Company Eliminates $2.8 Million Derivative
Liability
22nd Century Group, Inc. (NYSE MKT: XXII), a plant
biotechnology company that is a leader in tobacco harm reduction,
announced today the Company’s first quarter 2016 financial results
and will provide a business update for investors on a conference
call to be held on Wednesday, May 11th, at 4:00 PM (Eastern
Time).
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: 913-312-0652 and
using Conference ID 4615167.
The conference call will consist of an overview of the
financials presented in the Company's first quarter 2016 Form 10-Q
and a discussion of business highlights and updates. Immediately
thereafter, there will be a question and answer segment open to all
callers.
Elimination of $2.8 Million Derivative Liability
As reported in the Company’s recently filed Form 10-Q, in March
2016 the Company notified the holder of a Tranche 1A warrant that
such holder had repeatedly breached the activity restrictions
contained in such warrant agreement. Since the warrant agreement
contained an exchange rights provision that was subject to
compliance with such activity restrictions by the warrant holder,
the breach by the warrant holder of such activity restrictions
resulted in the exchange rights provision being void and no longer
available. However, the remaining shares underlying the Tranche 1A
warrant remain exercisable (without the above-referenced exchange
rights that are now void) until September 29, 2016 at the exercise
price of $3.36 per share. Accordingly, the Company has now
reclassified this $2,810,000 derivative warrant liability to
Capital in Excess of Par on its Consolidated Balance Sheets at
March 31, 2016.
Also, as previously disclosed by the Company, the outstanding
Tranche 2 and Tranche 3 warrants held by the same holder of the
Tranche 1A warrant referenced above were not exercisable unless and
until certain revenue milestones associated with a joint venture in
China were obtained. Because the Company terminated the joint
venture agreement on June 22, 2015, these revenue milestones can
never be satisfied. Accordingly, the Tranche 2 and Tranche 3
warrants will never be exercisable, thereby effectively decreasing
the total number of shares issuable under such warrants by an
additional 2,000,000 shares.
Recent Business Highlights
- The Company met with administrators and
scientific reviewers at the FDA to review the Company’s Modified
Risk Tobacco Product (MRTP) application for BRAND A Very Low
Nicotine (VLN) cigarettes. The FDA contacted 22nd Century upon
receiving the Company’s MRTP application and facilitated – fewer
than 14 days after the Company’s MRTP submission – a meeting at FDA
headquarters to discuss the application and the review process. Not
long after, FDA formally acknowledged receipt of the Company’s MRTP
application for BRAND A Very Low Nicotine tobacco cigarettes and
assigned two Submission Tracking Numbers (STN) to 22nd Century’s
historic MRTP application: MR0000047 and MR0000048.
- Independent scientific researchers at
the 22nd Annual Meeting of the Society for Research on Nicotine
& Tobacco (SRNT) presented more than fifteen (15) independent
scientific studies involving the Company’s SPECTRUM® research
cigarettes. The annual event was highly attended by participants
from around the world, including acclaimed university scientists,
FDA and other regulators, and industry professionals. The initial
results of the independent scientific studies involving the
Company’s proprietary reduced nicotine tobacco cigarettes once
again demonstrates that the Company’s VLN cigarettes reduce
cigarette consumption and assist in smoking cessation.
- The Company shipped the remaining 2.85
million of a 4.95 million SPECTRUM® research cigarette order for
the National Institute on Drug Abuse (NIDA), a department of the
National Institutes of Health (NIH). The main SPECTRUM® product
line consists of a series of cigarette styles that have a fixed
“tar” yield but varying nicotine yields over a 50-fold range – from
very low to high. Altogether, SPECTRUM® features 24 styles, 11
regular and 13 menthol versions, with 8 different levels of
nicotine content. SPECTRUM® is strictly for research purposes and
is not sold as a commercial cigarette. However, the Company has
begun outreach efforts to independent scientific researchers who
are interested in working with the Company to develop research
cigarettes with varying levels of nicotine as desired by
researchers for their own clinical studies.
First Quarter 2016 Financial Summary
The first quarter of 2016 saw the Company continue to increase
its quarterly net revenues. For the three months ended March 31,
2016, net revenues were approximately $3,019,000 compared to net
revenues of approximately $616,000 for the three months ended March
31, 2015, an increase of approximately $2.4 million. Revenues for
the three months ended March 31, 2016 included sales of SPECTRUM
research cigarettes in the amount of $329,000. The remaining
revenues were generated primarily from contracted manufactured
cigarettes and filtered cigars and the sales of the Company’s
proprietary cigarette brands.
For the three months ended March 31, 2016, the Company reported
an operating loss of approximately $3,228,000 as compared to an
operating loss of approximately $4,127,000 for the three months
ended March 31, 2015, a decrease in the operating loss of
approximately $899,000. The decrease in the operating loss is
primarily due to an increase in gross profit in the amount of
approximately $140,000 and a decrease in operating expenses of
approximately $759,000. The decrease in operating expenses is
primarily the result of a decrease in equity based compensation of
approximately $2,158,000, partially offset by an increase in other
operating expenses in the approximate amount of $1,399,000.
The Company’s net loss for the three months ended March 31, 2016
was approximately $3,252,000, or ($0.04) per share, as compared to
a net loss of approximately $4,117,000, or ($0.06) per share, for
the three months ended March 31, 2015. The results for the three
months ended March 31, 2016 included non-cash expenses consisting
of (i) equity based compensation totaling $283,000 and (ii)
depreciation and amortization in the amount of $205,000.
Adjusted EBITDA (as described in the paragraph and table below)
for the three months ended March 31, 2016 was approximately a
negative $2,740,000, or ($0.04) per share, and approximately a
negative $1,501,000, or ($0.02) per share, for the three months
ended March 31, 2015.
Below is a table containing information relating to the
Company’s Adjusted EBITDA for the three months ended March 31, 2016
and 2015, including a reconciliation of net loss to Adjusted EBITDA
for such periods.
Three Months Ended March 31,
2016 2015 % Change
Net loss $(3,252,452) $(4,116,739) -21% Adjustments: Warrant
liability gain - net (71,065) (59,213) 20% Depreciation and
amortization 205,438 185,397 11% Loss on equity investment 87,232
50,981 71% Interest expense 10,374 5,508 88% Interest income
(2,493) (7,795) -68% Equity based compensation - Crede consulting
agreement - 1,978,785 -100% Third-party service providers 22,873
108,333 -79% Officers, directors and employees 259,994 354,087 -27%
Adjusted EBITDA $(2,740,099) $(1,500,656)
83%
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.
Recent Notable Accomplishments and Summary of Anticipated
Events for the Remainder of 2016
- The Company received an initial
purchase order from Australian tobacco distributor, Quay Tobacco
Trading PTY, LTD, for both Very Low Nicotine MAGIC brand cigarettes
and “Extreme Nicotine” RED SUN cigarettes. This purchase order
represents 22nd Century’s first substantial sale of product to the
Asia-Pacific region. Starting this summer, Quay Tobacco will
introduce 22nd Century’s unique cigarette brands to Australian
smokers.
- The Company entered into a supply
arrangement with Celanese Corporation. Through this arrangement,
22nd Century will combine many of its proprietary tobaccos with
Celanese’s revolutionary CelFX® carbon filter in new cigarette
designs for select markets around the world. The Celanese CelFX®
filter is a highly efficient cigarette filter that delivers an
extraordinary taste experience while significantly reducing many
toxic compounds in smoke. The execution of the Celanese contract
will result in the recommencement by 22nd Century of the roll-out
of its MAGIC cigarettes in Europe and other parts of the
world.
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. 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.
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Investor Relations:IRTH CommunicationsAndrew Haag,
866-976-4784xxii@irthcommunications.comorRedington, Inc.Tom
Redington, 203-222-7399
22nd Century (AMEX:XXII)
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