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 June 30, 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 June 30, 1999ADVANCED TOBACCO PRODUCTS,
INC. PART I - FINANCIAL INFORMATION
dba ADVANCED THERAPEUTIC PRODUCTS, INC. ITEM 1: Financial Statements
BALANCE SHEETS
(Unaudited) (Unaudited)
June 30 September 30
1999 1998
ASSETS:
CURRENT ASSETS:
Cash & cash equivalents $ 104,825 $ 449,481
Investments 881,085 471,456
Royalties Receivable 560,758 352,000
Total current assets: 1,546,668 1,272,937
LICENSE AGREEMENTS, Net: 162,679 161,804
INVESTMENTS: 943,578 977,015
TOTAL ASSETS: $2,652,925 $2,411,756
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable $ 14,352 $ 19,149
TOTAL LIABILITIES: 14,352 19,149
SHAREHOLDER'S EQUITY:
Common stock, $.01 par value;
30,000,000 shares authorized;
8,092,136 shares issued and
outstanding as of June 30, 1999,
and September 30, 1998 80,922 80,922
Additional paid-in-capital 12,544,878 12,544,878
Accumulated deficit (9,987,227) (10,233,193)
TOTAL STOCKHOLDERS' EQUITY: 2,638,573 2,392,607
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY: $2,652,925 $2,411,756
2
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30
1999 1998
REVENUES:
Royalty Income, Net $ 304,250 $ 231,059
Total operating revenues: 304,250 231,059
EXPENSES:
General and administrative 38,497 22,013
Total operating expenses: 38,497 22,013
INCOME FROM OPERATIONS: 265,753 209,046
OTHER INCOME:
Interest Income 22,876 19,879
Total other income: 22,876 19,879
NET INCOME: $ 288,629 $ 228,925
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: 8,181,264 8,225,734
INCOME PER COMMON SHARE - BASIC AND
ASSUMING DILUTION $ .04 $ .03
3
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended June 30
1999 1998
REVENUES:
Royalty Income, Net $858,431 $495,944
Total operating revenues: 858,431 495,944
EXPENSES:
General and administrative 116,104 81,096
Total operating expenses: 116,104 81,096
INCOME FROM OPERATIONS: 742,327 414,848
OTHER INCOME:
Interest Income 70,089 57,651
Total other income: 70,089 57,651
NET INCOME: $812,416 $472,499
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: 8,198,943 8,210,181
INCOME PER COMMON SHARE - BASIC AND
ASSUMING DILUTION $ .10 $ .06
4
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended June 30
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income: $812,416 $472,499
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of license agreements 5,010 5,010
Amortization of discount on investments (55,050) (54,755)
Increase in cash flows from changes
in operating assets and liabilities
Royalties receivable (208,758) (361,559)
Accounts payable (4,797) (12,438)
Net cash provided by operating activities: 548,821 48,757
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of license agreements and patent
expenses (5,885) (5,416)
Purchase of investments (799,142) (499,090)
Sale of investments 478,000 468,000
Net cash used in investing activities: (327,027) (36,506)
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: (344,656) 12,251
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD: 449,481 79,180
CASH & CASH EQUIVALENTS AT END OF PERIOD: $104,825 $ 91,431
5
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 Nicorette /Nicotrol Inhaler, to what is now known asPharmacia
& Upjohn, Inc. ("P&U") in exchange for product payments. Productpayments
from the non U.S. sales of the Nicorette Inhaler are 3% of P&U'snet 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 McNeilConsumer Products
Company ("McNeil"), a Johnson & Johnson Company, which markets the Nicotrol
Inhaler to pharmacies as a prescription product.
Product payments are payable on a country by country basis for the
greater of 10 years following the date of the first commercial sale or
theexpiration of all issued patents enforceable in such countries. If the
netsales to pharmacy distributors cannot be obtained or is not disclosed,
asis the case with regard to McNeil, net sales are determined by
multiplyingthe net sales of P&U to McNeil by 3.3 (in effect, 9.9% of P&U's
sales toMcNeil). There are product payment limitations in the event of the
sale ofa nicotine vapor product competitive with the Nicorette /Nicotrol
Inhaler. Product payments in excess of $1,000,000 per year ($333,000 in
respect ofEurope and $667,000 in respect of the rest of the world) are to be
reducedby 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% ofthe
worldwide nicotine replacement therapy ("NRT") market). P&U has also
introduced the Nicorette 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 countrylaunches are planned by P&U to
occur as regulatory approvals are granted.
The Nicorette/Nicotrol Inhaler is the first and only form of NRT
designedto 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.
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. 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
computeroperations or on the preparation for year 2000 of any computer
operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash resources, including investments, available on June 30, 1999, were
approximately $1,930,000, as compared to approximately $1,520,000 as of June
30, 1998.
COMPARISON OF SELECTED FINANCIAL DATA
Operating revenues for the nine month period ending June 30, 1999,
increased to $858,431, as compared to $495,944 for the nine month period
ending June 30, 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 nine month period ending June 30, 1999, increased
to $70,089, as compared to $57,651 for the nine month period ending June 30,
1998. This increase is primarily due to an increase in cash resources
available to the Company.
Net income for the nine month period ending June 30, 1999, increased to
$812,416, as compared to $472,499 for the nine month period ending June 30,
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 nine month period ending June
30, 1999, increased to $116,104, as compared to $81,096 for the nine month
period ending June 30, 1998. This increase is primarily due to
administrative costs associated with issuing a dividend of $.07 per share of
common stock on January 6, 1999.
Accumulated deficit decreased $245,966 from September 30,1998, to June
30, 1999. The decrease was due to net income for the nine month period ended
June 30, 1999, of $812,416 which was partially offset by the payment of
dividends of $566,450.
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)
Date: August 12, 1999
By: /s/ J.W. Linehan
J. W. Linehan, Chief
Executive Officer and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 104,825
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,546,668
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,652,925
<CURRENT-LIABILITIES> 14,352
<BONDS> 0
0
0
<COMMON> 80,922
<OTHER-SE> 12,544,878
<TOTAL-LIABILITY-AND-EQUITY> 2,652,925
<SALES> 304,250
<TOTAL-REVENUES> 304,250
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 288,629
<INCOME-TAX> 288,629
<INCOME-CONTINUING> 288,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288,629
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
