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 June 30, 1998
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 (I.R.S. Employer Identification No.)
incorporation or organization)
10000 Valley View Road, Eden Prairie, Minnesota 55344-9361
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(Address of principal executive offices, including zip code)
(612) 947-8700
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(Registrant's telephone number, 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 (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 9,610,394 Shares
---------------------------- ------------------------------
(Class) (Outstanding at July 31, 1998)
1
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 June 30, 1998
and December 31, 1997 3
Condensed Statements of Operations for the three-
month and six-month periods ended June 30, 1998
and 1997 4
Condensed Statements of Cash Flows for the six-month
periods ended June 30, 1998 and 1997 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIMA LABS INC.
Condensed Balance Sheets
June 30, December 31,
1998 1997(1)
----------- -------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $2,834,822 $1,145,760
Short-term investments - 3,277,300
Accounts receivable:
Net of allowance for doubtful accounts $32,150-1998; $32,150-1997 1,011,865 1,597,814
Inventories--Note B 1,175,841 630,619
Prepaid expenses 164,177 146,805
----------- -----------
Total current assets 5,186,705 6,798,298
Property, plant and equipment 14,618,231 14,149,345
Less accumulated depreciation (4,533,833) (3,891,167)
----------- -----------
10,084,398 10,258,178
Other assets:
Lease deposits 40,651 40,651
Patents and trademarks, net of amortization 230,872 230,889
----------- -----------
271,523 271,540
----------- -----------
Total assets $15,542,626 $17,328,016
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $338,535 $128,712
Accrued expenses 617,787 620,580
Advance royalties 651,405 741,405
----------- -----------
Total current liabilities 1,607,727 1,490,697
Long term liabilities:
Equipment Financing 209,326 -
Stockholders' equity
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--9,610,394--June 30, 1998;
9,608,394-- December 31, 1997 96,104 96,084
Additional paid-in capital 57,274,274 57,268,594
Accumulated losses (43,644,805) (41,527,359)
----------- -----------
Total stockholders' equity 13,725,573 15,837,319
----------- -----------
Total liabilities and stockholders' equity $15,542,626 $17,328,016
----------- -----------
----------- -----------
- --------------------
(1) The balance sheet at December 31, 1997 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.
Condensed Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1998 1997 1998 1997
------------------------- --------------------------
Revenues:
Net sales $ - $640,864 $157,692 $832,572
Research and development fees & 1,336,125 381,564 2,317,925 458,112
licensing revenues
------------------------- --------------------------
1,336,125 1,022,428 2,475,617 1,290,684
Costs and expenses:
Cost of goods sold 296,900 987,233 637,522 1,568,106
Research and product development 869,276 754,161 2,347,776 1,984,661
Selling, general and administrative 940,094 998,660 1,700,942 1,888,359
------------------------- --------------------------
2,106,270 2,740,074 4,686,240 5,441,126
Other income (expense):
Interest income, net 34,339 65,413 92,298 193,704
Other income (expense) (609) 123,029 882 124,222
------------------------- --------------------------
33,730 188,442 93,180 317,926
Net loss: $(736,415) $(1,529,204) $(2,117,443) $(3,832,516)
------------------------- --------------------------
------------------------- --------------------------
Net loss per share:
Basic and diluted $(0.08) $(0.16) $(0.22) $(0.40)
Weighted average shares outstanding:
Basic and diluted 9,610,394 9,490,541 9,609,808 9,468,893
See notes to condensed financial statements.
4
CIMA LABS INC.
Condensed Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
-------------------------
1998 1997
-------------------------
OPERATING ACTIVITIES
Net loss $(2,117,443) $(3,832,516)
Adjustments to reconcile net loss to net cash used in
operating activities:
depreciation and amortization 807,438 422,382
gain on sale of property, plant and equipment 2,982 -
Changes in operating assets and liabilities:
accounts receivable 545,662 (519,528)
inventories (545,222) (380,647)
other current assets 22,916 (59,333)
accounts payable 209,824 295,941
accrued expenses (35,958) 42,498
advance royalties (105,000) -
-------------------------
Net cash used in operating activities (1,214,801) (4,031,203)
INVESTING ACTIVITIES
Purchase of and deposits on property, plant and equipment (349,878) (360,943)
Proceeds from sale of property, plant & equipment 27,000 -
Proceeds of maturities of short-term investments 3,277,297 5,350,885
Patents and trademarks (56,255) (58,081)
-------------------------
Net cash used in investing activities 2,898,164 4,931,861
FINANCING ACTIVITIES
Proceeds from issuance of stock:
Common Stock 5,700 429,168
Preferred Stock - -
Security deposits on leases - 250,000
Payments on capital leases - -
-------------------------
Net cash (used in) provided by financing activities 5,700 679,168
-------------------------
Increase (decrease) in cash and cash equivalents 1,689,063 1,579,826
Cash and cash equivalents at beginning of period 1,145,760 2,666,032
-------------------------
Cash and cash equivalents at end of period $2,834,823 $4,245,858
-------------------------
-------------------------
Supplemental schedule of noncash
investing and financing activities:
Acquisition of equipment pursuant to equipment loan and capital
lease obligation 257,490 -
See notes to condensed financial statements.
5
CIMA LABS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998 (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 and six-month periods ended
June 30, 1998 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1998. 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, 1997.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or fair market
value.
June 30, December 31,
1998 1997
----------- --------------
Raw materials $725,413 $484,582
Work in process -- --
Finished products 450,428 146,037
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$1,175,841 $630,619
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----------- --------------
NOTE C - NET LOSS PER SHARE
The Company has adopted Financial Accounting Standards Board Statement No. 128,
EARNINGS PER SHARE. This statement replaces previously reported primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary EPS, basic EPS excludes any dilutive effect of options, warrants
and convertible securities. Diluted earnings per share is very similar to
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented to conform with Statement 128
requirements.
6
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," "BELIEVE," "EXPECT,"
"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 LABS INC., (the "Company"), 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 multinational 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 regiments, both for over-the-counter ("OTC") and prescription products,
thereby improving therapeutic outcomes and reducing costs in the healthcare
system.
The Company's business strategy is to commercialize its OraSolv technology
through collaborations with multinational pharmaceutical companies with emphasis
on products which command a large market share, are in large market segments, or
are profitable prescription pharmaceuticals. Product differentiation and brand
name identity are critical to the successful marketing of pharmaceutical
products. The Company believes that OraSolv affords pharmaceutical companies a
means to significantly differentiate their products in the competitive
pharmaceutical marketplace. Because it is a patented technology, OraSolv
affords more enduring product differentiation than some of 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
OraSolv products.
The Company is currently focusing on developing OraSolv products for
selected prescription drug applications. The Company believes that such
prescription OraSolv products should result in improved taste acceptance and
ease of administration, and so enhance patient compliance with the recommended
dosage regimen for such prescription pharmaceuticals. In the third quarter of
1997, the Company signed its first two pharmaceutical license option and product
development agreements with two multinational pharmaceutical companies. The
Company is continuing work on both of these projects. On July 1, 1998, the
Company signed Exclusive License & Supply Agreements with Novartis Consumer
Health, Inc. ("Novartis"), a multinational pharmaceutical company. The
agreements cover full scale production of three Triaminic-Registered Trademark-
products in the Company's OraSolv dosage form. The Company began commercial
production for this product during the second quarter of 1998. It is
anticipated that the retail launch for this product will be in late 1998. The
development of new oral drug delivery technologies has also been initiated.
These technologies include a new oral solid delivery system, DuraSolv-TM-; a
unique sustained-released delivery system, OraSolv-Registered Trademark-SR; and
an
7
improved efficacy delivery system, OraVescent-TM-. One of the Company's
recently signed agreements utilizes the OraSolvSR technology. The goal of the
Company is to focus on drug delivery technologies that improve efficacy and
therefore provide greater value-added benefits.
At June 30, 1998, the Company had accumulated losses of approximately
$43,600,000. The Company recorded its first commercial sales using the
Company's OraSolv technology in the three-month period ended 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
collaborative 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. Approximately 52% of the Company's total
revenues to date have been generated from development work and sales for
AutoLution products. The Company is not currently manufacturing liquid
effervescent products, and has not recognized any revenues from such products
since 1995. Over the last three years, revenue has been generated primarily
from product development fees for work related to OraSolv products and to a
lesser extent sales and licensing revenue related to OraSolv products. In
addition to revenues from manufacturing, product development and licensing, the
Company has funded operations from private and public sales of equity
securities, realizing net proceeds of approximately $26,000,000 from private
sales of equity securities and $16,400,00 and $12,000,000 from the Company's
July 1994 initial public offering and May 1996 public offering of its Common
Stock, respectively. At June 30, 1998, the Company had 9,610,394 shares of its
Common Stock outstanding.
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 and
products based on such new technologies to be marketed by these corporate
partners. The Company is highly dependent upon the efforts of their corporate
partners to successfully market OraSolv products. Although the Company believes
these partners have and 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 the Company expects to continue generating sales revenue from
manufacturing OraSolv products in 1998. Research and development expenses will
increase as the Company continues to investigate new drug delivery technologies.
In addition, the Company is investigating the possibility of utilizing
microencapsulation for the development of sustained released systems. Personnel
costs for research and development are expected to remain relatively stable as
the majority of the necessary personnel for this function have already been
hired. Personnel costs for administration may decrease slightly as a reflection
of our effort to reduce corporate overhead. As the Company continues
production, additional operations personnel may need to be added to meet
corporate partners' orders. Manufacturing infrastructure costs should not need
to increase materially as there is capacity to meet short-term production needs.
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 with several different
pharmaceutical companies regarding a variety of potential products. In the
first quarter of 1997, the Company began commercial production for Bristol-Myers
Squibb Company ("Bristol-Myers") of the first product in the Company's OraSolv
dosage form, which was officially launched in September 1997. In the second
quarter of 1997, the Company expanded its relationship with Bristol-Myers and
signed a global non-exclusive license agreement which covers multiple products.
In the third quarter of 1997, the first two
8
prescription product license option and development agreements were signed.
Each agreement is for a product which is currently marketed by the Company's
partners, Schering Corporation ("Schering-Plough") and Zeneca Pharmaceuticals
("Zeneca"). The Company and Zeneca have already announced their collaboration
on Zeneca's new antimigraine compound zolmitriptan (Zomig-Registered
Trademark-). In the fourth quarter of 1997, a development and license option
agreement was signed with Novartis, and as previously noted, this has been
converted to exclusive license and supply agreements effective July 1, 1998.
There can be no assurance that any of these activities or discussions will
result in the eventual marketing of products using OraSolv or the Company's
other technologies.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The Company's results of operations for the three- and six-month periods
ended June 30, 1998 reflect the continued emphasis of developing OraSolv
products for our corporate partners and research efforts for the Company's new
technologies. Total revenues increased to $1,337,000 and $2,476,000 in the
three- and six-month periods ended June 30, 1998, respectively, from $1,023,000
and $1,291,000 in the three- and six-month periods ended June 30, 1997. In
1998, over 90% of the revenue relates to license revenue and product development
fees earned from the Company's corporate partners. The majority of these
revenues were generated by two prescription product collaborations, one each
with Schering Plough and Zeneca, and the over-the-counter product collaboration
with Novartis. The 1997 revenues consisted of sales of $641,000 for the initial
commercial product using the OraSolv technology. Inventory levels at the
customer were higher than anticipated in the first half of 1998 which is
reflected in the 1998 sales figure of $158,000. The $458,000 in product
development fees in the first six-months of 1997 is substantially for product
development fees for the OTC product, Tempra-Registered Trademark- for
Bristol-Myers that was launched in September 1997.
These revenues reflect the signing of license option and development
agreements with multinational pharmaceutical companies that provide for
licensing fees, milestone payments, royalties and manufacturing fees. So long
as the Company has relatively few agreements with corporate partners, license
revenues and product development fees will tend to fluctuate on a
quarter-to-quarter basis.
Cost of goods sold decreased to $297,000 and $638,000 in the three- and
six-month periods ended June 30, 1998, respectively, from $987,000 and
$1,568,000 in the three- and six-month periods ended June 30, 1997. The
decrease in 1998 is primarily attributable to decreased production and to
certain non-recurring start-up costs that were incurred in 1997 due to the
initial commercial production of a product using OraSolv technology. Cost of
goods sold for the three months ended June 30, 1998, do include costs for the
production of the Triaminic-Registered Trademark- products for Novartis for
which the supply agreement was signed July 1, 1998. Research and development
expenses increased to $869,000 and $2,348,000 for the three- and six-month
periods ended June 30, 1998, respectively, from $754,000 and $1,985,000 in the
three- and six-month periods ended June 30, 1997. The increase is a direct
result of increased research and development efforts being performed for the
Company's corporate partners. In addition, additional research personnel have
been hired to focus their efforts on developing new technologies. Selling,
general and administrative expenses decreased to $940,000 and $1,701,000 in the
three- and six-month periods ended June 30, 1998, respectively, from $999,000
and $1,888,000 for the same periods in 1997, respectively. The decrease in
selling, general and administrative expenses was primarily due to the reduction
in spending on consumer marketing research studies conducted in 1997, to support
OraSolv and reductions in legal and outside consulting fees. Other income
decreased to $34,000 and $93,000 in the three- and six-month periods ended June
30, 1998, respectively, from $188,000 and $318,000 for the same periods in 1997,
respectively. Other income is comprised mainly of interest income which has
decreased as its dependent on the cash position of the Company. In addition,
other income in the three-month period ended June 30, 1997, included a $120,000
state sales and use tax refund for previously purchased fixed assets.
9
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 and
supply agreements. Through June 30, 1998, the Company had received net offering
proceeds from such private and public sales of approximately $57,268,000, had
net sales from manufacturing and supply agreements of approximately $16,567,000,
and other revenues that include licensing fees, product and development and
milestone fees of $9,947,000. Among other things, these funds were used to
purchase approximately $16,000,000 of capital equipment, including approximately
$7,500,000 in the last two quarters of 1994 in connection with completing the
Company's new manufacturing facility. Cash, cash equivalents and short-term
investments were approximately $2,835,000 at June 30, 1998.
The Company's long-term capital requirements will depend upon numerous
factors, including the status of the Company's collaborative arrangements with
corporate partners, the progress of the Company's research and development
programs and receipt of revenues from the collaborative agreements, sales of the
Company's products, and the need to expand production capacity. The Company
believes that its currently available funds together with revenues from
operations will meet its anticipated needs through 1998. Thereafter, or sooner
if conditions make it necessary, the Company will need to raise additional funds
through research and development relationships with suitable potential corporate
partners and/or 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 June 1998. At
December 31, 1997, the net operating losses available to offset taxable income
were approximately $42,259,000. 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 began commercial production of its first product in the
Company's OraSolv dosage form only one year ago and must be evaluated in light
of the uncertainties and complications present for any company that has just
recently begun to derive product revenues and, in particular, a company in the
pharmaceutical industry. The Company has accumulated aggregate net losses from
inception through June 30, 1998 of $43,600,000. 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 the Company's revenues, which historically had been derived primarily
from the manufacturing of AutoLution and other non-OraSolv products which the
Company no longer manufactures. In more recent years, the Company has received
revenue from its commercial partners for product development and licensing of
OraSolv and to a lesser extent commercial production of an OraSolv dosage form
product which commenced in the first quarter of 1997 for Bristol-Myers. The
Company expects to continue to incur additional losses at least through 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 and newly developed technologies as alternatives to conventional
oral dosage forms. The Company expects that OraSolv products will be priced
slightly higher than conventional swallow tablets. Although the Company believes
that the consumer research it has conducted has been encouraging, there can be
no assurance that market acceptance for the Company's OraSolv products will ever
develop or be sustained.
10
The Company began manufacturing OraSolv products in commercial quantities
in February 1997. 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. Furthermore, the Company has only one manufacturing line and one
facility capable of manufacturing OraSolv products. If this production line
and/or facility becomes damaged or becomes incapable of manufacturing products
due to natural disaster, governmental regulatory issues or otherwise, the
Company would have no other means of producing OraSolv products.
The quick dissolve drug delivery field is fairly new and rapidly evolving
and it is expected to continue to undergo improvements and rapid technological
changes. There can be no assurance that current or new competitors will not
succeed in developing technologies and products that are more effective than any
which are being developed by the Company or which could render the Company's
technology and products non-competitive or that any technology developed by the
Company will be preferred to any existing or newly developed technologies.
The Company intends to increase its research and development expenditures
to enhance its current technologies, to pursue internal proprietary drug
delivery technologies and to pursue new 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 Company has conducted an initial review regarding the effect the
upcoming Year 2000 will have on its computer applications. This review included
key financial, information and operational systems. A plan is being developed
to insure that the Company's systems and software infrastructure are Year 2000
compliant. Given the relatively small size of the Company's systems and the
predominantly new hardware, software and operating systems, the Company does not
anticipate the incremental costs, if any, of making the required systems
modifications will have a material impact on the Company's results of operations
or financial condition. However, the conversion is an uncertainty and there can
be no assurance that unforeseen problems will not arise in connection with this
issue. In addition, the Company is unable to control whether its current and
future corporate partners are Year 2000 compliant.
The foregoing risks reflect the Company's stage of development and the nature of
the Company's industry. The Company is also subject to 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, all of which may have a material adverse effect
on the Company's business.
11
CIMA LABS INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has instituted an opposition proceeding in the European
Patent Office, and has requested that the United States Patent and Trademark
Office declare an interference proceeding, each of which has been reported in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1997.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 3, 1998, the Company held its annual meeting of stockholders,
at which meeting the stockholders took the following actions:
(i) elected John M. Siebert, Ph.D., Terrence W. Glarner, Steven B.
Ratoff and Joseph R. Robinson, Ph.D., to serve as directors of the
Company for the ensuing year and until their successors are elected;
(ii) approved the amendment and restatement of the Company's Equity
Incentive Plan to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 400,000 shares to
2,400,000; and
(iii) ratified the selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending December 31, 1998.
Such actions were taken by the following votes:
VOTES
-----
VOTES FOR WITHHELD
--------- ---------
Election of Directors:
John M. Siebert, Ph.D. 7,497,467 287,727
Terrence W. Glarner 7,501,267 283,927
Steven B. Ratoff 7,501,367 283,827
Joseph R. Robinson, Ph.D. 4,418,642 3,366,552
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
Amendment of Stock Plan 5,788,542 1,981,609 15,043
Ratification of Auditors 7,758,044 6,800 20,350
ITEM 5. OTHER INFORMATION.
None
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Item Description
---- -----------
10.11 Equity Incentive Plan, as amended and restated.
27 Financial Data Schedule.
13
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: August 12, 1998 By: /s/ John M. Siebert
---------------------- -------------------------------------
John M. Siebert
President and Chief Executive Officer
Date: August 12, 1998 By: /s/ Keith P. Salenger
---------------------- -------------------------------------
Keith P. Salenger
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14
EXHIBIT INDEX
NO. OF EXHIBIT DESCRIPTION
-------------- -----------
10.11 Equity Incentive Plan, as amended and restated.
27 Financial Data Schedule.
15