Good day everyone, and welcome to the 22nd Century’s Fourth Quarter and Year End Update Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Tom James, General Counsel of 22nd Century Group. Please go ahead, sir..

Thank you. Good morning, everyone, and thank you for joining our call. I apologize ahead of time if you bare with me, I have to read an obligatory Safe Harbor text unless acquired under the law.

The statements made on today’s call that are not based on historical information are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements include, but are not limited to, statements regarding our company’s business strategy, future plans and objectives, and future results of operations or that may predict, forecast, indicate or imply future results performance or achievements.

The words estimate, project, intend, forecast, anticipate, plan, expect, believe, will, will likely, should, may or the negative of such words, or expressions of similar meetings are intended to identify forward-looking statements.

These forward-looking statements are not guarantees of future performance and all such forward-looking statements involve risk and uncertainties, many of which are beyond our company’s ability to control. Actual results may differ materially from those expressed or implied by such forward-looking statements.

As a result of various factors, including but not limited to the risk factors disclosed in our company’s most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 18, 2016.

22nd Century does not undertake and it disclaims any obligation to update any forward-looking statements or to announce revisions to any of the forward-looking statements.

During this conference call, we will also disclose certain non-GAAP financial measures including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation and amortization as adjusted by 22nd Century for certain non-cash and non-operating expenses described in our company’s earnings press release for the year ended December 31, 2015, issued on February 18, 2016, which is available on our company’s website and the SEC EDGAR database.

And with that, I’ll turn it over to our Chief Financial Officer, John Brodfuehrer..

Thanks, Tom. Good morning, and thank you for joining us for our fourth quarter and year end 2015 conference call. My name is John Brodfuehrer and I’m the Chief Financial Office of 22nd Century Group.

I’m very pleased this morning to provide you with the summary of the company’s financial results for the fourth quarter and year ended December 31, 2015 and provide some brief comments on the first quarter of 2016. As you know, our annual report on Form 10-K was filed yesterday morning with the SEC.

And we also issued a press release yesterday morning containing a summary of the financial results for our year ended December 31, 2015. I will once again in this call use my time this morning to review and elaborate on those reported results.

We are very pleased to report that our annual net revenues were more than $8.5 million, as compared to the less than $530,000 for the year ended December 31, 2014, an increase of approximately $8 million. The $8.5 million in net revenues exceeded our prior financial projections and was the highest revenue number in our company’s history.

Net revenues for the fourth quarter of 2015 were $2.93 million, a highest quarterly revenue numbers of 2015, and approximately $260,000 higher than our third quarter net revenues. While our net revenues continued to increase over the course of 2015, we did however experience some gross loss on those sales.

I want to clarify any misconception that we are selling product at a loss on a per unit basis. This is not the case. The fact of the matter is that we have a 60,000 square foot manufacturing facility with over $3 million of cigarette and filtered cigar manufacturing equipment, it was acquired back in late 2013 and 2014.

The history in the business logic behind this acquisition of our factory to make us vertically integrated and self-sufficient in the manufacturing of our unique products has been discussed in many previous public filings and conference calls.

Gross loss is primarily a result of excess capacity, meaning we are currently under utilizing the factory’s capacity, said in another way we could be manufacturing more products given the current operating cost levels associated with our factory.

Those costs include the fixed costs associated with the factory such as rent, utilities, property taxes, and insurance, as well as employee related costs both direct and indirect. In addition, GAAP accounting rules mandate to costs associated with the manufacturing process included in the cost of goods sold.

As stated in our 10-K filing and related press releases, we continue to work towards furthering our third-party cigarette and filtered cigar contract manufacturing business, as well as expanding our own brand manufactured at the factory, which is all in an effort to fully utilize our factory capacity and turn the gross loss into a future gross profit.

Moving on our operating expenses, our operating expenses during the year ended December 31, 2015 amounted to approximately $11.6 million, as compared to approximately $11.8 million for the previous year ended December 31 of 2014, a decrease of approximately $334,000.

Included in these operating expenses or non-cash expenses primarily consisting of equity based compensation, and amortization and depreciation. For the year ended – the years ended December 31 of 2015 and 2014, equity based compensation was approximately $3.6 million and $4.5 million respectively, a decrease of approximately $900,000.

The equity based compensation consists of three pieces. First, equity compensation to Crede Capital conjunction with the prior consulting agreement that has since then terminated; two, to other third-party service providers; and three, to employees, officers, and directors of the company.

With the majority of the $900,000 increase pertaining to a – I’m sorry, decrease – pertaining to a decrease in equity compensation to employees, officers and directors. Amortization and depreciation for the year ended 2015 was approximately $774,000 as comparing to $495,000 for the year ended December of 2014, an increase of approximately $279,000.

The majority of this increase is due to increased amortization on patents and license fees during 2015 of approximately $155,000, as compared to 2014 and an increase in depreciation expense of approximately $124,000 due to a third year of depreciation taken on our manufacturing equipment in 2015 as compared to 2014.

When these non-cash expenses discussed above are excluded from operating expenses, the resulting cash expenses were approximately $7.1 million and $6.8 million for the years ended December 31 of 2015 and 2014 respectively, an increase of $300,000.

We experienced the net loss for the year ended December 2015 in the amount of approximately $11 million or $0.16 per share, as compared to a net loss of approximately $15.6 million or $0.26 per share for the year ended December 31 of 2014, a decrease in the net loss of approximately $4.6 million.

This decrease in the net loss of $4.6 million is primarily due to a decrease in the warrant – in warrant related expenses in the amount of approximately $4 million plus other income of $1 million received during 2015 from litigation settlement and the decrease in non-cash equity compensation discussed above of approximately $900,000, partially offset by an increase in our gross loss of approximately $611,000 plus an increase in cash operating expenses of $300,000 and an increase in amortization and depreciation of $279,000 again as discussed above.

As Tom mentioned and as discussed in other conference calls and as indicated in our press releases, we like to look at non-GAAP financial measurement tool for adjusted EBITDA to evaluate our financial position in conjunction with traditional GAAP financial measurements.

To rise as adjusted EBITDA, we adjust our net loss for certain non-cash and non-operating income and expense items.

Adjusted EBITDA was a negative $7.7 million or $0.11 per share for the year ended December 2015 and a negative $6.1 million or $0.10 per share for the year ended December 2014, an increase in the negative adjusted EBITDA of approximately $1.6 million.

This increase in negative EBITDA of $1.6 million was primarily due to an increase in the gross loss of approximately $611,000 and an increase in cash operating expenses of approximately $1 million, when the 2014 severance cost of nearly $640,000 are added back to rise as adjusted EBITDA number.

With respect to our statement of cash flows for the year ended December 31 of 2015, we used cash in operating activities of approximately $7.3 million, including approximately $730,000 on net working capital assets.

We used cash in investing activities in the amount of $451,000, primarily pertaining patent costs and cash was provided by financing activities in the net amount of approximately $5.1 million, primarily from $5.6 million generated from a registered direct offering in early June that’s approximately $0.5 million used to service scheduled debt.

All of the above activities left us with cash on hand at December 31 of 2015 of approximately $3.76 million. On February 5, 2016, we’ve raised net capital in the amount of approximately $5.14 million from a registered direct offering as we publicly disclosed after the closing of that offering.

Including the cash on hand at December 31 of 2015 plus cash raised in the registered direct offering earlier this month and not including potential milestone payments of up to $7 million from BAT and not including deposits or other advanced payments from potential strategic partnerships, we believe that current cash on hand coupled with revenues from ongoing product sales will be adequate to sustain operations and meet all of our current obligations as they come through approximately October of 2016.

Thank you for your time, consideration and interest in 22nd Century Group. I will now turn the remainder of the conference call over to our President and CEO, Henry Sicignano, who will provide you with some business review and updates. Thank you again..

Good morning. Thank you again for joining us today. This morning I wanted to take this opportunity to briefly review the company’s accomplishments for 2015, along with few areas in which we need to continue to make improvements.

Then we’ll also discuss the primary strategic objectives for our extraordinary very low and very high nicotine products going forward into 2016. 22nd Century closed 2015 with a very strong foundation for continued success and growth. 2015 was the first year in which the company began to actively commercialize our intellectual property portfolio.

Our factory started producing cigarettes and filtered cigars. We launched RED SUN in the United States and grew our store count to more than 600 retail outlets. We also began selling MAGIC brand cigarettes in more than 900 state licensed retail shops in Spain.

And we fulfilled an order for approximately 5 million spectrum research cigarettes from the U.S. federal government. As John reported, all of these activities produced the highest growth sales in 22nd Century’s history. Our revenues increased from less than $530,000 in 2014 to more than $8.5 million in 2015.

That said, we are of course, not yet profitable. And we have not expanded sales of our commercial products as fast as we would like. Truth be told, we’re disappointed logistical issues with the specialty filter supplier have prevented us from rolling out MAGIC very low nicotine cigarettes in Europe beyond Spain.

But all things considered, these are merely bumps in the road. Though, growth in revenue and profits are unquestionably the ultimate and most important goals of any company. At this stage in 22nd Century’s development I must reiterate, achieving strategic milestones, while still growing our business is a primary importance.

As proud as we are of the achievements that the factory this year and of our successes with RED SUN and of the fact that we grew top line revenues by a multiple of more than 15 times of our 2014 sales.

It is highly unlikely the growth in these bread and butter businesses alone, will produce the kinds of numbers in the near-term that can substantially increase the value of our company and the market price of our stock.

However, as I have explained in prior earnings calls over the last year, 22nd Century’s huge up side in the near-term and the long-term is our technology that gives us the potential to disrupt at least two major industries.

With ownership or exclusively control of more than 200 issued patents and more than 15 pending patent applications around the world, 22nd Century has a virtual monopoly on the genes and tobacco plant responsible for nicotine production. Ours is the only company in the world capable of growing tobacco with 95% less nicotine than conventional plants.

And at the other end of the spectrum no other company can grow cigarette tobacco with nicotine content as high as our proprietary plants. This technology and the incredibly important independent clinical trials being done with our cigarettes made from our tobaccos are what make 22nd Century extraordinary.

And these are the things management intends to build on in the near-term to increase shareholder value. We believe 22nd Century will be the first company in the world to achieve a Modified Risk Tobacco Product or MRTP designation or a combustible cigarette.

This past December, our company submitted a Modified Risk Tobacco Product application to the FDA, seeking a reduced exposure order, so that our BRAND A, very low nicotine cigarettes, which contain 95% less nicotine than conventional cigarettes maybe introduced into commerce in the United States.

This is the kind of milestone that is most important to our company.

As previously reported, less than 14 days after the company’s MRTP submission, we attended an in person meeting at FDA headquarters to discuss our MRTP application and review process, in attendance, were nine members of our 22nd Century team and 22 FDA staff members, more than 20 additional FDA staff members attended telephonically.

Indeed, we believe there is a very high level of interest at the FDA in 22nd Century’s very low nicotine cigarettes.

Evidence of this fact – is the fact that FDA and the National Institute on Drug Abuse actually funded for a cost slightly more than $10 million, the landmark study using 22nd Century’s SPECTRUM research cigarettes that appeared in October 2015 issue of the New England Journal of Medicine.

As previously reported, this double blind, parallel, randomized clinical trials involving 840 smokers, found that smokers of our SPECTRUM very low nicotine cigarettes consumed far fewer cigarettes per day and doubled their quit attempts versus smokers of cigarettes with conventional nicotine content.

A new Phase III study featuring 1,250 participants and sponsored by the University of Pittsburgh in collaboration with NIDA, is also using 22nd Century SPECTRUM cigarettes to compare two different approaches to help smokers lose their addiction to nicotine by either, A, an immediate reduction in nicotine content in cigarettes to non-addictive levels, or B, a gradual reduction in nicotine content in cigarettes to non-addictive levels.

Though we believe we know, which approach will be most effective, at the end of the day no matter which protocol prevails, 22nd Century will be the winner, because our company is the only one in the world capable of manufacturing very low nicotine cigarettes with naturally growing tobacco whose nicotine content is below the addictive threshold.

Doctors Michael Fiore and Timothy Baker also wrote in the October 2015 issue of New England Journal of Medicine that “reducing the nicotine content of combustible tobacco to levels that will not sustain dependence seems to us to be the most promising regulatory policy option for preventing at least 20 million premature deaths”.

Former FDA commissioner Dr. David Kessler calls cigarettes with non-addictive levels of nicotine, “the ultimate harm reduction strategy”.

Tying the results of the seven extraordinary independent clinical studies that have used our company’s very low nicotine cigarettes, 22nd Century has strategically and opportunistically leveraged tens of millions of dollars of clinical research conducted by outside parties to prepare our own bodies of clinical data for our company’s FDA submissions.

Importantly, 22nd Century raised no funds and shareholders experienced no dilution to facilitate these invaluable clinical trials. We are proud of this fact, and excited about the prospects of receiving an FDA order that will allow us to introduce the world’s first reduced exposure cigarette to the U.S. market.

Now on to a second disruptive product that will be very important to our company, 22nd Century’s very high nicotine tobacco. This topic raises a frequently asked question about our company’s mission and about our products.

I’m fairly sure that everyone of our call today understand 22nd Century’s straightforward mission, which is to reduce the harm caused by smoking.

That said, and more than one occasion our shareholder is pointed out what seems to be a contradiction we face in simultaneously developing very low nicotine cigarettes and very high nicotine cigarettes, both has potentially reduced exposure or MRTP products.

While the harm reduction theory behind the very low nicotine cigarette that provides nicotine to smokers at non-addictive levels, it’s easy to understand. The development of a high nicotine cigarette may seem counterintuitive.

That said we believe that both approaches relatively high nicotine and very low nicotine served to reduce the harm caused by smoking though for very different reasons.

Since we’ve already addressed the company’s very low nicotine products and their potential to become the world’s first MRTP cigarettes, let’s now talk about the theory behind harm reduction with high nicotine cigarettes.

But first, for the record, I should note here that while we believe RED SUN is the highest nicotine cigarette in America, I must point out that RED SUN is not an MRTP. And we make absolutely no claim that RED SUN is any less harmful than any other cigarette.

Okay, now back to the theory that explains why relatively high nicotine cigarettes also support the company’s mission to reduce the harm caused by smoking. It has been hypothesized for many years that a high nicotine tobacco, when combined with a low tar yield cigarette design, will result in smokers inhaling far less smoke and far less tar.

Of course, smoke and tar are the primary disease causing agents of cigarettes. In the landmark publication Virtually Safe Cigarettes 2000, noted scientists. Dr. Gio Batta Gori lays the groundwork for our strategy so simply as follows.

With the exception of extremely low nicotine yield cigarettes, “smokers in general, manage to utilize an average of about one milligram of nicotine from cigarettes of any brand regardless of smoking machine yields”. This statement addresses the phenomena now commonly referred to as smoker compensation.

Especially for cigarettes, with slightly lower nicotine contents like in cigarettes formerly referred to as light. Smokers compensate by taking more puffs, inhaling more deeply covering the delusion air holes on the filter and you’re simply smoking more cigarettes in order to consume their desired nicotine of approximately 1 milligram per cigarettes.

What this means is, smokers find a way to achieve about 1 milligram of nicotine no matter the type of cigarette they smoke, unless, the nicotine of a cigarette is so low as to make compensation impossible, which is true with 22nd Century’s very low nicotine Spectrum, MAGIC, BRAND A, and X-22 cigarettes. Dr.

Gori takes his science to the natural conclusions, when he explains “the higher the smoke concentration of nicotine, the sooner inhalation is inhibited, the lower the dose of whole smoke to the lungs and the lower the risk to be expected”.

In other words as smokers make the adjustment to a higher nicotine cigarette they naturally consume less tar and less smoke. Primarily because the nicotine their bodies crave is more readily and more efficiently available when smoking a high nicotine tobacco cigarette.

And with less smoke consumption, the risks for heart disease, lung disease and cancer also lessen. Accordingly, we believe the 22nd Century’s BRAND B higher nicotine cigarettes may in fact qualify for modified risk tobacco product status with the FDA. Based on the work of Dr.

Gori and others, we developed BRAND B with relatively high nicotine content, in combination with moderate tar contents. Thus, when comparing BRAND B to conventional cigarettes, BRAND B has a tar-to-nicotine ratio that is more than 50% lower than that’s found in conventional cigarette brands.

So for smokers who wish to reduce their exposure to nicotine and or to quit smoking altogether, 22nd Century has the world’s lowest nicotine cigarette. But for the more than 20 million American smokers who accept the risks associated with smoking, do not wish to quit and are not concerned with decreasing their exposure to nicotine.

Our company created BRAND B not to give smokers more nicotine, but to deliver nicotine more efficiently than conventional cigarettes. It is our hypothesis that 22nd Century’s BRAND B cigarettes do in fact reduce smokers, exposure to tar into smoke by more than 50% as compared to conventional cigarettes.

We believe this product has truly enormous market potential. We expect BRAND B will continue to be a great interest, both to big tobacco companies and to pragmatic public health officials. For these reasons, in 2016, we plan to conduct proof of concept exposure studies for BRAND B extremely low tar-to-nicotine ratio cigarettes.

If the results of these exposure studies allowed and provided sufficient funds available, we will begin work on a Modified Risk Tobacco Product application for BRAND B cigarettes, in order to win the right ultimately to disclose to consumers that the BRAND B exposes smokers to substantially less tar and substantially less tar and substantially less smoke than the current market leading brands in the United States.

Circling back to the company’s very low nicotine technology, I will remind you that our company has developed the world’s only combustible cigarette designed to help smokers quit.

Continuing research strongly suggests that reducing nicotine to non-addictive levels, this associates the act of smoking from the rapid delivery of nicotine, and likely will be a great benefit to smokers who do wish to quit.

The company believes that our X-22 smoking cessation aid and development may in fact prove to be the world’s most effective smoking cessation product. Importantly, unlike Pfizer’s market leading drug Chantix, X-22 seems to pose no new side effects to smokers.

What’s more? Smokers we have surveyed overwhelmingly prefer the idea of quitting with a combustible cigarette over a pill, nicotine patch, lozenge or gum.

To the sense, management have continue to identify and meet with potential strategic partners in the company’s ongoing efforts to establish a non-dilutive joint venture to fund Phase III clinical trials for X-22. Announcement of such a joint venture is one way to imagine would be a transformative event for 22nd Century.

We will continue our efforts on this important initiative in 2016. 22nd Century remains uniquely positioned as a biotechnology company with the important mission of reducing the harm caused by smoking. We’ve made huge strides over the last 12 months and we are very proud of what we have accomplished.

While we are not yet profitable, we are certainly putting points on the board both in terms of substantial increases in sales we are beginning to log and in terms of our strategic accomplishments. And indeed, we continue to see great progress with independent clinical trials utilizing our proprietary products.

As we continue to make our own MRTP application submissions to the FDA, we believe 22nd Century’s technology will be widely recognized as a true paradigm shift for the industry. We believe that ultimately capturing a mere fraction of a percent of the U.S.

cigarette market and/or a share of the smoking cessation market with our own product sales or through licensing partnerships will transform our company into a true industry leader. On behalf of the 22nd Century Group management team, we thank you for being part of our family of shareholders.

We look forward to meeting many of you at our Annual Shareholder Meeting later this year and we look forward to sharing exciting company developments with everyone in the weeks and months to come. Thank you again for participating in our call this morning. We will now open up the call to questions from our listeners..

[Operator Instructions] And we’ll go first to Lloyd Thomas [ph]. Please go ahead..

Hello everyone, good morning..

Good morning..

Yes, I was wondering, what are the prospects and I’ve just read a major news regarding the news team in – initiatives, I want to know, what are the prospects for the very low nicotine product being launch? And what initiatives you’ve taken regarding New Zealand?.

Okay. I’ll address that as best as I can. We’re very excited about New Zealand. I’m not sure you’re aware, but there was a Phase III clinical trial conducted on the order of two years ago by Natalie Walker at our 1,470 patients that utilized our cigarettes in conjunction with nicotine replacement therapy.

And that trial just like all of the six other independent clinical trials that have been done with our very low nicotine cigarettes showed tremendous efficacy, and public health officials in New Zealand probably primarily as a result of that Phase III clinical trial are very, very enthusiastic about our product.

Essentially, New Zealand has a public health objective by the year 2025 to virtually eliminate smoking in that country and many public health officials in the country believe that our cigarettes will be integral to that policy – to the success of that policy.

So as we’ve reported previously, there is an initiative there to actually either lessen the tax rate on very low nicotine cigarettes or to actually eliminate the tax rate on our very low nicotine cigarettes to encourage smokers in the country to try our very low nicotine cigarettes.

So, I can’t give you a definitive timeline or a probability of a near-term success, but what I can tell you is that public health officials and scientists in 22nd Century are all working forward as aggressively as we can to make this policy reality. I hope that’s helpful..

Yes, that was very helpful.

Can I ask one more question?.

Sure..

Yes, regarding the FDA submission for the VLN here.

Is there anything else? That’s being asked of 22nd Century from the FDA at this moment or is the submission complete?.

Yes, the submission is complete. And as of this date, we have not had any further requests from the FDA. So we stand ready to submit any additional data that the agency requires or to clarify any questions of the agency may have. But at this time FDA has not asked for any additional information.

So we’re very optimistic that the whole process will wrap itself up before the end of the year..

Awesome. Thank you very much..

Thank you sir..

We’ll go next to Marian Green [ph]..

Yes, hi good morning..

Good morning..

How are you?.

Great..

How’s that – what’s the possibility that would be fast track with the FDA. Then see FDA itself has been asking for cigarettes, buying cigarettes..

Yes. I’m not sure that there’s an official fast track process in the modified risk product category. But we’re encouraged that while – number one, FDA has funded some trials using our cigarettes that FDA participated in the design of our FDA of our SPECTRUM cigarettes.

And that – and it thus far, there haven’t been any negative comments from the agency at all. So while there’s not an official fast track status, we’re very optimistic that the process will go smoothly for the company..

What do you anticipate could be the quickest approval?.

I’ve got two lawyers here shaking their heads and making stop signs and telling me, I’m not allowed to give you guesstimates. So, I guess, if it still answer as we can’t tell, but I can tell you that we’re very optimistic and there’s been no negative points raised to this point..

Is the increase in ads anti-smoking with that give them more of an incentive to stay attractive?.

I’m not sure, at this time you know, generally the first quarter of the year when also people make New Year resolutions. There’s lots and lots of smoking cessation advertisements on TV and there are lots of campaigns about quitting smoking. So I guess. it’s natural to notice a lot more ads in the first quarter of the year.

But news from New Zealand and the more clinical trials that are done with our very low nicotine cigarettes sort of the more activity behind the products, I think the larger the wave of enthusiasm for very low nicotine cigarettes. And I think that can only help us..

Can I just ask one more?.

Sure..

Asia, I think being work done in Asia because I know that the Chinese are looking to what decreasing that cigarette, that’s people smoke there, it’s been a big issue..

Yes, we continue to have interest from Asia but to be very honest with you we do not have a pending joint venture or contract and I really can’t tell you much more than that..

Okay. I’ll just – stay tune then. Thank you so much..

Thank you very much. Thank you, Mrs. Green..

We’ll go next to [indiscernible] with Orion Consulting..

Good morning. Thank you for your overview and presentation. A couple of things that hit me during the conversation. Number one, I believe your MAGIC brand is the very low nicotine which you are selling in Spain.

And you haven’t been able to roll-out that brand throughout the rest of the EU based on a bottleneck with filter supplier? It seems to me that you are missing an opportunity which you are probably very well aware of. What is the timing on that and what are their capabilities and who are they, what’s the problem with the bottleneck.

That’s the first question and part B, of that is, how well has the MAGIC brand been received in Spain.

What are some of your metrics on that?.

Okay, well lots of questions. We two are very disappointed that we have not rolled a product out beyond Spain. So let me just start up by just saying that. We two are very disappointed and never imagine that at this point we would still only be in one country.

The reason for that is frankly when we did introduce the products much of the early feedback indicated that the Spanish consumers thought that the cigarette tasted too much like an American cigarette and was it close enough to the products that they were custom too in Europe.

So when we had that early feedback, we immediately went – and look we couldn’t obviously change to tobacco because the product is defined by our very low nicotine tobacco.

So instead we decided to address the issue with the change of filter and we thought we were very fortunate when we actually identified a filter a brand new specialty filter with tremendous patent protection that seems to further reduce the toxicants in the cigarette.

And so it change the profile of the cigarette to more closely resemble a European cigarette that was primary. And secondarily the filter seemed to also reduce toxicants. So we thought this was home run. Now unfortunately this specialty product is made by an American conglomerate that also uses ingredients from Eastern Europe.

So it’s been a complicated contractual issue, is to be, very honest with you. We actually have a couple of initial shipments off the filter in our factory, we’ve made test cigarettes. We’re very pleased with the product.

What’s preventing us from actually shipping the products are contractual issues between the parent company and the Eastern European component supplier. We believe that we are very close to finalizing all the contractual issues with all the parties and that will be able to commence shipments of products in Europe, I hope this quarter.

I mean, I’ve been saying that for months now and I never imagined it would take us this long, but I believe we will be able to commence shipments at the end of this quarter..

Well, okay.

Has anybody tested the cigarette with the new filter to see if it has alter the taste that is – to suit more of the European taste in cigarettes, which I would assume would be a stronger more pungent Turkish tobacco type thing, I’m not a smoker, but?.

Well, we have done – we have done some taste trials in Europe. And yes, we believe that this new filter is exactly what the product needs.

And we’re hoping that we’ll be able to disclose in some minor way the other benefits associate with the filter, but that will likely be decided on a country by country basis depending on what regulators in each country allow us to do. But, yes, we do believe that this filter addresses the taste issues that we had with the initial shipments of MAGIC..

Okay.

So what’s your projections for MAGIC across the EU? I mean, how close are you to saying, look, we think we can produce X amount of cigarettes, and here is the demand in Europe, are you even close to matching up supply and demand at this point?.

Well, I can tell you that we – I don’t have – I can tell you, we do not have projections on a country by country basis. We do have to back out that we’ve already exported to our European contract manufacturing partner.

And as we’ve disclosed in the press releases earlier this year, we’ve actually done some field trials in Central America to increase growing tobacco or increase capacity of our very low nicotine tobacco. So, in fact, there is tremendous demand.

We’re poised to be able to feel that demand with product very efficiently grown either in Central America or the Southeastern United States..

Okay. It’s kind of in that philosophy to say it, upfront, I have another point to make. It seems to me that BAT is the elephant in the room. That is second largest tobacco producer in the world or cigarette manufacturer.

You have licensed some of your IP to them, you – its referred that there’s another $7 million looming overhead and right now you have enough working capital to get you through October of 2016.

What does it take to bring that $7 million to the table? And what is the strategic alliance with that? I understand that your RED SUN brand the high nicotine is very important in the heat-not-burn technology which I’ll told that this is the high interest level of BAT? So you know, being the second largest cigarette producer in the world.

It would appear to me that that strategic alliance should be kind of front and center and again it’s nebulous. Maybe you can address what the market is, what the milestones are and how do you get that second milestone payment.

And what’s the underpinning of the strategic alliance and the IP with that?.

Okay, that’s a huge question you’ve asked. So I’ll just add, a very high level BAT currently has a research license with 22nd Century. They have not exercised their commercial option. So they only have a research license. BAT continues to do research with our very low and very high nicotine tobaccos.

There is not a $7 million single payment involved in the research and the research license. Instead there are actually four smaller payments two $1.5 million payments and two $2 million payments. Without going into a whole great detail into how those maybe achieved.

Essentially I’ll tell you that on both the low nicotine and the high nicotine side there are certain milestones that BAT and BAT alone can meet or not meet. So if they achieve one or more of those we will achieve one or more milestone payments that in total could be $7 million.

We have mixed feelings about BAT to be very frank, BAT is a research licensee, they could be an important partner, but BAT is a huge conglomerate and they move with the pace of a glacier, the pace of a glacier before global warming, I guess I should say. So that’s just me being frank and honest.

We are open and willing to work more collaboratively with BAT. But at this point their researchers are doing the research they need to do. I believe on several continents with our tobacco. So pending those research milestones and achievements they may or may not commercialize our tobacco and that will determine the true value of our partnership.

If BAT chooses not to commercialize, I assure you another big tobacco company will..

Okay.

And that licensing agreement runs out at the end of 2017?.

It runs out one year from this October..

Okay. Thank you..

Yes..

We’ll go next to Frank Schiappa [ph] with William Jefferson Inc. Please go ahead..

Hey, Henry can you hear me, all right?.

Good morning, sure..

Hey, good morning, congratulations on a nice quarter and a nice year last year..

Thank you very much..

How much when think about, as far as marketing goes, I’m noticing on social media sites like Twitter and Facebook that things are ramping up a little bit. And I was wondering, basically, I’m in this company because I know that you have a track record of success.

And I’m wondering what your plans are as far as, like I like that the whole tattoo, a photo of yourself with a RED SUN tattoo that was cool. But I think that sort of stuff needs to get out a little bit better.

I was wondering what your plans were in 2016 for getting that word out 22nd Century and what we’re doing to try to reduce the harm caused by tobacco?.

Okay. Well, that’s a good question and it’s a complicated question as well. As you know tobacco is a highly regulated industry and our marketing is consequently highly regulated. So, how we promote the product and where we promote the product is limited in the sense. And we spent to be candid.

We spent the majority of 2015 sort of trying to find our way to identify the soul of the RED SUN brand without making health claims on the product. We make no health claims on the products. We needed to come up with the soul the consumers could identify with and understand the products.

And finally, I think at the last quarter of last year we decided to embrace the fact that the cigarette is in fact a high nicotine cigarette. And it does appeal, it has strong appeal to – an important niche in the market.

The 20-somethings out there and the 30-somethings, who appreciate and enjoy Red Bull energy drinks for example, many of these consumers have told us, they like the idea of an extremely nicotine cigarette. They like what it represents. They like tattoos and they like being fiercely independent.

And they don’t feel the need to apologize that they in fact enjoy smoking. So we’ve identified that segment of smokers. We’ve identified a key selling point that differentiates us really from all other products on the market the fact that we have an extremely nicotine cigarette.

And putting all those things together in the last quarter, we came out with what we believe was an extremely effective tattoo promotion. And with the new website I encourage you to take a look at redcigarettes.com. And you can see how we explained, what it means to be a high nicotine cigarette.

What it means to be unapologetic about smoking if you do in fact embrace, the fact that you enjoy smoking and accept the health risks. So I guess, it took us some while to get there. But I think we have identified the soul of the brand, that’s how it will be positioned going forward.

And we’re going to, how we’re going to promote that, we’re going to promote that with social media because the outlets that you mentioned already we’ll certainly promote with our website, we’ll promote it at retail. And we’ll promote it word of mouth.

Frankly, there were nearly 200 people that went out and got a RED SUN permanent tattoo on their body as a result of our promotion. And we believe strongly that those 200 RED SUN tattoo wears will essentially be brand ambassadors for our company. And we think that will be very – that will be more powerful than any ad that I could buy.

So that’s our strategy in a nutshell..

Yes, I thought the website were great Henry and I just want to make sure there is more stuff like that coming because I think that is the avenue that you need to take. I mean, it seems to me like you’re going after the same clientele that you worked so hard to gain for Santa Fe. I mean, you’re not going to steal them from them.

I think there is enough to go around enough pieces of the pie that we can get our little share and hopefully make some money out of it right..

Well, I think you’re right and I think American spirit smokers have already shown, they’ve already proven themselves to be an excellent target for our marketing efforts. American spirit smokers are very receptive to the message that we’re conveying for our RED SUN product.

And again we’re going to focus, we’re going to narrow our focus in terms of markets actually going forward you’ll see us really focused on the Pacific Northwest, California and Colorado. And I think we can do quite well just focusing on those markets in 2016..

Okay. One more quick question, do you have any plans. I don’t really know how to word that but do you have any plans of like trying to get together with maybe a politician and doing something like what you mentioned as far as getting something passed where a very low nicotine cigarette would be taxed at a lower rate than a conventional cigarette.

So not only would you have the health benefits but you would also have the price benefit at the counter you pay less for something that’s better for you..

That would really be the holy grail. And certainly support those efforts that that other people are leading in New Zealand. And I should emphasize that that’s exactly the mission that other people have decided to promote in New Zealand. So, we’ll certainly support that.

Here in the United States, we don’t have current plans to lobby anyone exactly like that, but I will mention for the record, under the Tobacco Control Act, FDA has the ability to dictate to the industry, these cigarettes contain any level of nicotine FDA sees fit except zero.

So, FDA has the authority to put in place certain brands or a certain skew for all brands or if it wishes the entire industry could have any nicotine level it sees fit. And people like former commissioner, FDA Commissioner, David Kessler have articulated the nicotine level that can only be achieved by 22nd Century.

So, I mean, that’s pretty exciting for us, I think..

Yes, yes. Again, congratulations on a nice year, last year and I look forward to more stuff in the future from you guys, thanks..

Thank you..

We’ll go next to Michael Samples with Raymond James..

Yes I have couple of questions for you as well. Seems to be everybody had a kind of a list here but, in one of your press releases you mentioned that you have some fields that were producing seeds for tobacco and it mentioned tens of thousands of acres.

Is that like 20,000, 30,000 that’s not a very exact number there?.

Yes. The seeds that were – that we – the plants that we’re growing on a relatively small number of acres by the way can produce seeds that can actually grow many tens of thousands of acres. So, I’m not sure if my clarification helped you just now.

So we have the potential and we can only dream right, that we will need tens of thousands or hundreds of thousands of acres of our proprietary tobacco. But if that demand does present itself, already our company has the seeds in stock to produce tens of thousands if not hundreds of thousands of our proprietary tobacco.

Is that helpful?.

Yes that is, that’s helpful.

One other question I had, we’re talking about I guess, the marijuana industry, the cannabinoids, what direction are we taking with that, is that going to be the same with cigarettes or you’re trying to get sensation product or what, I’m not really sure, where we’re going?.

Well, no, look cannabis is pretty exciting and at the same time illegal at the federal level in the United States currently. So what we’re doing right now with cannabis is, well, first of all, we own 25% of Anandia, based in Vancouver, Canada.

And second, what we’re doing is we’re doing sponsored research with Anandia in Canada, where such research is legal. And really very exciting projects that could do, I don’t know, one of many things, but just for example, one project that we’re working on right now is to actually eliminate THC in hemp.

And if we could eliminate THC in hemp, essentially we would revitalize the hemp industry in the United States, where essentially it’s basically impossible to grow the hemp now in the United States because there is THC content in hemp. So, that’s one project we’re working on now.

The Holy Grail would probably be a project where we could increase beneficial cannabinoids, for example, CBD in the cannabis plants, while perhaps decreasing THC. So for medical marijuana that would be outstanding, then you would have plants without the THC problem, the reason for the product being illegal in the United States.

And yet you would have these very helpful elements like CBD that are helpful in treating epilepsy, and cancer, and autoimmune disorders and all those different things. So that’s the kind of research that we’re doing now. And all of this research really came about because Dr. Jonathan Page, who worked on mapping the cannabis genome for about 12 years.

He actually invented some of our most important transcription factor technology for the tobacco plants. So that’s really our connection with Dr. Page and our connection with Anandia. And frankly that’s a very exciting future direction for the company as well..

One final question, I have pulled up the press release, it tells me the person’s name that you recently put on, the firm that has worked with soybeans, and corn and some other agricultural products.

What direction are we taking with that, are we looking to be something like a Monsanto or something?.

Well, some people think we could see, but Dr. – I think, you’re speaking of Dr. Rushton [ph]. And he’s got an extensive background and a terrific résumé. And he’s also done quite a bit work on tobacco, and he has an intense interest in cannabis.

So, I can’t say that we have a bunch of interest in soybeans at this point or corn, but using the work and experience he has in all kinds of different plants we’re going to push forward on both the tobacco and the cannabis fronts.

Does that help?.

That is all I have. Yes..

Excellent. Well, thank you very much. I appreciate you reading all those press releases. And we work hard to issue those and it’s nice to know that there are shareholders, are reading those things and thinking about how they can benefit the company. Thank you..

We’ll go next to Donald Thompson [ph]..

Yes, can you hear me, okay?.

Yes. Good morning Mr. Thompson..

And I want to thank you for your responsiveness in the past and congratulation on your achievements to-date. My question pertains to MAGIC. And the MAGIC sales in Europe and you’ve already really adequately addressed that relative to the filter. So, thanks very much..

Okay. Thank you very much, sir. I hopeful, we’ll have good news for you in the coming weeks..

Great and bye-bye..

Bye-bye..

We’ll go next to Matthew Maguire [ph]. Please go ahead..

Good morning..

Good morning a couple questions. I guess, one of them you just addressed by mentioning American spirit smokers, as they kind of a target market, but I was wondering given your proximity to R. J.

Reynolds Company, why not a lot of them in the future when you’re no longer in contact with that?.

Well, it’s interesting. BAT is actually the largest shareholder of Reynolds American. So in some sense we have sort of a dotted line to Reynolds. And I guess, what I should say is we’re open for business. And if collaboration with Reynolds American made sense at some point in the future, we certainly look hard at that.

In the meantime, we’re competitors and we’re going to fight out there and our outlet is best we can to compete with American Spirit, and Marlboro and Camel and all the other big brands.

And I know for a fact that we’ve been noticed out there in the stores, we here that that account reps are making note of our product placement and of our sales, and it feels good to be noticed. And so right now we’re competitors, but in the future it wouldn’t surprise me if a collaboration opportunity presented itself..

What level of insulation have you provided for yourself or in conjunction with British American to your ventral competition from other tobacco companies or pharmaceutical companies that are going to want to either cut into it or you get a piece of it?.

I’m sorry, I’ve missed the first part of your question. What level of….

Insulation.

Insulation..

Protection from competition or maybe legal attack or something that people who see your upcoming products as a threat to their business..

Well, I mean we certainly have tremendous patent protection. BAT, right now is, I guess a strategic partner of Schwartz [ph] with a research license. And there are provisions in that agreement where neither BAT nor 22nd Century can sublicensee the technology until a few years after a commercial option of exercise, so those kinds of protections.

But, right now we don’t see – and probably Big tobacco at this point doesn’t see us as much of a threat, because we’re so tiny. But at some point, we’ll either be competitors to Big tobacco or will be alleys, I guess that’s what I’m going to say. And in either case I think, we do very well..

Maybe more like the Pfizer the guys producing the gums and patches and things like that I guess is more, what I meant….

Okay, well, and there too, I believe that our X-22 smoking cessation aid in development is going to prove to be the world’s most effective smoking cessation aid period bar none. I don’t believe if there is any other smoking cessation aid in the world that is more effective than our cigarettes.

And as I mentioned in my remarks, our cigarette appears to have absolutely no new side effects associated with it, which makes us incredibly better I guess than a drug like Pfizer’s CHANTIX. And as I also mentioned, smokers overwhelmingly prefer the idea of quitting smoking with a cigarette over a pill gum or lozenges.

So for those reasons, I believe it will do quite well in head-to-head competitions with the existing products in the smoking cessation market. On the other hand if we were to strike a strategic alliance or joint venture with one of those companies that either has a product on the market or does not yet.

Then will be aligned with that company and in competition with all the others. But on paper, if our product works better, has no side effects, and is overwhelmingly preferred by consumers, I believe that our prospects in the marketplace once the product is approved are tremendous..

What growth goals do you vision for yourself as a company pending FDA approval?.

That product, if we were approved as a smoking cessation aid, our X-22 product, we’ll put it this way. Pfizer’s CHANTIX there were projections that that drug would be a $1 billion a year product very rapidly. And until the products was given a black box warning, CHANTIX was in fact, I believe logging approximately $200 million a quarter.

Now, even with the black box warning, and even with all the – people are becoming more and more aware of all the ill effects of CHANTIX. Even considering those things, CHANTIX does well over $600 billion a year worldwide. So it’s our expectation that our X-22 product alone is a $1 billion a year potential product..

All right. Thank you for your time..

Thanks..

We’ll go next to Ethan Gilbertson [ph]..

Hey guys, just a quick question on X-22. It’s been over a year now since you guys said you’re really dedicated to finding a joint venture or suppose some party to bring that to market. I wanted to ask just where we stand with that.

In a letter to shareholders in December you guys wrote that, you project to find a partner in early 2016, is that still accurate? And why is it taking so long to identify a partner for this important product?.

That’s an excellent question and I’m going to address it directly. The reason why it’s such a difficult mission to identify a joint venture partner – a joint venture partner in the pharmaceutical industry is, because our product is a cigarette. So, let’s just be very clear about that.

On the positive side, we believe our cigarettes more effective than any other smoking cessation aid in the market. We believe the product has no new side effects. And the product is overwhelmingly preferred by smokers, because it is a cigarette.

And the negative side, pharmaceutical companies when presented with the prospect of selling a cigarette as opposed to a pill get very, I guess, confused, concerned, cautious. So, I’m just addressing your comment as directly as I can.

Our challenge is to identify a partner that is willing to accept the fact that our extraordinary product is in fact a cigarette. That’s been the difficulty we’ve had. We’ve had lots of good meetings.

And frankly at the business development level or even at the executive vice president level, I think the politics of introducing a cigarette are very challenging for a pharmaceutical company.

So, what we need is for a CEO, who can just look big picture of this product and realize that the efficacy and the consumer acceptance are so all overwhelmingly positive, that it simply just makes too much sense not to do. So that is our challenge.

And while I’ve said on a number of occasions that we’ve had some very significant conversations, we certainly haven’t signed an agreement yet, and I can’t tell you that we’re about to. But we are in continuing discussions.

Does that answer your question?.

Yes, yes. That is helpful.

Should shareholders still consider the prior guidance of early 2016 as a timeline for getting such a partner identified and agreement in place?.

I guess shareholders can know that it is an absolute top priority for management. And we were doing everything that we can. Would I stake my life on signing a deal in the first quarter? No I wouldn’t.

But I will tell you that we are spending a substantial amount of our time, energy and resources here at the company on identifying and signing a joint venture partner..

Okay, great. Thanks, guys..

We’ll take our next question from Ruth Julian [ph]. Please go ahead..

Yes, Henry..

Good morning..

Good morning. You have done a magnificent job this last two months. I think, we saw stockholders are very appreciative.

I wondered if, what we are doing in Europe besides Spain, do we have marketing in France and the UK and then also – what are you thinking about the China market?.

Okay. Well in Europe, we certainly lined up distributor partners in the countries you mentioned and one or two others. So, yes, we have distributor partners and promotional partners all aligned up and ready to go. And frankly, we have specialty filters in stock to make products for those markets.

So really all we need is a signed agreement with that specialty filter supplier and we are ready to move forward into those markets. So, I hope and plan for us to make those product launches very, very soon. Now in terms of Asia, I have to be honest. We’ve done a lot of work. We’ve met with a lot of people in Asia.

And we frankly, we’ve walked away from a couple of deals. Because they weren’t good for the company and they weren’t good for shareholders. So, I promise that’s going to be our approach going forward. We’re going to continue to meet with representatives from all these different important Asian countries.

But until there is a deal that we find that makes sense for 22nd Century and for our shareholders, we’re going to be patient and we’re not going to sign one of those deals until then..

Thank you so much, Henry..

Thank you very much, Mrs. Julian..

That will conclude today’s question-and-answer session. As well as, this does conclude the conference call. Thank you for your participation today. You may disconnect..