$XXII Files 2015 Annual Report


22nd Century Group Files 2015 Annual Report and Announces Conference Call to Provide Business Update

22nd Century Group, Inc. (NYSE MKT: XXII), a plant biotechnology company that is a leader in tobacco harm reduction, announced today that the Company filed its 2015 Annual Report on Form 10-K with the U.S. Securities and Exchange Commission. The Company will provide a business update for investors on a conference call to be held Friday, February 19th, at 10:00 AM (EST).

Henry Sicignano, III, President and Chief Executive Officer of 22nd Century Group, together with John T. Brodfuehrer, Chief Financial Officer, will conduct the call. Interested parties are invited to participate in the call by dialing: 888-204-6674 and using Conference ID 4581359.

The conference call will consist of an overview of recent business highlights and a summary of the financials presented in the Company’s 2015 Annual Report. Immediately thereafter, there will be a question and answer segment open to all callers.

2015 was the first year in which the Company began to actively commercialize its significant intellectual property portfolio. Total revenues for 2014 were less than $530,000. In contrast, revenues for 2015 were more than $8.5 million, which exceeds prior financial projections and is the highest revenue in the Company’s history.

Recent Business Highlights

  • The Company submitted a Modified Risk Tobacco Product application to the FDA seeking a reduced exposure order so that our BRAND A Very Low Nicotine cigarettes, which contain 95% less nicotine than conventional cigarettes, may be introduced into commerce in the United States.
  • The New England Journal of Medicine published two different articles related to our proprietary SPECTRUM research cigarettes. The first article reported on the results of a landmark, double-blind, parallel, randomized clinical trial involving 840 smokers. Funded by the FDA and the National Institute on Drug Abuse (“NIDA”), the study found that smokers of our SPECTRUM Very Low Nicotine cigarettes consumed far fewer cigarettes per day and doubled their quit attempts versus smokers of cigarettes with conventional nicotine content.
  • The Company completed and shipped a substantial portion of the most recent purchase order from NIDA of approximately 5 million SPECTRUM research cigarettes for use in further independent clinical studies on smoking cessation and the nicotine addictive threshold in cigarettes. New clinical trials using 22nd Century’s SPECTRUM cigarettes are already underway. Most notably, a Phase III study featuring 1,250 participants and sponsored by the University of Pittsburgh, in collaboration with NIDA, is comparing two different approaches to help smokers lose their addiction to nicotine: an immediate reduction in nicotine content in cigarettes to non-addictive levels versus a gradual reduction in nicotine content in cigarettes to non-addictive levels.
  • The Company hired Dr. Paul Rushton as our new Vice President of Plant Biotechnology. Dr. Rushton has extensive experience in tobacco biotechnology, including work at the University of Virginia on our sponsored research projects, as well as nearly a decade working at the world-renowned Max Planck Institute for Plant Breeding in Germany.
  • The Company entered into a new cannabis research collaboration with strategic partner Anandia. As a part of this research collaboration, Anandia will develop and grow, under its licenses in Canada, proprietary cannabis strains that express highly desirable characteristics that we expect will lead to exciting commercialization opportunities.
  • The Company hired a full-time FDA expert, Gregg Gellman, as our new Director of Business Development and Regulatory Affairs. Mr. Gellman was a key member of our team of professionals who worked diligently on creating, completing and submitting our Modified Risk Tobacco Product application with the FDA for BRAND A Very Low Nicotine cigarettes.
  • The Company exported varieties of its proprietary tobacco seeds to Central America for testing and expanded agricultural production of its tobacco plants for the purpose of making additional seeds for future plantings.
  • The Company committed to opening specialized laboratory space at universities in Western New York in order to conduct research at substantially lower costs than sponsored research projects at third-party universities. The new laboratories are intended to accelerate the development of new nicotine-free tobacco varieties as well as the invention of other important tobacco products.

2015 Financial Summary

For the year ended December 31, 2015, revenue was $8,522,000 compared to revenue of $529,000 for the year ended December 31, 2014, an increase of nearly $8,000,000. Revenues for the year ended December 31, 2015 consisted primarily of sales of RED SUN and MAGICcigarettes, as well as contract manufactured cigarettes and filtered cigars, and the sale of a portion of the SPECTRUM research cigarette order we received in September 2015. The revenues for the year ended December 31, 2014 consisted primarily of the sale of SPECTRUMresearch cigarettes in the amount of approximately $448,000.

For the year ended December 31, 2015, the Company reported an operating loss of approximately $12.0 million as compared to operating loss of approximately $11.7 million for the year ended December 31, 2014, an increase in the operating loss of approximately $300,000. The increase in the operating loss is primarily due to a decrease in gross profit in the amount of $600,000 and an increase in operating expenses of $300,000 (excluding equity based compensation and depreciation and amortization), and an increase in depreciation and amortization in the amount of $300,000, offset by a decrease in equity based compensation of $900,000.

The Company’s net loss for the year ended December 31, 2015 was approximately $11.0 million, or ($0.16) per share, as compared to a net loss of approximately $15.6 million, or ($0.26) per share, for the year ended December 31, 2014. The results for the year ended December 31, 2015 included non-cash expenses consisting of (i) equity based compensation totaling $3.6 million which includes equity compensation to Crede Capital under a consulting agreement, and (ii) depreciation and amortization in the amount of $800,000.

Adjusted EBITDA (as described in the paragraph and table below) for the year ended December 31, 2015 was a negative $7.7 million, or ($0.11) per share, and a negative $6.1 million, or ($0.10) per share, for the year ended December 31, 2014.

Below is a table containing information relating to the Company’s Adjusted EBITDA for the years ended December 31, 2015 and 2014, including a reconciliation of net loss to Adjusted EBITDA for such periods.

Years Ended December 31,
2015 2014 % Change
Net loss $ (11,031,931 ) $ (15,595,358 ) -29 %
Warrant liability (gain) loss – net (144,550) 3,676,691 -104 %
Warrant amendment inducement expense 144,548 -100 %
Depreciation and amortization 774,311 495,296 56 %
Loss on equity investment 95,684 101,165 -5 %
Interest expense 52,982 7,094 647 %
Interest income (31,198 ) (30,383 ) 3 %
Equity based compensation –
Crede consulting agreement 1,978,785 2,091,215 -5 %
Third-party service providers 280,362 140,170 100 %
Officers, directors and employees 1,326,393 2,293,083 -42 %
Litigation proceeds (1,000,000 ) 100 %
Severance costs 637,301 -100 %
Loss (gain) on the disposal of machinery and equipment 15,130 (71,121 ) -121 %
Adjusted EBITDA $ (7,684,032 ) $ (6,110,299 ) 26 %

Adjusted EBITDA is a financial measure not prepared in accordance with generally accepted accounting principles (“GAAP”). In order to calculate Adjusted EBITDA, the Company adjusts the net loss for certain non-cash and non-operating income and expenses items listed in the table above in order to measure the Company’s operating performance. The Company believes that Adjusted EBITDA is an important measure that supplements discussions and analysis of its operations and enhances an understanding of its operating performance. While management considers Adjusted EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP, such as operating (loss) income, net loss and cash flows from operations. Adjusted EBITDA is susceptible to varying calculations and the Company’s measurement of Adjusted EBITDA may not be comparable to those of other companies.

Summary of Anticipated Events in 2016

Moving forward, 22nd Century’s management team remains focused on monetizing the Company’s vast intellectual property portfolio and has identified the following priorities for 2016: (i) working diligently to ensure that the Company receives a marketing order from the FDA in response to our Modified Risk Tobacco Product application for BRAND A Very Low Nicotine cigarettes, (ii) continuing to identify potential strategic partners in our on-going efforts to establish a joint venture to fund Phase III clinical trials for our X-22 smoking cessation aid in development, (iii) initiating “proof of concept” exposure studies for BRAND B low tar-to-nicotine ratio cigarettes in advance of submitting a Modified Risk Tobacco Product application to the FDA for BRAND B, (iv) expanding the Company’s RED SUN sales in the United States andMAGIC sales in Europe while continuing to explore opportunities for 22nd Century’s proprietary products and tobaccos in Asia, and (v) growing further our base of third-party cigarette and filtered cigar contract manufacturing business at the Company’s NASCO manufacturing facility in Mocksville, North Carolina to better utilize total factory capacity.

About 22nd Century Group, Inc.

22nd Century is a plant biotechnology company focused on technology which allows it to increase or decrease the level of nicotine in tobacco plants and the level of cannabinoids in cannabis plants through genetic engineering and plant breeding. The Company’s primary mission is to reduce the harm caused by smoking. 22nd Century currently owns or exclusively controls more than 200 issued patents and more than 50 pending patent applications around the world. The Company’s strong IP position led to a licensing agreement with British American Tobacco (“BAT”), the world’s second largest tobacco company. Visit www.xxiicentury.com for more information.

Cautionary Note Regarding Forward-Looking Statements: This press release contains forward-looking information, including all statements that are not statements of historical fact regarding the intent, belief or current expectations of 22nd Century Group, Inc., its directors or its officers with respect to the contents of this press release, including but not limited to our future revenue expectations. The words “may,” “would,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend” and similar expressions and variations thereof are intended to identify forward-looking statements. We cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these forward-looking statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to reflect actual results, later events or circumstances, or to reflect the occurrence of unanticipated events. You should carefully review and consider the various disclosures made by us in our annual report on Form 10-K for the fiscal year ended December 31, 2015, filed on February 18, 2016, including the section entitled “Risk Factors,” and our other reports filed with the U.S. Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.

Investor Relations:
IRTH Communications
Andrew Haag, 866-976-4784
[email protected]
Redington, Inc.
Tom Redington, 203-222-7399


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