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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, 2003
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|_| 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
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CADUS CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified on its Charter)
Delaware 13-3660391
- -------------------------------------------------------- ---------------------
(State of Other Jurisdiction of (I.R.S. Employer
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
--------------------
Former Name, Former Address and Former Fiscal Year, if Cadus Pharmaceutical
Changed Since Last Report Corporation
--------------------
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 July 31, 2003 was 13,144,040.
1
CADUS CORPORATION
INDEX
PAGE NO.
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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, 2003
(unaudited) and December 31, 2002 (audited) 4
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 2003 and 2002 (unaudited) 5
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 2003 and 2002 (unaudited) 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2003 and 2002 (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 12
Item 4. Controls and Procedures 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 - 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8K 14
SIGNATURES 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 CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
2003 2002
----------- -----------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $24,519,549 $24,923,071
Prepaid and other current assets 40,780 79,053
Investment in marketable securities 1,213,977 794,603
----------- -----------
Total current assets 25,774,306 25,796,727
Investment in other ventures 162,147 164,922
Other assets, net 868,388 908,841
----------- -----------
Total assets $26,804,841 $26,870,490
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other current liabilities $ 79,226 $ 227,810
Deferred gain on exchange of equity interest 282,384 184,833
----------- -----------
Total current liabilities 361,610 412,643
----------- -----------
Stockholders' equity:
Common stock 132,857 132,857
Additional paid-in capital 59,844,355 59,844,355
Accumulated deficit (33,342,309) (33,005,871)
Accumulated other comprehensive income (loss) 108,403 (213,419)
Treasury stock (300,075) (300,075)
----------- -----------
Total stockholders' equity 26,443,231 26,457,847
----------- -----------
Total liabilities and stockholders' equity $26,804,841 $26,870,490
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
CADUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
2003 2002
----------- -----------
(Unaudited) (Unaudited)
License and maintenance fees $ -- $ --
----------- -----------
Total revenues -- --
----------- -----------
Costs and expenses:
General and administrative expenses 241,152 277,835
Gain from equity in other ventures (361) (725)
----------- -----------
Total costs and expenses 240,791 277,110
----------- -----------
Operating loss (240,791) (277,110)
Other income:
Interest income 46,820 85,619
----------- -----------
Loss before income taxes (193,971) (191,491)
Income taxes -- --
----------- -----------
Net loss ($ 193,971) ($ 191,491)
=========== ===========
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 CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
June 30,
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 534,070 541,545
Loss (gain) of equity in other ventures 2,775 (1,407)
------------ ------------
Total costs and expenses 536,845 540,138
------------ ------------
Operating loss (436,845) (440,138)
Other income:
Interest income 100,407 180,187
------------ ------------
Loss before income taxes (336,438) (259,951)
Income taxes -- --
------------ ------------
Net loss ($ 336,438) ($ 259,951)
============ ============
Basic and diluted loss per weighted average
share of common stock outstanding ($ 0.03) ($ 0.02)
============ ============
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 CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2003 2002
----------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss ($ 336,438) ($ 259,951)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization of patent costs 40,452 40,453
Loss (gain) of equity in other ventures 2,775 (1,407)
Changes in assets and liabilities:
Decrease in license fee receivable -- 500,000
Decrease in prepaid and other current assets 38,273 29,476
Decrease in accrued expenses and other
current liabilities (148,584) (669,636)
----------- -----------
Net cash used in operating activities (403,522) (361,065)
----------- -----------
Net decrease in cash and cash equivalents (403,522) (361,065)
Cash and cash equivalents - beginning of period 24,923,071 24,469,357
----------- -----------
Cash and cash equivalents - end of period $24,519,549 $24,108,292
=========== ===========
See accompanying notes to condensed consolidated financial statements.
7
CADUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note - 1 ORGANIZATION AND BASIS OF PREPARATION
Cadus Pharmaceutical Corporation changed its name to Cadus
Corporation (the "Company") on June 20, 2003. The change in name
was approved by the stockholders of the Company at the Company's
Annual Meeting of Stockholders held on June 18, 2003.
The information presented as of June 30, 2003 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, 2002
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 six month period ended June 30,
2003 are not necessarily indicative of the results to be expected
for the year ending December 31, 2003.
Note - 2 NET LOSS PER COMMON SHARE
For the three and six-month periods ended June 30, 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 shares of potential common stock
equivalents (stock options and warrants) in the computation for
the three and six-month periods ending June 30, 2003 would be
anti-dilutive. Diluted net loss per share is the same as basic
net loss per share since the inclusion of 609,309 shares of
potential common stock equivalents in the computation for the
three and six-month periods ending 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
8
CADUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
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
and in December 2000 a supplemental license fee of $250,000. OSI
is also obligated to pay an annual maintenance fee of $100,000
until the earlier of 2010 or the termination of the license. OSI
may terminate the license at any time on 30 days prior written
notice. During the six-month period ended June 30, 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 income (loss) within stockholders' equity. The
Company's unrealized gain of $108,403 as of June 30, 2003 on
shares received is reflected in accumulated other comprehensive
income. The Company's unrealized gain of $32,859 as of June 30,
2003 for Escrow Shares is included in the deferred gain on
exchange of equity interest.
9
CADUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 (loss) would be
the same as the reported net (loss) for the three and six months
ended June 30, 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 June 30, 2003 and for the three and
six months ended June 30, 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 later 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.
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.
At June 30, 2003, the Company had an accumulated deficit of approximately $33.3
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, 2003 AND JUNE 30, 2002
REVENUES
There were no revenues for the three months ended June 30, 2003 and 2002.
COSTS AND EXPENSES
General and administrative expenses decreased to $241,152 for the three months
ended June 30, 2003 from $277,835 for the same period in 2002. The decrease can
be attributed primarily to a decrease in professional and license fees.
For the three months ended June 30, 2003, the Company recognized a gain of $361
in its investment in Laurel Partners Limited Partnership ("Laurel"). The gain
for the same period in 2002 was $725.
INTEREST INCOME
Interest income for the three months ended June 30, 2003 was $46,820 compared to
interest income of $85,619 for the same period in 2002. This decrease is
attributable primarily to lower interest rates earned on invested funds.
NET LOSS
Net loss for the three months ended June 30, 2003 was $193,971 compared to a net
loss of $191,491 for the same period in 2002. This increase in net loss can be
attributed primarily to a decrease in interest income offset in part by the
decrease in professional and license fees.
11
SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002
REVENUES
Revenues for the six months ended June 30, 2003 and 2002 were $100,000 which is
the annual maintenance fee from OSI Pharmaceuticals, Inc.
COSTS AND EXPENSES
General and administrative expenses decreased to $534,070 for the six months
ended June 30, 2003 from $541,545 for the same period in 2002. This decrease can
be attributed primarily to a decrease in license fees offset by an increase in
shareholder relations.
For the six months ended June 30, 2003, the Company recognized a loss of $2,775
in its investment in Laurel. The gain for the same period in 2002 was $1,407.
INTEREST INCOME
Interest income for the six months ended June 30, 2003 was $100,407 compared to
interest income of $180,187 for the same period in 2002. This decrease is
attributable primarily to lower interest rates earned on invested funds.
NET LOSS
Net loss for the six months ended June 30, 2003 was $336,438 compared to a net
loss of $259,951 for the same period in 2002. This increase in net loss can be
attributed primarily to the decrease in interest income.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003 the Company held cash and cash equivalents of $24.5 million.
The Company's working capital at June 30, 2003 was $25.4 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.
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 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.
12
Item 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures
conducted as of the period covered by this report on Form 10-Q, the Company's
President and Chief Executive Officer, who also performs the functions of a
principal financial officer, concluded that the Company's disclosure controls
and procedures (as defined in Rules 13a-14(c) and 15d-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.
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
On June 18, 2003, the Company held its annual meeting of
stockholders in New York, New York. The holders of 12,430,173 shares
of Common Stock were present or represented by proxy and,
accordingly, a quorum was present. The following matters were voted
upon and received the votes set forth below:
1. All of the following persons nominated were elected to serve as
directors and received the number of votes set opposite their
respective names:
VOTES FOR VOTES WITHHELD
James R. Broach 11,997,583 452,590
Russell D. Glass 11,997,583 452,590
Carl C. Icahn 11,997,583 452,590
Peter S. Liebert 11,997,583 452,590
Michele A. Paige 11,997,583 452,590
Jack G. Wasserman 11,997,583 452,590
13
2. The Company's proposal to amend the Company's Certificate of
Incorporation to change the Company's name to Cadus Corporation
received 12,164,065 votes FOR and 245,606 votes AGAINST, with
20,502 abstentions and 0 broker non-votes.
3. A stockholder proposal concerning a request that the Board of
Directors of the Company pursue returning the Company's excess
cash to its stockholders received 1,822,576 votes FOR and
6,103,824 votes AGAINST, with 27,750 abstentions and 4,476,023
broker non-votes.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The Exhibits listed in the Exhibit Index are included in
this report.
(b) Reports on Form 8-K.
None.
14
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 CORPORATION
(REGISTRANT)
Date: August 14, 2003 By: /s/ Michele A. Paige
-----------------------------------------
Michele A. Paige
President and Chief Executive Officer
(Authorized Officer and
Principal Financial Officer)
15
EXHIBIT INDEX
The following exhibit is filed as part of this Quarterly Report on Form 10-Q:
EXHIBIT NO. DESCRIPTION
3.1 Certificate of Amendment of Amended and Restated
Certificate of Incorporation of Cadus
Pharmaceutical Corporation ("Cadus"), as filed
with the Secretary of State of Delaware on June
20, 2003, and Amended and Restated Certificate of
Incorporation of Cadus, as filed with the
Secretary of State of Delaware on July 22, 1996.
31 Certifications
32 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
16