10-Q

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 September 30, 1999

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
(State or other jurisdiction
of incorporation or organization) 41-1569769
(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	9,618,291 Shares
(Class)	(Outstanding at September 30, 1999)

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 September 30, 1999 and December 31, 1998	3
Condensed Statements of Operations for the three-month and nine-month periods ended September 30, 1999 and 1998	4
Condensed Statements of Cash Flows for the nine-month periods ended September 30, 1999 and 1998	5
Notes to Condensed Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	7
Item 3. Quantitative and Qualitative Disclosures About Market Risk	12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	13
Item 2. Changes in Securities and Use of Proceeds	13
Item 3. Defaults upon Senior Securities	13
Item 4. Submission of Matters to a Vote of Security Holders	13
Item 5. Other Information	13
Item 6. Exhibits and Reports on Form 8-K	13
SIGNATURES	14
EXHIBIT INDEX	15

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CIMA LABS INC.

Condensed Balance Sheets (Unaudited)

	September 30, 1999			December 31, 1998(1)
				(Note)
Assets
Cash and cash equivalents	$	1,227,736		$	2,722,590
Accounts receivable		1,662,133			1,654,796
Inventories, net		2,031,042			479,045
Prepaid expenses		107,083			79,866
Total current assets		5,027,994			4,936,297
Property, plant and equipment:
Construction in progress		1,377,925			72,204
Equipment		9,314,867			9,314,867
Leasehold improvements		4,757,169			4,757,169
Furniture and fixtures		604,204			604,204
		16,054,165			14,748,444
Less accumulated depreciation		(6,549,257	)		(5,318,107	)
		9,504,908			9,430,337
Other assets:
Lease deposits		315,100			345,146
Patents and trademarks, net		157,953			204,648
Total other assets		473,053			549,794
Total assets	$	15,005,955		$	14,916,428
Liabilities And Stockholders' Equity
Current liabilities:
Accounts payable	$	1,994,564		$	670,597
Accrued expenses		939,480			835,043
Advance royalties		177,709			459,105
Notes payable-line of credit		335,377			—
Current portion of lease obligation		69,805			64,998
Total current liabilities		3,516,935			2,029,743
Lease obligations		178,174			231,145
Total liabilities		3,695,109			2,260,888
Stockholders' equity:
Convertible Preferred Stock, $0.01 par value:
Authorized shares—5,000,000; issued and outstanding shares—none
Common Stock, $0.01 par value:
Authorized shares—20,000,000; issued and outstanding shares:
9,618,291-September 30, 1999; 9,610,394-December 31, 1998		96,183			96,104
Additional paid-in capital		57,294,603			57,274,274
Accumulated losses		(46,079,940	)		(44,714,838	)
Total stockholders' equity		11,310,846			12,655,540
Total liabilities and stockholders' equity	$	15,005,955		$	14,916,428

(1)

The balance sheet at December 31, 1998 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.

CIMA LABS INC.

Condensed Statements of Income (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	1999			1998			1999			1998
Revenues:
Net sales	$	2,030,918		$	719,695		$	3,464,780		$	877,387
R&D fees and licensing revenue		2,005,000			1,587,669			5,387,605			3,905,594
		4,035,918			2,307,364			8,852,385			4,782,981
Costs and Expenses:
Cost of goods sold		2,185,282			1,166,857			4,484,961			1,804,379
Research and product development		1,290,945			1,030,371			3,560,977			3,378,147
Selling, general and administrative		738,788			793,869			2,213,931			2,494,811
		4,215,015			2,991,097			10,259,869			7,677,337
Other Income (Expense):
Interest income (expense), net		(4,308	)		29,471			23,680			121,770
Other income (expense), net		2,261			(1,086	)		18,702			(204	)
		(2,047	)		28,385			42,382			121,566
Net Gain (Loss):	$	(181,144	)	$	(655,348	)	$	(1,365,102	)	$	(2,772,790	)
Net loss per share:
Basic and diluted	$	(0.02	)	$	(0.07	)	$	(0.14	)	$	(0.29	)
Weighted Average Shares Outstanding:
Basic and diluted		9,614,972			9,610,394			9,611,937			9,610,006

See notes to financial statements.

CIMA LABS INC.

Condensed Statements of Cash Flows (Unaudited)

	Nine Months Ended September 30,
	1999			1998
Operating Activities
Net loss	$	(1,365,102	)	$	(2,772,792	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,310,124			1,251,746
Gain on sale of property, plant and equipment		—			4,734
Changes in operating assets and liabilities:
Accounts receivable		(7,337	)		495,001
Inventories		(1,551,995	)		(8,078	)
Other current assets		(27,217	)		(5,428	)
Accounts payable		988,589			235,249
Accrued expenses		439,813			208,798
Advance royalties		(281,396	)		(180,000	)
Net cash used in operating activities		(494,521	)		(770,770	)
Investing Activities
Purchases of property, plant and equipment		(1,323,839	)		(436,113	)
Proceeds from sale of property, plant & equipment		—			33,000
Proceeds of maturities of short-term investments		—			3,277,297
Patents and trademarks		(32,280	)		(66,581	)
Net cash provided by (used in) investing activities		(1,356,119	)		2,807,605
Financing Activities
Proceeds from issuance of common stock		20,409			5,700
Proceeds from line of credit		1,777,000			—
Repayment of line of credit		(1,441,623	)		—
Net Cash Used In Financing Activities		355,786			5,700
Increase (decrease) in cash and cash equivalents		(1,494,854	)		2,042,535
Cash and cash equivalents at beginning of period		2,722,590			1,145,760
Cash and cash equivalents at end of period	$	1,227,736		$	3,188,295
Supplemental schedule of noncash investing and financing activities:
Acquisition of equipment pursuant to equipment loan and capital lease obligation					245,876

See notes to condensed financial statements.

CIMA LABS INC.

Notes to Condensed Financial Statements

September 30, 1999 (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 nine-month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. 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, 1998.

Note B—Inventories

    Inventories are stated at the lower of cost (first in, first out) or fair market value.

	September 30, 1999		December 31, 1998
Raw materials	$	1,346,538	$	479,045
Work in process		2,849		—
Finished products		681,655		—
	$	2,031,042	$	479,045

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.

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 anticipated regulatory approvals and launches of CIMA's products by its partners, the ability to achieve the desired levels of production requested by CIMA's partners, the market acceptance of the Company's OraSolv® technology, and the successful performance under the collaborative arrangements with the Company's partners. CIMA's results of operations and financial position could also be affected by several factors that may cause actual results to differ materially including, but not limited to, CIMA's reliance on collaborative partners, the growth of the antimigraine market, the success of the Company in scale-up and commercializing its current development programs, the Company's ability to raise additional capital to fund its operation, and future capital requirements. These and other factors are more fully discussed in "Business Risks" below.

General

    CIMA LABS INC. ("CIMA" or the "Company") was founded in 1986. The Company began its focus on pharmaceutical drug delivery in September 1992, when patent claims were allowed on the Company's OraSolv® technology. Following the issuance of the OraSolv patent, CIMA emerged as a drug delivery company offering technologies in the fast-dissolve and transmucosal areas. OraSolv and DuraSolv™, the Company's premier fast-dissolve technologies, are oral dosage formulations incorporating microencapsulated active ingredients into tablets which dissolve quickly in the mouth without chewing or water which effectively mask the taste of the medication being delivered. OraSolv's and DuraSolv'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 dosage form. In addition, OraSolv and DuraSolv can provide more accurate administration of doses than liquid or suspension formulations as no measuring is required. Additional drug delivery technologies in the transmucosal area are also under development by the Company.

    In early-1997 the Company recorded its first commercial sales using the Company's OraSolv technology. In 1998, another over-the-counter product for a second partner was launched using the OraSolv technology. In the second quarter this year, AstraZeneca received regulatory approval from the Swedish regulatory authority for the OraSolv fast-dissolving version of its Zomig® antimigraine medication, Zomig rapimelt. This was the first regulatory approval of a prescription product in the OraSolv dosage form. As of October 11, 1999 the majority of the European Union countries have recognized this approval. In the third quarter 1999, products in the OraSolv dosage form were sold to three of our partners. It is anticipated that a second prescription product will be launched in the second half of the Year 2000.

    Prior to emerging as a drug delivery company, the Company's revenues had been from sales using the Company's AutoLution (a liquid effervescent) technology, license fees paid by corporate partners in consideration of the transfer of rights under collaborative agreements, and product development fees paid by corporate partners to fund the Company's research efforts for products developed under such agreements. Approximately 34% of the Company's lifetime revenues through September, 1999 have been generated from development work and sales of AutoLution products. It is expected that this figure will be closer to 30% by the end of calendar Year 1999, as the Company does not anticipate that it will manufacture liquid effervescent products, and has not recognized any revenue from such products since 1995. Since 1995, approximately $22,500,000 of revenue has been generated primarily from three major sources: product development fees (approximately 43% of the total) for work primarily related to OraSolv products, and to a lesser extent sales, although expected to increase more rapidly, (approximately 32%) related to OraSolv products, and license and milestone fees (approximately 24%) related to OraSolv and DuraSolv products.

    In addition to revenue from the above sources, 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 $16,400,000 and $12,000,000 from the Company's July 1994 initial public offering and May 1996 public offering of its Common Stock, respectively. At September 30, 1999 the Company had 9,618,291 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 and DuraSolv products, and products based on such new technologies to be marketed by these corporate partners. The Company is highly dependent upon the efforts of the corporate partners to successfully market OraSolv and DuraSolv 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 sales revenues could vary materially from quarter to quarter depending on which of such products, if any, are then being marketed.

    The Company expects to be earnings neutral for the remainder 1999. Beginning in the Year 2000, the Company anticipates that it will enter a profit-sustaining period related to operations. It is expected that sales will continue to increase as it is anticipated that two of the Company's partners will be launching their prescription products in the OraSolv dosage form. AstraZeneca is first expected to launch a fast-dissolving version of Zomig in European countries and later, after FDA approval, in the United States and Organon is also expected to launch a fast-dissolving version of one of their products late in the Year 2000. It is also expected that other revenues, which consist of product development fees, milestone payments, and licensing revenues will continue to meet or exceed the figures generated in the first nine-months of 1999. As the Company has geared up its production efforts, CIMA has hired additional personnel to meet production demands. Manufacturing infrastructure fixed costs however should not need to increase materially as there is production capacity to meet short-term production needs. Research and development expenses are expected to show a minimal increase as the Company continues investigating new coating and drug delivery technologies, including sublingual systems, and to support our partners' development projects. At September 30, 1999, the Company had accumulated net losses of approximately $46,100,000.

    The Company has substantially completed the assessment of the impact that the Year 2000 date conversion may have on its internal systems and software, including information technology ("IT") and non-IT, or embedded technology systems. The Company believes that its risks relating to Year 2000 issues in its systems to be very low, as its IT systems are relatively small and predominately new and its software consists entirely of "off the shelf" packages for which Year 2000 compliant up-grades are available and have already been implemented. There is however additional testing that is currently underway to ensure that there are no Year 2000 issues with the embedded systems in the Company's production and research and development equipment. The testing has indicated that there are not any issues that can not be resolved with a minimum amount of expenditure. This testing was completed at the end of the third quarter 1999. If there were unanticipated issues that were to arise relating to Year 2000, it could have a negative effect to the Company's ability to achieve the desired level of production requested by its partners.

    The Company has designated an individual to oversee Year 2000 compliance. It was their responsibility, by the end of the first half of 1999, to ensure that all software packages have been converted or replaced, if necessary, to be free of Year 2000 problems. This task has been completed. The Company has spent, to date, approximately $22,000 on software upgrades and expects the total upgrades to be less than $50,000.

    The Company is substantially complete in replacing or reallocating hardware that may present Year 2000 concerns, and estimates the total cost of any such replacement to be less than $20,000. It has also made a decision not to replace some embedded systems where the date is not a critical issue. In these instances there may be a need to revalidate those pieces of equipment. A review performed by an outside consultant has indicated that the risks related to the Company's internal systems is immaterial as far as Year 2000 compliance is concerned.

    The Company is still in the process of determining if its major suppliers and corporate partners have appropriate plans to remediate Year 2000 issues. To date, none of the parties have indicated significant concerns about their ability to do so. However, a substantial negative impact of Year 2000 on one of the Company's few large major suppliers or corporate partners that would affect their ability to do business could have a material adverse effect on the operations and financial condition of the Company.

Results of Operations

Three Months And Nine Months Ended September 30, 1999 and 1998

    The Company's results of operations for the three- and nine-month periods ended September 30, 1999 reflects the emphasis and progress of developing OraSolv products for our corporate partners and converting them into product sales. Total revenues increased to $4,036,000 and $8,852,000 in the three-and nine-month periods ended September 30, 1999, respectively, from $2,307,000 and $4,783,000 in the three- and nine-month periods ended June 30, 1998. Sales were $2,031,000 for the three-month period ended September 30, 1999, as compared to $720,000 for the same period in 1998. The majority of these sales, for both periods, represent sales to Novartis Consumer Health, Inc. of Triaminic® Softchews® in the OraSolv dosage form. In 1999, these sales are supporting the national launch which occurred in this quarter, and in 1998 the sales supported a regional launch. Also included in the third quarter 1999 sales figure are initial sales of Zomig® rapimelt in the OraSolv dosage form to support the anticipated launch in the European Community. Sales were $3,465,000 for the nine-month period ended September 30, 1999, as compared to $877,000 for the same period in 1998. Other revenues, which consist primarily of product development fees and licensing and milestone revenues, increased to $2,005,000 and $5,387,000 in the three-and nine-month periods ended September 30, 1999, respectively, from $1,587,000 and $3,906,000 in the three- and nine-month periods ended September 30, 1998. In 1999, the majority of these revenues were generated by two prescription product collaborations, one each with AstraZeneca and Organon, and the Novartis over-the-counter cough, cold product, Triaminic Softchews. Revenues have increased in 1999, as the projects continue to progress. The financial results include milestone payments received related to this progress.

    Other revenues reflect the signing of license option and development agreements with multinational pharmaceutical companies that provide for licensing fees, milestone payments, manufacturing fees and royalty payments. So long as the Company has relatively few agreements with corporate partners, these revenues and fees will tend to fluctuate on a quarter-to-quarter basis.

    Cost of goods sold increased to $2,185,000 and $4,485,000 in the three-and nine-month periods ended September 30, 1999 respectively, from $1,167,000 and $1,804,000 in the three- and nine-month periods ended September 30, 1998. The increase in 1999 costs is primarily attributable to increased production. The manufacturing facility is not running at full capacity, therefore resulting in cost of sales exceeding sales due to the under-absorbed overhead. Research and development expenses were $1,291,000 for the three-months ended September 30, 1999, as compared to $1,030,000 for the same period in 1998. Research and development expenses increased in the third quarter of 1999 due to a concerted effort relating to the internal development of coated actives for the manufacture of OraSolv products. For the nine-month period ended September 30, 1999 research and development expenses were $3,561,000 compared to $3,378,000 for the same period ended September 30, 1998. Research and development expenses have shown a minimum increase as headcount has increased to support partners' projects. Selling, general and administrative expenses decreased to $739,000 and $2,214,000 in the three- and nine-month periods ended September 30, 1999, respectively, from $794,000 and $2,495,000 for the same periods in 1998, respectively. This decrease was primarily due to the reduction in legal expenses, outside consulting, and the vacancy for the Vice President of Business Development position. Other income (expense) decreased to ($2,000) and $42,000 in the three-and nine-month periods ended September 30, 1999, respectively, from $28,000 and $122,000 for the same periods in 1998, respectively. Other income is comprised mainly of interest income which has decreased as it is dependent on the cash position of the Company. For the three-months ended September 30, 1999 the expense figure includes the closing fee, and the interest expense for the revolving line of credit that the Company secured and utilized during that period.

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 product development, license and milestone fees, and sales. Through September 30, 1999, the Company had received net offering proceeds from such private and public sales of approximately $57,300,000 and had net sales from manufacturing and supply agreements of approximately $20,940,000 and other revenues that include licensing revenue, product development and milestone fees of $19,160,000. Among other things, these funds were used to purchase approximately $16,500,000 of capital equipment, including approximately $7,500,000 in the last two quarters of 1994 in connection with completing the Company's manufacturing facility, and approximately $1,000,000 in the third quarter of 1999 primarily for the coating facility being built at the Eden Prairie facility.

    On July 14, 1999, the Company entered into a secured revolving line of credit agreement with Wells Fargo Business Credit, Inc., (WFBCI). The credit agreement is for $2,000,000, and provides funds primarily for working capital purposes. The Company has utilized this facility during the third quarter 1999, and anticipates that it may continue to draw upon this facility for the remainder of the year. It should be noted that the Company has informed WFBCI that it is in default of the covenant which limits the Company on its unfinanced capital expenditures. It too should be noted that the Company has received documentation from WFBCI that they waive the default.

    Cash and cash equivalents, net of borrowings from the credit facility were approximately $892,000 at September 30, 1999. This is an increase of $174,000 from the June 30, 1999 balance, and a decrease of $1,830,000 from $2,723,000 at the period ended December 31, 1998. The majority of the decrease can be attributable to the increase in inventory of $1,552,000 to support the production needs of our partners.

    The Company expects that its cash position will continue to improve during the remainder of the year as CIMA generates cash from operations. Satisfactory inventory levels have already been established to support the two anticipated product launches, by its corporate partners Novartis Consumer Health and AstraZeneca. The Company expects its cash flow from these sales, continued product development and milestone fees, and licensing revenues to exceed expenditures for the remainder of the year, and into Year 2000. The Company believes that its currently available funds, together with the bank line of credit, and revenues from operations should be sufficient to meet its short-term working capital needs.

    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, acceptance of orally disintegrating tablets as a dosage form, and receipt of revenues from the collaborative agreements. Based on current projections from our corporate partners, the Company will need to expand its production capacity by the Year 2001. Funds will need to be committed prior to that time to secure the capital equipment necessary to meet the anticipated production requirements. The Company is currently in negotiations with its corporate partners to secure the necessary funds to meet its anticipated needs. As an alternative, the Company may need to raise additional funds through public or private financings, including equity financing which may be dilutive to shareholders. 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 September 30, 1999. At December 31, 1998, the net operating losses available to offset taxable income were approximately $45,700,000. Because the Company has experienced ownership changes, pursuant to Internal Revenue Code regulations, future utilization of the operating loss carry forwards will be limited in any one fiscal year. The carry forwards expire beginning in 2001. As a result of the annual limitation, a portion of these carry forwards may expire before ultimately becoming available to reduce future potential federal income tax liabilities.

Business Risks

    The Company began commercial production of its first product in the Company's OraSolv dosage form in 1997 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 net losses of $46,100,000 from inception through September 30, 1999. Losses have resulted principally from costs incurred in research and development of the Company's technologies, supporting the manufacturing facility, and from general and administrative costs. These costs have exceeded the Company's revenues. The Company expects that it will be able to generate sufficient product sales to be profitable beginning in the Year 2000. However, there can be no assurance that the Company will ever generate substantial revenue or achieve profitability.

    The Company believes that its currently available funds, together with the line of credit, product development and milestone fees, license and sales revenue anticipated to be received in the future, should be sufficient to meet its needs through 1999. After 1999, the Company may need to raise additional funds to expand production capacity to meet corporate partners anticipated needs. The Company is considering numerous types of financing. These include negotiating with its corporate partners to secure the necessary funds. Other alternatives include public or private financing, including equity financing which may be dilutive to shareholders, debt or equity financing with a potential or present corporate partners and/or expanding the current line of credit. 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 is dependent upon its ability to enter into and perform under collaborative arrangements with pharmaceutical companies for the development and commercialization of its products and technologies. 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 Company's technologies as an alternative to conventional oral dosage forms. The Company expects that products using its technologies will be priced slightly higher than conventional swallow or chewable tablets. Although the Company believes that its consumer research, and the launch of some fast-dissolve products has been encouraging, there can be no assurance that market acceptance for the Company's OraSolv products and/or its new drug delivery technologies 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 OraSolv products. Two of the Company's partners launched products using the OraSolv dosage form in 1999. The Company has sufficient capacity to meet these demands. However, to achieve future desired levels of production, the Company may 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 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 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 technology in their product, of being difficult to manufacture on a large scale or of being uneconomical to market.

    The fast-dissolve drug delivery field is fairly new and rapidly evolving. Within the past eighteen months the Company's two major competitors (Fuisz Technologies Ltd., and RP Scherer Corporation) have been acquired by two larger companies. It is unclear how these acquisitions will impact the Company, but the competitors most likely have additional resources to develop their technologies. It can be expected that the fast-dissolve drug delivery field will continue to undergo improvements and changes, and the Company may be at a competitive disadvantage to react to these changes as many of its competitors, or any new competitors will have greater financial resources. There can be no assurance that these competitors will not succeed in developing technologies and products that are more effective than any which are developed by the Company or which could render the Company's technologies and products non-competitive or that any technology developed by the Company will be preferred by consumers to any existing or newly developed technologies.

    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 regulatory review process, 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.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company's operations are not currently subject to market risks for interest rates, foreign currency exchange rates, commodity prices or other market price risks of a material nature.

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, 1998.

Item 2.  Changes in Securities.

    None

Item 3.  Defaults upon Senior Securities.

    None

Item 4.  Submission of Matters to a Vote of Security Holders.

    None

Item 5.  Other Information.

    None

Item 6.  Exhibits and Reports on Form 8-K.

    (a)  Exhibits

Item	Description
10.18	Credit and Security Agreement dated July 14, 1999, between Wells Fargo Business Credit, Inc., and the Company.
27	Financial Data Schedule.

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: November 15, 1999 /s/ JOHN M. SIEBERT John M. Siebert
President, Chief Executive and
acting Chief Financial Officer
(Principal Financial and Accounting Officer)

EXHIBIT INDEX

No. of Exhibit	Description
10.18	Credit and Security Agreement dated July 14, 1999, between Wells Fargo Business Credit, Inc., and the Company.
27	Financial Data Schedule.

QuickLinks

EX-10.18

CREDIT AND SECURITY AGREEMENT

    Dated as of July 14, 1999

    CIMA LABS, INC., a Delaware corporation (the "Borrower"), and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby agree as follows:

ARTICLE I

Definitions

    Section 1.1  Definitions.  For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

    "Accounts" means the aggregate unpaid obligations of customers and other account debtors to the Borrower arising out of the sale or lease of goods or rendition of services by the Borrower on an open account or deferred payment basis, whether now existing or hereafter arising.

    "Advance" has the meaning given in Section 2.1.

    "Book Net Income" or "Book Net Loss" means the Borrower's year-to-date net income or loss, as the case may be, determined in accordance with GAAP except excluding extraordinary items.

    "Borrowing Base" means, at any time and subject to change from time to time in the Lender's sole discretion, the lesser of:

(a)

the Maximum Line; or



(b)

80% of Eligible Accounts.

    "Collateral" has the meaning given in Section 3.1.

    "Default Rate" means an annual rate equal to 3% over the Floating Rate, which rate shall change when and as the Floating Rate changes.

    "Disclosure" means that certain Disclosure dated of even date herewith.

    "Eligible Accounts" means all unpaid Accounts, net of any credits, except the following shall not in any event be deemed Eligible Accounts:

    (1) That portion of Accounts over 90 days past invoice date;

    (2) That portion of Accounts that are disputed or subject to a claim of offset or a contra account;

    (3) That portion of Accounts not yet earned by final delivery of goods or rendition of services, as applicable, by the Borrower to the customer;

    (4) Accounts owed by any unit of government, whether foreign or domestic (provided, however, that there shall be included in Eligible Accounts that portion of Accounts owed by such units of government for which the Borrower has provided evidence satisfactory to the Lender that (A) the Lender has a first priority perfected security interest and (B) such Accounts may be enforced by the Lender directly against such unit of government under all applicable laws);

    (5) Accounts owed by an account debtor located outside the United States which are not backed by a bank letter of credit assigned to the Lender, in the possession of the Lender and acceptable to the Lender in all respects, in its sole discretion;

    (6) Accounts owed by an account debtor that is the subject of bankruptcy proceedings, has gone out of business or has poor credit;

    (7) Accounts owed by a shareholder, subsidiary, affiliate, officer or employee of the Borrower;

    (8) Accounts not subject to a duly perfected security interest in favor of the Lender or which are subject to any lien, security interest or claim in favor of any Person other than the Lender;

    (9) That portion of Accounts that have been restructured, extended, amended or modified;

    (10) That portion of Accounts that constitutes finance charges, service charges or sales or excise taxes;

    (11) Accounts owed by an account debtor, regardless of whether otherwise eligible, if 10% or more of the total amount due under Accounts from such debtor is ineligible under clauses (1), (2) or (9) above; and

    (12) Accounts, or portions thereof, otherwise deemed ineligible by the Lender in its sole discretion.

    "Event of Default" has the meaning specified in Section 7.1.

    "Floating Rate" means an annual rate equal to the sum of the Prime Rate plus two percent (2.0%) which annual rate shall change when and as the Prime Rate changes.

    "GAAP" means generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described in Section 5.2.

    "Guarantor" means any person executing any liquidation support agreement in favor of the Lenders.

    "Inventory" means all of the Borrower's inventory, as such term is defined in the UCC, whether now owned or hereafter acquired.

    "Loan Documents" means this Agreement, the Note, the Disclosure, the Security Documents and any and all other related instruments, agreements and documents executed by the Borrower, any Guarantor or any other party and delivered to the Lender.

    "Maximum Line" means $2,000,000.

    "Note" means the Borrower's revolving promissory note, payable to the order of the Lender in form and content satisfactory to Lender.

    "Obligations" means each and every debt, liability and obligation of every type and description which the Borrower may now or at any time hereafter owe to the Lender, including all indebtedness arising under this Agreement, the Note or any other loan or credit agreement or guaranty between the Borrower and the Lender, whether now in effect or hereafter entered into.

    "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

    "Prime Rate" means the rate of interest publicly announced from time to time by Wells Fargo Bank, N.A. as its 'prime rate' or, if such bank ceases to announce a rate so designated, any similar successor rate designated by the Lender.

    "Security Documents" means the Collateral Account Agreement and the Lockbox Agreement, each of even date herewith and by and among the Borrower, the Lender and Norwest Bank Minnesota, National Association, and any and all other documents, instruments and agreements executed by the Borrower or any other party and delivered to the Lender as amended from time to time, as security for the Obligations.

    "Security Interest" has the meaning given in Section 3.1.

    "Termination Date" has the meaning given in Section 2.4.

    "UCC" means the Uniform Commercial Code as in effect from time to time in the State of Minnesota.

ARTICLE II

Amount and Terms of the Credit Facility

    Section 2.1  Revolving Advances.  The Lender may, in its sole discretion, make advances to the Borrower from time to time from the date this Agreement is signed and delivered to the Termination Date, on the terms and subject to the conditions herein set forth (each an "Advance"). The Lender shall not consider any request for an Advance if, after giving effect to such requested Advance, the sum of the outstanding and unpaid Advances would exceed the Borrowing Base. The Borrower's obligation to pay the Advances shall be evidenced by the Note. Within the limits set forth in this Section 2.1, the Borrower may request Advances, prepay, and request additional Advances. The Borrower shall make each request for an Advance to the Lender before 11:00 a.m. (Minneapolis time) of the day of the requested Advance. Requests may be made in writing or by telephone.

    Section 2.2  Interest; Default Interest.

    (a)  Revolving Note.  Except as set forth in Sections 2.2(b) and 2.2(c) the outstanding principal balance of the Advances shall bear interest at the Floating Rate. All interest shall be payable monthly in arrears on the first day of the month and on demand.

    (b)  Minimum Interest Charge.  Notwithstanding the interest payable pursuant to Section 2.2(a) and 2.2(c) and subject to Section 2.2(d), the Borrower shall pay to the Lender interest of not less than $7,166 per month during the term of this Agreement (prorated for less than a full month) and on the first day of each month the Borrower shall pay any deficiency between such minimum interest charge and the amount of interest otherwise calculated under Sections 2.2(a) and 2.2(c).

    (c)  Default Interest Rate.  From the first day of any month during which Borrower is not in compliance with its agreements set forth in this Agreement or the Note, in the Lender's discretion and without waiving any of its other rights and remedies, the outstanding principal balance of the Advances shall bear interest at the Default Rate.

    (d)  Unused Fee/Deactivation.  The Borrower may from time to time (but no more than once during any 30-day period) by giving notice to the Lender in the same manner as set forth in Section 2.1, deactivate the revolving line of credit; and during each month thereafter in which the balance of the Advances is Zero for each day of such period, the Borrower shall pay a monthly unused fee of $1,500 (prorated for less than a full month of this Agreement) on the first day of each calendar month in lieu of the minimum interest otherwise payable pursuant to Section 2.2(b). The Borrower may reactivate the revolving line of credit upon giving notice to the Lender in the same manner as set forth in Section 2.1; provided a collateral audit satisfactory to Lender has been performed within the previous 90 days.

    Section 2.3  Fees.

    (a)  Closing Fee.  The Borrower agrees to pay the Lender a closing fee of $15,000 upon the execution of this Agreement.

    (b)  Monitoring Fees.  The Borrower agrees to pay the Lender collateral monitoring fees for the expense of auditors (not to exceed the then current standard applicable rate, which on the date of this Agreement is $62.50 per hour per auditor, plus out-of-pocket expenses).

    Section 2.4  Discretionary Nature of Credit Facility; Automatic Renewal.  THE LENDER MAY AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE AN ADVANCE AND/OR DEMAND PAYMENT OF THE ADVANCES AND TERMINATE THIS AGREEMENT WHETHER BORROWER IS OR IS NOT IN COMPLIANCE WITH THIS AGREEMENT. The Lender need not show that an adverse change has occurred in the Borrower's condition, financial or otherwise, in order to refuse to make any requested Advance or to demand payment of the Advances. Unless terminated by the Lender at any time or by the Borrower pursuant to Section 2.5, this Agreement shall remain in effect until the one year anniversary of the date of this Agreement and, thereafter, shall automatically renew for successive one year periods. Each such anniversary date is herein referred to as a "Termination Date".

    Section 2.5  Termination by Borrower.

    (a)  Termination by Borrower.  The Borrower may terminate this Agreement at any time subject to payment and performance of all Obligations, may obtain any release or termination of the Security Interest to which the Borrower is otherwise entitled by law by (1) giving at least 30 days' prior written notice to the Lender o the Borrower's intention to terminate this Agreement, and (2) paying the Lender a prepayment fee in accordance with Section 2.5 (b) if the Borrower terminates this Agreement effective as of any date other than a Termination Date.

    (b)  Prepayment Fee.  If the Borrower desires to terminate this Agreement as of a Termination Date but without giving at least 30 days' prior written notice thereof, or if the Borrower desires to terminate this Agreement as of any date other than a Termination Date upon giving at least 30 days' prior written notice to the Lender of the Borrower's intention to do so, Borrower shall pay to the Lender a prepayment fee of the greater of (i) prior to the first anniversary of this Agreement, 2% of the Maximum Line or following the first anniversary of this Agreement, 1% of the Maximum Line or (ii) the monthly Minimum Interest Charge pursuant to subsection 2.2(b) above multiplied by the number of months remaining in the term of this Agreement; provided that (i) no prepayment fee shall be due if the Borrower shall prepay the Obligations solely from cash flow generated from the Borrower's operations in the ordinary course and (ii) no prepayment fee shall be required if the prepayment is wholly made pursuant to a refinancing with another "Norwest" or "Wells Fargo" affiliated entity.

    Section 2.6  Mandatory Prepayment.  Without notice or demand, if the outstanding principal balance of the Advances shall at any time exceed the Borrowing Base, the Borrower shall immediately prepay the Advances to the extent necessary to eliminate such excess.

    Section 2.7  Advances Without Request.  The Borrower hereby authorizes the Lender, in its discretion, at any time or from time to time without the Borrower's request, to make Advances to pay accrued interest, fees, uncollected items that have been applied to the Obligations, and other Obligations due and payable from time to time.

    Section 2.8  Use of Proceeds.  The Borrower shall use the proceeds of Advances for ordinary working capital purposes.

ARTICLE III

Security Interest

    Section 3.1  Grant of Security Interest.  The Borrower hereby grants to the Lender a security interest (the "Security Interest") in the following collateral (the "Collateral"), as security for the payment and performance of the Obligations:

INVENTORY:  All inventory of Borrower, as such term is defined in the UCC, whether now owned or hereafter acquired, whether consisting of whole goods, spare parts or components, supplies or materials, whether acquired, held or furnished for sale, for lease or under service contracts or for manufacture or processing, and wherever located; and

ACCOUNTS AND OTHER RIGHTS TO PAYMENT:  Each and every right of Borrower to the payment of money, whether such right to payment now exists or hereafter arises, whether such right to payment arises out of a sale, lease or other disposition of goods or other property, out of a rendering of services, out of a loan, out of the overpayment of taxes or other liabilities, or otherwise arises under any contract or agreement, whether such right to payment is created, generated or earned by Borrower or by some other person who subsequently transfers such person's interest to Borrower, whether such right to payment is or is not already earned by performance, and howsoever such right to payment may be evidenced, together with all other rights and interests (including all liens and security interests) which Borrower may at any time have by law or agreement against any account debtor or other obligor obligated to make any such payment or against any property of such account debtor or other obligor; all including all of Borrower's rights to payment in the form of all present and future accounts contract rights, loans and obligations receivable, chattel papers, bonds, notes and other debt instruments, tax refunds and rights to payment in the nature of general intangibles; and

EQUIPMENT:  All of the Borrower's goods and equipment, as such term is defined in the UCC whether now or hereafter owned, including all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and recordkeeping equipment, parts, tools, supplies, and including specifically the goods described in any equipment schedule or list herewith or hereafter furnished to the Lender by the Borrower;

INVESTMENT PROPERTY:  All of the Borrower's investment property, as such term is defined in the UCC, including without limitation securities, securities accounts, securities entitlements, financial assets and certificates of deposit of the Borrower and all funds of the Borrower on deposit with and all property in the possession of the Lender or any depository institution, each whether now owned or hereafter acquired; and

GENERAL INTANGIBLES:  All of the Borrower's general intangibles, as such term is defined in the UCC, whether now owned or hereafter acquired, including all present and future contract rights, patents, patent applications, copyrights, trademarks, trade names, trade secrets, customer or supplier lists and contracts, manuals, operating instructions, permits, franchises, the right to use the Borrower's name, and the goodwill of the Borrower's business; and

PROCEEDS:  Together with all substitutions and replacements for and products of any of the foregoing property and together with proceeds of any and all of the foregoing property and, in the case of all tangible property, together with all accessions and together with (i) all accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in connection with any such tangible property, and (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such tangible property.

    Section 3.2  Notification of Account Debtors and Other Obligors.  The Lender may at any time after the occurrence of an Event of Default, or during any period when an Event of Default would occur through the passage of time, notify any account debtor or other person obligated to pay the amount due that such right to payment has been assigned or transferred to the Lender for the security and shall be paid directly to the Lender. The Borrower will join in giving such notice if the Lender so requests. At any such time after the occurrence of an Event of Default, or during any period when an Event of Default would occur through the passage of time, and after the occurrence of an Even of Default, or during any period when an Event of Default would occur through the passage of time, and after the Borrower of the Lender gives such notice to an account debtor or other obligor, the Lender may, but need not, as the Borrower's agent and attorney-in-fact, notify the United States Postal Service to change the address for delivery of the Borrower's mail to any address designated by the Lender, otherwise intercept the Borrower's mail, and receive, open and dispose of the Borrower's mail, applying all Collateral as permitted under this Agreement and holding all other mail for the Borrower's account or forwarding such mail to the Borrower's last known address.

    Section 3.3  Occupancy.

    (a) The Borrower hereby irrevocably grants to the Lender the right tot take possession of each premises where Borrower conducts its business and has any rights of possession (the "Premises") at any time after the occurrence and during the continuance of an Event of Default.

    (b) The Lender may use the Premises only to hold, process, manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of goods that are Collateral and for other purposes that the Lender in good faith considers related.

    (c) The Lender's right to hold the Premises shall terminate upon the earlier of payment in full of all Obligations, or final sale or disposition of all goods constituting Collateral and delivery of all such goods to purchasers.

    (d) The Lender shall not be obligated to pay or account for any rent or other compensation for the possession or use of any of the Premises; provided, however, that if the Lender does pay or account for any rent or other compensation for the possession or use of any of the Premises, the Borrower shall reimburse the Lender promptly for the full amount thereof.

    Section 3.4  License/Maintenance of Intellectual Property.  The Borrower hereby grants to the Lender a nonexclusive worldwide and royalty-free license to use or otherwise exploit all trademarks, franchises, trade names, copyrights and patents owned by or licensed to the Borrower for the purpose of selling, leasing or otherwise disposing of any or all Collateral following an Event of Default. The Borrower shall not sell, transfer, assign (by operation of law or otherwise), exchange, lease, license, allow to go abandoned or otherwise dispose of all or any portion of said intellectual property and shall maintain and protect all of such property in accordance with all applicable state, federal and foreign laws.

    Section 3.5  Filing a Copy.  A carbon, photographic, or other reproduction of this Agreement or of a financing statement signed by Borrower is sufficient as a financing statement.

ARTICLE IV

Conditions of Lending

    In view of the fact that Advances may be made in the sole discretion of the Lender, this Agreement does not set forth conditions precedent to Advances. The Lender will advise the Borrower of the Lender's documentation and other requirements before considering any Advance.

ARTICLE V

Representations and Warranties

    The Borrower represents and warrants to the Lender as follows:

    Section 5.1  Name; Locations; Tax ID No., Subsidiaries.  During its existence, the Borrower has done business solely under its corporate name as set forth herein and under such trade names and such other corporate names as disclosed to Lender in writing before this Agreement is signed and delivered. The address of Borrower's chief executive office and principal place of business and its federal tax identification number are set forth below its signature to this Agreement. All Inventory is located at the location or at one of the other locations disclosed to Lender in writing before this Agreement is signed and delivered. The Borrower has no subsidiaries except as disclosed to Lender in writing before this Agreement is signed and delivered.

    Section 5.2  Financial Condition; No Adverse Change.  Before this Agreement was signed and delivered, the Borrower furnished the lender certain of its unaudited financial statements certified by the Borrower. Those statements fairly present the Borrower's financial condition as the dates indicated therein and the results of its operations for the period ended March 31, 1999 and were prepared in accordance with generally accepted accounting principles. Since March 31, 1999, there has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower.

ARTICLE VI

Affirmative Covenants of the Borrower

    So long as the Advances or any other obligations shall remain unpaid, the Borrower will comply with the requirements in this Article, unless the Lender shall otherwise consent in writing.

    Section 6.1  Reporting Requirements.  The Borrower will deliver to the Lender each of the following in form and detail acceptable to the Lender:

    (a) as soon as available, and in any event within 120 days after the end of each fiscal year of the Borrower, the Borrower's audited financial statements prepared in accordance with GAAP;

    (b) as soon as available and in any event within 20 days after the end of each month, an unaudited/ internal balance sheet and statement of income and retained earnings of the Borrower as at the end of and for such month and for the year to date period then ended, prepared in accordance with GAAP, subject to reclassifications and year-end adjustments, together with a completed compliance certificate in the form attached hereto;

    (c) within 15 days after the end of each month, agings of the Borrower's accounts receivable, together with a certificate of ineligible accounts, and agings of the Borrower's accounts payable, each as of the end of such month;

    (d) as soon as available, and within fifteen (15) days of receipt thereof, a copy of the bank account statements of the Borrower from each bank with which Borrower maintains an account;

    (e) from time to time, with reasonable promptness, any and all receivables schedules, collection reports, deposit records, equipment schedules, copies of invoices to account debtors, shipment documents and delivery receipts for goods sold, and such other material, reports, records or information as the Lender may request;

    (f)  within seven (7) days of Borrower's payment of or deposit of taxes, including but not limited to payroll taxes, proof of such payment in form acceptable to the Lender;

    (g) at least thirty (30) days before the beginning of each of Borrower's fiscal years, projections of Borrower's monthly balance sheets and income statements for such fiscal year; and

    (h) immediately after the commencement thereof, notice in writing of all litigation and of all proceedings before any governmental or regulatory agency affecting the Borrower or which seek a monetary recovery against the Borrower in excess of $10,000.

    Section 6.2  Inspection.  Upon the Lender's request, the Borrower will permit any officer, employee, attorney, agent or accountant for the Lender to audit, review, make extracts from or copy any and all records of the Borrower (except for confidential information of Borrower's partners) and to inspect the Collateral at all times during ordinary business hours.

    Section 6.3  Account Verification.  The Borrower will at any time and from time to time upon request of the Lender send requests for verification of Accounts or notices of assignment to account debtors and other obligors. The Borrower authorizes the Lender to verify Accounts directly with account debtors or other obligors from time to time, including on a daily basis (and the Borrower understands the Lender intends to do so by telephone and/or in writing).

    Section 6.4  No Other Liens.  The Borrower will keep all Collateral free and clear of all security interests, liens and encumbrances except the Security Interest, purchase money security interests in equipment, and other security interests approved by the Lender in writing.

    Section 6.5  Insurance.  The Borrower will at all times keep all tangible collateral insured against risks of fire (including so-called extended coverage), theft, collision (for Collateral consisting of motor vehicles) and such other risks and in such amounts as the Lender may reasonably request, with a lender's loss payable clause in favor of Lender to the extent of its interest.

    Section 6.6  Lockbox; Collateral Account.  The Borrower has provided the Lender with agreements regarding a lockbox and a collateral account in connection with the collection of Accounts.

    Section 6.7  Minimum Book Net Income.  The Borrower will at all times maintain during each period described below, a Book Net Income (on an unconsolidated, Borrower-only basis), determined as of the end of each month on a year-to-date basis, of at least the amount set forth opposite such period (bracketed amounts indicate maximum book Net Loss):

Period	Minimum Book Net Income
May 31 through June 30, 1999	($2,271,000)
July 31 through November 30, 1999	($2,440,000)
December 31, 1999	($2,294,000)

    Lender shall set the Book Net Income covenant levels for subsequent periods based on Borrower's projections provided pursuant to Section 6.1(g).

    Section 6.8  No Sale or Transfer of Collateral and Other Assets.  The Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the stock of any subsidiary, (ii) all or substantial part of its assets, or (iii) any Collateral or any interest therein (whether in one transaction or in a series of transactions) to anyone other than the sale of Inventory in the ordinary course of business.

    Section 6.9  Place of Business; Name.  The Borrower will not change the location of its chief executive office or principal place of business from that disclosed pursuant to Section 5.1. The Borrower will not permit any tangible Collateral to be located in any state or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest. The Borrower will not change its name.

    Section 6.10  Maximum Unfinanced Capital Expenditures.  The Borrower will not expend or contract to expend more than $400,000 in the aggregate during 1999 for fixed assets, including Equipment, except for (i) capital expenditures financed through long term debt or (ii) capital expenditures for which the Borrower is reimbursed by its customers.

ARTICLE VII

Events of Default, Rights and Remedies

    Section 7.1  Events of Default.  An "Event of Default" as used herein shall mean any of the following:

    (a) Failure to pay the Note when demanded, and in this connection Borrower hereby waives presentment, notice of dishonor and protest;

    (b) A petition shall be filed by or against the Borrower under the United States Bankruptcy Code naming the Borrower of such Guarantor as debtor;

    (c) Default in the performance, or breach, of any covenant or agreement of the Borrower, or any other related party contained in this Agreement or any other Loan Document.

    Section 7.2  Rights and Remedies.  As provided in Section 2.4, the Lender may, at any time and for any reason, refuse to make any requested Advance or demand payment of the Advances. Upon such demand or upon the occurrence of an Event of Default or at any time thereafter, the lender may exercise any or all of the following rights and remedies:

    (a) The Lender may exercise and enforce any and all rights and remedies available upon default to a secured party under the UCC, including the right to take possession of Collateral, or any evidence thereof, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which the Borrower hereby expressly waives) and the right to sell, lease or otherwise dispose of any or all of the Collateral, and in connection therewith, the Borrower will on demand assemble the Collateral and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties;

    (b) the Lender may exercise any other rights and remedies available to it by law or agreement.

    The remedies provided hereunder are cumulative.

    Section 7.3  Certain Notices.  If notice to the Borrower of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 8.1) at least 10 calendar days before the date of intended disposition or other action.

ARTICLE VIII

Miscellaneous

    Section 8.1  Addresses for Notices, Etc.  Except as otherwise expressly provided herein, all notices, requests, demands and other communications provided for hereunder shall be in writing and shall be (a) personally delivered, (b) sent by first class United States mail, (c) sent by overnight courier of national reputation, or (d) transmitted by telecopy, in each case addressed or telecopied to the party to whom notice is being given at its address or telecopy number as set forth below its signature to this Agreement.

    Section 8.2  Costs and Expenses.  The Borrower agrees to pay on demand all costs and expenses (including reasonable legal fees) incurred by the Lender in connection with the Loan Documents, and any other document or agreement related thereto, and the transactions contemplated hereby, including wire transfer and ACH charges, the cost of credit reports, overadvance fees, the expense of any auditors (not to exceed the then current standard applicable rate, which on the date of this Agreement is $62.50 per hour per auditor, plus out of pocket expenses), and fees and expenses in enforcing this Agreement.

    Section 8.3  Indemnity.  In addition to the payment of expenses pursuant to Section 8.2, the Borrower agrees to indemnify, defend and hold harmless the Lender, and any of its participants, parent corporations, subsidiary corporations, affiliated corporations, successor corporations, and all present and future officers, directors, employees, attorneys and agents of the foregoing (the "Indemnitees") from and against any of the following (collectively, "Indemnified Liabilities":

    (1) any and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Agreement and the other Loan Documents or the making of the Advances;

    (2) any and all liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel) in connection with any investigative, administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party thereto, which may be imposed on, incurred by or asserted against any such Indemnitee, in any manner related to or arising out of or in connection with the making of the Advances, this Agreement and the other Loan Documents or the use or intended use of the proceeds of the Advances; and

    (3) any claim, loss or damage to which any Indemnitee may be subjected as a result of any violation of any federal, state, local or other governmental statue, regulation, law, or ordinance dealing with the protection of human health and the environment, in any manner related to or arising out of or in connection with the making of the Advances, this Agreement and the other Loan Documents or the use or intended use of the proceeds of the Advances.

    If any investigative, judicial or administrative proceeding arising from any of the foregoing is brought against any Indemnitee, the Borrower, or counsel designated by the Borrower and satisfactory to the Indemnitee, will resist and defend such action, suit or proceeding to the extent and in the manner directed by the Indemnitee. Each Indemnitee will use its best efforts to cooperate in the defense of any such action, suit or proceeding. If the foregoing undertaking to indemnify, defend and hold harmless may be held to be unenforceable because it violates any law or public policy, the Borrower shall nevertheless make the maximum contribution to the payment and satisfaction of each of the Idemnified Liabilities which is permissible under applicable law. The Borrower's obligation under this Section 8.3 shall survive the termination of this Agreement and the discharge of the Borrower's other obligations hereunder.

    Section 8.4  Binding Effect; Assignment; Sharing of Information.  The Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights thereunder or any interest therein without the prior written consent of the Lender. Without limitation of the Lender's right to share information regarding the Borrower and its Affiliates with Lender's participants, accountants, lawyers and other advisors, the Lender may share at any time with Norwest Corporation, and all direct and indirect subsidiaries of Norwest Corporation, any and all information the Lender may have in its possession regarding the Borrower and its Affiliates, and the Borrower waives any right of confidentiality it may have with respect to such sharing of information.

    Section 8.5  Governing Law; Jurisdiction Venue; Waiver of Jury Trial.  This Agreement and the Note shall be governed by and construed in accordance with the laws (other than conflict laws) of the State of Minnesota. Each party consents to the personal jurisdiction of the state and federal courts in the State of Minnesota in connection with any controversy related to this Agreement, waives any argument that venue in any such forum is not convenient and agrees that any litigation initiated by any of them in connection with this Agreement shall be venued in either the District Court of Hennepin County, Minnesota located in Minneapolis Minnesota, or the United States District court, District of Minnesota, Fourth Division. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.

[SIGNATURE PAGE FOLLOWS]

    IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date first above written.

WELLS FARGO BUSINESS CREDIT, INC.		CIMA LABS, INC.
By:	Michael J. Wolf Its Vice President	By:	Keith P. Salenger Its Vice President of Finance & CFO

Address:	Address:
Norwest Center	10000 Valley View Road
Sixth Street and Marquette Avenue	Eden Prairie, MN 55344
Minneapolis, Minnesota 55479-0152
	Telecopy No. (612) 947-8770
Telecopy No. (612) 341-2472	Federal Tax ID No. 41-1569769
Federal Tax ID No. 41-1712687

[Signature Page to Credit and Security Agreement]

COMPLIANCE CERTIFICATE

To:      Mike Guillou
            Wells Fargo Business Credit, Inc.

Date:

Subject:  CIMA LABS, INC.
                Financial Statements

    In accordance with our Credit and Security Agreement dated as of July   , 1999 (the 'Credit Agreement'), attached are the financial statements of CIMA LABS, INC. (the 'Borrower') as of and for               (the 'Reporting Date') and the year-to-date period then ended (the 'Current Financials'). All terms used in this certificate have the meanings given in the Credit Agreement.

    I certify that the Current Financials have been prepared in accordance with GAAP, subject to reclassification and year-end adjustments, and fairly present the Borrower's financial condition as of the date thereof.

Event of Default.  (Check one):

    / /    The undersigned does not have knowledge of the occurrence of a Default or Event of Default under the Credit Agreement.

    / /    The undersigned has knowledge of the occurrence of a Default or Event of Default under the Credit Agreement and attached hereto is a statement of the facts with respect to thereto.

Representation and Warranties.  (Check one):

    / /    The undersigned hereby reaffirms the representations and warranties as set forth in the Credit Agreement, each of which are true and correct as of the date hereof.

    / /    The undersigned hereby reaffirms the representations and warranties set forth in the Credit Agreement, each of which are true and correct as of the date hereof except as described in the statement attached hereto.

Financial Covenants.  I further hereby certify as follows:

1.

Minimum Book Net Income.  Pursuant to Section 6.7 of the Credit Agreement, as of the Reporting Date, the Borrower's Book Net Income was $    . Which / /  satisfies / /  does not satisfy the requirement that such amount be not less than $    on the Reporting Date as set forth in table below:

Period	Minimum Book Net Income
May 31 through June 30, 1999	($2,271,000)
July 31 through November 30, 1999	($2,440,000)
December 31, 1999	($2,294,000)

    Attached hereto are all relevant facts in reasonable detail to evidence, and the computations of the financial covenants referred to above. These computations were made in accordance with GAAP subject to reclassifications and year-end adjustments.

CIMA LABS, INC.
By:	Keith P. Salenger Its Vice President of Finance and CFO

QuickLinks

CREDIT AND SECURITY AGREEMENT
ARTICLE I
Definitions
ARTICLE II
Amount and Terms of the Credit Facility
ARTICLE III
Security Interest
ARTICLE IV
Conditions of Lending
ARTICLE V
Representations and Warranties
ARTICLE VI
Affirmative Covenants of the Borrower
ARTICLE VII
Events of Default, Rights and Remedies
ARTICLE VIII
Miscellaneous
[SIGNATURE PAGE FOLLOWS]

EX-27

 


<ARTICLE> 5

                             
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               SEP-30-1999
<CASH>                                       1,227,736
<SECURITIES>                                         0
<RECEIVABLES>                                1,662,133
<ALLOWANCES>                                         0
<INVENTORY>                                  2,031,042
<CURRENT-ASSETS>                             5,027,994
<PP&E>                                      16,054,165
<DEPRECIATION>                             (6,549,257)
<TOTAL-ASSETS>                              15,005,955
<CURRENT-LIABILITIES>                        3,516,935
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                        96,183
<OTHER-SE>                                  57,294,603
<TOTAL-LIABILITY-AND-EQUITY>                15,005,955
<SALES>                                      3,464,780
<TOTAL-REVENUES>                             8,852,385
<CGS>                                        4,484,961
<TOTAL-COSTS>                               10,259,869
<OTHER-EXPENSES>                              (18,702)
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                            (23,680)
<INCOME-PRETAX>                            (1,365,102)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (1,365,102)
<EPS-BASIC>                                     (0.12)
<EPS-DILUTED>                                   (0.12)