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 March 31, 1998
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 March 31, 1998
ADVANCED TOBACCO PRODUCTS, INC. PART I - FINANCIAL
dba ADVANCED THERAPEUTIC PRODUCTS, INC. INFORMATION
BALANCE SHEETS Item 1: Financial
Statements
(Unaudited) (Audited)
March 31 June 30
1998 1997
ASSETS:
CURRENT ASSETS:
Cash & cash equivalents $ 144,024 $ 38,877
Investments 483,103 454,428
Accounts Receivable 538 79,539
Accrued Receivable 153,000 -0-
Total current assets: 780,665 572,844
LICENSE AGREEMENTS, Net: 161,285 159,074
INVESTMENTS: 900,046 868,570
TOTAL ASSETS: $ 1,841,996 $ 1,600,488
LIABILITIES AND SHAREHOLDERS'
EQUITY:
LIABILITIES:
Accounts payable $ 10,071 $ 6,760
TOTAL LIABILITIES: 10,071 6,760
SHAREHOLDER'S EQUITY:
Common stock - authorized,
30,000,000 shares of $.01
par value; 8,092,136 shares
outstanding as of March 31,
1998, and June 30, 1997,
respectively 80,922 80,922
Additional paid-in-capital 12,544,878 12,544,878
Accumulated deficit (10,793,875) (11,032,072)
TOTAL STOCKHOLDERS' EQUITY: 1,831,925 1,593,728
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY: $ 1,841,996 $ 1,600,488
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENT OF INCOME
(Unaudited)
Three Months Ended March 31
1998 1997
REVENUES:
Royalty Income, Net $ 162,385 $ 57,000
Total operating revenue: 162,385 57,000
EXPENSES:
General and Administrative 32,926 27,018
Total expenses: 32,926 27,018
INCOME FROM OPERATIONS: 129,459 29,982
OTHER INCOME:
Interest Income 19,058 17,791
Total other income: 19,058 17,791
NET INCOME: $ 148,544 $ 47,773
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING: 8,092,136 8,092,136
EARNINGS PER COMMON SHARE: $ .02 $ NIL
(Unaudited)
Nine Months Ended March 31
1998 1997
REVENUES:
Royalty Income, Net $ 285,541 135,200
Total operating revenue: 285,541 135,200
EXPENSES:
General and Administrative 104,783 114,537
Total expenses: 104,783 114,537
INCOME FROM OPERATIONS: 180,758 20,663
OTHER INCOME:
Interest Income 57,438 58,308
Total other income: 57,438 58,308
NET INCOME: $ 238,196 $ 78,971
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING: 8,092,136 8,192,136
EARNINGS PER COMMON SHARE: $ .03 $ .01
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended March 31
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income: $ 238,196 $ 78,971
Adjustments to reconcile net
income to net cash:
Amortization 5,010 5,010
Accounts receivable 79,001 (539)
Accrued receivable (153,000) (57,000)
Accounts payable and
accrued liabilities 3,312 7,029
Net cash provided by operations: 172,519 33,471
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenses of license
agreements (7,221) (7,875)
Net cash provided (used) by
investments: (7,221) (7,875)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of Stock Option -0- 17,500
Net cash provided by financing: -0- 17,500
NET INCREASE IN CASH: 165,298 43,096
CASH & INVESTMENTS AT BEGINNING
OF PERIOD: 1,361,875 1,330,189
CASH & INVESTMENTS AT END
OF PERIOD: $1,527,173 $1,373,285
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, which forms the
basis of the Nicorette/Nicotrol Inhaler, to what is now Pharmacia & Upjohn,
Inc. ("Pharmacia & Upjohn")in exchange for product payments. For European
sales, the product payment is 3% of Pharmacia & Upjohn's net sales to
pharmacy distributors. For the U.S., Pharmacia & Upjohn is paying 9.9% of
net sales to McNeil Consumer Products, a Johnson & Johnson Company, who then
markets the Nicotrol Inhaler to pharmacies. Product payments are 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 limitations in the event of the
sale of a nicotine vapor product competitive with the Nicorette/Nicotrol
Inhaler. 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.
In the U.S., the Nicotrol Inhaler is currently available as a prescription
product in the Houston, Baltimore and Washington, DC, areas. ATP expects
profits to substantially increase for the quarter ending June 30, 1998, as
McNeil prepares for the U.S. nationwide launch of the Nicotrol Inhaler later
this year since the U.S. represents approximately 50% of the world nicotine
replacement therapy ("NRT") market.
Launched in Europe in late 1996 as the Nicorette Inhaler, the product is
available in Austria, Belgium, Denmark, Iceland, Italy, the Netherlands,
Sweden and the United Kingdom, primarily as an over-the-counter product.
The Nicorette/Nicotrol 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 Nicorette/Nicotrol 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 Nicorette/Nicotrol Inhaler provides about 30% of the nicotine a smoker
gets from cigarettes but does not contain any of the harmful substances like
tar and carbon monoxide found in tobacco smoke which cause smoking related
diseases like lung cancer. The Nicorette/Nicotrol 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, 1997 and in
1998. 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash resources, including investments, available on March 31, 1998, were
approximately $1,527,000, as compared to approximately $1,373,000 for
March 31, 1997.
COMPARISON OF SELECTED FINANCIAL DATA
Operating revenues for the nine-month period ending March 31, 1998,
increased to $285,541, as compared to $135,200 for the nine month period
ending March 31, 1997. This increase is due to an increase in product
payments from Pharmacia & Upjohn as the Nicorette/Nicotrol Inhaler continues
to be launched in additional markets.
Interest income for the nine-month period ending March 31, 1998, decreased
to $57,438, as compared to $58,308 for the nine-month period ending
March 31, 1997. This decrease is primarily due to minor interest rate
fluctuations.
Net income for the nine-month period ending March 31, 1998, increased to
$238,196, as compared to $78,971 for the nine-month period ending
March 31, 1997. This increase is due to an increase in product payments from
Pharmacia & Upjohn as the Inhaler continues to be launched in additional
markets.
General and administrative expenses for the nine-month period ending
March 31, 1998, decreased to $104,783, as compared to $114,537 for the
nine-month period ending March 31, 1997. This decrease is primarily due to
absence in the first quarter of 1998 of a one-time bonus awarded in the first
quarter of 1997 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: May 11, 1998
By:/s/ J. W. Linehan
J. W. Linehan, Chief
Executive Officer and
Chief Accounting Officer