22nd Century Group, Inc. - Quarter Report: 2010 December (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended December
31, 2010
or
¨ TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ____________ to ________________
Commission
file number: 333-130696
|
22ND CENTURY GROUP, INC.
|
||
|
(Exact
name of Registrant as specified in its charter)
|
||
|
Nevada
|
98-0468420
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
|
|
11923 SW 37 Terrace
Miami, Florida 33175
|
||
|
(Address
of principal executive offices)
|
||
|
(305) 677-9456
|
||
|
(Registrant’s
telephone number, including area
code)
|
||
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one).
|
Accelerated
filer ¨
|
||
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
|
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes x No ¨
As of
January 17, 2011, there were 17,356,590 shares of the issuer’s common stock, par
value $0.00001, outstanding.
22ND
CENTURY GROUP, INC.
FORM
10-Q
FOR
THE QUARTERLY PERIOD ENDED DECEMBER 31, 2010
TABLE
OF CONTENTS
|
PAGE
|
||
|
PART
I - FINANCIAL INFORMATION
|
||
|
Item
1.
|
Financial
Statements (Unaudited)
|
3
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
16
|
|
Item
4.
|
Controls
and Procedures
|
16
|
|
PART
II - OTHER INFORMATION
|
||
|
Item
1.
|
Legal
Proceedings
|
16
|
|
Item
1A.
|
Risk
Factors
|
17
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
17
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
17
|
|
Item
4.
|
(Removed
and Reserved)
|
17
|
|
Item
5.
|
Other
Information
|
17
|
|
Item
6.
|
Exhibits
|
18
|
|
SIGNATURES
|
20
|
2
PART
I – FINANCIAL INFORMATION
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and the rules of the Securities and Exchange Commission ("SEC"), and should be
read in conjunction with the audited financial statements and notes thereto
contained in the Company's September 30, 2010 Form 10-K filed with the SEC on
December 1, 2010. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the periods presented have been
reflected herein. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full
year.
TABLE
OF CONTENTS
|
PAGE
|
||
|
Balance
Sheets as of December 31, 2010 (unaudited) and September 30,
2010
|
4
|
|
|
Interim
Statements of Operations for the three month periods ended December 31,
2010 and 2009 (unaudited) and for the period from September 12,
2005(inception) to December 31, 2010 (unaudited)
|
5
|
|
|
Interim
Statements of Cash Flows for the three month periods ended December 31,
2010 and 2009 (unaudited) and for the period from September 12, 2005
(inception) to December 31, 2010 (unaudited)
|
6
|
|
|
Interim
Notes to Financial Statements (unaudited)
|
7
|
3
22nd
Century Group, Inc.
(A
Development Stage Company)
Balance
Sheets
|
As of
|
As of
|
|||||||
|
December 31,
|
September 30,
|
|||||||
|
2010
|
2010
|
|||||||
|
|
(Unaudited)
|
|||||||
| ASSETS | ||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 24 | $ | 323 | ||||
|
Total
current assets
|
24 | 323 | ||||||
|
Non-Current
Assets
|
||||||||
|
Mineral
property reclamation bond (Note
5)
|
4,330 | 4,330 | ||||||
|
TOTAL
ASSETS
|
$ | 4,354 | $ | 4,653 | ||||
|
LIABILITIES AND STOCKHOLDERS’
DEFICIT
|
||||||||
|
Current
Liabilities
|
||||||||
|
Accounts
payable and accrued liabilities
|
$ | 49,803 | $ | 55,450 | ||||
|
Notes
payable – stockholders (Note
6)
|
112,327 | 112,327 | ||||||
|
Accrued
interest, notes payable – stockholders (Note
6)
|
14,824 | 11,277 | ||||||
|
Total
current liabilities
|
176,954 | 179,054 | ||||||
|
Long-Term
Liabilities
|
||||||||
|
Note
payable – stockholder (Note
6)
|
50,000 | - | ||||||
|
TOTAL
LIABILITIES
|
226,954 | 179,054 | ||||||
|
STOCKHOLDERS’ DEFICIT
|
||||||||
|
Capital
Stock (Note
3)
|
||||||||
|
Authorized:
|
||||||||
|
10,000,000
preferred shares, $0.00001 par value
|
||||||||
|
300,000,000
common shares, $0.00001 par value
|
||||||||
|
Issued
and outstanding shares:
|
||||||||
|
0
preferred shares
|
- | - | ||||||
|
17,356,590 common
shares
|
174 | 174 | ||||||
|
Capital
in excess of par value
|
146,328 | 146,328 | ||||||
|
Deficit
accumulated during the development stage
|
(369,102 | ) | (320,903 | ) | ||||
|
Total
stockholders’ deficit
|
(222,600 | ) | (174,401 | ) | ||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
$ | 4,354 | $ | 4,653 | ||||
The
accompanying notes are an integral part of these financial
statements.
4
22nd
Century Group, Inc.
(A
Development Stage Company)
Interim
Statements of Operations
(Unaudited)
|
Cumulative
|
||||||||||||
|
|
from Inception
|
|||||||||||
|
|
(September 12, 2005)
|
|||||||||||
|
|
Three
Months Ended December 31,
|
to December
31,
|
||||||||||
|
|
2010
|
2009
|
2010
|
|||||||||
|
Income
|
$ | - | $ | - | $ | - | ||||||
|
Expenses
|
||||||||||||
|
Mineral
property costs
|
- | - | 38,434 | |||||||||
|
Professional
fees
|
44,652 | 15,509 | 286,707 | |||||||||
|
Office
and administrative
|
- | 2,005 | 28,683 | |||||||||
|
Total
Operating Expenses
|
44,652 | 17,514 | 353,824 | |||||||||
|
Other
Income (Expense)
|
||||||||||||
|
Foreign
currency transaction loss
|
- | - | (470 | ) | ||||||||
|
Interest
income
|
- | - | 16 | |||||||||
|
Interest
expense
|
(3,547 | ) | (1,663 | ) | (14,824 | ) | ||||||
|
Total
Other Income (Expense)
|
(3,547 | ) | (1,663 | ) | (15,278 | ) | ||||||
|
Net
Loss Applicable to Common Shares
|
$ | (48,199 | ) | $ | (19,177 | ) | $ | (369,102 | ) | |||
|
Basic
and Diluted Loss per Common Share
|
$ | (0.00 | ) | $ | (0.00 | ) | ||||||
|
Weighted
Average Number of Common Shares Outstanding
|
17,356,590 | 17,356,590 | ||||||||||
The
accompanying notes are an integral part of these financial
statements.
5
22nd
Century Group, Inc.
(A
Development Stage Company)
Interim
Statements of Cash Flows
(Unaudited)
|
Cumulative
|
||||||||||||
|
From Inception
|
||||||||||||
|
(September 12, 2005)
|
||||||||||||
|
Three Months Ended December 31,
|
to December 31,
|
|||||||||||
|
2010
|
2009
|
2010
|
||||||||||
|
Cash
Flow from Operating Activities:
|
||||||||||||
|
Loss
for the period
|
$ | (48,199 | ) | $ | (19,177 | ) | $ | (369,102 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operations:
|
||||||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Decrease
in withholding tax receivable
|
- | 1 | - | |||||||||
|
Increase
(decrease) in accounts payable and accrued liabilities
|
(5,647 | ) | 17,513 | 49,803 | ||||||||
|
Increase
in accrued interest, notes payable – stockholders
|
3,547 | 1,663 | 14,824 | |||||||||
|
Net
cash used in operating activities
|
(50,299 | ) | - | (304,475 | ) | |||||||
|
Cash
Flows from Investing Activities:
|
||||||||||||
|
Mineral
property reclamation bond
|
- | - | (4,330 | ) | ||||||||
|
Net
cash used in investing activities
|
- | - | (4,330 | ) | ||||||||
|
Cash
Flows from Financing Activities:
|
||||||||||||
|
Proceeds
from notes payable – stockholders
|
50,000 | - | 162,327 | |||||||||
|
Proceeds
from notes payable – related party
|
- | - | 34,502 | |||||||||
|
Issuance
of common stock
|
- | - | 112,000 | |||||||||
|
Net
cash provided by financing activities
|
50,000 | - | 308,829 | |||||||||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(299 | ) | - | 24 | ||||||||
|
Cash
and Cash Equivalents – Beginning of Period
|
323 | - | - | |||||||||
|
Cash
and Cash Equivalents – End of Period
|
$ | 24 | $ | - | $ | 24 | ||||||
|
Supplemental
Cash Flow Disclosure:
|
||||||||||||
|
Cash
paid for interest
|
$ | - | $ | - | $ | - | ||||||
|
Cash
paid for income taxes
|
$ | - | $ | - | $ | - | ||||||
|
Non-Cash
Financing and Investing Activities:
|
||||||||||||
|
Note
payable – related party converted to common stock
|
$ | - | $ | - | $ | 34,502 | ||||||
The
accompanying notes are an integral part of these financial
statements.
6
22nd
Century Group, Inc.
(A
Development Stage Company)
Notes
to Interim Financial Statements
December
31, 2010
(Unaudited)
|
1.
|
Organization
|
22nd Century
Group, Inc. (the “Company”) was incorporated on September 12, 2005 in the State
of Nevada, USA, and is based in Miami, Florida. The Company was originally
incorporated as Touchstone Mining Limited and changed its name to 22nd Century
Group, Inc. on November 23, 2010. The accounting and reporting policies of
the Company conform to accounting principles generally accepted in the United
States of America, and the Company’s fiscal year end is September
30.
The
Company was initially incorporated for the purpose of engaging in the
acquisition, exploration, and development of mineral resource properties.
The Company has obtained the right to conduct exploration work on ten mineral
mining claims in Humboldt County, Nevada, USA. Prior to this, the Company’s
activities have been limited to its formation, the raising of equity capital,
and its mining exploration work program. Although the Company has not
disposed of its interest in its mining properties (Note 5), it has discontinued
exploration on the property and is actively seeking other ventures of interest
that may include, but not be limited to, mergers, acquisitions, or similar
transactions.
Development
Stage Company
The
Company is considered to be in the development stage as defined in FASC
915-10-05 “Development Stage
Entities.”
|
2.
|
Significant Accounting
Policies
|
Use
of Estimates
The
preparation of the Company’s financial statements in conformity with accounting
principles generally accepted in the United States of America 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 amount of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. The Company’s periodic filings with the Securities and
Exchange Commission include, where applicable, disclosures of estimates,
assumptions, uncertainties, and markets that could affect the financial
statements and future operations of the Company.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash in banks, money market funds, and certificates of
term deposits with maturities of less than three months, which are readily
convertible to known amounts of cash and which, in the opinion of management,
are subject to an insignificant risk of loss in value. The Company had $24 and
$323 in cash and cash equivalents at December 31, 2010 and September 30, 2010,
respectively.
7
22nd
Century Group, Inc.
(A
Development Stage Company)
Notes
to Interim Financial Statements
December
31, 2010
(Unaudited)
|
2.
|
Significant Accounting Policies
(continued)
|
Mineral
Acquisition and Exploration Costs
The
Company has been in the development stage since its formation on September 12,
2005 and has not yet realized any revenue from its planned operations. It has
been primarily engaged in the acquisition, exploration, and development of
mining properties. Mineral property acquisition and exploration costs are
expensed as incurred. When it has been determined that a mineral property
can be economically developed as a result of establishing proven and probable
reserves, the costs incurred to develop such property are capitalized.
Such costs will be amortized using the units-of-production method over the
estimated life of the probable reserves.
Start-Up
Costs
In
accordance with FASC 720-15-20 “Start-up Costs,” the Company
expenses all costs incurred in connection with the start-up and organization of
the Company.
Net
Income or (Loss) Per Share of Common Stock
The
Company has adopted FASC 260-10-20, “Earnings per Share,” (“EPS”)
which requires presentation of basic and diluted EPS on the face of the
statements of operations for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. In the accompanying financial statements, basic earnings
(loss) per share is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the period. The Company has no
potentially dilutive securities, such as options or warrants, currently issued
and outstanding. The potential conversion of the notes payable in Note 6
would have an antidilutive effect on EPS due to the Company’s accumulated
losses.
The
following table sets forth the computation of basic and diluted earnings per
share:
|
Three
Months Ended December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Net
loss applicable to common shares
|
$ | (48,199 | ) | $ | (19,177 | ) | ||
|
Weighted
average common shares
|
||||||||
|
Outstanding
(Basic)
|
17,356,590 | 17,356,590 | ||||||
|
Options
|
- | - | ||||||
|
Warrants
|
- | - | ||||||
|
Weighted
average common shares outstanding (Basic and Diluted)
|
17,356,590 | 17,356,590 | ||||||
|
Net
loss per share (Basic and Diluted)
|
$ | (0.00 | ) | $ | (0.00 | ) | ||
8
22nd
Century Group, Inc.
(A
Development Stage Company)
Notes
to Interim Financial Statements
December
31, 2010
(Unaudited)
|
2.
|
Significant Accounting Policies
(continued)
|
Concentrations
of Credit Risk
The
Company’s financial instruments that are exposed to concentrations of credit
risk primarily consist of its cash and cash equivalents and related party
payables it will likely incur in the near future. The Company places its
cash and cash equivalents with financial institutions of high credit
worthiness. At times, its cash and cash equivalents with a particular
financial institution may exceed any applicable government insurance
limits. The Company’s management plans to assess the financial strength
and credit worthiness of any parties to which it extends funds, and as such, it
believes that any associated credit risk exposures are limited.
Risks
and Uncertainties
The
Company previously operated in the resource exploration industry that is subject
to significant risks and uncertainties, including financial, operational,
technological, and other risks associated with operating a resource exploration
business, including the potential risk of business failure.
Environmental
Expenditures
The
operations of the Company have been, and may in the future be, affected from
time to time in varying degree by changes in environmental regulations,
including those for future reclamation and site restoration costs. Both
the likelihood of new regulations and their overall effect upon the Company vary
greatly and are not predictable. The Company’s policy is to meet or, if
possible, surpass standards set by relevant legislation by application of
technically proven and economically feasible measures.
Environmental
expenditures that relate to ongoing environmental and reclamation programs are
charged against earnings as incurred or capitalized and amortized depending on
their future economic benefits. All of these types of expenditures
incurred since inception have been charged against earnings due to the
uncertainty of their future recoverability. Estimated future reclamation
and site restoration costs, when the ultimate liability is reasonably
determinable, are charged against earnings over the estimated remaining life of
the related business operation, net of expected recoveries.
Recently
Issued Accounting Pronouncements
In June
2009, the FASB established the Accounting Standards Codification (“Codification”
or “ASC”) as the source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the preparation of financial
statements in accordance with generally accepted accounting principles in the
United States (“GAAP”). Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) issued under authority of federal securities laws
are also sources of GAAP for SEC registrants. Existing GAAP was not intended to
be changed as a result of the Codification, and accordingly the change did not
impact our financial statements. The ASC does change the way the guidance is
organized and presented.
9
22nd
Century Group, Inc.
(A
Development Stage Company)
Notes
to Interim Financial Statements
December
31, 2010
(Unaudited)
|
2 .
|
Significant Accounting Policies
(continued)
|
Recently
Issued Accounting Pronouncements (continued)
Statement
of Financial Accounting Standards (“SFAS”) No. 165 (ASC Topic 855), “ Subsequent Events, ” SFAS No.
166 (ASC Topic 810), “ Accounting for Transfers of
Financial Assets-an Amendment of FASB Statement No. 140, ” SFAS No. 167
(ASC Topic 810), “ Amendments
to FASB Interpretation No. 46(R) ,” and SFAS No. 168 (ASC Topic 105), “
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles- a
replacement of FASB Statement No. 162 ” were recently issued. SFAS No.
165, 166, 167, and 168 have no current applicability to the Company or their
effect on the financial statements would not have been significant.
Accounting
Standards Update (“ASU”) ASU No. 2009-05 (ASC Topic 820), which amends Fair
Value Measurements and Disclosures – Overall, ASU No. 2009-13 (ASC Topic 605),
Multiple Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985),
Certain Revenue Arrangements that include Software Elements, and various other
ASU’s No. 2009-2 through ASU No. 2010-29 which contain technical corrections to
existing guidance or affect guidance to specialized industries or entities were
recently issued. These updates have no current applicability to the Company or
their effect on the financial statements would not have been
significant.
|
3.
|
Stockholders’
Equity
|
Authorized
Stock
At
inception, the Company authorized 100,000,000 common shares with a par value of
$0.00001 per share. Each common share entitles the holder to one vote, in
person or proxy, on any matter on which action of the stockholders of the
corporation is sought.
Effective
November 23, 2010, the Company increased the number of authorized shares to
310,000,000 shares, of which 300,000,000 shares are designated as common stock
par value $0.00001 per share, and 10,000,000 shares are designated as preferred
stock, par value $0.00001 per share.
Effective
the close of business on November 29, 2010 the Company effected a 2.782:1
forward stock split in the form of a dividend. In connection therewith, all
shareholders of record at the close of business on November 29, 2010 received an
additional 1.782 shares of the Company’s common stock for each share held by
them. This resulted in the issuance of an aggregate of 11,117,701 shares.
Following such issuance, we had 17,356,590 shares issued and outstanding. All
descriptions of share issuances give retroactive effect to the forward
stock split.
Share
Issuances
Since
inception (September 12, 2005), the Company has issued 8,624,200 common shares
at $0.007 per share for $62,000 in cash, and 386,390 common shares at $0.13 per
share for $50,000 in cash, for total proceeds of $112,000. The Company
also issued 8,346,000 common shares at $0.004 per share in satisfaction of debt
of $34,502. There were 17,356,590 common shares issued and outstanding at
December 31, 2010 and September 30, 2010.
10
22nd
Century Group, Inc.
(A
Development Stage Company)
Notes
to Interim Financial Statements
December
31, 2010
(Unaudited)
|
4.
|
Provision for Income
Taxes
|
The
Company recognizes the tax effects of transactions in the year in which such
transactions enter into the determination of net income, regardless of when
reported for tax purposes. Deferred taxes are provided in the financial
statements under FASB ASC Topic 740-10-25 to give effect to the resulting
temporary differences which may arise from differences in the bases of fixed
assets, depreciation methods, allowances, and start-up costs based on the income
taxes expected to be payable in future years.
Minimal
development stage deferred tax assets arising as a result of net operating loss
carryforwards have been offset completely by a valuation allowance due to the
uncertainty of their utilization in future periods. Operating loss carryforwards
generated during the period from September 12, 2005 (date of inception) through
December 31, 2010 of $369,102 will begin to expire in 2025. Accordingly,
deferred tax assets of approximately $129,200 (assuming an effective maximum
statutory rate of 35%) were offset by the valuation allowance, which increased
by approximately $16,900 and $6,700 during the three months ended December 31,
2010 and 2009, respectively.
The
Company follows the provisions of uncertain tax positions as addressed in FASB
ASC Topic 740-10-65-1. The Company recognized approximately no increase in the
liability for unrecognized tax benefits.
The
Company has no tax positions at December 31, 2010 for which the ultimate
deductibility is highly certain but for which there is uncertainty about the
timing of such deductibility. The Company recognizes interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating
expenses. No such interest or penalties were recognized during the periods
presented. The Company had no accruals for interest and penalties at December
31, 2010.
|
5.
|
Mineral Property
Costs
|
By
agreement dated November 23, 2005 with Mineral Exploration Services Ltd.
(“MES”), the Company acquired an option to acquire a 100% interest in certain
properties consisting of 10 unpatented mineral claims, known as the Boulder
Claims (the “Property”) located in Humboldt County, Nevada, USA.
Upon
execution of the agreement, MES transferred 100% interest in the mineral claims
to the Company for $50,000 to be paid, at the Company’s option, as
follows:
|
Cash Payments
|
||||
|
Upon
signing of the agreement and transfer of title (paid)
|
$ | 3,500 | ||
|
On
or before November 23, 2006 (paid)
|
3,500 | |||
|
On
or before November 23, 2007
|
8,000 | |||
|
On
or before November 23, 2008
|
10,000 | |||
|
On
or before November 23, 2009
|
10,000 | |||
|
On
or before November 23, 2010
|
15,000 | |||
| $ | 50,000 | |||
11
22nd
Century Group, Inc.
(A
Development Stage Company)
Notes
to Interim Financial Statements
December
31, 2010
(Unaudited)
|
5.
|
Mineral Property Costs
(continued)
|
In August
2007, the Company reached an agreement with MES, whereby MES relinquished its
rights to the Property. During the year ended September 30, 2008, the
Company proceeded to stake the claims in its own name. The Company is no
longer obligated to make the payments outlined above for 2007 through 2010, and
is only responsible for maintaining the mineral claims in good standing by
paying all the necessary rents, taxes, and filing fees associated with the
Property. As of December 31, 2010, the Company met these
obligations.
Although
the Company has not disposed of its interest in the Property, it has
discontinued exploration and is currently evaluating its options and is seeking
other ventures of interest.
A $4,330
reclamation bond has been paid to the Bureau of Land Management (BLM) in the
State of Nevada. This bond will be held by the BLM until such time as it
determines that the mineral property has been properly reclaimed and indigenous
species of plants have been planted and are growing. Given the uncertainty
of any future exploration and/or additional work on the property, that the
Company will perform and the additional time needed before a BLM inspector can
view the property, this bond has been accounted for as a non-current
asset. Management estimates the costs to restore the property will be
nominal and that the entire bond will be recovered as a result.
|
6.
|
Notes Payable –
Stockholders
|
On May 8,
2009 the Company received an $80,000 unsecured loan from a minority stockholder
of the Company, and in connection therewith issued an 8.25%, $80,000 convertible
promissory note dated May 8, 2009. If not converted, interest and
principal were originally due at maturity on November 8, 2010, which date has
been extended by both parties to May 8, 2011. The terms of conversion have
not been determined but will be mutually determined by the Company and the
holder.
On
February 10, 2010, the Company received a $32,327 unsecured loan from a minority
stockholder of the Company, and in connection therewith issued a 10% convertible
promissory note dated February 10, 2010. If not converted, interest and
principal are due at maturity on August 9, 2011. The note is convertible
at any time prior to maturity at a conversion price of approximately $0.036 per
share. The conversion price and the number of shares issuable upon conversion
are subject to adjustment under certain circumstances including mergers,
consolidations, reclassifications, stock splits, combinations, dividends and
similar transactions. Further, the conversion price is subject to downward
adjustment if the Company issues common stock or securities convertible into
common stock at a price of less than $0.036 per share at any time while the note
remains outstanding. In such event, the conversion price under the note shall be
reduced to such lower price.
On
October 14, 2010, the Company received a $50,000 loan from a minority
shareholder of the Company, and issued a 10%, $50,000 convertible promissory
note dated October 14, 2010. If not converted, interest and principal are due at
maturity on April 13, 2012. The note is convertible at any time prior to
maturity at a conversion price of approximately $0.036 per share. The conversion
price and the number of shares issuable upon conversion are subject to
adjustment under certain circumstances including mergers, consolidations,
reclassifications, stock splits, combinations, dividends and similar
transactions. Further, the conversion price is subject to downward adjustment if
we issue common stock or securities convertible into common stock at a price of
less than $0.036 per share at any time while the note remains outstanding. In
such event, the conversion price under the note shall be reduced to such lower
price.
Interest
expense and accrued interest as of and for the three months ended December 31,
2010 totaled $3,547 and $14,824, respectively.
12
22nd
Century Group, Inc.
(A
Development Stage Company)
Notes
to Interim Financial Statements
December
31, 2010
(Unaudited)
|
7.
|
Going Concern and Liquidity
Considerations
|
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. As of December 31, 2010, the Company had a working capital
deficit of $176,930 and an accumulated deficit of $369,102. The Company
intends to fund operations through debt and equity financing arrangements, which
may be insufficient to fund its capital expenditures, working capital and other
cash requirements for the next twelve months.
The
ability of the Company to emerge from the development stage is dependent upon,
among other things, obtaining additional financing to continue operations.
In response to these problems, management intends to raise additional funds
through public or private placement offerings.
These
factors, among others, raise substantial doubt about the Company’s ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
|
8.
|
Subsequent
Events
|
The
Company has evaluated subsequent events from the balance sheet date through the
date the financial statements were issued and determined there are no additional
items to disclose.
13
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Forward-Looking
Statements
Except
for historical information, this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such forward-looking statements
involve risks and uncertainties, including, among other things, statements
regarding our business strategy, future revenues and anticipated costs and
expenses. Such forward-looking statements include, among others, those
statements including the words “expects,” “anticipates,” “intends,” “believes”
and similar language. Our actual results may differ significantly from
those projected in the forward-looking statements. Factors that might
cause or contribute to such differences include, but are not limited to, those
discussed herein as well as in the “Description of Business – Risk Factors”
section in our Annual Report on Form 10-K for the year ended September 30,
2010. You should carefully review the risks described in our Annual Report
and in other documents we file from time to time with the Securities and
Exchange Commission. You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this report. We
undertake no obligation to publicly release any revisions to the forward-looking
statements or reflect events or circumstances after the date of this
document.
Although
we believe that the expectations reflected in these forward-looking statements
are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements.
All
references in this Form 10-Q to the “Company,” “22nd Century,” “we,” “us,” or
“our” are to 22nd Century Group, Inc., and where context requires, its wholly
owned subsidiaries, 22nd Century Acquisition Subsidiary, LLC and Touchstone
Split Corp.
All
references in this Form 10-Q to issued and outstanding shares give retroactive
effect to a 2.782:1 forward stock split in the form of a dividend which was
effected at the close of business on November 29, 2010. In connection
therewith, all shareholders of record at the close of business on November 29,
2010 received an additional 1.782 shares of our common stock for each share held
by them. This resulted in our issuance of an aggregate of 11,117,701
shares. Following such issuance we had 17,356,590 shares issued and
outstanding.
General
Overview
We were
incorporated in the State of Nevada under the name Touchstone Mining Limited on
September 12, 2005 to engage in the acquisition, exploration and development of
mineral deposits and reserves. On November 23, 2005 we entered into a
Mineral Claim Purchase Agreement (the “Agreement”) with Mineral Exploration
Services, Ltd. (“MES”) pursuant to which we acquired an option to purchase
certain unpatented mineral mining claims. The related property consisted
of ten lode mineral claims located on approximately 200 acres in Humboldt
County, Nevada. Under the terms of the Agreement, we agreed to pay MES an
aggregate of $50,000 over five years and to make exploration expenditures on the
property of $50,000 over the same five year period. During the initial
exploration, no commercial quantities of gold or other minerals were discovered
and in August 2007, we ceased exploration on the prospect. On August 16,
2007 we notified MES of our intention to return the property via a quit claim
deed. At that time, MES informed us that it no longer wanted to retain the
claim or the property and MES subsequently allowed such claim to lapse.
Our Agreement with MES was terminated as of September 16, 2007. At the
time of the termination, we had paid MES an aggregate of $7,000 under the
Agreement. In October 2007, we restaked the claims in the property and
paid the necessary fees to the Bureau of Land Management. We temporarily
lost our rights in the property for failure to pay filing and recording fees due
on the property on September 1, 2009. On February 10, 2010 we restaked our
claims in the property. The lease to the property is currently in our
name. We do not claim to have any minerals or reserves whatsoever at this
time on any of the property. Our management has no current plans for the
property at this time, and all of our exploration operations have been
discontinued. Following the discontinuation of our planned mineral
acquisition, exploration and development activities through the present, we have
determined to look at other ventures of merit to enhance stockholder
value. These ventures may involve sales of our debt or equity security in
merger, acquisition, or similar transactions. To date, we have achieved no
operating revenues and have yet to engage in any such ventures.
14
On
October 5, 2010 we entered into a non-binding Letter of Intent with 22nd Century
Limited, LLC, a Delaware limited liability corporation (“22nd Century”)
regarding a possible business combination involving the two companies. At this
stage, neither party is bound to proceed with the transaction. With the
permission of 22nd Century and as provided below, on November 23, 2010 we
changed our name to “22nd Century Group, Inc.” to facilitate these
discussions. If the parties determine not to proceed with the business
combination, we will change our name back to Touchstone Mining Limited or adopt
another name.
As set
forth in our Information Statement dated November 2, 2010 and filed with the
Securities and Exchange Commission on the same date, which is incorporated
herein by reference, our board of directors and stockholders owning a majority
of our outstanding common stock, pursuant to signed written consents, each dated
October 21, 2010, authorized and approved the following:
|
|
·
|
Amended
and Restated Articles of Incorporation (the “Charter Amendment”) which,
among other things, (i) change our name to 22nd Century Group, Inc.; (ii)
increase our authorized capitalization from 100,000,000 shares, consisting
of 100,000,000 shares of common stock, $0.00001 par value per share, to
310,000,000 shares, consisting of 300,000,000 shares of common stock,
$0.00001 par value per share, and 10,000,000 shares of blank check
preferred stock, $0.00001 par value per share; and (iii) limit the
liability of our officers and directors, our stockholders and our
creditors to the fullest extent permitted by Nevada
law;
|
|
|
·
|
Adoption
of our 2010 Equity Incentive Plan (the “Plan Adoption”);
and
|
|
|
·
|
Transfer
of our assets and liabilities to a split-off subsidiary to be transferred
to our majority stockholder in consideration of the surrender of his
shares of Company stock for cancellation (the
“Split-Off”).
|
The
Information Statement was mailed to our stockholders on November 2, 2010. In
accordance with the regulations under the Securities Exchange Act of 1934, as
amended, the Charter Amendment was filed with the Nevada Secretary of State on
November 23, 2010. The Charter Amendment became effective upon filing. The Plan
Adoption became effective upon its approval by the Company’s Board of Directors
and a stockholder owning a majority of our common stock. The effective date of
the Split-Off is not presently known and is dependent upon our proceeding with
the business combination.
As the
result of the name change to 22nd Century Group, Inc. our common stock is now
quoted on OTC Markets and the OTC Bulletin Board under the symbol
“XXII”.
Results
of Operations
We
conducted no material operations during the quarter ended December 31, 2010 and
do not have any present operations. During the three month period ended December
31, 2010, we generated no revenues, we had total operating expenses of $44,652
and we incurred a net loss of $48,199. During the three month period
ended December 31, 2009, we generated no revenues, we had total operating
expenses of $17,514, and we incurred a net loss of $19,177.
Liquidity
and Capital Resources
The
report of our auditors on our audited financial statements for the fiscal year
ended September 30, 2010 contains a going concern qualification as we have
suffered losses since our inception. We have minimal assets and have
achieved no operating revenues since our inception. We have depended
on loans and sales of equity securities to conduct operations. As of
December 31, 2010 and September 30, 2010, we had cash of $24 and $323, current
assets of $24 and $323 and current liabilities of $176,954 and $179,054,
respectively. Unless and until we commence material operations and
achieve material revenues, we will remain dependent on financings to continue
our operations.
15
Plan
of Operation
We were
formed to engage in the acquisition, exploration and development of mineral
deposits and reserves. We conducted minimal operations in this line of
business and in August 2007 decided to discontinue operations in this
area. We are presently inactive, but we are looking at ventures of merit
for corporate participation as a means of enhancing stockholder value. This may
involve sales of our equity or debt securities in merger or acquisition
transactions.
We have
minimal operating costs and expenses at the present time due to our limited
business activities. Accordingly, absent changed circumstances, we will
not be required to raise significant capital over the next twelve months,
although we may do so in connection with or in anticipation of possible
acquisition transactions. We do not currently engage in any product
research and development and have no plans to do so in the foreseeable
future. We have no present plans to purchase or sell any plant or
significant equipment. We also have no present plans to add employees
although we may do so in the future if we engage in any merger or acquisition
transactions.
Off-Balance
Sheet Arrangements
We have
never entered into any off-balance sheet financing arrangements and have not
formed any special purpose entities. We have not guaranteed any debt or
commitments of other entities or entered into any options on non-financial
assets.
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not
applicable.
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Our Disclosure Controls
Under the
supervision and with the participation of our senior management, including our
chief executive officer and chief financial officer, David Rector, we conducted
an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end
of the period covered by this quarterly report (the “Evaluation Date”). Based on
this evaluation, our chief executive officer and chief financial officer
concluded as of the Evaluation Date that our disclosure controls and procedures
were effective such that the information relating to us, required to be
disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms, and (ii) is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required
disclosure.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended December 31, 2010 that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.
PART
II – OTHER INFORMATION
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
In the
ordinary course of our business, we may from time to time become subject to
routine litigation or administrative proceedings which are incidental to our
business. We are not a party to nor are we aware of any existing, pending or
threatened lawsuits or other legal actions involving us.
16
|
ITEM
1A.
|
RISK
FACTORS
|
Not
applicable.
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
We did
not issue any equity securities during the quarter ended December 31,
2010.
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
None.
|
ITEM
4.
|
(REMOVED
AND RESERVED)
|
|
ITEM
5.
|
OTHER
INFORMATION
|
Management
On
November 22, 2010, Ronald Asirwatham resigned as our Director, Chief Executive
Officer, Chief Financial Officer, President, Secretary and Treasurer. Mr.
Asirwatham did not have any disagreement with us on any matter relating to our
operations, policies or practices.
On
November 22, 2010, our Board of Directors appointed David Rector as our
Director, Chief Executive Officer, Chief Financial Officer, President, Secretary
and Treasurer.
Loans
On May 8,
2009 we received an $80,000 loan from a minority shareholder and in connection
therewith issued an 8.25%, $80,000 convertible promissory note dated May 8,
2009. On November 8, 2010 the note was amended to extend the maturity
date. Subject to prior conversion, interest and principal are due on the note on
May 8, 2011. The terms of conversion have not been determined but will be
mutually determined by us and the holder.
On
February 10, 2010, the Company received a $32,327 unsecured loan from a minority
stockholder of the Company, and in connection therewith issued a 10% convertible
promissory note dated February 10, 2010. If not converted, interest
and principal are due at maturity on August 9, 2011. The note is
convertible at any time prior to maturity at a conversion price of approximately
$0.036 per share. The conversion price and the number of shares issuable upon
conversion are subject to adjustment under certain circumstances including
mergers, consolidations, reclassifications, stock splits, combinations,
dividends and similar transactions. Further, the conversion price is subject to
downward adjustment if the Company issues common stock or securities convertible
into common stock at a price of less than $0.036 per share at any time while the
note remains outstanding. In such event, the conversion price under the note
shall be reduced to such lower price.
On
October 14, 2010 we received a $50,000 loan from a minority shareholder and
issued a 10%, $50,000 convertible promissory note dated October 14, 2010. If not
converted, interest and principal are due at maturity on April 13, 2012. The
note is convertible at any time prior to maturity at a conversion price of
approximately $0.036 per share. The conversion price and the number of shares
issuable upon conversion are subject to adjustment under certain circumstances
including mergers, consolidations, reclassifications, stock splits,
combinations, dividends and similar transactions. Further, the conversion price
is subject to downward adjustment if we issue common stock or securities
convertible into common stock at a price of less than $0.036 per share at any
time while the note remains outstanding. In such event, the conversion price
under the note shall be reduced to such lower price.
Forward
Stock Split
Effective
the close of business on November 29, 2010 we effected a 2.782:1 forward stock
split in the form of a dividend pursuant to which shareholders of record at the
close of business on November 29, 2010 received an additional 1.782
shares of our common stock for each share of common stock held by them.
This resulted in our issuance of an aggregate of 11,117,701 shares. Following
such issuance, we had 17,356,590 shares issued and
outstanding.
2010
EIP
Effective
October 21, 2010, our Board of Directors and stockholders holding a majority of
our outstanding common stock approved our 2010 Equity Incentive Plan. The
purpose of the 2010 Equity Incentive Plan is to attract and retain the best
available personnel for positions of substantial responsibility; to provide
incentives to individuals who perform services for us; and to promote the
success of our business.
17
The 2010
Equity Incentive Plan reserves a total of 4,250,000 shares of our common stock
for issuance under the 2010 Equity Incentive Plan. If an incentive award
granted under the 2010 Equity Incentive Plan expires, terminates, is unexercised
or is forfeited, or if any shares are surrendered to us in connection with an
incentive award, the shares subject to such award and the surrendered shares
will become available for further awards under the 2010 Equity Incentive
Plan.
The
number of shares of our common stock subject to the 2010 Equity Incentive Plan,
any number of shares subject to any numerical limit in the Plan, and the number
of shares and terms of any incentive award will be adjusted in the event of any
change in our outstanding common stock by reason of any stock dividend,
spin-off, split-up, stock split, reverse stock split, recapitalization,
reclassification, merger, consolidation, liquidation, business combination or
exchange of shares or similar transaction.
Following
the November 29, 2010 2.782:1 forward stock split in the form of a dividend, the
number of shares reserved under the 2010 Equity Incentive Plan increased to
11,823,500 but our Board of Directors determined to reduce the number of shares
reserved for issuance under the 2010 Equity Incentive Plan to
4,250,000.
Formation
of Subsidiaries
On
December 6, 2010 we formed 22nd Century Acquisition Subsidiary LLC, a Delaware
limited liability corporation, as a wholly owned subsidiary. 22nd Century
Acquisition Subsidiary, LLC has no present assets or liabilities and is
presently inactive.
On
December 6, 2010 we formed Touchstone Split Corp., a Delaware corporation, as a
wholly owned subsidiary. Touchstone Split Corp. has no present assets or
liabilities and is presently inactive.
|
ITEM
6.
|
EXHIBITS
|
In
reviewing the agreements included as exhibits to this Form 10-Q, please remember
that they are included to provide you with information regarding their terms and
are not intended to provide any other factual or disclosure information about
the Company or the other parties to the agreements. The agreements may contain
representations and warranties by each of the parties to the applicable
agreement. These representations and warranties have been made solely for the
benefit of the parties to the applicable agreement and:
|
|
·
|
should
not in all instances be treated as categorical statements of fact, but
rather as a way of allocating the risk to one of the parties if those
statements prove to be inaccurate;
|
|
|
·
|
have
been qualified by disclosures that were made to the other party in
connection with the negotiation of the applicable agreement, which
disclosures are not necessarily reflected in the
agreement;
|
|
|
·
|
may
apply standards of materiality in a way that is different from what may be
viewed as material to you or other investors;
and
|
|
|
·
|
were
made only as of the date of the applicable agreement or such other date or
dates as may be specified in the agreement and are subject to more recent
developments.
|
Accordingly,
these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time. Additional
information about the Company may be found elsewhere in this Form 10-Q and the
Company’s other public filings, which are available without charge through the
SEC’s website at http://www.sec.gov.
18
The
following exhibits are included as part of this report:
|
Exhibit
No.
|
Description
|
|
|
3.1
|
Certificate
of Incorporation of Touchstone Split Corp., as filed with the Secretary of
State of Delaware on December 6, 2010
|
|
|
3.2
|
Certificate
of Formation of 22nd Century Acquisition Subsidiary, LLC, as filed with
the Secretary of State of Delaware on December 6, 2010
|
|
|
31.1
/ 31.2
|
Rule
13(a)-14(a)/15(d)-14(a) Certification of Principal Executive and Financial
Officer
|
|
|
32.1
/ 32.2
|
Rule
1350 Certification of Principal Executive and Financial
Officer
|
19
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
22ND CENTURY
GROUP, INC.
|
||
|
Dated: January
18, 2011
|
By:
|
/s/ David Rector
|
|
David
Rector
|
||
|
President,
Principal Executive and Financial
Officer
|
||
20