FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from July 1, 1998 to September 30, 1998
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 September 30, 1998
ADVANCED TOBACCO PRODUCTS, INC. PART I - FINANCIAL INFORMATION
dba ADVANCED THERAPEUTIC PRODUCTS, INC. ITEM 1: Financial Statements
BALANCE SHEETS
(Unaudited) (Audited)
September 30 June 30
1998 1998
ASSETS:
CURRENT ASSETS:
Cash & cash equivalents $ 449,481 $ 91,431
Investments 471,456 467,184
Accounts Receivable -0- 384,059
Accrued Royalty 352,000 -0-
Total current assets: 1,272,937 942,674
LICENSE AGREEMENTS, Net: 161,804 159,986
INVESTMENTS: 977,015 960,991
TOTAL ASSETS: $2,411,756 $2,063,651
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable $ 19,149 $ 2,802
TOTAL LIABILITIES: 19,149 2,802
SHAREHOLDER'S EQUITY:
Common stock - authorized, 30,000,000
shares of $.01 par value; 8,092,136
shares outstanding as of
September 30, 1998, and
June 30, 1998, respectively 80,922 80,922
Additional paid-in-capital 12,544,878 12,544,878
Accumulated deficit (10,233,193) (10,564,951)
TOTAL STOCKHOLDERS' EQUITY: 2,392,607 2,060,849
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY: $2,411,756 $2,063,651
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENT OF INCOME
(Unaudited)
Three Months Ended September 30
1998 1997
REVENUES:
Royalty Income, Net $ 352,000 $ 20,656
Total operating revenue: 352,000 20,656
EXPENSES:
General and Administrative 40,868 45,700
Total expenses: 40,868 45,700
INCOME FROM OPERATIONS: 311,132 (25,044)
OTHER INCOME :
Interest Income 20,624 19,666
Total other income: 20,624 19,666
NET INCOME: $ 331,756 $ (5,379)
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: 8,292,136 8,292,136
INCOME PER COMMON SHARE - BASIC AND
ASSUMING DILUTION: $ .04 $ NIL
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended September 30
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income: $ 331,756 $ (5,379)
Adjustments to reconcile net
income to net cash:
Amortization 1,670 1,670
Accounts receivable 384,059 79,539
Accrued royalties (352,000) (22,500)
Accounts payable and accrued
liabilities 16,343 8,480
Net cash provided by operations: 381,828 61,810
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenses of license agreements (3,488) (2,175)
Net cash provided (used) by
investments: (3,488) (2,175)
NET INCREASE IN CASH: 378,340 59,636
CASH & INVESTMENTS AT BEGINNING
OF PERIOD: 1,519,606 1,361,875
CASH & INVESTMENTS AT END OF PERIOD: $1,897,946 $1,421,510
NOTES TO FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared
by Advanced Tobacco Products, Inc. (the Company) without audit, prusuant
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 periods 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 its nicotine technology and related assets to
what is now known as Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn"),
a worldwide pharmaceutical company that manufactures the Nicorette Chewing
Gum, the Nicotrol/Nicorette Patch, the Nicotrol/Nicorette Nasal Spray and
the Nicotrol/Nicorette Inhaler.
Based upon the nicotine technology acquired from the Company, Pharmacia
& Upjohn developed the Nicotrol/Nicorette Inhaler (the "Inhaler") for use in
the nicotine replacement therapy ("NRT") market. ATP receives product
payments from Pharmacia & Upjohn equal to 3% of its net sales of the Inhaler
to pharmacy distributors in Europe. Product payments from the sales of the
Inhaler in the U. S. are 9.9% of Pharmacia & Upjohn's net sales to McNeil
Consumer Products Company ("McNeil"), a Johnson & Johnson Company, who then
markets the Inhaler to pharmacies.
Royalty payments of three percent (3%) of Net Sales (generally, sales by
Pharmacia & Upjohn 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 Pharmacia & Upjohn to McNeil by
3.3 (in effect, 9.9% of Pharmacia & Upjohn's sales to McNeil). There are
royalty limitations in the event of the sale of a nicotine vapor product
competitive with the 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.
In early September 1998, McNeil launched the Inhaler nationwide in the
U.S. as a prescription product after an initial introduction earlier in 1998
in Houston, Baltimore and Washington, D.C. The U.S. represents almost 50%
of the worldwide NRT market.
Since September 1996, Pharmacia & Upjohn has introduced the Inhaler in
Denmark, Sweden, Italy, Austria, The Netherlands, Belgium, Finland, Iceland,
Gibralter and the United Kingdom. The Inhaler is sold as an
over-the-counter product in most of these European countries. The Company
understands that additional country launches are planned by Pharmacia &
Upjohn to occur as regulatory approvals are granted.
The Inhaler is the first and only form of NRT 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 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 three 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 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 Nicotrol/Nicorette patch by Pharmacia &
Upjohn.
The Company's operations include no material dependence on any corporate
operations or on the preparation for year 2000 of any corporate operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash resources, including investments, available on September 30, 1998,
were approximately $1,900,000 as compared to approximately $1,400,000 for
September 30, 1997.
COMPARISON OF SELECTED FINANCIAL DATA
Operating Revenues for the three month period ending September 30, 1998,
increased to $352,000, as compared to $20,656 for the three month period
ending September 30, 1997. This increase is due to a increase in product
payments from Pharmacia & Upjohn as the Nicorette/Nicotrol Inhaler continues to
be launched worldwide.
Interest income for the three month period ending September 30, 1998,
increased to $20,624, as compared to $19,666 for the three month period
ending September 30, 1997. This increase is primarily due to minor interest
rate fluctuations.
Net income for the three month period ending September 30, 1998, increased
to $331,756, as compared to a net loss of $5,379 for the three month period
ending September 30, 1997. 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 three month period ending
September 30, 1998, decreased to $40,868, as compared to $45,700 for the
three month period ending September 30, 1997. This decrease is primarily
due to minor fluctuations in administrative expenses.
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.
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: November 13, 1998
By: /s/ J. W. Linehan
J. W. Linehan, Chief
Executive Officer and
Chief Accounting Officer
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