Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2019 | Aug. 07, 2019 | |
Document and Entity Information | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2019 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Entity Registrant Name | 22nd Century Group, Inc. | |
Entity Central Index Key | 0001347858 | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Trading Symbol | XXII | |
Entity Common Stock, Shares Outstanding | 125,663,936 | |
Entity Emerging Growth Company | false | |
Entity Small Business | false | |
Entity Shell Company | false |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Jun. 30, 2019 | Dec. 31, 2018 |
Current assets: | ||
Cash and cash equivalents | $ 874,427 | $ 604,925 |
Short-term investment securities | 46,095,682 | 55,748,939 |
Accounts receivable, net | 910,686 | 871,293 |
Inventory, net | 2,931,655 | 3,043,949 |
Prepaid expenses and other assets | 1,273,621 | 928,420 |
Total current assets | 52,086,071 | 61,197,526 |
Property, plant and equipment: | ||
Machinery and equipment, net | 3,355,475 | 3,260,748 |
Operating leases right-of-use assets, net | 707,729 | |
Property, plant and equipment, net | 4,063,204 | 3,260,748 |
Other assets: | ||
Intangible assets, net | 9,754,964 | 9,751,504 |
Investment | 4,641,946 | 3,092,358 |
Total other assets | 14,396,910 | 12,843,862 |
Total assets | 70,546,185 | 77,302,136 |
Current liabilities: | ||
Notes payable | 598,431 | 689,148 |
Operating lease obligations | 214,248 | 0 |
Accounts payable | 2,220,853 | 2,574,840 |
Accrued expenses | 4,057,594 | 1,826,481 |
Deferred income | 90,040 | 83,075 |
Total current liabilities | 7,181,166 | 5,173,544 |
Long-term liabilities: | ||
Notes payable | 559,485 | 848,217 |
Operating lease obligations | 493,481 | |
Total liabilities | 8,234,132 | 6,021,761 |
Commitments and contingencies (Note 8) | ||
Shareholders' equity | ||
Common stock value | 1,247 | 1,246 |
Capital in excess of par value | 171,357,905 | 170,392,249 |
Accumulated other comprehensive income | 201,779 | 21,363 |
Accumulated deficit | (109,248,878) | (99,134,483) |
Total shareholders' equity | 62,312,053 | 71,280,375 |
Total liabilities and shareholders' equity | $ 70,546,185 | $ 77,302,136 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Jun. 30, 2019 | Dec. 31, 2018 |
CONSOLIDATED BALANCE SHEETS | ||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, par value | $ 0.00001 | $ 0.00001 |
Common stock, shares authorized | 300,000,000 | 300,000,000 |
Common stock, par value | $ 0.00001 | $ 0.00001 |
Common stock, shares issued | 124,673,936 | 124,642,593 |
Common stock, shares outstanding | 124,673,936 | 124,642,593 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Revenue: | ||||
Sale of products, net | $ 5,814,979 | $ 6,914,913 | $ 12,108,627 | $ 13,030,952 |
Cost of goods sold (exclusive of depreciation shown separately below): | ||||
Products | 5,901,279 | 6,753,199 | 12,297,837 | 12,797,660 |
Gross (loss) profit | (86,300) | 161,714 | (189,210) | 233,292 |
Operating expenses: | ||||
Research and development (including equity-based compensation) | 1,986,608 | 4,781,407 | 4,438,050 | 7,298,176 |
General and administrative (including equity-based compensation) | 2,373,693 | 1,914,971 | 4,616,195 | 3,947,363 |
Sales and marketing costs (including equity-based compensation) | 212,190 | 203,629 | 443,890 | 402,738 |
Depreciation | 147,255 | 131,294 | 282,301 | 255,822 |
Amortization | 222,793 | 170,925 | 438,352 | 338,477 |
Total operating expenses | 4,942,539 | 7,202,226 | 10,218,788 | 12,242,576 |
Operating loss | (5,028,839) | (7,040,512) | (10,407,998) | (12,009,284) |
Other income (expense): | ||||
Unrealized (loss) gain on investment | (1,423,945) | 92,574 | 1,549,588 | 6,147,088 |
Realized gain (loss) on short-term investment securities | 71,914 | (42,384) | 55,893 | (42,189) |
Litigation expense | (1,890,900) | (1,890,900) | ||
Gain on the sale of machinery and equipment | 87,351 | 0 | ||
Warrant liability gain - net | 0 | 48,711 | ||
Interest income, net | 243,183 | 251,670 | 515,426 | 503,510 |
Interest expense | (13,095) | (23,755) | 0 | |
Total other income (expense) | (3,012,843) | 301,860 | 293,603 | 6,657,120 |
(Loss) income before income taxes | (8,041,682) | (6,738,652) | (10,114,395) | (5,352,164) |
Income taxes | 0 | 0 | ||
Net (loss) income | (8,041,682) | (6,738,652) | (10,114,395) | (5,352,164) |
Other comprehensive income (loss): | ||||
Unrealized gain (loss) on short-term investment securities | 89,410 | (70,568) | 236,309 | (70,373) |
Reclassification of (gains) losses to net loss | (71,914) | 42,384 | (55,893) | 42,189 |
Other Comprehensive Income (Loss), Net of Tax | 17,496 | (28,184) | 180,416 | (28,184) |
Comprehensive loss | $ (8,024,186) | $ (6,766,836) | $ (9,933,979) | $ (5,380,348) |
Net loss per common share - basic and diluted | $ (0.06) | $ (0.05) | $ (0.08) | $ (0.04) |
Common shares used in basic and diluted net loss per share calculation | 124,661,991 | 124,311,087 | 124,653,403 | 124,166,321 |
CONSOLIDATED STATEMENTS OF OP_2
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Parenthetical) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Research and Development Expense [Member] | ||||
Allocated Share-based Compensation Expense | $ 70,605 | $ 1,344,317 | $ 170,274 | $ 1,564,730 |
General and Administrative Expense [Member] | ||||
Allocated Share-based Compensation Expense | 386,867 | 291,599 | 686,397 | 599,087 |
Selling and Marketing Expense [Member] | ||||
Allocated Share-based Compensation Expense | $ 59,280 | $ 46,312 | $ 108,985 | $ 82,287 |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) | Common Stock [Member] | Capital in Excess of Par Value [Member] | Accumulated Other Comprehensive Income [Member] | Accumulated Deficit [Member] | Total |
Beginning balance at Dec. 31, 2017 | $ 1,236 | $ 166,592,536 | $ (91,167,572) | $ 75,426,200 | |
Beginning balance (in shares) at Dec. 31, 2017 | 123,569,367 | ||||
Stock issued in connection with warrant exercises | $ 4 | (4) | $ 0 | 0 | 0 |
Stock issued in connection with warrant exercises (in shares) | 426,180 | ||||
Stock issued in connection with option exercises | $ 3 | 217,497 | 0 | 0 | 217,500 |
Stock issued in connection with option exercises (in shares) | 315,540 | ||||
Equity-based compensation | $ 0 | 563,876 | 0 | 0 | 563,876 |
Equity-based compensation (in shares) | 0 | ||||
Net (loss) income | $ 0 | 0 | 0 | 1,386,488 | 1,386,488 |
Ending balance at Mar. 31, 2018 | $ 1,243 | 167,373,905 | (89,781,084) | 77,594,064 | |
Ending balance (in shares) at Mar. 31, 2018 | 124,311,087 | ||||
Beginning balance at Dec. 31, 2017 | $ 1,236 | 166,592,536 | (91,167,572) | 75,426,200 | |
Beginning balance (in shares) at Dec. 31, 2017 | 123,569,367 | ||||
Stock issued in connection with option exercises (in shares) | 315,540 | ||||
Net (loss) income | (5,352,164) | ||||
Ending balance at Jun. 30, 2018 | $ 1,243 | 169,056,133 | (28,184) | (96,519,736) | 72,509,456 |
Ending balance (in shares) at Jun. 30, 2018 | 124,311,087 | ||||
Beginning balance at Dec. 31, 2017 | $ 1,236 | 166,592,536 | (91,167,572) | 75,426,200 | |
Beginning balance (in shares) at Dec. 31, 2017 | 123,569,367 | ||||
Ending balance at Dec. 31, 2018 | $ 1,246 | 170,392,249 | 21,363 | (99,134,483) | 71,280,375 |
Ending balance (in shares) at Dec. 31, 2018 | 124,642,593 | ||||
Beginning balance at Mar. 31, 2018 | $ 1,243 | 167,373,905 | (89,781,084) | 77,594,064 | |
Beginning balance (in shares) at Mar. 31, 2018 | 124,311,087 | ||||
Equity-based compensation | 1,682,228 | 1,682,228 | |||
Unrealized gain on short-term investment securities | (70,373) | (70,373) | |||
Reclassification of losses (gains) to net loss | 42,189 | 42,189 | |||
Net (loss) income | (6,738,652) | (6,738,652) | |||
Ending balance at Jun. 30, 2018 | $ 1,243 | 169,056,133 | (28,184) | (96,519,736) | 72,509,456 |
Ending balance (in shares) at Jun. 30, 2018 | 124,311,087 | ||||
Beginning balance at Dec. 31, 2018 | $ 1,246 | 170,392,249 | 21,363 | (99,134,483) | 71,280,375 |
Beginning balance (in shares) at Dec. 31, 2018 | 124,642,593 | ||||
Stock issued in connection with option exercises | $ 1 | (1) | 0 | 0 | 0 |
Stock issued in connection with option exercises (in shares) | 17,407 | ||||
Equity-based compensation | $ 0 | 448,905 | 0 | 0 | 448,905 |
Equity-based compensation (in shares) | 0 | ||||
Unrealized gain on short-term investment securities | $ 0 | 0 | 146,899 | 0 | 146,899 |
Reclassification of losses (gains) to net loss | 0 | 0 | 16,021 | 0 | 16,021 |
Net (loss) income | 0 | 0 | 0 | (2,072,713) | (2,072,713) |
Ending balance at Mar. 31, 2019 | $ 1,247 | 170,841,153 | 184,283 | (101,207,196) | 69,819,487 |
Ending balance (in shares) at Mar. 31, 2019 | 124,660,000 | ||||
Beginning balance at Dec. 31, 2018 | $ 1,246 | 170,392,249 | 21,363 | (99,134,483) | 71,280,375 |
Beginning balance (in shares) at Dec. 31, 2018 | 124,642,593 | ||||
Stock issued in connection with option exercises (in shares) | 31,343 | ||||
Net (loss) income | (10,114,395) | ||||
Ending balance at Jun. 30, 2019 | $ 1,247 | 171,357,905 | 201,779 | (109,248,878) | 62,312,053 |
Ending balance (in shares) at Jun. 30, 2019 | 124,673,936 | ||||
Beginning balance at Mar. 31, 2019 | $ 1,247 | 170,841,153 | 184,283 | (101,207,196) | 69,819,487 |
Beginning balance (in shares) at Mar. 31, 2019 | 124,660,000 | ||||
Stock issued in connection with option exercises (in shares) | 13,936 | ||||
Equity-based compensation | 516,752 | 516,752 | |||
Unrealized gain on short-term investment securities | 89,410 | 89,410 | |||
Reclassification of losses (gains) to net loss | (71,914) | (71,914) | |||
Net (loss) income | (8,041,682) | (8,041,682) | |||
Ending balance at Jun. 30, 2019 | $ 1,247 | $ 171,357,905 | $ 201,779 | $ (109,248,878) | $ 62,312,053 |
Ending balance (in shares) at Jun. 30, 2019 | 124,673,936 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 6 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Cash flows from operating activities: | ||
Net loss | $ (10,114,395) | $ (5,352,164) |
Adjustments to reconcile net loss to cash used in operating activities: | ||
Amortization and depreciation | 601,560 | 545,288 |
Amortization of license fees | 119,094 | 49,011 |
Lease expense | 106,546 | 0 |
Unrealized gain on investment | (1,549,588) | (6,147,088) |
Realized loss (gain) on short-term investment securities | (55,893) | 42,189 |
Litigation expense | 1,890,900 | |
Gain on the sale of machinery and equipment | (87,351) | 0 |
Warrant liability gain - net | 0 | (48,711) |
Accretion of interest on notes payable | 20,552 | 0 |
Equity-based compensation | 965,656 | 2,246,104 |
Decrease in inventory reserves | (35,000) | |
(Increase) decrease in assets: | ||
Accounts receivable | (39,393) | (326,028) |
Inventory | 112,294 | 374,570 |
Prepaid expenses and other assets | (345,201) | (574,745) |
Increase (decrease) in liabilities: | ||
Operating lease obligations | (106,546) | 0 |
Accounts payable | (610,226) | 681,026 |
Accrued expenses | 340,213 | (66,860) |
Deferred income | 6,965 | 221,622 |
Net cash used in operating activities | (8,744,813) | (8,390,786) |
Cash flows from investing activities: | ||
Acquisition of patents and trademarks | (243,651) | (137,761) |
Acquisition of machinery and equipment | (397,750) | (299,227) |
Proceeds from the sale of machinery and equipment | 166,150 | 0 |
Sales and maturities of short-term investment securities | 18,286,955 | 42,183,538 |
Purchase of short-term investment securities | (8,397,389) | (33,359,410) |
Net cash provided by investing activities | 9,414,315 | 8,387,140 |
Cash flows from financing activities: | ||
Payment on note payable | (400,000) | (500,000) |
Proceeds from exercise of stock options | 0 | 217,500 |
Net cash provided by financing activities | (400,000) | (282,500) |
Net increase (decrease) in cash and cash equivalents | 269,502 | (286,146) |
Cash and cash equivalents - beginning of period | 604,925 | 3,659,534 |
Cash and cash equivalents - end of period | 874,427 | 3,373,388 |
Net cash paid for: | ||
Cash paid during the period for interest | 3,203 | 0 |
Cash paid during the period for income taxes | 0 | 0 |
Non-cash transactions: | ||
Patent and trademark additions included in accounts payable | 198,161 | 230,381 |
Machinery and equipment additions included in accounts payable | 58,077 | 57,710 |
Right-of-use assets and corresponding operating lease obligations | 814,275 | |
License acquired with note payable | 1,175,226 | $ 1,175,226 |
Litigation expense in accrued expenses | $ 1,890,900 |
NATURE OF BUSINESS AND SUMMARY
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2019 | |
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1. - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10‑Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair and non-misleading presentation of the financial statements have been included. Operating results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. These interim consolidated financial statements should be read in conjunction with the December 31, 2018 audited consolidated financial statements and the notes thereto contained in our Annual Report on Form 10‑K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 6, 2019. Principles of Consolidation - The accompanying consolidated financial statements include the accounts of 22nd Century Group, Inc. (“22nd Century Group”), its three wholly-owned subsidiaries, 22nd Century Limited, LLC (“22nd Century Ltd”), NASCO Products, LLC (“NASCO”), and Botanical Genetics, LLC (“Botanical Genetics”), and two wholly-owned subsidiaries of 22nd Century Ltd, Goodrich Tobacco Company, LLC (“Goodrich Tobacco”) and Heracles Pharmaceuticals, LLC (“Heracles Pharma”) (collectively, “the Company”). All intercompany accounts and transactions have been eliminated. Nature of Business - 22nd Century Ltd is a plant biotechnology company specializing in technology that allows (i) for the level of nicotine and other nicotinic alkaloids in tobacco plants to be decreased through genetic engineering and plant breeding and (ii) the levels of cannabinoids in hemp plants to be decreased or increased through genetic engineering and plant breeding. Goodrich Tobacco and Heracles Pharma are business units for the Company’s (i) potential modified risk tobacco products and (ii) potential smoking cessation product, respectively. NASCO is a federally licensed tobacco products manufacturer, a subsequent participating member under the tobacco Master Settlement Agreement (“MSA”) between the tobacco industry and the settling states under the MSA and operates the Company’s tobacco products manufacturing business in North Carolina. Botanical Genetics is a wholly-owned subsidiary of 22nd Century Group and was incorporated to facilitate the original investment in Anandia Laboratories, Inc., more fully described in Note 4, and performs research and development related to the Company’s hemp business. Reclassifications - Certain items in the 2018 financial statements have been reclassified to conform to the 2019 classification. Preferred stock authorized - The Company is authorized to issue “blank check” preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock. No preferred shares have been issued. Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in financial institutions. Although the cash accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by the financial institutions. Management reviews the financial viability of these institutions on a periodic basis. Cash and cash equivalents - The Company considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. However, the Company has elected to classify money market mutual funds related to its short-term investment portfolio as short-term investment securities. Cash and cash equivalents are stated at cost, which approximates fair value. Short-term investment securities - The Company’s short-term investment securities are classified as available-for-sale securities and consist of money market funds, corporate bonds, U.S. government agency bonds, U.S. treasury securities, and commercial paper with maturities greater than three months at the time of acquisition. The Company’s short-term investment securities are carried at fair value within current assets on the Company’s Consolidated Balance Sheets. The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security. The Company’s investment policy states that all investment securities must have a maximum maturity of twenty-four (24) months or less and the maximum weighted maturity of the investment securities must not exceed twelve (12) months. All of the Company’s short-term investment securities are fixed-income debt instruments, and accordingly, all unrealized gains and losses incurred on the short-term investment securities (the adjustment to fair value) are recorded in other comprehensive income or loss on the Company’s Consolidated Statements of Operations and Comprehensive Loss. Realized gains and losses on short-term investment securities are recorded in the other income (expense) portion of the Company’s Consolidated Statements of Operations and Comprehensive Loss. Interest is recorded on the accrual basis and presented net of investment related fees in interest income. Accounts receivable - The Company periodically reviews aged account balances for collectability. The Company established an allowance for doubtful accounts of $0 at both June 30, 2019 and December 31, 2018 . Inventory - Inventories are valued at the lower of cost or net realizable value. Cost is determined using an average cost method for tobacco leaf inventory and raw materials inventory and standard cost is primarily used for finished goods inventory. Inventories are evaluated to determine whether any amounts are not recoverable based on slow moving or obsolete condition and are written off or reserved as appropriate. Inventories at June 30, 2019 and December 31, 2018 consisted of the following: June 30, December 31, 2019 2018 Inventory - tobacco leaf $ 1,610,499 $ 1,556,581 Inventory - finished goods Cigarettes and filtered cigars 138,456 156,702 Inventory - raw materials Cigarette and filtered cigar components 1,282,700 1,430,666 3,031,655 3,143,949 Less: inventory reserve 100,000 100,000 $ 2,931,655 $ 3,043,949 Machinery and equipment - Machinery and equipment are recorded at their acquisition cost and depreciated on a straight-line basis over their estimated useful lives ranging from 3 to 10 years. Right-of-use assets - On January 1, 2019, the Company adopted ASU 2016‑02, Subtopic ASC 842, Leases, and as a result has recorded Right-to-use assets and corresponding Lease obligations as more fully discussed in Note 3. Intangible Assets - Intangible assets are recorded at cost and consist primarily of (1) expenditures incurred with third-parties related to the processing of patent claims and trademarks with government authorities, as well as costs to acquire patent rights from third-parties, (2) license fees paid for third-party intellectual property, (3) costs to become a signatory under the tobacco MSA, and (4) license fees paid to acquire a predicate cigarette brand. The amounts capitalized relate to intellectual property that the Company owns or to which it has exclusive rights. The Company’s intellectual property capitalized costs are amortized using the straight-line method over the remaining statutory life of the granted patent assets in each of the Company’s patent families, which have estimated expiration dates ranging from 2019 to 2036. Periodic maintenance or renewal fees are expensed as incurred. Annual minimum license fees are charged to expense. License fees paid for third-party intellectual property are amortized on a straight-line basis over the last to expire patents, which patent expiration dates are expected to range from 2019 through 2036. The Company believes costs associated with becoming a signatory to the MSA and acquiring a predicate cigarette brand have an indefinite life and as such, no amortization is taken. Total intangible assets at June 30, 2019 and December 31, 2018 consisted of the following: June 30, December 31, 2019 2018 Intangible assets, net Patent and trademark costs $ 7,578,586 $ 7,136,774 Less: accumulated amortization 3,513,823 3,194,565 Patent and trademark costs, net 4,064,763 3,942,209 License fees, net (see Note 8) 3,776,426 3,776,426 Less: accumulated amortization 588,225 469,131 License fees, net 3,188,201 3,307,295 MSA signatory costs 2,202,000 2,202,000 License fee for predicate cigarette brand 300,000 300,000 $ 9,754,964 $ 9,751,504 Amortization expense relating to the above intangible assets for the three and six months ended June 30, 2019 amounted to $222,793 and $438,352, respectively ($170,925 and $338,477 for the three and six months ended June 30, 2018, respectively). The estimated annual average amortization expense for the next five years is approximately $480,000 for patent costs and $238,000 for license fees. Impairment of Long-Lived Assets - The Company reviews the carrying value of its amortizing long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be recoverable. The Company assesses recoverability of the asset by estimating the future undiscounted net cash flows expected to result from the asset, including eventual disposition. If the estimated future undiscounted net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and its fair value. There was no impairment loss recorded during the six months ended June 30, 2019 and 2018, respectively . Income Taxes - The Company recognizes deferred tax assets and liabilities for any basis differences in its assets and liabilities between tax and GAAP reporting, and for operating losses and credit carryforwards. As a result of the Company’s history of cumulative net operating losses and the uncertainty of their future utilization, the Company has established a valuation allowance to fully offset its net deferred tax assets as of June 30, 2019 and December 31, 2018. Additionally, because the Company has a full valuation allowance offsetting its deferred tax assets and as a result has an effective tax rate of zero, the Company has elected to present other comprehensive income items relating to net unrealized gains on short-term investment securities gross and not net of taxes. The Company’s federal and state tax returns for the years ended December 31, 2015 through December 31, 2017 are currently open to audit under the statutes of limitations. There were no pending audits as of June 30, 2019. Stock Based Compensation - The Company uses a fair-value based method to determine compensation for all arrangements under which Company employees and others receive shares, restricted stock units or options to purchase common shares of the Company. Stock based compensation expense is recorded over the requisite service period based on estimates of probability and time of achieving milestones and vesting. For accounting purposes, the shares will be considered issued and outstanding upon vesting or risks of forfeiture expiring. Revenue Recognition - On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers and all related amendments (the “new revenue standard”) for all contracts using the modified retrospective method. Under the modified retrospective method, the Company was required to record a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2018. The Company determined that the adoption of the new revenue standard did not require a cumulative-effect adjustment. The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. The Company’s customer contracts consist of obligations to manufacture the customer’s branded filtered cigars and cigarettes. For certain contracts, the performance obligation is satisfied over time as the Company determines, due to contract restrictions, it does not have an alternative use of the product, and it has an enforceable right to payment as the product is manufactured. The Company recognizes revenue under those contracts at the unit price stated in the contract based on the units manufactured. The manufacturing process is completed daily and, therefore, there were no performance obligations partially satisfied at June 30, 2019. For the contract where the performance obligation is satisfied at a point in time, the Company recognizes revenue when the product is transferred to the customer. Revenue from the sale of the Company’s products is recognized net of cash discounts, sales returns and allowances. There was no allowance for discounts or returns and allowances at June 30, 2019 and December 31, 2018. The Company generally requires a down payment from its customers prior to commencement of manufacturing a product. Amounts received in advance of satisfying the performance obligations are recorded as deferred revenue. Customer payment terms vary depending on the terms of each customer contract, but payment is generally due prior to product shipment or within extended credit terms up to twenty-one (21) days after shipment. The Company’s net sales revenue is derived from customers located primarily in the United States of America and is disaggregated by the timing of revenue recognition. For the three and six months ended June 30, 2019, net sales revenue from products transferred over time amounted to approximately $3,441,000 and $7,656,000, respectively, and net sales revenue from products transferred at a point in time amounted to approximately $2,374,000 and $4,453,000, respectively. Derivatives - The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Derivative financial instruments are initially recorded at fair market value and then are revalued at each reporting date, with changes in fair value reported in the Consolidated Statements of Operations and Comprehensive Loss. The classification of derivative instruments are evaluated at the end of each reporting period. Derivative instruments are classified on the balance sheet as current or non-current based on if the net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date. Research and Development - Research and development costs are expensed as incurred. Advertising - The Company expenses advertising costs as incurred. Advertising expense was approximately $5,000 and $10,000 for the three and six months ended June 30, 2019, respectively ($4,000 and $16,000 for the three and six months ended June 30, 2018, respectively). (Loss) Income Per Common Share - Basic (loss) income per common share is computed using the weighted-average number of common shares outstanding. Diluted (loss) income per share is computed assuming conversion of all potentially dilutive securities. Potential common shares outstanding are excluded from the computation if their effect is anti-dilutive. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments - The Company’s financial instruments include cash and cash equivalents, short-term investment securities, accounts receivable, investment (stock warrants), accounts payable, accrued expenses, and notes payable. Other than for cash equivalents, short-term investment securities, and investment (stock warrants), fair value is assumed to approximate carrying values for these financial instruments, since they are short term in nature, they are receivable or payable on demand, or had stated interest rates that approximate the interest rates available to the Company as of the reporting date. The determination of the fair value of cash equivalents, short-term investment securities, and investment (stock warrants) are discussed in Note 5. Investments - The Company accounts for investments in equity securities of other entities under the equity method of accounting if the Company’s investment in the voting stock of the other entity is greater than or equal to 20% and less than a majority, and the Company has the ability to have significant influence over the operating and financial policies of the investee. If the Company’s equity investment in other entities is less than 20%, and the Company has no significant influence over the operating or financial policies of the entity, and such equity investment does not have a readily determinable market value, then the Company accounts for such equity investments in accordance with FASB ASU 2016‑01, which the Company adopted in the first quarter of 2018 with respect to the Company’s former investment in Anandia Laboratories, Inc. in Canada (see Note 4 for a further discussion). The Company has an investment in stock warrants that are considered equity securities under ASC 321 – Investments – Equity Securities and a derivative instrument under ASC 815 – Derivatives and Hedging. The stock warrants are not designated as a hedging instrument, and in accordance with ASC 815, the Company’s investment in stock warrants are recorded at fair value with changes in fair value recorded in the Company’s Consolidated Statements of Operations and Comprehensive Loss. |
MACHINERY AND EQUIPMENT
MACHINERY AND EQUIPMENT | 6 Months Ended |
Jun. 30, 2019 | |
MACHINERY AND EQUIPMENT | |
MACHINERY AND EQUIPMENT | NOTE 2. - MACHINERY AND EQUIPMENT Machinery and equipment at June 30, 2019 and December 31, 2018 consisted of the following: June 30, December 31, Useful Life 2019 2018 Cigarette manufacturing equipment 3 - 10 years $ 4,825,293 $ 4,608,267 Office furniture, fixtures and equipment 5 years 150,349 135,909 Laboratory equipment 5 years 122,780 104,709 Leasehold improvements 6 years 233,569 169,362 5,331,991 5,018,247 Less: accumulated depreciation 1,976,516 1,757,499 Machinery and equipment, net $ 3,355,475 $ 3,260,748 Depreciation expense was $147,255 and $282,301 for the three and six months ended June 30, 2019, respectively ($131,294 and $255,822 for the three and six months ended June 30, 2018, respectively). |
RIGHT-OF-USE ASSETS, LEASE OBLI
RIGHT-OF-USE ASSETS, LEASE OBLIGATIONS, AND OTHER LEASES | 6 Months Ended |
Jun. 30, 2019 | |
RIGHT-OF-USE ASSETS, LEASE OBLIGATIONS, AND OTHER LEASES | |
RIGHT-OF-USE ASSETS, LEASE OBLIGATIONS, AND OTHER LEASES | NOTE 3. - RIGHT-OF-USE ASSETS, LEASE OBLIGATIONS, AND OTHER LEASES On January 1, 2019, the Company adopted ASU 2016‑02, Subtopic ASC 842, Leases (the “new guidance”). Under the new guidance, the Company was required to evaluate its leases and record a Right-of-use (“ROU”) asset and a corresponding lease obligation for leases that qualified as either finance or operating leases. Prior to the adoption of the new guidance, the Company had various operating leases for real estate. The Company elected to use the practical expedient which allowed the Company to carry forward the historical lease classifications of the existing leases. The Company determined that its leases contained (1) no variable lease expenses, (2) no termination options, (3) no residual lease guarantees, and (4) no material restrictions or covenants. The new guidance calls for the lease obligations to be recorded at the present value of the remaining lease payments under the leases and the ROU assets are recorded as the sum of the present value of the lease obligations plus any initial direct costs minus lease incentives plus prepaid lease payments. All remaining renewal options have been included in the computation of the ROU assets and lease obligations. The present value of the remaining lease payments was computed using a discount rate of 5.14%. The Company determined that two real estate leases qualified as operating leases under the new guidance as discussed below. The Company leases a manufacturing facility and warehouse located in North Carolina on a triple net lease basis with a monthly lease payment of $14,094. As of January 1, 2019, the lease had a remaining term of thirty-four (34) months including all renewal options. Under the new guidance, the Company recorded a ROU asset and a corresponding lease obligation in the amount of $446,950 on January 1, 2019 and recorded a lease expense for the three and six months ended June 30, 2019 of approximately $42,000 and $84,000, respectively. On October 4, 2017, the Company entered a lease for office space at a location in Williamsville, New York with an initial monthly lease payment of $6,375 per month for the first three years of the lease. The monthly lease payment increases by 5% annually for the remainder of the lease. As of January 1, 2019, the lease had a remaining term of sixty-two (62) months including all renewal options. Under the new guidance, the Company recorded a ROU asset and a corresponding lease obligation in the amount of $367,325 on January 1, 2019 and recorded a lease expense for the three and six months ended June 30, 2019 of approximately $20,000 and $40,000, respectively. Further, FASB issued ASU 2018‑11, Re-Leases Targeted Improvements to ASC 842, to provide entities with relief from the costs of implementing certain aspects of the new guidance. Under ASU 2018‑11, entities may elect not to recast comparative periods when transitioning to the new guidance. The Company has adopted ASU 2018‑11, and accordingly, will (1) apply ASC 840 Lease Accounting (the “old guidance”) in comparative periods, (2) provide disclosures for all comparative periods presented in accordance with the old guidance, and (3) recognize the effects of applying the new guidance as a cumulative-effects adjustment to retained earnings as of January 1, 2019. No cumulative-effects adjustment was made as the Company determined it to be immaterial. In addition, the Company has two leases that did not qualify as operating or financing leases under the new guidance as discussed below. On August 14, 2017, the Company entered into a lease for warehouse space in North Carolina to store and operate tobacco leaf processing equipment, to store the Company’s proprietary tobacco leaf and to store inventory used in the Company’s contract manufacturing business. The lease calls for a monthly payment of $4,665, expires on August 14, 2019, and contains twelve-month renewal options if the Company continues to lease the warehouse under its current terms. On May 1, 2016, the Company entered into a sublease for laboratory space in Buffalo, New York. After a series of sublease amendments that increased the subleased laboratory space and monthly sublease payment, on February 21, 2018 the Company entered into a new sublease amendment that further increased the lab space, extended the sublease term through June 30, 2019 and called for a monthly sublease payment of $5,706 beginning on March 1, 2018. On June 21, 2019, the Company entered into a temporary lease extension through August 31, 2019. The lease expense for the three and six months ended June 30, 2019 amounted to approximately $17,000 and $34,000, respectively ($11,000 and $17,000 for three and six months ended June 30, 2018, respectively). The Company is currently in discussions with the lessors of the above two leases for these facilities to amend the leases. Any new leases that may result from these discussions will be evaluated under the new lease guidance. |
INVESTMENT
INVESTMENT | 6 Months Ended |
Jun. 30, 2019 | |
INVESTMENT | |
INVESTMENT | NOTE 4. – INVESTMENT The Company (through its wholly-owned subsidiary, Botanical Genetics) held an equity investment in Anandia Laboratories, Inc. (“Anandia”), a Canadian plant biotechnology company. On August 8, 2018, all of Anandia’s outstanding common stock was acquired by Aurora Cannabis, Inc. (“Aurora”), a Canadian company (TSX: ACB.TO), and as a result the Company received in exchange for its Anandia equity: (i) 1,947,943 free trading shares of Aurora common stock, and (ii) a stock warrant to purchase 973,971 shares of Aurora common stock. The Company sold all the shares of Aurora common stock during the third quarter of 2018, but still retains ownership of the stock warrant to purchase 973,971 shares of Aurora common stock as of June 30, 2019. The stock warrant has a five-year contractual term, an exercise price of $9.37 per share (Canadian Dollars; approximately $7.13 per share U.S. Dollars at June 30, 2019), is currently exercisable, is considered an equity security, and is recorded at fair value (Level 3 of the valuation hierarchy). The Company recorded the fair value of the Aurora common stock warrant of $4,641,946 and $3,092,358 at June 30, 2019 and December 31, 2018, respectively, using the Black-Scholes pricing model and was classified within Other assets on the Company’s Consolidated Balance Sheets. The Company recorded an unrealized (loss) gain, the adjustment to fair value, in the amount of ($1,423,945) and $1,549,588 for the three and six months ended June 30, 2019, respectively. Effective January 1, 2018, the Company adopted Financial Accounting Standards Board ASU 2016‑01, Financial Instruments – Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance changed how entities account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting. Under ASU 2016‑01, the Company is required to measure its investment in Anandia at fair value at the end of each reporting period and recognize changes in fair value in net income. As allowed by ASU 2016‑01, since the Company’s investment in Anandia did not have readily determinable fair value, the Company elected to account for its investment at cost. The cost basis is required to be adjusted in the event of impairment, if any, and for any observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Accordingly, and as a result of, an equity issuance in January of 2018 by Anandia that was considered an orderly transaction, the Company recorded an unrealized gain on its investment in Anandia in the amount of $6,147,088 during the first quarter of 2018. There were no further changes in the fair value of the Company’s equity investment in Anandia through the acquisition of Anandia by Aurora on August 8, 2018, as discussed above. |
FAIR VALUE MEASUREMENTS AND SHO
FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS | 6 Months Ended |
Jun. 30, 2019 | |
FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS | |
FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS | NOTE 5. – FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS FASB ASC 820 - “Fair Value Measurements and Disclosures” establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: · Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; · Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and · Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset’s or a financial liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The following table presents information about our assets and liabilities measured at fair value at June 30, 2019 and December 31, 2018, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value: Asset and Liabilities at Fair Value As of June 30, 2019 Level 1 Level 2 Level 3 Total Assets Short-term investment securities: Money market funds $ 18,481,361 $ — $ — $ 18,481,361 Corporate bonds — 22,975,620 — 22,975,620 U.S. treasury securities — 1,991,563 — 1,991,563 U.S. government agency bonds — 2,647,138 — 2,647,138 Total short-term investment securities $ 18,481,361 $ 27,614,321 $ — $ 46,095,682 Investment: Stock warrant $ — $ — $ 4,641,946 $ 4,641,946 Asset and Liabilities at Fair Value As of December 31, 2018 Level 1 Level 2 Level 3 Total Assets Short-term investment securities: Money market funds $ 10,083,972 $ — $ — $ 10,083,972 Corporate bonds — 38,579,055 — 38,579,055 U.S. treasury securities — 2,970,900 — 2,970,900 U.S. government agency bonds — 4,115,012 — 4,115,012 Total short-term investment securities $ 10,083,972 $ 45,664,967 $ — $ 55,748,939 Investment: Stock warrant $ — $ — $ 3,092,358 $ 3,092,358 Money market mutual funds are valued at their daily closing price as reported by the fund. Money market mutual funds held by the Company are open-end mutual funds that are registered with the SEC that generally transact at a stable $1.00 Net Asset Value (“NAV”) representing its estimated fair value. On a daily basis the fund’s NAV is determined by the fund based on the amortized cost of the funds underlying investments. U.S. government agency bonds, U.S. treasury securities, and corporate bonds are valued using pricing models maximizing the use of observable inputs for similar securities. The investment in the Aurora stock warrant is measured at fair value using the Black-Scholes pricing model and is classified within Level 3 of the valuation hierarchy. The unobservable input is an estimated volatility factor of 79% and 92% at June 30, 2019 and December 31, 2018, respectively. A 20% increase or decrease in the volatility factor used at June 30, 2019 would have the impact of increasing or decreasing the fair value measurement of the stock warrants by approximately $645,000. The following table sets forth a summary of the changes in fair value of the Company’s stock warrant (Level 3 asset) since December 31, 2017: Fair value at December 31, 2017 $ — Fair value of stock warrants acquired on August 8, 2018 2,807,958 Unrealized gain as a result of change in fair value 284,400 Fair value at December 31, 2018 3,092,358 Unrealized gain as a result of change in fair value first quarter 2019 2,973,533 Fair value at March 31, 2019 6,065,891 Unrealized loss as a result of change in fair value second quarter 2019 (1,423,945) Fair value at June 30, 2019 $ 4,641,946 The following tables sets forth a summary of the Company’s available-for-sale securities in its short-term investment account from amortized cost basis to fair value at June 30, 2019 and December 31, 2018: Available-for-Sale Securities – June 30, 2019 Amortized Gross Gross Cost Unrealized Unrealized Fair Basis Gains Losses Value Corporate bonds $ 22,831,039 $ 164,899 $ (20,318) $ 22,975,620 U.S. treasury securities 1,967,032 24,531 — 1,991,563 U.S. government agency bonds 2,614,471 32,667 — 2,647,138 $ 27,412,542 $ 222,097 $ (20,318) $ 27,614,321 Available-for-Sale Securities – December 31, 2018 Amortized Gross Gross Cost Unrealized Unrealized Fair Basis Gains Losses Value Corporate bonds $ 38,579,541 $ 48,796 $ (49,282) $ 38,579,055 U.S. treasury securities 2,959,063 11,837 — 2,970,900 U.S. government agency bonds 4,099,321 15,691 — 4,115,012 $ 45,637,925 $ 76,324 $ (49,282) $ 45,664,967 The following table sets forth a summary of the Company’s available-for-sale securities in its short-term investment account for amortized cost basis and fair value by contractual maturity at June 30, 2019 and December 31, 2018: Available-for-Sale Securities Available-for-Sale Securities June 30, 2019 December 31, 2018 Amortized Amortized Cost Basis Fair Value Cost Basis Fair Value Due in one year or less $ 24,185,663 $ 24,338,478 $ 43,050,306 $ 43,082,677 Due after one year through two years 3,226,879 3,275,843 2,587,619 2,582,290 $ 27,412,542 $ 27,614,321 $ 45,637,925 $ 45,664,967 |
NOTES PAYABLE FOR LICENSE FEE
NOTES PAYABLE FOR LICENSE FEE | 6 Months Ended |
Jun. 30, 2019 | |
NOTES PAYABLE FOR LICENSE FEE | |
NOTES PAYABLE FOR LICENSE FEE | NOTE 6. – NOTES PAYABLE FOR LICENSE FEE On June 22, 2018, the Company entered into the Second Amendment to the License Agreement (the “Second Amendment”) with North Carolina State University (“NCSU”) that amended an original License Agreement between the Company and NCSU, dated December 8, 2015, and the First Amendment, dated February 14, 2018, to the original License Agreement. Under the terms of the Second Amendment, the Company is obligated to pay NCSU milestone payments totaling $1,200,000, of which amount $500,000 was payable upon execution of the Second Amendment, $400,000 was payable on the first anniversary of the execution of the Second Amendment, and $300,000 will be payable on the second anniversary of the execution of the Second Amendment. The Company has recorded the present value of the obligations under the Second Amendment as a note payable that originally amounted to $1,175,226. The cost of the of acquired license amounted to $1,175,226 and is included in Intangible assets, net on the Company’s Consolidated Balance Sheets, and will be amortized on a straight-line basis over the last-to-expire patent, which is expected to be in 2036. On October 22, 2018, the Company entered into a License Agreement with the University of Kentucky. Under the terms of the License Agreement, the Company is obligated to pay the University of Kentucky milestone payments totaling $1,200,000, of which amount $300,000 was payable upon execution, and $300,000 will be payable annually over the next three years on the anniversary of the execution of the License Agreement. The Company has recorded the present value of the obligations under the License Agreement as a note payable that originally amounted to $1,151,201. The cost of the of acquired licenses amounted to $1,151,201 and is included in Intangible assets, net on the Company’s Consolidated Balance Sheets, and will be amortized on a straight-line basis over the last-to-expire patent, which is expected to be in 2033. After the accretion of interest during the three and six months ended June 30, 2019 in the amount of $9,891 and $20,552, respectively, the balance remaining on these two notes payable as of June 30, 2019 amounted to $1,157,886, with $598,431 and $559,485 reported as current and long-term, respectively, on the Company’s Consolidated Balance Sheets (notes payable balance of $1,537,365 as of December 31, 2018, with $689,148 and $848,217 reported as current and long-term, respectively). |
WARRANTS FOR COMMON STOCK
WARRANTS FOR COMMON STOCK | 6 Months Ended |
Jun. 30, 2019 | |
WARRANTS FOR COMMON STOCK | |
WARRANTS FOR COMMON STOCK | NOTE 7. - WARRANTS FOR COMMON STOCK At June 30, 2019, the Company had outstanding warrants to purchase 11,293,211 shares of common stock of the Company with an exercise price of $2.15 per share and an expiration date of December 20, 2022. The Company’s outstanding warrants at June 30, 2019 do not include anti-dilution features and therefore are not considered derivative instruments and do not have an associated warrant liability. The following table summarizes the Company’s warrant activity since December 31, 2017: Number of Warrants Warrants outstanding at December 31, 2017 12,088,080 Warrants exercised during 2018 (794,869) Warrants outstanding at June 30, 2019 and December 31, 2018 11,293,211 There were no warrants issued or exercised in the first half of 2019. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2019 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | NOTE 8. - COMMITMENTS AND CONTINGENCIES License agreements and sponsored research – The Company has entered into various license agreements and sponsored research and development agreements. The costs associated with the following three agreements are initially recorded as a Prepaid expense on the Company’s Consolidated Balance Sheets and subsequently expensed on a straight-line basis over the applicable period and included in Research and development costs on the Company’s Consolidated Statements of Operations and Comprehensive Loss. The amounts expensed during the three and six months ended June 30, 2019 were $66,363 and $152,952, respectively ($83,838 and $221,070 for three and six months ended June 30, 2018, respectively). Under its exclusive worldwide license agreement with North Carolina State University (“NCSU”), the Company is required to pay minimum annual royalty payments, which are credited against running royalties on sales of licensed products. The minimum annual royalty is $225,000. The license agreement continues through the life of the last-to-expire patent, which is expected to be 2022. The license agreement also requires a milestone payment of $150,000 upon FDA approval or clearance of a product that uses the NCSU licensed technology. The Company is also responsible for reimbursing NCSU for actual third-party patent costs incurred. These costs vary from year to year and the Company has certain rights to direct the activities that result in these costs. During the three and six months ended June 30, 2019, the aggregate costs incurred related to capitalized patent costs and patent maintenance expense amounted to $5,424 and $9,981, respectively ($4,845 and $34,107 for the three and six months ended June 30, 2018, respectively). On December 8, 2015, the Company entered into an additional license agreement (the “License”) with NCSU. Under the terms of the License, the Company paid NCSU a non-refundable, non-creditable lump sum license fee of $150,000. The License calls for the Company to pay NCSU a non-refundable, non-creditable minimum annual royalty in the amount of $15,000 in 2019, $25,000 in 2020 and 2021, and $50,000 per year thereafter for the remaining term of the License. The Company is also responsible for reimbursing NCSU for actual third-party patent costs incurred. During the three and six months ended June 30, 2019, the aggregate costs incurred related to capitalized patent costs and patent maintenance expense amounted to $6,644 and $10,899, respectively ($79 and $79 for the three and six months ended June 30, 2018, respectively). This License continues through the life of the last-to-expire patent, expected to be in 2036. On February 10, 2014, the Company entered into a sponsored research and development agreement (the “Agreement”) with NCSU. In February 2018, the Company finalized an additional extension to this Agreement through April 30, 2018 at a cost of $88,344. In May 2018, the Company finalized an additional extension to this Agreement through April 30, 2019 at a total cost of $121,357. During the three and six months ended June 30, 2019 the Company expensed $10,113 and $40,452, respectively, under this Agreement ($27,588 and $108,570 for the three and six months ended June 30, 2018, respectively). Other license agreements - Additionally, the Company has entered into the following five license agreements and the costs associated with these license agreements are included in Intangible assets, net in the Company’s Consolidated Balance Sheets and the applicable license fees will be amortized over the term of the agreements based on their last-to-expire patent date. Amortization amounted to $59,547 and $119,094 for the three and six months ended June 30, 2019, respectively, ($24,506 and $49,011 for three and six months ended June 30, 2018, respectively) and was included in Amortization expense on the Company’s Consolidated Statements of Operations and Comprehensive Loss. On October 22, 2018, the Company entered into a License Agreement (the “License”) with the University of Kentucky. Under the terms of the License, the Company is obligated to pay the University of Kentucky a non-refundable, non-creditable license fee of $1,200,000. The license fee is payable in accordance with a note payable more fully described in Note 6 – Notes Payable for License Fee. The present value of the payments in the amount of $1,151,201 are included in Intangible assets, net on the Company’s Consolidated Balance Sheets, and will be amortized on a straight-line basis over the last-to-expire patent, which is expected to be in 2033. On June 22, 2018, the Company entered into the Second Amendment to the License Agreement (the “Second Amendment”) with NCSU that amended an original License Agreement between the Company and NCSU, dated December 8, 2015. Under the terms of the Second Amendment, the Company is obligated to pay NCSU a non-refundable, non-creditable license fee of $1,200,000. The license fee is payable in accordance with a note payable more fully described in Note 6 – Notes Payable for License Fee. The present value of the payments in the amount of $1,175,226 are included in Intangible assets, net on the Company’s Consolidated Balance Sheets, and will be amortized on a straight-line basis over the last-to-expire patent, which is expected to be in 2036. On August 22, 2014, the Company entered into a Commercial License Agreement with Precision PlantSciences, Inc. (the “Precision License”). The Precision License grants the Company a non-exclusive, but fully paid up right and license to use technology and materials owned by Precision PlantSciences for a license fee of $1,250,000. The Precision License continues through the life of the last-to-expire patent, which is expected to be in 2028. On August 27, 2014, the Company entered into an additional exclusive License Agreement (the “License Agreement”) with NCSU. Under the License Agreement, the Company paid NCSU a non-refundable, non-creditable lump sum license fee of $125,000, and the Company must pay to NCSU an additional non-refundable, non-creditable lump sum fee of $75,000 upon issuance of a U.S. utility patent included in the patent rights. The Company is obligated to pay to NCSU an annual minimum royalty fee of $30,000 in 2019 and $50,000 per year thereafter for the remaining term of the License Agreement. The Company is also responsible for reimbursing NCSU for actual third-party patent costs incurred. During the three and six months ended June 30, 2019, the aggregate costs incurred related to capitalized patent costs and patent maintenance expense amounted to $4,854 and $12,530, respectively ($4,995 and $9,465 for three and six months ended June 30, 2018, respectively). The License Agreement continues through the life of the last-to-expire patent, which is expected to be in 2034. On September 15, 2014, the Company entered into a Sublicense Agreement with Anandia Laboratories, Inc. (the “Anandia Sublicense”). Under the terms of the Anandia Sublicense, the Company was granted an exclusive sublicense in the United States and a co-exclusive sublicense in the remainder of the world, excluding Canada, to the licensed intellectual property. The Anandia Sublicense required an up-front fee of $75,000, an annual license fee of $10,000, the payment of patent filing and maintenance costs, a running royalty on future net sales of products made from such sublicensed intellectual property, and a sharing of future sublicensing consideration received from sublicensing to third-parties such sublicensed intellectual property. The Anandia Sublicense continues through the life of the last-to-expire patent, which is expected to be in 2035. As discussed in Note 4, Anandia was purchased by Aurora on August 8, 2018 and has become a wholly-owned subsidiary of Aurora. The Anandia Sublicense is still in effect. Other research agreements - Further, the Company has entered into the following three agreements relating to sponsored research. Costs associated with these agreements are expensed when incurred in Research and development costs on the Company’s Consolidated Statements of Operations and Comprehensive Loss. On September 28, 2015, the Company’s wholly-owned subsidiary, Botanical Genetics, entered into a Sponsored Research Agreement (the “Agreement”) with Anandia Laboratories Inc. (“Anandia”). Pursuant to the Agreement, Anandia conducted research on behalf of the Company relating to the hemp/cannabis plant. During the three and six months ended June 30, 2019, no expenses related to the Agreement were incurred ($0 and $130,850 for three and six months ended June 30, 2018, respectively). Under the terms of the Agreement, the Company will have co-exclusive worldwide rights with Anandia to all the intellectual property resulting from the sponsored research between the Company and Anandia. The party that commercializes such intellectual property in the future will pay royalties in varying amounts to the other party, with the amount of such royalties being dependent upon the type of products that are commercialized in the future. If either party sublicenses such intellectual property to a third-party, then the Company and Anandia will share equally in such sublicensing consideration. As discussed in Note 4, Anandia was purchased by Aurora on August 8, 2018 and has become a wholly-owned subsidiary of Aurora. In December 2016, the Company entered into a new sponsored research agreement with the University of Virginia (“UVA”) and an exclusive license agreement with the University of Virginia Patent Foundation d/b/a University of Virginia Licensing & Ventures Group (“UVA LVG”) pursuant to which the Company will invest approximately $1,000,000 over a three-year period with UVA to create unique industrial hemp plants with guaranteed levels of THC below the legal limits and optimize other desirable hemp plant characteristics to improve the plant’s suitability for growing in Virginia and other legacy tobacco regions of the United States. This work with UVA will also involve the development and study of medically important cannabinoids to be extracted by UVA from the Company’s hemp plants. UVA and the Company will conduct all activities in this scientific collaboration within the parameters of state and federal licenses and permits held by UVA for such work. The agreements with UVA and UVA LVG grant the Company exclusive rights to commercialize all results of the collaboration in consideration of royalty payments by the Company to UVA LVG. During the three and six months ended June 30, 2019, expenses related to the agreements amounted to $55,825 and $130,359, respectively ($76,211 and $180,178 for three and six months ended June 30, 2018, respectively). On May 1, 2018, the Company entered into a University Growing and Evaluation Agreement (the “Agreement”) with the University of Kentucky Research Foundation (“UKRF”) whereby UKRF will provide the Company with services relating to growing certain tobacco breeding lines of the Company. Under the Agreement, the Company is obligated to pay $75,000 to UKRF in three installments of $25,000 each through January 31, 2019. During the three and six months ended June 30, 2019, expenses related to the Agreement amounted to $25,000 and $25,000, respectively ($0 and $25,000 for three and six months ended June 30, 2018, respectively). On February 1, 2019, the Company entered into a Master Collaboration and Research Agreement (the “Agreement”) with a Natural Good Medicines, LLC (“NGM”), the owners of certain hemp and cannabis plant lines (the “NGM Material”). The Agreement calls for NGM to cultivate, grow and process a certain amount of the NGM Material with the financial support of the Company. NGM has granted the Company certain exclusive rights to the hemp and cannabis plant lines of NGM. Additionally, three (3) years from the effective date of the Agreement, NGM and the Company will mutually share in the proceeds from the sale of non-propagating parts of the NGM Material. The Company’s total financial commitment under the Agreement is $403,000 which has been included in Research and development expenses on the Company’s Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2019. On April 3, 2019, the Company entered into a Framework Collaborative Research Agreement (the "Agreement") with KeyGene N.V. ("KeyGene") under which KeyGene has agreed to work exclusively with the Company with respect to the Cannabis Sativa L . plant and all uses thereof (the "Field"). The initial term is for five (5) years with an option for an additional two (2) years in consideration of the Company paying KeyGene an aggregate of Six Million United States Dollars ($6,000,000) over the initial term of the Agreement. A minimum of $1,200,000 will be paid annually during the initial term of the Agreement with a portion of such amount being paid based on KeyGene achieving certain milestone deliverables for the Company. The Company will exclusively own all results and all intellectual property relating to the results from this collaboration with KeyGene ("Results"). The Company will pay royalties in varying amounts to KeyGene relating to the Company's commercialization in the Field of certain Results. The Company has granted KeyGene a license to commercialize the Results outside of the Field and KeyGene will pay royalties in varying amounts to the Company relating to KeyGene's commercialization outside of the Field of the Results. The Agreement also includes customary termination provisions for both KeyGene and the Company as well as representations, warranties, and covenants by the parties that are customary for a transaction of this nature. During the second quarter of 2019, expenses related to the agreement amounted to approximately $315,000. Modified Risk Tobacco Product Application (“MRTP Application”) – In connection with the Company’s MRTP Application for its Brand A Very Low Nicotine Content (“VLNC”) cigarettes with the FDA, the Company has entered in various contracts with third-party service providers to fulfill various requirements of the MRTP Application. Such contracts include services for clinical trials, perception studies, legal guidance, product testing, and consulting expertise. During the three and six months ended June 30, 2019, the Company incurred expenses relating to these contracts in the approximate amount of $313,000 and $1,524,000, respectively ($2,725,000 and $4,021,000 for three and six months ended June 30, 2018, respectively). The Company will continue to incur consulting and legal expenses as the MRTP Application continues through the FDA review process. The Company cannot currently quantify the additional expenses that the Company will incur in the FDA review process because it will involve various factors that are within the discretion and control of the FDA. Litigation - In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. When a loss contingency related to a litigation or regulatory matter is deemed to be both probable and estimable, the Company will establish an accrued liability with respect to such loss contingency and record a corresponding amount of related expenses. The Company will then continue to monitor the matter for further developments that could affect the amount of any such accrued liability. Crede Settlement On June 19, 2019, the Company, Crede CG III, LTD. (“Crede”) and Terren Peizer (“Peizer”) participated in a settlement conference meeting as required by the United States District Court for the Southern District of New York (the “SDNY Court”) entitled Crede CG III, LTD. v. 22nd Century Group, Inc . Subsequently, the Company, Crede and Peizer entered into a settlement agreement that settled this case, with the effective date of the settlement agreement being on July 22, 2019. Under the terms of the settlement agreement: (i) the Company issued to Crede on July 25, 2019 an aggregate of Nine Hundred Ninety Thousand (990,000) shares of common stock of the Company in full satisfaction of the cashless exchange of the Tranche 1A warrant and in settlement of all disputes between Crede, Peizer and the Company; (ii) Crede granted a proxy to the Company for a period of five (5) years for the Company to vote all of the shares of common stock of the Company owned by Crede in favor of the recommendations by the Company's Board of Directors (excluding any extraordinary transactions); (iii) Crede agreed to not purchase, borrow or short any securities of the Company; and (iv) the Company, Crede and Peizer agreed to mutual releases of all claims between the parties and the dismissal of all the litigation claims and counterclaims with prejudice. The Company accrued an expense related to the settlement of this case during the second quarter of 2019 in the amount of $1,890,900, which is equal to the fair value of the 990,000 shares of Company common stock on July 22, 2019. Class Action Cases On January 21, 2019, Matthew Jackson Bull, a resident of Denver, Colorado, filed a Complaint against the Company, the Company’s Chief Executive Officer, Henry Sicignano III, and the Company’s Chief Financial Officer, John T. Brodfuehrer, in the United States District Court for the Eastern District of New York entitled: Matthew Bull, Individually and on behalf of all others similarly situated, v. 22nd Century Group, Inc., Henry Sicignano III, and John T. Brodfuehrer , Case No. 1:19‑cv‑00409 . The Complaint alleges that Plaintiff Mr. Bull purchased shares of the Company’s common stock. Mr. Bull sues individually and seeks to bring a class action for persons or entities who acquired the Company’s common stock between February 18, 2016 and October 25, 2018, and alleges in Count I that the Company’s Annual Reports on Form 10‑K for the years 2015, 2016 and 2017 allegedly contained false statements in violation of Section 10(b) of the Securities Exchange Act and Rule 10b‑5 promulgated thereunder, and alleges in Count II that Messrs. Sicignano and Brodfuehrer are liable for the allegedly false statements pursuant to Section 20(a) of the Securities Exchange Act. The Complaint seeks declaratory relief, unspecified money damages, and attorney’s fees and costs. We believe that the claims are frivolous, meritless and that the Company and Messrs. Sicignano and Brodfuehrer have substantial legal and factual defenses to the claims. We intend to vigorously defend the Company and Messrs. Sicignano and Brodfuehrer against such claims. On January 29, 2019, Ian M. Fitch, a resident of Essex County Massachusetts, filed a Complaint against the Company, the Company’s Chief Executive Officer, Henry Sicignano III, and the Company’s Chief Financial Officer, John T. Brodfuehrer, in the United States District Court for the Eastern District of New York entitled: Ian Finch, Individually and on behalf of all others similarly situated, v. 22nd Century Group, Inc., Henry Sicignano III, and John T. Brodfuehrer , Case No. 2:19‑cv‑00553 . The Complaint filing alleges that the Plaintiff Mr. Fitch purchased shares of the Company’s common stock. Mr. Fitch sues individually and seeks to bring a class action for persons or entities who acquired the Company’s common stock between February 18, 2016 and October 25, 2018, and alleges in Count I that the Company’s Annual Reports on Form 10‑K for the years 2015, 2016 and 2017 allegedly contained false statements in violation of Section 10(b) of the Securities Exchange Act and Rule 10b‑5 promulgated thereunder, and alleges in Count II that Messrs. Sicignano and Brodfuehrer are liable for the allegedly false statements pursuant to Section 20(a) of the Securities Exchange Act. The Complaint seeks declaratory relief, unspecified money damages, and attorney’s fees and costs. On March 25, 2019, Plaintiffs’ counsel in the Fitch litigation filed a motion in both actions: (1) proposing Joseph Noto, Garden State Tire Corp, and Stephens Johnson for Mr. Fitch as purportedly representative plaintiffs, (2) moving to consolidate the Fitch litigation with the Bull litigation, and (3) seeking to be appointed as lead counsel in the consolidated action. Plaintiffs’ counsel in the Bull litigation filed and then withdrew a comparable motion seeking to consolidate the cases and be appointed as lead counsel. On May 28, 2019, plaintiff in the Fitch case voluntarily dismissed that action. The motion to designate Joseph Noto, Garden State Tire Corp, and Stephens Johnson as lead plaintiffs remains pending. We believe that the claims are frivolous, meritless and that the Company and Messrs. Sicignano and Brodfuehrer have substantial legal and factual defenses to the claims. We intend to vigorously defend the Company and Messrs. Sicignano and Brodfuehrer against such claims. Shareholder Derivative Cases On February 6, 2019, Melvyn Klein, a resident of Nassau County New York, filed a shareholder derivative claim against the Company, the Company’s Chief Executive Officer, Henry Sicignano III, the Company’s Chief Financial Officer, John T. Brodfuehrer, and each member of the Company’s Board of Directors in the United States District Court for the Eastern District of New York entitled: Melvyn Klein, derivatively on behalf of 22nd Century Group v. Henry Sicignano, III, Richard M. Sanders, Joseph Alexander Dunn, Nora B. Sullivan, James W. Cornell, John T. Brodfuehrer and 22nd Century Group, Inc ., Case No. 1:19‑cv‑00748 . Mr. Klein brings this action derivatively alleging that (i) the director defendants supposedly breached their fiduciary duties for allegedly allowing the Company to make false statements; (ii) the director defendants supposedly wasted corporate assets to defend this lawsuit and the other related lawsuits; (iii) the defendants allegedly violated Section 10(b) of the Securities Exchange Act and Rule 10b‑5 promulgated thereunder for allegedly approving or allowing false statements regarding the Company to be made; and (iv) the director defendants allegedly violated Section 14(a) of the Securities Exchange Act and Rule 14a‑9 promulgated thereunder for allegedly approving or allowing false statements regarding the Company to be made in the Company’s proxy statement. The Complaint seeks declaratory relief, unspecified monetary damages, corrective corporate governance actions, and attorney’s fees and costs. We believe that the claims are frivolous, meritless and that the Company and the individual defendants have substantial legal and factual defenses to the claims. We intend to vigorously defend the Company and the individual defendants against such claims. On April 11, 2019, pursuant to a stipulation from the parties, the Court ordered this litigation stayed and transferred the stayed action to the Western District of New York. On July 30, 2019, the parties filed a joint stipulation and proposed order to consolidate this litigation with the below-referenced Mathew litigation. On February 11, 2019, Stephen Mathew filed a shareholder derivative claim against the Company, the Company’s Chief Executive Officer, Henry Sicignano III, the Company’s Chief Financial Officer, John T. Brodfuehrer, and each member of the Company’s Board of Directors in the Supreme Court of the State of New York, County of Erie, entitled: Stephen Mathew, derivatively on behalf of 22nd Century Group, Inc. v. Henry Sicignano, III, John T. Brodfuehrer, Richard M. Sanders, Joseph Alexander Dunn, James W. Cornell, Nora B. Sullivan and 22nd Century Group, Inc., Index No. 801786/2019 . Mr. Mathew brings this action derivatively alleging that (i) the director defendants supposedly breached their fiduciary duties by allegedly allowing the Company to make false statements; (ii) the director defendants were allegedly unjustly enriched by allegedly benefitting from allegedly allowing the Company to make false statements; (iii) the defendants supposedly wasted corporate assets to defend this lawsuit and the other related lawsuits; (iv) the individual defendants allegedly abused their ability to control and influence the Company; and (v) the individual defendants allegedly engaged in gross mismanagement. The Complaint seeks declaratory relief, unspecified monetary damages, corrective corporate governance actions, and attorney’s fees and costs. We believe that the claims are frivolous, meritless and that the Company and the individual defendants have substantial legal and factual defenses to the claims. We intend to vigorously defend the Company and the individual defendants against such claims. On April 12, 2019, the parties jointly filed a Stipulated Notice of Removal in United States District Court for the Western District of New York. On the same date, the parties also filed a joint stipulation staying the litigation. On April 23, 2019, the parties jointly filed an Amended Stipulated Notice of Removal in the Western District of New York. On May 3, 2019, pursuant to a stipulation from the parties, the Court ordered this litigation stayed. On June 10, 2019, Judy Rowley filed a shareholder derivative claim against the Company, the Company’s Chief Executive Officer, Henry Sicignano III, the Company’s Chief Financial Officer, John T. Brodfuehrer, and each member of the Company’s Board of Directors in the Supreme Court of the State of New York, County of Erie, entitled: Judy Rowley, derivatively on behalf of 22nd Century Group, Inc. v. Henry Sicignano, III, Richard M. Sanders, Joseph Alexander Dunn, Nora B. Sullivan, James W. Cornell, John T. Brodfuehrer, and 22nd Century Group, Inc. , Index No. 807214/2019 . Ms. Rowley brings this action derivatively alleging that the director defendants supposedly breached their fiduciary duties by allegedly allowing the Company to make false statements. The Complaint seeks declaratory relief, unspecified monetary damages, corrective corporate governance actions, and attorney’s fees and costs. We believe that the claims are frivolous, meritless and that the Company and the individual defendants have substantial legal and factual defenses to the claims. We intend to vigorously defend the Company and the individual defendants against such claims. On July 30, 2019, the parties filed a joint stipulation to accept service of the Complaint and to stay the litigation. Shareholder Derivative Demand On February 19, 2019, the Company received a demand letter from attorneys representing Van McClendon, a shareholder of the Company, in which Mr. McClendon demanded that the Company’s Board of Directors take action to pursue certain purported causes of action on behalf of the Company to remedy alleged breaches of fiduciary duties by each of the members of the Company’s Board of Directors, the Company’s Chief Executive Officer, Henry Sicignano III, and the Company’s Chief Financial Officer, John T. Brodfuehrer. On February 28, 2019, the Board appointed a Special Committee of independent directors and instructed the Committee to assess whether pursuing the claims detailed in the demand letter would be in the best interests of the Company. On May 7, 2019, after Mr. McClendon sold his shares, the Company received a similar demand letter from attorneys representing Jeremy Houck, a shareholder of the Company. |
LOSS PER COMMON SHARE
LOSS PER COMMON SHARE | 6 Months Ended |
Jun. 30, 2019 | |
LOSS PER COMMON SHARE | |
LOSS PER COMMON SHARE | NOTE 9. - LOSS PER COMMON SHARE The following table sets forth the computation of basic and diluted loss per common share for the three-month periods ended June 30, 2019 and 2018, respectively: June 30, June 30, 2019 2018 Net loss attributed to common shareholders $ (8,041,682) $ (6,738,652) Denominator for basic loss per share-weighted average shares outstanding 124,661,991 124,311,087 Effect of dilutive securities: Warrants, restricted stock units and options outstanding — — Denominator for diluted loss per common share-weighted average shares adjusted for dilutive securities 124,661,991 124,311,087 Net loss per common share – basic and diluted $ (0.06) $ (0.05) The following table sets forth the computation of basic and diluted loss per common share for the six-month periods ended June 30, 2019 and 2018, respectively: June 30, June 30, 2019 2018 Net loss attributed to common shareholders $ (10,114,395) $ (5,352,164) Denominator for basic loss per share-weighted average shares outstanding 124,653,403 124,166,321 Effect of dilutive securities: Warrants, restricted stock units and options outstanding — — Denominator for diluted loss per common share-weighted average shares adjusted for dilutive securities 124,653,403 124,166,321 Net loss per common share – basic and diluted $ (0.08) $ (0.04) Dilutive securities outstanding at June 30, 2019 and 2018, respectively, are presented below. Securities outstanding at June 30, 2019 were excluded from the computation of loss per share because they would have been anti-dilutive. June 30, June 30, 2019 2018 Warrants 11,293,211 11,387,932 Options 7,702,795 8,756,560 Restricted stock units 693,000 — 19,689,006 20,144,492 |
EQUITY BASED COMPENSATION
EQUITY BASED COMPENSATION | 6 Months Ended |
Jun. 30, 2019 | |
EQUITY BASED COMPENSATION | |
EQUITY BASED COMPENSATION | NOTE 10. – EQUITY BASED COMPENSATION On April 12, 2014, the stockholders of the Company approved the 22nd Century Group, Inc. 2014 Omnibus Incentive Plan (the “OIP”) and the authorization of 5,000,000 shares to be reserved for issuance thereunder. On April 29, 2017, the stockholders approved an amendment to the OIP to increase the number of shares available for issuance by an additional 5,000,000 shares and on May 3, 2019, the stockholders approved an additional amendment to the OIP to increase the number of shares available for issuance by an additional 5,000,000 shares. The OIP allows for the granting of equity and cash incentive awards to eligible individuals over the life of the OIP, including the issuance of up to an aggregate of 15,000,000 shares of the Company’s common stock pursuant to awards under the OIP. The OIP has a term of ten years and is administered by the Compensation Committee of the Company’s Board of Directors to determine the various types of incentive awards that may be granted to recipients under the OIP and the number of shares of common stock to underlie each such award under the OIP. As of June 30, 2019, the Company had available 6,815,115 shares remaining for future awards under the OIP. During the six months ended June 30, 2019, the Company issued awards for restricted stock units from the OIP for 693,000 shares to eligible individuals, with such restricted stock unit awards having vesting periods ranging from nine months to three years. During the six months ended June 30, 2018, the Company issued stock option awards from the OIP for 1,131,841 shares to eligible individuals, with such stock option awards having vesting periods ranging from one to three years, and stock options issued to acquire 300,000 shares of Company common stock were scheduled to vest upon the attainment of various milestones. All restricted stock units are valued based on the stock price of the Company’s common stock on the date of the award and all stock option awards were valued using the Black-Scholes option-pricing model on the date of the award. For the three and six months ended June 30, 2019, the Company recorded compensation expense related to restricted stock unit and stock option awards granted under the OIP of $516,752 and $965,656, respectively (stock option awards granted under the OIP of $1,682,228 and $2,246,104 for three and six months ended June 30, 2018, respectively). As of June 30, 2019, unrecognized compensation expense related to non-vested stock options amounted to approximately $3,756,000, which is expected to be recognized as follows: approximately $980,000, $1,217,000, $517,000 and $61,000 during 2019, 2020, 2021 and 2022, respectively. Approximately $981,000 of the unrecognized compensation expense relates to previously issued stock options, with the vesting of such stock options being based on the achievement of a certain milestones. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used for the six months ended June 30, 2019 and 2018: 2019 2018 Risk-free interest rate (weighted average) n/a 2.97 % Expected dividend yield n/a 0 % Expected stock price volatility n/a 90 % Expected life of options (weighted average) n/a years The Company estimated the expected volatility based on data used by a peer group of public companies. The expected term was estimated using the contract life of the option. The risk-free interest rate assumption was determined using yield of the equivalent U.S. Treasury bonds over the expected term. The Company has never paid any cash dividends and does not anticipate paying any cash dividends in the foreseeable future. Therefore, the Company assumed an expected dividend yield of zero. A summary of all stock option activity since December 31, 2017 is as follows: Weighted Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Options Price Term Value Outstanding at December 31, 2017 8,156,691 $ 1.28 Granted in 2018 1,631,841 $ 2.64 Exercised in 2018 (612,259) $ 0.87 Expired / cancelled in 2018 (504,191) $ 1.71 Outstanding at December 31, 2018 8,672,082 $ 1.54 Exercised in 2019 (59,787) $ 0.95 Forfeited in 2019 (909,500) $ 2.13 Outstanding at June 30, 2019 7,702,795 $ 1.47 5.9 years $ 5,863,646 Exercisable at June 30, 2019 5,126,054 $ 1.37 5.1 years $ 4,261,710 The weighted average grant date fair value of stock options issued during the six months ended June 30, 2018 was $1.80. There were no stock options issued during the six months ended June 30, 2019. The total fair value of options that vested during the six months ended June 30, 2019 and 2018 amounted to $1,182,549 and $2,306,867, respectively. There were 59,787 options exercised on a cashless basis during the six months ended June 30, 2019 resulting in the issuance of 31,343 shares of the Company’s common stock. There were 327,781 options exercised on a cash and cashless basis during the six months ended June 30, 2018 resulting in the issuance of 315,540 shares of the Company’s common stock and provided proceeds to the Company of $217,500 from such stock option exercises. Stock options to purchase 900,000 shares of the Company common stock were not exercised by Dr. James Swauger’s beneficiaries during the twelve month period following his death and have subsequently been returned to the OIP. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2019 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | NOTE 11. – SUBSEQUENT EVENTS Effective July 22, 2019, the Company settled its outstanding litigation with Crede. See Note 8 for additional information. On July 24, 2019, and effective July 26, 2019, Henry Sicignano III resigned as the President and Chief Executive Officer, and as a member of the Board of Directors, of the Company for personal reasons. In connection with Mr. Sicignano's resignation, the Company and Mr. Sicignano entered into a consulting agreement for Mr. Sicignano to consult with the Company on a variety of corporate matters for $200,000 per year over a term of 42 months and the Company would continue to provide Mr. Sicignano with group health insurance for a period of 42 months. Additionally that all of Mr. Sicignano’s unvested stock options (constituting 297,369 stock options) shall vest immediately and the exercise date of all options shall be the date that is the lessor of (a) 48 months from July 26, 2019 or (b) the latest exercise that are allowable under the option award agreement. Lastly, the Company and Mr. Sicignano entered into a mutual general release and a non-competition agreement. Effective August 3, 2019, the Board of Directors of the Company appointed Clifford B. Fleet as President and Chief Executive Officer of the Company. In addition, Mr. Fleet was appointed to the Company’s Board of Directors as a Class I Director for a term to expire in 2021. Mr. Fleet, age 49, has served as a strategic advisor to the Company since December 2018. Prior to such time, Mr. Fleet served as the President and Chief Executive Officer of Philip Morris USA (“PM USA”) from 2013 to 2017, where he oversaw PM USA and John Middleton, a leading manufacturer of machine-made cigars. Since departing PM USA in 2017, Mr. Fleet has supported numerous businesses and non-profits as a Managing Partner at SIR, a strategic management consultancy based in Richmond, VA. |
NATURE OF BUSINESS AND SUMMAR_2
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2019 | |
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation | Basis of Presentation - The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10‑Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair and non-misleading presentation of the financial statements have been included. Operating results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. These interim consolidated financial statements should be read in conjunction with the December 31, 2018 audited consolidated financial statements and the notes thereto contained in our Annual Report on Form 10‑K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 6, 2019. |
Principles of Consolidation | Principles of Consolidation - The accompanying consolidated financial statements include the accounts of 22nd Century Group, Inc. (“22nd Century Group”), its three wholly-owned subsidiaries, 22nd Century Limited, LLC (“22nd Century Ltd”), NASCO Products, LLC (“NASCO”), and Botanical Genetics, LLC (“Botanical Genetics”), and two wholly-owned subsidiaries of 22nd Century Ltd, Goodrich Tobacco Company, LLC (“Goodrich Tobacco”) and Heracles Pharmaceuticals, LLC (“Heracles Pharma”) (collectively, “the Company”). All intercompany accounts and transactions have been eliminated. |
Nature of Business | Nature of Business - 22nd Century Ltd is a plant biotechnology company specializing in technology that allows (i) for the level of nicotine and other nicotinic alkaloids in tobacco plants to be decreased through genetic engineering and plant breeding and (ii) the levels of cannabinoids in hemp plants to be decreased or increased through genetic engineering and plant breeding. Goodrich Tobacco and Heracles Pharma are business units for the Company’s (i) potential modified risk tobacco products and (ii) potential smoking cessation product, respectively. NASCO is a federally licensed tobacco products manufacturer, a subsequent participating member under the tobacco Master Settlement Agreement (“MSA”) between the tobacco industry and the settling states under the MSA and operates the Company’s tobacco products manufacturing business in North Carolina. Botanical Genetics is a wholly-owned subsidiary of 22nd Century Group and was incorporated to facilitate the original investment in Anandia Laboratories, Inc., more fully described in Note 4, and performs research and development related to the Company’s hemp business. |
Reclassifications | Reclassifications - Certain items in the 2018 financial statements have been reclassified to conform to the 2019 classification. |
Preferred stock authorized | Preferred stock authorized - The Company is authorized to issue “blank check” preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock. No preferred shares have been issued. |
Concentration of Credit Risk | Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in financial institutions. Although the cash accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by the financial institutions. Management reviews the financial viability of these institutions on a periodic basis. |
Cash and cash equivalents | Cash and cash equivalents - The Company considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. However, the Company has elected to classify money market mutual funds related to its short-term investment portfolio as short-term investment securities. Cash and cash equivalents are stated at cost, which approximates fair value. |
Short-term investment securities | Short-term investment securities - The Company’s short-term investment securities are classified as available-for-sale securities and consist of money market funds, corporate bonds, U.S. government agency bonds, U.S. treasury securities, and commercial paper with maturities greater than three months at the time of acquisition. The Company’s short-term investment securities are carried at fair value within current assets on the Company’s Consolidated Balance Sheets. The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security. The Company’s investment policy states that all investment securities must have a maximum maturity of twenty-four (24) months or less and the maximum weighted maturity of the investment securities must not exceed twelve (12) months. All of the Company’s short-term investment securities are fixed-income debt instruments, and accordingly, all unrealized gains and losses incurred on the short-term investment securities (the adjustment to fair value) are recorded in other comprehensive income or loss on the Company’s Consolidated Statements of Operations and Comprehensive Loss. Realized gains and losses on short-term investment securities are recorded in the other income (expense) portion of the Company’s Consolidated Statements of Operations and Comprehensive Loss. Interest is recorded on the accrual basis and presented net of investment related fees in interest income. |
Accounts receivable | Accounts receivable - The Company periodically reviews aged account balances for collectability. The Company established an allowance for doubtful accounts of $0 at both June 30, 2019 and December 31, 2018 . |
Inventory | Inventory - Inventories are valued at the lower of cost or net realizable value. Cost is determined using an average cost method for tobacco leaf inventory and raw materials inventory and standard cost is primarily used for finished goods inventory. Inventories are evaluated to determine whether any amounts are not recoverable based on slow moving or obsolete condition and are written off or reserved as appropriate. Inventories at June 30, 2019 and December 31, 2018 consisted of the following: June 30, December 31, 2019 2018 Inventory - tobacco leaf $ 1,610,499 $ 1,556,581 Inventory - finished goods Cigarettes and filtered cigars 138,456 156,702 Inventory - raw materials Cigarette and filtered cigar components 1,282,700 1,430,666 3,031,655 3,143,949 Less: inventory reserve 100,000 100,000 $ 2,931,655 $ 3,043,949 |
Machinery and equipment | Machinery and equipment - Machinery and equipment are recorded at their acquisition cost and depreciated on a straight-line basis over their estimated useful lives ranging from 3 to 10 years. |
Right-of-use assets | Right-of-use assets - On January 1, 2019, the Company adopted ASU 2016‑02, Subtopic ASC 842, Leases, and as a result has recorded Right-to-use assets and corresponding Lease obligations as more fully discussed in Note 3. |
Intangible Assets | Intangible Assets - Intangible assets are recorded at cost and consist primarily of (1) expenditures incurred with third-parties related to the processing of patent claims and trademarks with government authorities, as well as costs to acquire patent rights from third-parties, (2) license fees paid for third-party intellectual property, (3) costs to become a signatory under the tobacco MSA, and (4) license fees paid to acquire a predicate cigarette brand. The amounts capitalized relate to intellectual property that the Company owns or to which it has exclusive rights. The Company’s intellectual property capitalized costs are amortized using the straight-line method over the remaining statutory life of the granted patent assets in each of the Company’s patent families, which have estimated expiration dates ranging from 2019 to 2036. Periodic maintenance or renewal fees are expensed as incurred. Annual minimum license fees are charged to expense. License fees paid for third-party intellectual property are amortized on a straight-line basis over the last to expire patents, which patent expiration dates are expected to range from 2019 through 2036. The Company believes costs associated with becoming a signatory to the MSA and acquiring a predicate cigarette brand have an indefinite life and as such, no amortization is taken. Total intangible assets at June 30, 2019 and December 31, 2018 consisted of the following: June 30, December 31, 2019 2018 Intangible assets, net Patent and trademark costs $ 7,578,586 $ 7,136,774 Less: accumulated amortization 3,513,823 3,194,565 Patent and trademark costs, net 4,064,763 3,942,209 License fees, net (see Note 8) 3,776,426 3,776,426 Less: accumulated amortization 588,225 469,131 License fees, net 3,188,201 3,307,295 MSA signatory costs 2,202,000 2,202,000 License fee for predicate cigarette brand 300,000 300,000 $ 9,754,964 $ 9,751,504 Amortization expense relating to the above intangible assets for the three and six months ended June 30, 2019 amounted to $222,793 and $438,352, respectively ($170,925 and $338,477 for the three and six months ended June 30, 2018, respectively). The estimated annual average amortization expense for the next five years is approximately $480,000 for patent costs and $238,000 for license fees. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets - The Company reviews the carrying value of its amortizing long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be recoverable. The Company assesses recoverability of the asset by estimating the future undiscounted net cash flows expected to result from the asset, including eventual disposition. If the estimated future undiscounted net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and its fair value. There was no impairment loss recorded during the six months ended June 30, 2019 and 2018, respectively . |
Income Taxes | Income Taxes - The Company recognizes deferred tax assets and liabilities for any basis differences in its assets and liabilities between tax and GAAP reporting, and for operating losses and credit carryforwards. As a result of the Company’s history of cumulative net operating losses and the uncertainty of their future utilization, the Company has established a valuation allowance to fully offset its net deferred tax assets as of June 30, 2019 and December 31, 2018. Additionally, because the Company has a full valuation allowance offsetting its deferred tax assets and as a result has an effective tax rate of zero, the Company has elected to present other comprehensive income items relating to net unrealized gains on short-term investment securities gross and not net of taxes. The Company’s federal and state tax returns for the years ended December 31, 2015 through December 31, 2017 are currently open to audit under the statutes of limitations. There were no pending audits as of June 30, 2019. |
Stock Based Compensation | Stock Based Compensation - The Company uses a fair-value based method to determine compensation for all arrangements under which Company employees and others receive shares, restricted stock units or options to purchase common shares of the Company. Stock based compensation expense is recorded over the requisite service period based on estimates of probability and time of achieving milestones and vesting. For accounting purposes, the shares will be considered issued and outstanding upon vesting or risks of forfeiture expiring. |
Revenue Recognition | Revenue Recognition - On January 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers and all related amendments (the “new revenue standard”) for all contracts using the modified retrospective method. Under the modified retrospective method, the Company was required to record a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2018. The Company determined that the adoption of the new revenue standard did not require a cumulative-effect adjustment. The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. The Company’s customer contracts consist of obligations to manufacture the customer’s branded filtered cigars and cigarettes. For certain contracts, the performance obligation is satisfied over time as the Company determines, due to contract restrictions, it does not have an alternative use of the product, and it has an enforceable right to payment as the product is manufactured. The Company recognizes revenue under those contracts at the unit price stated in the contract based on the units manufactured. The manufacturing process is completed daily and, therefore, there were no performance obligations partially satisfied at June 30, 2019. For the contract where the performance obligation is satisfied at a point in time, the Company recognizes revenue when the product is transferred to the customer. Revenue from the sale of the Company’s products is recognized net of cash discounts, sales returns and allowances. There was no allowance for discounts or returns and allowances at June 30, 2019 and December 31, 2018. The Company generally requires a down payment from its customers prior to commencement of manufacturing a product. Amounts received in advance of satisfying the performance obligations are recorded as deferred revenue. Customer payment terms vary depending on the terms of each customer contract, but payment is generally due prior to product shipment or within extended credit terms up to twenty-one (21) days after shipment. The Company’s net sales revenue is derived from customers located primarily in the United States of America and is disaggregated by the timing of revenue recognition. For the three and six months ended June 30, 2019, net sales revenue from products transferred over time amounted to approximately $3,441,000 and $7,656,000, respectively, and net sales revenue from products transferred at a point in time amounted to approximately $2,374,000 and $4,453,000, respectively. |
Derivatives | Derivatives - The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Derivative financial instruments are initially recorded at fair market value and then are revalued at each reporting date, with changes in fair value reported in the Consolidated Statements of Operations and Comprehensive Loss. The classification of derivative instruments are evaluated at the end of each reporting period. Derivative instruments are classified on the balance sheet as current or non-current based on if the net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date. |
Research and Development | Research and Development - Research and development costs are expensed as incurred. |
Advertising | Advertising - The Company expenses advertising costs as incurred. Advertising expense was approximately $5,000 and $10,000 for the three and six months ended June 30, 2019, respectively ($4,000 and $16,000 for the three and six months ended June 30, 2018, respectively). |
(Loss) Income Per Common Share | (Loss) Income Per Common Share - Basic (loss) income per common share is computed using the weighted-average number of common shares outstanding. Diluted (loss) income per share is computed assuming conversion of all potentially dilutive securities. Potential common shares outstanding are excluded from the computation if their effect is anti-dilutive. |
Use of Estimates | Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments - The Company’s financial instruments include cash and cash equivalents, short-term investment securities, accounts receivable, investment (stock warrants), accounts payable, accrued expenses, and notes payable. Other than for cash equivalents, short-term investment securities, and investment (stock warrants), fair value is assumed to approximate carrying values for these financial instruments, since they are short term in nature, they are receivable or payable on demand, or had stated interest rates that approximate the interest rates available to the Company as of the reporting date. The determination of the fair value of cash equivalents, short-term investment securities, and investment (stock warrants) are discussed in Note 5. |
Investments | Investments - The Company accounts for investments in equity securities of other entities under the equity method of accounting if the Company’s investment in the voting stock of the other entity is greater than or equal to 20% and less than a majority, and the Company has the ability to have significant influence over the operating and financial policies of the investee. If the Company’s equity investment in other entities is less than 20%, and the Company has no significant influence over the operating or financial policies of the entity, and such equity investment does not have a readily determinable market value, then the Company accounts for such equity investments in accordance with FASB ASU 2016‑01, which the Company adopted in the first quarter of 2018 with respect to the Company’s former investment in Anandia Laboratories, Inc. in Canada (see Note 4 for a further discussion). The Company has an investment in stock warrants that are considered equity securities under ASC 321 – Investments – Equity Securities and a derivative instrument under ASC 815 – Derivatives and Hedging. The stock warrants are not designated as a hedging instrument, and in accordance with ASC 815, the Company’s investment in stock warrants are recorded at fair value with changes in fair value recorded in the Company’s Consolidated Statements of Operations and Comprehensive Loss. |
NATURE OF BUSINESS AND SUMMAR_3
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of Inventory, Current | June 30, December 31, 2019 2018 Inventory - tobacco leaf $ 1,610,499 $ 1,556,581 Inventory - finished goods Cigarettes and filtered cigars 138,456 156,702 Inventory - raw materials Cigarette and filtered cigar components 1,282,700 1,430,666 3,031,655 3,143,949 Less: inventory reserve 100,000 100,000 $ 2,931,655 $ 3,043,949 |
Schedule of Intangible Assets and Goodwill | June 30, December 31, 2019 2018 Intangible assets, net Patent and trademark costs $ 7,578,586 $ 7,136,774 Less: accumulated amortization 3,513,823 3,194,565 Patent and trademark costs, net 4,064,763 3,942,209 License fees, net (see Note 8) 3,776,426 3,776,426 Less: accumulated amortization 588,225 469,131 License fees, net 3,188,201 3,307,295 MSA signatory costs 2,202,000 2,202,000 License fee for predicate cigarette brand 300,000 300,000 $ 9,754,964 $ 9,751,504 |
MACHINERY AND EQUIPMENT (Tables
MACHINERY AND EQUIPMENT (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
MACHINERY AND EQUIPMENT | |
Schedule of machinery and equipment | June 30, December 31, Useful Life 2019 2018 Cigarette manufacturing equipment 3 - 10 years $ 4,825,293 $ 4,608,267 Office furniture, fixtures and equipment 5 years 150,349 135,909 Laboratory equipment 5 years 122,780 104,709 Leasehold improvements 6 years 233,569 169,362 5,331,991 5,018,247 Less: accumulated depreciation 1,976,516 1,757,499 Machinery and equipment, net $ 3,355,475 $ 3,260,748 |
FAIR VALUE MEASUREMENTS AND S_2
FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS | |
Schedule of Assets and Liabilities Measured at Fair Value | Asset and Liabilities at Fair Value As of June 30, 2019 Level 1 Level 2 Level 3 Total Assets Short-term investment securities: Money market funds $ 18,481,361 $ — $ — $ 18,481,361 Corporate bonds — 22,975,620 — 22,975,620 U.S. treasury securities — 1,991,563 — 1,991,563 U.S. government agency bonds — 2,647,138 — 2,647,138 Total short-term investment securities $ 18,481,361 $ 27,614,321 $ — $ 46,095,682 Investment: Stock warrant $ — $ — $ 4,641,946 $ 4,641,946 Asset and Liabilities at Fair Value As of December 31, 2018 Level 1 Level 2 Level 3 Total Assets Short-term investment securities: Money market funds $ 10,083,972 $ — $ — $ 10,083,972 Corporate bonds — 38,579,055 — 38,579,055 U.S. treasury securities — 2,970,900 — 2,970,900 U.S. government agency bonds — 4,115,012 — 4,115,012 Total short-term investment securities $ 10,083,972 $ 45,664,967 $ — $ 55,748,939 Investment: Stock warrant $ — $ — $ 3,092,358 $ 3,092,358 |
Schedule of the changes in fair value of the Company's stock warrants | Fair value at December 31, 2017 $ — Fair value of stock warrants acquired on August 8, 2018 2,807,958 Unrealized gain as a result of change in fair value 284,400 Fair value at December 31, 2018 3,092,358 Unrealized gain as a result of change in fair value first quarter 2019 2,973,533 Fair value at March 31, 2019 6,065,891 Unrealized loss as a result of change in fair value second quarter 2019 (1,423,945) Fair value at June 30, 2019 $ 4,641,946 |
Schedule of available-for-sale securities reconciliation | Available-for-Sale Securities – June 30, 2019 Amortized Gross Gross Cost Unrealized Unrealized Fair Basis Gains Losses Value Corporate bonds $ 22,831,039 $ 164,899 $ (20,318) $ 22,975,620 U.S. treasury securities 1,967,032 24,531 — 1,991,563 U.S. government agency bonds 2,614,471 32,667 — 2,647,138 $ 27,412,542 $ 222,097 $ (20,318) $ 27,614,321 Available-for-Sale Securities – December 31, 2018 Amortized Gross Gross Cost Unrealized Unrealized Fair Basis Gains Losses Value Corporate bonds $ 38,579,541 $ 48,796 $ (49,282) $ 38,579,055 U.S. treasury securities 2,959,063 11,837 — 2,970,900 U.S. government agency bonds 4,099,321 15,691 — 4,115,012 $ 45,637,925 $ 76,324 $ (49,282) $ 45,664,967 |
Schedule of available for sale securities classified by contractual maturity | Available-for-Sale Securities Available-for-Sale Securities June 30, 2019 December 31, 2018 Amortized Amortized Cost Basis Fair Value Cost Basis Fair Value Due in one year or less $ 24,185,663 $ 24,338,478 $ 43,050,306 $ 43,082,677 Due after one year through two years 3,226,879 3,275,843 2,587,619 2,582,290 $ 27,412,542 $ 27,614,321 $ 45,637,925 $ 45,664,967 |
WARRANTS FOR COMMON STOCK (Tabl
WARRANTS FOR COMMON STOCK (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
WARRANTS FOR COMMON STOCK | |
Schedule of warrant activity | Number of Warrants Warrants outstanding at December 31, 2017 12,088,080 Warrants exercised during 2018 (794,869) Warrants outstanding at June 30, 2019 and December 31, 2018 11,293,211 |
LOSS PER COMMON SHARE (Tables)
LOSS PER COMMON SHARE (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
LOSS PER COMMON SHARE | |
Schedule of computation of basic and diluted earnings per common share | The following table sets forth the computation of basic and diluted loss per common share for the three-month periods ended June 30, 2019 and 2018, respectively: June 30, June 30, 2019 2018 Net loss attributed to common shareholders $ (8,041,682) $ (6,738,652) Denominator for basic loss per share-weighted average shares outstanding 124,661,991 124,311,087 Effect of dilutive securities: Warrants, restricted stock units and options outstanding — — Denominator for diluted loss per common share-weighted average shares adjusted for dilutive securities 124,661,991 124,311,087 Net loss per common share – basic and diluted $ (0.06) $ (0.05) The following table sets forth the computation of basic and diluted loss per common share for the six-month periods ended June 30, 2019 and 2018, respectively: June 30, June 30, 2019 2018 Net loss attributed to common shareholders $ (10,114,395) $ (5,352,164) Denominator for basic loss per share-weighted average shares outstanding 124,653,403 124,166,321 Effect of dilutive securities: Warrants, restricted stock units and options outstanding — — Denominator for diluted loss per common share-weighted average shares adjusted for dilutive securities 124,653,403 124,166,321 Net loss per common share – basic and diluted $ (0.08) $ (0.04) |
Schedule of outstanding excluded from dilutive securities | June 30, June 30, 2019 2018 Warrants 11,293,211 11,387,932 Options 7,702,795 8,756,560 Restricted stock units 693,000 — 19,689,006 20,144,492 |
EQUITY BASED COMPENSATION (Tabl
EQUITY BASED COMPENSATION (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
EQUITY BASED COMPENSATION | |
Schedule of fair value assumptions | 2019 2018 Risk-free interest rate (weighted average) n/a 2.97 % Expected dividend yield n/a 0 % Expected stock price volatility n/a 90 % Expected life of options (weighted average) n/a years |
Schedule of stock option activity | Weighted Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Options Price Term Value Outstanding at December 31, 2017 8,156,691 $ 1.28 Granted in 2018 1,631,841 $ 2.64 Exercised in 2018 (612,259) $ 0.87 Expired / cancelled in 2018 (504,191) $ 1.71 Outstanding at December 31, 2018 8,672,082 $ 1.54 Exercised in 2019 (59,787) $ 0.95 Forfeited in 2019 (909,500) $ 2.13 Outstanding at June 30, 2019 7,702,795 $ 1.47 5.9 years $ 5,863,646 Exercisable at June 30, 2019 5,126,054 $ 1.37 5.1 years $ 4,261,710 |
NATURE OF BUSINESS AND SUMMAR_4
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Details) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2019USD ($) | Jun. 30, 2018USD ($) | Jun. 30, 2019USD ($)subsidiary | Jun. 30, 2018USD ($) | Dec. 31, 2018USD ($) | |
Condensed Financial Statements, Captions [Line Items] | |||||
Number of subsidiaries | subsidiary | 3 | ||||
Maximum maturity date of securities | 24 months | ||||
Maximum weighted maturity of securities. | 12 months | ||||
Amortization of Intangible Assets | $ 222,793 | $ 170,925 | $ 438,352 | $ 338,477 | |
Impairment of Long-Lived Assets Held-for-use | 0 | 0 | |||
Allowance for Doubtful Accounts Receivable | 0 | 0 | $ 0 | ||
Advertising Expense | 5,000 | $ 4,000 | $ 10,000 | $ 16,000 | |
Revenue collection period | 21 days | ||||
Transferred at Point in Time [Member] | |||||
Condensed Financial Statements, Captions [Line Items] | |||||
Revenue from Contract with Customer, Excluding Assessed Tax | 2,374,000 | $ 4,453,000 | |||
Transferred over Time [Member] | |||||
Condensed Financial Statements, Captions [Line Items] | |||||
Revenue from Contract with Customer, Excluding Assessed Tax | 3,441,000 | $ 7,656,000 | |||
Twenty Second Century Ltd [Member] | |||||
Condensed Financial Statements, Captions [Line Items] | |||||
Number of subsidiaries | subsidiary | 2 | ||||
Patent and Trademark [Member] | |||||
Condensed Financial Statements, Captions [Line Items] | |||||
Finite-Lived Intangible Assets, Amortization Expense, after Year Five | 480,000 | $ 480,000 | |||
Licensing Agreements [Member] | |||||
Condensed Financial Statements, Captions [Line Items] | |||||
Finite-Lived Intangible Assets, Amortization Expense, after Year Five | $ 238,000 | $ 238,000 | |||
Maximum [Member] | |||||
Condensed Financial Statements, Captions [Line Items] | |||||
Property, Plant and Equipment, Estimated Useful Lives | P10Y | ||||
Minimum [Member] | |||||
Condensed Financial Statements, Captions [Line Items] | |||||
Property, Plant and Equipment, Estimated Useful Lives | P3Y |
NATURE OF BUSINESS AND SUMMAR_5
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Inventory (Details) - USD ($) | Jun. 30, 2019 | Dec. 31, 2018 |
Inventory, Net [Abstract] | ||
Inventory - tobacco leaf | $ 1,610,499 | $ 1,556,581 |
Inventory - finished goods | ||
Cigarettes and filtered cigars | 138,456 | 156,702 |
Inventory - raw materials | ||
Cigarette and filtered cigar components | 1,282,700 | 1,430,666 |
Inventory - tobacco leaf, net | 3,031,655 | 3,143,949 |
Less: inventory reserve | 100,000 | 100,000 |
Inventory, Net | $ 2,931,655 | $ 3,043,949 |
NATURE OF BUSINESS AND SUMMAR_6
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Intangible Assets (Details) - USD ($) | Jun. 30, 2019 | Dec. 31, 2018 |
Intangible assets, net | ||
Intangible assets, net | $ 9,754,964 | $ 9,751,504 |
Patent and Trademark [Member] | ||
Intangible assets, net | ||
Patent and trademark costs | 7,578,586 | 7,136,774 |
Less: accumulated amortization | 3,513,823 | 3,194,565 |
Patent and trademark costs, net | 4,064,763 | 3,942,209 |
Licensing Agreements [Member] | ||
Intangible assets, net | ||
Patent and trademark costs | 3,776,426 | 3,776,426 |
Less: accumulated amortization | 588,225 | 469,131 |
Patent and trademark costs, net | 3,188,201 | 3,307,295 |
MSA Signatory Costs [Member] | ||
Intangible assets, net | ||
License fee for predicate cigarette brand | 2,202,000 | 2,202,000 |
License Fee [Member] | ||
Intangible assets, net | ||
License fee for predicate cigarette brand | $ 300,000 | $ 300,000 |
MACHINERY AND EQUIPMENT - Addit
MACHINERY AND EQUIPMENT - Additional Information (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
MACHINERY AND EQUIPMENT | ||||
Depreciation, Total | $ 147,255 | $ 131,294 | $ 282,301 | $ 255,822 |
MACHINERY AND EQUIPMENT (Detail
MACHINERY AND EQUIPMENT (Details) - USD ($) | 6 Months Ended | |
Jun. 30, 2019 | Dec. 31, 2018 | |
Property, Plant and Equipment [Line Items] | ||
Machinery and Equipment, Gross | $ 5,331,991 | $ 5,018,247 |
Less: accumulated depreciation | 1,976,516 | 1,757,499 |
Machinery and equipment, net | 3,355,475 | 3,260,748 |
Cigarette manufacturing equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Machinery and Equipment, Gross | $ 4,825,293 | 4,608,267 |
Cigarette manufacturing equipment [Member] | Maximum [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property, Plant and Equipment, Useful Life | 10 years | |
Cigarette manufacturing equipment [Member] | Minimum [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property, Plant and Equipment, Useful Life | 3 years | |
Office furniture, fixtures and equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Machinery and Equipment, Gross | $ 150,349 | 135,909 |
Property, Plant and Equipment, Useful Life | 5 years | |
Laboratory equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Machinery and Equipment, Gross | $ 122,780 | 104,709 |
Property, Plant and Equipment, Useful Life | 5 years | |
Leasehold Improvements [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Machinery and Equipment, Gross | $ 233,569 | $ 169,362 |
Property, Plant and Equipment, Useful Life | 6 years |
RIGHT-OF-USE ASSETS, LEASE OB_2
RIGHT-OF-USE ASSETS, LEASE OBLIGATIONS, AND OTHER LEASES - Additional Information (Details) | Jan. 01, 2019USD ($)item | Oct. 04, 2017USD ($) | Aug. 14, 2017USD ($) | Jun. 30, 2019USD ($) | Jun. 30, 2018USD ($) | Jun. 30, 2019USD ($) | Jun. 30, 2018USD ($) | Dec. 31, 2018USD ($) |
Number of real estate leases that qualify as operating leases | item | 2 | |||||||
Operating Lease, Right-of-Use Asset | $ 446,950 | $ 707,729 | $ 707,729 | |||||
Operating Lease, Liability | $ 367,325 | |||||||
Operating Lease, Liability, Current | 214,248 | 214,248 | $ 0 | |||||
Operating Lease, Liability, Noncurrent | 493,481 | 493,481 | ||||||
Operating Leases Monthly lease payment | $ 14,094 | $ 5,706 | $ 14,094 | $ 5,706 | ||||
Lessee, Operating Lease, Renewal Term | 34 months | 12 months | 12 months | |||||
Percentage Of Lease Payment Increase | 5.00% | |||||||
Lease Payment | $ 42,000 | $ 84,000 | ||||||
Operating Lease, Expense | 20,000 | $ 40,000 | ||||||
Lessee, Operating Lease, Term | 62 months | |||||||
Operating Lease, Weighted Average Discount Rate, Percent | 5.14% | |||||||
Lessee, Operating Lease, Existence of Option to Extend [true false] | true | |||||||
Number of real estate leases that do not qualify as operating or financing leases | item | 2 | |||||||
Office Space in Clarence New York [Member] | ||||||||
Operating Leases, Rent Expense, Minimum Rentals | $ 6,375 | |||||||
Warehouse Space in North Carolina [Member] | ||||||||
Operating Lease, Expense | $ 4,665 | |||||||
Laboratory space in Buffalo [Member] | ||||||||
Lease Payment | $ 17,000 | $ 11,000 | $ 34,000 | $ 17,000 |
INVESTMENT - Additional Informa
INVESTMENT - Additional Information (Details) - USD ($) | Aug. 08, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Mar. 31, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 |
Schedule of Equity Method Investments [Line Items] | |||||||
Unrealized (loss) gain on investment | $ (1,423,945) | $ 92,574 | $ 1,549,588 | $ 6,147,088 | |||
Term of the warrant | 5 years | ||||||
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ 2.15 | $ 2.15 | |||||
Warrant [Member] | |||||||
Schedule of Equity Method Investments [Line Items] | |||||||
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | 973,971 | 973,971 | |||||
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ 9.37 | $ 7.13 | $ 7.13 | ||||
Anandia [Member] | |||||||
Schedule of Equity Method Investments [Line Items] | |||||||
Unrealized (loss) gain on investment | $ 6,147,088 | ||||||
Aurora Cannabis Inc [Member] | |||||||
Schedule of Equity Method Investments [Line Items] | |||||||
Unrealized (loss) gain on investment | $ 1,549,588 | ||||||
Common Stock Transferred Number | 1,947,943 | ||||||
Aurora Cannabis Inc [Member] | Warrant [Member] | |||||||
Schedule of Equity Method Investments [Line Items] | |||||||
Unrealized (loss) gain on investment | $ (1,423,945) | ||||||
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | 973,971 | ||||||
Fair Value of Warrants | $ 4,641,946 | $ 4,641,946 | $ 3,092,358 |
FAIR VALUE MEASUREMENTS AND S_3
FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS - Additional Information (Details) | 6 Months Ended | |
Jun. 30, 2019USD ($)$ / shares | Dec. 31, 2018 | |
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Net Asset Value Per Share | $ / shares | $ 1 | |
Measurement Input, Price Volatility [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Warrants and Rights Outstanding, Measurement Input | 79 | 92 |
Warrants and Rights Outstanding Measurement Input Estimated Period Increase | 20.00% | |
Warrants and Rights Outstanding Increase in fair value due to Increase in Measurement Input | $ | $ 645,000 |
FAIR VALUE MEASUREMENTS AND S_4
FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS - Fair value measurements (Details) - USD ($) | Jun. 30, 2019 | Dec. 31, 2018 |
U.S. government agency bonds [Member] | ||
Assets | ||
Total short-term investment securities | $ 2,647,138 | $ 4,115,012 |
US Treasury Securities [Member] | ||
Assets | ||
Total short-term investment securities | 1,991,563 | 2,970,900 |
Short-term investment securities [Member] | ||
Assets | ||
Total short-term investment securities | 46,095,682 | |
Corporate Bonds [Member] | ||
Assets | ||
Total short-term investment securities | 22,975,620 | 38,579,055 |
Total cash equivalents and short-term investment securities [Member] | ||
Assets | ||
Total short-term investment securities | 55,748,939 | |
Stock Warrants [Member] | ||
Assets | ||
Total short-term investment securities | 4,641,946 | 3,092,358 |
Money Market Funds [Member] | ||
Assets | ||
Total short-term investment securities | 18,481,361 | 10,083,972 |
Fair Value, Inputs, Level 3 [Member] | U.S. government agency bonds [Member] | ||
Assets | ||
Total short-term investment securities | 0 | 0 |
Fair Value, Inputs, Level 3 [Member] | US Treasury Securities [Member] | ||
Assets | ||
Total short-term investment securities | 0 | 0 |
Fair Value, Inputs, Level 3 [Member] | Short-term investment securities [Member] | ||
Assets | ||
Total short-term investment securities | 0 | |
Fair Value, Inputs, Level 3 [Member] | Corporate Bonds [Member] | ||
Assets | ||
Total short-term investment securities | 0 | 0 |
Fair Value, Inputs, Level 3 [Member] | Total cash equivalents and short-term investment securities [Member] | ||
Assets | ||
Total short-term investment securities | 0 | |
Fair Value, Inputs, Level 3 [Member] | Stock Warrants [Member] | ||
Assets | ||
Total short-term investment securities | 4,641,946 | 3,092,358 |
Fair Value, Inputs, Level 3 [Member] | Money Market Funds [Member] | ||
Assets | ||
Total short-term investment securities | 0 | 0 |
Fair Value, Inputs, Level 1 [Member] | U.S. government agency bonds [Member] | ||
Assets | ||
Total short-term investment securities | 0 | 0 |
Fair Value, Inputs, Level 1 [Member] | US Treasury Securities [Member] | ||
Assets | ||
Total short-term investment securities | 0 | 0 |
Fair Value, Inputs, Level 1 [Member] | Short-term investment securities [Member] | ||
Assets | ||
Total short-term investment securities | 18,481,361 | |
Fair Value, Inputs, Level 1 [Member] | Corporate Bonds [Member] | ||
Assets | ||
Total short-term investment securities | 0 | 0 |
Fair Value, Inputs, Level 1 [Member] | Total cash equivalents and short-term investment securities [Member] | ||
Assets | ||
Total short-term investment securities | 10,083,972 | |
Fair Value, Inputs, Level 1 [Member] | Stock Warrants [Member] | ||
Assets | ||
Total short-term investment securities | 0 | 0 |
Fair Value, Inputs, Level 1 [Member] | Money Market Funds [Member] | ||
Assets | ||
Total short-term investment securities | 18,481,361 | 10,083,972 |
Fair Value, Inputs, Level 2 [Member] | U.S. government agency bonds [Member] | ||
Assets | ||
Total short-term investment securities | 2,647,138 | 4,115,012 |
Fair Value, Inputs, Level 2 [Member] | US Treasury Securities [Member] | ||
Assets | ||
Total short-term investment securities | 1,991,563 | 2,970,900 |
Fair Value, Inputs, Level 2 [Member] | Short-term investment securities [Member] | ||
Assets | ||
Total short-term investment securities | 27,614,321 | |
Fair Value, Inputs, Level 2 [Member] | Corporate Bonds [Member] | ||
Assets | ||
Total short-term investment securities | 22,975,620 | 38,579,055 |
Fair Value, Inputs, Level 2 [Member] | Total cash equivalents and short-term investment securities [Member] | ||
Assets | ||
Total short-term investment securities | 45,664,967 | |
Fair Value, Inputs, Level 2 [Member] | Stock Warrants [Member] | ||
Assets | ||
Total short-term investment securities | 0 | 0 |
Fair Value, Inputs, Level 2 [Member] | Money Market Funds [Member] | ||
Assets | ||
Total short-term investment securities | $ 0 | $ 0 |
FAIR VALUE MEASUREMENTS AND S_5
FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS - Fair value measurements - Changes in fair value of the stock warrants (Details) - Warrant [Member] - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Jun. 30, 2019 | Dec. 31, 2018 | |
Fair value at beginning of the period | $ 3,092,358 | $ 3,092,358 | $ 0 |
Fair value of stock warrants acquired on August 8, 2018 | 2,807,958 | ||
Unrealized gain as a result of change in fair value | 2,973,533 | (1,423,945) | 284,400 |
Fair value at end of the period | $ 6,065,891 | $ 4,641,946 | $ 3,092,358 |
FAIR VALUE MEASUREMENTS AND S_6
FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS - Fair value measurement - Available-for-sale securities (Details) - USD ($) | Jun. 30, 2019 | Dec. 31, 2018 |
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Available-for-sale Securities - Amortized Cost Basis | $ 27,412,542 | $ 45,637,925 |
Available-for-sale Securities - Gross Unrealized Gains | 222,097 | 76,324 |
Available-for-sale Securities - Gross Unrealized Losses | (20,318) | (49,282) |
Available-for-sale Securities - Fair Value | 27,614,321 | 45,664,967 |
Corporate Bond Securities [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Available-for-sale Securities - Amortized Cost Basis | 22,831,039 | 38,579,541 |
Available-for-sale Securities - Gross Unrealized Gains | 164,899 | 48,796 |
Available-for-sale Securities - Gross Unrealized Losses | (20,318) | (49,282) |
Available-for-sale Securities - Fair Value | 22,975,620 | 38,579,055 |
US Government Agencies Short-term Debt Securities [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Available-for-sale Securities - Amortized Cost Basis | 2,614,471 | 4,099,321 |
Available-for-sale Securities - Gross Unrealized Gains | 32,667 | 15,691 |
Available-for-sale Securities - Gross Unrealized Losses | 0 | 0 |
Available-for-sale Securities - Fair Value | 2,647,138 | 4,115,012 |
US Treasury Securities [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Available-for-sale Securities - Amortized Cost Basis | 1,967,032 | 2,959,063 |
Available-for-sale Securities - Gross Unrealized Gains | 24,531 | 11,837 |
Available-for-sale Securities - Gross Unrealized Losses | 0 | 0 |
Available-for-sale Securities - Fair Value | $ 1,991,563 | $ 2,970,900 |
FAIR VALUE MEASUREMENTS AND S_7
FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS - Fair value measurement - Available-for-sale securities by contractual maturity (Details) - USD ($) | Jun. 30, 2019 | Dec. 31, 2018 |
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Available-for-sale Securities, Amortized Cost | $ 27,412,542 | $ 45,637,925 |
Available-for-sale Securities, Fair Value | 27,614,321 | 45,664,967 |
Due In One Year Or Less [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Available For Sale Securities Debt Maturities After One Year or Less Amortized Cost | 24,185,663 | 43,050,306 |
Available-for-sale, Maturity, Allocated and Single Maturity Date, within One Year, Fair Value | 24,338,478 | 43,082,677 |
Due After One Year Through Two Years [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Available For Sale Securities Debt Maturities After One Year Through Two Years Amortized Cost | 3,226,879 | 2,587,619 |
Available For Sale Securities Debt Maturities After One Through Two Years Fair Value | $ 3,275,843 | $ 2,582,290 |
NOTE PAYABLE FOR LICENSE FEE -
NOTE PAYABLE FOR LICENSE FEE - Additional Information (Details) | Oct. 22, 2018USD ($) | Jun. 30, 2019USD ($)item | Jun. 30, 2019USD ($)item | Jun. 30, 2018USD ($) | Dec. 31, 2018USD ($) | Jun. 22, 2018USD ($) |
Aggregate Milestone Payments to be Made | $ 1,200,000 | $ 1,200,000 | ||||
Milestone Payable Upon Execution of Second Amendment | 300,000 | 500,000 | ||||
Milestone Payable on First Anniversary of Execution of Second Amendment | 300,000 | 400,000 | ||||
Milestone Payable on Second Anniversary of Execution of Second Amendment | 300,000 | |||||
Number of notes payable | item | 2 | 2 | ||||
Notes Payable | 1,151,201 | $ 1,157,886 | $ 1,157,886 | $ 1,537,365 | $ 1,175,226 | |
Notes Payable, Current | 598,431 | 598,431 | 689,148 | |||
Notes Payable, Noncurrent | 559,485 | 559,485 | $ 848,217 | |||
Finite-lived Intangible Assets Acquired | $ 1,151,201 | |||||
Accretion Expense | 20,552 | $ 0 | ||||
License Agreement [Member] | ||||||
Accretion Expense | $ 9,891 | $ 20,552 |
WARRANTS FOR COMMON STOCK - Add
WARRANTS FOR COMMON STOCK - Additional Information (Details) | Jun. 30, 2019$ / sharesshares |
Class of Warrant or Right [Line Items] | |
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares | $ 2.15 |
Common Stock [Member] | |
Class of Warrant or Right [Line Items] | |
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares | 11,293,211 |
WARRANTS FOR COMMON STOCK - War
WARRANTS FOR COMMON STOCK - Warrant activity (Details) - shares | 6 Months Ended | 12 Months Ended |
Jun. 30, 2019 | Dec. 31, 2018 | |
WARRANTS FOR COMMON STOCK | ||
Warrant outstanding beginning balance | 12,088,080 | |
Warrants exercised | 0 | (794,869) |
Warrant outstanding ending balance | 11,293,211 |
COMMITMENTS AND CONTINGENCIES -
COMMITMENTS AND CONTINGENCIES - Additional Information (Details) | Jun. 19, 2019shares | Dec. 08, 2015USD ($) | Sep. 15, 2014USD ($) | Aug. 27, 2014USD ($) | Aug. 22, 2014USD ($) | May 31, 2018USD ($) | Feb. 28, 2018USD ($) | Jun. 30, 2019USD ($) | Jun. 30, 2018USD ($) | Jun. 30, 2019USD ($)item | Jun. 30, 2018USD ($) | Dec. 31, 2018USD ($) | Oct. 22, 2018USD ($) | Jun. 22, 2018USD ($) | May 01, 2018USD ($) |
Other Commitments [Line Items] | |||||||||||||||
Number Of Agreements | item | 3 | ||||||||||||||
Annual minimum royalty payments | $ 225,000 | $ 225,000 | |||||||||||||
Milestone payment upon approval of a product | 150,000 | ||||||||||||||
Research and Development Expense | 1,986,608 | $ 4,781,407 | 4,438,050 | $ 7,298,176 | |||||||||||
Amortization of Other Deferred Charges | 222,793 | 170,925 | 438,352 | 338,477 | |||||||||||
License Maintenance Fees Due Current | $ 75,000 | ||||||||||||||
Intangible assets, net | 9,754,964 | 9,754,964 | $ 9,751,504 | ||||||||||||
Minimum Annual Royalties In Year Three | 25,000 | 25,000 | |||||||||||||
Minimum Annual Royalties, Thereafter | 50,000 | 50,000 | |||||||||||||
Litigation Settlement Shares Issued | shares | 990,000 | ||||||||||||||
Minimum Annual Royalties In Year One | 15,000 | 15,000 | |||||||||||||
Minimum Annual Royalties In Year Two | 25,000 | 25,000 | 25,000 | ||||||||||||
Aggregate Milestone Payments to be Made | $ 1,200,000 | $ 1,200,000 | |||||||||||||
Litigation expense | 1,890,900 | 1,890,900 | |||||||||||||
Other Commitment | $ 75,000 | ||||||||||||||
License Expenses | $ 88,344 | ||||||||||||||
License Acquired With Note Payable | 1,175,226 | 1,175,226 | |||||||||||||
Research and Development Arrangement [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Research and Development Expense | 10,113 | 27,588 | 40,452 | 108,570 | |||||||||||
License Expenses | $ 121,357 | ||||||||||||||
University of Kentucky Research Foundation [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Research and Development Expense | 25,000 | 0 | 25,000 | 25,000 | |||||||||||
Intangible assets, net | $ 1,151,201 | ||||||||||||||
KeyGene [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Research and Development Expense | 315,000 | ||||||||||||||
Research and Development Arrangement, Investment Amount | 6,000,000 | 6,000,000 | |||||||||||||
KeyGene [Member] | Minimum [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Research and Development Arrangement, Investment Amount | 1,200,000 | 1,200,000 | |||||||||||||
University of Virginia [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Research and Development Expense | 55,825 | 76,211 | 130,359 | 180,178 | |||||||||||
Research and Development Arrangement, Investment Amount | 1,000,000 | $ 1,000,000 | |||||||||||||
Period of agreement | 3 years | ||||||||||||||
Payment Two [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Research and Development Arrangement, Contract to Perform for Others, Costs Incurred, Gross | 0 | 0 | $ 0 | 130,850 | |||||||||||
License Agreements And Sponsored Research And Development Agreements [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Number Of Agreements | item | 3 | ||||||||||||||
Modified Risk Tobacco Products Application [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
License Expenses | 313,000 | 2,725,000 | $ 1,524,000 | 4,021,000 | |||||||||||
Licensing Agreements [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Number Of Agreements | item | 5 | ||||||||||||||
Research and Development Expense | 66,363 | 83,838 | $ 152,952 | 221,070 | |||||||||||
Minimum Royalty Fee Payments Due In Year One | 30,000 | 30,000 | |||||||||||||
Minimum Royalty Fee Payments Due Thereafter | 50,000 | 50,000 | |||||||||||||
Capitalized Patent Costs Gross | 4,854 | 4,995 | 12,530 | 9,465 | |||||||||||
License Expenses | $ 150,000 | $ 125,000 | |||||||||||||
Patents [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Capitalized Patent Costs Gross | 5,424 | 4,845 | 9,981 | 34,107 | |||||||||||
Precision License [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Amortization of Other Deferred Charges | 59,547 | 24,506 | 119,094 | 49,011 | |||||||||||
License Expenses | $ 1,250,000 | ||||||||||||||
Anandia Sublicense [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Upfront Fee | $ 75,000 | ||||||||||||||
License Expenses | $ 10,000 | ||||||||||||||
Licensing Agreements Two [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Capitalized Patent Costs Gross | $ 6,644 | $ 79 | 10,899 | $ 79 | |||||||||||
Master Collaboration and Research Agreement [Member] | Natural Good Medicines LLC [Member] | |||||||||||||||
Other Commitments [Line Items] | |||||||||||||||
Research and Development Expense | $ 403,000 | ||||||||||||||
Duration from effective date for proceeds that will be mutually shared from sale | 3 years |
LOSS PER COMMON SHARE - Computa
LOSS PER COMMON SHARE - Computation of Basic and Diluted Earnings Per Common Share (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||||
Jun. 30, 2019 | Mar. 31, 2019 | Jun. 30, 2018 | Mar. 31, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
LOSS PER COMMON SHARE | ||||||
Net (loss) income attributed to common shareholders | $ (8,041,682) | $ (2,072,713) | $ (6,738,652) | $ 1,386,488 | $ (10,114,395) | $ (5,352,164) |
Denominator for basic (loss) income per share-weighted average shares outstanding | 124,661,991 | 124,311,087 | 124,653,403 | 124,166,321 | ||
Effect of dilutive securities: | ||||||
Warrants and options outstanding | 0 | 0 | ||||
Denominator for diluted (loss) income per common share-weighted average shares adjusted for dilutive securities | 124,661,991 | 124,311,087 | 124,653,403 | 124,166,321 | ||
Net loss per common share - basic and diluted | $ (0.06) | $ (0.05) | $ (0.08) | $ (0.04) |
LOSS PER COMMON SHARE - Outstan
LOSS PER COMMON SHARE - Outstanding excluded from anti-dilutive securities (Details) - shares | 6 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Securities outstanding but excluded from computation of earnings per share | 19,689,006 | 20,144,492 |
Warrant [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Securities outstanding but excluded from computation of earnings per share | 11,293,211 | 11,387,932 |
Options [ Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Securities outstanding but excluded from computation of earnings per share | 7,702,795 | 8,756,560 |
Restricted stock units [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Securities outstanding but excluded from computation of earnings per share | 693,000 |
EQUITY BASED COMPENSATION - Add
EQUITY BASED COMPENSATION - Additional Information (Details) - USD ($) | May 03, 2019 | Apr. 12, 2014 | Apr. 29, 2017 | Jun. 30, 2019 | Mar. 31, 2019 | Jun. 30, 2018 | Mar. 31, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Equity based employee compensation expense | $ 965,656 | $ 2,246,104 | |||||||||||
Plan life | 5 years 6 months 18 days | ||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ 1.80 | ||||||||||||
Proceeds from Stock Options Exercised | 0 | $ 217,500 | |||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value | $ 1,182,549 | $ 2,306,867 | |||||||||||
Minimum [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 1 year | ||||||||||||
Maximum [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 3 years | ||||||||||||
Common Stock [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period | 13,936 | 17,407 | 315,540 | 31,343 | 315,540 | ||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested Options Forfeited, Number of Shares | 900,000 | ||||||||||||
Omnibus Incentive Plan [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | 5,000,000 | ||||||||||||
Equity based employee compensation expense | $ 516,752 | $ 1,682,228 | $ 965,656 | $ 2,246,104 | |||||||||
Plan life | 10 years | ||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized | 5,000,000 | 5,000,000 | |||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant | 6,815,115 | 6,815,115 | |||||||||||
Omnibus Incentive Plan [Member] | Share-based Compensation Award, Tranche One [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | 1,131,841 | ||||||||||||
Omnibus Incentive Plan [Member] | Share-based Compensation Award, Tranche Two [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | 300,000 | ||||||||||||
Omnibus Incentive Plan [Member] | Common Stock [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | 15,000,000 | ||||||||||||
Scenario, Forecast [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized | $ 61,000 | $ 517,000 | $ 1,217,000 | $ 980,000 | |||||||||
Employee Stock Option [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized | $ 981,000 | $ 981,000 | |||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period | 59,787 | 327,781 | |||||||||||
Non vested stock options [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized | $ 3,756,000 | $ 3,756,000 | |||||||||||
Restricted stock units [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | 693,000 | ||||||||||||
Restricted stock units [Member] | Minimum [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 9 months | ||||||||||||
Restricted stock units [Member] | Maximum [Member] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 3 years |
EQUITY BASED COMPENSATION - Fai
EQUITY BASED COMPENSATION - Fair value assumptions (Details) - USD ($) | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | |
EQUITY BASED COMPENSATION | |||
Risk-free interest rate (weighted average) | 2.97% | ||
Expected dividend yield | $ 0 | $ 0 | $ 0 |
Expected stock price volatility | 90.00% | ||
Expected life of options (weighted average) | 5 years 6 months 18 days |
EQUITY BASED COMPENSATION - Sto
EQUITY BASED COMPENSATION - Stock option activity (Details) - Employee Stock Option [Member] | 6 Months Ended | 12 Months Ended |
Jun. 30, 2019USD ($)$ / sharesshares | Dec. 31, 2018$ / sharesshares | |
Number of Options | ||
Options Outstanding, Beginning of Period | shares | 8,672,082 | 8,156,691 |
Granted | shares | 0 | 1,631,841 |
Exercised | shares | (59,787) | (612,259) |
Forfeited | shares | (909,500) | |
Expired / cancelled | shares | (504,191) | |
Options Outstanding, End of Period | shares | 7,702,795 | 8,672,082 |
Exercisable, End of Period | shares | 5,126,054 | |
Weighted Average Exercise Price | ||
Options Outstanding, Beginning of Period | $ / shares | $ 1.54 | $ 1.28 |
Granted | $ / shares | 2.64 | |
Exercised | $ / shares | 0.95 | 0.87 |
Expired / cancelled | $ / shares | 1.71 | |
Forfeited | $ / shares | 2.13 | |
Options Outstanding, End of Period | $ / shares | 1.47 | $ 1.54 |
Exercisable, End of Period | $ / shares | $ 1.37 | |
Weighted Average Remaining Contractual Term | ||
Options Outstanding, End of Period | 5 years 10 months 24 days | |
Exercisable, End of Period | 5 years 1 month 6 days | |
Aggregate Intrinsic Value | ||
Options Outstanding, End of Period | $ | $ 5,863,646 | |
Exercisable, End of Period | $ | $ 4,261,710 |
SUBSEQUENT EVENTS - Additional
SUBSEQUENT EVENTS - Additional Information (Details) - Subsequent Event [Member] - Consulting Agreement [Member] - President and Chief Executive Officer and Board of Director [Member] | 1 Months Ended |
Jul. 26, 2019USD ($)shares | |
Subsequent Event [Line Items] | |
Professional Fees | $ | $ 200,000 |
Agreement Term | 42 months |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares | shares | 297,369 |