Star Scientific, Inc. Announces 56% Increase in Net Income.

Business Editors

CHESTER, Va.--(BUSINESS WIRE)--July 30, 2001

Star Scientific, Inc. (NASDAQ:STSI) announced a 56% increase in net income for the three months ended June 30, 2001. Second quarter 2001 net revenues were $43.7 million, compared to $42.2 million in the second quarter

Pre-tax and net earnings for the first six months of 2001 were $8.5 million and $5.1 million, compared to pre-tax and net earnings of $6.7 million and $3.7 million, respectively, in the first six months of 2000, which reflect corresponding increases in the pre-tax and net earnings of 28% and 37%. Net revenues for the first six months of 2001 were $81.0 million, compared to $88.8 million in the first six months of 2000. All of the Company's net revenues during the second quarter and first six months of 2001 were attributable to sales of cigarettes by its wholly owned subsidiary, Star Tobacco & Pharmaceuticals, Inc.

Second quarter 2001 diluted per share earnings were $.05 compared with per share earnings of $0.03 in the second quarter of 2000. The diluted weighted average shares outstanding were 60,756,529 and 61,830,738 in the second quarters of 2001 and 2000, respectively. Diluted per share earnings for the first six months of 2001 were $.08 compared with per share earnings of $0.06 in the first six months of 2000. The diluted weighted average shares outstanding were 60,756,529 and 62,240,681 in the first six months of 2001 and 2000, respectively.

The gain in net income in both the second quarter and the first six months of 2001 resulted from an increase in discount cigarette prices. This gain was achieved despite the Company's greater focus on, and investment in the development, manufacturing preparation and pre-test market activities for the two new smokeless tobacco products, brand-named STONEWALL(TM) and ARIVA(TM). Star's existing product lines are supporting corporate activities and also are providing funds for R&D, new product development, and pre-test market activities for STONEWALL(TM) and ARIVA(TM). The Company plans to test market ARIVA(TM) and STONEWALL(TM) later this year.

Paul L. Perito, Star's Chairman, President and COO, noted: "Our primary focus continues to center on the development of technologies and tobacco products that deliver less toxins, and the marketing of those smoked and smokeless products. All of the cigarettes Star currently sells now are manufactured with approximately 24% StarCured(TM) very low-nitrosamine tobacco(1), as well as with carbon/acetate filters that decrease additional vapor-phase toxins. We made the decision to use more costly, very low-TSNA StarCured(TM) tobacco and carbon-acetate filters in the discount brands to demonstrate to the marketplace that discount cigarette products can be manufactured to be both cost effective and competitive, while also embracing the essence of the Surgeon General's admonition that tobacco products 'should be no more harmful than necessary, given available technologies.'"

Mr. Perito stated: "Manufacturing lines have been installed in Chase City for ARIVA(TM), and in Petersburg for STONEWALL(TM). We intend to focus considerable fiscal and human resource efforts on producing smokeless tobacco products, including STONEWALL(TM) (a moist snuff product) and ARIVA(TM) (a compressed, hard snuff cigalett(TM) product). All of Star's smokeless tobacco products will contain TSNA levels that we anticipate will be at least 95% lower than conventional snuff products currently sold in the United States. We have been encouraged by our Scientific Advisory Board, as well as by other independent scientific and medical advisors, to accelerate the development and merchandising of non-combustible tobacco products using StarCured(TM) tobacco so as to provide adult tobacco users smokeless product choices that significantly reduce exposure to some of the cancer-causing toxins (TSNAs) contained in all conventional tobacco products. At the same time, we will continue to tell adult tobacco consumers that there is not enough medical evidence at the present time to know if lowering exposure to these cancer-causing toxins will reduce health risks. However, Star believes it is appropriate to use the StarCured(TM) tobacco curing process to reduce exposure to carcinogenic toxins, and to provide consumers with fair, accurate and balanced information about the product they consume. This will be underscored by the anticipated smokeless tobacco campaign slogan, 'KNOW YOUR SNUFF.'"

The company anticipates that the investment and expenses associated with bringing STONEWALL(TM) and ARIVA(TM) to the test market phase during the remainder of this year will be significant. However, Christopher Miller, Star Scientific's Chief Financial Officer, noted, "This investment is important because it is an integral component of what we hope will be a successful very low-TSNA smokeless products initiative". In this regard, Star will make a presentation to analysts and individual investors on November 6, at the Wall Street Analyst Forum, at the Roosevelt Hotel in New York City. The presentation will be available on the Internet via web cast.

Mr. Jonnie R. Williams, Star's co-founder and CEO, commented: "In mid-July, the Company's Chase City StarCured(TM) processing facility began receiving what we anticipate will be approximately 30% of all the flue-cured tobacco grown in the Commonwealth of Virginia. We anticipate that we will process approximately 17-20 million pounds of StarCured(TM) tobacco during the third and fourth quarters of this year. We trust our shareholders are pleased with our second quarter results, and we look forward to the upcoming test markets and product introductions of ARIVA(TM) and STONEWALL(TM)."

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 fact that the Company may not be successful in litigation to enforce its patent rights, that tobacco companies and others potentially infringing its patent may not enter into royalty agreements to sublicense its patents, that the tobacco industry may not adopt low-TSNA tobacco as its predominant tobacco rapidly or at all, or that a non-infringing product competitive with the patents may be developed by a third party. Other risks of the business include the challenges inherent in new product development initiatives, the Company's ability to raise the capital necessary to grow its business, 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 proposed new products, competition from companies with greater resources than the Company, the Company's decision not to join the Master Settlement Agreement ("MSA") and its decision to challenge the constitutionality of the MSA, the effect of state statutes adopted under the MSA and any subsequent modification of the MSA, the Company's dependence on key employees and on its strategic relationships with Brown & Williamson Tobacco Corporation. 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, 2000, 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 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 toxicity reduction mission. It is engaged in the development of tobacco products that deliver less carcinogenic toxins (principally tobacco specific nitrosamines (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, Virginia, an Executive, Scientific and Regulatory Affairs office in Bethesda, MD, and manufacturing and processing facilities in Petersburg and Chase City, VA.

(1) Respected medical scientists and researchers believe that tobacco specific nitrosamines (TSNAs) are among the most potent and abundant cancer-causing toxins in tobacco and tobacco smoke.

See Star's Website at: www.starscientific.com