In preparing the discussion and analysis contained in this Item 2, we presume that persons reviewing this Item have read or have access to the discussion and analysis contained in our Annual Report, filed with the SEC on March 15, 2012. In addition, persons reviewing this Report should read the discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this Report. The following results of operations include a discussion of the three and six months ended June 30, 2012 as compared to the three and six months ended June 30, 2011.

Overview

We are a technology-oriented company with a mission to promote maintenance of a healthy metabolism and to reduce the harm associated with the use of tobacco at every level. Over the last several years, through our Rock Creek subsidiary, we have been engaged in:

• the manufacture, sale, marketing and development of two non-nicotine nutraceutical, dietary supplements designed to promote the maintenance of a healthy metabolism: Anatabloc®, for anti-inflammatory support, and CigRx®, our tobacco alternative; and

• the development of other nutraceuticals, dietary supplements and pharmaceutical products, particularly products that have a botanical-based component and that are designed to treat a range of neurological conditions, including Alzheimer's disease, Parkinson's disease, schizophrenia, depression and tobacco dependence.

We also have continued our prior efforts relating to:

• the development, implementation and licensing of the technology behind our proprietary StarCured® tobacco curing process, which substantially prevents the formation of carcinogenic toxins present in tobacco and tobacco smoke, primarily the tobacco-specific nitrosamines, or TSNAs;

• the manufacture, sales, marketing and/or development of very low-TSNA dissolvable smokeless tobacco products that carry enhanced warnings beyond those required by the Family Smoking Prevention and Tobacco Control Act, or FDA Tobacco Act, including ARIVA® compressed powdered tobacco cigalett® pieces, STONEWALL Hard Snuff® and modified risk tobacco products.

Since the incorporation of Rock Creek in 2007, we have been focused on utilizing certain alkaloids found in the tobacco plant and in other members of the Solanacea family of plants, such as potatoes, tomatoes and eggplants, initially to address issues related to the desire to smoke or use other tobacco products. More recently, we have been focusing on the anti-inflammatory aspects of one of those alkaloids, anatabine. We believe our research and development efforts relating to the anatabine alkaloid has positioned us to utilize our technology to develop a range of non-nicotine dietary supplements and related pharmaceutical products that could be beneficial in maintaining a healthy metabolism and in treating a variety of diseases and conditions.

Since the 1990s, we also have sought to develop processes and products that significantly reduce the levels of toxins, principally TSNAs, in tobacco compared to traditional smoked and smokeless tobacco products. Our development of technology for reducing TSNA levels led us to focus on the development of tobacco-based pharmaceutical products and the non-nicotine dietary supplements that we are pursuing through Rock Creek. Given our long-term focus on reducing the levels of toxins in tobacco and the harm associated with tobacco use, we believe our proprietary technology designed to reduce the harm associated with tobacco use enables us to cure tobacco and develop tobacco-based products with the lowest TSNA levels in the tobacco industry and that, as a result, we are uniquely positioned to pursue a range of very-low TSNA tobacco products and licensing opportunities related to such products and underlying technology.

Prospects for Our Operations

The recurring losses generated by our business continue to impose significant demands on our liquidity. We introduced Anatabloc®, our dietary supplement for anti-inflammatory support, in August 2011 through an interactive website and a customer service center. Net sales of Anatabloc® and CigRx®, our dietary supplement products, were $2.5 million in the six months ended June 30, 2012, which constituted approximately 90% of our net sales for the period. While Rock Creek also is pursuing the development of pharmaceutical products that would treat a range of neurological conditions, including Alzheimer's disease, Parkinson's disease, schizophrenia and depression, given the typical long lead time for approval by the Food and Drug Administration, or FDA, of pharmaceutical products, we do not expect that Rock Creek will generate any revenues for the foreseeable future from the sale of pharmaceutical products. Rather, in addition to the manufacture and sale of Anatabloc® and CigRx®, we intend to focus Rock Creek's near-term development efforts on the introduction of an Anatabloc® face cream, as well as on the development and market introduction of other non-nicotine nutraceutical products and, on a longer-term basis, on the research and development of a range of pharmaceutical products, including tobacco-based pharmaceutical products utilizing certain Monoamine Oxidase inhibitors, or MAO agents, in tobacco. Sales of our low-TSNA smokeless tobacco products and licensing revenue during the six months ended June 30, 2012 were consistent with the same period in the prior year, but continue to be de minimis.

Given sales trends since the introduction of Anatabloc®, we believe the prospects for our operations in the near-term will depend primarily on the distribution and consumer acceptance of our current dietary supplements, particularly Anatabloc®, and extensions of our Anatabloc® product line. In addition, we intend to continue to explore the development of new dietary supplements and pharmaceutical products independently and/or through alliances with third-parties, including dietary supplement and pharmaceutical companies, as well as the licensing of our patented low-TSNA tobacco curing process and related technology of which we are the exclusive licensee.

We experienced net sales of approximately $2.8 million for the six months ended June 30, 2012 and an operating loss from continuing operations of approximately $(13.1) million. The recurring losses generated by our operations continue to impose significant demands on our company's liquidity. As of June 30, 2012, we had approximately $9.8 million of working capital, including approximately $10.6 million of cash and cash equivalents in current assets. Absent the exercise of outstanding warrants and options for cash or a substantial improvement in sales and revenues and/or royalties, we believe that the recent funding we completed in February 2012 will support our operations through the fourth quarter 2012. Depending upon sales levels, market conditions and the price of our common stock, it may be necessary for us to seek additional funds.

Dietary Supplements and Development of Related Products. Anatabloc®, which is intended to provide anti-inflammatory support, is currently being sold through our interactive website, a customer service center and through GNC, a retailer of dietary supplements. GNC initially sold Anatabloc® through its online store and, beginning in late March 2012, GNC began carrying Anatabloc® at its owned and franchised retail locations. Initially, marketing of Anatabloc® was directed toward physicians and other healthcare professionals. More recently we have been focusing our marketing efforts on athletes and other groups of individuals who regularly deal with issues relating to inflammation. Through Rock Creek we have also been developing extensions of our Anatabloc® product line. We introduced an unflavored version of Anatabloc® during the second quarter and anticipate introducing into the market an Anatabloc® face cream during the third quarter. In 2009, Rock Creek developed a non-nicotine, non-tobacco nutraceutical, CigRx®, that is intended to temporarily reduce the desire to smoke. CigRx® is currently available through our interactive website and customer service center and at retail locations in the Richmond, Virginia metropolitan area, and the northeast and northwest regions of the United States. Rock Creek is also involved in human (clinical) trials evaluating the impact of supplementation with anatabine citrate on an inflammatory marker c-reactive protein, or CRP, which is believed to be an indicator of coronary heart disease, on Hashimoto autoimmune thyroiditis and in individuals with mild to moderate Alzheimer's disease and in pre-clinical (non-human) studies assessing the impact of supplementation with anatabine and anatabine citrate on a variety of inflammatory related conditions. We also are exploring the development of other related nutraceutical products that may assist in stabilizing the metabolism, pharmaceutical products with clinical claims, products that assist in the treatment of tobacco dependence, and a "relapse prevention product" to assist smokers during nicotine withdrawal, with the goal of higher quit rates. In addition, we are exploring the research and development of pharmaceuticals for a range of neurological conditions, including Alzheimer's disease, Parkinson's disease, schizophrenia and depression.

Low-TSNA Dissolvable Smokeless Tobacco. Net sales were $0.2 million in the six months ended June 30, 2012 and $0.2 for the six months ended June 30, 2011. During each of these periods, STONEWALL Hard Snuff® represented a majority of our dissolvable tobacco sales. Since the reorganization of Star Tobacco's sales force in late 2009, we have been concentrating sales efforts for our dissolvable tobacco products in the Richmond, Virginia metropolitan area andwith established regional and national retail chain customers. Sales of our dissolvable tobacco products continue to be de minimis. While we continue to seek an increase in the distribution and consumer acceptance of low-TSNA smokeless tobacco products, our working capital constraints over the last several years have limited both our direct marketing of smokeless products and our research and development efforts.

"Modified risk tobacco products." In 2010 we filed applications with the FDA to have a version of our low-TSNA products (Ariva-BDL™ and Stonewall-BDL™) designated by the FDA as "modified risk tobacco products" and we filed a similar application for a Stonewall Moist-BDL™, a traditional moist snuff product, in February 2011. In March 2011, the FDA issued a decision holding that it currently does not have jurisdiction over the Ariva-BDL™ and Stonewall-BDL™ products. The decision by the FDA allows us to market our Ariva-BDL™ and Stonewall-BDL™ products without the regulatory restrictions applicable to tobacco products over which the FDA has asserted jurisdiction. In August 2011, we voluntarily withdrew our application for our Stonewall Moist-BDL™ product and we are not actively pursuing that application at this time.

Licensing and Intellectual Property. In 2011 and in 2010 we filed five non-provisional U.S. patent applications relating to our dietary supplement products, uses of the products and product formulations. These included two applications for therapeutic treatment methods involving the administrations of anatabine, its isomers, and any derivatives thereof; an application relating to the administration of anatabine, or an isomer or salt thereof, for treating chronic inflammation that may be associated with disorders such as thyroiditis, cancer, arthritis, Alzheimer's disease, and multiple sclerosis; an application for an anatabine and yerba mate formulation; and an application for a relapse prevention product. We also filed provisional patent applications relating to our Anatabloc® formulation, for a new tobacco product and for an enriched form of tobacco, and in 2012, we filed utility applications based on the provisional applications for the Anatabloc® formulation and the new tobacco product. In June 2012 the United States Patent and Trademark Office, or PTO, issued a patent to Rock Creek for an improved method of synthesizing anatabine that facilitates large scale commercial production of high purity anatabine. Also, on July 3, 2012 the PTO issued an allowance for claims relating to the anatabine and yerba mate composition and uses of the composition for assisting in weight loss and curbing the urge for tobacco. The PTO has advised us that a patent on this application will issue on August 14, 2012. We also received a design patent for our 20-piece dispenser utilized for our Anatabloc® and CigRx® products in 2011 from an application that was filed in 2010. Further, in December 2008, we filed a new U.S. patent application for a variant of our patented curing technology that results in the production of cured tobacco that contains virtually undetectable levels of carcinogenic TSNAs as measured by prevailing standards and we received a patent for this improved curing method in April 2012. We also have six pending international applications that relate to inflammation-mediated disorders, our anatabine and yerba mate formulation, the Anatabloc® formulation, a relapse prevention product and the administration of anatabine, its isomers and any derivatives thereof generally, and also for autism and seizure indications.

We are the exclusive licensee under a License Agreement with Regent Court, which grants us exclusive worldwide rights to and a right of sublicense for the StarCured® process, related patents covering the production of low-TSNA dissolvable smokeless tobacco products and the use of certain MAO agents in treating neurological conditions. For additional information related to our proprietary curing process, see "Item 1. Business - Our Patents, Trademarks and Licenses" in our Annual Report. Two of the patents under our license with Regent Court that relate to our method for producing low-TSNA tobacco have been the subject of our ongoing lawsuit against RJR that was tried to a jury in 2009. In that litigation, the Federal Circuit Court of Appeals in August 2011 issued a decision that reversed, in part, the prior jury verdict in that case and which had the effect of confirming the validity of the patent claims at issue in that litigation See "Part II---- Item 1. Legal Proceedings." of this Report. We continue to pursue means of collecting royalties for our curing technology through licensing arrangements and through our ongoing patent litigation with RJR. While licensing of our exclusive patent rights is a major potential source of additional revenue for us, full realization of this potential will depend on our ability to successfully defend and enforce our patent rights.

Federal Regulations of Dietary Supplements and Drug Products. Under the Food, Drug and Cosmetic Act, the FDA has authority for reviewing and approving any new drug product prior to its introduction into commerce. The FDA approval process involves, among other things, successfully completing clinical trials under an Investigational New Drug Application and obtaining a premarket approval after filing a New Drug Application, or NDA. The NDA process requires a company to prove the safety and efficacy of a new drug product to the FDA's satisfaction. The Dietary Supplement Health Education Act, or DSHEA, provides the FDA with authority over the production and marketing of dietary supplements. In certain cases DSHEA also requires notification to the FDA before a company begins to market a dietary supplement. DSHEA does not require prior approval by the FDA for the introduction of dietary supplements into the market, but does require that such products comply with the requirements of DSHEA prior to and after their introduction into commerce. See "Item 1. Business- Government Regulation" of our Annual Report for more information relating to governmental regulation of dietary supplements and new drug products.

Federal and State Legislation Relating to Cigarettes and Smokeless Tobacco Products. The manufacture and sale of cigarettes and other tobacco products are subject to extensive federal governmental regulation in the United States and by comparable authorities in many foreign countries. Under the FDA Tobacco Act, the Center for Tobacco Products within the FDA has broad authority over the manufacturing, sale and distribution of cigarettes and smokeless tobacco products, including expanded control over the introduction of new tobacco products, warnings that must be included on all tobacco products and the manner in which tobacco products may be marketed and sold. The FDA also has announced that it intends to issue a proposed regulation relating to its authority over products other than cigarettes, smokeless tobacco and snuff that meet the definition of "tobacco products" under the FDA Tobacco Act, which could impact on our modified risk products over which the FDA previously concluded it does not have jurisdiction. In March 2012, the Tobacco Products Scientific Advisory Committee, or TPSAC, which was established as part of the FDA Tobacco Act, completed a review of dissolvable tobacco products, that was required as part of the act. TPSACs summary report was posted by the FDA on March 21, 2012. In that report TPSAC concluded that dissolvable tobacco if used exclusively "would greatly reduce the harm for smoking caused disease compared with regular use of cigarettes." The report noted that use of dissolvable tobacco has been limited and further noted that it is unclear whether dissolvable tobacco would substitute for or be used in addition to other tobacco products, but that it appeared that users of dissolvable tobacco products smoke fewer cigarettes than non-users. See "Item 1. Business- Government Regulation" in our Annual Report for more information relating to governmental regulation of tobacco products.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

Accounting principles generally accepted in the United States of America, or GAAP, require estimates and assumptions to be made that affect the reported amounts in our company's consolidated financial statements and accompanying notes. Some of these estimates require difficult, subjective and/or complex judgments about matters that are inherently uncertain and, as a result, actual results could differ from those estimates. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" for more information. There have been no material changes to our critical accounting policies and estimates since the filing of our Annual Report on Form 10-K for the year ended December 31, 2011.

Results of Operations

Our company's unaudited condensed consolidated results for the three and six month periods ended June 30, 2012 and 2011 are summarized in the following table:

                                        Three Months Ended June 30,           Six Months Ended June 30,
                                           2012              2011              2012              2011
$ and shares in thousands except                                  (Unaudited)
per share data
Net sales                             $        1,590     $         262     $       2,760     $         418
Cost of goods  sold                            1,067               533             1,987               972
Federal excise  tax and  Department                2                 3                 5                 6
of  Agriculture  payment
Gross profit (loss)                              521              (274 )             768              (560 )
Total operating  expenses                      8,481             4,663            13,855            10,403
Operating loss                                (7,960 )          (4,937 )         (13,087 )         (10,963 )
Net loss                              $       (7,998 )   $      (4,998 )   $     (13,167 )   $     (11,082 )
Basic and diluted  net loss per       $        (0.06 )   $       (0.04 )   $       (0.09 )   $       (0.08 )
common  share
Basic and diluted  weighted              145,777,478       134,556,823       143,710,255       131,948,382
average  shares outstanding

Three Months ended June 30, 2012 Compared to Three Months Ended June 30, 2011

Net Sales. For the three months ended June 30, 2012, net sales (gross sales less cash discounts, product discounts and product return allowance) were $1.6 million compared to $262 thousand during same period in 2011. Our Anatabloc® and CigRx® dietary supplements contributed $1.4 million of total revenue in the three months ended June 30, 2012. In the three months ended June 30, 2011 our CigRx® dietary supplement contributed $139 thousand to dietary supplement sales. Our dissolvable tobacco net sales were $0.1 million during each of the three months ended June 30, 2012 and 2011.

Gross Profit (loss). We had a gross profit of $521 thousand for the three months ended June 30, 2012 compared to a gross loss of $(274) thousand for the same period in 2011, an improvement of $805 thousand. The improved gross profit is attributed to the increased sales of our dietary supplements, primarily Anatabloc®, while we continued to experience losses in connection with the sale of our dissolvable tobacco products.

Total Operating Expenses. Total operating expenses were approximately $8.5 million for the three months ended June 30, 2012, an increase of approximately $3.9 million, or 84.2%, from approximately $4.6 million for the same period in 2011. General and administrative expenses increased by approximately $2.1 million, and marketing and distribution costs increased by approximately $0.9 million. Research and development costs increased approximately $0.8 million.

Marketing and Distribution Expenses. Marketing and distribution expenses were approximately $1.5 million for the three months ended June 30, 2012, an increase of approximately $0.9 million, or 156.4%, from approximately $0.6 million for the same period in 2011. The increase in marketing expense was attributable to the expanded promotion of our Anatabloc®dietary supplement. Dissolvable tobacco marketing expense was approximately the same during the three months ended June 30, 2012 and 2011, as we continued to limit the marketing for our dissolvable tobacco products to a more narrow geographical area and to certain national distributors.

General and Administrative Expenses. General and administrative expenses were approximately $5.8 million for the three months ended June 30, 2012, an increase of approximately $2.1 million, or 59.3%, from approximately $3.6 million for the same period in 2011. For the three months ended June 30, 2012, we had a non-cash charge of $2.3 million related to the issuance of options while in the comparable period in 2011 we had a charge of $0.7 million for issuance of stock options to employees and a director, which resulted in an increase of $1.6 million during the three months ended June 30, 2012 as compared to the same period in the prior year. Also, we had an increase in legal costs of approximately $0.2 million during the three months ended June 30, 2012 in connection with our ongoing efforts to protect and expand the patented technology relating to our dietary supplements and our RJR litigation, as compared to the same period in the prior year. In addition, we paid $0.2 million in bonuses to a number of employees in connection with the successful launch of Anatabloc® while no bonuses were paid in the corresponding period in 2011. We incurred a severance charge for $0.2 million related to the personnel change for the Vice President of Investor Relations. These expenses were partially offset by a decrease in various other expenses totaling approximately $0.1 million.

Research and Development Expenses. We expended, approximately $1.3 million on research and development in the three months ended June 30, 2012 compared to approximately $0.4 million in the comparable period in 2011. Research expenditures in the comparable period in 2011 related primarily to the development of our Anatabloc® dietary supplement. The research and development cost in the three months ended June 30, 2012 related primarily to our ongoing clinical (human) trials and pre-clinical (non-human) studies involving our Anatabloc® product or the principal dietary ingredient in the product.

Interest Income and Expense. We had interest income of $4 thousand and interest expense of $42 thousand for the three months ended June 30, 2012, for a net interest expense of $38 thousand during the current period. For the same period in 2011, we had interest income of $11 thousand and interest expense of $69 thousand, for a net interest expense of $58 thousand. The lower interest expense for the three months ended June 30, 2012 reflected the lower outstanding balance due to the scheduled principal payments on our outstanding debt. The lower interest income during the three months ended June 30, 2012 reflected the decrease in prevailing interest rates.

Net Loss. We had a net loss of approximately $8.0 million for the three months ended June 30, 2012 compared to a net loss of approximately $5.0 million for the same period in 2011. The increased net loss for the three months ended June 30, 2012 was primarily due to, an increase in non-cash stock option expense of $1.6 million, increases in legal expenses of $0.2, bonuses of $0.2 million, increases in marketing costs of $0.9 million, and increased research and development expenses of $0.8. These increases were offset, in part, by our improved gross profit of $0.8 million.

For the three months ended June 30, 2012, we had a basic and diluted loss per share of $(0.06) compared to a basic and diluted loss per share of $(0.04) for the three months ended June 30, 2011.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Net Sales. For the six months ended June 30, 2012, net sales (gross sales less cash discounts, product discounts and product return allowance) were approximately $2.8 million compared to approximately $0.4 million during same period in 2011, an increase of approximately $2.4 million. Our dietary supplements contributed $2.5 million of total revenue in the six months ended June 30, 2012 which reflected primarily sales of our Anatabloc® dietary supplement. In the six months ended June 30, 2011 our CigRx® dietary supplement contributed $0.2 million to dietary supplement sales. Our dissolvable tobacco net sales were $0.2 million during each of the six months ended June 30, 2012 and 2011.

Gross Profit (Loss). We had a gross profit of $0.8 million during the six months ended June 30, 2012 compared to a gross loss of $(0.6) million for the same period in 2011, an improvement of $1.3 million. This change was attributable primarily to our Anatabloc® sales.

Total Operating Expenses. Total operating expenses were approximately $13.9 million for the six months ended June 30, 2012, an increase of approximately $3.5 million, or 33.2%, from approximately $10.4 million for the same period in 2011. General and administrative expenses increased by approximately $1.2 million and marketing and distribution costs increased by approximately $1.3 million. Research and development costs increased approximately $1.0 million.

Marketing and Distribution Expenses. Marketing and distribution expenses were approximately $2.7 million for the six months ended June 30, 2012, an increase of approximately $1.3 million, or 91.4%, from approximately $1.4 million for the same period in 2011. All of this increase was attributable to our rollout of Anatabloc®, as we maintained our dissolvable tobacco marketing spend even with the same period in 2011. Our dissolvable tobacco marketing has been focused on the Richmond, Virginia metropolitan area and certain larger wholesalers since 2009, when we restructured the tobacco business.

General and Administrative Expenses. General and administrative expenses were approximately $9.1 million for the six months ended June 30, 2012, an increase of approximately $1.2 million, or 15.3%, from approximately $7.9 million for the same period in 2011. During the six months ended June 30, 2012, we had a non-cash charge of $2.4 million for stock based compensation compared to a charge of $1.7 million during the same period in 2011. This resulted in a net increase of $0.7 million for the first six months of 2012. Also, we had an expense for bonuses paid to certain employees in connection with the successful launch of Anatabloc® amounting to $0.2 million, while no bonuses were paid in the comparable period in 2011. We also recorded severance expense of . . .