22nd Century Group, Inc. (NYSE MKT:XXII), a plant
biotechnology company that is a leader in tobacco harm reduction,
today released the Company’s second quarter 2016 financial results
and announced that it will provide a business update for investors
on a conference call to be held on Wednesday, August 10th, 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 800-768-6570 and
using Conference ID 8455411.
The conference call will consist of an overview of the
financials presented in the Company's second 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.
Recent Business Highlights
- In April, 22nd Century 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 notable sale of product to
the Asia-Pacific region. Cigarettes for the Australian market will
be made at 22nd Century’s wholly-owned manufacturing facility in
Mocksville, North Carolina and are anticipated to ship in September
2016.
- 22nd Century signed an agreement with
Celanese Corporation that grants our Company the right to use
Celanese’s CelFX® cigarette filter technology with our MAGIC, RED
SUN and MOONLIGHT brands. The agreement also includes exclusive
rights for 22nd Century to market cigarette tubes containing
Celanese CelFX® filters for Roll-Your-Own tobacco consumers around
the world. We believe the addition of the CelFX® filter to the
Company’s proprietary cigarette brands (MAGIC, RED SUN, MOONLIGHT)
results in an extraordinary taste experience while significantly
reducing many toxic compounds in the smoke.
- 22nd Century received an initial
purchase order for MAGIC 0 Very Low Nicotine cigarettes from French
distributor, Royal Distribution. MAGIC cigarettes destined for
France are exclusively made with the Company’s proprietary Very Low
Nicotine tobacco and are manufactured on behalf of 22nd Century by
Orion Tobacco Corporation in Poland. Cigarettes for the French
market are anticipated to ship in September 2016.
- The Company opened its own
fully-outfitted molecular biology laboratories on the Buffalo
Niagara Medical Campus. At the same time, the Company launched a
groundbreaking new initiative to produce medically-important
marijuana cannabinoids in tobacco plants. The Company believes that
this tobacco-based approach (that is proprietary to 22nd Century)
has a possibility of “leap-frogging” existing cannabis
biotechnology and yielding commercial medical products far more
rapidly than traditional cannabis breeding programs. The Company
also continues to work on a very low-THC hemp plant under its
sponsored research with Anandia Labs in Vancouver, Canada for the
world-wide commercial hemp market.
- Following the introduction of new
“deeming regulations” by the FDA’s Center for Tobacco Products
affecting tobacco products other than cigarettes (i.e. premium
cigars, filtered cigars, loose tobacco and other products), our
Company developed a comprehensive strategy to continue to legally
make competitive 3+lb filtered cigars. If our forthcoming
Substantial Equivalence (S.E.) applications to the FDA relating to
filtered cigars are approved, our NASCO manufacturing facility may
secure a competitive advantage in the production of filtered
cigars. Indeed, our strategy to navigate the complex new FDA
deeming regulations has already resulted in obtaining 8 new
contract manufacturing customers for NASCO that will begin
production at various times throughout 2017.
- The Centers for Disease Control and
Prevention (CDC) published a detailed characterization of the
Company’s SPECTRUM® variable nicotine research cigarettes
identifying 22nd Century’s proprietary cigarettes as an important
tool for investigating reduced nicotine cigarettes on nicotine
addiction.
- Several new independent clinical
studies were published providing further evidence that Very Low
Nicotine cigarettes reduce the harm of smoking, even among groups
of at-risk people. Notably, the Cancer Epidemiology Biomarkers and
Prevention (CEBP) journal published a study on April 17, 2016 which
found that using 22nd Century’s proprietary Very Low Nicotine
tobacco cigarettes “may reduce harm exposure.” The researchers
concluded that the study’s data provide “further support of reduced
smoking and exposure with very low nicotine content cigarettes.”
Another study published in the journal Alcoholism: Clinical and
Experimental Research concluded that switching to the Company’s
Very Low Nicotine cigarettes may lead not only to a reduction in
smoking, but also to a reduction in alcohol use. The 403-subject
study concluded that a national “nicotine reduction standard could
further improve public health by reducing alcohol use among
individuals who reduce their nicotine exposure and smoking
rate.”
Second Quarter 2016 Financial Summary
The Company’s most recent SPECTRUM order generated substantial
revenue and positive gross margin; however, the shipping of such
order was completed in Q1, so Q2 net sales revenue showed a
decrease of approximately $190,000. Specifically, net sales revenue
for the second quarter of 2016 were $2,828,000, an increase of
$521,000, or 22.6%, over net sales revenue of $2,307,000 for the
three months ended June 30, 2015. Net sales revenues for the six
months ended June 30, 2016 were $5,847,000, an increase of
$2,924,000, or 100.0%, over net sales revenue of $2,923,000 for the
six months ended June 30, 2015.
For the three months ended June 30, 2016, the Company reported
an operating loss of $2,831,000 as compared to an operating loss of
$2,353,000 for the three months ended June 30, 2015, an increase in
the operating loss of $478,000. The increase in the operating loss
is primarily due to an increase in operating expenses of $630,000,
partially offset by a decrease in the gross loss on product sales
in the amount of $152,000. For the six months ended June 30, 2016,
the Company reported an operating loss of $6,059,000, as compared
to an operating loss of $6,481,000 for the six months ended June
30, 2015, a decrease of $422,000. The decrease is primarily the
result of a decrease in equity based compensation of $2,296,000 and
a decrease in the gross loss on product sales of $293,000,
partially offset by an increase in other operating expenses
(excluding equity based compensation) in the amount of $2,167,000.
This increase in operating expenses consists of costs for strategic
activities including: (1) personnel to strengthen our regulatory
and scientific initiatives, (2) investments in new sponsored
research, and (3) nonrecurring advertising and promotional
costs.
The Company’s net loss for the three months ended June 30, 2016
was $2,902,000, or ($0.04) per share, as compared to a net loss of
$1,289,000, or ($0.02) per share, for the three months ended June
30, 2015. The results for the three months ended June 30,2016
included non-cash expenses consisting of (i) equity based
compensation totaling $220,000 and (ii) depreciation and
amortization in the amount of $207,000. The Company’s net loss for
the six months ended June 30, 2016 was $6,155,000, or ($0.08) per
share, as compared to a net loss of $5,405,000, or ($0.08) per
share, for the six months ended June 30, 2015. The results for the
six months ended June 30,2016 included non-cash expenses consisting
of (i) equity based compensation totaling $503,000 and (ii)
depreciation and amortization in the amount of $413,000. The net
loss for the three and six months ended June 30, 2015 also included
proceeds from a legal settlement with an unrelated third-party in
the amount of $1,000,000.
Adjusted EBITDA (as described in the paragraph and table below)
for the three months ended June 30, 2016 was a negative $2,404,000,
or ($0.03) per share, as compared to a negative $1,807,000, or
($0.03) per share, for the three months ended June 30, 2015.
Adjusted EBITDA for the six months ended June 30, 2016 was a
negative $5,144,000, or ($0.07) per share, as compared to a
negative $3,308,000, or ($0.05) per share, for the six months ended
June 30, 2015.
The table below contains information relating to the Company’s
Adjusted EBITDA for the three and six month periods ended June 30,
2016 and 2015, including a reconciliation of net loss to Adjusted
EBITDA for such periods.
Three Months Ended June 30, 2016 2015 %
Change Net loss $ (2,902,354 ) $ (1,288,703 ) 125 %
Adjustments: Warrant liability loss (gain) - net 9,468 (112,620 )
-108 % Depreciation and amortization 207,108 188,332 10 % Loss on
equity investment 54,839 40,834 34 % Interest expense 9,322 13,753
-32 % Interest income (2,105 ) (6,528 ) -68 % Equity based
compensation - Third-party service providers 8,000 25,885 -69 %
Officers, directors and employees 212,222 331,773 -36 % Settlement
proceeds - (1,000,000 ) -100 %
Adjusted
EBITDA $ (2,403,500 ) $
(1,807,274 ) 33 %
Six Months Ended June 30, 2016 2015 %
Change Net loss $ (6,154,806 ) $ (5,405,442 ) 14 % Adjustments:
Warrant liability gain - net (61,597 ) (171,833 ) -64 %
Depreciation and amortization 412,546 373,729 10 % Loss on equity
investment 142,071 91,815 55 % Interest expense 19,696 19,261 2 %
Interest income (4,598 ) (14,323 ) -68 % Equity based compensation
- Crede consulting agreement - 1,978,785 -100 % Third-party service
providers 30,873 134,218 -77 % Officers, directors and employees
472,216 685,860 -31 % Settlement proceeds -
(1,000,000 ) -100 %
Adjusted EBITDA $
(5,143,599 ) $ (3,307,930 )
55 %
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 expense
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.
Company Announcements Made Subsequent to the Close of the
Second Quarter of 2016
The World Health Organization (WHO) Study Group on Tobacco
Product Regulation (TobReg) recommended “a policy of limiting the
sale of cigarettes to brands with a nicotine content that is not
sufficient to lead to the development and/or maintenance of
addiction.” The WHO report explains that government-mandated
nicotine reduction strategies utilizing Very Low Nicotine
cigarettes could “decrease the acquisition of smoking and
progression to addiction among experimenters, limit the number of
cigarettes smoked by some proportion of addicted smokers and both
increase the number of addicted smokers who stop smoking and reduce
the number of those who relapse.” Commenting on the WHO report,
Drs. Dorothy Hatsukami, Ghazi Zaatari and Eric Donny warned that
“Allowing this idea [of mandating nicotine reductions in cigarettes
to non-addictive levels] to sit on the shelf when it has the
potential to save millions of lives would be a travesty.”
On July 27, 2016, 22nd Century raised $5.0 million in gross
proceeds through the sale of common stock in a capital raising
transaction that was priced at-market without any discount (even
though current capital raising transactions often include discounts
of 10% – 30% from the market price of a stock) with an existing
institutional investor. The agreement also included 25% warrant
coverage (even though current capital raising transactions often
include warrant coverage of between 50% – 100%) with a $1.00
exercise price per share (which exceeded the then-current market
price of the Company’s common stock of $0.81 per share).
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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version on businesswire.com: http://www.businesswire.com/news/home/20160809006406/en/
Investor Relations:IRTH CommunicationsAndrew Haag,
866-976-4784xxii@irthcommunications.comorRedington, Inc.Tom
Redington, 203-222-7399
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