Executive Summary

Q1 2015 net revenue was $0.616M, up 37.5% YoY vs $0.448M in Q1 2014; net loss improved to $4.12M with Diluted EPS of ($0.06), versus net loss of $5.32M and ($0.09) EPS in Q1 2014 .
Sequential trend commentary is limited as Q4 2014 quarter-specific figures were not disclosed in the Company’s materials; 2014 full-year revenue was $0.529M, highlighting the step-up in Q1 2015 as manufacturing activity ramped .
Management guided Q2 2015 revenue to exceed $1.5M and full-year 2015 revenue to exceed $5M, driven by RED SUN production, MAGIC rollout in Europe, and contract manufacturing at NASCO; guidance represents a material acceleration vs 2014 .
Near-term stock catalysts: FDA Modified Risk application for very low nicotine “Brand A” targeted for summer 2015, RED SUN U.S. distribution expansion (200–300 stores), and MAGIC store count growth in Spain (≈900 in late April to ≈1,137 by mid-May), with plans to expand to additional EU markets .

What Went Well and What Went Wrong

What Went Well

Europe rollout of MAGIC very low nicotine cigarettes exceeded expectations: available in ≈1,137 retail shops in Spain by mid-May with targeted expansion to the U.K., France, Italy, and Belgium; store count expected to exceed 2,500 in Spain by year-end .
U.S. brand momentum: RED SUN production commenced and achieved distribution in select markets; approvals to list RED SUN on 49 state directories plus D.C. (Louisiana pending) support national availability .
Strategic posture and investor outreach strengthened: CEO highlighted strong market response to RED SUN and MAGIC; increased IR activities and conference participation planned to broaden investor awareness .

What Went Wrong

Operating loss increased by ~$2.9M YoY to $4.1M, primarily due to ~$2.6M higher G&A (including ~$2.1M non-cash equity-based comp), $0.1M higher sales/marketing, and ~$0.3M lower gross profit .
Adjusted EBITDA declined to ($1.52M) from ($0.76M) YoY as operating investments outpaced revenue growth during the commercialization transition .
Cash used in operations was ~$2.5M; although non-cash items comprised ~~$2.6M of net loss, the cash portion of net loss (~~$1.4M) plus ~$1.1M working capital needs pressured liquidity in the quarter .

Financial Results

Metric	Q1 2014	Q1 2015
Revenue ($USD Millions)	$0.448	$0.616
Operating Loss ($USD Millions)	$1.2	$4.1
Net Loss ($USD Millions)	$5.315	$4.117
Diluted EPS ($USD)	($0.09)	($0.06)
Adjusted EBITDA ($USD Millions)	($0.759)	($1.517)

Sequential (limited disclosure):

Metric	Q3 2014	Q4 2014	Q1 2015
Revenue ($USD Millions)	$0.064	n/a (full-year disclosed only)	$0.616
Net Loss ($USD Millions)	$2.724	n/a (full-year disclosed only)	$4.117
Diluted EPS ($USD)	($0.05)	n/a	($0.06)

Notes: Q4 2014 quarter-specific results were not disclosed in available materials; 2014 full-year revenue ($0.529M) and net loss ($15.6M) are provided for context .

KPIs and operating drivers:

KPI	Prior Quarter(s)	Current Quarter	Commentary/Trend
MAGIC retail stores in Spain	≈900 (Apr 28, 2015)	≈1,137 (mid-May)	Rapid adoption; target >2,500 by YE15
RED SUN U.S. distribution	200–300 stores in >40 states (first three months)	Production underway; consumer-facing marketing planned	Store-level activation and social media launched
State directory approvals (RED SUN)	35 states (Feb 6, 2015)	49 states + D.C.; Louisiana pending	Near-national footprint supports distribution
Contract manufacturing brands	Smoker Friendly ramp (approval under MSA)	Third-party MSA brand + filtered cigars + RED SUN	Multi-brand throughput at NASCO supports revenue

Non-GAAP reconciliation callouts:

Adjusted EBITDA adds back warrant liability fair value changes, stock-based comp, D&A, interest, and other items; YoY deterioration reflects higher non-cash comp and operating investments during commercialization .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD)	Q2 2015	n/a	>$1.5M	Initiated
Revenue ($USD)	FY 2015	n/a	>$5.0M (substantially more than $5M)	Initiated

Rationale: Management cited ramping contract manufacturing, RED SUN production, and MAGIC rollout across Europe as key drivers .

Earnings Call Themes & Trends

Topic	Q-2 (Q3 2014)	Q-1 (Q4 2014)	Current (Q1 2015)	Trend
Regulatory/legal (MSA, FDA MRTP)	Became MSA signatory; factory in pre-manufacturing; MRTP path outlined	Priorities include FDA MRTP for Brand A/B; packaging approvals for MAGIC in Spain	Brand A MRTP application targeted for summer; Brand B MRTP targeted 2016	Improving execution
Manufacturing & supply chain	Equipment placed in service; filtered cigar revenue; NASCO acquisition completed	Smoker Friendly contract manufacturing ramp; RED SUN shipments begin Jan 2015	Factory producing RED SUN and third-party MSA brand; continued filtered cigars	Scaling throughput
Product performance (brands)	RED SUN/MAGIC repositioning for MSA; limited sales	RED SUN distribution secured; MAGIC production for Spain	MAGIC 0/2 launched; store counts accelerating; RED SUN consumer marketing and social media launched	Positive adoption
Regional trends (EU, China)	EU contract manufacturing preparations; Asia JV exploration	MAGIC launch in Spain imminent; Asia JV structure (WFOE)	Plan for EU expansion (UK/FR/IT/BE); continued China engagement despite regulatory hurdles	Expanding footprint
R&D execution (X-22, cannabis IP)	Anandia equity stake; cannabis sublicenses; X-22 clinical plan	Seeking JV partner for Phase III X-22	Ongoing JV discussions in Japan/Europe for X-22	Partnering momentum

Management Commentary

“We are very pleased to report to our shareholders the substantial progress underway at 22nd Century Group. It is an exciting time for all of us; the market response to RED SUN and MAGIC has been tremendous. We look forward to developing these exciting new brands.” — Henry Sicignano III, President & CEO .
Management emphasized strong Q1 revenues as factory production began for a third-party MSA brand, filtered cigars continued, and RED SUN was produced, alongside the startup phase for proprietary brands .
The Company expects to submit the FDA Modified Risk application for its very low nicotine “Brand A” in summer 2015 and is pursuing partnerships to fund Phase III trials for X-22 .

Q&A Highlights

A Q1 2015 business update call was held on May 12, 2015, but a transcript was not available in the retrieved materials; therefore, Q&A specifics, guidance clarifications, and tone shifts versus prior quarters could not be assessed .

Estimates Context

S&P Global consensus estimates for Q1 2015 (EPS and Revenue) were unavailable at the time of retrieval due to access limits, so a beat/miss assessment cannot be made. Estimates may need to adjust upward given management’s revenue guidance trajectory for Q2 2015 (>$1.5M) and FY 2015 (>$5M), contingent on execution of contract manufacturing, RED SUN expansion, and MAGIC EU rollout .

Key Takeaways for Investors

Commercialization inflection: Q1 revenue of $0.616M exceeded full-year 2014 revenue, underscoring ramp at NASCO and initial brand traction; however, operating losses widened due to higher G&A and non-cash comp .
Near-term revenue visibility: Q2 guide >$1.5M and FY >$5M reflect multi-pronged drivers (contract manufacturing + branded sales); monitor cadence of distributor additions and factory throughput .
Regulatory catalysts: Brand A MRTP filing (summer 2015) and Brand B (2016) are pivotal for U.S. reduced-risk positioning; progress here could re-rate the equity on regulatory de-risking .
European growth vector: MAGIC store counts rising rapidly in Spain with planned entry into UK/France/Italy/Belgium; EU scale-up is a key lever for 2H15 revenue .
Liquidity and cash burn: Operating cash use of ~$2.5M in Q1 should be tracked against revenue ramp and working capital needs; non-cash items constitute a significant portion of reported net loss .
Non-GAAP lens: Adjusted EBITDA deterioration reflects investment in commercialization; scrutinize trajectory as revenue scales to assess operating leverage .
Execution risks: Manufacturing scaling, regulatory timelines, and partner/JV outcomes (e.g., X-22) remain critical; investor outreach suggests increased transparency and updates ahead .

Citations: Q1 2015 press release and 8-K ; April 28, 2015 8-K and Exhibit 99.1 ; Q4 2014 press release 8-K ; Q3 2014 10-Q .

22nd Century Group, Inc. (XXII)·Q1 2015 Earnings Summary