REVENUE RECOGNITION

12 Months Ended

Dec. 31, 2023

REVENUE RECOGNITION

REVENUE RECOGNITION

NOTE 17. – REVENUE RECOGNITION

The Company’s revenues are derived primarily from contract manufacturing organization (“CMO”) customer contracts that consist of obligations to manufacture the customers’ branded filtered cigars and cigarettes. Additional revenues are generated from sale of the Company’s proprietary low nicotine content cigarettes, sold under the brand name VLN^®, or research cigarettes sold under the brand name SPECTRUM®.

The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. For certain CMO contracts, the performance obligation is satisfied over time as the Company determines, due to contract restrictions, it does not have an alternative use of the product and it has an enforceable right to payment as the product is manufactured. The Company recognizes revenue under those contracts at the unit price stated in the contract based on the units manufactured. Revenue from the sale of the Company’s products, which include excise taxes and shipping and handling charges billed to customers, is recognized net of cash discounts, sales returns and allowances. There was no allowance for discounts or returns and allowances at December 31,  2023 and December 31,  2022. Excise taxes recorded in Cost of Goods Sold on the Consolidated Statement of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022 was $10,413 and $12,619, respectively.

Disaggregation of Revenue

The Company’s net revenue is derived from customers located primarily in the United States and is disaggregated by the timing of revenue. Revenue recognized from Tobacco products transferred to customers over time represented 63% and 74%, for the year ended December 31, 2023 and 2022, respectively.

The following table presents net revenues by significant customers, which are defined as any customer who individually represents 10% or more of disaggregated product line net revenues:

	Year Ended
	December 31,
	2023		2022
Customer A	31.49	%	23.61	%
Customer B	23.92	%	23.22	%
Customer C	21.70	%	35.20	%
All other customers	22.89	%	17.97	%

Contract Assets and Liabilities

Unbilled receivables (contract assets) represent revenues recognized for performance obligations that have been satisfied but have not been billed. These receivables are included as Accounts receivable, net on the Consolidated Balance Sheets. Customer payment terms vary depending on the terms of each customer contract, but payment is generally due prior to product shipment or within extended credit terms up to twenty-one (21) days after shipment. Deferred Revenue (contract liabilities) relate to down payments received from customers in advance of satisfying a performance obligation. This deferred revenue is included as Deferred income on the Consolidated Balance Sheets.

Total contract assets and contract liabilities are as follows:

	December 31,		December 31,		December 31,
	2023		2022		2021
Unbilled receivables	$	1,053	$	354	$	178
Deferred income		(726)		(688)		(119)
Net contract assets (liabilities)	$	327	$	(334)	$	59

During the years ended December 31, 2023 and 2022, the Company recognized $688 and $119 of revenue that was included in the contract asset balance as of December 31, 2022 and 2021 respectively.