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, 2000
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:
8,192,136 as of June 30, 2000
ADVANCED TOBACCO PRODUCTS, INC. PART I - FINANCIAL INFORMATION
dba ADVANCED THERAPEUTIC ITEM 1: Financial Statements
PRODUCTS, INC.
BALANCE SHEETS
(Unaudited) (Audited)
June 30 September 30
2000 1999
ASSETS:
CURRENT ASSETS:
Cash & cash equivalents $ 132,341 $ 689,801
Investments 459,429 790,836
Royalties Receivable 114,708 140,078
Other Receivables -0- 1,587
Total current assets: $ 706,478 $1,622,302
LICENSE AGREEMENTS, Net: 183,412 174,443
INVESTMENTS: 1,027,309 953,379
TOTAL ASSETS: $1,917,199 $2,750,124
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable $ 6,957 $ 14,074
TOTAL LIABILITIES: 6,957 14,074
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value;
30,000,000 shares authorized;
8,192,136 shares and 8,092,136
shares issued and outstanding
as of June 30, 2000, and
September 30,1999 respectfully 81,922 80,922
Additional paid-in-capital 12,587,628 12,544,878
Accumulated deficit (10,759,308) (9,889,750)
TOTAL STOCKHOLDERS' EQUITY: 1,910,242 2,736,050
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY: $1,917,199 $2,750,124
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ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30
2000 1999
REVENUES:
Royalty Income, Net $ 114,708 $ 304,250
Total operating revenues: 114,708 304,250
EXPENSES:
General and administrative 28,445 38,497
Total operating expenses: 28,445 38,497
INCOME FROM OPERATIONS: 86,263 265,753
OTHER INCOME:
Interest Income 24,080 22,876
Total other income: 24,080 22,876
NET INCOME: $ 110,343 $ 288,629
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING: 8,192,136 8,092,136
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING -
ASSUMING DILUTION: 8,192,136 8,181,264
INCOME PER COMMON SHARE - BASIC AND
ASSUMING DILUTION $ .015 $ .04
<PAGE>
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended June 30
2000 1999
REVENUES:
Royalty Income, Net $388,724 $858,431
Total operating revenues: 388,724 858,431
EXPENSES:
General and administrative 103,154 116,104
Total operating expenses: 103,154 116,104
INCOME FROM OPERATIONS: 285,570 742,327
OTHER INCOME:
Interest Income 73,692 70,089
Total other income: 73,692 70,089
NET INCOME: $359,262 $812,416
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING: 8,166,954 8,092,136
WEIGHTED AVERAGED NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING -
ASSUMING DILUTION: 8,182,132 8,198,943
INCOME PER COMMON SHARE - BASIC AND
ASSUMING DILUTION $ .045 $ .10
<PAGE>
ADVANCED TOBACCO PRODUCTS, INC.
dba ADVANCED THERAPEUTIC PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended June 30
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income: $359,262 $812,416
Adjustments to reconcile net
income to net cash provided by
operating activities:
Amortization of license agreements 11,895 5,010
Amortization of discount on investments(56,832) (55,050)
Increase in cash flows from changes
in operating assets and liabilities
Royalties receivable 26,957 (208,758)
Accounts payable (7,117) (4,797)
Net cash provided by operating
activities: 334,165 548,821
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of license agreements and
patent expenses (20,864) (5,885)
Purchase of investments (485,691) (799,142)
Maturity of investments 800,000 478,000
Net cash used in investing
activities: 293,445 (327,027)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of Stock Options 43,750 -0-
Dividends Paid (1,228,820) (566,450)
Net cash used in financing
activities: (1,185,070) (566,450)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: (557,460) (344,656)
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD: 689,801 449,481
CASH & CASH EQUIVALENTS AT
END OF PERIOD: $132,341 $104,825
NOTES TO CONDENSED FINANCIAL STATEMENTS
The condensed financial statements included herein have been
prepared by Advanced Tobacco Products, Inc., dba Advanced
Therapeutic Products, Inc. ("ATP") 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
ATP's management, necessary for the fair presentation of ATP'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 ATP 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 ATP's Annual Report on
Form 10-K as of September 30, 1999.
Note One: Revenue Recognition.
Until June 20, 2000, payments from U.S. sales of the Inhaler
were 9.9% of PHA's net sales to McNeil Consumer Health Care
("McNeil"), a Johnson & Johnson Company, which marketed the
Inhaler to pharmacies. Effective July 1, 2000, PHA reacquired,
from McNeil, the rights to market the Inhaler in the U.S.
Payments from the U.S. sales of the Inhaler will now be 3% of
PHA's net sales.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operation
DISCUSSION OF OPERATIONS
In 1987, ATP sold patented nicotine technology, which forms the
basis of the Nicorette /Nicotrol Inhaler ("Inhaler"), to what
is now Pharmacia Corporation ("PHA"), in exchange for product
payments. Payments from sales of the Inhaler, outside the U.S.,
are 3% of PHA's net sales to pharmacy distributors. Until June
20, 2000, payments from U.S. sales of the Inhaler were 9.9% of
PHA's net sales to McNeil Consumer Health Care ("McNeil"), a
Johnson & Johnson Company, which marketed the Inhaler to
pharmacies. Effective July 1, 2000, PHA reacquired, from
McNeil, the rights to market the Inhaler in the U.S. Payments
from the U.S. sales of the Inhaler will now be 3% of PHA's net
sales.
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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 the expiration of all issued patents
enforceable in such countries. If the net sales to pharmacy
distributors cannot be obtained or are not disclosed, as was the
case with regard to McNeil, net sales are determined by
multiplying the net sales of PHA to McNeil by 3.3 (in effect,
9.9% of PHA's sales to McNeil). There are payment limitations
in the event of the sale of a nicotine vapor product competitive
with the Inhaler. There are payment limitations when payment
calculations exceed certain ceilings, as more completely
described in ATP's Annual Report on Form 10-K as of September
30, 1999.
The Nicotrol Inhaler was launched nationwide in the U.S. as a
prescription product in September 1998. PHA has introduced the
Nicorette Inhaler, primarily as an over-the-counter product, in
16 European countries, Mexico, Australia, New Zealand, Hong Kong
and Singapore. ATP understands that additional country launches
are planned by PHA to occur as regulatory approvals are granted.
The Inhaler is the only nicotine replacement product 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, inhaling the
nicotine, which is then absorbed through the lining of the
mouth.
In September 1992, ATP obtained an exclusive worldwide license
to certain dry powder nicotine inhaler technology from Duke
University. ATP has obtained several patents covering this
technology. ATP believes that a dry powder nicotine inhaler has
the potential to be a future generation nicotine replacement
product.
Effective as of October 1993, ATP has an agreement with PHA
under which, among other matters, ATP has the right to receive a
royalty equal to .1% of net revenues received by PHA from the
sale of any product using a nicotine impermeable copolymer
technology. Under the terms of the agreement, ATP now receives
royalties from the sales of PHA's Nicorette /Nicotrol Patch.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash resources, including investments, available on June 30,
2000, were $1,619,079, as compared to $1,929,488, as of June 30,
1999. On January 10, 2000, ATP paid dividends aggregating
$1,228,820, or 15 cents per share.
COMPARISON OF SELECTED FINANCIAL DATA
Operating Revenues for the nine month period ending June 30,
2000, decreased to $388,724, as compared to $858,431, for the
nine month period ending June 30, 1999. This decrease is due to
a decrease in payments from PHA.
Interest income for the nine month period ending June 30, 2000,
increased to $73,692, as compared to $70,089, for the nine month
period ending June 30, 1999. This increase is due to minor
variations in interest earned on investments.
Net income for the nine month period ending June 30, 2000,
decreased to $359,262, as compared to $812,416, for the nine
month period ending June 30, 1999. This decrease is due to a
decrease in payments from PHA.
General and administrative expenses for the nine month period
ending June 30, 2000, decreased to $103,154, as compared to
$116,104, for the nine month period ending June 30, 1999. This
decrease is due to minor variations in administrative costs.
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
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<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: August 14, 2000
By: /s/ J. W. Linehan
J. W. Linehan, Chief
Executive Officer and
Chief Accounting Officer
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