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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 2002
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-28674
CADUS PHARMACEUTICAL CORPORATION
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(Exact Name of Registrant as Specified on its Charter)
Delaware 13-3660391
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(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
767 Fifth Avenue, New York, New York 10153
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 702-4315
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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 registrant's common stock, $0.01 par value, outstanding
as of July 31, 2002 was 13,144,040.
CADUS PHARMACEUTICAL CORPORATION
INDEX
PAGE NO.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 3
PART I - CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance
Sheets - June 30, 2002 (unaudited)
and December 31, 2001 (audited) 4
Condensed Consolidated Statements
of Operations - Three Months Ended
June 30, 2002 and 2001 (unaudited) 5
Condensed Consolidated Statements
of Operations - Six Months Ended
June 30, 2002 and 2001 (unaudited) 6
Condensed Consolidated Statements
of Cash Flows - Six Months Ended
June 30, 2002 and 2001 (unaudited) 7
Notes to Condensed Consolidated
Financial Statements (unaudited) 8 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
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 8K 13
SIGNATURES 14
EXHIBIT INDEX 15
2
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements involve known
and unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, technological uncertainties
regarding the Company's technologies, risks and uncertainties relating to the
Company's ability to realize value from its assets, the Company's ability to
license its technologies to third parties, the Company's future acquisition and
in-licensing of technologies, the Company's capital needs and uncertainty of
future funding, the Company's history of operating losses, the Company's
dependence on proprietary technology and the unpredictability of patent
protection, intense competition in the pharmaceutical and biotechnology
industries, rapid technological development that may result in the Company's
technologies becoming obsolete, as well as other risks and uncertainties
discussed in the Company's prospectus dated July 17, 1996.
3
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CADUS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
2002 2001
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(Unaudited) (Audited)
Current assets
Cash and cash equivalents $24,108,292 $24,469,357
License fee receivable -- 500,000
Prepaid and other current assets 45,524 75,000
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Total current assets 24,153,816 25,044,357
Investment in other ventures 167,021 165,614
Other assets, net 950,169 990,622
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Total assets $25,271,006 $26,200,593
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued expenses and other current liabilities $ 175,396 $ 95,032
Arbitration settlement -- 750,000
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Total current liabilities 175,396 845,032
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Stockholders' equity
Common stock 132,857 132,857
Additional paid-in capital 59,844,355 59,844,355
Accumulated deficit (34,581,527) (34,321,576)
Treasury stock (300,075) (300,075)
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Total stockholders' equity 25,095,610 25,355,561
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Total liabilities and stockholders' equity $25,271,006 $26,200,593
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See accompanying notes to condensed consolidated financial statements
4
CADUS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
2002 2001
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(Unaudited) (Unaudited)
License and maintenance fees $ -- $ --
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Total revenues -- --
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Costs and expenses:
General and administrative expenses 277,835 407,641
Gain from equity in other ventures (725) (2,165)
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Total costs and expenses 277,110 405,476
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Loss from operations (277,110) (405,476)
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Other income:
Interest income 85,619 234,793
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Total other income 85,619 234,793
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Loss before income taxes (191,491) (170,683)
Income taxes -- --
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Net loss ($ 191,491) ($ 170,683)
=========== ===========
Basic and diluted loss per weighted
average share of common stock outstanding ($ 0.01) ($ 0.01)
=========== ===========
Weighted average shares of common stock
outstanding - basic and diluted 13,144,040 13,144,040
=========== ===========
See accompanying notes to condensed consolidated financial statements
5
CADUS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
June 30,
2002 2001
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(Unaudited) (Unaudited)
License and maintenance fees $ 100,000 $ 100,000
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Total revenues 100,000 100,000
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Costs and expenses:
General and administrative expenses 541,545 648,908
Gain from equity in other ventures (1,407) (1,979)
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Total costs and expenses 540,138 646,929
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Loss from operations (440,138) (546,929)
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Other income:
Interest income 180,187 529,494
Net reimbursement of SIBIA litigation costs -- 125,616
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Total other income 180,187 655,110
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(Loss) income before income taxes (259,951) 108,181
Income taxes -- --
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Net (loss) income ($ 259,951) $ 108,181
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Basic and diluted (loss) income per weighted
average share of common stock outstanding ($ 0.02) $ 0.01
=========== ===========
Weighted average shares of common stock
outstanding - basic and diluted 13,144,040 13,144,040
=========== ===========
See accompanying notes to condensed consolidated financial statements
6
CADUS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2002 2001
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(Unaudited) (Unaudited)
Cash flows from operating activities:
Net (loss) income ($ 259,951) $ 108,181
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Amortization of patent costs 40,453 40,453
Gain from equity in other ventures (1,407) (1,979)
Changes in assets and liabilities:
Decrease in license fee receivable 500,000 --
Decrease in prepaid and other current assets 29,476 83,556
(Decrease) increase in accrued expenses and
other current liabilities (669,636) 110,076
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Net cash (used in) provided by operating activities (361,065) 340,287
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Net (decrease) increase in cash and cash equivalents (361,065) 340,287
Cash and cash equivalents - beginning of period 24,469,357 24,383,352
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Cash and cash equivalents - end of period $24,108,292 $24,723,639
=========== ===========
See accompanying notes to condensed consolidated financial statements
7
CADUS PHARMACEUTICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note - 1 ORGANIZATION AND BASIS OF PREPARATION
The information presented as of June 30, 2002 and for the three and
six month periods then ended, is unaudited, but includes all
adjustments (consisting only of normal recurring accruals) that the
Company's management believes to be necessary for the fair
presentation of results for the periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted
pursuant to the requirements of the Securities and Exchange
Commission, although the Company believes that the disclosures
included in these financial statements are adequate to make the
information not misleading. The December 31, 2001 balance sheet was
derived from audited financial statements. These financial statements
should be read in conjunction with the Company's annual report on
Form 10-K for the year ended December 31, 2001.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary Cadus Technologies, Inc.,
organized in December 2001. All inter- company balances and
transactions have been eliminated in consolidation.
The results of operations for the six month period ended June 30,
2002 are not necessarily indicative of the results to be expected for
the year ending December 31, 2002.
Note - 2 NET (LOSS) INCOME PER COMMON SHARE
For the three and six month periods ended June 30, 2002 and 2001
basic net (loss) income per share is computed by dividing the net
(loss) income by the weighted average number of common shares
outstanding. Diluted net (loss) income per share is the same as basic
net (loss) income per share since the inclusion of 609,309 shares of
potential common stock equivalents (stock options and warrants) in
the computation at June 30, 2002 would be anti- dilutive.
Note - 3 LICENSING AGREEMENTS
In December 2001, the Company licensed its yeast-based drug discovery
technologies on a non-exclusive basis to a major pharmaceutical
company. Under the licensing agreement, the Company received an
up-front non-refundable fee of $500,000 that was recorded as revenue
in the December 31, 2001 consolidated statement of operations as the
Company has no further involvement with the development of the
product. The Company received payment in January 2002. The Company
will receive an additional licensing fee of $1,000,000 if the
licensee achieves a research milestone. The licensee is entitled to
use the technologies for five years from the date of the agreement if
it makes such $1,000,000
8
CADUS PHARMACEUTICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
payment. If the $1,000,000 payment is not made by February 2003, the
Company has the right to terminate the agreement. Following the
initial five year term, the licensee may renew the license annually
upon payment of an annual licensing fee of $250,000.
In February 2000, Cadus licensed to OSI Pharmaceuticals, Inc.
("OSI"), on a non-exclusive basis, its yeast-based drug discovery
technologies, including various reagents and its library of over
30,000 yeast strains, and its bioinformatics software. OSI paid to
Cadus a license fee of $100,000 and an access fee of $600,000. OSI is
also obligated to pay an annual maintenance fee of $100,000 until the
earlier of 2010 or the termination of the license and a supplemental
license fee of $250,000 which was paid in December 2000, after the
lifting of the injunction obtained by SIBIA Neurosciences, Inc.
("SIBIA"), and recorded as license fee revenue. OSI may terminate the
license at any time on 30 days prior written notice. During the six
month period ended June 30, 2002 and 2001, Cadus recognized $100,000
of license revenue related to this agreement.
Note - 4 ARBITRATION AWARD
In March 2002, the arbitrator in the arbitration proceeding commenced
against Cadus by Philip N. Sussman, the former Senior Vice President,
Finance and Corporate Development, and Chief Financial Officer of
Cadus, ruled in favor of Mr. Sussman and awarded him approximately
$750,000 in severance pay, interest and attorneys and other costs and
fees. A charge of $750,000 was recorded in the consolidated statement
of operations for the year ended December 31, 2001. The payment to
Mr. Sussman was made during the quarter ended June 30, 2002.
Note - 5 ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"), addresses the method of
identifying and measuring goodwill and other intangible assets,
eliminates further amortization of goodwill and intangible assets
that have indefinite useful lives, and requires periodic evaluations
of impairment of goodwill balances and intangible assets. SFAS 142
also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Live Assets to be Disposed Of." SFAS 142 is
effective for fiscal years beginning after December 15, 2001. There
was no impact on the Company financial statements from the adoption
of this statement on January 1, 2002.
9
Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS 144 supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and is effective for financial
statements issued for fiscal years beginning after December 15, 2001.
There was no impact on the Company financial statements from the
adoption of this statement on January 1, 2002.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in 1992 and until July 30, 1999, devoted
substantially all of its resources to the development and application of novel
yeast-based and other drug discovery technologies. On July 30, 1999, the Company
sold its drug discovery assets and ceased its internal drug discovery operations
and research efforts for collaborative partners.
The Company has incurred operating losses in each year since its inception. At
June 30, 2002, the Company had an accumulated deficit of approximately $34.6
million. The Company's losses have resulted principally from costs incurred in
connection with its research and development activities and from general and
administrative costs associated with the Company's operations. These costs have
exceeded the Company's revenues and interest income. As a result of the sale of
its drug discovery assets and the cessation of its internal drug discovery
operations and research efforts for collaborative partners, the Company ceased
to have research funding revenues and substantially reduced its operating
expenses. The Company expects to generate revenues in the future only if it is
able to license its technologies.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001
REVENUES
There were no revenues for the three months ended June 30, 2002 and 2001.
COSTS AND EXPENSES
General and administrative expenses were $277,835 for the three months ended
June 30, 2002 compared to $407,641 for the same period in 2001. The decrease is
attributable primarily to a decrease of $105,000 in patent costs and
professional fees.
For the three months ended June 30, 2002, the Company recognized net income of
$725 in its investment in Laurel Partners Limited Partnership ("Laurel"). Such
income for the same period in 2001 was $2,165.
OTHER INCOME
Interest income for the three months ended June 30, 2002 was $85,619 compared to
interest income of $234,793 for the same period in 2001. This decrease is
attributable primarily to lower interest rates earned on invested funds.
NET (LOSS) INCOME
Net loss for the three months ended June 30, 2002 was $191,491 compared to the
net loss of $170,683 for the same period in 2001. This increase in net loss can
be attributed primarily to the decrease in interest income offset in part by the
decrease in general and administrative expenses.
11
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 31, 2001
REVENUES
Revenues for the six months ended June 30, 2002 and 2001 were $100,000 which is
the annual maintenance fee from OSI.
COSTS AND EXPENSES
General and administrative expenses were $541,545 for the six months ended June
30, 2002 compared to $648,905 for the same period in 2001. The decrease is
attributable primarily to a decrease in patent costs and professional fees.
For the six months ended June 30, 2002, the Company recognized net income of
$1,407 in its investment in Laurel. Such income for the same period in 2001 was
$1,979.
OTHER INCOME
Interest income for the six months ended June 30, 2002 was $180,187 compared to
interest income of $529,494 for the same period in 2001. This decrease is
attributable primarily to lower interest rates earned on invested funds.
Pursuant to a court order, the Company received in February 2001 a $155,402
reimbursement of SIBIA litigation costs offset by legal costs incurred of
$29,786.
NET (LOSS) INCOME
Net loss for the six months ended June 30, 2002 was $259,951 compared to net
income of $108,181 for the same period in 2001. This decrease can be attributed
primarily to the decrease in interest income and the receipt, only in 2001, of
the net reimbursement of SIBIA litigation costs, offset in part by the decrease
in general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002 the Company held cash and cash equivalents of $24.1 million.
The Company's working capital at June 30, 2002 was $24.0 million.
The Company believes that its existing capital resources, together with interest
income, will be sufficient to support its operations through the end of 2003.
This forecast of the period of time through which the Company's financial
resources will be adequate to support its operations is a forward-looking
statement that may not prove accurate and, as such, actual results may vary. The
Company's capital requirements may vary as a result of a number of factors,
including the transactions, if any, arising from the Company's efforts to
acquire technologies or products or to acquire or invest in companies and the
expenses of pursuing such transactions.
12
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings and cash flows are subject to fluctuations due to changes
in interest rates primarily from its investment of available cash balances in
money market funds with portfolios of investment grade corporate and U.S.
government securities. The Company does not believe it is materially exposed to
changes in interest rates. Under its current policies the Company does not use
interest rate derivative instruments to manage exposure to interest rate
changes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Nothing to report.
Item 2. Changes in Securities and Use of Proceeds
Nothing to report.
Item 3. Defaults Upon Senior Securities
Nothing to report
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to report
Item 5. Other Information
Nothing to report
Item 6. Exhibits and Reports on Form 8-K.
(a) The Exhibit listed in the Exhibit Index is included in this
report.
(b) Reports on Form 8-K.
None
13
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.
CADUS PHARMACEUTICAL CORPORATION
(REGISTRANT)
Date: August 14, 2002 By: /s/ Russell D. Glass
--------------------------------------------------
Russell D. Glass
President and Chief Executive Officer (Authorized
Officer and Principal Financial Officer)
14
EXHIBIT INDEX
The following exhibit is filed as part of this Quarterly Report on Form 10-Q:
Exhibit No. Description
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99.1 Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002
15