XXII 10-K & 10-Q changes, risk factors and insider trading
22nd Century Group, Inc. · Nasdaq · Cigarettes · CIK 1347858 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
Removed heading “We may be unable to comply with the covenants in our convertible senior secured debentures.”
Removed heading “An active trading market for our common stock may not be sustained and you may not be able to resell your shares at or above the price at which you purchased them.”
Removed heading “We are named defendant in certain litigation matters; if we are unable to resolve these matters favorably, then our business, operating results and financial condition may be adversely affected.”
Largest changes
“As a result of these covenants, our ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain additional financing as needed, may be restricted. Furthermore, our failure to comply with the covenants could result in a default under such agreements, which could permit the debt holders to accelerate our obligation to repay the debt. …”see in full comparison
“We are named defendant in certain litigation matters; if we are unable to resolve these matters favorably, then our business, operating results and financial condition may be adversely affected.”see in full comparison
“We may be unable to comply with the covenants in our convertible senior secured debentures.”see in full comparison
We use information systems to help manage business processes, collect and interpret business data and communicate internally and externally with employees, suppliers, customers and others. Some of these information systems are managed by third-party service providers. We have backup systems and business continuity plans in place, and we take care to protect our systems and data from unauthorized access. However, a failure of our systems to function as intended, or penetration of our systems by outside parties intent on extracting or corrupting information or otherwise disrupting business processes, could interrupt our business and place us at a competitive disadvantage, result in a loss of revenue, assets or personal or other sensitive data, litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs. In addition, we currently use some artificial intelligence (AI) solutions for certain sales, back office, administrative and other functions. The use of AI by us and/or our business partners creates the additional risk for the potential loss or misuse of personal data or the dissemination of confidential information, either of which may result in significantly increased business and security costs, a damaged reputation, administrative penalties, or costs related to defending legal claims. Any cybersecurity incident could cause substantial harm to our business and result in regulatory action, fines, and/or substantial costs.see in full comparison
“An active trading market for our common stock may not be sustained and you may not be able to resell your shares at or above the price at which you purchased them.”see in full comparison
“We are currently involved in certain litigation matters. See "Item 3 – Legal Proceedings" included in this Annual Report on Form 10-K. …”see in full comparison
Full comparison: every changed paragraph (23)
We have incurred significant losses and negative cash flows from operations since inception and expect to incur additional losses until such time that we can generate significant revenue and profit in our tobacco business, which casts substantial doubt regarding our ability to continue as a going concern. As of March 17,20, 2025,2026, we had cash and cash equivalents of approximately $1.7 million and outstanding indebtedness under the Convertible Senior Secured Credit Facility of $4.6$3.8 million.
We may be unable to comply with the covenants in our convertible senior secured debentures.
We have $4.6 million in outstanding convertible senior secured debentures as of March 17, 2025, that contain customary representations, warranties and covenants including among other things and subject to certain exceptions, covenants that restrict us 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. We are also required to maintain certain quarterly revenue targets.
As a result of these covenants, our ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain additional financing as needed, may be restricted. Furthermore, our failure to comply with the covenants could result in a default under such agreements, which could permit the debt holders to accelerate our obligation to repay the debt. Although we have in the past received a waiver with respect to our compliance with such covenants, there is no assurance that we will be able to secure a similar waiver for the failure to comply with any future covenants. If any of our debt is accelerated, we likely would not have sufficient funds available to repay it. Substantially all of our assets, including intellectual property, are collateralized under the debentures. If such debt is accelerated, we could be required to liquidate our inventory, cease or curtail operations, or seek protection under applicable bankruptcy laws or similar state proceedings.
Additionally, the senior secured debentures may be converted into shares of the Company’s common. If the senior secured debentures are converted into common stock in whole or in part, the existing stockholders could incur significant dilution in their relative percentage ownership. The prospect of this possible dilution may also negatively impact the price of our common stock.
We are competing with large tobacco companies and large pharmaceutical companies that have greater resources than us. The tobacco industry consists of major domestic and international companies, most of which have existing commercial relationships, as well as financial, technical, research and development, marketing, sales, manufacturing, scaling capacity, distribution, lobbying and other resourcesresources, brand and name recognition substantially greater than ours. In addition, we expect new competitors will enter the markets for similar or novel tobacco products in the future and the nature and extent of this market entrance cannot be quantified at this time.
We use information systems to help manage business processes, collect and interpret business data and communicate internally and externally with employees, suppliers, customers and others. Some of these information systems are managed by third-party service providers. We have backup systems and business continuity plans in place, and we take care to protect our systems and data from unauthorized access. However, a failure of our systems to function as intended, or penetration of our systems by outside parties intent on extracting or corrupting information or otherwise disrupting business processes, could interrupt our business and place us at a competitive disadvantage, result in a loss of revenue, assets or personal or other sensitive data, litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs. In addition, we currently use some artificial intelligence (AI) solutions for certain sales, back office, administrative and other functions. The use of AI by us and/or our business partners creates the additional risk for the potential loss or misuse of personal data or the dissemination of confidential information, either of which may result in significantly increased business and security costs, a damaged reputation, administrative penalties, or costs related to defending legal claims. Any cybersecurity incident could cause substantial harm to our business and result in regulatory action, fines, and/or substantial costs.
The FDA has broad authority over the regulation of tobacco products. The FDA could, among other things, force us to remove from the U.S. market our RNC tobacco cigarettes even after the FDA authorization on December 17, 2019 of our PMTA for us to market our RNC tobacco cigarettes, or the authorization of our MRTP application on December 23, 2021, to enable us to use certain modified exposure claims with respect to our VLN® cigarettes. In addition, the exposure modification order that enables us to market our VLN® cigarettes as MRTPs was granted for a period of five years, which is the maximum duration for a marketing granted order for such products under the Family Smoking Prevention & Tobacco Control Act (PUBLIC LAW 111–31—JUNE 22, 2009). Consequently,Consequently during 2025, we willhave need to reapplyreapplied to the FDA under a new MRTP application to extend the FDA’s exposure modification order beyond December 23, 2026. The MRTP authorization process is a complex, substantial and lengthy regulatory undertaking. The FDA may or may not grant continued authorization of these product claims, including based on FDA's assessment of whether the product application(s) satisfy the statutory requirements for such an order, and whether we have adequately complied with the conditions imposed on us in connection with the FDA’s exposure modification order, such as requirements relating to recordkeeping, reporting and post-market studies. Any action by the FDA to remove our products from the U.S. market, including the termination or non-renewal of the exposure modification orders for our VLN® cigarettes would have a material adverse impact on our business.
The manufacturing and sale of tobacco products subjects us to significant governmentalgovernment regulation and the failure to comply with such regulations could have a material adverse effect on our business and subject us to substantial fines or other regulatory actions.
The Tobacco Control Act requires manufacturers of tobacco products to, among other things, provide the FDA with a list of ingredients added to tobacco products in the manufacturing process and register any establishment engaged in the manufacture, preparation, or processing of a tobacco product. The manufacture of products is subject to strict quality control, testing and record-keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information. The Tobacco Control Act also authorizes the FDA to promulgate regulations requiring that the methods used in, and the facilities and controls used for, the manufacture, preproduction design validation, packing, and storage of a tobacco product conform to current good manufacturing practice (CGMP), also known as tobacco product manufacturing practices (TPMP). On March 8, 2023, the FDA issued a proposed rule to promulgate such TRMP regulations. The proposed rule, if finalized, would establish requirements for manufacturers of finished and bulk tobacco products on the methods used in, and the facilities and controls used for, the manufacture, pre-production design validation, packing, and storage of tobacco product.
Our productionNorth Carolina manufacturing facility (NASCO) is integral to our tobacco business and adverse changes or developments affecting our facility may have an adverse impact on our business.
Our productionmanufacturing facility in North Carolina is integral to our tobacco business. Adverse changes or developments affecting this facility, including, but not limited to, disease or infestation of our raw materials, a fire, an explosion, a serious injury or fatality, a power failure, a natural disaster, an epidemic, pandemic or other public health crisis, or a material failure of our security infrastructure, could reduce or require us to entirely suspend operations.
An extended disruption at aour North Carolina manufacturing facility or in service by a supplier, distributor or distribution chain service provider could have a material adverse effect on our business.
We face risks inherent in reliance on one manufacturing facility and a small number of key suppliers, distributors and distribution chain service providers. A pandemic (including COVID-19),pandemic, natural or man-made disaster or other disruption that affects the manufacturing operations, the operations of any key supplier, distributor or distribution chain service provider or any other disruption in the supply or distribution of goods or services (including a key supplier’s inability to comply with government regulations or unwillingness to supply goods or services to a tobacco company) could have a material adverse effect on our business.
Our worldwide exclusive licenses relating to tobacco from NCSU involve multiple patent families and trade secrets. The exclusive rights under the NCSU agreements expire on the date on which the last patent or registered plant variety covered by the subject license expires in the country or countries where such patents or registered plant varieties are in effect. The NCSU licenses relate predominately to issued patents, and our exclusive rights in the NCSU licenses are expected to expire in 2042.
Recently,Over the past two years, the Company has received deficiency letters from the Nasdaq Listing Qualifications Department notifying the Company not been in compliance with certain Nasdaq trading rules. Although such deficiencies have been addressed and remedied, there can be no assurance of our ability to comply with such rules in the future. If we are ever no longer listed on the NASDAQ or other national stock exchange in the future, then it would be more difficult to dispose of shares or to obtain accurate quotations as to the market value of our common stock compared to securities of companies whose shares are traded on national stock exchanges.
An active trading market for our common stock may not be sustained and you may not be able to resell your shares at or above the price at which you purchased them.
An active trading market for our shares may not be sustained. In the absence of an active trading market for our common stock, shares of common stock may not be able to be resold at or above the purchase price of such shares. Although there can be no assurances, we expect that our common stock will continue to be listed on the NASDAQ. However, even if our common stock continues to be listed on the NASDAQ, there is no assurance that an active market for our common stock will continue in the foreseeable future. There also can be no assurance that we can maintain such listing on the NASDAQ. If we are ever no longer listed on the NASDAQ or other national stock exchange in the future, then it would be more difficult to dispose of shares or to obtain accurate quotations as to the market value of our common stock compared to securities of companies whose shares are traded on national stock exchanges.
We are named defendant in certain litigation matters; if we are unable to resolve these matters favorably, then our business, operating results and financial condition may be adversely affected.
We are currently involved in certain litigation matters. See "Item 3 – Legal Proceedings" included in this Annual Report on Form 10-K. We cannot at this time predict the outcome of these matters or any future litigations matters (whether related or unrelated) or reasonably determine the probability of a material adverse result or reasonably estimate range of potential exposure, if any, that these matters or any future matters might have on us, our business, our financial condition or our results of operations, although such effects, including the cost to defend, any judgements or indemnification obligations, among others, could be materially adverse to us. In addition, in the future, we may need to record litigation reserves with respect to these matters. Further, regardless of how these matters proceed, it could divert our management’s attention and other resources away from our business.
Sales of a substantial number of shares of our common stock in the public market may depress the prevailing market price for our common stock and could impair our ability to raise capital through the future sale of our equity securities. Additionally, as of March 17,23, 2025,2026, we have outstanding 24,391,1635,408,786 warrants to purchase an equal number of shares of common stock and $4.616.0 million in Series B convertible promissorypreferred notesstock (convertible into 754,554a maximum of 22,408,964 shares). If any of the holders of outstanding warrants or notes exercise or convert them, as applicable, our common stockholders will incur dilution in their relative percentage ownership. The prospect of this possible dilution may also impact the price of our common stock.
We have a significant number of outstanding warrantssecurities with anti-dilution price protection.
We have approximately 24,387,5705,408,786 outstanding warrants with anti-dilution price protection. The exercise price on these warrants will have the exercise price reduced in the event of any future offerings of securities at a lower price than the current exercise price (subject to limited exceptions) of $4.3021.$3.57. In addition, our Series B Convertible Preferred Stock is convertible into common stock at any time at an initial conversion price of $3.57, which price is subject to adjustment for any future offerings of securities at a lower price than the current exercise price (subject to limited exceptions). Such warrantssecurities may deter future investors and can result in further dilution to our investors.
Management's Discussion & Analysis (MD&A)
New heading “All figures reported below reflect continuing operations, excluding discontinued operations related to the sale and exit of the Company’s hemp/cannabis business in late 2023, except as noted.”
New heading “Product line revenue, net”
New heading “March 2026 Series B Convertible Preferred Stock Offering”
Removed heading “Revenue - Sale of products, net”
Removed heading “Convertible Senior Secured Credit Facility”
Removed heading “Embedded Derivatives – Conversion Option”
Largest changes
“All figures reported below reflect continuing operations, excluding discontinued operations related to the sale and exit of the Company’s hemp/cannabis business in late 2023, except as noted.”see in full comparison
Full comparison: every changed paragraph (42)
On December 17, 2024, we implemented a 1-for-135 reverse stock split, on March 28, 2024, we implemented a 1-for-16 reverse stock split, and on July 5, 2023, we implemented a 1-for-15 reverse stock split of our common stock. All historical share and per-share amounts reflected throughout this section have been adjusted to reflect theprior reverse stock splits. The par value per share of our common stock was not affected.
All figures reported below reflect continuing operations, excluding discontinued operations related to the sale and exit of the Company’s hemp/cannabis business in late 2023, except as noted.
($Dollars are in thousands, except per share data or unless otherwise specified)specified.
Executive Overview
The Company remains dedicated to being the leader of the tobacco harm reduction movement through science-based innovation, regulatory alignment, and responsible commercialization of reduced nicotine content combustibles. Our mission is to provide adult smokers with alternatives in the form factor that they are comfortable with, cigarettes, that significantly reduce nicotine exposure, supporting the potential for reduced dependence while preserving consumer choice.
Tobacco BusinessOperations Highlights
Product line revenue, net
For the year ended December 31, 2025, total product line revenue was $17,587, a decrease of 27.9% from $24,382 in the prior year.
Revenue - Sale of products, net
Tobacco revenue was $24,382, a decrease of 24.3% from $32,204 in the prior year, primarily driven by a decrease in volumes of filtered cigars and export cigarettes, offset by increases in cigarettes and new sales in 2024 for cigarillos.
The decreaseincrease in gross loss and gross loss as a percent of revenues, net for the year ended December 31, 2024,2025, compared to the year ended December 31, 2023,2024, was primarily driven by implementation of cost cut initiatives, efficiency, and the shift in product mix offsetduring by2025, lowerwith salescigarettes volume.inclusive Additionally,of theproducts improvementsold infor grossexport lossrepresenting andhigher gross lossvolume as a percent of revenues, net is duecompared to filtered cigars in the prior year periodcomparable reserveperiod. forDomestic excess,cigarette obsoleteexcise ortaxes expiredincluded leafamounts inventorypayable ofunder $7,720the recordedMaster duringSettlement Agreement (“MSA), whereas filtered cigar volume has no comparable excise tax. Gross margin improvements in cigarettes began in the fourth quarter of2025, 2023.which demonstrates the steady shift in product mix to higher margin cigarette products.
(a) Compensation and benefits and equity compensation expense decreased for the year ended December 31, 20242025 compared to the prior year due to a reduction of headcount as part of our cost cutcutting initiatives.
(b) Decreases of strategic consulting, sales and marketing and travel and entertainmentconsulting for the year ended December 31, 20242025 compared to the prior year were due to reduced spending as part of our$482 costfor cutinvestor initiatives.and public relations and $391 in other consulting related to MRTP post-market studies.
(c) Legal expenses decreased for the year ended December 31, 2025 compared to the prior year period due to decreased regulatory and corporate legal expense.
(d) Insurance expense decreased for the year ended December 31, 2025 compared to the prior year period due to lower insurance premiums.
(ce) Other expenses decreased for the year ended December 31, 20242025 compared to the prior year ended December 31, 20232024 mainly due to decreases in insurance of $1,483, public company expenses of $1,407,$149, legalsales and marketing expenses of $617,$134, supplies, repairs and maintenance expenses of $121, technology expenses of $55, depreciation expense of $75, offset by increased travel and entertainment of $615,$60, technology expenses $329 and depreciationfacilities expense of $78$25 whichand wereother partiallyexpenses offsetmainly by an allocationrelated to ourstate hempregistration cannabisfees businessof that occurred in the prior year.$100.
(b) Contract, IP and other expenses decreased for the year ended December 31, 20242025 compared to the prior year primarily due to a decrease in contract and royalty costs of $500$276 and IP related consulting and expenses of $503$84 due to our cost cutting initiatives.
Other operating expenses (income),expenses, net
Other operating expenses, net increased $20 due to increased impairment charges of $82 for patents and disposal of trademarks that we are no longer pursuing for the year ended December 31, 2025 compared to the prior year period, offset by a loss of $62 in 2024 for the sale of property, plant and equipment.
Refer to Note 18, “Other operating expenses (income), net,” of the Notes to Consolidated Financial Statements contained in Item 15 of this report for additional information regarding these charges.
We have incurred significant losses and negative cash flows from operations since inception and expect to incur additional losses until such time that we can generate significant revenue and profit in our tobacco business. We had negative cash flow from operations of $14,345$7,723 for the year ended December 31, 20242025 and an accumulated deficit of $393,871$398,925 as of December 31, 2024.2025. As of December 31, 2024,2025, we had cash and cash equivalents of $4,422, indebtedness under the Convertible Senior Secured Credit Facility of $7,690$7,149 and working capital from continuing operations of $1,790$10,359 (compared to working capital deficit from continuing operations of ($6,826)$1,790 at December 31, 20232024). Given our projected operating requirements and existing cash and cash equivalents, there is substantial doubt about our ability to continue as a going concern through one year following the date that the Consolidated Financial Statements included herein are issued.
As of December 31, 2024,2025, we had working capital,capital from continuing operations, excluding assets and liabilities held for sale, of approximately $1,790$10,359 compared to working capital deficit of approximately ($6,826)$1,790 as of December 31, 2023,2024, an improvement of $8,616.$8,569. This increase in working capital was primarily due to an increase in net current assets of $7,160 and a decrease in current liabilities of $13,168 offset by a decrease of $4,552 in current assets.$1,409. Cash and cash equivalents increased by $2,364$2,727 and the remaining net current assets decreasedincreased by $6,916. As a result of the working capital balance, management has taken a number of steps to improve liquidity. Refer below to “Cash demands on operations.”$4,381.
Cash used in operations decreased $40,642$6,622 from $54,987 in 2023 to $14,345 in 2024.2024 to $7,723 in 2025. The primary driver for this decrease was lower consolidated net loss of $125,611$10,110, duean to our cost savings initiatives implemented in 2024, a decreaseincrease of $89,876$6,257 related to net adjustments to reconcile net loss to cash primarily due to a loss on disposal of the hemp cannabis business that occurred in the prior year of $58,521,cash, and aan decreaseincrease in cash used for working capital components related to operations in the amount of $4,907$9,745 for the year ended December 31, 2024,2025, as compared to the year ended December 31, 2023.2024.
Net cash (used in) provided by investing activities
Cash used in investing activities amounted to $505 in 2025 as compared to $139 in 2024. The increase in cash used in investing activities of $366 was primarily the result decreases of cash outflows of $714 related to the acquisitions of patents, trademarks and property, plant and equipment and $500 from the issuance of the 2025 GVB promissory note. These cash outflows were offset by cash inflows of $748 of proceeds from the sale of property, plant and equipment primarily from the sale of Needlerock farms in 2025 and $100 payments received from the 2025 GVB promissory note.
Cash used in investing activities amounted to $139 in 2024 as compared to cash provided by investing activities of $16,816 in 2023. The decrease in cash provided by investing activities of $16,955 was primarily the result of (i) a decrease in net proceeds from short-term investments of $18,239; (ii) $3,500 of property, plant, and equipment casualty loss insurance proceeds collected in the prior year; (iii) $665 from proceeds from the sale of discontinued operations in the prior year and (iv) a decrease in the proceeds from the sale of property, plant and equipment of $261. These decreased cash inflows were partially offset by a decrease in cash outflows of $5,456 related to the acquisitions of patents, trademarks and property, plant and equipment and (ii) $254 from the acquisition of RXP in the prior year.
During the year ended December 31, 2025, cash provided by financing activities decreased by $5,893, from $16,848 in 2024, to $10,955 in 2025, resulting from decreases in net proceeds from common stock issuances of $15,087, increases in payments of long-term debt of $3,034 and payments of deferred offering costs of $130 offset by increases in cash inflows from net proceeds from Series A convertible preferred stock of $9,893, warrant exercises of $1,721, issuance of notes payable of $399 and decreases of cash outflows from taxes paid related to net share settlement of RSUs of $1 and in payments on notes payable of $344.
During the year ended December 31, 2024, cash provided by financing activities decreased by $20,361, from $37,209 in the prior year, to $16,848, resulting from decreases in (i) net proceeds of $16,048 from issuance of long-term debt, (ii) proceeds of $6,016 from issuance of detachable warrants, (iii) net proceeds of $10,335 from the issuance of common stock (iv) proceeds from issuance of notes payable of $1,104 offset by an increase in net proceeds from warrant exercise of $309. These cash inflows were offset by decreases in cash outflows of note payable payments of $4,035, payments of long-term debt of $8,398, and taxes paid related to net share settlement of RSUs of $419.
We have financed our operations to date primarily through the issuance of equity securities, proceeds from the exercise of warrants to purchase common stock and sale of debt instruments with various institutions, accredited investors, high net worth individuals and creditors.instruments.
In April 2025, we received net proceeds of $5,075 from the inducement and exercise of 5,074 existing warrants for shares of common stock and issuance of an additional 5,074 warrants to purchase common stock. In August 2025, we received net proceeds of $9,893 from the issuance of new shares of Series A convertible preferred stock and issuance of 668,554 warrants to purchase common stock. The proceeds were used to fully repay the remaining principal balance of the Senior Secured Credit Facility.
Additionally, in September 2025, the Company settled its outstanding litigation with its insurer related to the November 2022 fire at the Company’s Grass Valley manufacturing facility in Oregon. Under the terms of the settlement, the insurer paid the Company an aggregate amount of $9,500 in cash.
We entered into a sales agreement (the “Sales Agreement”) with Needham & Company, LLC (the “Sales Agent”) which permits us to sell up to $25,000 of our common stock from time to time at prevailing market prices. During the three months ended December 31, 2025, we sold no shares under the Sales Agreement. Subsequent to December 31, 2025, the Company sold 44,381 shares of common stock under the ATM Program for gross proceeds of $200 at a weighted average price of $4.51.
March 2026 Series B Convertible Preferred Stock Offering
On March 20, 2026, we and certain investors entered into a securities purchase agreement with respect to the offer and sale of $20,000 of shares of Series B Convertible Preferred Stock, stated value $1,000 per share (the “Series B Preferred Stock”), initially convertible into shares of common stock at an initial conversion price of $3.57 (subject to adjustment in certain circumstances with a floor price of $0.714) and, alternatively, at a 15% discount to the lowest daily volume-weighted average price (“VWAP”) during the prior 20 trading days (the “Alternative Conversion Price”) and warrants to purchase shares of Common Stock pursuant to a registered direct offering. The Company has the ability to reset the fixed conversion price (lower), subject to board approval and the floor price. Stockholder approval for the offering was obtained at the February 20, 2026 Special Meeting of the Stockholders.
At the initial closing, the investors purchased $16,000 of shares of Series B convertible preferred stock and warrants. The remaining $4,000 of shares of Series B Preferred Stock and warrants are expected to be purchased at a second closing. The investors may request the second closing at any time until the one-year anniversary of the initial closing date and we may require the second closing at any time until the one-year anniversary of the initial closing date by individual investor once less than 50% of such Investor’s Series B Preferred Stock purchased at the initial closing remains outstanding and certain equity conditions have been satisfied for at least 7 of the prior 10 trading days, including: (1) the Common Stock closes above 2.5 times the floor price and (2) the daily dollar trading volume of the Common Stock exceeds $500. The warrants are immediately exercisable at an exercise price of $3.57 per share of common stock and expire on the date that is five years after issuance. In addition, the Company issued placement agent warrants to purchase an aggregate of 187,816 shares of common stock with substantially the same terms as the Warrants, except that the exercise price of the Placement Agent Warrants is $3.927.
We used the net proceeds from the offering to repurchase at par all of the shares of outstanding Series A Convertible Preferred Stock issued in August 2025 in the amount of $9.65 million. The balance of the net proceeds from the offering was approximately $5,680, after deducting placement agent case fees but before any other offering expenses.
Following the offering, 130 shares of Series B Preferred Stock were converted into 33,929 shares of common stock, with 15,870 Series B Preferred Stock shares remaining outstanding.
In January and February 2024, we received net proceeds of $2,245 from the inducement and exercise of 6,081 warrants for shares of common stock and issuance of 12,160 warrants to purchase common stock. In April 2024, we received net proceeds of $3,913 from the issuance of 13,741 shares of common stock, 926 pre-funded warrants and 14,667 warrants to purchase common stock in a registered direct offering. In August and September 2024, we received net proceeds of $5,208 from the issuance of 72,000 shares of common stock pursuant to a Regulation A offering, and in separate private placements, issued 109,600 warrant to purchase common stock. In September 2024 we received net proceeds of $1,054 from the issuance of 38,041 shares of common stock and 76,348 warrants to purchase common stock in a registered direct offering. Also, in September 2024 we received net proceeds of $1,073 from the inducement and exercise of 37,624 warrants for shares of common stock and issuance of 75,248 warrants to purchase common stock. In October 2024 we received net proceeds of $2,002 from the issuance of 105,679 shares of common stock and 211,358 warrants to purchase common stock in a registered direct offering. Also, in October 2024 we received net proceeds of $2,909 from the issuance of 210,036 prefunded warrants to purchase shares of common stock and 315,055 warrants to purchase common stock in a private placement offering.
Convertible Senior Secured Credit Facility
As of December 31, 2024, the remaining principal balance under our Senior Secured Credit Facility is $7,690 of which $1,500 remains current with corresponding non-operating pledged assets. The Debentures under the Senior Secured Credit Facility allow the Holders to voluntarily convert the Debentures, in whole or in part, into shares of the Company’s common stock and the conversion option price in effect as of January 13, 2025 is $6.04. The Holders exercised conversion notices in the amount of $3,132 in January 2025 and the Company issued 518,600 shares of common stock. The remaining principal balance of the Debentures is $4,558, as of March 17, 2025 following the conversion of which the Company and Holders have $1,500 of non-operating assets pledged for repayment.
Embedded Derivatives – Conversion Option
Our December Amendment to the Senior Secured Credit Facility contained an embedded derivative conversion option. The Company evaluates each debt agreement to determine whether any embedded features require bifurcation from the debt host in accordance with ASC 815, Derivatives and Hedging ("ASC 815"). If the embedded feature requires bifurcation from its debt host, the Company will account for it as either a derivative liability or as a derivative in equity. The Company uses valuation models to estimate the fair value of the embedded derivatives. For the valuation to record the debt and embedded derivative related to the conversion option at fair value, the Company uses a binomial lattice model at inception and on subsequent valuation dates. This model incorporates inputs such as the stock price of the Company, risk-free interest rate, the effective debt yield and expected volatility. Certain inputs involve unobservable inputs and are classified as level 3 of the fair value hierarchy (see Note 8, Fair Value Measurement to our Consolidated Financial Statements included elsewhere in Item 15 of this Annual Report). The sensitivity of the fair value calculation to these methods, assumptions, and estimates included could create materially different results under different conditions or using different assumptions.
What changed in the latest 10-Q
Risk Factors
New heading “Nasdaq may delist our common stock from trading on its exchange, which could limit investors’ ability to make transactions in our common stock, reduce the liquidity of our common stock and materially impair our ability to raise the additional capital necessary to continue our operations.”
Largest changes
“Nasdaq may delist our common stock from trading on its exchange, which could limit investors’ ability to make transactions in our common stock, reduce the liquidity of our common stock and materially impair our ability to raise the additional capital necessary to continue our operations.”see in full comparison
“A delisting or trading suspension could also materially impair our ability to raise capital. We have incurred significant losses and may require additional capital to fund our operations, satisfy our obligations, execute our business strategy and continue as a going concern. …”see in full comparison
“The occurrence of any of these events could materially and adversely affect the value and liquidity of our common stock, our business, financial condition and results of operations, and our ability to continue as a going concern.”see in full comparison
“Nasdaq has adopted a continued listing requirement that requires companies listed on the Nasdaq Capital Market to maintain a minimum market value of listed securities (“MVLS”) of at least $5 million. Under the rule, if a company’s MVLS remains below $5 million for 30 consecutive business days, Nasdaq may issue a Staff Delisting Determination without providing the company with the traditional cure or compliance period available for certain other listing deficiencies. …”see in full comparison
“During the past two years, we have received deficiency letters from the Nasdaq Listing Qualifications Department notifying us that we were not in compliance with certain Nasdaq continued listing requirements. Although we addressed those deficiencies and regained compliance, our prior compliance does not provide assurance that we will maintain compliance in the future. We may receive additional deficiency or delisting notices, and any compliance period or exception available under Nasdaq’s rules may be insufficient for us to regain compliance. …”see in full comparison
“If Nasdaq delists our common stock from trading on its exchange, we could face significant material adverse consequences, including:”see in full comparison
Full comparison: every changed paragraph (9)
ThereExcept as set forth below, there have been no material changes from the risk factors disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 26, 2026.
Nasdaq may delist our common stock from trading on its exchange, which could limit investors’ ability to make transactions in our common stock, reduce the liquidity of our common stock and materially impair our ability to raise the additional capital necessary to continue our operations.
Our common stock is currently listed on the Nasdaq Capital Market (“Nasdaq”). To maintain that listing, we must satisfy Nasdaq’s continued listing requirements, including requirements relating to the minimum bid price of our common stock, the market value of our listed securities, stockholders’ equity, the market value of our publicly held shares, the number of publicly held shares and public holders, corporate governance and other matters. We cannot assure you that we will continue to satisfy all applicable Nasdaq continued listing requirements.
Under Nasdaq Listing Rule 5550(a)(2), the closing bid price of our common stock generally must be at least $1.00 per share. If the closing bid price is below $1.00 per share for 30 consecutive business days, Nasdaq may notify us that we no longer comply with the minimum bid-price requirement. Although Nasdaq’s rules may provide an eligible company with a compliance period in which to regain compliance, there can be no assurance that we would be eligible for any such period, that Nasdaq would grant us any additional time, or that we would regain or subsequently maintain compliance. Regaining compliance may require the closing bid price of our common stock to equal or exceed $1.00 per share for a specified number of consecutive business days, and Nasdaq may require a longer compliance period in its discretion.
Nasdaq has adopted a continued listing requirement that requires companies listed on the Nasdaq Capital Market to maintain a minimum market value of listed securities (“MVLS”) of at least $5 million. Under the rule, if a company’s MVLS remains below $5 million for 30 consecutive business days, Nasdaq may issue a Staff Delisting Determination without providing the company with the traditional cure or compliance period available for certain other listing deficiencies. The rule also provides for the suspension of trading in the company’s securities during the pendency of an appeal of the Staff Delisting Determination, subject to the applicable Nasdaq rules and procedures. Although the new MVLS rule has been stayed by the SEC, we cannot predict whether the SEC will affirm, modify or set aside the rule, whether Nasdaq will further amend the rule, or when or whether the rule will again become effective. The stay could be lifted with little advance notice, and the rule could become applicable to us in its current or a modified form. If the stay is lifted and the rule becomes operative in its current or a substantially similar form, and our MVLS subsequently remains below $5 million for the applicable measurement period, our common stock could be suspended from trading and delisted without a traditional cure period.
During the past two years, we have received deficiency letters from the Nasdaq Listing Qualifications Department notifying us that we were not in compliance with certain Nasdaq continued listing requirements. Although we addressed those deficiencies and regained compliance, our prior compliance does not provide assurance that we will maintain compliance in the future. We may receive additional deficiency or delisting notices, and any compliance period or exception available under Nasdaq’s rules may be insufficient for us to regain compliance. Nasdaq may also amend its listing standards, adopt more stringent standards or alter the remedies available to a company that fails to comply.
If Nasdaq delists our common stock from trading on its exchange, we could face significant material adverse consequences, including:
A delisting or trading suspension could also materially impair our ability to raise capital. We have incurred significant losses and may require additional capital to fund our operations, satisfy our obligations, execute our business strategy and continue as a going concern. Investors may be unwilling to purchase our securities if they are not listed on a national securities exchange, and any financing that remains available may involve substantially higher costs, more restrictive terms, significant discounts, warrant coverage, senior or secured securities, or substantial dilution to existing stockholders. Delisting could also impair our ability to use an effective registration statement, access at-the-market or other public equity programs, or satisfy exchange-related conditions in existing or future financing agreements.
The occurrence of any of these events could materially and adversely affect the value and liquidity of our common stock, our business, financial condition and results of operations, and our ability to continue as a going concern.
Management's Discussion & Analysis (MD&A)
New heading “Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025”
Removed heading “March 2026 Series B Convertible Preferred Stock Offering”
Largest changes
“Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025”see in full comparison
“At the initial closing, the investors purchased $16,000 of shares of Series B convertible preferred stock and warrants. The remaining $4,000 of shares of Series B Preferred Stock and warrants are expected to be purchased at a second closing. …”see in full comparison
“On March 20, 2026, we and certain investors entered into a securities purchase agreement with respect to the offer and sale of $20,000 of shares of Series B Convertible Preferred Stock, stated value $1,000 per share (the “Series B Preferred Stock”), initially convertible into shares of common stock at an initial conversion price of $3.57 (subject to adjustment in certain circumstances with a floor price of $0.714) and, alternatively, at a 15% discount to the lowest daily volume-weighted average price (“VWAP”) during the prior 20 trading days (the “Alternative Conversion Price”) and warrants …”see in full comparison
During thesee in full comparisonthreesix months endedMarchJune31,30, 2026, cash provided by financing activities increased by$5,800$1,915fromcomparedcashtoused in financing activities of $254$4,443 in the prior year period tocash$6,358providedinbythefinancingcurrentactivitiesyearof $5,546,period, resulting from increases in net proceeds from Series B convertible preferred stock issuances of$15,256,$15,299, net proceeds from issuance of common stock related to the ATM of $64, decreases of cash outflows from payments on long-term debt of $1,017 and notes payable of$134$190, offset by a decrease in cash inflows of $221 for proceeds from issuance of note payable and from net proceeds of warrant exercises of $2,766, cash outflows from the redemption of Series A at par value of$9,650$9,650, redemption of Series B at par value of $2,010, andfromprincipal payments for finance leases of$4.$8.
“(e) Increases in other expenses for the three months ended March 31, 2026, compared to the prior year period were due to increased public company expenses of $124 mainly related to the special shareholder meeting held on February 20, 2026, $36 of facilities expenses due to the movement of inventory into a new storage facility, $42 of other expenses primarily related to state filing fees, and $14 for travel and entertainment expenses. These increases were partially offset by a decrease in technology expenses of $49.”see in full comparison
Full comparison: every changed paragraph (30)
Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025
Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
For the firstsecond quarter and threesix months ended MarchJune 31,30, 2026, total product line revenues decreased to $4,105$2,864 fromand $5,956,$6,970, respectively, compared to $4,083 and $10,039, respectively, in the prior year period,periods, as follows:
Gross loss for the three-monththree periodand six-month periods ended MarchJune 31,30, 20262026, remained consistentdecreased as compared to the prior year comparable period,periods benefitting from manufacturing overhead cost savings initiatives implemented by management in second half 2025, offset by decreased volume as compared to the prior year comparable period. Additionally, the three and six-month periods ended June 30, 2026 reflected one-time charges for write-off of aged inventory discontinued by our customers of $196, offset by a one-time recovery of excise taxes of $692 related to settlement with states for non-participating manufacturers credits under the master settlement agreement related to prior tax periods.
(a) Compensation and benefits expense increased for the three and six months ended MarchJune 31,30, 2026, compared to the prior year periodperiods due to an increase in headcountheadcount, benefit premiums, equity and equityincentive compensation expenses.expense.
(b) Strategic consulting costs decreased for the three and six months ended MarchJune 31,30, 2026, compared to the prior year period wasperiods due to decreased spending related to investor relations services and FDA post-market studies offset by increased regulatory and consulting for post-market studies.expenses.
(c) Legal expenses increased for the three and six months ended MarchJune 31,30, 2026 compared to 2025 mainly due to additionalhigher tobacco regulatory legal spend related to regulatory matters compared to the prior year period.periods.
(d) Insurance costs decreased for the three and six months ended MarchJune 31,30, 2026 compared to the prior year periodperiods due to lower insurance premiums.
(e) Increases in other expenses for the three months ended March 31, 2026, compared to the prior year period were due to increased public company expenses of $124 mainly related to the special shareholder meeting held on February 20, 2026, $36 of facilities expenses due to the movement of inventory into a new storage facility, $42 of other expenses primarily related to state filing fees, and $14 for travel and entertainment expenses. These increases were partially offset by a decrease in technology expenses of $49.
Decreased Contract, IP and other expenses for the six months ended June 30, 2026, compared to the prior year period were due to lower amortization expense offset by increased contract costs.
For the three months ended June 30, 2026 compared to the prior year period, interest decreased $214 and $129 of extinguishment charges that occurred in the prior year period from the Senior Secured Credit Facility; which was repaid in September 2025. These decreases were offset by interest expense of $9 related to the NCSU Promissory Note.
For the six months ended June 30, 2026 compared to the prior year period, interest decreased $768 and $129 of extinguishment charges that occurred in the prior year period from the Senior Secured Credit Facility; which was repaid in September 2025. In addition, other interest expense charges decreased by $4 offset by an increase of $21 related to the NCSU Promissory Note.
We have incurred significant losses and negative cash flows from operations since inception and expect to incur additional losses until such time that we can generate significant revenue and profit in our tobacco business. We had negative cash flow from operations of $3,103$7,092 for the threesix months ended MarchJune 31,30, 2026 and an accumulated deficit of $402,186$405,532 as of MarchJune 31,30, 2026. As of MarchJune 31,30, 2026, we had cash and cash equivalents of $9,545$6,058 and working capital from continuing operations of $13,164$10,365 (compared to working capital from continuing operations of $10,359 at December 31, 2025). Given our projected operating requirements and existing cash and cash equivalents, there is substantial doubt about our ability to continue as a going concern through one year following the date that the Condensed Consolidated Financial Statements herein are issued.
Our cash and cash equivalents and working capital from continuing operations as of MarchJune 31,30, 2026 and December 31, 2025 are set forth below:
As of MarchJune 31,30, 2026, we had working capital from continuing operations of approximately $13,164$10,365 compared to working capital of approximately $10,359 at December 31, 2025, an increase of $2,805.$6. This increase in working capital was primarily due to ana increasedecrease in net current liabilities of $818, offset by a decrease in net current assets of $3,439 due to proceeds received related to the ATM and Series B convertible preferred stock, offset by an increase in net current liabilities of $634.$812. Cash and cash equivalents increaseddecreased by $2,396$1,091 and the remaining net current assets increased by $1,043.$279. Management continues to take further steps to improve liquidity more. Refer below to “Cash demands on operations.”
Cash used in operating activities increased $127$638 from $2,976$6,454 in 2025 to $3,103$7,092 in 2026. The primary driver for this change was loweran net loss of $1,067, a decrease of $1,433 related to net adjustments to reconcile net loss to cash, and a decreaseincrease in cash used for working capital components related to operations in the amount of $239$539, offset by lower net loss of $1,128 and a decrease of $1,227 related to net adjustments to reconcile net loss to cash for the threesix months ended MarchJune 31,30, 2026, as compared to the threesix months ended MarchJune 31,30, 2025.
Net cash used in (provided by) investing activities
Cash used in investing activities amounted to $47$357 for the threesix months ended MarchJune 31,30, 2026, as compared to cash usedprovided inby investing activities of $59$672 for the threesix months ended MarchJune 31,30, 2025. The decrease in cash provided by investing activities of $12$1,029 was the result of $770 of proceeds from the sale of property, plant and equipment primarily from the sale of Needlerock farms that occurred in the prior year period, $25 received from the 2025 GVB promissory note in the current year period and an overall decreaseincrease of cash outflows of $284 related to the acquisitions of patents, trademarks, licenses and property, plant and equipment.
Net cash provided by (used in) financing activities
During the threesix months ended MarchJune 31,30, 2026, cash provided by financing activities increased by $5,800$1,915 fromcompared cashto used in financing activities of $254$4,443 in the prior year period to cash$6,358 providedin bythe financingcurrent activitiesyear of $5,546,period, resulting from increases in net proceeds from Series B convertible preferred stock issuances of $15,256,$15,299, net proceeds from issuance of common stock related to the ATM of $64, decreases of cash outflows from payments on long-term debt of $1,017 and notes payable of $134$190, offset by a decrease in cash inflows of $221 for proceeds from issuance of note payable and from net proceeds of warrant exercises of $2,766, cash outflows from the redemption of Series A at par value of $9,650$9,650, redemption of Series B at par value of $2,010, and from principal payments for finance leases of $4.$8.
In June 2026, we received net proceeds of $2,309 from the inducement and exercise of 267,651 existing warrants for shares of common stock and issuance of 267,284 warrants to purchase common stock. The Company utilized a portion of the net proceeds to repurchase at par 2,010 shares of Series B convertible preferred stock in the amount of $2,010.
In March 2026, we issued 16,000 shares of Series B convertible preferred stock and 233,481 warrants to purchase shares of common stock for net proceeds of $15,275, of which $9,650 was used to repurchase at par all of the remaining share of outstanding Series A convertible preferred stock issued in August 2025. The investors from the Series B convertible preferred stock offering have an additional 4,000 shares that may be purchased at subsequent closings, of which 25 shares have been purchased through June 30, 2026.
We entered into a sales agreement (the “Sales Agreement”) with Needham & Company, LLC (the “Sales Agent”) which permits us to sell up to $25,000 of our common stock from time to time at prevailing market prices, which program was reduced to a maximum of $1,840$6,400 on AprilMay 10,1, 2026. DuringNo sales have occurred under the ATM program for the three months ended MarchJune 31,30, 2026. During the six months ended June 30, 2026, the Company sold 44,3812,221 shares of common stock under the ATM Program for gross proceeds of $200 at a weighted average price of $4.51.$200. The Company paid fees to the Sales Agent in the amount of $6.
March 2026 Series B Convertible Preferred Stock Offering
On March 20, 2026, we and certain investors entered into a securities purchase agreement with respect to the offer and sale of $20,000 of shares of Series B Convertible Preferred Stock, stated value $1,000 per share (the “Series B Preferred Stock”), initially convertible into shares of common stock at an initial conversion price of $3.57 (subject to adjustment in certain circumstances with a floor price of $0.714) and, alternatively, at a 15% discount to the lowest daily volume-weighted average price (“VWAP”) during the prior 20 trading days (the “Alternative Conversion Price”) and warrants to purchase shares of Common Stock pursuant to a registered direct offering. The Company has the ability to reset the fixed conversion price (lower), subject to board approval and the floor price. Stockholder approval for the offering was obtained at the February 20, 2026 Special Meeting of the Stockholders.
At the initial closing, the investors purchased $16,000 of shares of Series B convertible preferred stock and warrants. The remaining $4,000 of shares of Series B Preferred Stock and warrants are expected to be purchased at a second closing. The investors may request the second closing at any time until the one-year anniversary of the initial closing date and we may require the second closing at any time until the one-year anniversary of the initial closing date by individual investor once less than 50% of such Investor’s Series B Preferred Stock purchased at the initial closing remains outstanding and certain equity conditions have been satisfied for at least 7 of the prior 10 trading days, including: (1) the Common Stock closes above 2.5 times the floor price and (2) the daily dollar trading volume of the Common Stock exceeds $500. The warrants are immediately exercisable at an exercise price of $3.57 per share of common stock and expire on the date that is five years after issuance. In addition, the Company issued placement agent warrants to purchase an aggregate of 187,816 shares of common stock with substantially the same terms as the Warrants, except that the exercise price of the Placement Agent Warrants is $3.927.
We used the net proceeds from the offering to repurchase at par all of the shares of outstanding Series A Convertible Preferred Stock issued in August 2025 in the amount of $9,650. The balance of the net proceeds from the offering was approximately $5,680, after deducting placement agent case fees but before any other offering expenses.
As of May 1, 2026, convertible preferred stock transaction activity is summarized in the table below:
On August 13, 2026, the Company entered into an amendment with the holders of all of the outstanding June 2026 Inducement Warrants whereby the exercise price was reduced to $0.3675 and to allow all of the June 2026 Inducement Warrants to be exercised on a cashless basis. Following the amendment, all 3,019,586 warrants were exercised on a cashless basis for an aggregate of 2,742,397 shares of common stock, with 2,531,242 of such shares held in abeyance. Following the exercise, no warrants remain outstanding.
As of May 1, 2026, we had the following warrants outstanding:
XXII insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
No Form 4 stock transactions in this period.
Well-known investors holding XXII (13F)
None of the 59 investors we track reported a position in their latest 13F.