Star Scientific Files Annual Financial Report

    Business Editors

    CHESTER, Va.--(BUSINESS WIRE)--March 16, 2005--Star Scientific, Inc. (Nasdaq:STSI) announced that the company filed its annual report on Form 10-K today with the Securities and Exchange Commission. The company reported net sales of $66.7 million compared with net sales of $73.3 million for 2003. Unit sales decreased approximately 10%, from 2.0 billion cigarettes in 2003 to 1.8 billion in 2004. There was a consolidated net loss of $16.6 million for 2004 compared to a loss of $16.7 for 2003. Star indicated in its filing that the 2004 net loss was attributable in part to lower profit margins on cigarette sales during the first half of that year.
    The company reported a net working capital surplus of $5.6 million as of December 31, 2004 compared with a $9.0 million working capital deficit the preceding year. Financing activities during 2004 generated cash of $26.8 after payment of $10.3 million for notes payable and capital leases. In addition, the company entered into a Securities Purchase and Registration Rights Agreement in late February for the sale of 3.6 million shares of common stock, together with nine-month warrants for 3.6 million additional shares, at an exercise price of $5.00 per share. That sale generated aggregate proceeds of $18.0 million, and could generate an additional $18.0 million, should the holders of the warrants decide to exercise them during 2005 prior to their expiration date.
    The company indicated in its filing that with its recent funding it expects to have sufficient working capital to satisfy operational needs into the second quarter of 2006. Those operational needs include required escrow payments under the 1998 Tobacco Master Settlement Agreement (MSA), for 2004 cigarette sales in the MSA states, which the company estimates will total between $4 million and $5 million. The company also wanted to make certain that sufficient funds are available to support all costs associated with Star's pending patent infringement lawsuit against RJ Reynolds Tobacco Company, Inc (RJR). A bench trial on the RJR defense claim of alleged inequitable conduct before the US Patent & Trademark Office was conducted in US District Court in Baltimore, MD, between January 31 and February 8, 2005. The company currently awaits a ruling from the Court on that defense, as well as decisions on two summary judgment motions. The briefing on those motions was completed on Friday, March 11.

    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 capital in the future that is 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 Tobacco 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 Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the Securities and Exchange Commission on March 16, 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.
    See Star's website at: http://www.starscientific.com.

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CONTACT: Star Scientific Sara Troy Machir, 301-654-8300

KEYWORD: VIRGINIA INDUSTRY KEYWORD: CHEMICALS/PLASTICS MEDICAL PHARMACEUTICAL ENVIRONMENT MANUFACTURING EARNINGS SOURCE: Star Scientific

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