22nd Century Group Files Annual Report and Provides Business Update

22nd Century Group, Inc. (OTCQB:XXII) today announced that the Company filed its 2013 report on Form 10-K with the Securities and Exchange Commission.

For year ended December 31, 2013, revenues were $7.28 million, compared to $0.02 million for 2012. The increase in revenues in 2013 was primarily due to licensing revenue from British American Tobacco (Investments) Limited of $7 million.

22nd Century Group recorded operating income of $1.8 million for 2013, compared to an operating loss of $3.2 million for 2012. The Company’s net loss for 2013 was $26.2 million, or ($0.60) per diluted common share, compared to a net loss of $6.7 million, or ($0.22) per diluted common share, for 2012. The results for 2013 included non-operating expenses from (i) a non-cash change in the fair value of derivatives (warrant liability) of $23.6 million, (ii) a non-cash inducement expense of $3.7 million from our Warrant Exchange Program, and (iii) other non-operating expenses of $0.6 million.

Adjusted EBITDA (as described in the paragraph and table below) was $4.3 million, or $0.10 per diluted common share, for 2013, compared to Adjusted EBITDA of negative $1.8 million, or ($0.06) per diluted common share, for 2012. Below is a table of information relating to the Company’s Adjusted EBITDA for the years ended December 31, 2013 and 2012, including a reconciliation of net loss to Adjusted EBITDA for such periods, and a cautionary note on EBITDA.

Adjusted EBITDA is a financial measure not prepared in accordance with generally accepted accounting principles (“GAAP”). 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 income, net income 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.

22nd Century Business Update

Up-listing to national securities exchange

22nd Century Group will file an application next week with NASDAQ and the New York Stock Exchange to list its common stock on a national securities exchange. As of December 31, 2013, 22nd Century Group had total assets of approximately $12.3 million, including $5.8 million cash, and only $0.98 million of current liabilities. The Company’s only long-term liability is its (non-cash) “derivative warrant liability,” which due to the Company’s Warrant Exchange Program that closed December 12, 2013, was only $3.8 million.

Tobacco research products

Goodrich Tobacco Company, our wholly-owned subsidiary, is currently finishing a 5.5 million SPECTRUM^® cigarette order for NIDA, a component of the National Institutes of Health. The tobacco in SPECTRUM government research cigarettes has eight different nicotine contents – from very low to high.

In the fourth quarter 2013, Goodrich Tobacco sold 2,500 kilograms of its proprietary very low nicotine (“VLN’) tobacco to the U.S. Food and Drug Administration (“FDA”) as a subcontractor under a government contract. The Company plans to continue to work with the FDA on other contracts and currently has a separate bid under consideration by the agency.

NASCO acquisition

On September 17, 2013, the Company entered into a Membership Interest Purchase Agreement (“Purchase Agreement”) to purchase all of the issued and outstanding membership interests of NASCO Products, LLC (“NASCO”), a North Carolina tobacco manufacturer and member of the Tobacco Master Settlement Agreement known as the MSA (the “NASCO Transaction”). Consummation of the NASCO Transaction is subject to conditions including consents from the attorneys general of the settling states of the MSA. NAAG has been discussing the NASCO Transaction with a small working group of settling states of the MSA for which the Company has answered various rounds of questions. The working group has presented the matter to all the settling states with a recommended course of action which the settling states are evaluating. Upon the entry of a revised adherence agreement of NASCO Products, LLC reflecting the NASCO Transaction, the Company believes it will be able to close the NASCO Transaction.

Purchase of manufacturing facility

In the fourth quarter 2013, Goodrich Tobacco purchased cigarette manufacturing equipment and equipment parts, factory items, office furniture and fixtures, vehicles and computer software from the bankruptcy estate of PTM Technologies, Inc. (“PTM”) and additional equipment and equipment parts, vehicles, and additional factory items from the bankruptcy estate of Renegade Tobacco Co. (“Renegade”) for a total of approximately $3.4 million. PTM and Renegade are related companies located in Mocksville, North Carolina undergoing Chapter 7 liquidation proceedings in the United States Bankruptcy Court for the Middle District of North Carolina. The Company has had no relationship in the past, nor intends to have any relationship going forward, with the former principals of PTM or Renegade.

An auction will be held by the EttinGroup in late February for a portion of the manufacturing equipment not required by the Company.

National distribution of RED SUN^® and MAGIC^® cigarette brands in 2014

Upon the closing of the NASCO Transaction, Goodrich Tobacco will ramp up distribution of its premium brands to various wholesalers. Since the launch of the products in 2011, sales and marketing of Goodrich Tobacco’s commercial cigarettes have been curtailed in order to limit the complexity and costs associated with becoming a participating manufacturer of the MSA.

Modified Risk Tobacco Products

The Company intends to seek FDA authorization to market two products in development, BRAND A and BRAND B, as modified risk cigarettes. 22nd Century has continued to gather additional information since the FDA’s guidance on the subject, Modified Risk Tobacco Product Applications Draft Guidance to facilitate the submission of complete applications for our two modified risk cigarette candidates. The Company expects to submit these applications in 2014.

X-22 Smoking Cessation

Hercules Pharmaceuticals, our wholly-owned subsidiary, is currently in the process of identifying potential joint venture partners or licensees to fund the remaining X-22 clinical trials. Upon identifying a suitable joint venture partner or licensee, we will request a meeting with the FDA to discuss moving the Company’s Investigational New Drug Application forward.

For additional information, please visit: www.xxiicentury.com

About 22nd Century Group, Inc.

22nd Century is a plant biotechnology company whose proprietary technology allows for the levels of nicotine and other nicotinic alkaloids (e.g., nornicotine, anatabine and anabasine) in the tobacco plant to be decreased or increased through genetic engineering and plant breeding. 22nd Century owns or is the exclusive licensee of 114 issued patents in 78 countries plus an additional 38 pending patent applications. Goodrich Tobacco Company, LLC and Hercules Pharmaceuticals, LLC are wholly-owned subsidiaries of 22nd Century. Goodrich Tobacco is focused on commercial tobacco products and potential less harmful cigarettes. Hercules Pharmaceuticals is focused on X-22, a prescription smoking cessation aid in development.

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. 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, 2013, filed on January 30, 2014, 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.