22nd Century Group Files 2016 Second Quarter Report Announces Conference Call to Provide Business Update

22nd Century Group Files 2016 Second Quarter Report 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, 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.

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.

Investor Relations:
IRTH Communications
Andrew Haag, 866-976-4784
xxii@irthcommunications.com
or
Redington, Inc.
Tom Redington, 203-222-7399

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