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Star Scientific Inc. Announces Record 1st Quarter Sales and Pre-Tax Earnings.

Business Editors

CHESTER, Va.--(BUSINESS WIRE)--April 25, 2000

Star Scientific, Inc. (NASDAQ: STSI) announced another record quarter in sales and pre-tax earnings.

First quarter 2000 net revenues were $46.5 million, compared to $15.8 million in the first quarter of 1999, an increase of 194 %. First quarter 2000 pre-tax and net earnings were $3.3 million and $2.0 million, respectively, compared to pre-tax and net earnings of $2.9 million and $2.1 million, respectively, in the first quarter of 1999.

First quarter 2000 diluted per share earnings were $.03 against per share earnings of $.04 in the first quarter of 1999. The diluted weighted average shares outstanding were 62,391,461 and 56,731,581 in the first quarters of 2000 and 1999, respectively.

Paul L. Perito, Esquire, Star's President and COO, noted: "We are gratified with the continuing increases in sales and pre-tax income. These increases have occurred despite the dramatic increases in Federal Excise Taxes paid (from $6.4 million to $22.6 million) during the first quarters of 1999 and 2000, respectively. Significant costs were also incurred during the first quarter of 2000 associated with the hiring and deployment of a national sales force in anticipation of Star fulfilling one of its primary missions of making available tobacco products that deliver less toxins. These associated infrastructure costs will enable Star to be the first tobacco company in the market to introduce a cigarette and a moist snuff with very low levels of tobacco specific nitrosamines."

Mr. Jonnie R. Williams, Star's co-founder and its CEO, commented: "Although we continue hitting new sales records consistently, our primary immediate focus is our anticipated launch of our two new flagship tobacco products, namely, a new very low nitrosamine cigarette using an activated charcoal filter, as well as a very low nitrosamine moist snuff product. Star believes that the introduction of these two new products reinforces the value of the Company's StarCure(TM) technique for reducing nitrosamines to very low levels, thereby underscoring its role as the industry leader in this crucial area." Respected medical scientists and researchers believe that tobacco specific nitrosamines (TSNAs) are among the most potent and abundant cancer causing agents in tobacco and tobacco smoke. Further, Star believes it has a corporate responsibility to integrate into its present conventional cigarette brands, over the next 24 months, very low TSNA tobacco, given Star's anticipated increased production capacity.

"We have created, during the first quarter, an expanded corporate and national infrastructure in anticipation of our launch of our new flagship products. As a result, we now have in place a dedicated sales force of more than 80 regional and local experienced sales persons. This combination of supporting our nationwide network of over 350 distributors with our newly expanded and dedicated sales representatives in the field should generate substantial long term growth for Star and its stockholders," Mr. Williams further commented.

Mr. Perito stated that, on April 14, 2000, Star deposited into escrow approximately $11.6 million to fund its purported escrow obligations under the Master Tobacco Settlement Agreement (MSA) and specific state statutes that were passed in 1999 by states that are participating members of the MSA. The so-called "level playing field" statutes require non-participating manufacturers to fund escrow accounts that could be used to satisfy judgments or settlements in lawsuits that may at some future date be filed by the participating states. To date no states have filed suits against Star to compel any payments under the MSA and state statutes. In fact, there are no pending lawsuits against Star in any state or federal court.

While funding its 1999 escrow obligations, the Company did so under protest and is continuing to assess its options in each state with respect to the MSA and model statutes, including a range of potential legal challenges to the statutes and/or the MSA under a variety of legal theories, including unconstitutional taking of property. The Company has retained a team of four prominent litigation firms, headed by a nationally recognized and seasoned trial lawyer. Although the Company's Board has instructed trial counsel to prepare a draft Complaint challenging the MSA and/or model statutes, nonetheless the Company continues to engage in a dialogue with the National Association of Attorneys General ("NAAG") in hopes that a global resolution can be effected, short of affirmative litigation against NAAG. The funds placed in escrow have been invested in bank certificates of deposit and, while the principal will remain in escrow, the interest from those certificates as it accrues will be paid to Star. (For more information on the MSA see Star's Annual Report on Form 10-K for the year ended December 31, 1999).

During the first quarter Star has continued to expand its StarCure(TM) barn program. Mr. Jim Jennings, Star's Vice President of Grower Relations, said: "We currently have contracts for approximately 900 specially built tobacco-curing barns (negotiated with farmers in the states of Virginia, North Carolina, South Carolina, Georgia and Florida), and more than 650 barns have been placed on tobacco farms after construction by Powell Manufacturing Company, Inc., of Bennettsville, South Carolina, the largest barn manufacturer in the U.S. The processing of the major order previously placed by Brown & Williamson Tobacco Corporation (B&W) for, at least, 5 million pounds of StarCure(TM) very low-nitrosamine flue-cured tobacco will begin in the third quarter of 2000. In 1999, the Company produced at its Chase City, Virginia facility approximately 3.5 million pounds of StarCure(TM) very low nitrosamine flue-cured tobacco for B&W. This processing facility is now under renovation in order to double its size by the beginning of this year's growing season in July to accommodate the massive amount of tobacco which will be delivered by farmers who have joined the expanding StarCure(TM) tobacco farmers' program."

In a similar vein, Star has developed a comprehensive pilot program with burley farmers in Kentucky for this year's growing season. The specific contours and barn allotments of the Kentucky burley program will be announced in the near future, once Star and The Burley Tobacco Growers Cooperative Association, Inc. complete their ongoing active negotiations for technology sharing under a previously agreed to Confidentiality Agreement.

Mr. Williams stated, "It is anticipated that in light of Star's projected increased StarCure(TM) production during the year 2000, a total of between 20-25 million pounds of very low StarCure(TM) TSNA tobacco will be processed during this year's growing season. With such increased production, Star fully expects to be able to fulfill its expanding contractual commitments for processed tobacco to be sold to B&W (the third largest tobacco company in the United States) and to fulfill its commitment to the public to phase into its existing brands very low TSNA tobacco over the next 24 months in addition to launching two new flagship products."1

Professor Robert J. DeLorenzo, M.D., Ph.D., MPH, Star's Chairman (and Chairman of the Department of Neurology at Virginia Commonwealth University) said that sales of processed tobacco do not fall under the provisions of the MSA, thus no escrow payments under the MSA and model state statutes need to be set aside for Star's sales this year, or thereafter. Further, Dr. DeLorenzo reiterated the importance of Star's efforts to involve and work with large, as well as small, tobacco farmers in both flue-cured and burley states as Star continues to develop and expand its operations.

Finally, Mr. Williams stated that the Board of Directors has named Christopher G. Miller as Acting Chief Financial Officer pending a search which is now under way for a permanent CFO. Mr. Miller, who is a distinguished graduate of both the United States Military Academy (BS Civil Engineering 1980) and the Harvard Business School (MBA 1987), has been a financial consultant with Star over the past several months assisting in the development of a long term financial plan. "We are indeed fortunate to have someone of Mr. Miller's experience in financial analysis, planning and the capital markets to assist Star over the next few months as we conduct a nationwide search for a CFO with a specialized background in dealing with Wall Street and the capital markets," Mr. Williams added.

Also, Mr. Miller serves as Chief Executive Officer of Special Opportunities Group LLC. Prior to his service at Special Opportunities Group LLC, Mr. Miller served as Chief Financial Officer of the Gilder Group from 1998 to 1999, Chief Executive Officer of American Healthcare Ltd. from 1994 to 1998, Chief Executive Officer of International Medical Care, Ltd. from 1992 to 1993, and Chief Financial Officer and Executive Vice President of Hospital Corporation International from 1991 to 1992. Immediately after receiving his MBA from the Harvard Business School, Mr. Miller was employed by Bear Stearns as an Investment Banking Associate. Mr. Miller serves on the Board of Directors of XiTec, SignalQuest, Ana Mandara and Zhou Li's Marco Polo Collections. Star's former CFO, James A. McNulty, has tendered his resignation so that he might pursue other interests.

This press release reflects certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company has tried, whenever possible, to identify these forward-looking statement using words such as "anticipates", "believes", "estimates", "expects", "plans", "intends" and similar expressions. These statements reflect the Company's current beliefs and are based upon information currently available to it. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the Company's actual results, performance or achievements to differ materially from those expressed in, or implied by, such statements. These risks, uncertainties and contingencies include, without limitation, the continued development and commercialization of the Company 's proprietary patented process for reducing and/or virtually eliminating TSNAs in the processing of tobacco leaf, potential disputes concerning the Company's intellectual property, potential delays in obtaining any necessary government approvals of the Company's proposed reduced risk tobacco products, market acceptance of the Company's products, competition from companies with greater resources than Star, the Company's decision not to join the MSA, the adoption of required state statutes and any subsequent modification of the MSA. The impact of potential litigation, if initiated against or by individual states that have adopted the MSA, could be materially adverse to the Company. See additional discussion under "Factors That May Affect Future Results" in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and other factors detailed from time to time in the Company's other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or advise upon any such forward-looking statements.

(1) Star presently markets four brands namely, Sport(R), Mainstreet(R), Vegas(R) and G-Smoke(R) all of which now have activated charcoal filters and contain approximately 3% of very low TSNA flue-cured tobacco because of limited availability.
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Publication:Business Wire
Date:Apr 26, 2000
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