<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 March 31, 2000
[ ] 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: 0-15324
STAR SCIENTIFIC, INC.
(Exact Name of Registrant as Specified in its charter)
DELAWARE
(State of incorporation)
52-1402131
(IRS Employer Identification No.)
801 LIBERTY WAY
CHESTER, VA 23836
(Address of Principal Executive Offices)
(804) 530-0535
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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
--- ---
At April 30, 2000, there were 58,759,040 shares outstanding of the Registrant's
common stock, par value $.01 per share.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000 (Unaudited)
and December 31, 1999 1
Condensed Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (Unaudited) 3
Notes to Condensed Consolidated Financial Statements 4
Item 2 - Management's Discussion and Analysis or Plan of Operation 7
PART II Item 6 - Exhibits and Reports on Form 8-K 11
Signatures
</TABLE>
<PAGE> 3
STAR SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
--------------- --------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 13,679,794 $ 17,205,248
Accounts receivable, trade 9,527,601 3,599,965
Inventories 3,347,595 3,570,609
Prepaid expenses and other current
assets 641,068 338,790
Deferred tax asset 2,286,000 2,303,000
--------------- --------------
Total current assets 29,482,058 27,017,612
Property, plant and equipment, net 17,221,158 10,974,029
Intangibles, net of accumulated
amortization 329,123 338,043
Other assets 744,806 296,263
Deferred tax asset 83,000
--------------- --------------
$ 47,777,145 $ 38,708,947
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of notes payable $ 213,124 $ 275,000
Accounts payable, trade 4,211,100 3,492,755
Federal excise taxes payable 6,020,000 1,476,524
Accrued expenses 1,206,533 1,442,521
Income taxes payable 2,148,000 6,198,000
Customer deposit 6,000,000 6,000,000
--------------- --------------
Total current liabilities 19,798,757 18,884,800
Notes payable, less current
maturities 13,521,770 7,504,679
Deferred tax liability 80,000 -
--------------- --------------
Total liabilities 33,400,527 26,389,479
--------------- --------------
Commitments and contingencies - -
Stockholders' equity:
Common stock (A) 587,592 587,493
Preferred stock (B) - -
Additional paid-in capital 10,683,666 10,631,875
Retained earnings 6,193,166 4,187,906
Notes receivable, officers ( 3,087,806) ( 3,087,806)
--------------- ---------------
Total stockholders' equity 14,376,618 12,319,468
--------------- ---------------
$ 47,777,145 $ 38,708,947
=============== ===============
(A) $.01 par value, 100,000,000 shares authorized, 58,759,040 and 58,749,200
shares issued and outstanding 2000 and 1999, respectively
(B) Series B, convertible; $.01 par value 15,000 shares authorized
See notes to condensed consolidated financial statements.
1
<PAGE> 4
STAR SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------------ -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 46,513,142 $ 15,781,466
------------------ -----------------
Less:
Cost of goods sold 14,089,398 3,830,052
Excise taxes on products 22,592,325 6,392,340
------------------ -----------------
Gross profit 9,831,419 5,559,074
------------------ -----------------
Operating expenses:
Marketing and distribution 3,412,792 1,411,263
General and administrative 2,959,701 1,075,489
Research and development 103,500 117,841
------------------ -----------------
Total operating expenses 6,475,993 2,604,593
------------------ -----------------
Operating income 3,355,426 2,954,481
Other income (expenses):
Interest income 233,354 -
Interest expense ( 206,993) ( 44,543)
Loss on disposal of assets ( 26,525) -
------------------ -----------------
Income before income taxes 3,355,262 2,909,938
Income tax expense ( 1,350,000) ( 775,000)
------------------ -----------------
Net income $ 2,005,862 $ 2,134,938
================== =================
Basic income per common share $ .03 $ .22
================== =================
Diluted income per share $ .03 $ .04
================== =================
Weighted average shares outstanding basic 58,774,077 9,819,740
================== =================
Weighted average shares outstanding diluted 62,391,461 56,731,581
================== =================
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
STAR SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------------ -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities:
Net income $ 2,005,262 $ 2,134,938
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 459,566 53,865
Deferred income taxes 180,000
Loss on fixed asset disposal 26,525
Stock-based compensation expense 32,250 101,167
Increase (decrease) in cash resulting from changes in:
Current assets ( 6,006,900) ( 655,782)
Current liabilities 975,833 97,281
------------------ -----------------
Net cash provided by (used in) operating activities ( 2,327,464) 1,731,469
------------------ -----------------
Investing activities:
Collections of notes receivable 5,923 ( 40,019)
Purchases of property, plant and equipment ( 6,737,750) ( 1,004,390)
Proceeds from disposal of property
and equipment 13,450 -
Deposits on property and equipment ( 410,613) -
Advances to related parties - ( 104,434)
------------------ ------------------
Net cash used in investing activities ( 7,128,990) ( 1,148,843)
------------------ ------------------
Financing activities:
Proceeds from notes payable 6,028,000 -
Payments on notes payable ( 72,788) 75,000
Proceeds from sale of stock 19,640 ( 68,107)
Loan cost paid ( 43,852) -
------------------ -----------------
Net cash provided by financing activities 5,931,000 6,893
------------------ -----------------
Increase (Decrease) in cash and cash
Equivalents ( 3,525,454) 589,529
Cash and cash equivalents,
beginning of year 17,205,248 102,695
------------------ -----------------
Cash and cash equivalents,
end of year $ 13,679,794 $ 692,224
================== =================
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 161,792 $ 65,020
================== =================
Income taxes $ 5,220,000 $ -
================== =================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
STAR SCIENTIFIC, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
1. Accounting Policies
The financial statements and notes thereto should be read in conjunction with
the financial statements and notes for the year ended December 31, 1999.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results of
operations for the periods presented have been included. The results of
operations for the three months March 31, 2000 and 1999 are not necessarily
indicative of the results for a full year.
The Company generated net income for the three months ended March 31, 2000.
Diluted earnings per share assumes conversion common stock options and warrants.
2. Notes payable:
Notes payable consists of the following:
<TABLE>
<CAPTION>
2000
---------------------
<S> <C>
Note payable under a $13,200,000 credit facility restricted for the
purchase of tobacco curing barns; interest at the stated rate of prime
plus 1% payable commencing December 2000; accrued at the effective
rate; principal payable in 60 equal monthly installments commencing
September 2004; collateralized by the Company's curing barns and leaf
tobacco inventory. $ 13,200,000
Note payable, bank, due in monthly installments of $3,111, including
interest at prime plus 1%, through 2001; secured by real property and
guaranteed by certain stockholders. 258,535
Term note payable, finance company, due in monthly installments of
$21,047, including interest at 10.15% through September 2001; secured
by manufacturing equipment. 127,835
Term note payable, finance company, due in monthly
installments of $7,262, including interest at 9.31%
through October 2001; secured by manufacturing equipment. 121,989
Other 26,535
---------------------
13,734,894
Less current maturities 213,124
---------------------
$ 13,521,770
=====================
</TABLE>
4
<PAGE> 7
STAR SCIENTIFIC, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
Notes Payable (continued)
The annual maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
2000 213,124
2001 321,770
2005 13,200,000
--------------------
$ 13,734,894
====================
</TABLE>
3. Income tax expense consists of the following:
<TABLE>
<S> <C>
Current $ 1,170,000
Deferred 180,000
------------------
$ 1,350,000
===================
</TABLE>
Income tax expense differs from that which would result from applying
statutory tax rates to pre-tax income. A reconciliation is as follows:
<TABLE>
<S> <C>
Statutory rate 34.0%
State income taxes 6.0
-----------
40.0%
===========
</TABLE>
4. Segment information:
<TABLE>
<CAPTION>
Segment of Business
----------------------------------------------------------------
March 31, 2000
----------------------------------------------------------------
Discount
Cigarettes Tobacco Leaf Consolidated
------------------ -------------------- ------------------
<S> <C> <C> <C>
Revenue $ 46,490,935 $ 22,207 $ 46,513,142
Cost of sales and excise taxes 36,256,377 425,346 35,831,031
------------------ -------------------- ------------------
Gross margin 10,234,558 ( 403,139) 9,831,419
------------------ -------------------- ------------------
Research and development - 103,500 103,500
------------------ -------------------- ------------------
Segment assets $ 24,499,145 $ 23,278,000 $ 47,277,144
================== ==================== ==================
<CAPTION>
March 31, 1999
----------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 15,781,466 $ - $ 15,781,466
Cost of sales and excise taxes 10,222,392 - 10,222,392
------------------ -------------------- ------------------
Gross margin 5,559,074 - 5,559,074
------------------ -------------------- ------------------
Research and development 117,841 - 117,841
------------------ -------------------- ------------------
Segment assets $ 6,775,442 $ - $ 6,775,442
================== ==================== ==================
</TABLE>
5
<PAGE> 8
STAR SCIENTIFIC, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
5. Obligations under Master Settlement Agreement:
In November 1998, 46 states and several U.S. territories entered into a
settlement agreement to resolve litigation that had been instituted by
them against the major tobacco manufacturers. The Company was not named
as a defendant in any of the litigation matters and chose not to become a
participating manufacturer under the terms of the Master Settlement
Agreement ("MSA"). Nonparticipating manufacturers are required to fund
escrow accounts pursuant to the MSA. The Company's escrow funding
requirement in April 2000 for 1999 sales was approximately $11,600,000.
Such escrowed funds will be available to satisfy tobacco-related
judgments or settlements, if any, in some states, and if not so used,
returned to the Company after 25 years. The Company will, however,
receive interest earnings on the invested escrowed amounts.
6
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL; RECENT DEVELOPMENTS
Star Scientific, Inc. (the "Company") is engaged in: (1) the
development of proprietary scientific technology for the curing of tobacco so as
to prevent, retard or significantly reduce the formation of carcinogenic toxins
present in tobacco and tobacco smoke, primarily, the tobacco specific
nitrosamines ("TSNAs"); (2) the development of less toxic smoked tobacco
products utilizing tobacco with very low levels of TSNAs (measured in parts per
billion) which has been cured using the Company's proprietary StarCure(TM)
process; (3) the manufacture and sale of discount cigarettes, with activated
charcoal filters, through its wholly-owned subsidiary, Star Tobacco &
Pharmaceuticals, Inc. ("ST&P"); (4) the research and development of tobacco
cessation products; and (5) the development of smokeless tobacco products
utilizing tobacco with very low levels of TSNAs (measured in parts per billion)
which have been cured using the Company's proprietary StarCure(TM) process.
In the first quarter of 2000, the Company's revenues were generated
through the sale of discount cigarettes by ST&P. ST&P currently manufactures and
sells four brands of discount cigarettes, SPORT(R), MAINSTREET(R), VEGAS(R) and
G-SMOKE(R), through approximately 350 tobacco distributors throughout the United
States. During the first quarter of 2000, ST&P's cigarette sales continued to
experience substantial sales growth.
In an effort to implement the Company's corporate mission to develop
potentially less toxic tobacco products, the Company intends to phase its very
low-TSNA tobacco, which has been cured through its proprietary StarCure(TM)
process, into ST&P's discount cigarettes within the next 24 months. The Company
has announced plans to launch, before the end of the third quarter of 2000, the
first very low-TSNA cigarette. This cigarette, which will have a new name chosen
by late Spring 2000, also will have an activated charcoal filter aimed at
reducing the levels of certain vapor phase toxins.
The Company's central focus will continue to be the research and
development of products that reduce the range of serious health hazards
associated with the use of smoked and smokeless tobacco products. The Company
fully accepts the evidence showing links between smoking tobacco and a variety
of diseases and premature death and believes that it is unlikely that the
health risks of smoked tobacco can be completely eliminated. Nevertheless, in a
world where an estimated 1.1 billion people smoke and use other tobacco
products, there is an urgent need to reduce the toxicity of tobacco products to
the maximum extent possible using available technology. The Company believes
that it has a corporate responsibility to continue to expand its research and
development efforts to manufacture tobacco products that are as safe as
technologically possible. The Company has now demonstrated that the method it
has developed for curing tobacco using its proprietary StarCure(TM) process,
can be scaled up to meet broad commercial needs in the United States and
abroad.
On October 12, 1999, the Company and the Brown & Williamson Tobacco
Corporation ("B&W") entered into a supply agreement ("Agreement") under which
B&W has agreed to purchase StarCure(TM) tobacco. During the third and fourth
quarters of 1999, the Company produced and delivered to B&W approximately 3.5
million pounds of very low-TSNA Star Cure(TM) processed tobacco. These sales
accounted for approximately 10% of the Company's consolidated net sales in 1999.
The Company expects that in 2000 a minimum of 8 million pounds will be sold to
B&W pursuant to the Agreement. The bulk of these sales will occur in the third
and fourth quarter of this year resulting in higher revenues in those quarters.
In each of the years 2000 and 2001, B&W is obligated to purchase from
the Company five million pounds of Virginia flue-cured tobacco that has been
cured using the StarCure(TM) process; and B&W has an option to purchase three
million pounds of burley tobacco cured using the same process. B&W also has
financed the purchase of 600 of the Company's specially designed curing barns
(see "Financial Condition" below).
7
<PAGE> 10
Master Tobacco Settlement Agreement
In November 1998, 46 states and several U.S. territories entered into a
settlement agreement (the "Master Settlement Agreement") to resolve litigation
that had been instituted by them against the major tobacco manufacturers. The
Company was not named as a defendant in any of the litigation matters and chose
not to become a participating manufacturer under the terms of the Master
Settlement Agreement. As a nonparticipating manufacturer, the Company is
required to satisfy escrow obligations under statutes which the Master
Settlement Agreement required participating states to pass, if they were to
receive the full benefits of the settlement. The so-called "level playing field"
statutes require nonparticipating 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 against such nonparticipating
tobacco manufacturers. Absent a legal challenge to the state specific statutes
or an agreement with respect to the funding of the required escrow accounts,
beginning April 2000 and annually thereafter the Company is obligated to place
an amount equal to $2.09 per carton for 2000, and increased amounts per carton
for subsequent years ($2.72 in 2001-2002, $3.35 in 2003-2006 and $3.77
thereafter), in escrow accounts, for sales of cigarettes occurring in the prior
year in each such state after the effective date of each state specific statute.
Based on Star's projected increase in sales for future years, the Company will
have to pay significant sums into these escrow accounts to meet the Master
Settlement Agreement requirements. If not used to satisfy judgments or
settlements, the funds will be returned to the Company 25 years after the
applicable date of deposit on a rolling basis. The failure to place such
required amounts into escrow could result in penalties and potential
restrictions on the Company's ability to sell tobacco products within particular
states. Because of this escrow requirement, which currently applies to
approximately 75% of ST&P's cigarette sales, a substantial portion of the
Company's net income from operations will be unavailable for the Company's use
and the amount required to be placed in escrow may exceed the net operating
cash flow generated by the Company. In the first quarter of 2000, the Company's
Board of Directors authorized the Company to deposit the escrow obligations for
1999 under protest and to prepare a draft complaint for consideration by the
Company's Board of Directors. The funds placed in escrow will continue to be an
asset of the Company and the Company will receive the interest income generated
by the escrow deposit.
RESULTS OF OPERATIONS
The Company's unaudited condensed consolidated results for the periods ended
March 31, 2000 and 1999 are summarized in the following table:
<TABLE>
<CAPTION>
(in thousands of dollars, except share and per share data) 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $46,513 $15,781
Excise Taxes 22,592 6,392
Cost of goods sold 14,090 3,830
Gross Profit 9,831 5,559
Operating income 3,355 2,954
Net income 2,006 2,134
Basic income per share 0.03 0.22
Diluted income per share 0.03 0.04
Weighted average shares outstanding (Basic) 58,774 9,819
Weighted average shares outstanding (Diluted) 62,391 56,732
</TABLE>
During the first quarter of 2000, the Company's consolidated net sales
increased to $46.5 million, reflecting an increase of $30.7 million, or 194%
over the comparable 1999 period. All net sales in the first quarters of 1999 and
2000 were from the sale of cigarettes by ST&P. The Company anticipates sales of
very low-TSNA tobacco to B&W in the third and fourth quarters of 2000. Excise
taxes included in net sales for the first quarter of 2000 increased to $22.6
million from $6.4 million in the comparable 1999 period
8
<PAGE> 11
The Company's shipment volume during the first quarter of 2000
increased approximately 224% over the comparable 1999 period to 1.3 billion
units, reflecting a continued upswing in sales of the Company's cigarettes as a
result of growing the customer base, including sales in additional major retail
chains.
During the first quarter of 2000, the Company's consolidated gross
profit increased to $9.8 million, reflecting an increase of $4.2 million over
the comparable 1999 period, as increases in net sales of $30.7 million over the
comparable 1999 period were partially offset by increased costs of goods sold
($10.3 million) and increased excise taxes ($16.2 million). Increased costs of
goods sold were primarily related to volume increases.
Marketing and distribution expenses, on a consolidated basis, totaled
$3.4 million for the first quarter of 2000, an increase of $2.0 million over the
comparable 1999 period which reflects a larger sales force and higher
promotional expenses.
General and administrative expenses, on a consolidated basis, totaled
$3.0 million for the first quarter of 2000, an increase of $1.9 million over the
comparable 1999 period, attributable primarily to expenses related to the
relocation of its executive, marketing, sales and administrative offices to
Chester, Virginia and associated costs in maintaining that facility, higher
personnel costs associated with the Company's fulfillment of its compliance
obligations as a publicly-held company, pursuance of its legal and public health
strategies in the legislative, regulatory and executive agency arenas, its
technical recruitment efforts, expansion of its Scientific Advisory Board and
increased scientific consulting. Research and development expenses were flat in
the first quarter of 2000 versus the comparable period in the previous year.
Interest income in the first quarter of 2000 reflects interest on
higher cash balances on hand, generated by the improved operating results.
Interest expense for the first quarter was the result of the credit facility
from B&W that is being used for the purchase of tobacco curing barns.
Higher income tax expense for the first quarter of 2000 compared to the
first quarter of 1999 reflects higher income and the use of net operating loss
carryover from 1998 to lower the Company's 1999 income tax expense.
Consolidated net income of $2.0 million for the first quarter of 2000
was down slightly from the comparable 1999 period. In the first quarter of 2000,
the Company had basic and diluted earnings per share equal to $0.03 per share
versus basic and diluted earnings per share of $0.22 and $0.04 per share,
respectively, in the first quarter of 1999, which also reflects an increase in
the weighted average shares outstanding. The increase in the weighted average
shares outstanding is due primarily to the conversion of the Company's Class B
Preferred Stock into shares of the Company's Common Stock
FINANCIAL CONDITION
In the first quarter of 2000, $2.3 million of cash was used in
operating activities due primarily to an increase in trade accounts receivable
due to the increased sales levels.
During the first quarter of 2000, the Company incurred $6.7 million in
capital expenditures, virtually all of it as part of the StarCure(TM) barn
production program with the Powell Manufacturing Company. Approximately 650 of
these barns have already been manufactured and delivered and contracts with
tobacco farmers for approximately 250 additional curing barns have either been
executed or are anticipated to be executed in 2000.
B&W has agreed to loan the Company capital necessary to finance the
purchase of curing barns in the form of a $13,200,000 long-term credit facility
restricted for the purchase of tobacco curing barns. At March 31, 2000, the
Company had borrowed $13.2 million under this facility. Interest accrues on this
credit facility at prime plus 1% commencing December 2000 and is payable
monthly. Principal is payable in 60 equal monthly installments
9
<PAGE> 12
commencing September 2004. The credit facility is non-recourse to the Company,
but is collateralized by the Company's curing barns and leaf tobacco inventory.
Subsequent to the end of the fiscal year ended December 31, 1999, the
Company negotiated a line of credit with a new working capital lender, which is
collateralized by accounts receivable from its cigarette business, in the amount
of $7.5 million. The Company had no borrowings under this credit facility at
March 31, 2000.
Pursuant to the Master Settlement Agreement, on April 14, 2000, the
Company placed into escrow approximately $11.6 million for sales made in 1999
using cash on hand and proceeds from the Company's line of credit. The funds
placed in escrow will continue to be an asset of the Company and the Company
will receive the interest income generated by the escrow deposit.
The Company believes that its existing working capital, together with
anticipated earnings from its operations and existing lines of credit, will be
sufficient to meet its liquidity and capital requirements in the foreseeable
future. The Company's need, if any, to raise additional funds to meet its
working capital and capital requirements will depend upon numerous factors,
including the results of its marketing and sales activities, any escrow
obligations it may be required to comply with under the Master Settlement
Agreement, the success of the Company's new product development efforts and the
other factors described under "Factors That May Affect Future Results" in the
Company's Annual Report on Form 10-K/A for the fiscal year ended December 31,
1999.
The foregoing discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
condensed consolidated financial statements and related notes included elsewhere
in this Report.
NOTE ON FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT ON FORM 10-Q, UNDER THE SECTION "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
RELATE TO FUTURE EVENTS AND EXPECTATIONS AND AS SUCH CONSTITUTE "FORWARD-LOOKING
STATEMENTS," WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," AND SIMILAR
EXPRESSIONS IN THIS REPORT ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES,
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS AND TO VARY SIGNIFICANTLY FROM REPORTING PERIOD TO REPORTING PERIOD.
SUCH FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED IN "FACTORS THAT MAY AFFECT
FUTURE RESULTS" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K/A 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.
10
<PAGE> 13
Item 3. Exhibits and Reports on Form 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.01 Restated Certificate of Incorporation (Form 10-KSB for fiscal year ended December 31, 1992)*
3.02 Certificate of Amendment of Restated Certificate of Incorporation, dated March 25, 1993, and effective
April 2, 1993 (Form 10-KSB for fiscal year ended December 31, 1996)*
3.03 Certificate of Amendment of Restated Certificate of Incorporation, dated March 25, 1993, and effective
April 2, 1993 (Form 10-KSB for fiscal year ended December 31, 1996)*
3.04 Certificate of Amendment of Certificate of Incorporation, dated December 15, 1998 (Form 8-K dated January
15, 1999)*
3.05 Bylaws of the Company as Amended to Date (Form 10-KSB for fiscal year ended December 31, 1992)*
10.41 First Amendment to Loan and Security Agreement between Star Tobacco & Pharmaceuticals, Inc. and Finova
Capital Corporation, Business Credit, dated April 12, 2000 (Form S-1/A dated May 8, 2000)*
10.42 Modification Agreement among the Company, Jonnie R. Williams and Paul L. Perito, Esquire, dated December
1, 1999 (Form S-1/A dated May 8, 2000)*
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
None
* These items are hereby incorporated by reference from the exhibits to
the filing or report indicated (Commission File No. 0-15324) and are
hereby made a part of this report.
11
<PAGE> 14
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<CAPTION>
STAR SCIENTIFIC, INC.
<S> <C>
Date: May 15, 2000 /s/ Christopher G. Miller
------------------------------------------------------
Authorized Signatory and
Acting Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 13,679,794
<SECURITIES> 0
<RECEIVABLES> 9,527,601
<ALLOWANCES> 0
<INVENTORY> 3,347,595
<CURRENT-ASSETS> 29,482,058
<PP&E> 19,637,143
<DEPRECIATION> 2,415,985
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0
0
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<CGS> 14,089,398
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<INTEREST-EXPENSE> (26,361)
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<INCOME-TAX> 1,350,000
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<EPS-BASIC> .03
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</TABLE>
