- In August 2016, the World Health Organization (WHO) Study Group on Tobacco Product Regulation recommended that all member countries adopt a policy limiting the sale of cigarettes only to products with a very low nicotine content. The WHO report explains that government-mandated nicotine reduction strategies utilizing Very Low Nicotine cigarettes could: 1) decrease the number of smokers addicted to cigarettes, 2) increase the number of smokers who are able to quit, and 3) reduce the number of former smokers who relapse. Commenting on the WHO report, Drs. Dorothy Hatsukami, Ghazi Zaatari and Eric Donny concluded that the WHO recommendation to limit nicotine content to a level below what is needed to sustain addiction "…has the potential to save millions of lives..."
- The Company's wholly-owned subsidiary, Botanical Genetics LLC, announced in September 2016, an expanded cannabis research program to include multiple new research projects in support of its core mission, which is to develop proprietary cannabis strains for important new medicines and commercially viable agricultural crops. More specifically, Botanical Genetics is: 1) actively is working to optimize hemp strains for broad production in varied U.S. climates, 2) developing new technologies to manipulate the cannabis plant genome, 3) together with its partners, developing and refining cannabis varieties with cannabis profiles that eliminate THC and boost production of medically important CBD and CBC, and 4) developing the means to produce cannabinoids in tobacco plants.
- In September 2016, 22nd Century also announced results from two separate independent surveys showing that strong consumer demand mirrors physicians' willingness to prescribe the Company's X-22 smoking cessation aid in development. Nearly 90% of smokers identified the X-22 smoking cessation product as their preferred means to help them quit smoking. At the same time, a vast majority of physicians (more than 88%) indicated that, if the product were made available, they would prescribe X-22 for their patients.
For the three months ended September 30, 2016, the Company reported an operating loss of $2,596,000 as compared to an operating loss of $2,758,000 for the three months ended September 30, 2015, a decrease in the operating loss of $162,000. The decrease in the operating loss is primarily due to a decrease in operating expenses of $65,000 and a decrease in the gross loss on product sales in the amount of $97,000. For the nine months ended September 30, 2016, the Company reported an operating loss of $8,655,000, as compared to an operating loss of $9,238,000 for the nine months ended September 30, 2015, a decrease of $583,000. The decrease is primarily the result of a decrease in equity based compensation of $2,504,000, a decrease in the gross loss on product sales of $389,000, partially offset by an increase in other operating expenses (excluding equity based compensation) in the amount of $2,310,000.The Company's net loss for the three months ended September 30, 2016 was $2,680,000, or ($0.03) per share, as compared to a net loss of $2,762,000, or ($0.04) per share, for the three months ended September 30, 2015. The results for the three months ended September 30,2016 included non-cash expenses consisting of (i) equity based compensation totaling $205,000 and (ii) depreciation and amortization in the amount of $211,000. The Company's net loss for the nine months ended September 30, 2016 was $8,835,000, or ($0.11) per share, as compared to a net loss of $8,167,000, or ($0.12) per share, for the nine months ended September 30, 2015. The results for the nine months ended September 30,2016 included non-cash expenses consisting of (i) equity based compensation totaling $708,000 and (ii) depreciation and amortization in the amount of $624,000. The net loss for the nine months ended September 30, 2015 also included proceeds from a legal settlement with an unrelated third-party in the amount of $1,000,000 reported during the second quarter of 2015.
Adjusted EBITDA (as described in the paragraph and table below) for the three months ended September 30, 2016 was a negative $2,180,000, or ($0.03) per share, and a negative $2,148,000, or ($0.03) per share, for the three months ended September 30, 2015. Adjusted EBITDA for the nine months ended September 30, 2016 was a negative $7,323,000, or ($0.10) per share, and a negative $5,455,000, or ($0.08) per share, for the nine months ended September 30, 2015.Below is a table containing information relating to the Company's Adjusted EBITDA for the three and nine months ended September 30, 2016 and 2015, including a reconciliation of net loss to Adjusted EBITDA for such periods.
|Three Months Ended September 30,|
|Warrant liability loss (gain) - net||46,995||(27,723)||-270%|
|Depreciation and amortization||211,161||197,371||7%|
|Loss on equity investment||29,997||33,211||-10%|
|Equity based compensation -|
|Third-party service providers||-||97,969||-100%|
|Officers, directors and employees||204,860||314,743||-35%|
|Nine Months Ended September 30,|
|Warrant liability gain - net||(14,602)||(199,556)||-93%|
|Depreciation and amortization||623,707||571,100||9%|
|Loss on equity investment||172,068||125,026||38%|
|Equity based compensation -|
|Crede consulting agreement||-||1,978,785||-100%|
|Third-party service providers||30,873||232,187||-87%|
|Officers, directors and employees||677,076||1,000,603||-32%|
Company Announcements Made Subsequent to the Close of the Second Quarter of 2016
- On October 19, 2016, the Company closed a registered direct stock offering and received approximately $11.4 million in gross proceeds through the sale of units priced at $1.3425 per unit, which is $0.0625 per share above the closing price of the Company's common stock on the NYSE MKT on October 13, 2016, the date immediately prior to the signing of the stock purchase agreement. The transaction included a total of 8,500,000 shares of the Company's common stock and 66-month warrants to purchase 4,250,000 shares of common stock at an exercise price of $1.45 per share (exercisable after six months). The net proceeds of the financing will be used for general corporate purposes, including working capital.
- The Company announced results from two separate independent clinical studies, each adding to the merit of our Very Low Nicotine tobacco. In the October 2016 issue of Psychopharmacology , a new independent clinical study concluded that, even among vulnerable populations, 22nd Century's Very Low Nicotine tobacco cigarettes significantly reduce nicotine withdrawal and craving symptoms. Also in October 2016, the Addiction Journal published online a report that investigated smokers' cost sensitivity for Very Low Nicotine cigarettes. Led by Dr. Eric Donny of the University of Pittsburg Cancer Institute, the new publication focused on the real-world context of "normally priced" cigarettes and found that, compared to conventional cigarettes, 22nd Century's Very Low Nicotine cigarettes reduced the number of cigarettes that the participants estimated they would smoke at every price range tested.
- The Company announced in October 2016, the hiring of Michael Zercher as the Company's Vice President of Business Development. Mr. Zercher previously headed Santa Fe Natural Tobacco Company's international business operations based in Zurich, Switzerland and will lead the Company's efforts to form strategic partnerships with companies capable of widely commercializing 22nd Century's proprietary brands and products.