-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JJnOZhDTnVAnFCYL9+AHg4fbG0i9G+3ZsA7nHZjsC4UN0qnwE3r+qTHmw6l857go J5/pKXYYqp+NVrCh69+JFA== 0001046375-00-500006.txt : 20001229 0001046375-00-500006.hdr.sgml : 20001229 ACCESSION NUMBER: 0001046375-00-500006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED TOBACCO PRODUCTS INC CENTRAL INDEX KEY: 0000737717 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 742285214 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12984 FILM NUMBER: 796558 BUSINESS ADDRESS: STREET 1: 16607 BLANCO RD STREET 2: STE 1504 CITY: SAN ANTONIO STATE: TX ZIP: 78232 BUSINESS PHONE: 2104087077 MAIL ADDRESS: STREET 1: 16607 BLANCO RD STREET 2: STE 1504 CITY: SAN ANTONIO STATE: TX ZIP: 78232 EX-27 1 fds.xfd
5 U.S.DOLLARS 12-MOS Jul-01-2000 Sep-30-2000 Sep-30-2000 1 123,746 0 107,792 0 0 796,691 0 0 2,022,345 24,037 0 0 0 81,922 12,587,628 2,022,345 0 0 0 0 0 0 0 447,328 0 0 0 0 0 447,328 0.05 0.05
10-K 2 atp10k3.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 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) State of Texas 74-2285214 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 16607 Blanco Road, Suite 1504 78232 San Antonio, Texas (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (210)408-7077 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of Class) 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 Indicate by check mark if disclosure or delinquent files pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] As of November 30, 2000, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $2,300,000. As of November 30, 2000, the number of outstanding shares of Common Stock, $0.01 par value, of the registrant was 8,192,136. PART I ITEM 1. BUSINESS Advanced Tobacco Products, Inc., d/b/a Advanced Therapeutic Products, Inc. ("ATP"), maintains a website at http://www/prnewswire.com/comp/117857.html. History and Relationship with Pharmacia Corporation ATP, 16607 Blanco Road, Suite 1504, San Antonio, Texas 78232, (210) 408-7077, is a Texas corporation formed in April 1983. ATP was organized to develop and market a product based upon nicotine technology. In 1987, ATP sold its nicotine technology and related assets to what is now known as Pharmacia Corporation ("PHA"), a worldwide pharmaceutical company that manufactures the Nicotrol /Nicorette Inhaler, Nicorette Chewing Gum, the Nicotrol /Nicorette Patch and the Nicotrol /Nicorette Nasal Spray. The nicotine technology acquired from ATP forms the basis of the Nicotrol /Nicorette Inhaler ("Inhaler") developed by PHA for use in the nicotine replacement therapy market. See "Pharmacia Corporation Agreement." ATP receives product payments from sales of the Inhaler outside the U.S. equal to 3% of PHA's net sales to pharmacy distributors. Until June 30, 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. The Inhaler was launched nationwide in the U.S. as a prescription product in 1998. PHA has introduced the Nicorette Inhaler, primarily as an over-the-counter product, in 16 European countries, Mexico, Australia, New Zealand, Hong Kong, Taiwan 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 to inhale the nicotine which is then absorbed through the lining of the mouth. Current Operations ATP also 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 receives royalties from the sales of the Nicotrol /Nicorette Patch ("Patch") by PHA. In addition, ATP has 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. Pharmacia Corporation Technology Purchase Agreement ATP has the right to receive product payments from PHA with respect to the Inhaler as follows: Product payments of three percent (3%) of net sales (generally, sales by PHA to wholesale distributors) 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 are not disclosed, as was the case with regard to McNeil, net sales are computed by multiplying the net sales of PHA to McNeil by 3.3 (in effect, product payments were 9.9% of PHA's sales to McNeil). There are product payment limitations in the event of the sale of a nicotine vapor product competitive with the Inhaler. As of October 1999, ATP entered into a Modification Agreement (the "Modification Agreement") with PHA to revise ATP's 1987 nicotine technology agreements with PHA. The Modification Agreement provides: Quarterly product payments instead of biannual product payments. Deferral until 2003 of the fifty percent (50%) reduction of product payments in excess of $1,000,000 per year. This deferral will allow ATP the opportunity to reduce its taxable income by maximizing the potential use of ATP's net operating loss carryforwards, which begin to expire in 2001 (see discussion in the following paragraphs). Clarification and/or definition of other administrative matters. Under ATP's original agreements with PHA, product 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 (the $4,400,000 is solely part of the product payment calculation and not an obligation of ATP). Under the Modification Agreement, the $4,400,000 amount remains; however, reductions in product payments are deferred as further described herein. For ATP's tax years ending June 30, 1999, June 30, 2000, and June 30, 2001 (see Item 7(a)), no reduction in product payments earned during these three (3) tax years shall be made unless product payments exceed the aggregate of $6,865,262, which represents the amount of net operating loss carryforwards expiring on June 30, 2001. For ATP's tax year ending June 30, 2002, no reduction in product payments earned during this tax year shall be made unless product payments exceed $1,938,997, which represents the amount of net operating loss carryforwards expiring on June 30, 2002. Any product payment earned in excess of the aggregate of $6,865,262 for the 1999, 2000 and 2001 tax years and in excess of $1,983,997 for the 2002 tax year will be applied to the $4,400,000 until such amounts aggregate $4,400,000. Beginning with the tax year ending June 30, 2003, product payments in excess of $1,000,000 per year will not be paid until any product payments made in the tax years ending June 1999, 2000, 2001 and 2002, that were in excess of ATP's original agreements with PHA, if any, have been applied against any remaining amount of the $4,400,000 and thereafter, if necessary, product payments in excess of $1,000,000 per year will be reduced by fifty percent (50%) until the aggregate of $4,400,000 is attained. ATP has the right to receive product payments for other nicotine product applications, if any, both pharmaceutical and non-pharmaceutical. PHA is not obligated to develop or sell any products using the technology developed by ATP. ITEM 2. PROPERTIES ATP does not own any tangible fixed assets. ITEM 3. LEGAL PROCEEDINGS ATP has no outstanding legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK-HOLDER MATTERS a) Market Information The Common Stock trades in the over-the-counter market through the OTC Bulletin Board quotation system under the symbol "AVTH." The following table sets forth the high and low bid price of ATP's Common Stock reported for the fiscal periods indicated. Bid prices represent prices between dealers, do not include retail markups, markdowns or commissions, and may not represent actual transactions. FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER 2000 1999 2000 1999 2000 1999 2000 1999 HIGH .97 1.25 .53 1.16 .38 .97 .28 .97 LOW .66 .72 .34 .69 .25 .63 .22 .66 b) Holders There were approximately 1,850 shareholders of record of ATP's Common Stock at September 30, 2000. c) Dividends ATP anticipates declaring and paying dividends from time to time while substantial product payments are received from the sale of products under ATP's agreements with PHA. On September 21, 1998, ATP declared a dividend of $.07 per share payable on January 6, 1999, to shareholders of record as of October 30, 1998. On November 23, 1999, ATP declared a dividend of $.15 per share payable on January 10, 2000, to shareholders of record as of December 17, 1999. The $.15 per share dividend is based upon ATP's earnings for fiscal 1999 and the transitional period July 1, 1998, to September 30, 1998 (See "Change in Fiscal Year," Item 7). On November 22, 2000, ATP declared a dividend of $.05 per share payable on January 10, 2001, to shareholders of record as of December 22, 2000. The $.05 per share dividend is based upon ATP's earnings for fiscal year ended September 30, 2000. ITEM 6 - SELECTED FINANCIAL DATA The following table sets forth for the indicated periods selected historical financial information for ATP. Such information is derived from the financial statements of ATP included under Item 8 and should be read in conjunction with such financial statements, the related notes thereto and the information included under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
3 months Ended Year Ended Year Ended June 30, September 30, September 30, 1996 1997 1998 1998 1999 2000 Revenues -- 157,200 516,600 352,000 964,582 496,516 Net Income (loss) (14,957) 94,758 467,121 331,758 909,893 447,328 Net Income (loss) per share of common stock - basic (0.002) 0.01 0.06 0.04 0.11 0.05 Net Income (loss) per share of common stock - diluted (0.002) 0.01 0.06 0.04 0.11 0.05 Weighted average number of shares of common stock outstanding - basic 7,831,588 8,051,094 8,092,136 8,092,136 8,092,136 8,173,010 Weighted average number of shares of common stock outstanding - diluted 7,831,588 8,168,504 8,205,502 8,216,836 8,195,340 8,180,833 Cash provided by (used in)operations (98,664) (51,211) 93,005 360,279 1,048,490 435,978 Increase (decrease)in cash and cash equivalents (1,472) (46,041) 52,554 356,791 241,579 (566,055) Balance sheet data to end of indicated periods Working capital 318,824 566,084 939,872 687,338 1,608,228 772,654 Total assets 1,484,998 1,600,488 2,063,651 2,411,756 2,750,124 2,022,345 Total stockholders' equity 1,481,470 1,593,728 2,060,849 1,826,157 2,736,050 1,998,308
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS a) Change in Fiscal Year Beginning with fiscal 1999, ATP changed its fiscal year end from June 30 to September 30. Because ATP believes that the results of its operations for the transitional quarter ending September 30, 1998, were not generally affected, ATP believes its fiscal years 1998, 1999 and 2000 are comparable. ATP has not changed its tax year which remains with a June 30 year end. b) Results of Operations Operating revenues were $516,600, $964,582, and $496,516 for the twelve months ended June 30, 1998, September 30, 1999, and 2000, respectively. All revenues resulted from the recognition of product payments from PHA's sales of the Inhaler and the Patch. Product payments generated by the Patch were $11,165, $15,369, and $11,693 in fiscal 1998, 1999, and 2000, respectively. General and administrative expenses were $126,796, $151,091 and $140,735 in fiscal 1998, 1999, and 2000, respectively. Income from operations was $389,804, $813,491, and $355,781 in fiscal 1998, 1999, and 2000, respectively. The variances in income from operations from 1998 through 2000 were primarily due to the variances in product payments from PHA's sales of the Inhaler. ATP's net income for fiscal 2000 was $447,328, which included $91,547 of interest income. b) Liquidity and Capital Resources Cash and investments available on September 30, 2000, were approximately $1,725,000. ATP believes that its cash and investment resources are sufficient to meet its foreseeable needs. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and other matters required by this Item 8 are included on Pages F-1 and following. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Mr. James E. Turner, age 52, has been a Director of ATP since November 1986. Mr. Turner was one of the founders and the Business Manager of NCC Group, Ltd., a research and development limited partnership which was a predecessor of ATP. Mr. Turner has been a consultant to PHA for in excess of the last five years. Mr. J. H. Uptmore, age 69, has been a Director of ATP since August 1987. Mr. Uptmore has been the President and Chairman of the Board of J. H. Uptmore & Associates, Inc., a construction contracting and development company, since 1974. Mr. J. W. Linehan, age 57, has been Director of ATP since June 1991, and President, Chief Executive Officer, Chief Financial Officer and Secretary of ATP since July 1, 1990. Since August 1, 1995, Mr. Linehan has been President and Chief Executive Officer of Linehan Engineering, Inc., an independent engineering company wholly owned by him. Ms. Brenda Ray, age 51, has been a Director of ATP since March 1989. Ms. Ray assisted in the original research and development of ATP's nicotine vapor inhalation technology. She is a consultant and has been President of Brenda Ray, Inc. since 1985. Mr. David A. Monroe, age 48, has been a Director of ATP since March 1989. Mr. Monroe is President and CEO of The Telesis Group, including PhotoTelesis Corporation, a government electronics manufacturing company, and e-Watch, Inc., a commercial electronics company. Mr. Monroe's prior experience includes Division General Manager of Raytheon TI Systems, Inc., Founder & Chief Technical Officer of Image Data Corporation, a communications technology company, and Vice-President of Research & Development and Vice-President, Product Line Manager, at Datapoint Corporation, a computer equipment manufacturer. ITEM 11. EXECUTIVE COMPENSATION Cash Compensation Mr. Linehan, President and Chief Executive Officer of ATP and its sole executive officer, receives no salary or fees, but indirectly benefits from payments made to Linehan Engineering, Inc. (See Item 13, "Certain Relationships and Related Transactions"). Each Director is entitled to receive travel expenses incurred by them in order to attend Directors' meetings. Compensation Pursuant to Plans Nonqualified Stock Options ATP has a nonqualified stock option plan authorizing the granting by the board of directors of stock options covering common stock to directors, officers, key management employees, independent contractors providing services to ATP or consultants to ATP. The exercise price per share cannot be less than 100 percent (or 110 percent in the case of stock options granted to holders of 10 percent or more of the then outstanding common stock) of the fair market value of ATP's common stock as determined by the board of directors on the date the stock options are granted, and the exercise period for the stock options cannot exceed 10 years from the date the stock options are granted. Stock options are immediately exercisable, are not transferable except by will or the laws of descent or distribution, and expire within one year following termination of association with ATP. The aggregate number of stock options outstanding as of September 30, 1999, were 200,000, all exercisable at $.4375 per share. During fiscal year 2000 options for 100,000 shares were exercised and options for 100,000 shares expired. No options remain outstanding as of September 30, 2000. Summary of Option Transactions The following table sets forth as to the directors of ATP the stock options exercised during fiscal 2000. No options were granted nor are any options outstanding at September 30, 2000. Aggregated Options Exercised in Last Fiscal Year Shares Acquired or Value Name Exercised Realized J. H. Uptmore 100,000 $ 36,000 ITEM 12. COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information about the Directors of ATP, which includes all persons known by ATP to own more than 5% of the Common Stock as of November 30, 2000, and all officers and Directors of ATP as a group as of September 30, 2000. Except as indicated, ATP believes that each of the below named persons has sole voting and investment power with respect to the shares shown and owns the shares indicated beneficially and of record. All of the Common Stock held by the persons described in the following table is available for sale under Rule 144 of the Securities and Exchange Commission. Director Number Percent Name Since of Shares of Class Brenda Ray (1) 12544 Judson Road San Antonio, TX 78233 1989 1,397,464 17.06% James E. Turner 307 Wayside Drive San Antonio, TX 78213 1986 370,221 4.52% J. H. Uptmore (2) P.O. Box 29389 San Antonio, TX 78229 1987 196,921 2.40% David A. Monroe 7800 I.H. 10 W San Antonio, TX 78230 1989 47,229 .58% J.W. Linehan 16607 Blanco Road Suite 1504 San Antonio, TX 78232 1991 85,000 1.04% Officers and Directors as a Group (5 persons) 2,0196,835 25.6% ____________________ (1) Includes 420,104 shares of Common Stock owned by the Jon Philip Ray Family Trust of which Brenda Ray is a beneficiary. (2) Includes 46,921 shares of Common Stock owned by J. H. Uptmore & Associates, Inc., of which Mr. Uptmore is President and Chairman of the Board. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Securities Exchange Act of 1934 requires ATP's directors, executive officers, and any persons holding more than ten percent (10%) of ATP's Common Stock to report their initial ownership of ATP's Common Stock and any subsequent changes in that ownership to the Securities and Exchange Commission and to provide copies of such reports to ATP. Based upon ATP's review of copies of such reports received by ATP, ATP believes that during the year ended September 30, 2000, all Section 16(a) filing requirements were satisfied except for the inadvertent failure of Mr. Uptmore to report 100,000 shares received by him upon the exercise of a stock option on December 9, 1999; however, Mr. Uptmore filed the required Form 4 in December 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION Since August 1995, ATP has had an Administrative Services Agreement with Linehan Engineering, Inc. ("LEI"), a related-party entity owned by ATP's president. In 1998, 1999 and 2000, ATP paid LEI $37,540, $36,000, and $39,780, respectively. As of October 1, 2000, ATP entered into a Consulting Services Agreement with James E. Turner, a director of ATP, under which Mr. Turner agreed to act as a consultant of ATP until March 31, 2001, for a consulting fee of $5,000 per month. In addition, Mr. Turner was granted an option to purchase up to 100,000 shares of Common Stock, exercisable as to 30,000 shares immediately and an additional 70,000 shares becoming exercisable in the event of a business combination, or strategic alliance presented by Mr. Turner and approved by the Board of Directors of ATP prior to September 30, 2003. The options include an exercise price of $0.2813 per share and exercisable options expire September 30, 2005. In October 1996, ATP entered into a Consulting Services Agreement with Brenda Ray, Inc. ("Ray"), a related-party entity owned by a director of ATP. In 1998, 1999 and 2000, ATP paid Ray $12,000, $12,000, and $12,000, respectively. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. Financial Statements and Independent Auditors' Report The financial statements listed in the index to Financial statements follows the signature page of this report. 2. Financial Statement Schedules ATP did not meet any of the requirements to provide financial statement schedules for any of the fiscal years ended 2000, 1999 or 1998. 3. Exhibits The exhibits listed on the index to exhibits follows the signature page of this report. (b) ATP has not filed any Current Reports on Form 8-K since the filing of ATP's last 10-K. SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on behalf by the undersigned, there unto duly authorized, in the City of San Antonio, State of Texas, as of December 22, 2000. ADVANCED TOBACCO PRODUCTS, INC. Date: December 22, 2000 By: /s/ J. W. Linehan J. W. Linehan, President, Chief Executive Officer and Chief Accounting Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: December 22, 2000 By: /s/ J. W. Linehan J.W. Linehan, President, Chief Executive Officer, Chief Accounting Officer and Director Date: December 22, 2000 By: /s/ James E. Turner James E. Turner, Director Date: December 22, 2000 By: J.H. Uptmore, Director Date: December 22, 2000 By: /s/ Brenda Ray Brenda Ray, Director Date: December 22, 2000 By: David A. Monroe, Director ADVANCED TOBACCO PRODUCTS, INC. dba ADVANCED THERAPEUTIC PRODUCTS, INC. Item 8. Financial Statements The following financial statements are included in response to Item 14 (a): Page Index to Financial Statements F-1 Financial Statements Report of Independent Public Accountants F-2 Balance Sheets - - September 30, 2000 and 1999 F-3 Statements of Income for the Years Ended September 30, 2000 and 1999, for the Three Month Period Ended September 30, 1998, and for the Year Ended June 30, 1998 F-4 Statements of Stockholders' Equity for the Years Ended September 30, 2000 and 1999, for the Three Month Period Ended September 30, 1998, and for the Year Ended June 30, 1998 F-5 Statements of Cash Flows for the Years Ended September 30, 2000 and 1999, for the Three Month Period Ended September 30, 1998, and for the Year Ended June 30, 1998 F-6 Notes to Financial Statements F-7 F-1 ARTHUR ANDERSEN REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Advanced Tobacco Products, Inc., d/b/a Advanced Therapeutic Products, Inc.: We have audited the accompanying balance sheets of Advanced Tobacco Products, Inc. (a Texas corporation), d/b/a Advanced Therapeutic Products, Inc., as of September 30, 2000 and 1999, and the related statements of income, stockholders' equity and cash flows for the years ended September 30, 2000 and 1999, the three-month period ended September 30, 1998, and the year ended June 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Advanced Tobacco Products, Inc. d/b/a Advanced Therapeutic Products, Inc. as of September 30, 2000 and 1999, and the results of its operations and its cash flows for the years ended September 30, 2000, and 1999, the three-month period ended September 30, 1998, and the year ended June 30, 1998, in conformity with accounting principles generally accepted in the United States. San Antonio, Texas By: /s/ Arthur Andersen, LLP November 22, 2000 F-2 ADVANCED TOBACCO PRODUCTS, INC. dba ADVANCED THERAPEUTIC PRODUCTS, INC. BALANCE SHEETS SEPTEMBER 30, 2000 AND 1999 2000 1999 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 123,746 $ 689,801 Payments receivable 107,792 140,078 Other receivables 0 1,587 Investments 565,153 790,836 Total current assets 796,691 1,622,302 LICENSE AGREEMENTS, less accumulated amortization of $62,855 and $46,995 as of 2000 and 1999, respectively 189,856 174,443 INVESTMENTS 1,035,798 953,379 Total assets $ 2,022,345 $ 2,750,124 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accrued liabilities $ 24,037 $ 14,074 Total liabilities 24,037 14,074 STOCKHOLDERS' EQUITY: Preferred stock, $100 par value; 500,000 shares authorized; none issued Common stock, $.01 par value; 30,000,000 shares authorized; 8,192,136 and 8,092,136 issued and outstanding 81,922 80,922 Additional paid-in capital 12,587,628 12,544,878 Accumulated deficit (10,671,242) (9,889,750) Total stockholders' equity 1,998,308 2,736,050 Total liabilities and stockholders' equity $2,022,345 $2,750,124 The accompanying notes are an integral part of these financial statements. F-3 ADVANCED TOBACCO PRODUCTS, INC. dba ADVANCED THERAPEUTIC PRODUCTS, INC. STATEMENTS OF INCOME
For the year ended For the three- September 30, month period ended For the year ended 2000 1999 September 30, 1998 June 30, 1998 REVENUES: Product payments $ 496,516 $ 964,582 $ 352,000 $ 516,600 Total operating revenues $ 496,516 $ 964,582 $ 352,000 $ 516,600 EXPENSES: General and administrative 140,735 151,091 40,866 126,796 Total operating expenses 140,735 151,091 40,866 126,796 INCOME FROM OPERATIONS 355,781 813,491 311,134 389,804 OTHER INCOME: Interest income 91,547 96,402 20,624 77,317 Total other income 91,547 96,402 20,624 77,317 INCOME BEFORE INCOME TAXES 447,328 909,893 331,758 467,121 NET INCOME $ 447,328 $ 909,893 $ 331,758 $ 467,121 INCOME PER COMMON SHARE - BASIC $ 0.05 $ 0.11 $ 0.04 $ 0.06 WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING - BASIC 8,173,010 8,092,136 8,092,136 8,092,136 INCOME PER COMMON SHARE - DILUTED $ 0.05 $ 0.11 $ 0.04 $ 0.06 WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING DILUTED 8,180,833 8,195,340 8,216,836 8,205,502 CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.15 $ -- $ 0.07 $ --
The accompanying notes are an integral part of these financial statements. F-4 ADVANCED TOBACCO PRODUCTS, INC. dba ADVANCED THERAPEUTIC PRODUCTS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Common Stock Common Stock Paid-In Accumulated Shares Amount Capital Deficit Total BALANCE, June 30, 1997 8,092,136 $ 80,922 $ 12,544,878 $ (11,032,072) $1,593,728 Net income -- -- -- 467,121 467,121 BALANCE, June 30, 1998 8,092,136 80,922 12,544,878 (10,564,951) 2,060,849 Net income -- -- -- 331,758 331,758 Dividends declared -- -- -- (566,450) (566,450) BALANCE, September 30, 1998 8,092,136 80,922 12,544,878 (10,799,643) 1,826,157 Net income -- -- -- 909,893 909,893 BALANCE, September 30, 1999 8,092,136 80,922 12,544,878 (9,889,750) 2,736,050 Net income -- -- -- 447,328 447,328 Exercise of stock options 100,000 1,000 42,750 -- 43,750 Dividends declared -- -- -- (1,228,820) (1,228,820) BALANCE, September 30, 2000 8,192,136 $ 81,922 $ 12,587,628 $ (10,671,242) $1,998,308
The accompanying notes are an integral part of these financial statements. ADVANCED TOBACCO PRODUCTS, INC. dba ADVANCED THERAPEUTIC PRODUCTS, INC. STATEMENTS OF CASH FLOWS
For year ended For the three-month September 30, period ended For year ended 2000 1999 September 30, 1998 June 30, 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 447,328 $ 909,893 $ 331,758 $ 467,121 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of license agreements 15,860 6,680 1,670 6,680 Amortization of discount on investments (71,046) (73,343) (21,551) (72,318) (Increase) decrease in payments receivable 32,286 211,922 32,059 (304,520) (Increase) decrease in other receivables 1,587 (1,587) -- -- Increase (decrease) in accrued liabilities 9,963 (5,075) 16,343 (3,958) Net cash provided by operating activities 435,978 1,048,490 360,279 93,005 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of license agreements and patent costs (31,273) (19,319) (3,488) (7,592) Purchase of investments (585,690) (899,142) - (500,859) Sale of investments 800,000 678,000 -- 468,000 Net cash provided by (used in) investing activities 183,037 (240,461) (3,488) (40,451) CASH FLOWS FROM FINANCING ACTIVITIES Exercise of stock options 43,750 - -- -- 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 (566,055) 241,579 356,791 52,554 CASH AND CASH EQUIVALENTS, beginning of year 689,801 448,222 91,431 38,877 CASH AND CASH EQUIVALENTS, end of year $ 123,746 $ 689,801 $ 448,222 $ 91,431
The accompanying notes are an integral part of these financial statements. F-6 ADVANCED TOBACCO PRODUCTS, INC. d/b/a ADVANCED THERAPEUTIC PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Organization and Basis of Presentation Advanced Tobacco Products, Inc. (a Texas Corporation), d/b/a Advanced Therapeutic Products, Inc. ("ATP"), was formed in April 1983. Through September 1987, ATP was engaged in the manufacturing and marketing of a product based upon nicotine technology. In 1987, ATP sold certain nicotine technology and related assets to what is now Pharmacia Corporation ("PHA"), a worldwide pharmaceutical company, for $3.6 million and the right to future product payments. Revenue Recognition and Current Operations The nicotine inhaler technology acquired from ATP forms the basis of the Nicotrol/Nicorette Inhaler ("Inhaler") developed by PHA for use in the nicotine replacement therapy market. Product payments from sales of the Inhaler, outside the U.S., are 3% of PHA's net sales to pharmacy distributors. Until June 30, 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 are now 3% of PHA's net sales. The agreement with PHA provides for quarterly product payments and includes a reduction provision that reduces the product payments in excess of $1 million per year by fifty percent until the aggregate of such reductions equal the sum of $4,400,000. Effective October 1999, the reduction provision was modified. For ATP's tax years ending June 30, 1999, June 30, 2000 and June 30, 2001, no reduction in product payments earned during these three (3) tax years shall be made unless product payments exceed the aggregate of $6,865,262, which represents the amount of net operating loss carryforwards expiring on June 30, 2001. For ATP's tax year ending June 30, 2002, no reduction in product payments earned during this tax year shall be made unless product payments exceed $1,938,997, which represents the amount of net operating loss carryforwards expiring on June 30, 2002. F-7 Any product payment earned in excess of the aggregate of $6,865,262 for the 1999, 2000 and 2001 tax years and in excess of $1,983,997 for the 2002 tax year will be applied to the $4,400,000 until such amounts aggregate $4,400,000. Beginning with the tax year ending June 30, 2003, product payments in excess of $1,000,000 per year will not be paid until any product payments made in the tax years ending June 1999, 2000, 2001 and 2002, that were in excess of ATP's original agreements with PHA, if any, have been applied against any remaining amount of the $4,400,000 and thereafter, if necessary, product payments in excess of $1,000,000 per year will be reduced by fifty percent (50%) until the aggregate of $4,400,000 is attained. In addition, 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 receives royalties from the sales of PHA's Nicotrol/Nicorette Patch. ATP also has 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. ATP recognizes revenues from PHA at the time PHA has sales of its related product. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," which provides the Staff's views in applying generally accepted accounting principles to selected revenue recognition issues. SAB No. 101 is required to be implemented no later than the fourth quarter of fiscal years beginning after December 15, 1999. ATP has reviewed the guidance contained in SAB No. 101 and believes that its current accounting policies and disclosures are appropriate and address the requirements of SAB No. 101. Concentration of Credit Risk ATP's product payments and payments receivable are derived solely from PHA. ATP believes its associated exposure to credit risk is minimal. No allowance for doubtful accounts is considered necessary at September 30, 2000 or 1999. F-8 Fiscal Year Change Effective September 1998, ATP changed its fiscal year ending June 30 to a fiscal year ending September 30; however, ATP's tax year continues to end on June 30. The three month transition period ended September 30, 1998, bridges the gap between ATP's old and new fiscal year ends. For comparative purposes, ATP's unaudited statement of operations for the three month period ended September 30, 1997, was as follows: For the three months ended September 30, 1997 (Unaudited) REVENUES: Product payments $ 20,656 Total operating revenues 20,656 EXPENSES: General and administrative 45,700 Total operating expenses 45,700 LOSS FROM OPERATIONS (25,044) OTHER INCOME: Interest income 19,666 Total other income 19,666 LOSS BEFORE INCOME TAXES (5,378) NET LOSS $ (5,378) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires ATP to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-9 Net Income Per Share ATP adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," in the first quarter of fiscal year 1998. SFAS 128 requires presentation of basic earning per share and diluted earnings per share, simplifies computational guidelines, and increases the comparability of earnings per share on an international basis. Basic earnings per common share is based on the weighted average number of common shares outstanding during the respective years. Diluted earnings per share is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. The following is a reconciliation of the denominators of the basic and diluted per-share computations for net income: Weighted average Weighted average number of shares number of shares Effect of of Common Stock of Common Stock dilutive outstanding - outstanding - Basic Stock Options Diluted For the year ended September 30, 2000 8,173,010 7,823 8,180,833 For the year ended September 30, 1999 8,092,136 103,204 8,195,340 For three-month period ended September 30, 1998 8,092,136 124,700 8,216,836 For the year ended June 30, 1998 8,092,136 113,366 8,205,502 F-10 Statements of Cash Flows For purposes of determining cash flows, ATP considers all investments with original maturities of less than three months to be cash equivalents. Interest paid during the years ended September 30, 2000 and 1999, and June 30, 1998, and during the three months ended September 30, 1998, was $303, $ -0-, $ -0-, and $-0-, respectively. Income taxes paid during the years ended September 30, 2000 and 1999, and June 30, 1998, and during the three-months ended September 30, 1998, was $ -0-, $ -0-,$-0-, and $1,233, respectively. License Agreement In fiscal year 1993, ATP entered into a license agreement for nicotine technology with Duke University. The term of the license agreement is for any period such nicotine technology is under patent. ATP capitalized the direct costs incurred in obtaining the license agreement plus patent prosecution costs. These costs are being amortized on a straight-line basis over 20 years. Stock-Based Compensation ATP accounts for its employee stock compensation plans using the "intrinsic value" method of accounting set forth in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of ATP's common stock at the date of the grant over the amount an employee must pay to acquire the stock. Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to measure and recognize in their financial statements a compensation cost for stock-based employee compensation plans based on the "fair value" method of accounting set forth in the statement. F-11 Investments in Securities ATP accounts for investments in debt securities as "held-to-maturity," as set forth in SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." These securities are stated in the accompanying financial statements at historical cost plus related accretion (for U.S. Treasury Bonds). Debt securities with a maturity of less than one year are classified in the balance sheet as current assets, while debt securities with a maturity of greater than one year are classified as long-term assets. 2. INVESTMENTS: ATP's investments consist of U.S. Treasury zero coupon bonds which were purchased at a discount from their face value and are carried at historical cost plus accretion, which as of September 30, 2000 and 1999, approximates their fair market value, and certificates of deposit. At September 30, 2000, ATP intends to hold all investments to their respective maturities, which range from November 2000, to May 2003. Investments classified as current assets at September 30, 2000, include the following: Cost Fair Value United States Treasury Bonds $ 465,153 $ 463,609 Certificates of Deposit 100,000 100,000 $ 565,153 $ 563,609 Investments classified as long-term assets at September 30, 2000, include the following: Cost Fair Value United States Treasury Bonds $ 1,035,798 $1,030,529 The difference between cost and fair value for the investments discussed above represent unrealized holding gains and losses. Fair value was obtained from the Company's securities broker. F-12 Investments classified as current assets at September 30, 1999, include the following: Cost Fair Value United States Treasury Bonds $ 590,836 $ 588,759 Certificates of Deposit 200,000 200,000 $ 790,836 $ 788,759 Investments securities classified as long-term assets at September 30, 1999, include the following: Cost Fair Value Unites States Treasury Bonds $ 953,379 $ 937,448 The difference between cost and fair value for the investments discussed above represent unrealized holding gains and losses. Fair value was obtained from the Company's securities broker. 3. FEDERAL INCOME TAXES: As of September 30, 2000, ATP has remaining tax net operating loss and tax credit carryforwards of approximately $8,440,000 and $1,000, respectively, which may be used to reduce taxes against future earnings. The net operating loss carryforwards expire between 2001 and 2011, while the tax credit carryforwards expire in 2001. Net operating loss carryforwards expire as follows: $5,271,988 ($6,865,262 less $455,410 used for the tax year ending June 30, 2000 and less $1,137,864 used for the tax year ending June 30, 1999) on June 30, 2001, $1,938,997 on June 30, 2002, $988,839 on June 30, 2003, $118,883 on June 30, 2004, $91,380 on June 30, 2005, and $34,107 on June 30, 2011. Given the net operating loss history of ATP, except in recent years, ATP believes that the deferred assets will not be realized and, accordingly, a variation allowance equivalent to the deferred tax assets has been established. ATP will reevaluate the necessity for such valuation allowance in the future. F-13 The tax effects of the various loss and credit carryforwards are as follows: September 30, 2000 1999 Deferred income tax assets - Net operating loss carryforwards $ 2,870,000 $ 3,026,000 Tax credit carryforwards 1,000 48,000 Total gross deferred tax assets 2,871,000 3,074,000 Less - Valuation allowance (2,871,000) (3,074,000) Net deferred tax assets $ -- $ -- 4. NONQUALIFIED STOCK OPTION PLAN: ATP has a nonqualified stock option plan authorizing the granting by the board of directors of stock options to officers, key management employees, independent contractors providing services to ATP or consultants of ATP. The exercise price per share cannot be less than 100 percent (or 110 percent in the case of stock options granted to holders of 10 percent or more of the then outstanding common stock) of the fair market value of ATP's common stock on the date the stock options are granted and the exercise period for the stock options cannot exceed 10 years from the date the stock options are granted. Stock options are immediately exercisable, are not transferable except by will or the laws of descent or distribution, and expire within one year following termination of association with ATP. The following table summarizes the activity in the Company's stock option plan: F-14 Weighted Average Stock Exercise Options Price Per Share Outstanding at September 30, 1999 and 1998, and June 30, 1998 200,000 $.4375 Exercised 100,000 $.4375 Expired 100,000 $.4375 Outstanding at September 30, 2000 --0 --0 On December 9, 1999, J. H. Uptmore exercised 100,000 stock options at $.4375 per share. Also, on September 27, 2000, D. A. Monroe's 100,000 stock options expired. 5. RELATED-PARTY TRANSACTIONS: Since August 1995, ATP has had an administrative services agreement with Linehan Engineering, Inc. ("LEI"), a related-party entity owned by ATP's president. During the years ended September 30, 2000 and 1999, the three months ended September 30, 1998, and the year ended June 30, 1998, ATP paid LEI $39,780, $36,000, $10,800, and $37,540, respectively, for administrative services. In October 1996, ATP entered into a consulting services agreement with Brenda Ray, Inc. ("Ray"), a related-party entity owned by a director of ATP. During the years ended September 30, 2000 and 1999, the three months ended September 30, 1998, and the year ended June 30, 1998, ATP paid Ray $12,000, $12,000, $3,000, and $12,000, respectively, for consulting services. 6. UNAUDITED QUARTERLY FINANCIAL DATA: 2000 First Qtr Second Qtr Third Qtr Fourth Qtr Operating Revenues $ 91,863 $ 182,153 $ 114,708 $ 107,792 Operating Income 48,715 150,592 86,263 70,211 Net Income 80,176 168,742 110,343 88,067 Basic and diluted 0.01 0.02 0.01 0.01 income per share F-15 1999 First Qtr Second Qtr Third Qtr Fourth Qtr Operating Revenues $ 317,900 $ 236,281 $ 304,250 $ 106,151 Operating Income 271,740 204,834 265,753 71,164 Net Income 299,080 224,707 288,629 97,477 Basic and diluted 0.04 0.03 0.04 0.01 income per share 7. SUBSEQUENT EVENTS: As of October 1, 2000, ATP entered into a Consulting Services Agreement with James E. Turner, a director of ATP, under which Mr. Turner agreed to act as a consultant of ATP until March 31, 2001, for a consulting fee of $5,000 per month. In addition, Mr. Turner was granted an option to purchase up to 100,000 shares of Common Stock, exercisable as to 30,000 shares immediately and an additional 70,000 shares becoming exercisable in the event of a business combination, or strategic alliance presented by Mr. Turner and approved by the board of directors of ATP prior to September 30, 2003. The options include an exercise price of $0.2813 per share and exercisable options expire September 30, 2005. On November 22, 2000, ATP declared a dividend of $.05 per share payable on January 10, 2001, to stockholders of record as of December 22, 2000. The $.05 per share dividend is based upon ATP's earnings for fiscal year ended September 30, 2000. Effective November 22, 2000, ATP authorized the renewal of both the administrative services agreement with LEI and the consulting services agreement with Ray until December 21, 2001. F-16 ADVANCED TOBACCO PRODUCTS, INC. INDEX TO EXHIBITS Item 14(a) Exhibit No. Description 1 Form of Agreement Among Underwriters, including Underwriting Agreement and Selected Dealers Agreement, incorporated by reference to Exhibit 1 of Registrant's Statement on Form S-1 (Registration No. 2-88812, as amended on May 23, 1984), the effective date thereof hereinafter, the "Registrant's Registration Statement." 2 Agreement to Raise Capital and Acquire Technology, dated September 19, 1983, between the Registrant and NCC Group, Ltd., by reference to Exhibit 2 of the Registrant's Registration Statement. 3.1 Restated Articles of Incorporation of the Registrant, by reference to Exhibit 3.1 of the Registrant's Registration Statement. 3.2 Bylaws of the Registrant, by reference to Exhibit 3.2 of the Registrant's Registration Statement. 4.1 Specimen Common Stock Certificate, by reference to Exhibit 4.1 of the Registrant's Registration Statement. 4.2 Specimen of Warrant Certificate, by reference to Exhibit 4.2 of the Registrant's Registration Statement. 4.3 Warrant Agreement between Registrant and Frost National Bank, as Warrant Agent, by reference to Exhibit 4.3 of the Registrant's Registration Statement. 4.4 Articles Four, Nine and Ten of the Articles of Incorporation of the Registrant (included in Exhibit 3.1), by reference to Exhibit 4.4 of the Registrant's Registration Statement. 4.5 Form of Warrant Agreement and Representative Unit Purchase Warrant, by reference to Exhibit 4.5 of the Registrant's Registration Statement. 5.1 Opinion of Matthews & Branscomb regarding legality of securities, by reference to Exhibit 5.1 of the Registrant's Registration Statement. 5.2 Opinion of Matthews & Branscomb regarding FDA and other governmental regulation, by reference to Exhibit 5.2 of the Registrant's Registration Statement. 10.1 Acquisition Agreement between the Registrant and NCC Group, Ltd. (previously filed as part of Exhibit 2), by reference to Exhibit 10.1 of the Registrant's Registration Statement. 10.2 Agreement dated October 31, 1983, between the Registrant and The Richards Group, Inc., of Dallas, Texas, by reference to Exhibit 10.2 of the Registrant's Registration Statement. 10.3 Commitment Letter dated January 9, 1984, from American Filtrona Company (equipment supplier), by reference to Exhibit 10.3 of the Registrant's Registration Statement. 10.4 Commitment Letter dated January 6, 1984, from Raynor Adams & Associates, Inc. (equipment supplier), by reference to Exhibit 10.4 of the Registrant's Registration Statement. 10.5 Commitment Letter dated June 20, 1983, from Harvey Machine Company, Inc. (equipment supplier), by reference to Exhibit 10.5 of the Registrant's Registration Statement. 10.6 Commitment Letter dated January 9, 1984, from J. H. Uptmore & Associates, Inc. (lease space improvements), by reference to Exhibit 10.6 of the Registrant's Registration Statement. 10.7 Advanced Tobacco Products, Inc. 1984 Incentive Stock Option Plan, by reference to Exhibit 10.7 of the Registrant's Registration Statement. 10.8 Form of Option Agreement under 1984 Advanced Tobacco Products, Inc. Incentive Stock Option Plan, by reference to Exhibit 10.8 of the Registrant's Registration Statement. 10.9 S.A. Vend, Inc. 1983 Incentive Stock Option Plan, by reference to Exhibit 10.9 of the Registrant's Registration Statement. 10.10 Employment Agreement dated December 7, 1983, between the Registrant and Gerald R. Mazur, by reference to Exhibit 10.10 of the Registrant's Registration Statement. 10.11 Employment Agreement dated December 7, 1983, between the Registrant and J. P. Ray, by reference to Exhibit 10.11 of the Registrant's Registration Statement. 10.12 Employment Agreement dated August 1, 1983, between the Registrant and Edmund G. Vimond, Jr., by reference to Exhibit 10.12 of the Registrant's Registration Statement. 10.13 Employment Agreement dated November 27, 1983, between the Registrant and James D. Simonsen, by reference to Exhibit 10.13 of the Registrant's Registration Statement. 10.14 Patent Purchase Agreement, dated May 27, 1987, between Advanced Tobacco Products, Inc. and Pharmacia LEO, Inc., and filed as an exhibit to the Form 8-K filed on or about July 29, 1987. 10.15 Asset Purchase Agreement between Advanced Tobacco Products, Inc. and Pharmacia LEO, Inc., executed as of June 1, 1987, and filed as an exhibit to the Form 8-K filed on or about July 29, 1987. 10.16 Consultation Agreement between Advanced Tobacco Products, Inc. and Pharmacia LEO, Inc., filed as an exhibit to the Registrant's 1987 Form 10-K. 10.17 First Amendment to Patent Purchase Agreement, dated as of November 22, 1990, between the Registrant and AB LEO, a Swedish corporation, and filed as an exhibit to the Form 8-K, dated December 12, 1990. 10.18 Second Amendment to Asset Purchase Agreement, dated as of November 20, 1990, between the Registrant and Pharmacia LEO, a New Jersey corporation, and filed as an exhibit to the Form 8-K, dated December 12, 1990. 16.1 Letter regarding change in Certifying Accountant, filed as an exhibit to the Form 8-K, dated October 3, 1990. 16.2 Letter regarding change in Certifying Accountant, filed as an exhibit to the Form 8, Amendment No. 1, dated December 12, 1991. 16.3 Current Report on Form 8-K regarding the Registrant's disclosure of its intention to change its fiscal year end from June 30 to September 30, beginning the fiscal year ending September 30, 1999. 23.1 Consent of Independent Public Accountants, filed as an exhibit to the Form 10-K, dated December 27, 1999. 23.2 Consent of Independent Public Accountants, filed as an exhibit to this Form 10-K, dated December 20, 2000. ARTHUR ANDERSEN EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File No. 33-15694. By: /s/ Arthur Andersen, LLP Arthur Andersen San Antonio, Texas December 20, 2000 -----END PRIVACY-ENHANCED MESSAGE-----