Star Scientific, Inc. (NASDAQ:STSI - News) today filed its quarterly financial report on Form 10-Q with the Securities and Exchange Commission. The company reported a 13% increase in net sales of $2 million in second quarter 2005 compared with the same period in 2004, to $17.4 million from $15.4 million. Net sales also increased 2.3% between the first and second quarters of 2005, from $17.0 million to $17.4 million. While total truckload shipments declined during second quarter 2005, to 59.9 compared with 66.5 during the second quarter of 2004, gross margin increased approximately $2 million. This increase was due primarily to achieving higher average per-carton prices during the second quarter.
There was a consolidated net loss for the second quarter of $2.9 million, compared with $4.3 million in second quarter 2004. The operating loss for the second quarter, $1.6 million, represented a 54% reduction from the $3.5 million operating loss for the comparable period in 2004. The company reported net working capital of $13.4 million and $15.9 million in cash and cash equivalents as of June 30, 2005, compared with $0.1 million in cash and a $10.2 million working capital deficit as of June 30, 2004. The company anticipates that cash needs for the next four quarters will include funding of litigation costs in connection with the trial portion of Star's patent infringement lawsuit against RJ Reynolds Tobacco Company, Inc. (RJR); payment on restructured accounts payable; long-term curing-barn debt; capital leases; and funding of business operations.
On July 21, 2005, Honorable Marvin J. Garbis, the presiding judge in the company's lawsuit against RJR, issued a memorandum and order on Star's motion to seal certain trial exhibits and portions of the bench trial transcript. The order stated that the requested trial exhibits would remain sealed, and that the trial transcript would remain part of the public record. At the conclusion of the bench trial in February on RJR's allegation of inequitable conduct, Judge Garbis indicated that he would issue his ruling on the bench trial at the same time as decisions on two limited summary judgment motions that RJR had filed in late January and were fully briefed as of March 11. The company currently awaits those rulings.
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 the capital 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 Registration Statement on Form S-3, as filed with the Securities and Exchange Commission on April 28, 2005, and other factors detailed from time to time in the Company's other filings with the Securities and Exchange Commission, available at www.sec.gov. 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(TM) 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 and in Petersburg, VA.