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, 1999
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, 1999
ADVANCED TOBACCO PRODUCTS, INC. PART I - FINANCIAL INFORMATION
dba ADVANCED THERAPEUTIC PRODUCTS, INC. ITEM 1: Financial Statements
BALANCE SHEETS
(Unaudited) (Unaudited)
March 31 September 30
1999 1998
ASSETS:
CURRENT ASSETS:
Cash & cash equivalents $ 238,479 $ 449,481
Investments 489,665 471,456
Royalties Receivable 22,178 -0-
Accrued Royalty 234,330 352,000
Total current assets: 984,652 1,272,937
LICENSE AGREEMENTS, Net: 164,078 161,804
INVESTMENTS: 1,216,154 977,015
TOTAL ASSETS: $2,364,884 $2,411,756
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable $ 14,940 $ 19,149
TOTAL LIABILITIES: 14,940 19,149
SHAREHOLDER'S EQUITY:
Common stock, $.01 par value;
30,000,000 shares authorized;
8,092,136 shares issued and
outstanding as of March 31, 1999,
and September 30, 1998 80,922 80,922
Additional paid-in-capital 12,544,878 12,544,878
Accumulated deficit (9,709,406) (10,233,193)
Dividends Paid (566,450) -0-
TOTAL STOCKHOLDERS' EQUITY: 2,349,944 2,392,607
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY: $2,364,884 $2,411,756
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENT OF INCOME (LOSS)
(Unaudited)
Three Months Ended March 31
1999 1998
REVENUES:
Royalty Income, Net $ 236,281 $ 162,385
Total operating revenues: 236,281 162,385
EXPENSES:
General and administrative 31,447 32,926
Total operating expenses: 31,447 32,926
INCOME FROM OPERATIONS: 204,834 129,459
OTHER INCOME:
Interest Income 19,873 19,085
Total other income: 19,873 19,085
NET INCOME: $ 224,707 $ 148,544
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING: 8,092,136 8,092,136
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING -
ASSUMING DILUTION: 8,208,730 8,192,440
INCOME PER COMMON SHARE - BASIC AND
ASSUMING DILUTION $ .03 $ .02
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENT OF INCOME (LOSS)
(Unaudited)
Six Months Ended March 31
1999 1998
REVENUES:
Royalty Income, Net $554,181 $264,885
Total operating revenues: 554,181 264,885
EXPENSES:
General and administrative 77,607 59,082
Total operating expenses: 77,607 59,082
INCOME (LOSS) FROM OPERATIONS: 476,574 205,803
OTHER INCOME:
Interest Income 47,213 37,772
Total other income: 47,213 37,772
NET INCOME: $523,787 $243,575
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING: 8,092,136 8,092,136
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING -
ASSUMING DILUTION: 8,206,066 8,192,216
INCOME PER COMMON SHARE - BASIC AND
ASSUMING DILUTION $ .06 $ .03
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended March 31
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income: $523,787 $243,575
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of license agreements 3,340 3,340
Amortization of discount on investments (35,989) (36,222)
Increase in cash flows from changes
in operating assets and liabilities
Accrued royalties 117,670 (130,500)
Royalties receivable (22,178) (538)
Accounts payable (4,209) (5,169)
Net cash provided by operating activities: (582,421) 74,486
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of license agreements and patent
expenses (5,614) (5,045)
Purchase of investments (499,359) (262,597)
Sale of investments 278,000 258,000
Net cash used in investing activities: (226,973) (9,642)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid (566,450) -0-
Net cash used in financing activities: (566,450) -0-
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS: (211,002) 64,844
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD: 449,481 79,180
CASH & CASH EQUIVALENTS AT END OF PERIOD: $238,479 $144,024
NOTES TO FINANCIAL STATEMENTS
The condensed financial statements included herein have been
prepared by Advanced Tobacco Products, Inc., dba Advanced
Therapeutic Products, Inc. (the Company) without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. However, all adjustments have been made to the
accompanying financial statements which are, in the opinion of the
Company's management, necessary for the fair presentation of the
Company's results of operations for the period covered. Certain
information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented herein
not misleading. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K as of June 30,
1998.
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 Nicotrol/Nicorette Inhaler, to what is now
known as Pharmacia & Upjohn, Inc. ("P&U") in exchange for product
payments.
Product payments from the non U.S. sales of the Nicorette
Inhaler are 3% of P&U's net sales to pharmacy distributors.
Product payments from the sales of the Nicotrol Inhaler in the
U.S. are 9.9% of P&U's net sales to McNeil Consumer Products
Company ("McNeil"), a Johnson & Johnson Company, which markets the
Inhaler to pharmacies as a prescription product.
Product payments of three percent (3%) of Net Sales
(generally, sales by P&U to wholesale distributors) 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 enforceable in such countries. If the Net Sales to
wholesale distributors cannot be obtained or is not disclosed, as
is the case with regard to McNeil, Net Sales are determined by
multiplying the net sales of P&U to McNeil by 3.3 (in effect, 9.9%
of P&U's sales to McNeil). There are product payment limitations in the
event of the sale of a nicotine vapor product competitive with the
Inhaler. Product payments in excess of $1,000,000 per year ($333,000 in
respect to Europe and $667,000 in respect to the rest of the world) are to
be reduced by fifty percent (50%) until the aggregate of such
reductions equal the sum of $4,400,000.
McNeil launched the Nicotrol Inhaler nationwide in the U.S.
as a prescription product in September 1998 (the U.S. is
approximately 50% of the worldwide nicotine replacement therapy
("NRT")) market. P&U has also introduced the Inhaler, primarily as
an over-the-counter product, in the United Kingdom, New Zealand,
Ireland, Norway, Sweden, Denmark, Italy, Austria, The Netherlands,
Belgium, Finland, Iceland, Gibralter and Hong Kong. The Company
understands that additional country launches are planned by P&U to
occur as regulatory approvals are granted.
The Nicotrol/Nicorette Inhaler is the first and only form of
NRT designed to help control a smoker's cravings for cigarettes
while providing a key behavioral component of smoking--the hand-to-
mouth ritual. The Inhaler consists of a mouthpiece and a cartridge
containing nicotine. The user puffs on the mouthpiece to inhale
the nicotine which is then absorbed through the lining of the
mouth. The Inhaler provides 30% of the nicotine a smoker gets from
cigarettes. It 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.
In September 1992, the Company obtained an exclusive worldwide
license to certain dry powder nicotine inhaler technology from Duke
University. The Company has obtained patents covering this
technology. The Company believes that a dry powder nicotine
inhaler has the potential to be a future generation NRT. The
Company is continuing to seek a strategic partner to develop this
technology.
Effective as of October 1993, the Company has an agreement
with P&U under which, among other matters, the Company has the
right to receive a royalty equal to .1% of net revenues received by
P&U 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 P&U.
The Company's operations include no material dependence on any
computer operations or on the preparation for year 2000 of any
computer operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash resources, including investments, available on March 31,
1999, were approximately $1,944,000, as compared to approximately
$1,527,000 as of March 31, 1998.
COMPARISON OF SELECTED FINANCIAL DATA
Operating revenues for the six month period ending March 31,
1999, increased to $554,181, as compared to $264,885 for the six
month period ending March 31, 1998. This increase is due to an
increase in product payments from P&U as the Nicorette/Nicotrol
Inhaler continues to be launched worldwide.
Interest income for the six month period ending March 31,
1999, increased to $47,213, as compared to $37,772 for the six month
period ending March 31, 1998. This increase is primarily due to an
increase in cash resources available to the Company.
Net income for the six month period ending March 31, 1999,
increased to $523,787, as compared to $243,575 for the six month
period ending March 31, 1998. This increase is due to an increase
in product payments from P&U as the Nicotrol/Nicorette Inhaler
continues to be launched worldwide.
General and administrative expenses for the six month period
ending March 31, 1999, increased to $77,607, as compared to $59,082
for the six month period ending March 31, 1998. This increase is
primarily due to costs associated with issuing a dividend of $.07
per share of common stock on January 6, 1999.
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
On September 14, 1998, the Company filed an 8-K disclosing
that the Company had determined to change its fiscal year from a
June 30 year end to a September 30 year end beginning with the
fiscal year ended September 30, 1999.
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 14, 1999
By: /s/J.W. Linehan
J. W. Linehan, Chief
Executive Officer and
Chief Accounting Officer