SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from N/A to N/A
Commission file number 0-12984
ADVANCED TOBACCO PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
State of Texas 74-2285214
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16607 Blanco Road, Suite 1504 78232
San Antonio, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (210) 408-7077
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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
Indicate by check mark if disclosure or delinquent files
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K. [ X ]
As of August 31, 1996, the aggregate market value of the
voting stock held by non-affiliates of the registrant was
approximately $4,000,000.
As of August 31, 1996, the number of outstanding shares of
Common Stock, $0.01 par value, for Advanced Tobacco Products, Inc.
was 7,952,136.
Part I
ITEM 1. BUSINESS
History and Relationship with Pharmacia & Upjohn, Inc.
Advanced Tobacco Products, Inc. d/b/a Advanced Therapeutic
Products, Inc. (the "Company"), 16607 Blanco Road, Suite 1504, San
Antonio, Texas 78232, (210) 408-7077, is a Texas corporation formed
in April 1983.
The Company was organized to develop and market a smoke-free
cigarette product based upon its nicotine technology which it
commenced marketing in 1985. In 1987, the Company suspended
distribution of its smoke-free cigarette product and sold
substantially all of its assets, including all of its then existing
patent rights to its nicotine technology, to entities owned or
controlled by Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn"), a
worldwide pharmaceutical company that manufactures the Nicorette
chewing gum and the Nicotrol patch.
Based upon the nicotine technology acquired from the Company,
Pharmacia & Upjohn developed a pharmaceutical nicotine vapor
inhaler for use in the nicotine replacement therapy industry. On
September 6, 1996, Pharmacia & Upjohn announced the launch of its
nicotine inhaler in Denmark as the first of a series of launches
planned throughout Europe and worldwide. The additional launches
are planned by Pharmacia & Upjohn to occur as regulatory approvals
are granted to add to those existing in Italy and the Netherlands.
Pharmacia & Upjohn filed new drug applications ("NDA's") with the
respective regulatory agencies in several major European countries.
Pharmacia & Upjohn filed an NDA with the United States Food and
Drug Administration ("FDA") for regulatory approval of its nicotine
inhaler in the Spring of 1996. The time required for the FDA and
similar European agencies to review and approve the NDA submissions
cannot be determined in advance because it is difficult to predict
the specific questions or comments which may be made by the FDA or
the other regulatory agencies.
The Company believes that the Pharmacia & Upjohn nicotine inhaler
has the potential for being the next generation of nicotine
replacement therapy products following the transdermal nicotine
patch. Unlike the patches, Pharmacia & Upjohn's nicotine inhaler
approximates the behavioral characteristics customarily experienced
by smokers.
The generation of significant royalties for the Company from sales
by Pharmacia & Upjohn of the nicotine inhaler will require the
approval of the FDA in the United States and similar agencies in
other countries and the successful marketing of the product by
Pharmacia & Upjohn.
Current Operations
In September 1992, the Company obtained an exclusive worldwide
license to certain dry powder nicotine inhaler technology from Duke
University which has been developed at Duke University. In
February 1993, the Company filed a patent application covering this
technology resulting in the issuance of a patent in 1995. The
Company believes that a dry powder nicotine inhaler has the
potential to be a future generation nicotine replacement therapy
product following the transdermal patches now available and
Pharmacia & Upjohn's nicotine inhaler. The Company is attempting
to market this technology to U.S. and international pharmaceutical
companies.
Pharmacia & Upjohn Technology Purchase Agreement
The Company has received to date a total of $6,149,735 in cash from
Pharmacia & Upjohn, and the right to receive future royalty
payments from Pharmacia & Upjohn with respect to the nicotine
inhaler device discussed above as follows:
Royalty payments of three percent (3%) of Net Sales
(defined generally as sales to wholesale distributors)
payable for the greater of 10 years following the date of
the first commercial sales or the expiration of all
issued patents (latest patent issued 3/26/96).
Royalty payments in excess of $1,000,000 per year are to be reduced
by fifty percent (50%) until the aggregate of such reductions equal
the sum of $3,800,000.
The agreements also contain royalty provisions for the use of the
technology in other product applications, if any, both
pharmaceutical and non-pharmaceutical, and limitations with regard
to amounts payable to the Company in the event of the sale of
nicotine vapor products competitive with the nicotine inhaler sold
by Pharmacia & Upjohn. Pharmacia & Upjohn is not obligated to
develop or sell any products using the technology developed by the
Company.
ITEM 2. PROPERTIES
The Company does not own any tangible fixed assets.
ITEM 3. LEGAL PROCEEDINGS
The Company has no outstanding legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK-
HOLDER MATTERS
a) Market Information
The Common Stock trades in the over-the-counter market
through the National Association of Securities Dealers "Bulletin
Board" quotation system. The following table sets forth the high
and low bid price of the Company's Common Stock reported for the
fiscal periods indicated. Bid prices represent prices between
dealers, do not include retail markups, markdowns or commissions,
and may not represent actual transactions.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1995 1996 1995 1996 1995 1996 1995 1996
HIGH .08 .19 .12 .19 .10 .25 .125 .875
LOW .04 .125 .05 .09 .05 .125 .08 .125
b) Holders
There were approximately 830 shareholders of record of
the Company's Common Stock at June 30, 1996, excluding shareholders
with "street" accounts.
c) Dividends
The Company has not declared or paid any dividends on its
Common Stock and does not anticipate earnings from which dividends
can be paid unless substantial royalty revenues are received from
the sale of products under the Company's agreements with Pharmacia
& Upjohn.
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth for the indicated periods selected
historical financial information for the Company. Such information
is derived from the financial statements of the Company included
under Item 8 and should be read in conjunction with such financial
statements, the related notes thereto and the information included
under Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations.
ADVANCED TOBACCO PRODUCTS, INC.
Year Ended June 30
1992 1993 1994 1995 1996
Revenues $ 404,600 $ 466,600 $ 39,733 $ - $ -
Net income (loss) $ 230,275 $ 314,193 $ (66,675) $ (3,061) $ (14,957)
Net income (loss) per
share of common stock $ .029 $ .040 $ (.008) $ (.001) $ (.002)
Weighted average number of
shares of common stock
outstanding 7,987,617 7,913,175 7,848,424 7,792,136 7,831,588
Cash provided by (used in)
operations $ 122,363 $ 318,231 $ 308,340 $ (62,048) (98,664)
Increase (decrease) in
cash and cash
equivalents $ 113,361 $ 188,693 $ (760,325) $ (217,069) $ (1,472)
Balance sheet data at end
of indicated periods-
Working capital $ 1,244,451 $1,433,741 $ 515,679 $ 384,314 $ 318,824
Total assets $ 1,255,976 $1,555,667 $1,480,861 $ 1,495,268 $1,484,998
Total shareholder's
equity $ 1,244,451 $1,552,711 $1,479,488 $ 1,476,427 $1,481,470
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDI-TION AND RESULTS OF
OPERATIONS
a) Results of Operations
The Company's revenue sources during fiscal 1994 consisted
primarily of minimum
royalties from Pharmacia & Upjohn. The Company's only revenue
source during fiscal 1995 and
1996 was interest income. In fiscal 1994, $33,333 in minimum
royalty payments were
recognized. There were no operating revenues in fiscal 1995 and
1996, although $100,341 and
$76,889 were derived from interest income, respectively.
General and administrative expenses were $72,763, $103,402 and
$91,846 in fiscal 1994,
1995 and 1996, respectively. Expenses increased from $72,763 in
1994 to $103,402 in 1995 due
primarily to the payment of an annual license maintenance fee and
consulting fees related to
the Company's interest in dry powder nicotine inhaler technology.
Expenses decreased in 1996
compared to 1995 primarily as the result of a reduction in
consulting fees.
Net loss from operations in 1994 was ($33,030), due primarily
to the termination of
minimum royalty revenues. The Company's 1994 net loss of ($66,675)
resulted primarily from
a cessation of minimum royalty revenues and a one-time loss on the
sale of marketable
securities. The Company's ($103,402) net loss from operations in
1995 was due to a lack of
any operating revenues and increased expenses due to the payment of
an annual license
maintenance fee and consulting fees related to the dry powder
nicotine inhaler technology.
However, the Company's net loss for 1995 was only ($3,061) due to
the receipt of $100,341 in
interest income. The Company's net loss from operations in 1996 of
($91,846) was also due
to a lack of operating revenues. The Company's net loss for 1996
was only ($14,957) due to
the receipt of $76,889 in interest income.
b) Liquidity and Capital Resources
Cash and investments available on June 30, 1996, were
$1,330,189. The Company believes
that its cash and investment resources are sufficient to meet its
foreseeable needs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and other matters required by this
Item 8 are included on Pages
F-1 and following.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Mr. James E. Turner, age 47, has been a Director of the
Company since November 1986 and
a consultant to the Company since its inception. Mr. Turner was
one of the founders and the
Business Manager of NCC Group, Ltd., a research and development
limited partnership which was
a predecessor of the Company. Mr. Turner is also a consultant to
Pharmacia & Upjohn.
Mr. J. H. Uptmore, age 65, has been a Director of the Company
since August 1987. Mr.
Uptmore has been the President and Chairman of the Board of J. H.
Uptmore & Associates, Inc.,
a construction contracting and development company, since 1974.
Mr. J. W. Linehan, age 53, has been Director of the Company
since June 1991 and
President, Chief Executive Officer, Chief Financial Officer and
Secretary of the Company
since July 1, 1990. Since August 1, 1995, Mr. Linehan has been
President and Chief Executive
Officer of Linehan Engineering, Inc., an independent engineering
company wholly owned by him.
Mr. Linehan was a Vice President, a director and a principal
shareholder of GE Reaves
Engineering, Inc., an engineering and consulting company, from May
1990 through July 31,
1995. Mr. Linehan was a Vice President, Chief Financial Officer,
Secretary, a director and
a principal shareholder of NET FONE, INC., an alternative long
distance telephone company,
from April 1991, and President from June 1993, to May 1994. Mr.
Linehan's prior experience
also includes Owner and Chief Operating Officer of Texas Trunk Co.,
Inc., a military hardware
manufacturer, a consultant at Arthur Andersen LLP, a public
accounting and consulting firm,
and President of BIOGLAS Corporation, a manufacturer of support
material for the
biotechnology industry.
Mrs. Brenda Ray, age 47, has been a Director of the Company
since March 1989. Mrs. Ray
was a research and lab assistant in the development of the
Company's nicotine vapor
inhalation technology from 1979 until 1985. Mrs. Ray has been
Chairman and CEO of the
Generis Group, Inc., an interactive multimedia company, since
January 1991. She has been
President of Brenda Ray, Inc. since 1985.
Mr. David A. Monroe, age 43, has been a Director of the
Company since March 1989. Mr.
Monroe has been President and CEO of PTEL Corporation and is
General Manager of Texas
Instruments, PhotoTelesis Division, formerly PhotoTelesis
Corporation, a government
electronics manufacturing company founded in 1985. Mr. Monroe's
prior experience includes
Founder & Chief Technical Officer of Image Data Corporation, a
communications technology
company, and Vice-President of Research & Development and
Vice-President, Product Line
Manager, at Datapoint Corporation, a computer equipment
manufacturer.
ITEM 11. EXECUTIVE COMPENSATION
Cash Compensation
Mr. Linehan, President and Chief Executive Officer of the
Company and its sole executive
officer, receives no salary or fees, but indirectly benefits from
consulting or other
payments made to Linehan Engineering, Inc. (See Item 13, "Certain
Relationships and Related
Transactions.") Each Director is entitled to receive travel
expenses incurred by them in
order to attend Directors' meetings.
Compensation Pursuant to Plans
Nonqualified Stock Options
The Company has a nonqualified stock option plan authorizing the
granting by the board of
directors of stock options covering common stock to directors,
officers, key management
employees, independent contractors providing services to the
Company or consultants to the
Company. The exercise price per share cannot be less than 100
percent (or 110 percent in the
case of options granted to holders of 10 percent or more of the
then outstanding common
stock) of the fair market value of the Company's common stock as
determined by the board of
directors on the date the options are granted, and the exercise
period for the options cannot
exceed 10 years from the date the options are granted. The options
are immediately
exercisable. Options are not transferable except by will or the
laws of descent or
distribution, and options expire within one year following
termination of association with
the Company. The aggregate number of options outstanding and
exercisable at $.125 as of June
30, 1996 and 1995, were 140,000 and 300,000, respectively, and the
aggregate number of
options outstanding and exercisable at $.4375 as of June 30, 1996,
was 200,000.
Summary of Option Transactions
The following table summarizes as to the directors of the
Company the number and terms
of stock options granted during fiscal 1996:
Stock Options Granted in Last Fiscal Year
Individual Grants
% of Total
Stock Options
Options Granted in Exercise Expiration
Name Granted Fiscal Year Price Date
J. H. Uptmore 100,000 50% $.4375 09/27/00
D. A. Monroe 100,000 50% $.4375 09/27/00
The following table sets forth as to the directors of the
Company the net value of
securities (market value less exercise price) and other information
with respect to stock
options outstanding and exercised during fiscal 1996:
Aggregated Options Exercised in Last
Fiscal Year and Fiscal Year End Stock Option
Values
Number of
Unexercised
Shares Stock Options Value of
Acquired or Value at FY-End (All Unexercised
Name Exercised Realized Exercisable) Stock Options*
J. E. Turner 160,000 $9,600 140,000 $52,500
J. H. Uptmore None N/A 100,000 $ 6,250
D. A. Monroe None N/A 100,000 $ 6,250
* all outstanding options held by Mr. Turner are exercisable at
$.125 per share of the
Company's common stock and those held by Messrs. Uptmore and Monroe
are exercisable at $.4375
per share. The market value of the Company's common stock at year
end was $.50.
ITEM 12. COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information about the
Directors of the Company,
which includes all persons known by the Company to own more than 5%
of the Common Stock as
of August 31, 1996, and all officers and Directors of the Company
as a group as of June 30,
1996. Except as indicated, the Company believes that each of the
below named persons has
sole voting and investment power with respect to the shares shown
and owns the shares
indicated beneficially and of record.
Director Number Percent
Name Since of Shares of Class
Brenda Ray (1)
12544 Judson Road
San Antonio, TX 78233 1989 1,758,092 21.20%
James E. Turner (2)
18606 Heather Court
Homewood, IL 60430 1986 500,221 6.03%
J. H. Uptmore (3)
P.O. Box 29389
San Antonio, TX 78229 1987 196,921 2.37%
David A. Monroe (4)
7800 I.H. 10 W
San Antonio, TX 78230 1989 142,229 1.72%
J.W. Linehan
16607 Blanco Road
Suite 1504
San Antonio, TX 78232 1991 131,000 1.58%
Officers and Directors
as of June 30, 1996,
as a Group (5 persons) 2,728,463 32.90%
____________________
(1) Includes 978,589 shares of Common Stock owned by the Estate of
J. P. Ray, of which
Brenda Ray is the Independent Executrix.
(2) Includes 140,000 shares of Common Stock underlying presently
exercisable options held
by Mr. Turner. See "Compensation Pursuant to Plans."
(3) Includes 46,921 shares of Common Stock owned by J. H. Uptmore
& Associates, Inc., of
which Mr. Uptmore is President and Chairman of the Board and
100,000 shares of Common
Stock underlying presently exercisable options held by Mr.
Uptmore. See "Compensation
Pursuant to Plans."
(4) Includes 100,000 shares of Common Stock underlying presently
exercisable options held
by Mr. Monroe. See "Compensation Pursuant to Plans."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since August 1995, the Company has had an administrative
services agreement with Linehan
Engineering, Inc. (LEI), a related-party entity owned by the
Company's president. In 1996,
the Company paid LEI $28,050 for administrative services.
From July 1990 to July 1995, the Company had an administrative
services agreement with
GE Reaves Engineering, Inc. (GE Reaves), an entity related to the
Company through the
association of the Company's president. In 1996, 1995 and 1994,
the Company paid GE Reaves
$3,100, $30,000 and $30,000, respectively, for administrative
services.
In June 1994, the Company entered into a consulting services
agreement with James E.
Turner (Turner) who is a director of the Company. During 1996, the
Company paid Turner
$20,000 for consulting services.
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual
Report on Form 10-K:
1. Financial Statements and Independent Auditors'
Report
The financial statements and opinion listed in the
index to financial
statements follows the signature page of this
report.
2. Financial Statement Schedules
The Company did not meet any of the requirements to
provide financial
statement schedules for any of the fiscal years
ended 1996, 1995 or 1994.
3. Exhibits
The exhibits listed on the index to exhibits follows
the signature page of
this report.
(b) The Company has filed the following Current Reports on
Form 8-K since the filing
of the Company's last 10-K:
Form 8-K filed June 7, 1996, regarding New Drug
Application filed by Pharmacia &
Upjohn.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
behalf by the undersigned,
thereunto duly authorized, in the City of San Antonio, State of
Texas, as of September 27,
1996.
ADVANCED TOBACCO PRODUCTS, INC.
Date: September 27, 1996 By: /s/ J. W. Linehan
J. W. Linehan, President,
Chief Executive Officer and
Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and
on the dates indicated.
Date: September 27, 1996 By: /s/ J. W. Linehan
J. W. Linehan, President,
Chief Executive Officer,
Chief Accounting Officer
and Director
Date: September 27, 1996 By: /s/ James E. Turner
James E. Turner, Director
Date: September 27, 1996 By: /s/ J. H. Uptmore
J. H. Uptmore, Director
Date: September 27, 1996 By: /s/ Brenda Ray
Brenda Ray, Director
Date: September 27, 1996 By: /s/ David A. Monroe
David A. Monroe, Director
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
Item 8. Financial Statements
The following financial statements are included in response to Item
14(a):
Page
Index to Financial Statements F-1
Financial Statements
Report of Independent Public Accountants F-2
Balance Sheets - - June 30, 1996 and 1995 F-3
Statements of Loss for the Years Ended June 30, 1996,
1995 and 1994 F-4
Statements of Stockholders' Equity for the Years Ended
June 30, 1996, 1995 and 1994 F-5
Statements of Cash Flows for the Years Ended June 30,
1996, 1995 and 1994 F-6
Notes to Financial Statements F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Advanced Tobacco Products, Inc.:
We have audited the accompanying balance sheets of Advanced Tobacco
Products, Inc. (a Texas
corporation), dba Advanced Therapeutic Products, Inc., as of June
30, 1996 and 1995, and the
related statements of loss, stockholders' equity and cash flows for
each of the three years
in the period ended June 30, 1996. These financial statements are
the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant
estimates made by management, as well as evaluating the overall
financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material
respects, the financial position of Advanced Tobacco Products,
Inc., as of June 30, 1996 and
1995, and the results of its operations and its cash flows for each
of the three years in the
period ended June 30, 1996, in conformity with generally accepted
accounting principles.
San Antonio, Texas
August 14, 1996
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
BALANCE SHEETS - - JUNE 30, 1996 AND 1995
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 84,918 $ 86,390
Investments 237,434 316,765
Total current assets 322,352 403,155
LICENSE AGREEMENTS, less accumulated
amortization of $25,285 and $18,605
in 1996 and 1995, respectively 154,809 132,210
INVESTMENTS 1,007,837 959,903
Total assets $ 1,484,998 $ 1,495,268
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 3,528 $ 3,841
Accrued liabilities - 15,000
Total liabilities 3,528 18,841
STOCKHOLDERS' EQUITY:
Preferred stock, $100 par value;
500,000 shares authorized; none
issued - -
Common stock, $.01 par value;
30,000,000 shares authorized;
7,952,136 and 7,792,136 shares
outstanding as of June 30, 1996 and
1995, respectively 79,522 77,922
Additional paid-in capital 12,528,778 12,510,378
Accumulated deficit (11,126,830) (11,111,873)
Total stockholders' equity 1,481,470 1,476,427
Total liabilities and
stockholders' equity $ 1,484,998 $ 1,495,268
The accompanying notes are an integral part of these financial
statements.
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF LOSS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND
1994
1996 1995 1994
REVENUES:
Royalties $ - $ - $ 33,333
Consulting - - 6,400
Total operating revenues - - 39,733
EXPENSES:
General and administrative 91,846 103,402 72,763
Total operating expenses 91,846 103,402 72,763
LOSS FROM OPERATIONS (91,846) (103,402) (33,030)
OTHER INCOME (EXPENSE):
Interest income 76,889 100,341 36,083
Net realized loss on sale of
marketable securities - - (69,728)
Total other income
(expense) 76,889 100,341 (33,645)
LOSS BEFORE INCOME TAXES (14,957) (3,061) (66,675)
NET LOSS $ (14,957)$ (3,061) $ (66,675)
LOSS PER COMMON SHARE $ (.002) $ (.001) $ (.008)
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING 7,831,588 7,792,136 7,848,424
CASH DIVIDENDS DECLARED PER
SHARE OF COMMON STOCK $ - $ - $ -
The accompanying notes are an integral part of these financial
statements.
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND
1994
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
BALANCE,
June 30,
1993 7,862,136 $78,622 $12,516,226 $(11,042,137) $1,552,711
Net loss - - (66,675) (66,675)
Purchase
of stock (70,000) (700) (5,848) - (6,548)
BALANCE,
June 30,
1994 7,792,136 77,922 12,510,378 (11,108,812) 1,479,488
Net loss - - - (3,061) (3,061)
BALANCE,
June 30,
1995 7,792,136 77,922 12,510,378 (11,111,873) 1,476,427
Net loss - - - (14,957) (14,957)
Exercise of
stock
options 160,000 1,600 18,400 - 20,000
BALANCE,
June 30,
1996 7,952,136 $79,522 $12,528,778 $(11,126,830)$1,481,470
The accompanying notes are an integral part of these financial
statements.
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND
1994
1996 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (14,957) $ (3,061) $ (66,675)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities-
Amortization 6,680 6,680 7,290
Amortization of discount
on investments (75,074) (86,740) -
Increase (decrease) in cash
flows from changes
in operating assets and
liabilities-
Receivables - 3,605 369,308
Accounts payable and
accrued liabilities (15,313) 17,468 (1,583)
Net cash provided by
(used in) operating
activities (98,664) (62,048) 308,340
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of license
agreements (29,279) (5,022) (22,188)
Purchase of investments (219,529) (463,999) (1,439,929)
Sale of investments 326,000 314,000 400,000
Net cash provided by
(used in) investing
activities 77,192 (155,021) (1,062,117)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Exercise of stock options 20,000 - -
Purchase of stock - - (6,548)
Net cash provided by
(used in) financing
activities 20,000 - (6,548)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (1,472) (217,069) (760,325)
CASH AND CASH EQUIVALENTS,
beginning of year 86,390 303,459 1,063,784
CASH AND CASH EQUIVALENTS,
end of year $ 84,918 $ 86,390 $ 303,459
The accompanying notes are an integral part of these financial
statements.
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
Advanced Tobacco Products, Inc., d/b/a Advanced Therapeutic
Products, Inc. since 1992 (the
Company), was formed in April 1983. Through September 1987, the
Company was engaged in the
manufacturing and marketing of a smoke-free cigarette. In
September 1987, the Company sold
substantially all its assets to Pharmacia & Upjohn, Inc. (Pharmacia
& Upjohn), a worldwide
pharmaceutical company.
The preparation of financial statements in conformity with
generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Loss Per Share
Earnings per share of common stock is computed by dividing net
income (loss) for the period
by the weighted average number of shares of common stock
outstanding. Common stock options
are common stock equivalents but have been excluded from the per
share computations as the
effect is antidilutive.
Statements of Cash Flows
For purposes of determining cash flows, the Company considers all
certificates of deposit and
investments with original maturities of less than three months to
be cash equivalents. There
were no amounts paid by the Company for interest or income taxes
for the years ended June 30,
1996, 1995 and 1994.
License Agreement
In fiscal year 1993, the Company entered into a license agreement
for nicotine technology
with Duke University. The term of the license agreement is for any
period such nicotine
technology is under patent. A patent was applied for in 1993 and
an initial patent was
issued in 1995. In 1996, 1995 and 1994, the Company capitalized
the direct costs incurred
in obtaining the license agreement plus patent prosecution
expenses. These costs are being
amortized on a straight-line basis over 20 years.
During March 1995, the Financial Accounting Standards Board issued
Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), Accounting for the
Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
requires companies to
review long-lived assets and certain identifiable intangibles for
impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be
recoverable. If the carrying amount of a companys long-lived
assets is not recoverable, an
impairment loss will be recognized equal to the difference between
the asset's book carrying
amount and its discounted fair value. Adoption of SFAS No. 121 is
required for fiscal years
beginning after December 15, 1995, although earlier adoption is
encouraged. Based on
information currently known by the Company, such adoption would not
have a significant impact
on the Company's financial statements.
2. INVESTMENTS:
The Company's investments consist of U.S. Treasury zero coupon
bonds which were purchased at
a discount from their face value. Investments are carried at
amortized cost which as of
June 30, 1996 and 1995, approximates fair value. The Company
intends to hold all investments
to their respective maturities which range from November 1996 to
November 1999. Investments
maturing within one year of the balance sheet date are classified
as current assets while
those investments maturing later than one year of the balance sheet
date are classified as
noncurrent assets in the accompanying balance sheets.
U.S. Treasury zero coupon bonds held at 1996 and 1995 were as
follows:
Gross
Unrealized
Carrying Holding Fair
Amount (Gain) Loss Value
1996:
Current $ 237,434 $ 182 $ 237,252
Long term 1,007,837 8,728 999,109
$1,245,271 $ 8,910 $1,236,361
1995:
Current $ 316,765 $ 269 $ 316,496
Long term 959,903 (3,465) 963,368
$1,276,668 $ (3,196) $1,279,864
3. STOCKHOLDERS' EQUITY:
During 1994, the Company purchased 70,000 shares of its common
stock in the open market;
these shares were subsequently retired. During 1996, 160,000
shares of common stock were
issued in connection with the exercise of stock options by a
director of the Company.
4. SALE OF ASSETS AND REVENUE RECOGNITION:
The aggregate sales price of the Company's 1987 sale of assets
consisted of $3,600,000 and
the right to future royalties. The agreements provided for the
Company to receive aggregate
minimum royalties of $400,000 for the fiscal years ended July 31,
1991, 1992 and 1993. A pro
rata portion of the 1993 payment was recognized as income for the
year ended June 30, 1994.
The Company expects to receive future royalties from Pharmacia &
Upjohn based upon a
percentage (as defined in the agreements) of any net sales of
products which utilize the
Company's assets sold to Pharmacia & Upjohn. For the years ended
June 30, 1996, 1995 and
1994, the Company received no royalties from the sale of such
products as products are
awaiting approval from regulatory authorities of various countries
in which Pharmacia &
Upjohn plans to market the products.
In addition to these agreements, in 1994, the Company provided
consulting services to
Pharmacia & Upjohn for which it received consulting revenues.
5. FEDERAL INCOME TAXES:
The Company accounts for income taxes under the provisions required
by Statement of Financial
Accounting Standards No. 109 (SFAS No. 109). The application of
SFAS No. 109 had no material
impact on the Company's financial position or results of
operations, as the Company has
generated book and tax losses in prior years.
As of June 30, 1996, the Company has remaining tax net operating
loss, corporate capital loss
and tax credit carryforwards of approximately $10.6 million,
$70,000 and $102,000,
respectively, which may be used to reduce taxes against future
earnings. The net operating
loss carryforwards expire between 2000 and 2005, corporate capital
losses expire in 1999
while the tax credit carryforwards expire between 1999 and 2001.
For financial reporting
purposes, the Company has not recognized a deferred tax asset or
liability resulting from
temporary differences as the tax effects of such differences are
immaterial.
The tax effects of deferred income tax assets are as follows:
June 30
1996 1995
Deferred income tax assets-
Net operating loss carryforwards $ 3,604,000 $ 3,604,000
Corporate capital loss carryforward 23,800 -
Tax credit carryforwards 102,000 170,000
Total gross deferred tax assets 3,729,800 3,774,000
Less- Valuation allowance (3,729,800) (3,774,000)
Net deferred tax assets $ - $ -
As the Company has generated net operating losses in prior years,
and there is no assurance
of future income, a valuation allowance of $3,729,800 has been
established at June 30, 1996.
The Company will evaluate the necessity for such valuation
allowance in the future.
6. NONQUALIFIED STOCK OPTION PLAN:
The Company has a nonqualified stock option plan authorizing the
granting by the board of
directors of stock options covering common stock to officers, key
management employees,
independent contractors providing services to the Company or
consultants of the Company. The
exercise price per share cannot be less than 100 percent (or 110
percent in the case of
options granted to holders of 10 percent or more of the then
outstanding common stock) of the
fair market value of the Company's common stock as determined by
the board of directors on
the date the options are granted, and the exercise period for the
options cannot exceed
10 years from the date the options are granted. Options are
immediately exercisable, options
are not transferable except by will or the laws of descent or
distribution and options expire
within one year following termination of association with the
Company. The aggregate number
of options outstanding and exercisable at $.125 per share as of
June 30, 1996 and 1995, was
140,000 and 300,000, respectively. Effective September 1995, the
Company granted
100,000 options to each of J. H. Uptmore and David A. Monroe,
directors of the Company, at
an exercise price of $.4375 per share which expire in September
2000 and, accordingly, the
aggregate number of options outstanding and exercisable at $.4375
per share as of June 30,
1996, was 200,000.
7. RELATED-PARTY TRANSACTIONS:
Since August 1995, the Company has had an administrative services
agreement with Linehan
Engineering, Inc. (LEI), a related-party entity owned by the
Company's president. In 1996,
the Company paid LEI $28,050 for administrative services.
From July 1990 to July 1995, the Company had an administrative
services agreement with GE
Reaves Engineering, Inc. (GE Reaves), an entity related to the
Company through the
association of the Company's president. In 1996, 1995 and 1994,
the Company paid GE Reaves
$3,100, $30,000 and $30,000, respectively, for administrative
services.
In June 1994, the Company entered into a consulting services
agreement with James E. Turner
(Turner) who is a director of the Company. During 1996, the
Company paid Turner $20,000 for
consulting services.
ADVANCED TOBACCO PRODUCTS, INC.
INDEX TO EXHIBITS
Item 14(a)
Exhibit No. Description
1 Form of Agreement Among Underwriters, including
Underwriting Agreement and
Selected Dealers Agreement incorporated by reference
to Exhibit 1 of
Registrant's Statement of Form S-1 (Registration No.
2-88812, as amended on
May 23, 1984), the effective date thereof
hereinafter, the "Registrant's
Registration Statement".
2 Agreement to Raise Capital and acquire technology
dated September 19, 1983,
between the Registrant and NCC Group, Ltd. by
reference to Exhibit 2 of the
Registrant's Registration Statement.
3.1 Restated Articles of Incorporation of the
Registrant by reference to
Exhibit 3.1 of the Registrant's Registration
Statement.
3.2 Bylaws of the Registrant by reference to
Exhibit 3.2 of the Registrant's
Registration Statement.
4.1 Specimen Common Stock Certificate by reference
to Exhibit 4.1 of the
Registrant's Registration Statement.
4.2 Specimen of Warrant Certificate by reference to
Exhibit 4.2 of the
Registrant's Registration Statement.
4.3 Warrant Agreement between Registrant and Frost
National Bank as Warrant
Agent by reference to Exhibit 4.3 of the
Registrant's Registration
Statement.
4.4 Articles Four, Nine and Ten of the Articles of
Incorporation of the
Registrant (included in Exhibit 3.1) by
reference to Exhibit 4.4 of the
Registrant's Registration Statement.
4.5 Form of Warrant Agreement and Representative
Unit Purchase Warrant by
reference to Exhibit 4.5 of the Registrant's
Registration Statement.
5.1 Opinion of Matthews & Branscomb regarding
legality of securities by
reference to Exhibit 5.1 of the Registrant's
Registration Statement.
5.2 Opinion of Matthews & Branscomb regarding FDA
and other governmental
regulation by reference to Exhibit 5.2 of the
Registrant's Registration
Statement.
10.1 Acquisition Agreement between the Registrant
and NCC Group, Ltd.
(previously filed as part of Exhibit 2) by
reference to Exhibit 10.1 of
the Registrant's Registration Statement.
10.2 Agreement dated October 31, 1983 between the
Registrant and The Richards
Group, Inc. of Dallas, Texas by reference to
Exhibit 10.2 of the
Registrant's Registration Statement.
10.3 Commitment Letter dated January 9, 1984, from
American Filtrona Company
(equipment supplier) by reference to Exhibit
10.3 of the Registrant's
Registration Statement.
10.4 Commitment Letter dated January 6, 1984, from
Raynor Adams & Associates,
Inc. (equipment supplier) by reference to
Exhibit 10.4 of the
Registrant's Registration Statement.
10.5 Commitment Letter dated June 20, 1983 from
Harvey Machine Company, Inc.
(equipment supplier) by reference to Exhibit
10.5 of the Registrant's
Registration Statement.
10.6 Commitment Letter dated January 9, 1984, from
J. H. Uptmore &
Associates, Inc. (lease space improvements) by
reference to Exhibit 10.7
of the Registrant's Registration Statement.
10.7 Advanced Tobacco Products, Inc. 1984 Incentive
Stock Option Plan by
reference to Exhibit 10.7 of the Registrant's
Registration Statement.
10.8 Form of Option Agreement under 1984 Advanced
Tobacco Products, Inc.
Incentive Stock Option Plan by reference to
Exhibit 10.8 of the
Registrant's Registration Statement.
10.9 S.A. Vend, Inc. 1983 Incentive Stock Option
Plan by reference to Exhibit
10.9 of the Registrant's Registration
Statement.
10.10 Employment Agreement dated December 7, 1983, between
the Registrant and
Gerald R. Mazur by reference to Exhibit 10.10 of the
Registrant's
Registration Statement.
10.11 Employment Agreement dated December 7, 1983, between
the Registrant and J. P.
Ray by reference to Exhibit 10.11 of the
Registrant's Registration Statement.
10.12 Employment Agreement dated August 1, 1983, between
the Registrant and Edmund
G. Vimond, Jr. by reference to Exhibit 10.12 of the
Registrant's Registration
Statement.
10.13 Employment Agreement dated November 27, 1983,
between the Registrant and
James D. Simonsen by reference to Exhibit 10.14 of
the Registrant's
Registration Statement.
10.14 Patent Purchase Agreement, dated May 27, 1987,
between Advanced Tobacco
Products, Inc. and Pharmacia LEO, Inc. filed as an
exhibit to the 8-K filed
on or about July 29, 1987.
10.15 Asset Purchase Agreement between Advanced Tobacco
Products, Inc. and
Pharmacia LEO, Inc., executed as of June 1, 1987,
and filed as an exhibit to
the 8-K filed on or about July 29, 1987.
10.16 Consultation Agreement between Advanced Tobacco
Products, Inc. and Pharmacia
LEO, Inc. filed as an exhibit to Registrant's 1987
10-K.
10.17 First Amendment to Patent Purchase Agreement dated
as of November 22, 1990,
between the Registrant and AB LEO, a Swedish
corporation, and filed as an
exhibit to the 8-K dated December 12, 1990.
10.18 Second Amendment to Asset Purchase Agreement dated
as of November 20, 1990,
between the Registrant and Pharmacia LEO, a New
Jersey corporation, and
filed as an exhibit to the 8-K dated December 12,
1990.
16.1 Letter regarding change in Certifying Accountant
filed as an exhibit to the
8-K dated October 3, 1990.