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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 2000
[ ] 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 (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 10,855,289
---------------------------- ----------
(Class) (Outstanding at May 4, 2000)
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INDEX
CIMA LABS INC.
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - March 31, 2000 and December 31, 1999. 3
Statements of Operations - Three months ended March 31, 2000 and March 31, 1999. 4
Statements of Cash Flows - Three months ended March 31, 2000 and March 31, 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 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Items 1, 3, 4 and 5 have been omitted since all items are inapplicable or answers negative.
Item 6. Exhibits and Reports on Form 8-K 13
Signature 13
We have registered "CIMA(R)," "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.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
CIMA LABS INC.
March 31, December 31,
2000 1999
(Unaudited) (See note)
ASSETS
Current assets:
Cash and cash equivalents $ 17,137,617 $ 2,480,698
Available-for-sale securities 1,956,924 -
Accounts receivable, less allowance for doubtful
accounts and returns of $298,585 and $36,000 3,864,602 3,058,258
Inventories 2,685,826 2,772,429
Prepaid expenses 129,502 73,042
------------- --------------
Total current assets 25,774,471 8,384,427
Other assets, net 521,484 525,942
Property and equipment:
Property, plant and equipment 19,765,566 16,355,463
Accumulated depreciation (7,698,005) (5,996,024)
------------- --------------
12,067,561 10,359,439
============= ==============
Total assets $ 38,363,516 $ 19,269,808
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,865,915 $ 2,402,726
Accrued expenses 1,228,575 1,229,179
Other current liabilities 218,334 554,317
------------- --------------
Total current liabilities 3,312,824 4,186,222
Long term debt 3,547,575 3,509,660
------------- --------------
Total liabilities 6,860,399 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 108,553 96,462
Additional paid-in capital 77,363,824 57,454,661
Retained earnings (deficit) (45,969,260) (45,977,197)
------------- --------------
31,503,117 11,573,926
Unrealized gain (loss) on available-for-sale securities - -
------------- --------------
Total stockholders' equity 31,503,117 11,573,926
------------- --------------
Total liabilities and stockholders' equity $ 38,363,516 $ 19,269,808
============= ==============
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.
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STATEMENTS OF OPERATIONS
CIMA LABS INC.
(Unaudited)
For the Three Months Ended
March 31,
-----------------------------
2000 1999
------------ -----------
Revenues:
Net sales $ 2,777,578 $ 35,000
Product development fees and licensing 1,645,833 1,644,452
Royalties 737,500 103,336
------------ -----------
5,160,911 1,782,788
Operating expenses:
Cost of sales 3,156,639 931,941
Research and product development 1,026,545 1,018,698
Selling, general and administrative 948,488 668,510
------------ -----------
5,131,672 2,619,149
Other income:
Interest income, net (10,769) 21,231
Other income (expense) (10,533) (272)
------------ -----------
(21,302) 20,959
------------ -----------
Net income (loss) $ 7,937 $ (815,402)
============ ===========
Net income (loss) per share:
Basic $ .00 $ (0.08)
Diluted $ .00 $ (0.08)
Weighted average number of common shares:
Basic 9,898,551 9,609,216
Diluted 11,046,086 9,609,216
See accompanying notes.
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STATEMENTS OF CASH FLOWS
CIMA LABS INC.
(Unaudited)
For the Three Months Ended
March 31,
------------------------------------
2000 1999
----------------- ---------------
OPERATING ACTIVITIES:
Net income (loss) $ 7,937 $ (815,402)
Adjustments to reconcile net income or loss to net
cash used in operating activities:
Depreciation and amortization 515,029 417,920
Loss on impairment of assets 400,000 -
Changes in operating assets and liabilities:
Accounts receivable and current assets (866,697) (196,304)
Inventories 86,603 (827,863)
Accounts payable (536,811) 742,234
Accrued expenses and other (281,432) (134,621)
--------------- ---------------
Net cash used in operating activities (675,371) (814,036)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,597,422) (274,936)
Patents and trademarks (17,378) 941
Purchases of available-for-sale securities (1,956,924) -
--------------- ---------------
Net cash provided by (used in) investing activities (4,571,724) (273,995)
FINANCING ACTIVITIES:
Stock option exercise proceeds 521,254 -
Net proceeds from stock offerings 19,400,000 -
Payments on capital lease obligations (17,239) (15,674)
--------------- ---------------
Net cash provided by financing activities 19,904,014 (15,674)
--------------- ---------------
Increase (decrease) in cash and cash equivalents 14,656,919 (1,103,705)
Cash and cash equivalents at beginning of period 2,480,698 2,722,590
=============== ===============
Cash and cash equivalents at end of period $ 17,137,617 $ 1,618,885
=============== ===============
See accompanying notes
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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 five 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 months ended March 31, 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 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. 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,
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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.
4. INCOME (LOSS) PER SHARE
Income (loss) per share for the three months ended March 31, 2000 and 1999 are
summarized in the following table:
Three Months Ended March 31,
--------------------------------------------------------------------------------------------
2000 1999
------------------------------------------- ---------------------------------------------
Net Income Per Share Net Income Per Share
(Loss) Shares Amount (Loss) Shares Amount
------------ ------------ ----------- -------------- ------------- -----------
Basic $ 7,937 9,898,551 $.00 $ (815,402) 9,610,394 $ (.08)
Effect of
dilutive stock
options - 1,147,935 - - - -
------------ ----------- ---------- ------------- ------------ -----------
Diluted $ 7,937 11,046,486 $.00 $ (815,402) 9,610,394 $ (.08)
------------ ----------- ---------- ------------- ------------ -----------
5. INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or fair market
value, whichever is lower.
March 31, 2000 March 31, 1999
--------------- ---------------
Raw materials $ 1,966,463 $ 1,153,275
Work in process - 3,236
Finished products 719,363 150,398
----------- -----------
$ 2,685,826 $ 1,306,909
----------- -----------
6. 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.
7. ACCOUNTING PRONOUNCEMENTS
In December 1999, the staff of the Securities and Exchange Commission (the
"SEC") issued Staff Accounting Bulletin No. 101, or SAB 101, "Revenue
Recognition in Financial Statements." SAB 101 requires that license and other
up-front 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. We currently expect to implement SAB 101 in the second quarter of 2000
and, if material to the first quarter, restate the first quarter at that time.
We estimate that the cumulative effect of the accounting change will be in the
range of $1.0 to $2.0 million. Had we implemented this accounting change in our
first quarter of 2000, we would have reported a net loss in the range of $(1.0)
to $(2.0) million. In addition, we estimate that most of the cumulative effect
of the accounting change, which relates primarily to transactions occurring
prior to 2000, will be amortized into revenue during 2000. However, the impact
of this change in revenue recognition policy is
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complex and will depend on, among other things, the economic terms of existing
and future license agreements, the length of time over which the development
activities occur, and the technical requirements the SEC may make public in any
future accounting bulletins or implementation guides.
8. RECLASSIFICATIONS
Certain prior period balances have been reclassified in order to conform with
the presentation for the three months ended March 31, 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 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 to this
Form 10-Q, and in our other filings with the SEC. We undertake no obligation to
update or publicly announce revisions to any forward-looking statements to
reflect future events or developments.
GENERAL
We develop and manufacture pharmaceutical products based on our proprietary
OraSolv and DuraSolv technologies. We have agreements with several
pharmaceutical companies regarding a variety of potential products, with an
emphasis on prescription products. We currently manufacture five commercial
products using our fast-dissolve technologies. These products include Triaminic
for Novartis, Tempra for Bristol- Meyers Squibb and Zomig for AstraZeneca. We
operate within a single segment: pharmaceutical product development. Our
revenues are comprised of three components: net sales of products 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
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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 forecast
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 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
REVENUES.
Our total revenues were $5.2 million in the quarter ended March 31, 2000
compared to $1.8 million in the quarter ended March 31, 1999. The increase of
$3.4 million in revenues was primarily due to higher sales volume of commercial
products. All three components of revenues increased for the quarter in
comparison to the same period in 1999.
Revenues from net sales of products using our drug delivery technologies totaled
$2.8 million in the first quarter of 2000 compared to less than $0.1 million in
the first quarter of 1999. The increase of over $2.7 million was primarily due
to increased shipments of Triaminic to Novartis. We expect product sales for all
of 2000 to be higher than full year 1999 because we have firm purchase order
commitments for unit volume in excess of full year 1999 quantities. Although we
expect additional growth in product sales in the last half of 2000, this growth
will depend on pending FDA regulatory approvals for two new prescription
products, 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 were $1.6 million for the
quarter ended March 31, 2000 compared to $1.6 million for the comparable period
in 1999. Licensing revenues for the quarter included payments attributable to a
January 2000 agreement with American Home Products. Although we expect product
development activities for the year 2000 to be comparable to 1999, a significant
portion of the product development fees and licensing revenues associated with
these activities will be subject to deferral due to SAB 101, the SEC accounting
bulletin discussed earlier, which we expect to adopt in the second quarter. In
addition, product development fees and licensing revenues in subsequent quarters
will depend on our success in signing new license and
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development agreements with pharmaceutical companies and on expected FDA
regulatory approvals for two new pharmaceutical products late in 2000.
Revenues from royalties totaled $0.7 million in the quarter ended March 31, 2000
compared to $0.1 million in the corresponding period of 1999. The increase of
$0.6 million resulted primarily from increased sales of Triaminic by Novartis in
the U.S., which was introduced in the second quarter of 1999, and sales of Zomig
by AstraZeneca, which was introduced in several countries in Europe during the
third quarter of 1999. We expect royalties for the year 2000 to be higher than
1999 due to expected increases in product shipments of Triaminic, which will be
sold primarily to patients in the U.S., and Zomig, which will be sold primarily
to patients in Europe.
OPERATING EXPENSES AND GROSS MARGIN.
Cost of sales totaled $3.2 million in the first quarter of 2000 compared to $0.9
million in the corresponding period of 1999. The increase of $2.3 million was
primarily due to higher Triaminic unit volumes being manufactured and shipped to
Novartis and due to costs incurred to gear up for 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 quarter ended March 31, 2000
and in the comparable period of 1999. To date, cost of sales have resulted in
negative gross profit margins because we are operating at below manufacturing
capacity, we have incurred additional costs to gear up for 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
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 were $1.0 million in the quarter ended
March 31, 2000 compared to $1.0 million in the quarter ended March 31, 1999.
These expenses were consistent, as the level of product development activities
between the periods was comparable. In subsequent quarters, we expect these
expenses to increase.
Selling, general and administrative expenses were $0.9 million in the quarter
ended March 31, 2000 compared to $0.7 million in the quarter ended March 31,
1999. The increase of $0.2 million from 1999 was primarily due to marketing and
related consulting costs associated with our business development efforts. We
expect these expenses to increase in 2000.
OTHER INCOME.
Other income was not significant for the quarter ended March 31, 2000 nor was it
significant for the comparable period in 1999. Other income consists primarily
of interest income on invested funds, net of interest expense on bank lines,
loan agreements and
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capitalized leases. In subsequent quarters, we expect interest income to
increase from the investment of the proceeds of our March 2000 private
placement.
NET INCOME (LOSS).
Net income of $8,000 in the quarter ended March 31, 2000 compares to a net loss
of $(0.8) million for the corresponding period in 1999. The net income for the
quarter ended March 31, 2000 was due to an increase in total revenues of 189%,
associated with an increase of total operating expenses of only 96% in 2000
compared to 1999.
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 $4.2 million at March 31, 1999 to $22.5
million at March 31, 2000. The increase of $18.3 million is primarily due to the
positive effect of a $3.5 million loan we received from a pharmaceutical company
partner and from $19.4 million we received from the private placement sale of
1.1 million shares of common stock, which were partially offset by approximately
$5.1 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 one of our
pharmaceutical company partners. 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
expect to use the funds for capital additions to our manufacturing facility and
for working capital.
We currently expect to spend approximately $10.0 to $12.0 million during 2000
and 2001 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
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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.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not Applicable
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Pursuant to a Stock Purchase Agreement between CIMA and certain institutional
investors, or the "Purchasers," dated March 13, 2000, we issued 1,100,000 shares
of Common Stock, or "Private Placement Shares," in exchange for an aggregate
cash purchase price of $20,900,000. The Private Placement Shares were issued in
reliance on Rule 506 of Regulation D of the Securities Act of 1933, as amended.
We are obligated to the Purchasers of the Private Placement Shares to register
these shares on a Registration Statement on Form S-3, which we filed on April
14, 2000. This Registration Statement has not yet become effective.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT INDEX
Exhibit
Number Description Method of Filing
27.1 Financial Data Schedule - For SEC EDGAR filing Filed herewith
99.1 Cautionary Statements Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended March 31, 2000.
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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 May 12, 2000 By /s/ David A. Feste
------------ ------------------
David A. Feste
Chief Financial Officer
(principal financial and accounting
officer)
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