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Star Scientific Inc. Reports First Quarter Results.

CHESTER, Va. -- Star Scientific, Inc. (NASDAQ:STSI) today filed its quarterly financial report on Form 10-Q with the Securities and Exchange Commission. The company reported an operating loss of $3.1 million compared with an operating loss of approximately $3.5 million in the same quarter in 2005. The net loss for the first quarter of 2006 totaled approximately $3.2 million compared with a net loss of $8.4 million for the first quarter of 2005. While net sales for first quarter 2006 were $8.5 million compared with $17.0 million for the same period in 2005, operating expenses were reduced from $7.4 million for first quarter 2005 to $4.5 million for first quarter 2006. The company reduced marketing and distribution expenses by roughly 50%, to $1.5 million in first quarter 2006 from $3.0 million for the same period in 2005. General and administrative expenses also were reduced 31%, from $4.4 million in first quarter 2005 to $3.0 million in first quarter 2006.

Cigarette shipments in the first quarter totaled roughly 30.9 truckloads compared to approximately 59.3 truckloads for the same quarter in 2005. The decrease was due in large part to continued competitive pressures in the deep discount market segment in the four non-MSA states, and the company's successful efforts to limit cigarette sales in the MSA states where it is subject to escrow payments for those sales. The company's MSA escrow payments for 2005 sales totaled $1.2 million, a 70% reduction from $3.9 million in payments for 2004 cigarette sales. The company expects that its escrow obligation for sales in the MSA states will continue to decline in 2006.

Sales of the company's two dissolvable smokeless tobacco products, Ariva(R) and Stonewall Hard Snuff(R), increased roughly 35.2% in first quarter 2006 compared with the same period the previous year. While smokeless tobacco products represent a small fraction of the company's revenues, and it will take a significant increase in volume to achieve profitability, currently roughly 90% of Ariva(R) sales volume represents repeat purchasing, and roughly 50% of Stonewall Hard Snuff(R) sales are repurchases. During the first quarter the company initiated an accelerated effort that focuses particularly on expanding Stonewall Hard Snuff(R) distribution among wholesalers and chain stores.

In March 2006 the company completed an equity financing for $6.0 million through sales of its common stock. As a result of this transaction, the company received $1.8 million in cash in the first quarter 2006 and will receive the remaining proceeds through June 2006. The proceeds from the equity sale will be used for working capital needs that include litigation costs related to the company's patent infringement lawsuit against RJ Reynolds Tobacco Company (RJR), debt payments to Brown & Williamson Tobacco Company and other operational expenses.

The company continues to await a ruling from the US District Court on the inequitable conduct defense and two motions for summary judgment that were presented by RJR in the patent infringement lawsuit Star filed against RJR. The inequitable conduct defense was tried to the Court in early 2005.

This press release contains 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 statements 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 challenges inherent in new product development initiatives, particularly in the smokeless tobacco area, the uncertainties inherent in the progress of scientific research, the Company's ability to raise additional capital in the future necessary to maintain its business, potential disputes concerning the Company's intellectual property, risks associated with litigation regarding such intellectual property, potential delays in obtaining any necessary government approvals of the Company's low-TSNA tobacco products, market acceptance of the Company's new smokeless tobacco products, competition from companies with greater resources than the Company, the Company's decision not to join the Master Settlement Agreement ("MSA"), the effect of state statutes adopted under the MSA and any subsequent modification of the MSA, and the Company's dependence on key employees and on its strategic relationships with Brown & Williamson Tobacco Corporation in light of its combination with RJ Reynolds Tobacco Company, Inc. 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 Form 10-K/A for the year ended December 31, 2005, as filed with the SEC on March 22, 2006, and other factors detailed from time to time in the Company's other filings with the Securities and Exchange Commission, available at The Company undertakes no obligation to update or advise upon any such forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

About Star Scientific

Star Scientific is a technology-oriented tobacco company with a toxin reduction mission. It is engaged in the development of tobacco products that deliver fewer carcinogenic toxins (principally tobacco specific nitrosamines, or TSNAs), through the utilization of the innovative StarCured(R) tobacco curing technology, and in sublicensing that technology to others. Star Scientific has a Corporate and Sales Office in Chester, VA, an Executive, Scientific & Regulatory Affairs office in Bethesda, MD, and manufacturing and tobacco processing facilities in Chase City, VA and in Petersburg, VA.

See Star's website at:
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Publication:Business Wire
Date:May 10, 2006
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