The parties previously agreed that the Company would retain any insurance proceeds received in connection with the fire at the Grass Valley manufacturing facility (the “Insurance Proceeds”) and up to $2,000,000 of the Insurance Proceeds would be used to offset the Buyer’s portion of certain shared liabilities. Pursuant to the terms of the GVB Amendment, the Buyer will be entitled to offset its portion of certain shared liabilities up to $1,000,000, provided that the Insurance Proceeds exceed $5,000,000. The shared liabilities primarily relate to contract disputes and are accounted for as contingent liabilities. As of September 30, 2023, the Company is unable to reasonable estimate the amount of loss and does not believe it is probable that a liability has been incurred and therefore no pro forma adjustments are reflected in the Unaudited Pro Forma Condensed Consolidated Financial Statements. Additionally, the Insurance Proceeds are accounted for as a contingent gain recognized upon future resolution with the insurance broker, therefore no pro forma adjustments have been reflected in these Unaudited Pro Forma Condensed Consolidated Financial Statements.

Concurrent with executing the Divestiture Transaction, on December 22, 2023 the Company obtained the consent of its senior lender (the “Agent”) under the terms of its Senior Secured Credit Facility and entered into an Amendment Agreement (“JGB December Amendment”). Pursuant to the JGB December Amendment, the Company agreed to (i) pay to the Agent, a cash payment of $2,200,000 to reduce the outstanding principal of the Debentures (which includes the cash portion of the New Purchase Price paid directly to Agent by Buyer as described above), (ii) direct the Buyer to issue the Note to the Agent, on the Company’s behalf, (iii) assign the Insurance Proceeds to the Agent until the outstanding aggregate principal amount of the Debentures, plus accrued and unpaid interest, has been repaid in full; provided that the first $1,000,000 of Insurance Proceeds in excess of $5,000,000 shall be applied as stated above, and (iv) post-closing within 30 days 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 further debt reduction of $1,000,000.

Additionally, the Company, the Purchasers and the Agent agreed to amend the Debentures to (i) allow the Purchasers 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.

The Voluntary Conversion Option is subject to the approval of the Company’s stockholders and the Company is required pursuant to the JGB Amendment to use its commercially reasonable efforts to obtain such approval.

Additional terms of the JGB 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.

The Divestiture Transaction constituted a significant disposition for purposes of Item 2.01 of Form 8-K. As a result, the Company prepared the accompanying unaudited pro forma condensed consolidated financial statements in accordance with Article 11 of Regulation S-X. Beginning with the fourth quarter of 2023, the GVB hemp/cannabis business’ historical financial results for the periods prior to the completion of the Transaction will be reflected in the Company’s consolidated financial statements as discontinued operations.

The following unaudited pro forma condensed consolidated balance sheet of the Company as of September 30, 2023 is presented as if the Divestiture Transaction occurred as of September 30, 2023 and gives effect to the elimination of the historical GVB hemp/cannabis business net assets due to the Divestiture Transaction, and debt repayments by the Company using the proceeds from the Divestiture Transaction as required by the Company’s Senior Secured Credit Facility.

The following unaudited pro forma condensed consolidated statements of operations and comprehensive loss of the Company for the nine-month period ended September 30, 2023 and for the fiscal year ended December 31, 2022 are presented as if the Divestiture Transaction had occurred as of January 1, 2022 and give effect to the elimination of the historical GVB hemp/cannabis financial results due to the Divestiture Transaction and debt repayments by the Company using the proceeds from the Divestiture Transaction as required by the Company’s Senior Secured Credit Facility.

Debt and Equity Financing Transactions (collectively the “Financing Transactions”)

During the fourth quarter of 2023, the Company completed material debt and equity related financing transactions. As a result, the Company prepared the accompanying unaudited pro forma condensed consolidated to reflect these transactions, in addition to the Divestiture Transaction aforementioned.

On October 16, 2023, the Company entered into a Waiver and Amendment Agreement (the “October Credit Facility Amendment”) with each of the subsidiaries of the Company executing the Debentures, the Purchasers and the Agent, pursuant to which, among other things, (a) the Purchasers waived an event of default under Section 7(d) of the Debentures which required the Company to achieve revenue of at least $18.5 million 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 $15.5 million, and (c) the Company agreed to release to the Purchasers the $7.5 million 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.

Additionally, 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. (“J&N”) payable to the Company in the principal amount of $3.8 million 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”). Upon assignment of the Pledged Indebtedness, the Company recognized as a non-monetary transaction, $2.6 million of consideration in exchange to be applied as a $2.0 million reduction of the Put Price (as defined below) and $0.6 million reduction of the outstanding principal amount of Debentures.

In connection with the waiver, the Company and Purchasers agreed to exercise the outstanding put provision to redeem 166,667 Warrants for an aggregate put price equal to $2.5 million (the “Put Price”), which was concurrently reduced by $2.0 million, as described above, with the remaining $0.5 million payable by the Company on the Maturity Date. No cash was exchanged as a result of executing the October Amendment.

The Senior Secured Credit Facility – October Amendment transaction was filed on Form 8-K on October 16, 2023.

On October 16, 2023, 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 from thirty-three million three hundred thirty-three thousand and three hundred thirty-four (33,333,334) shares to sixty-six million, six hundred sixty-six thousand sixty hundred sixty-seven (66,666,667), which Articles Amendment was filed and effective with the Secretary of the State of Nevada on October 16, 2023.

The increase in authorized shares transaction was filed on Form 8-K on October 16, 2023.

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 “Common Warrants”) and (iii) pre-funded warrants to purchase 2,400,000 shares of common stock (the “Pre-Funded Warrants”). The Common Warrants have an exercise price of $0.525, are immediately exercisable and have a term of exercise equal to five years following the original issuance date. 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. The shares were offered at a combined public offering price of $0.525 per share and two accompanying Common Warrants. The Pre-Funded Warrants were offered at a combined public offering price of $0.5249 per Pre-Funded Warrant and two accompanying Common Warrants.

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 Common Warrant. The placement agent subsequently exercised all such warrants.

The October 2023 public equity offering transaction was filed on Form 8-K on October 18, 2023.

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: (i) the common stock purchase warrants of the Company issued on or about June 22, 2023; (ii) the common stock purchase warrants of the Company issued on or about July 10, 2023; (iii) the common stock purchase warrants of the Company issued on or about July 21, 2023; 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 are exercisable for an equal number of shares of common stock at an exercise price of $0.525.

The Company entered into warrant inducement agreements with certain holders of the Existing Warrants to purchase an aggregate of 15,317,386 shares of common stock at a reduced exercise price of $0.215. Pursuant to the warrant inducement agreements, the exercising holders of the Existing Warrants received 30,134,772 Inducement Warrants and the Company received aggregate net proceeds of approximately $3.0 million from the exercise of the Existing Warrants on or about November 29, 2023. The Company may receive additional proceeds to the extent that other holders exercise their Existing Warrants during the Inducement Period.

The warrant inducement offering transaction was filed on Form 8-K on November 29, 2023.

22^nd Century Group, Inc. and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of September 30, 2023

(amounts in thousands,)

The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined Financial Statements.

 22^nd Century Group, Inc. and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Statement of Operations and Comprehensive Loss

For the Nine Months Ended September 30, 2023

(amounts in thousands, except per share amounts)

The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined Financial Statements.

 22^nd Century Group, Inc. and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Statement of Operations and Comprehensive Loss

For the Year Ended December 31, 2022

(amounts in thousands, except per share amounts)

The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined Financial Statements.

22^nd Century Group, Inc. and Subsidiaries

Notes to Pro Forma Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Note 1. Basis of Pro Forma Presentation

The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed consolidated financial information to give effect to pro forma events that are (1) directly attributable to the Divestiture Transaction, including the JGB December Amendment, and to the Financing Transactions, (2) factually supportable, and (3) with respect to the statements of operations and comprehensive loss, expected to have a continuing impact on the results of the consolidated results of the parent, 22^nd Century Group, Inc., subsequent to these transactions.

The unaudited pro forma condensed consolidated financial statements have been prepared for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the divestiture, debt and equity related transactions taken place on the dates indicated, nor do they purport to project the future consolidated results of operations or financial position of the combined company. They should be read in conjunction with the historical consolidated financial statements and notes thereto of 22^nd Century Group, Inc.

The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statements of operations are based upon the number of 22^nd Century Group’s shares outstanding, assuming the Divestiture Transaction and Financing Transactions occurred on January 1, 2022.

Note 2. GVB Hemp/Cannabis Divestiture Transaction

The following describes the “Pro Forma Adjustments” in connection with the disposition of the GVB hemp/cannabis business to give effect to the Divestiture Transaction and JGB December Amendment:

Note 3. Debt and Equity Financing Transactions

The following describes the “Pro Forma Adjustments” in connection with material debt and equity financings to give effect to the Financing Transactions: