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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromN/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, 1998<PAGE>
ADVANCED TOBACCO PRODUCTS, INC. PART I - FINANCIAL INFORMATION
dba ADVANCED THERAPEUTIC
PRODUCTS, INC. ITEM 1: FinancialStatements
BALANCE SHEETS
(Unaudited) (Unaudited)
December 31 September 30
1998 1998
ASSETS:
CURRENT ASSETS:
Cash & cash equivalents $ 687,121 $ 449,481
Investments 482,996 471,456
Royalties Receivable 669,900 352,000
Total current assets: 1,840,017 1,272,937
LICENSE AGREEMENTS, Net: 160,722 161,804
INVESTMENTS: 706,562 977,015
TOTAL ASSETS: $2,707,301 $2,411,756
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable $ 15,614 $ 19,149
TOTAL LIABILITIES: 15,614 19,149
SHAREHOLDER'S EQUITY:
Common stock, $.01 par value;
30,000,000 shares authorized;
8,092,136 shares issued and
outstanding as of December 31,
1998, and September 30, 1998 80,922 80,922
Additional paid-in-capital 12,544,878 12,544,878
Accumulated deficit (9,934,113) (10,233,193)
TOTAL STOCKHOLDERS' EQUITY: 2,691,687 2,392,607
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY: $2,707,301 $2,411,756
<PAGE>
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENT OF INCOME (LOSS)
(Unaudited)
Three Months Ended December 31
1998 1997
REVENUES:
Royalty Income, Net $ 317,900 $ 102,500
Total operating revenues: 317.900 102,500
EXPENSES:
General and administrative 46,160 26,158
Total operating expenses: 46,160 26,158
INCOME FROM OPERATIONS: 271,740 76,342
OTHER INCOME:
Interest Income 27,340 18,687
Total other income: 27,340 18,687
NET INCOME: $ 299,080 $ 95,029
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: 8,202,880 8,192,734
INCOME PER COMMON SHARE - BASIC AND
ASSUMING DILUTION $ .04 $ .01
<PAGE>ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended December 31
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income: $ 299,080 $ 95,029
Adjustments to reconcile net income to
net cash provided by operating
activities:
Amortization 1,670 1,670
Amortization of discount on investments (19,087) (18,064)
Increase in cash flows from changes
in operating assets and liabilities
Accrued royalties -0- 22,500
Royalties receivable (317,900) (125,000)
Accounts payable (3,535) (9,435)
Net cash provided (used) by
operations: (39,772) 33,300
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of license agreements and patent
expenses (588) (1,525)
Purchase of investments -0- (262,603)
Sale of investments 278,000 258,000
Net cash provided (used) by
investments: 277,412 (6,128)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of Stock Options -0- -0-
Net cash provided by financing: -0- -0-
NET INCREASE IN CASH AND CASH EQUIVALENTS: 237,640 (39,428)
CASH & CASH EQUIVALENTS AT BEGINNING OF
PERIOD: 449,481 79,180
CASH & CASH EQUIVALENTS AT END OF PERIOD: $687,121 $39,752
<PAGE>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 andregulations 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 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 as a
prescription product.
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 payment 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 ($333,000 in respect of
Europe and $667,000 in respect of 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.
In early September 1998, McNeil launched the Inhaler
nationwide in the U.S. as a prescription product after the initial
introduction earlier in 1998 in Houston, Baltimore and Washington,
DC. The U.S. represents almost 50% of the worldwide NRT market.
Pharmacia & Upjohn has also introduced the Inhaler in the
United Kingdom, Ireland, Norway, Sweden, Denmark, Italy, Austria,
the Netherlands, Belgium, Finland, Iceland, Gibralter and Hong
Kong. The Inhaler is sold as an over-the-counter product in most of
these 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 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 smoker 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 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'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 December
31, 1998, were approximately $1,900,000, as compared to
approximately $1,400,000 for December 31, 1997, and approximately $1,897,946
for September 30, 1998. The Company paid dividends in the aggregate amount
of $566,450 on January 6, 1999.
COMPARISON OF SELECTED FINANCIAL DATA
Operating Revenues for the three month period ending December
31, 1998, were $317,900, as compared to $102,500 for the
three month period ending December 31, 1997. This increase is due to
an 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 December 31,
1998, increased to $27,340, as compared to $18,687 for the three month
period ending December 31, 1997. This increase is primarily due to
an increase in cash resources available to the Company.
Net income for the three month period ending December 31, 1998,
increased to $299,080, as compared to $95.029 for the three month
period ending December 31, 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 December 31, 1998, increased to $46,160, as compared to
$26,158 for the three month period ending December 31, 1997. This
increase is primarily due to costs associated with the payment of 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.
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.<PAGE>
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, 1999
By: /s/J. W. Linehan
J. W. Linehan, Chief
Executive Officer and
Chief Accounting Officer
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 687,121
<SECURITIES> 0
<RECEIVABLES> 669,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,840,017
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,707,301
<CURRENT-LIABILITIES> 15,614
<BONDS> 0
0
0
<COMMON> 80,922
<OTHER-SE> 2,691,687
<TOTAL-LIABILITY-AND-EQUITY> 2,707,301
<SALES> 0
<TOTAL-REVENUES> 317,900
<CGS> 0
<TOTAL-COSTS> 46,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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<INCOME-TAX> 299,080
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299,080
<EPS-PRIMARY> .036
<EPS-DILUTED> .036
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