Star Scientific posts sales surge amid legal troubles

By Hank Schultz

- Last updated on GMT

Star Scientific posts sales surge amid legal troubles
Star Scientific, which markets the anitoxidant supplement Anatabloc, has reported third quarter earnings of $2.5 million, compared with $1.4 for the same period in 2012. The positive earnings was welcome news for a company that in recent months has seen net losses increase because of legal fees related to several investigations.

The company said the second quarter sales increase of 74% was attributable exclusively to increased Anatabloc sales volume.   Net sales for the six months ending June 30, 2013, totaled $5.0 million, a 100% increase compared with $2.5 million for the same period in 2012.

GNC sales surge

During the second quarter 2013, Star Scientific began to put more marketing dollars behind promoting its product on GNC store shelves.  The company said these increased expenditures helped drived a 20% sales growth in GNC, and resulted in some cannibalism of its online sales, which have higher margins.  Long term, the company said it believes that this shift will result in lower customer acquisition cost and overall increased net sales due to higher sales volume.

Gross profits totaled $1 million for the three months ending June 30, 2013, compared with gross profits of $700,000 for the same period in 2012.  Gross profits totaled $2.1 million for the six months ending June 30, 2013, compared with gross profits of $1.2 million for the same period in 2012. The Company has reported positive gross profits for the past six quarters.

Legal fees weigh heavy

The overall picture was less positive, though. Net losses increased even with the expanded sales volume.  The net loss for the second quarter of 2013 was $8.7 million compared with a net loss of $8 million for the same period in 2012. The net loss for the six months ending June 30, 2013, totaled $16.9 million compared with a net loss of $13.2 million for the same period in 2012.

The company attributed the increased losses to higher legal feeds relating to an ongoing investigation of the company’s connection to Virginia Governor Bob McDonnell.  According to the Associated Press, Star Scientific’s CEO Jonnie Williams Sr. loaned McDonnell nearly $125,000, a loan which he reportedly recently repaid. The governor also has said he will repay other undisclosed gifts from Williams, including a $6,500 Rolex watch. McDonnell's daughters have repaid wedding gifts the businessman gave them totaling $25,000, the governor said.

Transactions in the company’s stock dating back to 2006 have also been under investigation.  In addition, the company has been hit by a shareholders class action lawsuit.

In its earnings filing, the company said it does not expect to be prosecuted in the any of the investigations that are ongoing. It said its cooperation in the Virginia probe and its internal investigation into trading practices are now complete, which should result in lower legal fees in the future.

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