FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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)
TEXAS 74-2285214
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
16607 Blanco Road, Suite 1504, San Antonio, Texas 78232
(Address of principal executive offices) (Zip Code)
(210) 408-7077
(Registrant's telephone number, including area code)
N/A
(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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes No N/A
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
8,092,136 as of December 31, 1997
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
BALANCE SHEETS
(Unaudited) (Audited)
December 31 June 30
1997 1997
ASSETS:
CURRENT ASSETS:
Cash & cash equivalents $ 39,753 $ 38,877
Investments 471,495 454,428
Accounts Receivable 125,000 79,539
Total current assets: 636,248 572,844
LICENSE AGREEMENTS, Net: 159,435 159,074
INVESTMENTS: 893,500 868,570
TOTAL ASSETS: $ 1,689,183 $ 1,600,488
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable $ 5,804 $ 6,760
TOTAL LIABILITIES: 5,804 6,760
SHAREHOLDER'S EQUITY:
Common stock - authorized, 30,000,000
shares of $.01 par value; 8,092,136
shares outstanding as of December
31, 1997, and June 30, 1997,
respectively 80,922 80,922
Additional paid-in-capital 12,544,878 12,544,878
Accumulated deficit (10,942,421) (11,032,072)
TOTAL STOCKHOLDERS' EQUITY: 1,683,379 1,593,728
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY: $ 1,689,183 $ 1,600,488
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENT OF INCOME (LOSS)
(Unaudited)
Three Months Ended December 31
1997 1996
REVENUES:
Royalty Income, Net $ 102,500 $ 78,200
Total operating revenues: 102,500 78,200
EXPENSES:
General and Administrative 26,158 30,177
Total operating expenses: 26,158 30,177
INCOME FROM OPERATIONS: 76,342 48,023
OTHER INCOME:
Interest Income 18,687 21,786
Total other income: 18,687 21,786
NET INCOME: $ 95,029 $ 69,809
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING: 8,092,136 8,069,310
EARNINGS PER COMMON SHARE: $ .012 $ .01
(Unaudited)
Six Months Ended December 31
1997 1996
REVENUES:
Royalty Income, Net $ 123,156 $ 78,200
Total operating revenues: 123,156 78,200
EXPENSES:
General and Administrative 71,859 87,519
Total operating expenses: 71,859 87,519
INCOME (LOSS) FROM OPERATIONS: 51,297 (9,319)
OTHER INCOME:
Interest Income 38,353 40,516
Total other income: 38,353 40,516
NET INCOME: $ 89,650 $ 31,197
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING: 8,092,136 8,010,723
EARNINGS PER COMMON SHARE: $ .011 $ .004
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended December 31
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income: $ 89,650 $ 31,197
Adjustments to reconcile net income
to net cash:
Amortization 3,340 3,340
Accounts receivable (45,460) (76,934)
Accounts payable and accrued liabilities (956) 30,790
Net cash provided (used) by operations: 46,574 (11,607)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenses of license agreements (3,701) (4,653)
Net cash provided (used) by investments: (3,701) (4,653)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of Stock Options -0- 17,500
Net cash provided by financing: -0- 17,500
NET INCREASE IN CASH: 42,873 1,240
CASH & INVESTMENTS AT BEGINNING
OF PERIOD: 1,361,875 1,330,189
CASH & INVESTMENTS AT END
OF PERIOD: $ 1,404,748 $ 1,331,429
NOTES TO FINANCIAL STATEMENTS
The condensed financial statements included herein were prepared by the
Company without audit. Certain information and footnote disclosures
normally included in financial statements have been omitted. The
condensed financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K as of June 30, 1997.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operation
RESULTS OF OPERATIONS
In 1987, the Company sold patented nicotine technology and related assets to
what is now Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn"), a worldwide
pharmaceutical company that manufacturers the Nicorette Chewing/Gum, the
Nicorette/Nicotrol Patch, the Nicorette/Nicotrol Nasal Spray and the
Nicorette/Nicotrol Inhaler.
Based upon the nicotine technology acquired from the Company, Pharmacia &
Upjohn developed the Nicorette/Nicotrol Inhaler for use in the nicotine
replacement therapy ("NRT") market. ATP receives product payments of 3% of
sales of the Inhaler to wholesale distributors (see paragraph below).
Pharmacia & Upjohn launched the Inhaler commercially in Denmark in September
1996, in Sweden in December 1996, in Italy in February 1997, in the
Netherlands in July 1997, in Austria in September 1997, and in the United
Kingdom in December 1997, under the trade name Nicorette Inhaler.
Additional worldwide launches are planned by Pharmacia & Upjohn to occur as
regulatory approvals are granted.
The Inhaler was recently approved for sale as a prescription product by the
United States Food and Drug Administration, and the Company anticipates that
the Inhaler will be initially offered in the U.S. in the first half of 1998
as the Nicotrol Inhaler by McNeil Consumer Products, a Johnson & Johnson
company. The U.S. represents approximately 50% of the world NRT market.
The Inhaler is the first and only form of nicotine replacement therapy
designed to help control a smoker's cravings for cigarettes and provide a
key behavioral component of smoking--the hand-to-mouth ritual.
The Inhaler consists of a mouthpiece and a cartridge containing nicotine.
The smoker puffs on the mouthpiece to inhale the nicotine which is then
absorbed through the lining of the mouth. The Inhaler does not contain any
of the harmful substances such as tar and carbon monoxide found in tobacco
smoke which cause smoking related diseases like lung cancer. It provides
about 30% of the nicotine a smoker gets from cigarettes. The Inhaler is
recommended by Pharmacia & Upjohn for smokers who show a high behavioral
dependence and smoke twenty or less cigarettes per day.
In September 1992, the Company obtained an exclusive worldwide license to
certain dry powder nicotine inhaler technology from Duke University. In
February 1993, the Company filed a patent application covering this
technology resulting in the issuance of U.S. patents in 1995 and in 1997.
Additional U.S. and foreign patent applications are pending. The Company
believes that a dry powder nicotine inhaler has the potential to be a future
generation NRT product. The Company is continuing to seek a strategic
partner to develop this technology.
Effective as of October 1993, the Company has an agreement with Pharmacia &
Upjohn under which, among other matters, the Company has the right to
receive a royalty equal to .1% of net revenues received by Pharmacia &
Upjohn from the sale of any product using a nicotine impermeable copolymer
technology covered by, and subsequent to, the issuance of a patent in March
1996. Under the terms of the agreement, the Company now receives royalties
from the sales of the Nicorette/Nicotrol patch by Pharmacia & Upjohn.
The Company has the right to receive royalty payments from Pharmacia &
Upjohn with respect to the Nicorette/Nicotrol Inhaler of three percent (3%)
of Net Sales (defined generally as sales by Pharmacia & Upjohn and McNeil
Consumer Products to wholesale distributors) payable on a country by country
basis 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). There are royalty limitations in the event of the sale of
a nicotine vapor product competitive with the Nicorette/Nicotrol Inhaler.
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
$4,400,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash resources, including investments, available on December 31, 1997, were
approximately $1,404,000, as compared to approximately $1,330,000 for
December 31, 1996.
COMPARISON OF SELECTED FINANCIAL DATA
Operating Revenues for the six month period ended December 31, 1997,
increased to $123,156, as compared to $78,200 for the six month period ended
December 31, 1996. This increase is due to an increase in product payments
from Pharmacia & Upjohn as the Inhaler continues to be launched worldwide.
Interest income for the six-month period ended December 31, 1997, decreased
to $38,353, as compared to $40,516 for the six-month period ended December
31, 1996. This decrease is primarily due to minor interest fluctuations.
Net income for the six-month period ended December 31, 1997, increased to
$89,650, as compared to $31,197 for the six-month period ended December 31,
1996. This increase is due to an increase in product payments from Pharmacia
& Upjohn as the Inhaler continues to be launched worldwide.
General and administrative expenses for the six-month period ended December
31, 1997, decreased to $71,859, as compared to $87,519 for the six-month
period ended December 31, 1996. This decrease is primarily due to absence in
the first quarter of 1997 of a one-time bonus awarded in the first quarter of
1996 to a consultant and a Director of the Company.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.
None
Item 2: Changes in Securities and Use of Proceeds.
None
Item 3: Defaults Upon Senior Securities.
None
Item 4: Submission of Matters to a Vote of Security Holders.
None
Item 5: Other Information.
None
Item 6: Exhibits and Reports on Form 8-K.
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED TOBACCO PRODUCTS, INC.
(Registrant)
Dated: February 12, 1998
By: /s/ J. W. Linehan
J. W. Linehan, Chief
Executive Officer and
Chief Accounting Officer
ABB0F8EF