Hello, and welcome to 22nd Century's second quarter 2025 results conference call. Joining me today are Larry Firestone, CEO; and Dan Otto, CFO. Earlier today, we issued a press release announcing our results for the quarter ended June 30, 2025. The release and 10-Q are available in the Investors section of our website at xxiicentury.com. Today's call will include prepared remarks from Larry and Dan updating you on 22nd Century's business, operations, strategy, and financial results through June 30, 2025, and subsequent events post the close of quarter end. Before we begin, a few reminders for today's call. Some of the statements made today are forward-looking. Forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in our annual, quarterly, and other reports filed with the SEC. During today's call, we may also discuss non-GAAP financial measures, including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, and amortization; as adjusted for certain noncash and nonoperating expenses, and net debt calculated as a total principal amount of debt outstanding less cash and cash equivalents. For more details on these measures, please refer to our release issued earlier today. Now with that, I will turn the call over to Larry. Thank you.

Thank you, Matt, and good morning, everyone, and thank you for joining 22nd Century's second quarter 2025 earnings results conference call. 22nd Century is today a purpose-built tobacco company designed to lead the tobacco harm reduction movement into the future. This position leverages our leadership in harm reduction for the past 27 years. The basis is the plant bioscience that has been developed over the years to give 22nd Century the patented technology to produce our low nicotine tobacco strains that are the foundation of our 95% low nicotine VLN cigarettes. The reason this is critical is that standard tobacco leaves produce the highly addictive substance nicotine, and then highly addictive consumer products that are marketed and sold using the nicotine latent standard tobacco. According to the University of California, San Francisco, nicotine has been proven to be as addictive as cocaine and heroin, and may even be more addictive. Many people who smoke develop nicotine dependence, which makes quitting all the harder, especially when they try to stop smoking on their own. In fact, 70% of smokers report wanting to quit, but many wait until they develop a significant tobacco-related disease, such as heart disease, cancer, or stroke. Think about that as the problem statement. There are 1.1 billion smokers in the world, all who are addicted to nicotine, and in addition to the smoking population, there are another 300 million smokeless tobacco users who are addicted to nicotine. And now we not only have nicotine from tobacco plants, but our industry has developed synthetic nicotine, which is now used in pouches. Think about that, the desire to keep consumers addicted has created a synthetic version. Of the 1.1 billion smokers in the world, approximately 8 million die each year due to tobacco-related illnesses. That's 21,900 people per day dying on average from smoking. Our tobacco industry does not like to talk about that, but we do. In the U.S. in 2018, more than $600 billion was spent on smoking-related illnesses and chronic health conditions born from smoking. I would speculate that seven years later in 2025, that $600 billion is a much, much larger number. In the U.S., we spend six times more in health costs than the combined Big Four tobacco companies report in worldwide revenue annually. Additionally, the $600 billion that was spent in healthcare costs was 14 times the operating profit reported by those same tobacco companies combined. The U.S. government and the federal courts have been warning us about the harms of nicotine, including nicotine's addictive effect since the early 1950s. Seventy-five years of money spent researching, messaging, proving and killing, and still somehow our smoking population can't change the course of their lives because of their nicotine addiction. There are warnings on the packs, warnings on the doors of retailers, no more commercial advertising, rules after rules are in place, and somehow we have not gotten the message. I believe it's a simple message: Nicotine is really bad for you. It's seriously addictive. And once you're hooked, you can't quit; or if you do, it takes a Herculean effort to do so. Now the FDA has put out a very important new tobacco product standard to try and force the issue regarding nicotine and its addictive nature. Researchers, scientists, labs, pharma companies have spent years and billions studying nicotine and its effect on the human brain, brain development, human behavior, and the addiction that is created so quickly while using nicotine. Well, the FDA has proposed a new standard that, when adopted into law, will require a two-year transformation of all combustible cigarettes and filtered cigars to contain less than 0.7 milligrams per gram of nicotine; or essentially 95% less nicotine than traditional cigarettes. The worry for Big Tobacco is that they will not be able to convert their addicted brand loyal consumers to an alternative of their combustible brands in time before the new laws are enacted. They're hustling to develop other high nicotine answers to keep their consumers addicted and married to their brands. Therefore, the race is on to develop different forms of nicotine delivery systems such as heat-not-burn, which are battery-operated, and oral products such as pouches and snuff. It's interesting that these other nicotine delivery vehicles are considered to be in the class of tobacco harm reduction, because really what we should be talking about is nicotine harm reduction. Our society in the U.S. has taken many steps over the years, and still, we resist thanks to the products that are being marketed and sold in this category. We can no longer smoke on planes, in restaurants, and public buildings; there are designated smoking areas outside. In one community in California, you cannot smoke in your apartment as the smoke travels through the air conditioning ductwork. We've also clearly identified harms from secondhand smoke and now third-hand smoke. Even with all these regulations, Big Tobacco still contests the FDA and their new mandate and race to keep consumers married to their nicotine habit. The newest efforts and claims are that these new nicotine delivery systems will reduce the exposure to the harmful tobacco-specific nitrosamines, or TSNAs; two of them, known as NNN and NNK to be specific, are two of the most harmful in the list of carcinogens and belong only to tobacco. The simple truth is TSNAs are most lethal when they're combusted. So the thought process in the industry is, if we could deliver nicotine and keep people addicted without combusting the tobacco causing TSNAs to activate, the tobacco industry believes that they have somehow done a good thing for the consumer and society. This is simply not true. The tobacco industry has simply kept their consumer addicted to nicotine while working on lowering the exposure to the two most deadly TSNAs. This message has to finally sync in that the FDA has gotten it right with their latest low nicotine mandate. When we hear the word addiction, our minds have to relate to the definition of addiction, which is not having control over doing, taking, or using something to the point where it is or could be harmful to you. Look at opioids, cocaine, heroin, alcohol, basically harmful drugs and substances, if not controlled by the user, can cause serious harm. Nicotine does not get a pass in the addiction category. It simply means that the consumer has given up control. This is the control that we are on a mission to get back to the smoker. In fact, due to the ease of access to nicotine, this industry has created a new harm: nicotine poisoning in children and youth. This has come about as children are getting a hold of nicotine pouches and are emulating adults and beginning to use these products. Children who have been affected by this situation are then taken to the hospital or to the Poison Center. Now we have to consume our medical resources to create a whole new mitigation strategy to add to the condition of the past. This will add to today's version of the $600 billion in healthcare costs related to nicotine addiction. The issue is that the tobacco industry is fighting to keep nicotine in the products. But 22nd Century started a technology initiative in 1998 to mitigate this nicotine addiction issue, and having stayed on that path, we now have the only authorized combustible cigarette that complies with the new low nicotine standard. So the FDA mandate can be adopted successfully. In 2024, a marketplace research study was completed using our 95% lower spectrum research cigarettes, and out of 450 subjects, 40% of them changed their smoking habit dramatically and reduced their consumption over a 16-week period. I'm going to project a concept, but if I extrapolate that over the 28.8 million U.S. smoking population, that would mean that 11.5 million smokers could potentially dramatically change their smoking habits and take control of their dependence on nicotine and their addiction in roughly the same amount of time. To help make that vision a reality and prove that reduced nicotine content products can perpetuate and populate the market, we have introduced, over the past 18 months or so, a strategy we call flanker or Partner VLN. Similar to the Intel inside concept, we now have two early adopters to the new low nicotine standard with Smoker-Friendly and our Pinnacle brands, who now carry a set of VLN product SKUs in their lineup. These brands and the retailers that carry them are in a position to benefit when the FDA mandate goes into effect. Our hats are off to them. Our low nicotine VLN cigarette is a simple concept: the smoker will get less nicotine as they smoke and reduce the daily need for nicotine without giving up their comfort and practice of having a cigarette. There’s no need to transition to a plastic battery-operated device. This would be like turning an addicted smoker into a casual smoker. Following that backdrop, here's where we are in the progress of building 22nd Century. Just to review what we've stated previously, market penetration for the tobacco business is a serial process. There's test data that we need to provide to the states, along with an application to sell our products in the state. Then the state attorney general approves or disapproves of the application, and when approved, we are then registered to have our products sold in the state. Then we begin the sales process. For many retailers, they want to see that our products are authorized in all the states they have a presence before they launch, as these are chain-wide launches. As we noted in our press release, Pinnacle VLN began shipping into distribution in August and will be on sale at a major retailer in early September for a soft launch and a full launch in October. We're very excited as this has been a long time coming for 22nd Century. This is, so far, the largest single deployment of VLN products in the company's history. Smoker-friendly VLN products will follow this launch, deploying smoker-friendly VLN into their corporate stores, and then 22nd Century VLN products will follow into another major retailer, and we will keep you updated with further developments. As mentioned previously, the margin profile for the branded products is much greater than the export CMO and cultured cigar products. Therefore, you will see us shifting our business in Q3 and Q4 away from the very low or close to breakeven high-volume business to focus on the branded business, which has healthier gross margins. Our top line may decline in the near term, but our gross margin will increase as a result. We are committed to achieving profitability in the near term, but this mix shift will slow our progress to achieving that. However, this is the right move for our company as our resources need to be spent on our future. This right now is really the new beginning of 22nd Century and our move into a stronghold within the tobacco harm reduction movement. We are now focusing on our higher-margin products that utilize our cornered resource, a resource that no one else in the industry has or can obtain anytime soon, and that is our proprietary low nicotine tobacco. At the same time, multiple macro forces are pushing people away from traditional combustible cigarettes. The FDA with its proposed low nicotine mandate and Big Tobacco with its not-so-subtle attempt to switch everyone to heat-not-burn and noncombustibles. Who else has an option for all of those smokers being squeezed by these powerful macro forces? We do, with our low nicotine VLN products and the Partner VLN products being offered through Smoker-Friendly and Pinnacle. The summary of all this is as follows: we've been developing our low nicotine VLN for 27 years. The tobacco industry, through the recent mandate by the FDA for defined nicotine levels, has opened up the lane for tobacco harm reduction, for which we are the anchor and the leader and have the best product to help in this mission. The smoker can simply transition to a VLN cigarette without having to buy a battery-operated device, manage device charging, and change the form factor of the habit that is such a big part of their life. We have enough plug-in battery charge devices to manage in our world, and we don't need an electric nicotine delivery device to add to them. This same VLN cigarette is the only low nicotine cigarette authorized by the FDA, is now in the market with Pinnacle VLN and Smoker-Friendly VLN products. Also, it is the only low nicotine cigarette that complies with the FDA's new proposed low nicotine standard. The way I see the market shaping up is in four lanes. Lane 1: pouches and moist snuff. Lane 2: heat-not-burn or heated tobacco products. Lane 3: low nicotine or VLN products. Lane 4: standard combustible cigarettes, smokers who are not going to quit; they’re going to smoke anyway. The first three lanes are coined as being part of the tobacco harm reduction movement. It is clear that VLN products in all forms will be directly competing with heat-not-burn or HTPs for all the combustible tobacco users. As the FDA low nicotine standard is enacted, 22nd Century's VLN products will be competing for the smokers in Lane 4, as their full-strength cigarette brands will become unavailable. We see this as an opportunity to expand our Partner VLN, our VLN Inside concept to expand to other brands with a license model for our low nicotine tobacco and the VLN brand. Rate of sale is key for all products in our branded portfolio, and this will drive our business model to the profitability targets that our industry delivers. We are also very excited to see the fruits of our work here and very much are looking forward to advancing VLN throughout the U.S. and internationally. Now I'll turn the call over to Dan to discuss the numbers.

Thank you, Larry. Good morning, everyone, and thanks again for joining our discussion today. We continue to build tremendous momentum in our company, as we're in the final stages and ready to emerge from what's been a challenging and lengthy restructuring period. We remain focused on entry of VLN and Partner VLN products in the market by expanding distribution and customer adoption, which although not yet reflected in our second quarter or year-to-date financial results, will begin in the third quarter and will generate steady revenue growth and gross margin expansion. As we move forward, we'll continue to cycle out of the lower-margin CMO business that makes either very little or loses money at the gross profit line, and will be replacing that volume with the high-margin branded products. However, consistent with messaging earlier in the year and in Larry's remarks today, there are a number of latent barriers to clear as we go to market with many of the new high-margin branded products, VLN and Partner VLN SKUs, which have resulted in delays in achieving our profitability goals. We now expect the impact of delays in the time necessary to execute the remaining pieces of the turnaround will take us into the first half of 2026 to achieve profitability. The milestones necessary to reach profitability will be measured against the interplay of continuing to cycle out of the low-margin CMO volume and adding in the high-margin growth volume of branded products in VLN. Adding the high-margin volume will depend on a number of variables, such as state registrations, number of stores and distribution, rate of sale, among others. Reflecting on the steps necessary to move forward, we are actively monitoring the timing of initial shipments of Partner VLN products in the third quarter to our distributors along with initial restocking orders and rate of sale to register. We've already begun shipping Pinnacle VLN in August with the first stocking orders being over 3,000 cartons. Adding the higher-margin branded products will break open gross margin profitability, and as we maximize the capacity and efficiency of our factory that has largely fixed labor and overhead. Aside from the P&L, during the quarter, we've made further progress in improving the balance sheet, reducing debt by approximately $1 million. We've also improved our working capital outlay by tightening finished goods inventory on hand. Let me now spend some time and walk through the specific numbers of our financial results for the quarter. Starting from the top, net revenue was $4 million in the second quarter 2025, decreased sequentially from $6 million in the first quarter of 2025, and gross margin was consistent at a loss of $0.6 million. Total cartons sold were 779,000 versus 478,000 in the first quarter. The increase in volume reflects significant increases in CMO cigarettes, including export which has high volume but low-priced products. Total operating expenses for the second quarter were $2.3 million compared to $2 million in the first quarter of 2025. This level of operating expense overhead is sustainable now as we move forward, expanding and launching the high-margin branded products, whereby the company will be able to achieve rapid growth without having to incur significant additional operating expense spend. As it relates to our research and development overhead and expenditures, we will anticipate beginning to see additional spend over the next two years. There are important additional technologies for our company to complete research along with our research partners in order to maintain our stronghold on the low nicotine IP landscape. 22nd Century will remain dominant in the low and very low nicotine plant genetics and bioscience space. Additionally, as we bring more low nicotine products to market across multiple form factors, funding for clinical research and market studies will be necessary along with the resources to submit additional or supplemental PMTA and MRTP filings with the FDA. Now continuing on, second quarter 2025 net loss from continuing operations was approximately $3.3 million, consistent with the first quarter, and adjusted EBITDA during the quarter was a loss of $2.6 million as compared to a loss of $2.3 million in the first quarter of 2025. Finally, the company remains active in our lawsuit against Dorchester Insurance Company based on their failure to pay any amounts owed toward our claim of $9 million in actual damages for business interruption insurance. Significant discoveries are taking place, and the court has set a trial date for November 2025, which is now less than three months away.

Our first question comes from Andrew White at Emerging Growth.

Yes. I had a couple of questions I wanted to ask. Are you there?

Yes. Go ahead.

Go ahead.

Yes. First and foremost, it sounds as if breakeven on EBITDA might be pushing back. Can you give some visibility on when you might achieve breakeven on a quarterly basis, EBITDA?

Dan, I'll let you take that one.

Okay. Yes, Andy, at this point, we're looking at the first half of 2026. Definitely the second quarter, and we're working on the first quarter there really based on the timing of the branded products that we've spoken to high margin, both VLN and Partner VLN; as we watch initial stocking, rate of sale and number of stores, that will be the measure to see whether that first quarter versus second quarter 2026 is achievable.

Okay. So first quarter or second quarter. Okay. Good. Secondarily, your cash is sitting at about $3 million as of the end of the second quarter. Is that sufficient to see you through to breakeven in the first or second quarter of next year? Or will you envision additional share issuance?

Dan, do you want that one, or do you want me to take that one?

Go ahead, Larry.

Yes. So, Andy, this is one of the reasons why we're shifting away from the low margin and some of its lost margin CMO businesses. It consumes our working capital, and so we've got to get to the point where we’re actually tracking our way to getting to the point where the positive gross margin performance of the branded products carries our overhead, but also contributes to the working capital. So there's a chance we're going to be raising some money in the near term, but the size of the raise will be less than what we've been doing in the past.

Okay. Good to hear. And in terms of the debt that's currently outstanding, you made a lot of progress in reducing it over the last year and quarter. It's rolling over supposedly in, I think, March of 2026. What are your plans with rolling over the debt and—or handling it otherwise?

Yes. We will be talking to—well, we're in conversations with our debtor on that issue and paying it off and becoming debt-free, extinguishing the debt. Also, as we raise money, a piece of that will go to extinguishing the debt as well. So it's kind of a balance right now as we look to make money, turn the company profitable, and also extinguish that debt at the same time.

Okay. Okay. That's something to watch. And last but not least, I think it was Dan who touched on the MRTP renewal process. Is there any chance that VLN would not be renewed?

I can give you my two cents on that: Given the FDA's recent mandate that they put out in January and the fact that we comply and we're in the market sort of enabling—not sort of but enabling that mandate to come to fruition. I think there's very little chance that the MRTP won't be renewed.

Okay. Good to hear.

All right.

I'd now like to turn it back over to Larry Firestone for closing remarks.

Thank you, everyone, for joining our call. 22nd Century has made a quantum leap forward. Our message is clear and aligned with the FDA. We've now begun to ship our newly branded VLN products into the market. This is at a time when the focus of tobacco harm reduction is at its peak. We cannot be more excited for the launch of our VLN products into the market and the effect that this important technology will have on consumers who smoke. We are now hyper-focused on the rate of sale and scaling. So stay tuned as this will be our discussion going forward as opposed to running an array of high-volume, super low or low gross margin products through the factory to achieve better cost absorption at our factory with our overhead, which is not the business model we're going to run going forward. Our team is excited about driving 22nd Century to profitability. It will take a little longer as we give up the margin contribution from the high-volume mix, but the focus on the branded business will pay off. I would personally like to thank and appreciate our team for their extremely hard work transitioning our company in a very short period of time with very limited resources. This has been like moving a mountain, and they've done an awesome job. So, we look forward to updating you with press releases along the way and again, at next quarter's earnings release time frame. Hope you all have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.