<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934 for the quarterly period ended June 30, 2000
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Transition report pursuant to section 13 or 15(d) of the Securities
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Exchange Act of 1934 for the transition period from to
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Commission File Number 0-24424
CIMA LABS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1569769
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10000 VALLEY VIEW ROAD, EDEN PRAIRIE,
MN 55344-9361 (952) 947-8700
(Address of principal executive offices (Registrant's telephone number,
and zip code) including area code)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 par value 10,862,989
---------------------------- ----------
(Class) (Outstanding at August 10, 2000)
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INDEX
CIMA LABS INC.
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 2000 and December 31, 1999. 3
Statements of Operations - Three months and six months ended June 30, 2000 and
June 30, 1999. 4
Statements of Cash Flows - Six months ended June 30, 2000 and June 30, 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risks 13
PART II. OTHER INFORMATION
---------------------------
Items 1, 2, 3 and 5 have been omitted since all items are inapplicable or
answers negative.
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
</TABLE>
We have registered "CIMA(TM)," "CIMA LABS INC.(R)," "OraSolv(R)," and
"OraSolv(R)SR" as trademarks with the U.S. Patent and Trademark Office. These
registered trademarks are used in this Form 10-Q. We also use the trademarks
"DuraSolv(TM)," "PakSolv(TM)," "OraVescent(TM)SL/BL" and "OraVescent(TM)SS" in
this Form 10-Q.
Triaminic(R)and Softchews(R)are registered trademarks of Novartis. Zomig(R)and
Rapimelt(R)are registered trademarks of AstraZeneca. Remeron(R)is a registered
trademark of N.V. Organon. Tempra(R)is a registered trademark of Bristol-Myers
Squibb Canada. Quicklets(TM)and FirsTabs(TM)are trademarks of Bristol-Myers
Squibb.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
CIMA LABS INC.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited) (See note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,775,295 $ 2,480,698
Available-for-sale securities 5,919,222 -
Accounts receivable, less allowance for doubtful
accounts and returns of $25,000 and $36,000 5,209,276 3,058,258
Inventories 1,902,529 2,772,429
Prepaid expenses 109,371 73,042
---------------- ----------------
Total current assets 22,915,693 8,384,427
Other assets, net 358,973 525,942
Property and equipment:
Property, plant and equipment 22,082,099 16,355,463
Accumulated depreciation (7,900,490) (5,996,024)
---------------- ----------------
14,181,609 10,359,439
---------------- ----------------
Total assets $ 37,456,275 $ 19,269,808
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 687,397 $ 2,402,726
Accrued expenses 1,167,939 1,229,179
Other current liabilities 374,968 554,317
---------------- ----------------
Total current liabilities 2,230,304 4,186,222
Long term debt 3,578,472 3,509,660
---------------- ----------------
Total liabilities 5,808,776 7,695,882
Stockholders' equity:
Convertible preferred stock, $.01 par value; 50,000 shares
authorized; -0- shares issued and outstanding - -
Common Stock, $.01 par value; 20,000,000 shares authorized;
10,851,569 and 9,646,241 shares issued and outstanding 108,586 96,462
Additional paid-in capital 77,373,340 57,454,661
Retained earnings (deficit) (45,834,427) (45,977,197)
---------------- ----------------
31,647,499 11,573,926
Unrealized gain (loss) on available-for-sale securities - -
---------------- ----------------
Total stockholders' equity 31,647,499 11,573,926
---------------- ----------------
Total liabilities and stockholders' equity $ 37,456,275 $ 19,269,808
================ ================
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
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STATEMENTS OF OPERATIONS
CIMA LABS INC.
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
------------------------------------ ------------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 3,318,777 $ 1,398,862 $ 6,096,355 $ 1,433,862
Product development fees and licensing 2,194,528 1,738,153 4,391,213 3,382,605
Royalties 241,500 90,631 979,000 193,967
--------------- -------------- -------------- --------------
5,754,805 3,227,646 11,466,568 5,010,434
Operating expenses:
Cost of sales 3,568,575 2,036,313 6,725,214 2,968,254
Research and product development 1,190,564 808,270 2,217,109 1,826,968
Selling, general and administrative 900,354 775,088 1,848,842 1,443,598
--------------- -------------- -------------- --------------
5,659,493 3,619,671 10,791,165 6,238,820
Other income:
Interest, net 293,315 6,756 282,546 27,987
Other income (expense) (5,309) 16,712 (15,842) 16,440
--------------- -------------- -------------- --------------
288,006 23,468 266,704 44,427
--------------- -------------- -------------- --------------
Income (loss) before cumulative effect of a
change in accounting principle 383,318 $ (368,557) 942,107 $ (1,183,959)
Cumulative effect of change in accounting
principle - - (799,337) -
--------------- -------------- -------------- --------------
Net income (loss) $ 383,318 $ (368,557) $ 142,770 $ (1,183,959)
=============== ============== ============== ==============
Net income (loss) per share:
Basic
Income per share before cumulative
effect of a change in accounting principle $ .04 $ (.04) $ .09 $ (.12)
Loss per share from the cumulative
effect of a change in accounting principle .00 .00 (.08) .00
--------------- -------------- -------------- --------------
Net income (loss) per basic share $ .04 $ (.04) $ .01 $ (.12)
--------------- -------------- -------------- --------------
Diluted
Income per share before cumulative
effect of a change in accounting principle $ .03 $ (.04) $ .08 $ (.12)
Loss per share from the cumulative
effect of a change in accounting principle .00 .00 (.07) .00
--------------- -------------- -------------- --------------
Net income (loss) per diluted share $ .03 $ (.04) $ .01 $ (.12)
--------------- -------------- -------------- --------------
Weighted average of number of shares:
Basic 10,857,106 9,610,394 10,375,963 9,610,394
Diluted 11,841,178 9,610,394 11,393,366 9,610,394
Pro forma amounts assuming the
accounting change were applied retroactively:
Net income (loss) $ 383,318 $ (140,155) $ 942,107 $ (622,044)
Net income (loss) per diluted share $ .03 $ (.01) $ .08 $ (.06)
Weighted average number of diluted shares 11,841,178 9,610,394 11,393,366 9,610,394
See accompanying notes.
</TABLE>
<PAGE> 5
STATEMENTS OF CASH FLOWS
CIMA LABS INC.
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 142,770 $ (1,183,959)
Adjustments to reconcile net income or loss to net
cash used in operating activities:
Depreciation and amortization 743,808 897,299
Loss on impairment of assets 400,000 -
Cumulative effect of change in accounting principle
799,337 -
Changes in operating assets and liabilities:
Accounts receivable and current assets (2,187,347) (704,736)
Inventories 869,900 (1,185,933)
Accounts payable (1,715,329) 660,674
Accrued expenses and other (198,324) (43,741)
Deferred revenue (649,337) 9,229
----------------- -----------------
Net cash used in operating activities (1,794,522) (1,551,167)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (4,913,955) (420,478)
Patents and trademarks (37,139) (32,280)
Purchases of available-for-sale securities (5,919,222) -
----------------- -----------------
Net cash provided by (used in) investing activities (10,870,316) (452,758)
FINANCING ACTIVITIES:
Stock option exercise proceeds 530,803 -
Net proceeds from stock offerings 19,400,000 -
Security deposits on leases 152,085 -
Notes payable (88,561) -
Payments on capital lease obligations (34,892) -
----------------- -----------------
Net cash provided by financing activities 19,959,435 -
----------------- -----------------
Increase (decrease) in cash and cash equivalents 7,294,597 (2,003,925)
Cash and cash equivalents at beginning of period 2,480,698 2,722,590
----------------- -----------------
Cash and cash equivalents at end of period $ 9,775,295 $ 718,665
================= =================
</TABLE>
See accompanying notes
<PAGE> 6
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
CIMA LABS INC. is a Delaware corporation that develops and manufactures
fast-dissolve and enhanced-absorption oral drug delivery systems. OraSolv and
DuraSolv, our leading proprietary fast-dissolve technologies, are oral dosage
forms incorporating taste-masked active drug ingredients into tablets, which
dissolve quickly in the mouth without chewing or water. We develop applications
for our technologies that are licensed to pharmaceutical company partners. We
currently manufacture and package six commercial products incorporating our
proprietary fast-dissolve technologies. Revenues are generated from the sale of
products we manufacture, license agreements, product development fees and
royalties.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting of normal
recurring accruals, which are considered necessary for fair presentation have
been included. Operating results for the three and six month periods ended June
30, 2000 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2000. For further information, you should refer to
the audited financial statements and accompanying notes contained in our Annual
Report on Form 10-K, as amended, for the year ended December 31, 1999.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that may
affect the amounts we report in our financial statements and accompanying notes.
Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment; revenue from
product development fees as services are rendered and as milestones are
achieved; revenues from non-refundable up-front license fees are deferred and
amortized over the related contract period consistent with SAB 101 (as described
below); and revenues from royalties are accrued quarterly based on the sales
made by a licensee.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial
Statements." SAB 101 requires that up-front license fees received from research
collaborators be recognized over the term of the agreement unless the fee is in
exchange for products delivered or services performed that represent the
culmination of a separate earnings process. The Company implemented SAB 101 in
its second quarter ended on June 30, 2000, retroactive to January 1, 2000. The
Company reported a charge to earnings of $799,337 for the cumulative effect of a
change in accounting
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principle, which is included in income for the six-month period ended June 30,
2000. The effect of the change on the six-month period ended June 30, 2000 was
to increase income before cumulative effect of the change in accounting
principle $649,337 or $0.06 per diluted share. The effect of the change on the
three-month period ended March 31, 2000, which has been restated for the change,
was to increase income before cumulative effect of the change in accounting
principle $550,852 or $0.05 per diluted share. The pro forma amounts presented
in the income statement were calculated assuming the accounting change was made
retroactively to prior periods.
For the three-month periods ended March 31, 2000 and June 30, 2000, the Company
recognized $700,852 and $98,485, respectively, in revenue that is included in
the cumulative effect adjustment as of January 1, 2000. The effect of that
revenue in the three-month periods ended March 31, 2000 and June 30, 2000 was to
increase income by $700,852 and $98,485, respectively.
4. CASH EQUIVALENTS AND INVESTMENTS
We consider all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. We invest our cash and cash
equivalents in money market funds, investment grade commercial paper and United
States government agency securities, including discount notes and U.S Treasury
obligations. Our short-term investments consist of investment grade commercial
paper and United States government agency securities, including discount notes
and U.S Treasury obligations, with maturities ranging from three to six months.
We classify our short-term investments as available-for-sale. Available-for-sale
investments are recorded at fair value with unrealized gains and losses reported
in the shareholders' equity. Fair values of investments are based on quoted
market prices, where available, and accrued interest, if applicable. No realized
gains and losses have been recorded to date. Dividend and interest income is
recognized when earned.
5. INCOME (LOSS) PER SHARE
Income (loss) per share for the three-month and six-month periods ended June 30,
2000 and 1999 are summarized in the following table:
<TABLE>
<CAPTION>
(In thousands, except share and per share data)
Three Months Ended June 30,
--------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- ---------------------------------------------
Net Per Net Per
Income Share Income Share
(Loss) Shares Amount (Loss) Shares Amount
------------- ------------ ----------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic $ 383 10,857,106 $ .04 $ (369) 9,610,394 $(.04)
Effect of
dilutive stock
options - 984,172 (.01) - - -
------------- ------------ ----------- -------------- ------------- -----------
Diluted $ 383 11,841,178 $ .03 $ (369) 9,610,394 $(.04)
------------- ------------ ----------- -------------- ------------- -----------
</TABLE>
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<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- ---------------------------------------------
Net Per Per
Income Share Net Income Share
(Loss) Shares Amount (Loss) Shares Amount
------------- ------------ ----------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic $ 143 10,375,963 $ .01 $ (1,184) 9,610,394 $(.12)
Effect of
dilutive stock
options - 1,017,403 - - - -
------------- ------------ ----------- -------------- ------------- -----------
Diluted $ 143 11,393,366 $ .01 $(1,184) 9,610,394 $(.12)
------------- ------------ ----------- -------------- ------------- -----------
</TABLE>
For loss periods, basic and diluted share amounts are identical, as the effect
of potential common shares is antidilutive.
6. INVENTORIES
Inventories at June 30, 2000 and December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
-------------------------- -------------------------
<S> <C> <C>
Raw materials $ 29,785 $ 916,259
Work in process 55,422 20,535
Finished products 1,817,322 1,835,635
-------------------------- -------------------------
$ 1,902,529 $ 2,772,429
-------------------------- -------------------------
</TABLE>
7. PRIVATE PLACEMENT OF COMMON STOCK
On March 17, 2000, we issued 1.1 million shares of Common Stock through a
private placement. We received approximately $19.4 million in net cash proceeds
and expect to use the funds for capital additions to our manufacturing facility
and for working capital. We have invested the net proceeds in interest-bearing
money market accounts, pending such uses.
8. RECLASSIFICATIONS
Certain prior period balances have been reclassified in order to conform to the
presentation for the three-month and six-month periods ended June 30, 2000.
These reclassifications have no impact on the net loss or shareholders' equity
as previously reported.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q contains statements that are not descriptions
of historical facts and contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All forward-looking statements are inherently uncertain as they
are based on current expectations and assumptions concerning future events or
our future performance. We caution readers not to place undue reliance on these
forward-looking statements, which are only predictions and speak only as of the
date this report was filed. Forward-looking statements are not descriptions of
historical facts. The words or
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phrases "will likely result," "look for," "may result," "will continue," "is
anticipated," "expect," "project," or similar expressions are intended to
identify forward-looking statements, and are subject to numerous known and
unknown risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors, including those
identified in the "Risk Factors" filed as Exhibit 99.1 to this Form 10-Q, and in
our other filings with the SEC.
GENERAL
We develop and manufacture pharmaceutical products based on our proprietary
OraSolv and DuraSolv fast-dissolve technologies. We have agreements with several
pharmaceutical companies regarding a variety of potential products, with an
emphasis on prescription products. We currently manufacture six commercial
products using our fast-dissolve technologies. These products include four
formulations of Triaminic for Novartis, Tempra for a Canadian affiliate of
Bristol-Meyers Squibb, and Zomig for AstraZeneca. We operate within a single
segment: the development and manufacture of fast-dissolve and
enhanced-absorption oral drug delivery systems. Our revenues are comprised of
three components: net sales of products we manufacture for pharmaceutical
companies utilizing our proprietary fast-dissolve technologies; product
development fees and licensing revenues for development activities we conduct
through collaborative agreements with pharmaceutical companies; and royalties on
the sales of products we manufacture, which are sold by pharmaceutical companies
under licenses from us. In addition, we are currently developing other drug
delivery technologies.
Revenues from product sales and from royalties will fluctuate from quarter to
quarter and from year to year depending on, among other factors, demand for our
products by patients, new product introductions, the seasonal nature of some of
our products and pharmaceutical company ordering patterns. Our ability to
generate product sales and royalty revenues in excess of our current forecasts
for 2000 and 2001 may be constrained by our manufacturing capacity. We expect
our second production line, now being developed, to be operational in the second
half of 2001. Revenues from product development fees and licensing revenue will
fluctuate from quarter to quarter and from year to year depending on, among
other factors, the number of new collaborative agreements that we enter into;
the number and timing of product development milestones we achieve under
collaborative agreements, including making submissions to, and obtaining
approvals from, the FDA for products in development; and the level of our
development activity conducted for pharmaceutical companies under collaborative
agreements.
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000 AND JUNE 30, 1999.
REVENUES
Our total revenues increased 78% from $3.2 million in the three-month period
ended June 30, 1999 to $5.8 million in three-month period ended June 30, 2000,
and increased 129% from $5.0 million in the first half of 1999 to $11.5 million
in first half of 2000. The increases are primarily due to higher sales volume of
commercial products. All three components of revenues increased for the quarter
and for the first half of 2000 in comparison to the same periods in 1999.
Revenues from net sales of products using our drug delivery technologies
increased 137% from $1.4 million in the three-month period ended June 30, 1999
to $3.3 million in the three-month
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period ended June 30, 2000, and increased 325% from $1.4 million in the first
half of 1999 to $6.1 million in the first half of 2000. The increases are
primarily due to increased shipments of Triaminic to Novartis. Triaminic
accounted for 95% and 93% of net sales of products for the three and six-month
periods ended June 30, 2000, respectively, compared to 93% for both the three
and six-month periods ended June 30, 1999. We continue to expect additional
growth in product sales in the last half of 2000, but this growth will depend on
pending FDA regulatory approvals for the N.V. Organon product, Remeron, and the
AstraZeneca product, Zomig, FDA approval of our manufacturing compliance for
prescription pharmaceuticals and the receipt of firm purchase order commitments
for these new products.
Revenues from product development fees and licensing increased 26% from $1.7
million for the three-month period ended June 30, 1999 to $2.2 million for the
three-month period ended June 30, 2000, and increased 30% from $3.4 million for
the first half of 1999 to $4.4 million for the first half of 2000. Licensing
revenues in 1999 are not directly comparable to 2000 due to a change in
accounting policy for up-front license fees resulting from the implementation of
SAB 101. During the second quarter of 2000, licensing revenues included
milestone payments that were earned under agreements with American Home Products
and N.V. Organon. In addition, we entered into a Development, License and Supply
Agreement with Schwarz Pharma during the second quarter of 2000 and received an
up-front license fee, the recognition of which was deferred and will be ratably
amortized into revenue in subsequent quarters. Licensing revenues for the three
and six-month periods include amortization of deferred revenue of $0.1 and $0.6
million, respectively, resulting from implementation of SAB 101 in the second
quarter of 2000 (see Note 3--Revenue Recognition). Product development fees and
licensing revenues in subsequent quarters will depend on our success in signing
new license and development agreements with pharmaceutical companies and on
expected FDA regulatory approvals for fast dissolving formulations of Remeron
and Zomig.
Revenues from royalties increased 166% from $0.1 million for the three-month
period ended June 30, 1999 compared to $0.2 million for the three-month period
ended June 30, 2000, and increased 405% from $0.2 million for the first half of
1999 to $1.0 million for the first half of 2000. The increases are primarily due
to increased sales of Triaminic by Novartis in the U.S., which was introduced in
the second quarter of 1999, and sales of Zomig Rapimelt by AstraZeneca, which
was introduced in several countries in Europe during the third quarter of 1999.
OPERATING EXPENSES AND GROSS MARGIN.
Cost of sales increased 75% from $2.0 million in the three-month period ended
June 30, 1999 to $3.6 million in the three-month period ended June 30, 2000, and
increased 127% from $3.0 million for the first half of 1999 to $6.7 million for
the first half of 2000. The increases are primarily due to higher Triaminic unit
volumes being manufactured and shipped to Novartis and due to costs incurred to
establish multi-shift production capabilities. In subsequent quarters, we
expect cost of sales to increase as a result of expected unit volume increases.
Gross margins on product sales were negative in the three and six-month periods
ended June 30,
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2000, and negative in the comparable periods of 1999. Gross profit margins
improved 38 percentage points from (46%) for the three-month period ended June
30, 1999 to (8%) for the three-month period ended June 30, 2000, and improved 97
percentage points from (107%) for the first half of 1999 to (10%) for the first
half of 2000. Cost of sales have resulted in negative gross profit margins
because we have incurred additional costs to establish multi-shift production
capabilities and a product mix that has been weighted towards lower margin
products. In subsequent quarters, we expect improved gross margins because
manufacturing efficiencies should improve at higher unit volumes and with a more
favorable mix of higher margin products. However, future gross profit margins
will depend primarily, among other things, on the pricing of our products, our
ability to effectively use our manufacturing and plant capacity, and changes in
our product lines and mix of products.
Research and product development expenses increased 47% from $0.8 million in the
three-month period ended June 30, 1999 to $1.2 million in the three-month period
ended June 30, 2000, and increased 21% from $1.8 million for the first half of
1999 to $2.2 million for the first half of 2000. These expenses increased as the
level of product development activities increased over last year's levels and
due to expenses related to the OraVescent clinical trial, which commenced late
in the first quarter of 2000. We expect research and product development
expenses to increase in subsequent quarters.
Selling, general and administrative expenses increased 16% from $0.8 million in
the three-month period ended June 30, 1999 to $0.9 million in the quarter ended
June 30, 2000, and increased 28% from $1.4 million for the first half of 1999 to
$1.8 million for the first half of 2000. The increases are primarily due to
marketing and related consulting costs associated with our business development
efforts. We expect selling, general and administrative expenses to increase in
subsequent quarters.
OTHER INCOME.
Other income increased from less than $0.1 million in the three-month period
ended June 30, 1999 to $0.4 million in the three-month period ended June 30,
2000, and increased from less than $0.1 million in the first half of 1999 to
$0.3 million in the first half of 2000. Other income consists primarily of
interest income on invested funds, net of interest expense on bank lines, loan
agreements and capitalized leases. The increases in other income were due to
higher balances of invested funds from the proceeds of our March 2000 private
placement. In subsequent quarters, we expect interest income to decrease as we
use the proceeds of our March 2000 private placement to complete plant
improvements and additions over the next twelve months.
NET INCOME (LOSS).
Our net loss of $(0.4) million in the three-month period ended June 30, 1999
compares to net income of $0.4 million in the three-month period ended June 30,
2000, and our net loss of $(1.2) million for the first half of 1999 compares to
net income of $0.1 million for the first half of 2000. Net operating results
improved in the three and six-month periods ended June 30, 2000 due to increases
in total revenues of 78% and 129%, respectively, compared to the same periods in
1999, while associated total operating expenses increased by 56% and 73%,
respectively,
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compared to the same periods in 1999. Net income (loss) in 1999 is not directly
comparable to 2000 due a change in accounting policy for up-front license fees
resulting from the implementation of SAB 101 in 2000.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations to date primarily through private and public
sales of equity securities and revenues from product sales, product development
fees and licensing revenue and royalties.
Net working capital increased from $2.2 million at June 30, 1999 to $20.7
million at June 30, 2000. The increase of $18.5 million is primarily due to the
positive effect of a $3.5 million loan we received from AstraZeneca and from
$19.4 million we received from the private placement of 1.1 million shares of
common stock, which were partially offset by approximately $7.3 million in
expenditures for capital improvements to our manufacturing facility. We invest
excess cash in interest-bearing money market accounts and investment grade
securities.
In December 1999, we received a $3.5 million unsecured loan from AstraZeneca. We
granted AstraZeneca a first right of refusal to exploit any new technology to
which we may have the right from time to time and which may have application in
conjunction with any technology or products of AstraZeneca or its affiliates. We
may repay this loan at any time, but if the loan is not repaid by the time we
are due royalties under a license agreement with an affiliate of the lender, the
affiliate may offset up to half of the royalties otherwise due to us and the
lender will treat the amount offset by its affiliate as a payment by us on this
loan. Interest is payable on the outstanding balance of the loan at LIBOR plus
one half of one percent. Interest accrues quarterly and is added to the then
outstanding principal balance of the loan.
In March 2000, we issued 1.1 million shares of common stock through a private
placement. We received approximately $19.4 million in net cash proceeds and are
using the funds for capital additions to our manufacturing facility and for
working capital.
We currently expect to spend approximately $6.0 to $8.0 million over the next 12
months to complete various manufacturing facility improvements, including
construction of a coating unit and a second production line. We believe our cash
and cash equivalents, together with expected revenues from operations, will be
sufficient to meet our anticipated capital requirements for the foreseeable
future. However, we may elect to pursue additional financing at any time to more
aggressively pursue development of new drug delivery technologies and expand
manufacturing capacity beyond that currently planned. In addition, other factors
that will affect future capital requirements and may require us to seek
additional financing, include the level of expenditures necessary to develop new
products or technologies, the progress of our research and product development
programs, the need to construct a larger than currently anticipated
manufacturing facility or to construct a new manufacturing facility at an
alternative site to meet demand for our products, results of our collaborative
efforts with current and potential pharmaceutical company partners, and the
timing of and amounts received from future product sales, product development
fees and licensing revenue and royalties. We cannot be sure that additional
financing will be available to us or, if available, will be on acceptable terms.
12
<PAGE> 13
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not Applicable
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
The annual meeting of the shareholders of the Company was held on June 2, 2000.
Two matters were submitted to the stockholders for approval: (1) the election of
directors and (2) a proposal to ratify the selection of Ernst & Young LLP as the
independent public accountants for the Company.
Four nominees, namely John M. Siebert, Ph.D., Terrence W. Glarner, Steven B.
Ratoff, and Joseph R. Robinson, Ph.D., and were duly elected as directors of the
Company until the next annual meeting of stockholders. Each nominee received at
least approximately eighty-three percent of the votes cast in favor of his
election. Further results of the voting were as follows:
<TABLE>
<CAPTION>
Votes Cast
for the Votes
Director Director Withheld
---------------------------- -------------- ------------------
<S> <C> <C>
John M. Siebert, Ph.D. 9,099,223 93,661
Terrence W. Glarner 9,099,348 93,536
Steven B. Ratoff 9,126,848 63,036
Joseph R. Robinson, Ph.D. 9,127,440 65,444
</TABLE>
The proposal to ratify the selection of Ernst & Young LLP as the independent
public accountants for the Company was approved by the Company's stockholders. A
total of 9,189,174 shares of the Company's common stock were voted in favor of
the proposal, 2,410 shares of the Company's common stock were voted against the
proposal and holders of 1,300 shares of the Company's common stock abstained
from voting. The proposal to ratify the selection of Ernst & Young LLP as the
independent public accountants for the Company received approximately
ninety-nine percent of the vote cast.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
------------------------ ---------------------------------------------------------------------- ---------------------
Exhibit Number Description Method of Filing
------------------------ ---------------------------------------------------------------------- ---------------------
<S> <C> <C>
10.23 Employment Agreement, dated June 30, 2000, between CIMA and John M. Filed herewith
Siebert, Ph.D.
------------------------ ---------------------------------------------------------------------- ---------------------
10.24 Development, License and Supply Agreement by and between CIMA and Filed herewith
Schwarz Pharma, Inc. dated June 30, 2000
------------------------ ---------------------------------------------------------------------- ---------------------
27.1 Financial Data Schedule - For SEC EDGAR filing Filed herewith
------------------------ ---------------------------------------------------------------------- ---------------------
99.1 Risk Factors Filed herewith
------------------------ ---------------------------------------------------------------------- ---------------------
</TABLE>
13
<PAGE> 14
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended June 30, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CIMA LABS INC.
Registrant
Date August 11, 2000 By /s/ David A. Feste
--------------- ------------------
David A. Feste
Chief Financial Officer
(principal financial and
accounting officer)
14
