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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 March 31, 2003
---------------
|_| 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 0-28674
CADUS PHARMACEUTICAL CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified on its Charter)
Delaware 13-3660391
- -------------------------------------------------- -----------------------
(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
767 Fifth Avenue, New York, New York 10153
- -------------------------------------------------- -----------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 702-4367
-----------------------
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b-2 of the Exchange Act).
Yes ____ No _X_
The number of shares of registrant's common stock, $0.01 par value, outstanding
as of April 30, 2003 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 -
March 31, 2003 (unaudited) and
December 31, 2002 (audited) 4
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2003 and
2002 (unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2003 and
2002 (unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10 - 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8K 12
SIGNATURES 13
CERTIFICATIONS 14 - 15
EXHIBIT INDEX 16
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 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical fact are "forward-looking
statements" for purposes of federal and stated securities laws, including any
projections or expectations of earnings, revenue, financial performance,
liquidity and capital resources or other financial items; any statement of our
plans, strategies and objectives for our future operations; any statements
regarding future economic conditions or performance; any statements of belief;
and any statements of assumption underlying any of the foregoing.
Forward-looking statements may include the words "may," "will," "should,"
"could," "would," "predicts," "potential," "continue," "expects," "anticipates,"
"future," "intends," "plans," "believes," "estimates" and other similar words.
Although the Company believes that the expectations reflected in our
forward-looking statements are reasonable, 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 license its technologies to
third parties, the Company's ability to acquire and operate other companies, 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 other filings with the Securities and
Exchange Commission. The forward-looking statements made in this Quarterly
Report on Form 10-Q are made only as of the date hereof and the Company does not
have or undertake any obligation to publicly update any forward-looking
statements to reflect subsequent events or circumstances unless otherwise
required by law.
3
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CADUS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
(Unaudited) (Audited)
Current assets
Cash and cash equivalents $ 24,762,697 $ 24,923,071
Prepaid and other current assets 60,030 79,053
Investment in marketable securities 816,675 794,603
------------ ------------
Total current assets 25,639,402 25,796,727
Investment in other ventures 161,786 164,922
Other assets, net 888,614 908,841
------------ ------------
Total assets $ 26,689,802 $ 26,870,490
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued expenses and other current
liabilities $ 167,517 $ 227,810
Deferred gain on exchange of equity interest 189,967 184,833
------------ ------------
Total current liabilities 357,484 412,643
------------ ------------
Stockholders' equity
Common stock 132,857 132,857
Additional paid-in capital 59,844,355 59,844,355
Accumulated deficit (33,148,338) (33,005,871)
Accumulated other comprehensive loss (196,481) (213,419)
Treasury stock (300,075) (300,075)
------------ ------------
Total stockholders' equity 26,332,318 26,457,847
------------ ------------
Total liabilities and
stockholders' equity $ 26,689,802 $ 26,870,490
============ ============
See accompanying notes to condensed consolidated financial statements
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CADUS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
2003 2002
------------ ------------
(Unaudited) (Unaudited)
License and maintenance fees $ 100,000 $ 100,000
------------ ------------
Total revenues 100,000 100,000
------------ ------------
Costs and expenses:
General and administrative expenses 292,918 263,710
Loss (gain) of equity in other ventures 3,136 (682)
------------ ------------
Total costs and expenses 296,054 263,028
------------ ------------
Operating loss (196,054) (163,028)
------------ ------------
Other income:
Interest income 53,587 94,568
------------ ------------
Loss before income taxes (142,467) (68,460)
Income taxes -- --
------------ ------------
Net loss ($ 142,467) ($ 68,460)
============ ============
Basic and diluted income 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 CASH FLOWS
Three Months Ended
March 31,
2003 2002
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss ($ 142,467) ($ 68,460)
Adjustments to reconcile net loss
to net cash (used in) provided
by operating activities:
Amortization of patent costs 20,227 20,226
Loss (gain) of equity in other ventures 3,136 (682)
Changes in assets and liabilities:
Decrease in license fees receivable -- 400,000
Decrease in prepaid and other current assets 19,023 13,477
Increase (decrease) in accrued expenses
and other current liabilities (60,293) 43,951
------------ ------------
Net cash provided by (used in) operating
activities (160,374) 408,512
------------ ------------
Net increase (decrease) in cash and
cash equivalents (160,374) 408,512
Cash and cash equivalents - beginning of period 24,923,071 24,469,357
------------ ------------
Cash and cash equivalents - end of period $ 24,762,697 $ 24,877,869
============ ============
See accompanying notes to condensed consolidated financial statements
6
CADUS PHARMACEUTICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note - 1 ORGANIZATION AND BASIS OF PREPARATION
The information presented as of March 31, 2003 and for the three-month
period 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, 2002
consolidated balance sheet was derived from audited consolidated
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, 2002.
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 three-month period ended March 31,
2003 are not necessarily indicative of the results to be expected for
the year ending December 31, 2003.
Note - 2 NET LOSS PER SHARE
For the three-month periods ended March 31, 2003 and 2002 basic net
loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Diluted net loss per
share is the same as basic net loss per share since the inclusion of
495,975 and 609,309 shares of potential common stock equivalents
(stock options and warrants) in the computation at March 31, 2003 and
2002, respectively, 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
received an additional licensing fee in 2002 of $1,000,000 upon the
licensee achieving a research milestone. The licensee is entitled to
use the technologies for five years from the date of 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.
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CADUS PHARMACEUTICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 and recorded as license fee revenue in
December 2000 after the lifting of the injunction obtained by SIBIA
Neurosciences, Inc. ("SIBIA"). OSI may terminate the license at any
time on 30 days prior written notice. During the three-month periods
ended March 31, 2003 and 2002, Cadus recognized $100,000 of license
revenue related to this agreement.
Note - 4 INVESTMENT IN MARKETABLE SECURITIES
The Company had an equity interest in Axiom Biotechnologies, Inc.
("Axiom"). Due to Axiom's operating losses, the Company's investment
was written down to $0 at December 31, 2001. On August 30, 2002, Axiom
entered into a merger agreement with a wholly- owned subsidiary of
Sequenom, Inc. which is publicly traded on the Nasdaq National Market.
The Company received 441,446 common shares of Sequenom, Inc. in
exchange for its shares in Axiom.
Pursuant to the merger, 102,685 of the Company's 441,446 common shares
of Sequenom, Inc. are held in escrow (the "Escrow Shares") for a
one-year period. The Escrow Shares are held to secure rights to
indemnification, compensation and reimbursement of Sequenom, Inc. and
other indemnities as defined in the merger agreement. The value of the
Escrow Shares received was recorded as a deferred gain on exchange of
equity interest in the accompanying condensed consolidated balance
sheet.
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Debt and Equity Securities"
management deems its investment in Sequenom, Inc. to be available for
sale and reports its investment at fair value with net unrealized
gains or losses reported in accumulated other comprehensive loss
within stockholders' equity. The Company's unrealized loss of $196,481
on shares received is reflected in accumulated other comprehensive
loss as of March 31, 2003. The Company's unrealized loss of $59,558
for Escrow Shares is reflected as an offset to the deferred gain on
exchange of equity interest as of March 31, 2003.
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Note - 5 ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
In December 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure"
("SFAS 148"). SFAS 148 provides alternative methods of transition for
a voluntary change to the fair value method of accounting for
stock-based employee compensation as originally provided by SFAS No.
123 "Accounting for Stock-Based Compensation". Additionally, SFAS 148
amends the disclosure requirements of SFAS 123 to require prominent
disclosure in both the annual and interim financial statements about
the method of accounting for stock-based compensation and the effect
of the method used on reported results. Pro forma net income (loss)
would be the same as the reported net income (loss) for the three
months ended March 31, 2003 and 2002 had the fair-value-based method
been applied to all outstanding awards, which were fully vested as of
December 31, 1999. Therefore, the application of the disclosure
portion of this standard had no impact on our consolidated financial
statements as of December 31, 2002 and for the three months ended
March 31, 2003.
On April 22, 2003, the FASB determined that stock-based compensation
should be recognized as a cost in the financial statements and that
such cost be measured according to the fair value of the stock
options. The FASB has not as yet determined the methodology for
calculating fair value and plans to issue an exposure draft letter
this year that could become effective in 2004. We will continue to
monitor communications on this subject from the FASB in order to
determine the impact on the Company's consolidated financial
statements.
9
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.
At March 31, 2003, the Company had an accumulated deficit of approximately $33.1
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 MARCH 31, 2003 AND MARCH 31, 2002
REVENUES
Revenues for the three months ended March 31, 2003 and 2002 were $100,000 which
is the annual maintenance fee from OSI Pharmaceuticals, Inc.
COSTS AND EXPENSES
General and administrative expense increased to $292,918 for the three months
ended March 31, 2003 from $263,710 for the same period in 2002. This increase
can be attributed primarily to an increase in professional fees.
For the three months ended March 31, 2003 the Company recognized a loss of
$3,136 in its investment in Laurel Partners Limited Partnership. The gain for
the same period in 2002 was $682.
INTEREST INCOME
Interest income for the three months ended March 31, 2003 was $53,587 compared
to interest income of $94,568 for the same period in 2002. This decrease is
attributable primarily to lower interest rates earned on invested funds.
10
NET LOSS
Net loss for the three months ended March 31, 2003 was $142,467 compared to a
net loss of $68,460 for the same period in 2002. This increase in net loss can
be attributed primarily to the decrease in interest income and the increase in
professional fees.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003 the Company held cash and cash equivalents of $24.8 million.
The Company's working capital at March 31, 2003 was $25.3 million.
The Company believes that its existing capital resources, together with interest
income, will be sufficient to support its operations through the end of 2004.
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 or invest in companies and income-producing assets and the expenses of
pursuing such transactions.
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.
Item 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures
conducted within 90 days of the date of filing this report on Form 10-Q, the
Company's President and Chief Executive Officer, who also performs functions
similar to those of a principal financial officer, concluded that the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and
15(d)-14(c) promulgated under the Securities Exchange Act of 1934) are
effective.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, nor were any corrective actions required with regard to
significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
11
Item 2. Changes in Securities and Use of Proceeds.
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) The Exhibit listed in the Exhibit Index is included in this
quarterly report on Form 10-Q.
(b) Reports on Form 8-K.
None.
12
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)
Dated: May 15, 2003 By: /s/ Michele A. Paige
---------------------------------------------
Michele A. Paige
President and Chief Executive Officer (Authorized
Officer and Principal Financial Officer)
13
CERTIFICATIONS
I, Michele A. Paige, President and Chief Executive Officer of Cadus
Pharmaceutical Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cadus
Pharmaceutical Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
14
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 15, 2003
/s/ Michele A. Paige
----------------------------------------------
Michele A. Paige
President and Chief Executive Officer (Chief
Executive Officer and Chief Financial Officer)
15
EXHIBIT INDEX
The following exhibit is filed as part of this Quarterly Report on Form 10-Q:
EXHIBIT NO. DESCRIPTION
99.1 Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002
16