UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
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 incorporation or organization) (I.R.S. Employer Identification No.)
10000 Valley View Road, Eden Prairie, Minnesota 55344-9361
(Address of principal executive offices including zip code)
(612) 947-8700
(Registrant's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK $.01 PAR VALUE 9,457,051 SHARES
----------------------------- ---------------------------------
(Class) (Outstanding at April 30, 1997)
CIMA LABS INC.
TABLE OF CONTENTS
PAGE NUMBER
-----------
COVER PAGE 1
TABLE OF CONTENTS 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Balance Sheets as of March 31, 1997
and December 31, 1996 3
Condensed Statements of Operations for the three
month periods ended March 31, 1997 and 1996
and the period from December 12, 1986 (inception)
to March 31, 1997 4
Condensed Statements of Cash Flows for the three-month
periods ended March 31, 1997 and 1996 and the period
from December 12, 1986 (inception) to March 31, 1997 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 13
ITEM 2. CHANGES IN SECURITIES. 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 14
ITEM 5. OTHER INFORMATION. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 14
SIGNATURE 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMA LABS INC.
(A Development Stage Company)
Condensed Balance Sheets
March 31, December 31,
1997 1996 (1)
---------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $3,684,338 $2,666,032
Short-term investments 4,400,508 7,597,162
Accounts receivable 253,012 247,578
Inventories--Note B 670,927 534,587
Prepaid expenses 233,121 71,880
----------- ------------
Total current assets 9,241,906 11,117,239
Property, plant and equipment 13,510,131 13,377,085
Less accumulated depreciation (3,096,373) (2,972,474)
----------- ------------
10,413,758 10,404,611
Other assets:
Lease deposits 40,651 290,650
Patents and trademarks, net of amortization 246,640 252,404
----------- ------------
287,291 543,054
----------- ------------
Total assets $19,942,955 $22,064,904
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $358,291 $264,370
Accrued expenses 464,032 529,402
Advance royalties 250,000 250,000
----------- ----------
Total current liabilities 1,072,323 1,043,772
Commitments and contingencies
Stockholders' equity
Convertible Preferred Stock, $.01 par value:
Authorized shares--5,000,000; issued and
outstanding shares-- none - -
Common Stock, $.01 par value:
Authorized shares--20,000,000; issued and
outstanding shares--9,457,051--March 31, 1997;
9,411,589--December 31, 1996 94,570 94,116
Additional paid-in capital 56,768,338 56,586,958
Deficit accumulated during the development stage (37,992,276) (35,659,942)
------------ -----------
Total stockholders' equity 18,870,632 21,021,132
------------ -----------
Total liabilities and stockholders' equity $19,942,955 $22,064,904
----------- -----------
----------- -----------
(1) The balance sheet at December 31, 1996 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 notes to condensed financial statements.
3
CIMA LABS INC.
(A Development Stage Company)
Condensed Statements of Operations (Unaudited)
Period from
December 12,
Three Months Ended 1986
March 31, (Inception) to
---------------------------- March 31,
1997 1996 1997
-------------------------- -------------
Revenues:
Net sales $191,708 $0 $13,942,592
Research and development
fees & licensing revenues 76,548 391,858 5,423,138
-------------------------- ------------
268,256 391,858 19,365,730
Costs and expenses:
Cost of goods sold 580,874 0 18,412,289
Research and product 1,230,499 1,375,946 21,753,347
development
Selling, general and 889,679 783,702 18,533,754
administrative
-------------------------- ------------
2,701,052 2,159,648 58,699,390
Other income (expense):
Interest income, net 128,291 39,385 1,247,691
Other income (expense) 1,193 (5,379) 271,223
-------------------------- ------------
129,484 34,006 1,518,914
-------------------------- ------------
Net loss and deficit
accumulated during the
development stage ($2,303,312) ($1,733,784) ($37,814,746)
--------------------------- -------------
--------------------------- -------------
Net loss per share:
Primary $(0.24) $(0.22) $(13.72)
Fully diluted $(0.24) $(0.22) $(9.26)
Weighted average shares
outstanding:
Primary 9,446,235 7,824,365 2,755,707
Fully diluted 9,446,235 7,824,365 4,085,540
See notes to condensed financial statements.
4
CIMA LABS INC.
(A Development Stage Company)
Condensed Statements of Cash Flows (Unaudited)
Three Months Ended Period from
March 31, December 12, 1996
----------------------------------- (Inception) to
OPERATING ACTIVITIES 1997 1996 March 31, 1997
----------------------------------- -------------------
Net loss ($2,303,312) ($1,733,784) ($37,814,746)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 155,385 147,030 4,175,948
Preferred stock issued for accrued interest 0 0 141,448
Gain on sale of property, plant and equipment 0 0 (53,270)
Changes in operating assets and liabilities:
Accounts receivable (5,433) (160,651) (253,011)
Inventories (136,340) 228,832 (670,927)
Other current assets (161,240) 24,648 (233,120)
Accounts payable 93,921 274,138 358,287
Accrued expenses (65,370) 209,955 464,032
Advance royalties 0 0 250,000
---------------------------------- -------------------
Net cash used in operating activities (2,422,389) (1,009,832) (33,635,359)
INVESTING ACTIVITIES
Purchase of and deposits on property, plant and equipment (132,450) (111,759) (14,593,786)
Purchase of short-term investments 0 0 (26,144,302)
Proceeds from sale of property, plant & equipment 0 0 471,883
Proceeds of maturities of short-term investments 3,196,656 0 21,743,796
Patents and trademarks (26,323) (15,572) (641,751)
--------------------------------- -------------------
Net cash provided by (used in) investing activities 3,037,883 (127,331) (19,164,160)
FINANCING ACTIVITIES
Proceeds from issuance of stock:
Common Stock 152,812 95,016 30,984,987
Preferred Stock 0 0 25,458,690
Lease financing of equipment 0 0 2,441,650
Security deposits on leases 250,000 0 (40,651)
Proceeds from issuance of notes payable and warrants 0 0 1,923,951
Payments on notes payable 0 0 (1,823,700)
Payments on capital leases 0 0 (2,441,650)
Organization costs 0 0 (19,420)
--------------------------------- -------------------
Net cash (used in) provided by financing activities 402,812 95,016 56,483,857
--------------------------------- -------------------
Increase (decrease) in cash and cash equivalents 1,018,306 (1,042,147) 3,684,338
Cash and cash equivalents at beginning of period 2,666,032 3,558,743 -
--------------------------------- -------------------
Cash and cash equivalents at end of period $3,684,338 $2,516,596 $3,684,338
--------------------------------- -------------------
--------------------------------- -------------------
Supplemental schedule of noncash
investing and financing activities:
Note payable exchanged for issuance of common stock $1,517,500
Common stock issued for note receivable 50,000
See notes to condensed financial statements.
5
CIMA LABS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed 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. Accordingly, they 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) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1996.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or fair market
value.
March 31, December 31,
1997 1996
-------- --------
Raw materials $424,347 $534,587
Work in process 116,050 --
Finished products 130,530 --
-------- --------
$670,927 $534,587
NOTE C - INITIAL PUBLIC OFFERING
The Company completed its initial public offering ("IPO") of its Common Stock in
August 1994. Outstanding shares of Series A, B, C, D and E Preferred Stock were
automatically converted on a one-for-one basis to shares of Common Stock on the
closing date of August 4, 1994.
NOTE D - NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common
6
equivalent shares from stock options and warrants are excluded from the
computation as their effect is antidilutive. In February 1997, the Financial
Accounting Standards Board (FASB) issued FASB Statement No. 128,
"EARNINGS PER SHARE." This Statement replaces the presentation of primary
earnings per share (EPS) with basic EPS and also requires dual presentation of
basic and diluted EPS for entities with complex capital structures. This
Statement is effective for the fiscal year ended December 31, 1997. For the
quarter ended March 31, 1997, there is no difference between basic earnings per
share under Statement No. 128 primary net loss per share as reported.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE," "EXCEPT," "ESTIMATE"
AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE
SUCCESS OF THE COMPANY IN MANUFACTURING THE COMPANY'S TECHNOLOGY, THE
AVAILABILITY OF ADEQUATE FUNDS FOR THE COMPANY'S OPERATIONS, THE SUCCESS OF THE
COMPANY IN COMMERCIALIZING ITS NEW DRUG DELIVERY PROGRAMS, AND THE COMPANY'S
RELIANCE ON ITS KEY PERSONNEL AND COLLABORATIVE PARTNERS, AS WELL AS THOSE
DISCUSSED IN "BUSINESS RISKS" BELOW.
GENERAL
CIMA, founded in 1986, is a drug delivery company focused primarily on the
development and manufacture of pharmaceutical products based upon its patented
OraSolv-Registered Trademark- technology for marketing by multi-national
pharmaceutical companies. OraSolv is an oral dosage formulation incorporating
microencapsulated active drug ingredients into a tablet which dissolves quickly
in the mouth without chewing or water and which effectively masks the taste of
the medication being delivered. OraSolv's fast-dissolving capability may enable
patients in certain age groups or those with a variety of conditions that limit
their ability to swallow conventional tablets to receive medication in a more
convenient oral dosage form. The Company believes that OraSolv is more
convenient than traditional tablet-based oral dosages as it does not require
water to be ingested, thereby enabling immediate medication at the onset of
symptoms. In addition, OraSolv can provide more accurate administration of
doses than liquid or suspension formulations as no measuring is required. The
Company believes OraSolv's ease of use and effective taste-masking may foster
greater patient compliance with recommended dosage regimens, both for
over-the-counter ("OTC") and prescription products, thereby improving
therapeutic outcomes and reducing costs in the healthcare system.
CIMA's business strategy is to commercialize its OraSolv technology through
collaborations with multi-national pharmaceutical companies with emphasis on
products which command a large market share and/or are in large market segments.
The Company is currently focused on the development and manufacture of OraSolv
products for the OTC market. Product differentiation and brand name identity
are critical to the successful marketing of OTC products. The Company believes
that OraSolv affords pharmaceutical companies a means to significantly
differentiate their products in the competitive OTC marketplace. Because it is
a patented technology, OraSolv affords more enduring product differentiation
than the more traditional approaches of changing product flavor or packaging
innovations, which can be easily replicated. The Company has entered into
agreements with a number of pharmaceutical companies for development,
manufacture and commercialization of OTC or OTC switch products.
The Company also intends to develop OraSolv products for selected
prescription drug applications. The Company believes that such prescription
OraSolv products might result in improved taste acceptance and ease of
administration, and so enhance patient compliance with the recommended dosage
regimen for such prescription pharmaceuticals. The Company has also initiated
the development of new drug
8
technologies. These technologies include new oral solid delivery systems,
unique sustained-released delivery systems and improved efficacy delivery
systems. The goal is to focus on technologies that improve efficacy.
At March 31, 1997, the Company had accumulated losses of approximately
$37,815,000. The Company recorded its first commercial sales using the
Company's OraSolv technology in the three month period ending March 31, 1997.
Prior to this the Company's revenues have been from sales using the Company's
AutoLution-Registered Trademark- (a liquid effervescent) technology, license
fees paid by corporate partners in consideration of the transfer of rights under
collaboration agreements, and research and development fees paid by corporate
partners to fund the Company's research and development efforts for products
developed under such agreements. To date, such revenues have been derived
primarily from manufacturing agreements with third parties for liquid
effervescent and other products, and to a lesser extent from research and
development fees and licensing arrangements, the latter generated primarily in
the last five years. The Company is not currently manufacturing liquid
effervescent products, and has not recognized any revenues from such products
since 1995. As noted above, the Company began manufacturing OraSolv products in
the first quarter 1997, and the Company expects to continue generating revenue
from manufacturing OraSolv products. In addition to revenues from such
manufacturing, research and development and licensing, the Company has funded
operations from private and public sales of equity securities, realizing net
proceeds of approximately $25,963,000 from private sales of equity securities
and $16,379,000 and $12,038,000 from the Company's July 1994 initial public
offering and May 1996 public offering of its Common Stock, respectively. The
total shares outstanding at March 31, 1997 were 9,457,051.
The Company's ability to generate revenues is dependent upon its ability to
develop new, innovative drug delivery technologies and to enter into and be
successful in collaborative arrangements with pharmaceutical and other
healthcare companies for the development and manufacture of OraSolv products to
be marketed by these corporate partners. The Company is highly dependent upon
the efforts of the corporate partners to successfully market OraSolv products.
Although the Company believes these partners will have an economic motivation to
market these products vigorously, the amount and timing of resources to be
devoted to marketing are not within the control of the Company. These partners
independently could make material marketing and other commercialization
decisions which could adversely affect the Company's future revenues. Moreover,
certain of the Company's products are seasonal in nature and the Company's
revenues could vary materially from quarter to quarter depending on which of
such products, if any, are then being marketed.
The Company expects that losses will continue through at least 1998, even
though CIMA expects to continue generating sales revenue from manufacturing
OraSolv products in 1997. Research and development expenses will increase as
CIMA investigates new drug delivery technologies, including the possibility of
utilizing microencapsulation for the development of controlled release systems,
as well as sublingual systems which could deliver faster absorption of drug
ingredients. Personnel costs for research and development are expected to
remain relatively stable as the majority of the necessary personnel for this
function has already been hired. Personnel costs for administration may
decrease slightly in an effort to reduce corporate overhead. As CIMA continues
production for its first commercial launch of a product incorporating its
OraSolv technology, additional operations personnel may need to be added to meet
a corporate partner's order. Manufacturing infrastructure costs should not need
to increase materially as there is capacity to meet short-term production needs.
9
In recent years the Company has actively marketed its OraSolv technology
to the pharmaceutical industry. The Company is presently engaged in product
development and manufacturing scale-up efforts and negotiations with several
different pharmaceutical companies regarding a variety of potential products.
In the fourth quarter of 1996, the Company signed a Supply Agreement with an
undisclosed major pharmaceutical company. The Agreement covers full-scale
production of an over-the-counter product in CIMA's OraSolv dosage form. CIMA
began commercial production for this product during the first quarter of 1997.
The retail launch for this product is expected in 1997. Regarding the other
efforts mentioned above, there can be no assurance that these activities or
discussions will result in license agreements or the marketing of products using
the OraSolv technology. The Company believes that mergers and acquisitions in
the pharmaceutical industry in recent years, together with changes in product
plans by potential partners, may have had an adverse effect on the progress of
certain projects, and the eventual marketing of products incorporating the
Company's technology.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The Company's results of operations for the quarter ended March 31, 1997
reflect the increased emphasis on developing and manufacturing of OraSolv
products with an anticipated commercial launch of an OraSolv product by one of
our corporate partners in 1997. Product sales increased to $192,000 in the
first quarter of 1997 from zero product sales in the first quarter of 1996 due
to the first commercial sales of products using the OraSolv technology, which
began in the first quarter of 1997. Research and development fees and licensing
revenues were $77,000 and $392,000 in the first quarter of 1997 and 1996,
respectively. The decrease in research and development fees and licensing
revenue was primarily due to a $267,000 research and development fee paid by
SmithKline Beecham in the first quarter of 1996 that was not repeated in 1997.
So long as the Company has relatively few agreements with corporate partners,
these revenues will tend to fluctuate on a quarter to quarter basis.
Cost of goods sold increased to $581,000 in the first quarter of 1997 from zero
in the first quarter. The main component of the cost of goods sold in 1997 was
the manufacturing infrastructure costs necessary for future anticipated sales
levels. In 1996, these costs were classified as product development expenses.
Research and development expenses decreased to $1,230,000 from $1,376,000 for
the first quarter of 1997 and 1996, respectively. After the accounting for the
reclassification of manufacturing infrastructure costs, as noted above, research
and development expenses increased on a like to like comparison by approximately
$340,000. This increase was due to expenses related to the hiring of the new
Vice President of research and development, product development expenses related
to the transition to commercial production and expenditures related to
development work on the new technologies, discussed earlier. Selling, general
and administrative expenses increased from $784,000 for the three month period
ending March 31, 1996, to $890,000 for the three month period ending March 31,
1997, resulting from increased spending on consumer marketing studies to support
OraSolv. Net interest income shows an increase from $39,000 to $128,000 for the
three month period ending March 31, 1996, and 1997, respectively. Net interest
income is dependent on the cash position of the Company.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through private
and public sales of its equity securities and revenues from manufacturing
agreements. Through March 31, 1997, CIMA had received net offering proceeds
from such private and public sales of approximately $56,444,000 and had net
sales from manufacturing agreements of approximately $13,943,000. Cash, cash
equivalents and short-term investments were approximately $8,085,000 at
March 31, 1997.
The Company's long-term capital requirements will depend upon numerous
factors, including the status of the Company's collaborative arrangements, the
progress of the Company's research and development programs and receipt of
revenues from sales of the Company's products. The Company believes that its
currently available funds, including any license fees and sales revenue
anticipated to be received in the future, will meet its needs through 1997.
Thereafter, or sooner if conditions make it necessary, the Company will need to
raise additional funds through public or private financings, including equity
financing which may be dilutive to stockholders. There can be no assurance that
the Company will be able to raise additional funds if its capital resources are
exhausted, or that funds will be available on terms attractive to the Company.
The Company has not generated taxable income through March 1997. At
December 31, 1996, the net operating losses available to offset taxable income
were approximately $35,247,000. Because the Company has experienced ownership
changes, pursuant to Internal Revenue Code regulations, future utilization of
the operating loss carryforwards will be limited in any one fiscal year. The
carryforwards expire beginning in 2001. As a result of the annual limitation, a
portion of these carryforwards may expire before ultimately becoming available
to reduce potential federal income tax liabilities.
BUSINESS RISKS
The Company has recently initiated commercial production of its first
product in CIMA's OraSolv dosage form, and must be evaluated in light of the
uncertainties and complications present for any such company and, in particular,
a company in the pharmaceutical industry. The Company has accumulated aggregate
net losses from inception through March 31, 1997 of $37,815,000. Losses have
resulted principally from costs incurred in research and development of the
Company's technologies and from general and administrative costs. These costs
have exceeded Company's revenues, which have been derived primarily from the
manufacturing of AutoLution (a liquid effervescent) and other non-OraSolv
products for which the Company no longer manufactures. In more recent years,
the Company has also received revenue from its commercial partners for product
development and licensing of OraSolv, and to a lesser extent, OraSolv for which
commercial production commenced in the first quarter of 1997 for a commercial
partner. The Company expects to continue to incur quarterly losses at least
through the first half of 1998. There can be no assurance that the Company will
ever generate substantial revenues or achieve profitability.
The Company is dependent upon its ability to enter into and perform under
collaborative arrangements with pharmaceutical companies for the development and
commercialization of its products. Failure of these partners to market the
Company's products successfully could have a material adverse effect on the
Company's financial condition and results of operations. The Company's revenues
are also dependent upon ultimate consumer acceptance of the OraSolv drug
delivery system as an alternative to conventional oral dosage forms. The
Company expects that OraSolv products will be priced slightly
11
higher than conventional swallow tablets. Although the Company believes that
initial consumer research has been encouraging, there can be no assurance that
market acceptance for the Company's OraSolv products will ever develop or be
sustained.
The Company began manufacturing OraSolv products in commercial quantities
in February 1997. Commercial sales have been made and revenue has been
recognized from sales of an OraSolv product. To achieve future desired levels
of production, the Company will be required to increase its manufacturing
capabilities. There can be no assurance that manufacturing can be scaled-up in
a timely manner to allow production in sufficient quantities to meet the needs
of the Company's corporate partners.
The Company intends to increase its research and development expenditures
to enhance its current technologies, and to pursue internal proprietary drug
delivery technologies. Even if these technologies appear promising during
various stages of development, they may not reach the commercialization stage
for a number of reasons. Such reasons include the possibilities of not finding
a partner to market the product, the product being difficult to manufacture on a
large scale or of being uneconomical to market.
The foregoing risks reflect the Company's stage of development and the
nature of the Company's industry and products. Also inherent in the Company's
stage of development and the nature of the Company's industry is a range of
additional risks, including competition, uncertainties regarding the effects of
healthcare reform on the pharmaceutical industry, including pressures exerted on
the prices charged for pharmaceutical products, and uncertainties regarding
protection of patents and proprietary rights.
12
CIMA LABS INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
On March 13, 1997, the Board of Directors of CIMA LABS INC.
(the "Company") declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of the Company's
Common Stock (the "Common Shares"). The dividend was effective as
of April 10, 1997 (the "Record Date") and the Rights also attached
to new Common Shares issued after the Record Date. Each Right
entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Shares"), subject
to adjustment. Each Preferred Share is designed to be the economic
equivalent of 100 Common Shares. The description and terms of the
Rights are set forth in a Rights Agreement dated as of March 14,
1997 between the Company and Norwest Bank Minnesota, N.A., which is
incorporated by reference as Exhibit 4.2 to this Quarterly Report
on Form 10-Q.
Initially, the Rights are evidenced by the stock certificates
representing Common Shares then outstanding. Upon the occurrence
of certain events resulting in, or which are intended to result in,
a person or group of persons (an "Acquiring Person") acquiring
beneficial ownership of 15% or more of the outstanding Common
Shares, (i) the Rights will be evidenced by Rights Certificates and
(ii) the Rights will become exercisable. In the event that any
person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring
Person (which will thereafter be void), will thereafter have the
right to receive upon exercise that number of Common Shares having
a market value of two times the exercise price of the Right. In
the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated
assets or earning power are sold, proper provision will be made so
that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise
price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have
a market value of two times the exercise price of the Right.
The Rights are subject to certain redemption provisions (at
$.01 per Right) and exchange provisions (at a rate of one Common
Share or one-hundredth of a Preferred Share per Right), in each
case subject to adjustment, which are exercisable at the sole
discretion of the Board of Directors. In addition, the terms of
the Rights may be amended by the Board of Directors of the Company
without the consent of the holders of the Rights, except that from
13
and after such time as any person or group of affiliated or
associated persons becomes an Acquiring Person no such amendment
may adversely affect the interests of the holders of the Rights.
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.
(a) EXHIBITS
ITEM DESCRIPTION
4.2* Rights Agreement, dated as of March 14, 1997,
between the Company and Norwest Bank Minnesota,
N.A.
10.11 Equity Incentive Plan, as amended and restated.
10.24 Offer letter between the Company and John Hontz,
Ph.D. dated November 26, 1996.
10.25 Non-Employee Directors' Fee Option Grant Program.
27 Financial Data Schedule.
___________
* Incorporated by reference herein to Exhibit 2 to the
Company's Current Report on Form 8-K filed March 25, 1997.
(b) REPORTS ON FORM 8-K
On March 25, 1997 the Company filed a Current Report on Form
8-K with the Securities and Exchange Commission disclosing
under "Item 5-Other Events" that the Company had adopted a
Shareholder Rights Plan by entering into a Rights Agreement
dated March 14, 1997, with Norwest Bank Minnesota, N.A.
14
CIMA LABS INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
CIMA LABS INC.
Date: MAY 14, 1997 By: /S/ JOHN M. SIEBERT
--------------------------
John M. Siebert
President and Chief Executive
Officer
Date: MAY 14, 1997 By: /S/ KEITH P. SALENGER
---------------------------
Keith P. Salenger
Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
EXHIBIT INDEX
NO. OF EXHIBIT DESCRIPTION
- -------------- -----------
4.2* Rights Agreement, dated as of March 14, 1997, between the
Company and Norwest Bank Minnesota, N.A.
10.11 Equity Incentive Plan, as amended and restated.
10.24 Offer letter between the Company and John Hontz, Ph.D. dated
November 26, 1996.
10.25 Non-Employee Directors' Fee Option Grant Program.
27 Financial Data Schedule.
___________
* Incorporated by reference herein to Exhibit 2 to the Company's Current
Report on Form 8-K filed March 25, 1997.
16