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 March 31, 2003

OR

[]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

           OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from     N/A toN/A

Commission file number 0-12984

ADVANCED TOBACCO PRODUCTS, INC.

(Exact name of registrant as specified in itscharter)
| TEXAS                                                         | 74-2285214                           |
|---------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of incorporation ororganization) | (I.R.S. Employer Identification No.) |

16607 Blanco Road, Suite 703, San Antonio, Texas78232

(Address of principal executive offices)(ZipCode)

(210) 408-7077

(Registrant’s telephone number, includingarea code)

N/A

(Former name, former address and former fiscalyear, if changed since last report)

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirementsfor the past 90 days.

Yes   [X] No [ ]

Indicate by check mark whether the registrant is an acceleratedfiler (as defined in Rule 12b-2 of the Exchange Act.

Yes   [ ] No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED INBANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed alldocuments and reports required to be filed by Sections 12, 13 or15(d) of the Securities Exchange Act of 1934 subsequent to thedistribution of securities under a plan confirmed by a court.

N/A

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of theissuer’s classes of common stock, as of the latestpracticable date:

8,212,136 as of May 2, 2003

| ADVANCED TOBACCO PRODUCTS, INC.        | PART I - FINANCIAL INFORMATION |
|----------------------------------------|--------------------------------|
| dba ADVANCED THERAPEUTIC PRODUCTS, INC | ITEM 1: Financial Statements   |
| BALANCE SHEET                          |                                |
| (Unaudited)                                                                                                                       | (Audited)    |         |
|-----------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|
| March 31                                                                                                                          | September 30 |         |
| 2003                                                                                                                              | 2002         |         |
| ASSETS:                                                                                                                           |              |              |
| CURRENT ASSETS:                                                                                                                   |              |              |
|         Cash & cashequivalents                                                             | $13,121      | $348,422     |
|         Product PaymentsReceivable                                                             | 169,069      | 187,385      |
|         InterestReceivable                                                                     | 2,033        | 2,077        |
|         Investments                                                                            | 546,835      | 568,212      |
|                  TOTAL CURRENT ASSETS:       | 731,058      | 1,106,096    |
| LICENSE AGREEMENTS, Net:                                                                                                          | 134,969      | 144,098      |
| LONG TERM INVESTMENTS:                                                                                                            | 1,131,979    | 1,149,529    |
| TOTAL ASSETS:                                                                                                                     | $1,998,006   | $2,399,723   |
| LIABILITIES AND STOCKHOLDERS' EQUITY:                                                                                             |              |              |
|         Book Overdraft                                                                         | 10,656       | $21,515      |
|         AccruedLiabilities                                                                     |              | 22,345       |
|                  TOTAL LIABILITIES:          | 10,656       | 43,860       |
| STOCKHOLDERS’ EQUITY:                                                                                                       |              |              |
|         Common stock, $.01par value;                                                           |              |              |
|         30,000,000 sharesauthorized;                                                           |              |              |
| 8,222,136 shares issued and outstanding as of March 31,                                                                           |              |              |
| 2003, and September 30, 2002, respectively                                                                                        | 82,222       | 82,222       |
|         Additionalpaid-in-capital                                                              | 12,595,767   | 12,595,767   |
|         Accumulateddeficit                                                                     | (10,690,639) | (10,322,126) |
|                  TOTAL STOCKHOLDERS' EQUITY: | 1,987,350    | 2,355,863    |
|         TOTAL LIABILITIES ANDSTOCKHOLDERS’ EQUITY:                                       | $1,998,006   | $2,399,723   |

| ADVANCED TOBACCO PRODUCTS, INC.         |
|-----------------------------------------|
| dba ADVANCED THERAPEUTIC PRODUCTS, INC. |
| CONDENSED STATEMENT OF INCOME           |
| (Unaudited)                                                                        |
|------------------------------------------------------------------------------------|
| Three Months Ended March 31                                                        |
| 2003                                                                               | 2002 |
| REVENUES:                                                                          |   |   |   |
|           ProductPayments             | $ 169,069 | $ 163,680 |   |
|           Totaloperating revenues:    | 169,069 | 163,680 |   |
|                                                                                    |  |  |   |
| EXPENSES:                                                                          |  |  |   |
|           General andadministrative   | 73,993 | 54,645 |   |
|           Totaloperating expenses:    | 73,993 | 54,645 |   |
|                                                                                    |  |  |   |
| INCOME FROM OPERATIONS:                                                            | 95,076 | 109,035 |   |
|                                                                                    |  |  |   |
| OTHER INCOME:                                                                      |  |  |   |
|           InterestIncome              | 20,305 | 20,013 |   |
|           Total otherincome:          | 20,305 | 20,013 |   |
|                                                                                    |  |  |   |
| NET INCOME:                                                                        | $ 115,381 | $ 129,048 |   |
|                                                                                    |  |  |   |
|                                                                                    |  |  |   |
| WEIGHTED AVERAGED NUMBER OF SHARES OF COMMON STOCKOUTSTANDING:                     | 8,222,136 | 8,222,136 |   |
|                                                                                    |  |  |   |
| WEIGHTED AVERAGED NUMBER OF SHARES OF COMMON STOCKOUTSTANDING - ASSUMING DILUTION: | 8,222,136 | 8,222,136 |   |
|                                                                                    |  |  |   |
| INCOME PER COMMON SHARE - BASIC AND ASSUMINGDILUTION                               | $  .014 | $  .016 |   |

| ADVANCED TOBACCO PRODUCTS, INC.         |
|-----------------------------------------|
| dba ADVANCED THERAPEUTIC PRODUCTS, INC. |
| CONDENSED STATEMENT OF INCOME           |
|                                                                                         | (Unaudited)               |      |
|----------------------------------------------------------------------------------------------|---------------------------|-----------|
|                                                                                         | Six Months Ended March 31 |      |
|                                                                                         | 2003                      | 2002      |   |
| REVENUES:                                                                                    |                           |           |
|            Product Payments           | $ 393,132                 | $ 362,488 |
|            Total operating revenues:  | 393,132                   | 362,488   |
|                                                                                              |                           |           |
| EXPENSES:                                                                                    |                           |           |
|            General and administrative | 146,848                   | 130,352   |
|            Total operating expenses:  | 146,848                   | 130,352   |
|                                                                                              |                           |           |
| INCOME FROM OPERATIONS:                                                                      | 246,284                   | 232,136   |
|                                                                                              |                           |           |
| OTHER INCOME:                                                                                |                           |           |
|            Interest Income            | 42,974                    | 42,342    |
|            Total other income:        | 42,974                    | 42,342    |
|                                                                                              |                           |           |
| NET INCOME:                                                                                  | $ 289,258                 | $ 274,478 |
|                                                                                              |                           |           |
| WEIGHTED AVERAGED NUMBER OF SHARES OF COMMON STOCKOUTSTANDING:                               | 8,222,136                 | 8,222,136 |
|                                                                                              |                           |           |
| WEIGHTED AVERAGED NUMBER OF SHARES OF COMMON STOCKOUTSTANDING - ASSUMING DILUTION:           | 8,222,136                 | 8,222,136 |
|                                                                                              |                           |           |
| INCOME PER COMMON SHARE - BASIC AND ASSUMINGDILUTION                                         | $ .035                    | $ .03     |

| ADVANCED TOBACCO PRODUCTS, INC.         |
|-----------------------------------------|
| dba ADVANCED THERAPEUTIC PRODUCTS, INC. |
| CONDENSED STATEMENTS OF CASH FLOWS      |
| (Unaudited)                                                                                                  |           |
|--------------------------------------------------------------------------------------------------------------|----------------|
| Six Months Ended March 31                                                                                    |           |
| 2003                                                                                                         | 2002           |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                        |                |  |
| Net income:                                                                                                  | $289,258       | $ 274,478 |
| Adjustments to reconcile net income to net cashprovided by operating activities:                             |                |  |
|            Amortization of license agreements         | 9,129          | 8,752 |
|            Amortization of discount on investments    | (36,447)       | (35,857) |
| Increase in cash flows from changes in operatingassets and liabilities:                                      |                |  |
|            Payments receivable                        | 18,316         | (21,585) |
|            Interest receivable                        | 44             | (910) |
|            Accounts payable                           | (11,689)       | (15,676) |
|            Net cash provided by operating activities: | 268,610        | 209,202 |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                        |                |  |
|            Purchase of investments                    | (99,626)       | (380,890) |
|            Sale or maturity of investments            | 175,000        | 450,000 |
|            Net cash provided by investing activities: | 75,374         | 69,110 |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                        |                |  |
|            Change in book overdraft                   | (21,515)       | -0- |
|            Dividends paid                             | (657,770)      | (411,107) |
|            Net cash used in financing activities:     | (679,285)      | (411,107) |
| NET DECREASE IN CASH AND CASH EQUIVALENTS:                                                                   | (335,301)      | (132,795) |
| CASH & CASH EQUIVALENTS AT BEGINNING OFPERIOD:                                                           | 348,422        | 193,498 |
| CASH & CASH EQUIVALENTS AT END OF PERIOD:                                                                | $  13,121 | $  60,703 |

NOTES TO CONDENSED FINANCIAL STATEMENTS

The condensed financial statements included herein have beenprepared by Advanced Tobacco Products, Inc., dba AdvancedTherapeutic Products, Inc. (“ATP”) without audit,pursuant to the rules and regulations of the Securities andExchange Commission. However, all adjustments have been made to theaccompanying financial statements which are, in the opinion ofATP's management, necessary for the fair presentation of ATP'sresults of operations for the period covered.  Certaininformation and footnote disclosures normally included in thefinancial statements prepared in accordance with generally acceptedaccounting principles have been condensed or omitted pursuant tosuch rules and regulations, although ATP believes that thedisclosures are adequate to make the information presented hereinnot misleading.  These condensed financial statements shouldbe read in conjunction with the financial statements and notesthereto included in ATP's Annual Report on Form 10-K as ofSeptember 30, 2002.

Item2:           Management's Discussion and Analysis of Financial Condition andResults of Operation

FORWARD-LOOKING STATEMENTS

The forward-looking information contained in this report on Form10-Q is subject to change as the result of business, economic,competitive, regulatory, or other contingencies and uncertaintieswhich cannot be predicted and which are beyond the control of ATPand are subject to changes in the plans of PHA with regard to theNicotrol®/Nicorette® Inhaler which are entirely at thediscretion of PHA.

DISCUSSION OF OPERATIONS

In 1987, ATP sold patented nicotine technology, which forms thebasis of the Nicorette®/Nicotrol® Inhaler(“Inhaler”), to what is now Pharmacia AB and Pharmacia& Upjohn Company (“PHA”), in exchange for productpayments of 3% of PHA’s net sales of the Inhaler.  ATPunderstands that on April 15, 2003, PHA became subsidiaries ofPfizer Inc.

Product payments are payable on a country by country basis forthe greater of 10 years following the date of the first commercialsale or the expiration of all issued patents enforceable in suchcountries.  There are payment limitations in the event of thesale of a nicotine vapor product competitive with theInhaler. 

The Inhaler was launched nationwide in the U.S. as aprescription product in 1998.  PHA has introduced the Inhaler,primarily as an over-the-counter product, in Australia, Austria,Belgium, Canada, Czech Republic, Denmark, Estonia, Finland, France,Hong Kong, Iceland, Ireland, Italy, Malaysia, Malta, Mexico,Netherlands, New Zealand, Norway, Portugal, Russia, Singapore,South Africa, Sweden, Switzerland, Taiwan, and the UnitedKingdom.

The Inhaler is the only nicotine replacement product designed tohelp control a smoker’s cravings for cigarettes whileproviding a key behavioral component of smoking, the hand-to-mouthritual. 

ATP also has an agreement with PHA under which, among othermatters, ATP has the right to receive a royalty equal to .1% of netrevenues received by PHA from the sale of any product using anicotine impermeable copolymer technology.  Under the terms ofthe agreement, ATP receives royalties from the sales of PHA’sNicorette®/Nicotrol® Patch in certain countries.

In addition, ATP has an exclusive worldwide license to certaindry powder nicotine inhaler technology from Duke University. ATPhas obtained several patents covering this technology.  ATPbelieves that a dry powder nicotine inhaler has the potential to bea future generation nicotine replacement product.

LIQUIDITY AND CAPITAL RESOURCES

Cash resources, including investments, available on March 31,2003, were $1,691,935 as compared to $1,691,950 as of March 31,2002.  On January 10, 2003, and January 9, 2002, ATP paiddividends aggregating $657,770 (8 cents per share) and $411,108 (5cents per share) respectively.

COMPARISON OF SELECTED FINANCIAL DATA

Operating revenues for the six month period ending March 31,2003, increased to $393,132, as compared to $362,488 for the sixmonth period ending March 31, 2002.  This increase is due toan increase in Inhaler product payments from PHA.

Interest income for the six month period ending March 31, 2003,increased to $42,973 as compared to $42,342 for the six monthperiod ending March 31, 2002.   This increase is due to minorvariations in earnings on investments.

Net income for the six month period ending March 31, 2003,increased to $289,257 as compared to $274,478 for the six monthperiod ending March 31, 2002.  This increase is due to anincrease in Inhaler product payments from PHA

General and administrative expenses for the six month periodending March 31, 2003, increased to $146,848 as compared to$130,352 for the six month period ending March 31, 2002.  Thisincrease is due to minor variations in general and administrativeexpenses.

Item4:           Controls and Procedures.

Within the 90-day period immediately preceding the filing ofthis report, the registrant's chief executive officer and chieffinancial officer has evaluated the effectiveness of the design andoperation of our disclosure controls and procedures (as defined inRules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of1934).  Based on that evaluation, the registrant's chiefexecutive officer and chief financial officer concluded that thedesign and operation of the registrant's disclosure controls andprocedures were effective as of the date of that evaluation. There have been no significant changes in our internal controls orin other factors that could significantly affect those controlssubsequent to the date of that evaluation.
| 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              |

Pursuant to the requirements of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed onits behalf by the undersigned thereunto duly authorized.
|  | ADVANCED TOBACCO PRODUCTS. INC. |
|--|---------------------------------|
|  | (Registrant)                    |

Dated: May 6, 2003
|  | By:                       /s/                                         |
|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |            J. W. Linehan,                                                                                                                                                                                                                                                                                                                 |
|  |            Executive Officer and Chief                                                                                                                                                                                                                                                                                                    |
|  |            Financial and Accounting Officer                                                                                                                                                                                                                                                                                               |

 

CERTIFICATIONS

I, J. W. Linehan, Chief Executive Officer and Chief Financialand Accounting Officer of Advanced Tobacco Products. Inc., certifythat:

1.         I havereviewed this quarterly report on Form 10-Q of Advanced TobaccoProducts. Inc.;

2.         Based on myknowledge, this quarterly report does not contain any untruestatement of a material fact or omit to state a material factnecessary to make the statements made, in light of thecircumstances under which such statements were made, not misleadingwith respect to the period covered by this quarterly report;

3.         Based on myknowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present inall material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, theperiods presented in this quarterly report;

4.         I amresponsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and I have:

a)         designed suchdisclosure controls and procedures to ensure that materialinformation relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report isbeing prepared;

b)         evaluated theeffectiveness of the registrant’s disclosure controls andprocedures as of a date within 90 days prior to the filing date ofthis quarterly report (the “Evaluation Date”); and

c)         presented inthis quarterly report my conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as ofthe Evaluation Date;

5.         I havedisclosed, based on our most recent evaluation, to theregistrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing theequivalent function):

a)         allsignificant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’sability to record, process, summarize and report financial data andhave identified for the registrant’s auditors any materialweaknesses in internal controls; and

b)         any fraud,whether or not material, that involves management or otheremployees who have a significant role in the registrant’sinternal controls; and

6.         I haveindicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the dateof our most recent evaluation, including any corrective actionswith regard to significant deficiencies and materialweaknesses.

Dated: May 6, 2003
|  | By:                       /s/                                         |
|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |            J. W. Linehan,                                                                                                                                                                                                                                                                                                                 |
|  |            Executive Officer and Chief                                                                                                                                                                                                                                                                                                    |
|  |            Financial and Accounting Officer                                                                                                                                                                                                                                                                                               |