22nd Century Group, Inc.: Form 10-Q for the period ended Mar 31, 2026

For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), references to the “Company,” “we,” “us” or “our” refer to the operations of 22nd Century Group, Inc. and its direct and indirect subsidiaries for the periods described herein.

The following MD&A should be read in conjunction with, our audited consolidated financial statements, the accompanying notes and the MD&A included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as well as our Condensed Consolidated Financial Statements and the accompanying notes included in Item 1 of this Form 10-Q. Note references are to the notes to consolidated financial statements included in Item 1 of this Form 10-Q.

All historical share and per-share amounts reflected throughout this section have been adjusted to reflect prior 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.

Forward Looking Statements

Except for historical information, all of the statements, expectations, and assumptions contained herein are forward-looking statements. Forward-looking statements typically contain terms such as “anticipate,” “believe,” “consider,” “continue,” “could,” “estimate,” “expect,” “explore,” “foresee,” “goal,” “guidance,” “intend,” “likely,” “may,” “plan,” “potential,” “predict,” “preliminary,” “probable,” “project,” “promising,” “seek,” “should,” “will,” “would,” and similar expressions. Forward looking statements include, but are not limited to, statements regarding (i) our ability to continue as a going concern, (ii) our ability to become profitable, (iii) our ability to remain listed on NASDAQ (iv) our financial and operating performance, (v) our strategic alternatives, including our cost savings initiatives, (vi) our expectations regarding regulatory enforcement (vii) our products, and (viii) the volatility of our common stock. Actual results might differ materially from those explicit or implicit in forward-looking statements. Important factors that could cause actual results to differ materially are set forth in “Risk Factors” in our Annual Report on Form 10-K filed on March 20, 2025. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as otherwise required by law. All information provided in this quarterly report is as of the date hereof, and we assume no obligation to and do not intend to update these forward-looking statements, except as required by law.

Our Business

22nd Century Group, Inc. (NASDAQ: XXII) is a tobacco products company focused on tobacco harm reduction by offering tobacco products with 95% less nicotine, designed to improve health and wellness by giving smokers a choice to control their nicotine consumption. Backed by comprehensive and extensively patented technologies that regulate nicotine biosynthesis activities in the tobacco plant, the Company has pioneered development of high-yield, proprietary reduced nicotine content (RNC) tobacco plants and clinically validated RNC cigarette products. The Company received the first and only FDA Modified Risk Tobacco Product (MRTP) authorization for a combustible cigarette in December 2021. The Company is a subsequent participating manufacturer under the Master Settlement Agreement ("MSA") and vertically integrated for the production of both its own products and contract manufacturing operations ("CMO"), which consist primarily of branded filtered cigars and conventional cigarettes.

Financial Overview

• Net revenues for the first quarter of 2026 were $4,105, a decrease of 31.1% from $5,956 in the prior year period, primarily reflecting shifts in product mix.
• First quarter 2026 cartons sold of 275 compared to 476 in the comparable prior year period, primarily due to our strategic shift away from high volume and low priced CMO export customers. .
• Gross loss for the first quarter of 2026 was a loss of $636 compared to a loss of $609 in the prior year period.
• Total operating expenses for the first quarter of 2026 increased to $2,403 compared to $1,961 in the prior year quarter driven by:
• Sales, general and administrative expenses increased to $2,118 compared to $1,799 in the prior year period, primarily driven by higher compensation and benefits, other and legal expenses offset by lower strategic consulting and insurance costs.
• Research development expenses increased to $285, compared to $162 in the prior year period, mainly driven by higher testing costs and compensation and benefits.
• Operating loss from continuing operations for the first quarter 2026 was $3,039, compared to a loss of $2,570 in the prior year period, primarily as a result of decreased revenue and volume.
• Net loss from continuing operations in the first quarter of 2026 was $3,019 and basic and diluted loss from continuing operations per common share was $5.07 compared with net loss from continuing operations in the first quarter of 2025 of $3,274, and basic and diluted net loss from continuing operations per common share of $634.25.
• As of March 31, 2026, the Company had $9,545 in cash and cash equivalents.

Our Financial Results

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

Product line revenue, net

For the first quarter and three months ended March 31, 2026, total product line revenues decreased to $4,105 from $5,956, respectively, compared to the prior year period, as follows:

• For the first quarter of 2026, cigarette volume decreased to 118 cartons due to our strategic shift away from high volume and low priced CMO export customers as compared to the prior year period, which accounted for 252 cartons, and lower on-hand finished good inventory of 48 cartons.
• For the first quarter of 2026, filtered cigars net revenues decreased to $873 from the prior comparable period, reflecting lower volumes as the Company implemented repricing of customer contracts and shifts its product mix into higher margin branded cigarettes, including natural styles, and VLN® cigarettes.
• Other tobacco products include new moist snuff sales of $389 in 2026 compared to none in the prior year.
• VLN® cigarette net revenues reflect minimal VLN® and partner VLN® reorder activity following initial stocking orders in the fourth quarter of 2025, offset by return accruals for product previously sold that will be returned or exchanged.

Gross (loss) profit

Gross loss for the three-month period ended March 31, 2026 remained consistent as compared to the prior year comparable period, benefitting from manufacturing overhead cost savings initiatives implemented by management in 2025, offset by decreased volume as compared to the prior year comparable period.

Sales, general and administrative (“SG&A”) expense

(a) Compensation and benefits expense increased for the three months ended March 31, 2026, compared to the prior year period due to an increase in headcount and equity compensation expenses.

(b) Strategic consulting costs decreased for the three months ended March 31, 2026, compared to the prior year period was due to decreased spending related to investor relations and consulting for post-market studies.

(c) Legal expenses increased for the three months ended March 31, 2026 compared to 2025 mainly due to additional legal spend related to regulatory matters compared to the prior year period.

(d) Insurance costs decreased for the three months ended March 31, 2026 compared to the prior year period 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.

Research and development (“R&D”) expense

(a) Increased compensation and benefits for the first quarter of 2026 are mainly related to an increase in headcount and equity compensation expenses in the current year period compared to the prior year period.

(b) Increased Contract, IP and other expenses for the three months ended March 31, 2026, compared to the prior year period relate to testing costs for new product development.

Other income (expense)

(a) Other expense decreased for the three months ended March 31, 2026, compared to the same prior year period, due to a loss resulting from change in fair value of the Omnia 2024 warrant liabilities that did not occur in the current year period.

(b) Decreases in interest expense was a result of repayment of debt obligations on our balance sheet. For the three months ended March 31, 2026 compared to the prior year period, cash interest decreased $86, non-cash interest amortization decreased $680 due to repayment of the Senior Secured Credit Facility (of these totals, interest that was allocated to discontinued operations decreased by $211), and other interest charges increased by $8.

Liquidity and Capital Resources

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 for the three months ended March 31, 2026 and an accumulated deficit of $402,186 as of March 31, 2026. As of March 31, 2026, we had cash and cash equivalents of $9,545 and working capital from continuing operations of $13,164 (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.

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. 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, seek to negotiate new business deals with our business partners or seek protection under applicable bankruptcy laws or similar state proceedings. There can be no assurance that the Company will be able to raise the capital it needs to continue operations. Accordingly, there is substantial doubt regarding our ability to continue in operations. 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 Condensed Consolidated Financial Statements are issued.

Our cash and cash equivalents and working capital from continuing operations as of March 31, 2026 and December 31, 2025 are set forth below:

Working Capital

As of March 31, 2026, we had working capital from continuing operations of approximately $13,164 compared to working capital of approximately $10,359 at December 31, 2025, an increase of $2,805. This increase in working capital was primarily due to an increase 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. Cash and cash equivalents increased by $2,396 and the remaining net current assets increased by $1,043. Management continues to take further steps to improve liquidity more. Refer below to “Cash demands on operations.”

Summary of Cash Flows

Net cash used in operating activities

Cash used in operating activities increased $127 from $2,976 in 2025 to $3,103 in 2026. The primary driver for this change was lower net loss of $1,067, a decrease of $1,433 related to net adjustments to reconcile net loss to cash, and a decrease in cash used for working capital components related to operations in the amount of $239 for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025.

Net cash used in investing activities

Cash used in investing activities amounted to $47 for the three months ended March 31, 2026, as compared to cash used in investing activities of $59 for the three months ended March 31, 2025. The decrease in cash provided by investing activities of $12 was the result of an overall decrease of cash outflows related to the acquisitions of patents, trademarks, licenses and property, plant and equipment.

Net cash provided by (used in) financing activities

During the three months ended March 31, 2026, cash provided by financing activities increased by $5,800 from cash used in financing activities of $254 in the prior year period to cash provided by financing activities of $5,546, resulting from increases in net proceeds from Series B convertible preferred stock issuances of $15,256, net proceeds from issuance of common stock related to the ATM of $64, decreases of cash outflows from payments on notes payable of $134 offset by cash outflows from the redemption of Series A at par value of $9,650 and from principal payments for finance leases of $4.

Cash demands on operations

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.

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 on April 10, 2026. During the three months ended March 31, 2026, 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. 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:

Outstanding Warrants

As of May 1, 2026, we had the following warrants outstanding:

Critical Accounting Policies and Estimates

The preparation of our Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. Our estimates, assumptions and judgments are based on historical experience and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources. Making estimates, assumptions and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Management believes the estimates, assumptions and judgments employed and resulting balances reported in the Condensed Consolidated Financial Statements are reasonable; however, actual results could differ materially.

There have been no material changes to the information set forth in our Annual Report on Form 10-K for the year ended December 31, 2025.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.

There have been no material changes to the information set forth in our Annual Report on Form 10-K for the year ended December 31, 2025.

(a) Evaluation of Disclosure Controls and Procedures:

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Securities Exchange Act of 1934 (“Exchange Act”) reports are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our chief executive officer and chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q to ensure information required to be disclosed is recorded, processed, summarized and reported within the time period specified by SEC rules, based on their evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

(b) Changes in Internal Control over Financial Reporting:

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.