22nd Century Group Paving the Way for Uplisting to National Securities Exchange
Company Initiates Warrant Exchange to Improve Balance Sheet and Cap Table
22nd Century Group, Inc. (OTCQB:XXII) announced today that the company sent notices to all its warrant holders encouraging the exercise or amendment of the company’s warrants. 22nd Century Group’s management believes the company will have sufficient stockholders equity to up-list its common stock to a national securities exchange – such as NASDAQ or NYSE – if the company’s “derivative warrant liability” is reduced through the exercise or amendment of the outstanding warrants.
“Derivative warrant liability” is not an actual cash obligation (or cash expense) and is classified and reported as a derivative liability for accounting purposes and marked-to-market at the balance sheet date. Upon the exercise of a warrant or elimination of the anti-dilution feature of a warrant, the warrant liability is reduced and equity (capital in excess of par value) is increased accordingly.
“Since British American Tobacco’s strategic $7 million investment in 22nd Century Group last month, we have been contacted by several institutional investors and retail brokers looking to build a position in 22nd Century Group stock. Many of these funds and brokers cannot buy OTC Bulletin Board stocks,” said Joseph Pandolfino, Founder and CEO of the company. “In order to deliver maximum benefit and value for our shareholders, we concluded that listing our common stock on a national securities exchange is very important.” (more on reply)
Reducing the number of outstanding company warrants has two purposes. First, investors will have greater clarification of the potential number of company shares of common stock that are issued and outstanding. 22nd Century Group does not have any outstanding preferred stock and currently has 50,112,180 shares of common stock and 18,518,615 warrants issued and outstanding. Second, reducing the derivative warrant liability on the company’s balance sheet will greatly facilitate 22nd Century Group listing its common stock on a national securities exchange.
The company warrants currently outstanding are primarily the result of the company’s private placements over the last three years. Of the 18,518,615 outstanding warrants, 6,248,699 or 34 percent, have an exercise price of $2.4005. Management does not expect more than 5.5 million common shares to be issued under this warrant exchange. John Brodfuehrer, 22nd Century’s Group’s CFO, stated, “Approximately 80 percent of our warrant holders have not sold any of their related shares of our common stock demonstrating that these are fundamental investors with long-term time horizons.”
22nd Century Group’s warrant exchange includes inducements for certain warrant classes and will be completed at 5:00 p.m., EST, on Thursday, December 12, 2013. 22nd Century Group expects to submit its application to NASDAQ and the NYSE in January 2014, with the goal of up-listing as quickly as possible. As of October 31, 2013, 22nd Century Group had total assets of approximately $9.4 million, including approximately $6.5 million in cash and only $700 thousand in current liabilities. The company’s only long-term liability is its derivative warrant liability, which the company expects will be significantly reduced through this warrant exchange.
The upshot: Management's decision to reduce the number of outstanding warrants will reduce the "overhang" on the share price XXII has experienced in recent months, allow the share price to naturally rise, and attract Big Money. The uplisting will allow the several institutional investors and retail brokers that have *already contacted XXII* to finally buy, since they would be off the OTC. Goodbye Penny-land. IMO.