SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999 Commission File No. 0-12957
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[LOGO]
ENZON, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2372868
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20 Kingsbridge Road, Piscataway, New Jersey 08854
(Address of principal executive offices) (Zip Code)
(732) 980-4500
(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[_]
The number of shares of common stock, $.01 par value, outstanding as of May 4,
1999 was 36,277,050 shares.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ENZON, INC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1999 and June 30, 1998
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 1999 1998
-------------------------------------
(unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,794,351 $ 6,478,459
Accounts receivable 4,563,937 2,300,046
Inventories 1,267,379 1,022,530
Other current assets 552,148 447,952
------------- -------------
Total current assets 31,177,815 10,248,987
------------- -------------
Property and equipment 12,607,596 15,134,075
Less accumulated depreciation and amortization 11,179,379 13,368,330
------------- -------------
1,428,217 1,765,745
------------- -------------
Other assets:
Investments 69,032 69,002
Other assets, net 699,673 464,747
Patents, net 1,085,390 1,192,897
------------- -------------
1,854,095 1,726,646
------------- -------------
Total assets $ 34,460,127 $ 13,741,378
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,130,338 $ 1,711,856
Accrued expenses 4,715,843 4,375,822
------------- -------------
Total current liabilities 6,846,181 6,087,678
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Accrued rent 641,008 727,160
Royalty advance - RPR 711,742 --
------------- -------------
1,352,750 727,160
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Commitments and contingencies
Stockholders' equity:
Preferred stock-$.01 par value, authorized 3,000,000 shares:
issued and outstanding 107,000 shares at March 31, 1999
and June 30, 1998 (liquidation preference aggregating
$2,675,000 at March 31, 1999 and June 30, 1998) 1,070 1,070
Common stock-$.01 par value, authorized 60,000,000 shares:
issued and outstanding 36,269,612 shares at March 31, 1999
and 31,341,353 shares at June 30, 1998 362,696 313,414
Additional paid-in capital 146,165,216 123,453,874
Accumulated deficit (120,267,786) (116,841,818)
------------- -------------
Total stockholders' equity 26,261,196 6,926,540
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Total liabilities and stockholders' equity $ 34,460,127 $ 13,741,378
============= =============
*Condensed from audited financial statements.
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
</TABLE>
2
<PAGE>
ENZON, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months and Nine Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Sales $ 3,136,325 $ 2,591,785 $ 9,854,438 $ 9,196,260
Contract revenue 11,871 18,039 79,346 2,330,648
------------ ------------ ------------ ------------
Total revenues 3,148,196 2,609,824 9,933,784 11,526,908
------------ ------------ ------------ ------------
Costs and expenses
Cost of sales 1,305,135 640,874 3,643,931 2,380,264
Research and development expenses 1,683,070 2,356,143 5,105,981 6,488,850
Selling, general and administrative expenses 1,889,054 1,449,117 5,532,709 4,275,801
------------ ------------ ------------ ------------
Total costs and expenses 4,877,259 4,446,134 14,282,621 13,144,915
------------ ------------ ------------ ------------
Operating loss (1,729,063) (1,836,310) (4,348,837) (1,618,007)
------------ ------------ ------------ ------------
Other income (expense)
Interest and dividend income 270,265 111,351 873,146 376,914
Interest expense (293) (2,459) (8,348) (13,364)
Other 18,237 -- 58,071 (1,845)
------------ ------------ ------------ ------------
288,209 108,892 922,869 361,705
------------ ------------ ------------ ------------
Net loss ($ 1,440,854) ($ 1,727,418) ($ 3,425,968) ($ 1,256,302)
============ ============ ============ ============
Basic and Diluted loss per common share ($ 0.04) ($ 0.06) ($ 0.10) ($ 0.05)
============ ============ ============ ============
Weighted average number of common shares
issued and outstanding and dilutive potential
common shares 36,126,933 31,200,750 35,500,185 31,012,402
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
3
<PAGE>
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1999 and 1998
(Unaudited)
Nine Months Ended
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
March 31, March 31,
1999 1998
-----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 3,425,968) ($ 1,256,302)
Adjustment for depreciation and amortization 686,729 948,381
(Loss) gain on retirement of equipment (39,834) 1,845
Non-cash expense for issuance of common stock and stock options 1,197,528 155,197
Decrease in accrued rent (86,152) (103,085)
Decrease in royalty advance - RPR (110,506) (965,636)
Changes in assets and liabilities (1,267,141) (2,053,567)
------------ ------------
Net cash used in operating activities (3,045,344) (3,273,167)
------------ ------------
Cash flows from investing activities:
Capital expenditures (331,732) (124,977)
Proceeds from sale of equipment 129,872 83,129
------------ ------------
Net cash used in investing activities (201,860) (41,848)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 21,563,096 1,629,233
Principal payments of obligation under capital leases -- (1,728)
------------ ------------
Net cash provided by financing activities 21,563,096 1,627,505
------------ ------------
Net increase (decrease) in cash and cash equivalents 18,315,892 (1,687,510)
Cash and cash equivalents at beginning of period 6,478,459 8,315,752
------------ ------------
Cash and cash equivalents at end of period $ 24,794,351 $ 6,628,242
============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
4
<PAGE>
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(Unaudited)
(1) Organization and Basis of Presentation
The unaudited consolidated condensed financial statements have been
prepared from the books and records of Enzon, Inc. and subsidiaries in
accordance with generally accepted accounting principles for interim financial
information. 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
only of normal and recurring adjustments) considered necessary for a fair
presentation have been included. Interim results are not necessarily indicative
of the results that may be expected for the year.
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. The adoption of SFAS 130 had no impact on the Company's
results of operations for the three and nine months ended March 31, 1999 and
1998. The net loss of $1,441,000 and $1,727,000, recorded for the three months
ended March 31, 1999 and 1998 and the net loss of $3,426,000 and $1,256,000
recorded for the nine months ended March 31, 1999 and 1998, respectively, are in
each case equal to the comprehensive loss for those periods.
(2) Loss Per Share
Basic loss per common share is based on the net loss for the relevant
period, adjusted for cumulative undeclared preferred stock dividends of $54,000
for each of the three months ended March 31, 1999 and 1998, and $161,000 and
$162,000 for the nine months ended March 31, 1999 and 1998, respectively,
divided by the weighted average number of common shares issued and outstanding
during the period.
Diluted loss per common share for the three and nine months ended March 31,
1999 and 1998, is based on the net loss for the relevant period adjusted for
cumulative undeclared preferred stock dividends of $54,000 for each of the three
months ended March 31, 1999 and 1998, and $161,000 and $162,000 for the nine
months ended March 31, 1999 and 1998, respectively, divided by the weighted
average number of common shares issued and outstanding during the period. The
exercise or conversion of all dilutive potential common shares is not included,
due to the net loss recorded for the three and nine months ended March 31, 1999
and 1998. As of March 31, 1999, the Company had approximately 6,070,000 dilutive
potential common shares outstanding that could potentially dilute future
earnings per share calculations.
5
<PAGE>
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements, Continued
(Unaudited)
(3) Inventories
The composition of inventories at March 31, 1999 and June 30, 1998 is as
follows:
March 31, June 30,
1999 1998
---------- ----------
Raw materials $654,000 $510,000
Work in process 425,000 398,000
Finished goods 188,000 115,000
---------- ----------
$1,267,000 $1,023,000
========== ==========
(4) Cash Flow Information
The Company considers all highly liquid securities with original maturities
of three months or less to be cash equivalents. Cash payments for interest were
approximately $8,000 and $13,000 for the nine months ended March 31, 1999 and
1998, respectively. There were no income tax payments made for the nine months
ended March 31, 1999 and 1998.
There were no conversions of Series A Preferred Stock during the nine
months ended March 31, 1999. During the nine months ended March 31, 1998, 1,000
shares of Series A Cumulative Convertible Preferred Stock ("Series A Preferred
Stock") were converted to 2,272 shares of Common Stock. Accrued dividends of
$15,000 on the Series A Preferred Stock that was converted during the nine
months ended March 31, 1998, were settled by issuing 1,358 shares of Common
Stock and cash payments totaling $10 for fractional shares.
(5) Stockholders' Equity
In July 1998, the Company sold 3,983,000 shares of Common Stock in a
private placement to a small group of investors. The private placement resulted
in gross proceeds of approximately $18,919,000 and net proceeds of approximately
$17,550,000.
During the nine months ended March 31, 1999, 150,000 warrants were
exercised to purchase 150,000 shares of the Company's Common Stock at $2.50 per
share. These warrants were issued during the year ended June 30, 1996, as part
of the commission due to a real estate broker in connection with the termination
of the Company's former lease at 40 Kingsbridge Road.
During the nine months ended March 31, 1999, the Company issued 200,000
five-year warrants to purchase Enzon Common Stock at $6.50 per share, the
closing price of the common stock on the date of grant. The warrants are
consideration for services to be rendered through February 2002. The estimated
fair value of the warrants of approximately $917,000 is included as a component
of other assets with the corresponding current portion included in other current
assets on the accompanying balance sheet and will be amortized over the service
period of three years.
6
<PAGE>
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements, Continued
(Unaudited)
(6) Non-Qualified Stock Option Plan
During the nine months ended March 31, 1999, the Company issued 451,000
stock options at an average exercise price of $9.65 per share under the
Company's Non-Qualified Stock Option Plan, as amended, of which 198,000 were
granted to executive officers of the Company as part of a bonus plan for the
year ended June 30, 1998. None of the options granted during the period are
exercisable as of March 31, 1999. All options were granted with exercise prices
that equaled the fair market value of the underlying stock on the date of grant.
(7) Commitments and Contingencies
The Company is being sued by a former financial advisor, LBC Capital
Resources, Inc. ("LBC"), which is asserting that under a May 2, 1995, letter
agreement ("Letter Agreement") between Enzon and LBC, LBC was entitled to a
commission in connection with the Company's January and March 1996 private
placements, comprised of $500,000 and warrants to purchase 1,000,000 shares of
Enzon common stock at an exercise price of $2.50 per share. LBC has also
asserted that it is entitled to an additional fee of $175,000 and warrants to
purchase 250,000 shares of Enzon common stock when and if any of the warrants
obtained pursuant to the private placements are exercised. LBC has claimed
$3,000,000 in compensatory damages, plus punitive damages, counsel fees and
costs for the alleged breach of the Letter Agreement. The Company believes that
no such commission was due under the Letter Agreement and denies any liability
under the Letter Agreement. The Company intends to defend this lawsuit
vigorously.
In the course of normal operations, the Company is subject to the marketing
and manufacturing regulations as established by the Food and Drug Administration
("FDA"). During the nine months ended March 31, 1999, the Company and the FDA
agreed to temporary labeling and distribution modifications for ONCASPAR due to
increased levels of particulates in certain batches of ONCASPAR, which were
manufactured by the Company. The Company, rather than Rhone-Poulenc Rorer
("RPR"), will temporarily distribute ONCASPAR directly to patients, on an as
needed basis, in order to institute the additional inspection and labeling
procedures prior to distribution. Upon resolution of the existing manufacturing
problem, it is expected that RPR will resume the normal distribution of
ONCASPAR. This manufacturing problem is isolated only to ONCASPAR. The Company
is currently engaged in an extensive review of its manufacturing procedures for
this product. The Company is unable to predict what, if any, impact this matter
will have on future sales of ONCASPAR.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Information contained herein contains "forward-looking statements" which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The matters set forth in Exhibit
99.0 to the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1998, which is incorporated herein by reference, constitute cautionary
statements identifying important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to vary materially from the future results indicated in such
forward-looking statements. Other factors could also cause actual results to
vary materially from the future results indicated in such forward-looking
statements.
Results of Operations
Three months ended March 31, 1999 vs. Three months ended March 31, 1998
Revenues. Revenues for the three months ended March 31, 1999 increased by 21% to
$3,148,000 as compared to $2,610,000 for the same period in 1998. The components
of revenues are sales, which consist of sales of the Company's two Food and Drug
Administration ("FDA") approved products and royalties on the sales of the
Company's products by others, and contract revenues. Sales increased by 21% to
$3,136,000 for the three months ended March 31, 1999 as compared to $2,592,000
for the same period in the prior year due to increased revenues from ADAGEN(R)
and ONCASPAR(R). During 1998, the Company encountered a manufacturing problem
with ONCASPAR, and as a result, instituted a temporary labeling change and a
revised distribution method for the product under which the Company, rather than
Rhone-Poulenc Rorer Pharmaceuticals, Inc. ("RPR"), is distributing ONCASPAR
directly to patients on an "as-needed" basis. As a result of these changes, the
Company recorded the full sales price of the product during the quarter ended
March 31, 1999, as opposed to royalty and manufacturing revenues from RPR,
resulting in higher sales for the quarter. The increase in ONCASPAR sales was
also due to an increase in the number of vials sold during the quarter ended
March 31, 1999 as compared to the prior year. Upon resolution of the existing
manufacturing problem, it is expected that RPR will resume the normal
distribution of ONCASPAR. This manufacturing problem is isolated to ONCASPAR
only. ADAGEN sales for the three months ended March 31, 1999 and 1998 were
$2,802,000 and $2,497,000, respectively. The increase in ADAGEN sales is the
result of an increase in third party reimbursement levels for the product as
compared to the prior year. During the three months ended March 31, 1999 and
1998, the Company had export sales of $674,000 and $823,000, respectively. Sales
in Europe were $520,000 and $697,000 for the three months ended March 31, 1999
and 1998, respectively. Contract revenue for the three months ended March 31,
1999 decreased to $12,000, as compared to $18,000 for the same period in the
prior year.
The Company expects sales of ADAGEN to increase at comparable rates to
those achieved during the last two years as additional patients are treated. The
Company also anticipates that future sales of ONCASPAR may be at reduced levels
until the manufacturing issue, previously discussed, is resolved. There can be
no assurance that any particular sales levels of ONCASPAR or ADAGEN will be
achieved or maintained.
Cost of Sales. Cost of sales, as a percentage of sales, increased to 42% for the
three months ended March 31, 1999, as compared to 25% for the three months ended
March 31, 1998. The increase was primarily due to ONCASPAR manufacturing
problems which resulted from an increased rejection rate for this product.
Additionally, during the quarter ended March 31, 1999 the Company's charge for
idle capacity increased over the prior year. During the quarter ended March 31,
1999, the Company utilized approximately 19% of its manufacturing capacity for
the production of its approved products, as compared to 39% for the comparable
quarter in 1998.
8
<PAGE>
Research and Development. Research and development expenses for the three months
ended March 31, 1999 decreased by 29% to $1,683,000 from $2,356,000 for the same
period in 1998. The decrease in research and development expenses resulted from
(i) a decrease in facility costs resulting from the elimination of a leased
facility and the consolidation of research and development operations and (ii) a
decline in clinical trial costs. The decrease in clinical trial costs was a
result of the completion of a Phase Ib clinical trial for PEG-hemoglobin.
Clinical costs are anticipated to increase in future quarters as
PEG-camptothecin enters Phase I clinical trials. Due to the significant costs
associated with the development of PEG-hemoglobin, the Company is currently
looking for a medical institution or commercial partner to bring this product
into Phase II clinical trials.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 1999 increased by
$440,000 to $1,889,000, as compared to $1,449,000 for the same period in 1998.
The increase was primarily due to an increase in marketing and distribution
costs for ONCASPAR. Due to the changes in distribution previously discussed, the
Company is currently responsible for all marketing and distribution for this
product. These costs were the responsibility of the Company's marketing partner,
RPR, in the previous year.
Other Income/Expense. Other income/expense increased by $179,000 to $288,000 for
the three months ended March 31, 1999 as compared to $109,000 for the same
period last year. The increase was primarily attributable to an increase in
interest income due to an increase in interest bearing investments.
Nine months ended March 31, 1999 vs. Nine months ended March 31, 1998
Revenues. Revenues for the nine months ended March 31, 1999 decreased by 14% to
$9,934,000 as compared to $11,527,000 for the same period in 1998. The
components of revenues are sales and contract revenues. Sales increased to
$9,854,000 for the nine months ended March 31, 1999 as compared to $9,196,000
for the same period in the prior year, due to an increase in ADAGEN and ONCASPAR
sales. ADAGEN sales increased by approximately 10%, due to an increase in
patients receiving ADAGEN treatment and an increase in ADAGEN reimbursement
levels from the prior year. ONCASPAR revenues increased due to the Company
taking over the marketing and distribution of the product from RPR as a result
of the aforementioned manufacturing problem. ADAGEN sales for the nine months
ended March 31, 1999 and 1998 were $8,231,000 and $7,491,000, respectively. The
increase in sales was offset by a decrease in contract revenue. Contract revenue
for the nine months ended March 31, 1999 decreased to $79,000, as compared to
$2,331,000 in 1998. The decrease was principally due to the timing of milestone
payments received under the Company's licensing agreement for PEG-Intron A with
Schering-Plough Corporation ("Schering-Plough"). During the nine months ended
March 31, 1998, the Company recognized $2,200,000 in milestone payments received
as a result of Schering-Plough's advancing PEG-Intron A into its first Phase III
clinical trial. PEG-Intron A is a modified form of Schering-Plough's INTRON(R)A
(interferon alfa-2b, recombinant), developed by Enzon to have longer-acting
properties. Under the Company's licensing agreement, Enzon is entitled to
royalties on product sales and has the option to become Schering-Plough's
exclusive manufacturer of PEG-Intron A for the U.S. market. During the nine
months ended March 31, 1999 and 1998, the Company had export sales of $2,397,000
and $1,952,000, respectively. Sales in Europe were $1,800,000 and $1,545,000 for
the nine months ended March 31, 1999 and 1998, respectively.
Cost of Sales. Cost of sales, as a percentage of sales, increased to 37% for the
nine months ended March 31, 1999 as compared to 26% for the same period in 1998.
The increase was primarily due to a charge taken in the first quarter 1999
related to a write-off of ONCASPAR finished goods on hand and in the
distribution pipeline, as well as increased ONCASPAR production costs. The
increased write-off of ONCASPAR finished goods was attributable to the
manufacturing problems previously discussed.
Research and Development. Research and development expenses for the nine months
ended March 31, 1999 decreased by 21% to $5,106,000 from $6,489,000 for the same
period last year. The decrease in research and development expenses resulted
from (i) a decrease in facility costs resulting from the elimination of a leased
facility
9
<PAGE>
and the consolidation of research and development operations and (ii) a decline
in clinical trial costs. The decrease in clinical trial costs, was a result of
the completion of a Phase Ib clinical trial for PEG-hemoglobin
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended March 31, 1999 increased by
29% to $5,533,000, as compared to $4,276,000 for the same period in 1998. The
increase was principally due to (i) increased investor and public relation
activities, (ii) increased legal fees, related to patent infringement and other
litigation, as well as ongoing arbitration proceedings, and (iii) increased
marketing and distribution expenses for ONCASPAR, caused by the change in
distribution of this product previously discussed.
Other Income/Expense. Other income/expense increased by $561,000 to $923,000 for
the nine months ended March 31, 1999 as compared to $362,000 for the same period
last year. The increase was attributable to an increase in interest income due
to an increase in interest bearing investments.
Liquidity and Capital Resources
Enzon had $24,794,000 in cash and cash equivalents as of March 31, 1999.
The Company invests its excess cash in a portfolio of high-grade marketable
securities and United States government-backed securities.
The Company's cash reserves as of March 31, 1999 increased by $18,316,000
from June 30, 1998. The increase in cash reserves was principally due to net
proceeds of approximately $17,550,000 received upon completion of a private
placement during July 1998 in which the Company sold 3,983,000 shares of Common
Stock to a small group of investors.
The Company's exclusive U.S. marketing rights license with RPR for ONCASPAR
provides for a payment of $3,500,000 in advance royalties which was received in
January 1995. Under the agreement, as amended, royalties will be offset against
a credit of $5,970,000, which represents the royalty advance plus reimbursement
of certain amounts due RPR under the previous agreement and interest expense,
before cash payments will be made under the agreement. The royalty advance is
shown as a long term liability with the corresponding current portion included
in accrued expenses on the consolidated condensed balance sheets and will be
reduced as royalties are recognized under the agreement. Through March 31, 1999,
an aggregate of $4,445,000 in royalties payable by RPR have been offset against
the original credit.
As of March 31, 1999, 942,808 shares of Series A Cumulative Convertible
Preferred Stock ("Series A Preferred Stock") have been converted into 3,097,955
shares of the Company's Common Stock. Accrued dividends on the converted Series
A Preferred Stock in the aggregate of $1,824,000 were settled by the issuance of
235,231 shares of Common Stock. The Company does not presently intend to pay
cash dividends on the Series A Preferred Stock. As of March 31, 1999, there were
$1,931,000 of unpaid dividends in arrears on the Series A Preferred Stock. These
dividends are payable in cash or Common Stock at the Company's option and accrue
on the outstanding Series A Preferred Stock at the rate of $214,000 per year.
To date, the Company's sources of cash have been the proceeds from the sale
of its stock through public and private placements, sales of ADAGEN, sales of
ONCASPAR, sales of its products for research purposes, contract research and
development fees, technology transfer and license fees and royalty advances. The
Company's current sources of liquidity are its cash, cash equivalents and
interest earned on such cash reserves, sales of ADAGEN, sales of ONCASPAR, sales
of its products for research purposes and license fees. Based upon its currently
planned research and development activities and related costs and its current
sources of liquidity, the Company anticipates its current cash reserves will be
sufficient to meet its capital and operational requirements for the foreseeable
future.
10
<PAGE>
Upon exhaustion of the Company's current cash reserves, the Company's
continued operations will depend on its ability to realize significant revenues
from the commercial sale of its products, raise additional funds through equity
or debt financing, or obtain significant licensing, technology transfer or
contract research and development fees. There can be no assurance that these
sales, financings or revenue generating activities will be successful.
Year 2000
The Company has completed a review of its business systems, including its
computer systems and manufacturing equipment, and has queried its customers and
vendors as to their progress in identifying and addressing problems that their
systems may face in correctly interpreting and processing date information as
the year 2000 approaches and is reached. Based on this review, the Company has
implemented a plan to achieve year 2000 compliance. The Company believes that it
will achieve year 2000 compliance no later than September 1999 in a manner which
will be non-disruptive to its operations. In addition, the Company has commenced
work on various types of contingency planning to address potential problem areas
with internal systems and with suppliers and other third parties, although such
plans have not yet been determined. The Company expects to have completed a
substantial portion of this contingency planning by June 1999. Year 2000
compliance is not expected to have a material adverse effect on the Company,
including the Company's financial condition, results of operations or cash flow.
The Company estimates the total cost (including historical costs to date) of its
year 2000 efforts to be approximately $400,000. The total cost estimate is based
on management's current assessment and is subject to change.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
11
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Page Number
or
Exhibit Incorporation
Number Description By Reference
------ ----------- ------------
<S> <C> <C> <C>
3(i) Certificate of Incorporation, as amended ~~
3(ii) By-laws, as amended *(4.2)
3(iii) Certificate of Designations, Preferences and Rights of Series D Convertible
Preferred Stock ^^3(iii)
3(iv) Amendment to Certificate of Incorporation dated January 5, 1998 ##3(iv)
10.0 Employment Agreement dated March 25, 1994 with Peter G. Tombros ++++(10.17)
10.1 Form of Change of Control Agreements dated as of January 20, 1995 entered
into with the Company's Executive Officers ###(10.2)
10.2 Lease - 300-C Corporate Court, South Plainfield, New Jersey ***(10.3)
10.4 Lease Termination Agreement dated March 31, 1995 for
20 Kingsbridge Road and 40 Kingsbridge Road, Piscataway, New Jersey ###(10.6)
10.5 Option Agreement dated April 1, 1995 regarding 20 Kingsbridge Road,
Piscataway, New Jersey ###(10.7)
10.6 Form of Lease - 40 Cragwood Road, South Plainfield, New Jersey ****(10.9)
10.7 Lease 300A-B Corporate Court, South Plainfield, New Jersey ++(10.10)
10.8 Stock Purchase Agreement dated March 5, 1987 between the Company and
Eastman Kodak Company ****(10.7)
10.9 Amendment dated June 19, 1989 to Stock Purchase Agreement between the
Company and Eastman Kodak Company **(10.10)
10.10 Form of Stock Purchase Agreement between the Company and the
purchasers of the Series A Cumulative
Convertible Preferred Stock +(10.11)
10.11 Amendment to License Agreement and Revised License Agreement
between the Company and RCT dated April 25, 1985 +++(10.5)
10.12 Amendment dated as of May 3, 1989 to Revised License Agreement
dated April 25, 1985 between the Company and Research Corporation **(10.14)
10.13 License Agreement dated September 7, 1989 between the Company and
Research Corporation Technologies, Inc. **(10.15)
10.14 Master Lease Agreement and Purchase Leaseback Agreement dated
October 28, 1994 between the Company and Comdisco, Inc. #(10.16)
10.15 Employment Agreement with Peter G. Tombros dated as of
April 5, 1997 ^^(10.15)
10.16 Stock Purchase Agreement dated as of June 30, 1995 ~(10.16)
10.17 Securities Purchase Agreement dated as of January 31, 1996 ~(10.17)
10.18 Registration Rights Agreements dated as of January 31, 1996 ~(10.18)
10.19 Warrants dated as of February 7, 1996 and issued pursuant to the Securities
Purchase Agreement dated as of January 31, 1996 ~(10.19)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10.20 Securities Purchase Agreement dated as of March 15, 1996 ~~(10.20)
10.21 Registration Rights Agreement dated as of March 15, 1996 ~~(10.21)
10.22 Warrant dated as of March 15, 1996 and issued pursuant to the Securities Purchase
Agreement dated as of March 15, 1996 ~~(10.22)
10.23 Amendment dated March 25, 1994 to License Agreement dated
September 7, 1989 between the Company and Research Corporation
Technologies, Inc. ~~~(10.23)
10.24 Independent Directors' Stock Plan ~~~(10.24)
10.25 Stock Exchange Agreement dated February 28, 1997, by and between the
Company and GFL Performance Fund Ltd. ^(10.25)
10.26 Agreement Regarding Registration Rights Under Registration Rights Agreement
dated March 10, 1997, by and between the Company and Clearwater Fund IV
LLC ^(10.26)
10.27 Common Stock Purchase Agreement dated June 25, 1998 ^^^(10.27)
10.28 Placement Agent Agreement dated June 25, 1998 with SBC Warburg
Dillon Read, Inc. ^^^^(10.28)
27.0 Financial Data Schedule o
99.0 Factors to Consider in Connection with Forward-Looking Statements ^^^^(99.0)
</TABLE>
o Filed herewith.
* Previously filed as an exhibit to the Company's Registration Statement on
Form S-2 (File No. 33-34874) and incorporated herein by reference thereto.
** Previously filed as exhibits to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1989 and incorporated herein by
reference thereto.
*** Previously filed as an exhibit to the Company's Registration Statement on
Form S-18 (File No. 2-88240-NY) and incorporated herein by reference
thereto.
**** Previously filed as exhibits to the Company's Registration Statement on
Form S-1 (File No. 2-96279) filed with the Commission and incorporated
herein by reference thereto.
+ Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-39391) filed with the Commission and incorporated
herein by reference thereto.
++ Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993 and incorporated herein by
reference thereto.
+++ Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1985 and incorporated herein by
reference thereto.
++++ Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated April 5, 1994 and incorporated herein by reference thereto.
# Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1994 and incorporated herein by
reference thereto.
13
<PAGE>
## Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1997 and incorporated herein by
reference thereto.
### Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995 and incorporated herein by
reference thereto.
~ Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1995 and incorporated herein by
reference thereto.
~~ Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 and incorporated herein by
reference thereto.
~~~ Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996 and incorporated herein by
reference thereto.
^ Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 and incorporated herein by
reference thereto.
^^ Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended June 30, 1997 and incorporated herein by reference
thereto.
^^^ Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (File No. 333-58269) filed with the Commission and incorporated
herein by reference thereto.
^^^^ Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended June 30, 1998 and incorporated herein by reference
thereto.
(b) Reports on Form 8-K
On January 15, 1999, the Company filed with the Commission a Current Report
on Form 8-K dated December 14, 1998, related to a patent infringement suit filed
by the Company, in New Jersey Federal Court, against Shearwater Polymers, Inc.
for infringement of U.S. Patent 5,643,575, one of the patents which covers the
Company's second generation PEG technology.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENZON, INC.
-----------
(Registrant)
Date: May 10, 1999 By: /s/Peter G. Tombros
--------------------------
Peter G. Tombros
President and Chief Executive
Officer
By: /s/Kenneth J. Zuerblis
--------------------------
Kenneth J. Zuerblis
Vice President, Finance and
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Enzon,
Inc. and Subsidiaries Consolidated Condensed Balance Sheet as of March 31, 1999
and the Consolidated Condensed Statement of Operations for the three and nine
months ended March 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-Mos 9-Mos
<FISCAL-YEAR-END> Jun-30-1999 Jun-30-1999
<PERIOD-END> Mar-31-1999 Mar-31-1999
<CASH> $24,794,351 $24,794,351
<SECURITIES> 0 0
<RECEIVABLES> 4,563,937 4,563,937
<ALLOWANCES> 0 0
<INVENTORY> 1,267,379 1,267,379
<CURRENT-ASSETS> 31,177,815 31,177,815
<PP&E> 12,607,596 12,607,596
<DEPRECIATION> 11,179,379 11,179,379
<TOTAL-ASSETS> 34,460,127 34,460,127
<CURRENT-LIABILITIES> 6,846,181 6,846,181
<BONDS> 0 0
0 0
1,070 1,070
<COMMON> 362,696 362,696
<OTHER-SE> 25,897,430 25,897,430
<TOTAL-LIABILITY-AND-EQUITY> 34,460,127 34,460,127
<SALES> 3,136,325 9,854,438
<TOTAL-REVENUES> 3,148,196 9,933,784
<CGS> 1,305,135 3,643,931
<TOTAL-COSTS> 4,877,259 14,282,621
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 293 8,348
<INCOME-PRETAX> (1,440,854) (3,425,968)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,440,854) (3,425,968)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,440,854) (3,425,968)
<EPS-PRIMARY> (0.04) (0.10)
<EPS-DILUTED> (0.04) (0.10)
</TABLE>
