per share)
+Added: Risk-free rate
+Added: Credit rating
+Added: Market yield (credit risk)
+Added: The debentures and derivative liability are measured at fair value using certain estimated factors which are classified within Level 3 of the valuation hierarchy.
+Added: Significant unobservable inputs that are used in the fair value measurement of the Company’s derivative liability include a decrease/increase in our stock price, stock price volatility, credit rating, and simulated stock price upon conversion could significantly change the fair value measurement as either an increase or decrease.
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.
−Removed: 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 %.
−Removed: 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.
−Removed: – NOTES AND LOANS PAYABLE
−Removed: The table below outlines our notes payable balances as of December 31, 2022 and 2021:
−Removed: Insurance loans payable
−Removed: Vehicle loans
−Removed: Total current notes and loans payable
−Removed: Vehicle loans
−Removed: Total long-term notes and loans payable
−Removed: Insurance loans payable
−Removed: 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 .
−Removed: 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.
−Removed: 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.
−Removed: During the second quarter of 2021, the Company renewed its D&O insurance for a one-year policy premium totaling $ 3,315 .
−Removed: 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.
−Removed: The Company also has other insurance loans payables related to pollution, and general liability for GVB.
−Removed: Vehicle Loans
−Removed: 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.
−Removed: GVB Bridge Note
−Removed: 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”).
−Removed: On October 31, 2022, the Company repaid $ 1,899 (outstanding principal of $ 1,750 and accrued interest of $ 149 ).
−Removed: The remaining outstanding principal of $ 2,500 and accrued interest was refinanced and has a maturity date of May 1, 2024 (see Note 21).
−Removed: Accretion of non-cash interest expense amounted to $ 0 and $ 7 for the years ended December 31, 2022 and 2021, respectively.
−Removed: Estimated future principal payments to be made under the above notes and loans payable as of December 31, 2022 are as follows:
−Removed: – CAPITAL RAISE AND WARRANTS FOR COMMON STOCK
−Removed: 2022 Capital Raise
−Removed: 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”).
−Removed: 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.
−Removed: The net proceeds to the Company from the Offerings, after deducting the fees and the Company’s offering expenses, were $ 32,484 .
−Removed: The Offerings closed on July 25, 2022.
−Removed: 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”).
−Removed: 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.
−Removed: 2021 Capital Raise
−Removed: 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.
−Removed: The net proceeds to the Company from the offering, after deducting placement agent fees and offering expenses, was $ 38,206 .
−Removed: Warrant Exercise
−Removed: During the first quarter of 2021, the Company’s warrant holders exercised 11,293,211 outstanding warrants for cash in exchange for common stock.
−Removed: In connection with these exercises, the Company received net proceeds of $ 11,782 .
−Removed: The following table summarizes the Company’s warrant activity since January 1, 2021:
+Added: During the years ended December 31, 2023 and 2022, the Company did not have any financial assets or liabilities measured at fair value on a nonrecurring basis.
+Added: – CAPITAL RAISES AND WARRANTS FOR COMMON STOCK
+Added: The following tables summarize the Company’s warrant activity:
Warrants outstanding at January 1, 2022
−Removed: ( 11,293,211 )
Warrants outstanding at December 31, 2022
+Added: ( 18,084,052 )
Warrants outstanding at December 31, 2023
+Added: # of warrants outstanding
+Added: Exercise price
+Added: Expiration date
+Added: July 2022 RDO warrants
+Added: July 25, 2027
+Added: Senior Secured Credit Facility - JGB
+Added: September 3, 2028
+Added: Subordinated Note - Omnia
+Added: September 3, 2030
+Added: July 6, 2023 RDO warrants
+Added: January 10, 2029
+Added: July 19, 2023 RDO warrants
+Added: July 20, 2028
+Added: October 2023 CMPO warrants
+Added: October 19, 2028
+Added: Inducement warrants
+Added: February 15, 2029
+Added: 2022 Registered Direct Offering & Warrant Repricing
+Added: On July 21, 2022, the Company and certain institutional investors (the “July 2022 Investors”) entered into a securities purchase agreement (the “July 2022 Securities Purchase Agreement”) relating to the issuance and sale of shares of common stock pursuant to a registered direct offering (the “July 2022 Registered Offering” and, together with the July 2022 Private Placement (as defined below), the “July 2022 Offerings”).
+Added: The July 2022 Investors purchased approximately $ 35,000 of shares, consisting of an aggregate of 1,138,221 shares of common stock at a purchase price of $ 30.75 per share, subject to certain restrictions.
+Added: The net proceeds to the Company from the July 2022 Offerings, after deducting the fees and the Company’s offering expenses, were $ 32,484 .
+Added: Pursuant to the July 2022 Securities Purchase Agreement, in a concurrent private placement, the Company issued and sold to the July 2022 Investors warrants (the “July 2022 Warrants”) to purchase up to 1,138,221 shares of common stock (the “July 2022 Private Placement”).
+Added: The July 2022 Warrants were exercisable immediately upon issuance at an exercise price of $ 30.75 per share of common stock, subject to adjustment in certain circumstances, and expire on July 25, 2027.
+Added: As a result of the June 19, 2023 offering described below, certain of the July 2022 Investors and the Company entered a warrant reprice letter (the “Warrant Repricing”) and agreed to reduce the exercise price on the previously issued 747,974 warrants owned by the investors participating in the June 19, 2023 offering from $ 30.75 to $ 7.05 and to add a provision in the warrants that upon any subsequent equity sales at a price per share lower than the then effective exercise price of such warrants, such exercise price shall be lowered to such price at which the shares were offered.
+Added: The Warrant Repricing is accounted for as a modification of a freestanding equity-classified written call option, and therefore resulted in an immediate and incremental increase of approximately $ 2,025 in the estimated fair value of the related 747,974 warrants, recorded as a component of Capital in excess of par value, with an offsetting equal amount recorded as equity issuance costs.
+Added: As a result of subsequent offerings, the exercise price on 747,974 warrants was automatically adjusted triggering non-cash deemed dividends as a result of the down-round adjustments.
+Added: In July 2023 the exercise price was adjusted to $ 3.80 and $ 2.42 , respectively, and further in October 2023 was adjusted to $ 0.525 .
+Added: All of the outstanding warrants were subsequently exercised in connection with the Warrant Inducement Offering.
+Added: The remaining 390,247 previously issued July 2022 Warrants were not repriced and on December 7, 2023, the Company was provided notice of irrevocable abandonment of 325,205 warrants.
+Added: Accordingly, the Company has 65,042 remaining July 2022 Warrants with an exercise price of $ 30.75 and an expiration date of July 25, 2027.
+Added: June 19, 2023 Registered Direct Offering
+Added: On June 19, 2023, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of shares of approximately $ 5,300 of shares and warrants, consisting of an aggregate of 747,974 shares of common stock and 747,974 warrants to purchase an equal number of shares, at a purchase price of $ 7.05 per unit.
+Added: The net proceeds to the Company from the offering were approximately $ 4,800 .
+Added: The warrants were exercisable immediately upon issuance at an exercise price of $ 7.05 per share of common stock, expire on June 22, 2028 and are subject to adjustment in certain circumstances, including upon any subsequent equity sales at a price per share lower than the then effective exercise price of such warrants, then such exercise price shall be lowered to such price at which the shares were offered.
+Added: As a result of the subsequent offerings, the exercise price on the 747,974 warrants was automatically adjusted triggering non-cash deemed dividends as a result of the down-round adjustments.
+Added: In July 2023, the exercise price was adjusted to $ 3.80 and $ 2.42 , respectively, and further in October 2023 was adjusted to $ 0.525 .
+Added: All of the outstanding warrants were subsequently exercised in connection with the Warrant Inducement Offering and no warrants issued in the June 2023 registered direct offering remain outstanding as of December 31, 2023.
+Added: July 6, 2023 Registered Direct Offering.
+Added: On July 6, 2023, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of approximately $ 3,000 of shares and warrants, consisting of an aggregate of 778,634 shares of common stock and 1,557,268 warrants to purchase an equal number of shares, at a purchase price of $ 3.80 per unit.
+Added: The warrants became exercisable six months after issuance at an exercise price of $ 3.80 per share of common stock and expire on January 10, 2029.
+Added: The net proceeds to the Company from the offering were approximately $ 2,722 .
+Added: As a result of subsequent offerings, the exercise price on 1,557,268 warrants was automatically adjusted triggering non-cash deemed dividends as a result of the down-round adjustments.
+Added: In July 2023, the exercise price was adjusted to $ 2.42 and further in October 2023 was adjusted to $ 0.525 .
+Added: 1,557,368 warrants that remained outstanding as of December 31 , 2023 were subsequently exercised in connection with the Warrant Inducement Offering in January 2024 (see Note 21 “Subsequent Events.”)
+Added: July 19, 2023 Registered Direct Offering.
+Added: On July 19, 2023, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of approximately $ 11,700 of shares and warrants, consisting of an aggregate of 4,373,219 shares of common stock and 8,746,438 warrants to purchase an equal number of shares, at a purchase price of $ 2.67 per unit.
+Added: The warrants were exercisable immediately at an exercise price of $ 2.42 per share of common stock and expire five years after issuance.
+Added: The net proceeds to the Company from the offering were approximately $ 10,742 .
+Added: As a result of a subsequent offering, the exercise price on 8,746,438 warrants was automatically adjusted triggering non-cash deemed dividends as a result of the down-round adjustment.
+Added: In October 2023 the exercise price was adjusted to $ 0.525 .
+Added: 7,521,438 of the warrants were subsequently exercised in connection with the Warrant Inducement Offering through December 31, 2023.
+Added: 1,225,000 warrants remained outstanding with an exercise price of $ 0.1765 and an expiration date of July 19, 2028, of which 775,000 were subsequently exercised in January 2024 (see Note 21 “Subsequent Events.”).
+Added: October 2023- Public Equity Offering
+Added: On October 17, 2023, the Company entered into a securities purchase agreement with certain investors, pursuant to which the Company agreed to sell and issue, in a registered public offering, (i) an aggregate of 7,600,000 shares of the Company’s common stock, par value $ 0.00001 per share, (ii) warrants to purchase 20,000,000 shares of common stock (the “October Warrants”) and (iii) pre-funded warrants to purchase 2,400,000 shares of common stock (the “Pre-Funded Warrants”).
+Added: The Common Warrants had an exercise price of $ 0.525 , are immediately exercisable and have a term of exercise equal to five years following the original issuance date.
+Added: The Pre-Funded Warrants have an exercise price of $ 0.0001 , are immediately exercisable and will be able to be exercised at any time after their original issuance until such Pre-Funded Warrants are exercised in full.
+Added: The shares were offered at a combined public offering price of $ 0.525 per share and two accompanying October Warrants.
+Added: The Pre-Funded Warrants were offered at a combined public offering price of $ 0.5249 per Pre-Funded Warrant and two accompanying October Warrants.
+Added: In addition, the Company issued the placement agent warrants to purchase up to 1,000,000 shares of common stock (equal to 10 % of the aggregate number of shares and Pre-Funded Warrants sold in the offering) at an exercise price of $ 0.65625 , which represents 125 % of the public offering price per share and accompanying October Warrant.
+Added: The placement agent agreed not to exercise the such warrants until the Company subsequently increases its authorized shares of common stock.
+Added: The offering closed on October 19, 2023 with gross proceeds to the Company of approximately $ 5,250 , before deducting the placement agent fees of $ 367 and other offering expenses payable by the Company of approximately $ 288 .
+Added: As a result of the offering, the exercise price on 11,799,654 previously outstanding warrants were automatically adjusted from $ 2.42 per share to $ 0.525 per share.
+Added: The Pre-Funded Warrants were subsequently exercised on a cashless basis in October 2023, resulting in issuance of 2,399,512 shares of common stock.
+Added: 3,800,000 of the warrants were subsequently exercised in connection with the Warrant Inducement Offering through December 31, 2023.
+Added: 13,500,000 warrants remained outstanding with an exercise price of $ 0.1765 and an expiration date of October 19, 2028, of which 10,800,000 were subsequently exercised in January 2024 (see Note 21 “Subsequent Events.”).
+Added: Warrant Inducement Offering
+Added: On November 28, 2023, the Company commenced a warrant inducement offering with the holders of the Company’s outstanding 31,779,654 warrants consisting of:
+Added: (i) the common stock purchase warrants of the Company issued on or about June 22, 2023;
+Added: (ii) the common stock purchase warrants of the Company issued on or about July 10, 2023;
+Added: (iii) the common stock purchase warrants of the Company issued on or about July 21, 2023;
+Added: and/or (iv) the common stock purchase warrants of the Company issued on or about October 19, 2023 (collectively, the “Existing Warrants”), which Existing Warrants were exercisable for an equal number of shares of common stock at an exercise price of $ 0.525 .
+Added: The Company agreed to issue new warrants (the “Inducement Warrants”) to purchase up to a number of shares of common stock equal to 200 % of the number of shares of common stock issued pursuant to the exercise by the holders of the Existing Warrants during the inducement period, for cash, at a reduced exercise price equal to the Nasdaq Minimum Price (as defined in the as defined in Nasdaq Listing Rule 5635(d)).
+Added: For the period from November 28, 2023 to December 31, 2023, the Company entered into warrant inducement agreements with certain holders of the Existing Warrants to purchase an aggregate of 15,517,386 shares of common stock at a reduced exercise price of $ 0.215 .
+Added: Pursuant to the warrant inducement agreements, the exercising holders of the Existing Warrants received 31,034,772 Inducement Warrants and the Company received aggregate gross proceeds of approximately $ 3,336 from the exercise of the Existing Warrants before deducting the placement agent fees of $ 234 and other offering expenses payable by the Company of approximately $ 58 .
+Added: As a result of the inducement and subsequent exercise, the Company determined the incremental fair value provided to the holders using Black Scholes and Monte Carlo models as (i) $ 883 increase in fair value due to the adjustment in exercise price of Existing Warrants attributable to down round pricing protection (ii) $ 6,596 fair value of Inducement Warrants issued to the holders that exercised Existing Warrants.
+Added: The incremental fair value is recorded as non-cash deemed dividend.
+Added: The proceeds of the warrant inducement and issuance of common stock are recorded as Capital in excess of par value.
+Added: Refer to Note 21 “Subsequent Events.”
+Added: March 2023 JGB Warrants
+Added: In connection with the sale of the Debentures as described in Note 13 “Debt”, the Company issued the JGB Warrants to purchase up to 333,334 shares of common stock for an exercise price of $ 19.125 per share.
+Added: The JGB Warrants are exercisable for five years from September 3, 2023, at an exercise price of $ 19.125 per share, determined as 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.
+Added: The JGB warrants initial fair value of $ 4,475 net of issuance costs of $ 139 (see Note 9 “Fair Value Measurements”), of which half of the warrants meet the criteria for liability classification due to a contingent put option which allows the holder to require that the Company redeem the warrants in cash for a purchase price equal to $ 15.00 upon certain conditional events such as change in control or event of default.
+Added: Accordingly, at issuance half of the warrants with the put provision are classified as Other long-term liabilities on the Consolidated Balance Sheets in the amount of $ 2,898 whereas the remainder of the warrants without the put provision are equity classified and recorded as a component of Capital in excess of par value in the amount of $ 1,577 .
+Added: The valuation assumptions of the warrants at issuance, as detailed below, are the same for all warrants except for the put provision which derives a greater fair value.
+Added: As a result of the June 19, 2023 offering, the Company’s outstanding JGB warrants to purchase up to 333,334 shares of the Company’s common stock for an exercise price of $ 19.125 per share were automatically adjusted to be $ 12.828 exercise price for up to 496,960 shares of common stock.
+Added: As a result of the anti-dilution provision being triggered, the Company recognized a non-cash deemed dividend of $ 367 in connection with these adjustments, recorded on the Consolidated Statement of Operations and Comprehensive Loss and within Capital in excess of par value (as the Company has an accumulated deficit and therefore the deemed dividend is treated as paid out of Capital in excess of par value).
+Added: There are no further anti-dilution adjustments on such warrants.
+Added: In connection with the Senior Secured Credit Facility Amendment and Waiver, the Company redeemed 166,667 of such warrants for an aggregate put price equal to $ 2,500 .
+Added: See Note 13 “Debt.”
+Added: The JGB detachable warrants were valued at the closing dates of the Senior Secured Credit Facility using a Monte Carlo valuation model with the following assumptions:
+Added: Risk-free interest rate per year
+Added: Expected volatility per year
+Added: Expected dividend yield
+Added: Contractual expiration
+Added: Exercise price
+Added: March 2023 Omnia Warrants
+Added: In connection with the Subordinated Note as described in Note 13 “Debt”, the Company issued to Omnia, the Omnia Warrants to purchase up to 45,000 shares of the Company’s common stock (the “Omnia Warrants”).
+Added: The Omnia Warrants are exercisable for seven years from September 3, 2023, at an exercise price of $ 12.828 per share, subject, with certain exceptions, to adjustments in the event of stock splits, dividends, subsequent dilutive offerings and certain fundamental transactions.
+Added: The Omnia warrants initial fair value was $ 1,316 (see Note 9 “Fair Value Measurements”), and meet the criteria for liability classification due to contingent put option which allows the holder to require that the Company redeem the warrants in cash for a purchase price equal to $ 30.00 upon certain conditional events such as change in control or event of default.
+Added: The Omnia warrants are classified as Other long-term liabilities on the Consolidated Balance Sheets.
+Added: The Omnia detachable warrants were valued at the closing dates of the Subordinated Note using a Monte Carlo valuation model with the following assumptions:
+Added: Risk-free interest rate per year
+Added: Expected volatility per year
+Added: Expected dividend yield
+Added: Contractual expiration
+Added: Exercise price
+Added: On March 31, 2023, the Company established an at-the-market common equity offering program (“ATM Program”), through which it may, through which it had the ability to offer and sell shares of common stock having an aggregate gross sales price of up to $ 50,000 .
+Added: The Company paid a 3.00 % sales commission based on the gross proceeds of the sales price per share of common stock sold.
+Added: On June 19, 2023, the Company terminated the ATM Program in connection with the June 2023 Capital Raise.
+Added: The following table shows the number of shares sold under the ATM Program prior to its termination:
+Added: (in thousands, except for per-share data)
+Added: Number of common shares issued
+Added: Weighted average sale price per share
+Added: Gross proceeds
– RETIREMENT PLAN
5 unchanged sentences
– COMMITMENTS AND CONTINGENCIES
−Removed: License agreements and sponsored research – The Company has entered into various license, sponsored research, collaboration, and other agreements (the “Agreements”) with various counter parties in connection with the Company’s plant biotechnology business relating to tobacco and hemp/cannabis.
+Added: License and growing agreements – The Company has entered into various license and tobacco growing agreements (the “Agreements”) with various counter parties in connection with the Company’s plant biotechnology business relating to tobacco.
The schedule below summarizes the Company’s commitments, both financial and other, associated with each Agreement.
2 unchanged sentences
Counter Party
−Removed: Product Relationship
Commitment Type
−Removed: Research Agreement
−Removed: Hemp / Cannabis
License Agreement
Minimum annual royalty
−Removed: Research Agreement
−Removed: Sublicense Agreement
−Removed: Anandia Laboratories, Inc.
−Removed: Hemp / Cannabis
−Removed: Annual license fee
−Removed: Research Agreement
−Removed: Hemp / Cannabis
License Agreement
−Removed: Hemp / Cannabis
−Removed: Minimum annual royalty
−Removed: Growing Agreements
Consulting Agreements
−Removed: (1) Exclusive agreement with the Company in the field of the Cannabis Sativa L.
−Removed: The initial term of the agreement was five years with an option for an additional two years .
−Removed: 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.
−Removed: 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.
−Removed: The Company will exclusively own all results and all intellectual property relating to the results of the collaboration with KeyGene (the "Results”).
−Removed: The Company will pay royalties in varying amounts to KeyGene relating to the Company's commercialization in the stated fields of each agreement.
−Removed: 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.
+Added: Growing Agreements
(1) The minimum annual royalty fee is credited against running royalties on sales of licensed products.
1 unchanged sentence
These costs vary from year to year and the Company has certain rights to direct the activities that result in these costs.
−Removed: (3) On August 19, 2022, the Company entered into a one-year Sponsored Project Agreement with NCSU for continued research of tobacco alkaloid formation.
−Removed: (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.
−Removed: Anandia retains all patent rights, and is responsible for all patent maintenance, in Canada.
−Removed: (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 .
−Removed: (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.
−Removed: (7) Various R&D growing agreements for hemp / cannabis and tobacco.
−Removed: (8) General corporate consulting agreements.
−Removed: 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).
−Removed: The insurance recoveries related to property, plant and equipment of $ 3,500 is a non-cash investing activity.
−Removed: 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.
+Added: (2) On November 1, 2023, the Company entered into a license agreement with NCSU for an exclusive sublicensable right and license under specific patent rights and plant variety rights for the field of use in specific licensed territories.
+Added: Additional milestone fees could be required pending achievement of events pursuant to the agreement.
+Added: (3) As a requirement for a modified risk tobacco product and a condition of the marketing authorization by the FDA, the Company engaged various consultants to conduct post-market studies and research.
+Added: (4) Various R&D tobacco growing agreements.
Litigation - The Company is subject to litigation arising from time to time in the ordinary course of its business.
9 unchanged sentences
The Company will then continue to monitor the matter for further developments that could affect the amount of any such accrued liability.
+Added: In connection with ongoing restructuring efforts and the hemp/cannabis disposal group (see Note 2 “Divestitures and discontinued operations,” the Company has received unasserted claims related to disputed contracts, which could result in accrual of an additional amount up to $ 1,314 on the Consolidated Balance Sheet.
+Added: The Company is vigorously defending its position against these claims.
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.
36 unchanged sentences
Sicignano and Brodfuehrer filed a reply brief in further support of the motion.
−Removed: On January 6, 2023, the District Court denied the motion to dismiss, and the case will proceed forward on the remaining claims.
−Removed: No trial date has been set.
−Removed: The parties have scheduled a mediation during March 2023.
−Removed: We believe that the claims are frivolous, meritless and that the Company and Messrs.
−Removed: Sicignano and Brodfuehrer have substantial legal and factual defenses to the remaining claims.
−Removed: We intend to vigorously defend the Company and Messrs.
−Removed: Sicignano and Brodfuehrer against such claims.
+Added: On January 6, 2023, the District Court denied the motion to dismiss.
+Added: The parties participated in a mediation on March 21, 2023 and reached an initial memorandum of understanding for settlement in principle to resolve the litigation and release all claims against the Company.
+Added: On April 25, 2023, the parties filed with the Court the Motion for Preliminary Approval of the Settlement, which includes the final terms of the proposed settlement.
+Added: The Court preliminarily approved the settlement on June 30, 2023, and scheduled a further settlement hearing for October 3, 2023.
+Added: The Court entered the Final Judgment and Order of Dismissal with Prejudice of the action on October 23, 2023.
+Added: The settlement amount that the defendants paid is $ 3,000 and is fully covered by the Company’s insurance, which has been funded by the Company’s insurance carrier in an escrow account and anticipated to be disbursed in the first or second quarter of 2024.
+Added: Accordingly, the Company has recorded an accrual for litigation settlement and corresponding indemnification receivable on the Consolidated Balance Sheets as of December 31, 2023.
Shareholder Derivative Cases
28 unchanged sentences
No trial date has been set.
−Removed: 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.
+Added: 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.
−Removed: Brodfuehrer, and each
−Removed: member of the Company’s Board of Directors in the Supreme Court of the State of New York, County of Erie, entitled:
+Added: 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.
34 unchanged sentences
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.
−Removed: As a result of the Court’s denial of the Motion to Dismiss the Amended Complaint, the June 27, 2022 stay will be lifted.
+Added: As a result of the Court’s denial of the Motion to Dismiss the Amended Complaint, the June 27, 2022 stay will be lifted if the case is not resolved.
No trial date has been set.
−Removed: The parties have scheduled a mediation during March 2023.
+Added: The parties participated in a mediation on March 21, 2023, and a subsequent mediation on October 17, 2023.
+Added: On December 5, 2023, the parties entered into a Memorandum of Settlement to fully resolve all claims pending the Court’s approval of a motion for preliminary approval of settlement.
+Added: The settlement amount is $ 768 related to plaintiffs attorney and legal fees and is fully covered by the Company’s insurance.
+Added: Accordingly, the Company has recorded an accrual for litigation settlement and corresponding indemnification receivable on the Consolidated Balance Sheets as of December 31, 2023.
+Added: On September 1, 2023, Kenneth Troup 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.
+Added: Brodfuehrer, and certain members of the Company's Board of Directors in the United States District Court for the Western District of New York entitled:
+Added: Kenneth Troup, derivatively on behalf of 22nd Century Group v.
+Added: Nora Sullivan, James Mish, Michael Koganov, Anthony Johnson, Richard Sanders, Lucille Salhany, Andy Arno, James W.
+Added: Henry Sicignano, III, and John T.
+Added: Brodfuehrer, and 22nd Century Group, Inc., Case No.
+Added: 1:23-cv-00916.
+Added: Troup brings this action derivatively generally alleging the same allegations as in the Klein case.
+Added: The Complaint seeks declaratory relief, unspecified monetary damages, corrective corporate governance actions, and attorney’s fees and costs.
+Added: On February 9, 2024, defendants filed an unopposed Motion to Consolidate the Troup action with the consolidated derivative cases, which would include the Troup case in the preliminary settlement described above.
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.
−Removed: – LOSS PER COMMON SHARE
−Removed: The following table sets forth the computation of basic and diluted loss per common share for the years ended December 31, 2022 and 2021, respectively.
−Removed: Outstanding warrants, options, and restricted stock units were excluded from the calculation of diluted EPS as the effect was antidilutive.
−Removed: (in thousands, except for per-share data)
−Removed: Weighted average common shares outstanding - basic and diluted
−Removed: Net loss per common share - basic and diluted
−Removed: Anti-dilutive shares are as follows as of December 31:
−Removed: Restricted stock units
−Removed: – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
−Removed: 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:
−Removed: Years Ended December 31, 2022 and 2021
−Removed: Balance at January 1, 2021
−Removed: Unrealized loss on short-term investment securities
−Removed: Balance at December 31, 2021
−Removed: Unrealized loss on short-term investment securities
−Removed: Foreign currency translation
−Removed: Reclassification of realized losses to net loss
−Removed: Balance at December 31, 2022
+Added: Insurance Litigation
+Added: In November 2022, there was a fire at the Company’s Grass Valley manufacturing facility in Oregon, which resulted in a total loss of the facility.
+Added: The Company submitted an insurance claim with Dorchester Insurance Company, Ltd.
+Added: (“Dorchester”) for casualty loss and business interruption coverage which was acknowledged on November 23, 2022.
+Added: Dorchester funded $ 5,000 of casualty loss insurance but has failed to issue any payments in connection with the Company’s business interruption claim.
+Added: On July 19, 2023, the Company filed a Complaint against Dorchester in the United States District Court for the District of Oregon, Pendleton Division, Case No.
+Added: 2:23-cv-01057-HL.
+Added: The Company is alleging breach of contract, breach of duty of good faith and fair dealing and negligence per se.
+Added: The Company is seeking full recovery of its business interruption claim under the policy plus direct, indirect and consequential damages resulting from Dorchester’s continued delay in issuing coverage payments.
+Added: Discovery is ongoing.
+Added: No trial date has been set.
+Added: Needle Rock Farms – Settlement Agreement
+Added: During March 2023, the Company negotiated and entered into a settlement agreement related to water rights dispute with the adjacent property owner for Needle Rock Farms in which the Company agreed to pay $ 250 in cash upon execution of the settlement, transferred certain farm equipment with net book value of $ 272 , and accrued an additional payment of $ 225 that is contingent on either the sale of the farm or will be paid within one year .
+Added: The total charges of $ 747 recorded in connection with the settlement agreement is included in discontinued operations within Other operating expenses, net on the Consolidated Statements of Operations and Comprehensive Loss.
+Added: KeyGene Dispute
+Added: On April 3, 2019, the Company entered into the Framework Collaborative Research Agreement with KeyGene in the field of hemp/cannabis.
+Added: 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, through first quarter of 2029.
+Added: On March 30, 2022, the Company and KeyGene entered into a new Framework Collaborative Research Agreement for a term of three years in the field related to the hops plant.
+Added: On January 8, 2024, the Company formally terminated the new Framework Collaborative Agreement, as amended, related to hemp/cannabis and hops.
+Added: KeyGene is seeking payment in the amount of $ 1,885 for current and future services under the Framework Collaborative Agreement and has invoiced the Company $ 881 for services performed.
+Added: The parties anticipate mediating the dispute although no mediation date has been set.
+Added: Maison Dispute
+Added: On January 23, 2024, the Company received a Notice of Intent to Arbitrate from Maison Placements Canada Inc.
+Added: (“Maison”) in connection with the Company’s March 2023 Senior Secured Credit Facility transaction ( infra ).
+Added: Maison claims it is owed fees for closure of the Senior Secured Credit Facility transaction as a result of discussions with former Company personnel and a purported letter of engagement dating from 2021.
+Added: The Company believes it has substantial defenses to Maison’s claims and intends to defend itself vigorously.
+Added: The Company has a senior secured credit facility (the “Senior Secured Credit Facility”), which consists of three-year $ 21,053 Debentures (as defined below) and $ 2,865 subordinated promissory note (the “Subordinated Note).
+Added: The Debentures were issued at a 5 % original issuance discount and are subject to a 5 % exit payment.
+Added: Debt related to the Senior Secured Credit Facility and Subordinate Note as of December 31, 2023, consists of the following:
+Added: Senior Secured Credit Facility
+Added: Subordinated Note
+Added: Unamortized discount on loan and deferred debt issuance costs
+Added: Current portion of long-term debt
+Added: Total long-term debt
+Added: On March 3, 2023, the Company entered into a Securities Purchase Agreement (the “SPA”) with JGB Partners, LP (“JGB Partners”), JGB Capital, LP (“JGB Capital”) and JGB Capital Offshore Ltd.
+Added: (“JGB Offshore” and collectively with JGB Partners and JGB Capital, the “Holders”) and JGB Collateral, LLC, as collateral agent for the Holders (the “Agent”) which pursuant to the agreement, the Company sold 5 % original issuance discount senior secured debentures with an aggregate principal amount of $ 21,053 .
+Added: 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.
+Added: The Debentures mature on March 3, 2026.
+Added: 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.
+Added: The Debentures are subject to an exit payment equal to 5 % of the original principal amount, or $ 1,053 , payable on the maturity date or the date the Debentures are paid in full (the “Exit Payment”).
+Added: 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”).
+Added: 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.
+Added: Commencing on May 1, 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.
+Added: The Company’s obligations under the Debentures can be accelerated upon the occurrence of certain customary events of default.
+Added: In the event of a default and acceleration of the Company’s obligations, the Company would be required to pay the Prepayment Amount, liquidated damages and other amounts owing in respect thereof through the date of acceleration.
+Added: The Debentures contain customary representations, warranties and covenants including among other things and subject to certain exceptions, covenants that restrict the Company from incurring additional indebtedness, creating or permitting liens on assets, making or holding any investments, repaying outstanding indebtedness, paying dividends or distributions and entering into transactions with affiliates.
+Added: Substantially all of the company’s assets, including intellectual property, are collateralized and at risk if Debenture obligation is not satisfied.
+Added: In addition, the Company is required to maintain at least $ 7,500 on its balance sheet as restricted cash in a separate account and has financial covenants to maintain certain quarterly revenue targets.
+Added: In connection with the sale of the Debentures, the Company issued warrants to purchase up to 333,334 shares of common stock for an exercise price of $ 19.125 per share (the “JGB Warrants”), which had an initial fair value of $ 4,475 net of issuance costs of $ 139 (see Note 9 “Fair Value Measurements” and Note 10 “Capital Raise and Warrants for Common Stock”).
+Added: On June 22, 2023, as a result of the June 19, 2023 offering, the Company’s outstanding JGB warrants to purchase up to 333,334 shares of the Company’s common stock for an exercise price of $ 19.125 per share were automatically adjusted to be $ 12.828 exercise price for up to 496,960 shares of common stock.
+Added: There are no further anti-dilution adjustments on such warrants.
+Added: On October 16, 2023, the Company entered into a Waiver and Amendment Agreement (the “October Amendment”) with each of the subsidiaries of the Company executing the Debentures, the Holders and the Agent, pursuant to which, among other things, (a) the Holders waived an event of default under Section 7(d) of the Debentures which required the Company to achieve revenue of at least $ 18,500 for the quarter ended September 30, 2023 (the “waiver”), (b) the parties agreed to amend Schedule E of the Debentures to reduce the Revenue Target (as such term is defined in the Debentures), for the quarter ended December 31, 2023, to $ 15,500 , and (c) the Company agreed to release to the Purchasers the $ 7,500 that the Company was required to maintain in a separate account (the “Escrow Funds”) which Escrow Funds were be applied to, and reduce, the outstanding principal amount of the Debentures on a dollar-for-dollar basis.
+Added: As additional consideration for the waiver, the Company agreed to assign, transfer and convey to the Agent, the Company’s entire right, title and interest in and to (i) the Promissory Note made by J&N Real Estate Company, L.L.C.
+Added: (“J&N”) payable to the Company in the principal amount of $ 3,800 and (ii) the Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated June 30, 2021, between J&N, as borrower, for the benefit of the Company, as lender (collectively, the “Pledged Indebtedness”).
+Added: Upon assignment of the Pledged Indebtedness, the Company recognized the $ 2,600 of consideration in exchange to be applied as a $ 2,000 reduction of the Put Price (as defined below), $ 600 reduction of the outstanding principal amount of Debentures and $ 895 loss on sale of financial asset.
+Added: In connection with the waiver, the Company and Holders agreed to exercise the outstanding put provision to redeem 166,667 Warrants for an aggregate put price equal to $ 2,500 (the “Put Price”), which was concurrently reduced by $ 2,000 , as described above, with the remaining $ 500 payable by the Company on the Maturity Date recorded as Other long-term liabilities on the Consolidated Balance Sheet.
+Added: No cash was exchanged as a result of executing the October Amendment.
+Added: Subsequently, on December 22, 2023, the Company, the Holders and the Agent entered into an Amendment Agreement (the “December Amendment”) pursuant to which the Holders and the Agent consented to the Purchase Agreement, as amended by the GVB Amendment (see Note 2 “Discontinued Operations and Divestitures”).
+Added: In consideration of the Holders and the Agents’ consent, the Company agreed to (i) pay to the Agent, a cash payment of $ 2,200 to reduce the outstanding principal of the Debentures (which includes the cash portion of the New Purchase Price paid directly to Agent by Buyer which consists of a cash payment of $ 1,100 and an additional $ 1,100 paid by the Company), (ii) a 12 % secured promissory note issued to the Company’s senior lender, on behalf of and at the direction of the Company, in an aggregate principal amount of $ 2,000 (the “GVB Promissory Note”), (iii) assign the GVB Insurance Proceeds to the Agent until the outstanding aggregate principal amount of the Debentures, plus accrued and unpaid interest, has been repaid in full;
+Added: provided that the first $ 1,000 of Insurance Proceeds in excess of $ 5,000 shall be applied as stated above, and (iv) post-closing enter into a deed in lieu of foreclosure agreement with respect to 224 acres of real property in Delta County, Colorado commonly known as Needle Rock Farms, resulting in a non-monetary exchange yielding additional debt reduction of $ 1,000 .
+Added: As of December 31, 2023, the $ 2,000 GVB Promissory Note and $ 1,000 real estate farm asset are pledged to the senior lender for principal reduction and accordingly $ 3,000 of the Senior Secured Credit Facility is recorded as Current portion of long-term debt on the Consolidated Balance Sheets.
+Added: Additionally, the Company, the Holders and the Agent agreed to amend the Debentures to (i) allow the Holders to voluntarily convert the Debentures, in whole or in part, into shares of the Company’s common stock (“Voluntary Conversion Option”) on the earlier of (i) June 30, 2024 and (ii) the public announcement of a Fundamental Transaction at a conversion price equal to the lower of (x) $ 1.00 per share and (y) the closing sale price of the Company’s common stock on June 29, 2024 (the “Conversion Price”), and (ii) include a mandatory prepayment of the outstanding principal of the Debentures in an amount equal to 20 % of the net cash proceeds of any issuance by the Company of any of its stock, or other Equity Interests (as defined in the Debentures) or the incurrence or issuance of any indebtedness.
+Added: The Voluntary Conversion Option remains subject to the approval of the Company’s stockholders and the Company is required pursuant to the December Amendment to use its commercially reasonable efforts to obtain such approval.
+Added: Additional terms of the December Amendment include a financial covenant holiday through the third quarter of 2024 and revised certain covenants thereafter to reflect the sale of the Purchased Interests, including lowering the Company’s quarterly revenue targets.
+Added: In accordance with ASC 470-60 Troubled Debt Restructurings by Debtors and ASC 470-50, Debt Modifications and Extinguishment, the Company performed an assessment of whether the transaction was deemed to be a troubled debt restructuring, and if no, whether the transaction was deemed modification of existing debt, or an extinguishment of existing debt and new debt.
+Added: The October Amendment was concluded to be a modification, and not an extinguishment, based on an analysis of the present value of future cash flows.
+Added: A new effective interest rate was determined, and the debt continued to be amortized.
+Added: The December Amendment was concluded to be an extinguishment, due to the addition of a substantive conversion option.
+Added: As a result, the pre-amended debt carrying value was extinguished and the new debt was recorded at fair value, which is subsequently amortized using the effective interest method.
+Added: Extinguishment charges were $ 5,158 and recorded in Interest expense on the Consolidated Statements of Operations and Comprehensive Loss.
+Added: The Company analyzed the conversion feature of the December Amendment for derivative accounting consideration under ASC 815-15 and determined that the embedded conversion features should be classified as a bifurcated derivative because the exercise price of these convertible notes are subject to a variable conversion rate.
+Added: The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment.
+Added: In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability at fair value in the amount of $ 557 as a component of Other Long-Term Liabilities on the Consolidated Balance Sheet.
+Added: See Note 9 “Fair Value Measurement” for additional information related to measurement of the debentures and derivative liability.
+Added: Subordinated Note
+Added: On March 3, 2023, the Company executed a Subordinated Promissory Note (the “Subordinated Note”) with a principal amount of $ 2,865 in favor of Omnia Ventures, LP (“Omnia”).
+Added: The Subordinated Note refinanced the 12 % Secured Promissory Note with a principal amount of $ 1,000 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 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 (see Note 3 “Business Acquisitions”).
+Added: The accrued PIK interest refinanced from the Original Notes was $ 365 .
+Added: Under the terms of the Subordinated Note, the Company is obligated to make interest payments in-kind (the “PIK Interest”).
+Added: The PIK Interest accrues monthly at a compounding rate of 26.5 % per annum.
+Added: For the year ended December 31, 2023 the PIK Interest accrual amounts were $ 695 .
+Added: The Company is not permitted to prepay all or any portion of the outstanding balance on the Subordinated Note prior to maturity.
+Added: The maturity date of the Subordinated Note is May 1, 2024.
+Added: The Subordinated Note includes customary event of default provisions.
+Added: The Subordinated Note is subordinated to the Debenture pursuant to a Subordination Agreement between the Company, the Agent and Omnia.
+Added: In connection with the Subordinated Note, the Company issued to Omnia, warrants to purchase up to 45,000 shares of the Company’s common stock (the “Omnia Warrants”).
+Added: The Omnia Warrants are exercisable for seven years from September 3, 2023, at an exercise price of $ 12.828 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.
+Added: The Omnia warrants initial fair value was $ 1,316 (see Note 9 “Fair Value Measurements” and 10 “Capital Raise and Warrants for Common Stock”).
+Added: Contractual maturities under the Senior Secured Credit Facility and Subordinate Note through maturity, excluding any discounts or premiums, as of December 31, 2023 is as follows:
+Added: Future minimum principal payments
+Added: The fair values of the warrants at issuance of $ 5,791 , together with the Debentures original issuance discount of $ 1,053 , Debentures exit payment of $ 1,053 , and third-party debt issuance costs of $ 801 , are being amortized using the effective interest method over the term of the respective debt instrument, recorded as Interest expense in the Consolidated Statement of Operations and Comprehensive Loss.
+Added: The components and activity of unamortized discount and deferred debt issuance costs related to the Senior Secured Credit Facility and Subordinated Note is as follows:
+Added: Amortization during the year
+Added: Debt extinguishment charges
+Added: December 31, 2023
+Added: – NOTES AND LOANS PAYABLE
+Added: The table below outlines our notes payable balances as of December 31, 2023 and 2022:
+Added: Insurance loans payable
+Added: Total current notes and loans payable
+Added: Insurance loans payable
+Added: During the second quarter of 2023, the Company renewed its Director and Officer (“D&O”) insurance for a one-year policy premium totaling $ 1,626 .
+Added: The Company paid $ 285 as a premium down payment and financed the remaining $ 1,341 of policy premiums over ten months at a 7.88 % annual percentage rate.
+Added: Additionally, during the third quarter of 2023, the Company expanded its D&O coverage, resulting in additional financing of $ 143 , at 9.38 % annual percentage rate over six months .
+Added: 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 .
+Added: 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.
+Added: 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.
+Added: The Company also has other insurance loans payables related to pollution, property, and general liability across the Company.
+Added: As of December 31, 2023, all estimated future principal payments to be made under the above notes and loans payable will be paid in 2024.
– EQUITY BASED COMPENSATION
4 unchanged sentences
The 2021 Plan allows for the granting of equity awards to eligible individuals over the life of the 2021 Plan, including the issuance of up to 333,334 shares of the Company’s common stock, in addition to any remaining shares under the Company’s 2014 Omnibus Incentive Plan pursuant to awards under the 2021 Plan.
+Added: The 2021 Omnibus Incentive Plan was amended on June 16, 2023, increasing the authorized shares by 233,334 .
The 2021 Plan has a term of ten years and is administered by the Compensation Committee of the Company’s Board of Directors to determine the various types of incentive awards that may be granted to recipients under the 2021 Plan and the number of shares of common stock to underlie each such award under the 2021 Plan.
4 unchanged sentences
Research and development
−Removed: Total RSUs and stock option compensation
+Added: Total equity based compensation - continuing operations
+Added: Total equity based compensation - discontinued operations
+Added: Total equity based compensation
+Added: During the years ended December 31, 2023, and 2022, equity-based compensation expense reversals due to employee termination forfeitures amounted to $ 1,960 and $ 84 , respectively.
+Added: Additionally, the Company recorded $ 523 and $ 1,237 of accelerated equity compensation expense, respectively, in connection with the vesting of an employees’ outstanding equity awards as part of termination severance agreements.
+Added: Amounts are recorded as Selling, general and administrative in the Consolidated Statements of Operations and Comprehensive Loss.
Restricted Stock Units (“RSUs”) .
10 unchanged sentences
Our outstanding stock options were valued using the Black-Scholes option-pricing model on the date of the award.
+Added: There was no stock option grant activity during 2023 and 2022.
A summary of all stock option activity since January 1, 2022 is as follows:
4 unchanged sentences
The intrinsic value of a stock option is the amount by which the current market value or the market value upon exercise of the underlying stock exceeds the exercise price of the option.
−Removed: The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model.
−Removed: No option awards were granted in 2022.
−Removed: The following assumptions were used for the year ended December 31, 2021:
−Removed: Risk-free interest rate (1)
−Removed: Expected dividend yield (2)
−Removed: Expected volatility (3)
−Removed: Expected term of stock options (4)
−Removed: (1) The risk-free interest rate is based on the period matching the expected term of the stock options based on the U.S.
−Removed: Treasury yield curve in effect on the grant date.
−Removed: (2) The expected dividend yield is assumed as zero.
−Removed: The Company has never paid cash dividends nor does it anticipate paying dividends in the foreseeable future.
−Removed: (3) The expected volatility is based on historical volatility of the Company’s stock.
−Removed: (4) The expected term represents the period of time that options granted are expected to be outstanding based on vesting date and contractual term.
−Removed: 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.
+Added: In addition, there is approximately $ 190 of unrecognized compensation expense for stock options that requires the achievement of certain milestones which are not yet probable.
+Added: – LOSS PER COMMON SHARE
+Added: The following table sets forth the computation of basic and diluted loss per common share for the years ended December 31, 2023 and 2022, respectively.
+Added: Outstanding warrants, options, and restricted stock units were excluded from the calculation of diluted EPS as the effect was antidilutive.
+Added: Net loss from continuing operations
+Added: Net loss from discontinued operations
+Added: Deemed dividends
+Added: Net loss available to common shareholders
+Added: Weighted average common shares outstanding - basic and diluted
+Added: Basic and diluted loss per common share from continuing operations
+Added: Basic and diluted loss per common share from discontinued operations
+Added: Basic and diluted loss per common share from deemed dividends
+Added: Basic and diluted loss per common share
+Added: Anti-dilutive shares are as follows as of December 31 (in thousands):
+Added: Restricted stock units
+Added: – REVENUE RECOGNITION
+Added: The Company’s revenues are derived primarily from contract manufacturing organization (“CMO”) customer contracts that consist of obligations to manufacture the customers’ branded filtered cigars and cigarettes.
+Added: 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®.
+Added: The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer.
+Added: 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.
+Added: The Company recognizes revenue under those contracts at the unit price stated in the contract based on the units manufactured.
+Added: 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.
+Added: There was no allowance for discounts or returns and allowances at December 31, 2023 and December 31, 2022.
+Added: Excise taxes recorded in Cost of Goods Sold on the Consolidated Statement of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022 was $ 10,413 and $ 12,619 , respectively.
+Added: Disaggregation of Revenue
+Added: The Company’s net revenue is derived from customers located primarily in the United States and is disaggregated by the timing of revenue.
+Added: Revenue recognized from Tobacco products transferred to customers over time represented 63 % and 74 %, for the year ended December 31, 2023 and 2022, respectively.
+Added: 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:
+Added: All other customers
+Added: Contract Assets and Liabilities
+Added: Unbilled receivables (contract assets) represent revenues recognized for performance obligations that have been satisfied but have not been billed.
+Added: These receivables are included as Accounts receivable, net on the Consolidated Balance Sheets.
+Added: 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.
+Added: Deferred Revenue (contract liabilities) relate to down payments received from customers in advance of satisfying a performance obligation.
+Added: This deferred revenue is included as Deferred income on the Consolidated Balance Sheets.
+Added: Total contract assets and contract liabilities are as follows:
+Added: Unbilled receivables
+Added: Deferred income
+Added: Net contract assets (liabilities)
+Added: During the years ended December 31, 2023 and 2022, the Company recognized $ 688 and $ 119 of revenue that was included in the contract asset balance as of December 31, 2022 and 2021 respectively.
+Added: – OTHER OPERATING EXPENSES (INCOME), NET
+Added: The components of “Other operating expenses (income), net” were as follows:
+Added: Restructuring costs:
+Added: Impairment of intangible assets (see Note 7)
+Added: Impairment of fixed assets
+Added: Professional services
+Added: Severance (see Note 1)
+Added: Total Restructuring costs
+Added: Acquisition and transaction costs
+Added: Gain on sale or disposal of property, plant and equipment
+Added: Total other operating expenses (income), net
+Added: Restructuring costs
+Added: During the third quarter of 2023, the Company undertook various restructuring activities in an effort to better align its internal organizational structure and costs with its strategy, as well as preserve liquidity.
+Added: As a component of the restructuring, the Company has initiated a process to evaluate strategic alternatives with respect to the Company’s tobacco assets.
+Added: The process will include consideration of a range of strategic, operational and financial transactions and alternatives, such as business combinations, asset sales, licensing agreements, alternate financing strategies and other options.
+Added: As a result, the Company incurred $ 2,415 in restructuring costs for the year ended December 31, 2023, which included costs related to employee termination, professional services and consulting, and long-lived asset impairment.
– INCOME TAXES
−Removed: 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:
+Added: The following is a summary of the components giving rise to the (benefit) provision for income taxes from continuing operations for the years ended December 31, 2023 and 2022:
Total current provision
1 unchanged sentence
Change in valuation allowance
−Removed: Total income tax (benefit) / provision
−Removed: 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.
+Added: Total income tax provision
+Added: The (benefit) provision for income tax from continuing operations varies from that which would be expected based on applying the statutory federal rate to pre-tax book loss, including the effect of the change in the U.S.
corporate income tax rates, as follows:
10 unchanged sentences
Stock-based compensation
−Removed: Investment in Panacea Life Sciences, Inc.
−Removed: Investment in Aurora Cannabis, Inc.
Start-up expenditures
2 unchanged sentences
Severance liability
−Removed: Allowance for doubtful accounts
+Added: Credit loss reserves
Research and development costs
1 unchanged sentence
Capital loss on investment
−Removed: Capitalized legal fees
+Added: Note payable and warrant liability
Deferred tax liabilities:
12 unchanged sentences
These carryforwards are included in the net deferred tax asset that has been fully offset by the valuation allowance.
−Removed: The valuation allowance increased by $ 15,873 and $ 7,581 for the years ended December 31, 2022, and 2021, respectively.
+Added: The valuation allowance increased for continuing operations by $ 12,094 and $ 11,021 for the years ended December 31, 2023, and 2022, respectively, and increased an additional $ 12,910 due to tax attributes that were generated as a part of discontinued
+Added: operations but remain on a prospective basis with continuing operations due to the Company filing a consolidated US Federal return for the year ended December 31, 2023.
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, 2023.
−Removed: – SEGMENT AND GEOGRAPHIC INFORMATION
−Removed: The Company organizes its business into two reportable segments:
−Removed: (1) Tobacco and (2) Hemp/Cannabis.
−Removed: 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.
−Removed: This segment structure reflects the Company’s current operating focus in compliance with ASC 280, Segment Reporting .
−Removed: 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.
−Removed: 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.
−Removed: Unallocated corporate assets consist of cash and cash equivalents, short-term investment securities, prepaid and other assets, property and equipment, and intangible assets.
−Removed: Transactions between the two segments are not significant.
−Removed: The following table presents revenues, net by segment for fiscal years ended December 31, 2022 and 2021:
−Removed: Hemp/cannabis
−Removed: Total revenues, net
−Removed: The following table presents income from continuing operations for the Company’s reportable segments for fiscal years ended December 31, 2022 and 2021:
−Removed: Hemp/cannabis
−Removed: Total segment operating loss
−Removed: Unallocated operating expenses
−Removed: Operating loss
−Removed: Hemp/cannabis other (income) expense, net
−Removed: Unallocated other (income) expense, net
−Removed: Loss before income taxes
−Removed: (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.
−Removed: These charges were included in Other operating expenses, net as described in Note 19.
−Removed: The following table presents depreciation and amortization expense for the Company’s reportable segments for fiscal years ended December 31, 2022 and 2021:
−Removed: Hemp/cannabis
−Removed: Total depreciation and amortization included in segment operating loss
−Removed: Unallocated depreciation and amortization
−Removed: Total depreciation and amortization
−Removed: The following table presents total assets for the Company’s reportable segments as of December 31, 2022 and 2021:
−Removed: Hemp/cannabis
−Removed: Total reportable segments
−Removed: Unallocated assets
−Removed: The following table presents capital expenditures for the Company’s reportable segments for fiscal years ended December 31, 2022 and 2021:
−Removed: Hemp/cannabis
−Removed: Total reportable segments
−Removed: Unallocated expenditures for long-lived tangible assets
−Removed: Total expenditures
−Removed: Geographic Area Information
−Removed: For the years ended December 31, 2022 and 2021, substantially all third-party sales of product are shipped to customers in the United States.
−Removed: Additionally, as of December 31, 2022, and 2021, substantially all long-lived assets are physically located or domiciled in the United States.
−Removed: – REVENUE RECOGNITION
−Removed: 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.
−Removed: 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®.
−Removed: The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer.
−Removed: 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.
−Removed: The Company recognizes revenue under those contracts at the unit price stated in the contract based on the units manufactured.
−Removed: 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.
−Removed: There was no allowance for discounts or returns and allowances at December 31, 2022 and December 31, 2021.
−Removed: 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.
−Removed: Hemp/Cannabis
−Removed: The Company’s hemp/cannabis reportable segment revenues are derived primarily from a CBD wholesale extracts and bulk ingredient distillate or isolate.
−Removed: Additional revenues are generated from private/white label contract manufacturing.
−Removed: The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer.
−Removed: Revenue is recorded at the estimated amount of consideration to which the Company expects to be entitled.
−Removed: 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.
−Removed: 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.
−Removed: The Company recognizes the import duties as part of revenue in accordance with ASC 606.
−Removed: There are no material sales provisions or volume discounts that provide variability in recording revenue amounts.
−Removed: Disaggregation of Revenue
−Removed: 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.
−Removed: Revenue recognized from Tobacco products transferred to customers over time represented 74 % and 68 %, for the year ended December 31, 2022 and 2021, respectively.
−Removed: 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.
−Removed: Hemp/cannabis
−Removed: Total revenues, net
−Removed: 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:
−Removed: Hemp/cannabis
−Removed: Hemp/cannabis
−Removed: All other customers
−Removed: _____________
−Removed: *Less than 10% of product line’s total revenues for the period.
−Removed: Contract Assets and Liabilities
−Removed: Unbilled receivables (contract assets) represent revenues recognized for performance obligations that have been satisfied but have not been billed.
−Removed: These receivables are included as Accounts receivable, net on the Consolidated Balance Sheets.
−Removed: 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.
−Removed: Deferred Revenue (contract liabilities) relate to down payments received from customers in advance of satisfying a performance obligation.
−Removed: This deferred revenue is included as Deferred income on the Consolidated Balance Sheets.
−Removed: Total contract assets and contract liabilities are as follows:
−Removed: Unbilled receivables
−Removed: Deferred revenue
−Removed: Net contract assets (liabilities)
−Removed: 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.
−Removed: – OTHER OPERATING EXPENSES, NET
−Removed: The components of “Other operating expenses, net” were as follows:
−Removed: Grass Valley fire:
−Removed: Fixed asset write-offs
−Removed: Inventory charges
−Removed: Compensation & benefits
−Removed: Professional services
−Removed: Lease obligations
−Removed: Insurance recoveries
−Removed: Total Grass Valley fire
−Removed: Acquisition costs
−Removed: Impairment of intangible assets
−Removed: Impairment of inventory
−Removed: (Gain) loss on sale or disposal of property, plant and equipment
−Removed: Total other operating expenses, net
−Removed: Grass Valley Fire
−Removed: In November 2022, there was a fire at our Grass Valley manufacturing facility in Oregon, which manufactures bulk ingredients, primarily CBD isolate and distillate.
−Removed: 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.
−Removed: The associated lease ROU asset and lease liability were also written-off, with remaining lease obligation of $ 20 being recorded for December rent.
−Removed: 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.
−Removed: Further, we incurred $ 195 of compensation and benefits in 2022 for Grass Valley manufacturing employees, subsequent to the fire.
−Removed: In connection with the Grass Valley fire, we have recognized anticipated insurance recoveries deemed probable
−Removed: 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.
−Removed: 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.
−Removed: Acquisition Costs
−Removed: During 2022, acquisition costs include $ 1,046 primarily related to the acquisition of GVB Biopharma and consist primarily of professional fees and others costs.
−Removed: Other general charges
−Removed: 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 .
−Removed: 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
3 unchanged sentences
Gross profit (loss)
−Removed: Net loss per common share - basic and diluted (2)
+Added: Net loss from continuing operations (2)
+Added: Basic and diluted loss per common share from continuing operations (1)
Three Months Ended
1 unchanged sentence
Revenues, net
−Removed: Net loss per common share - basic and diluted
−Removed: (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.
−Removed: These charges were included in Other operating expenses, net as described in Note 19.
−Removed: (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.
+Added: Net loss from continuing operations (3)
+Added: Basic and diluted loss per common share from continuing operations (1)
+Added: (1) The quarterly per share data in this table has been rounded and therefore may not sum to total year-to-date EPS.
+Added: (2) For the quarter ended December 31, 2023, net loss from continuing operations increased from the previous current year quarters, mainly due to an inventory leaf reserve charge of $ 7,720 and loss on extinguishment of debt in the amount of $ 5,158 .
+Added: (3) For the quarter ended December 31, 2022, net loss from continuing operations increased from the previous current year quarters, mainly due to higher personnel and strategic consulting costs.
– SUBSEQUENT EVENTS
−Removed: Acquisition of RX Pharmatech Ltd
−Removed: 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.
−Removed: Food Standards Agency (“FSA”).
−Removed: RXP’s products include CBD isolate and numerous variations of finished products like gummies, oils, drops, candies, tinctures, sprays, capsules and others.
−Removed: 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.
−Removed: The Company expects to determine the preliminary purchase price allocation prior to the end of the first quarter of 2023.
−Removed: Insurance Recoveries
−Removed: During the first quarter of 2023, the Company received $ 5,000 of casualty loss insurance recoveries from the Grass Valley fire.
−Removed: New Senior Secured Credit Facility
−Removed: 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”).
−Removed: 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 .
−Removed: 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.
−Removed: The Debentures mature on March 3, 2026.
−Removed: 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.
−Removed: 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”).
−Removed: 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”).
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: GVB Bridge Loan
−Removed: 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”).
−Removed: 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
−Removed: assumed by the Company in connection with the acquisition of GVB Biopharma.
−Removed: The maturity date of the Subordinated Note is May 1, 2024.
−Removed: Under the terms of the Subordinated Note, the Company is obligated to make interest payments in-kind (the “PIK Interest”).
−Removed: The PIK Interest accrues at a rate of 26.5 % per annum, payable monthly.
−Removed: The Company is not permitted to prepay all or any portion of the outstanding balance on the Subordinated Note prior to maturity.
−Removed: 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”).
−Removed: 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.
+Added: Increase in Authorized Shares
+Added: On February 15, 2024, our stockholders approved an amendment (the “Articles Amendment”) to our Articles of Incorporation, as amended, to increase the number of authorized shares of common stock sixty-six million, six hundred sixty-six thousand six hundred and sixty-seven ( 66,666,667 ) to two hundred fifty million ( 250,000,000 ), which Articles Amendment was filed and effective with the Secretary of the State of Nevada on February 15, 2024.
+Added: Warrant Inducement
+Added: For the period from January 1, 2024 to February 15, 2024, the date of Stockholder Approval, the Company entered into warrant inducement agreements with certain holders of the Existing Warrants to purchase an aggregate of 13,132,268 shares of common stock at a reduced weighted average exercise price of approximately $ 0.1844 .
+Added: Pursuant to the warrant inducement agreements, the exercising holders of the Existing Warrants received 26,264,536 Inducement Warrants and the Company received aggregate gross proceeds of approximately $ 2,421 from the exercise of the Existing Warrants.
+Added: Additionally, on the date of Stockholder Approval, the exercise price of the 57,299,308 outstanding Inducement Warrants, was reduced to $ 0.1765 based on the lowest Nasdaq Minimum Price (as defined in the as defined in Nasdaq Listing Rule 5635(d)) during the inducement period.
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.
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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 .
−Removed: 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).
Amendment to Certificate of Incorporation of the Company (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed with the Commission on March 4, 2014).
+Added: Amendment to Certificate of Incorporation of the Company (incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed with the Commission on December 11, 2023).
Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Commission on January 30, 2014).
1 unchanged sentence
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).
−Removed: 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)
+Added: Description of Securities Registered Pursuant to Section 12
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).
−Removed: Form of Original Issue Discount Senior Secured Debentures dated March 3, 2023
−Removed: Form of JGB Warrant
−Removed: Form of Omnia Warrant
+Added: Form of Amended Original Issue Discount Senior Secured Debentures dated March 3, 2023 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on December 28, 2023).
+Added: Form of JGB Warrant (incorporated by reference to Exhibit 4.4 to the Company’s Form 10-K filed with the Commission on March 9, 2023).
+Added: Form of Omnia Warrant (incorporated by reference to Exhibit 4.5 to the Company’s Form 10-K filed with the Commission on March 9, 2023).
+Added: Form of Inducement Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on November 29, 2023).
+Added: Waiver and Amendment Agreement (Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on October 16, 2023).
+Added: Form of Common Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on October 18, 2023).
+Added: Form of Placement Agent Warrant (Incorporated by reference from Exhibit 4.3 to the Company’s Form 8-K filed with the Commission on October 18, 2023).
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).
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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).
−Removed: 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).
−Removed: Form of Director Restricted Stock Unit Award under 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K filed with the Commission on March 6, 2019).
−Removed: Framework Collaborative Research Agreement, dated as of April 3, 2019, between KeyGene N.V.
−Removed: and 22nd Century Group, Inc.
−Removed: (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 7, 2019).
−Removed: Employment Agreement between the Company and James Mish (incorporated by reference to exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2020).
−Removed: Employment Agreement between the Company and John Franzino (incorporated by reference to exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2020).
−Removed: 22nd Century Group, Inc.
−Removed: 2021 Omnibus Incentive Plan (incorporated by reference from Appendix A to the Company’s definitive proxy statement filed April 5, 2021)
+Added: Amended and Restated 22nd Century Group, Inc.
+Added: 2021 Omnibus Incentive Plan (incorporated by reference from Appendix B to the Company’s definitive proxy statement filed April 25, 2023)
Form of Option Award Agreement under 22nd Century Group, Inc.
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2021 Omnibus Incentive Plan (incorporated by reference to exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the Commission on May 21, 2021).
−Removed: First Amended and Restated Framework Collaborative Research Agreement between 22nd Century Group, Inc.
−Removed: and Keygene N.V.
−Removed: 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).
−Removed: Securities Exchange Agreement between 22nd Century Group, Inc.
−Removed: and PLS, Exactus, Inc.
−Removed: 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).
−Removed: Employment Agreement between the Company and R.
−Removed: 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).
−Removed: Employment Agreement between the Company and John J.
−Removed: 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).
−Removed: Employment Agreement between the Company and Peter Ferola dated September 20, 2022
−Removed: 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
−Removed: Subordinated Promissory Noted dated March 3, 2023
+Added: 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 (incorporated by reference to Exhibit 10.18 to the Company’s Form 10-K filed with the Commission on March 9, 2023)
+Added: Amendment to 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 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on December 28, 2023)
+Added: Subordinated Promissory Noted dated March 3, 2023 (incorporated by reference to Exhibit 10.19 to the Company’s Form 10-K filed with the Commission on March 9, 2023)
+Added: Equity Purchase Agreement dated November 20, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 27, 2023)
+Added: Amendment to Equity Purchase Agreement dated December 22, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on December 28, 2023)
+Added: Form of Inducement Letter (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 29, 2023)
+Added: License Agreement with NCSU dated November 2, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 8, 2023)
+Added: Insider Trading Policy
Consent of Freed Maxick CPAs, P.C.
2 unchanged sentences
Written Statement of Principal Executive Officer and Chief Financial Officer pursuant to 18.U.S.C §1350.
+Added: Compensation Recovery Policy
Interactive data files formatted in XBRL (eXtensible Business Reporting Language):
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An unredacted copy of the exhibit has been filed separately with the United States Securities and Exchange Commission pursuant to the request for confidential treatment.
−Removed: †††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.
2 unchanged sentences
March 28, 2024
+Added: /s/ Lawrence D.
Chief Executive Officer and Director
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March 28, 2024
−Removed: /s/ Clifford B.
March 28, 2024
+Added: /s/ Andrew Arno
March 28, 2024
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.