Back to GetFilings.com
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 September 30, 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 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
---------------------------
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 October 31, 2003 was 13,144,040.
1
CADUS CORPORATION
INDEX
PAGE NO.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 4
PART I - CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2003
(unaudited) and December 31, 2002 (audited) 5
Condensed Consolidated Statements of Operations - Three
Months Ended September 30, 2003 and 2002 (unaudited) 6
Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 2003 and 2002 (unaudited) 7
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2003 and 2002 (unaudited) 8
Notes to Condensed Consolidated Financial
Statements (unaudited) 9 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
PAGE NO.
EXHIBIT INDEX 17
3
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.
4
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CADUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
2003 2002
----------- -----------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $24,309,125 $24,923,071
License fee receivable 120,000 --
Prepaid and other current assets 88,296 79,053
Investment in marketable securities 1,425,871 794,603
----------- -----------
Total current assets 25,943,292 25,796,727
Investment in other ventures 162,484 164,922
Other assets, net 848,161 908,841
----------- -----------
Total assets $26,953,937 $26,870,490
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other current liabilities $ 29,094 $ 227,810
Deferred gain on exchange of equity interest -- 184,833
----------- -----------
Total current liabilities 29,094 412,643
----------- -----------
Stockholders' equity:
Common stock 132,857 132,857
Additional paid-in capital 59,844,355 59,844,355
Accumulated deficit (33,041,787) (33,005,871)
Accumulated other comprehensive income (loss) 289,493 ( 213,419)
Treasury stock ( 300,075) ( 300,075)
----------- -----------
Total stockholders' equity 26,924,843 26,457,847
----------- -----------
Total liabilities and stockholders' equity $26,953,937 $26,870,490
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
CADUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
2003 2002
----------- -----------
(Unaudited) (Unaudited)
License and maintenance fees $ 120,000 $ --
----------- -----------
Total revenues 120,000 --
----------- -----------
Costs and expenses:
General and administrative expenses 169,447 191,536
(Gain) loss from equity in other ventures ( 337) 2,699
----------- -----------
Total costs and expenses 169,110 194,235
----------- -----------
Operating loss ( 49,110) ( 194,235)
----------- -----------
Other income:
Interest income 36,443 81,816
Realized gain on marketable securities 313,189 823,189
----------- -----------
Total other income 349,632 905,005
----------- -----------
Income before income taxes 300,522 710,770
Income taxes -- --
----------- -----------
Net income $ 300,522 $ 710,770
=========== ===========
Basic and diluted income per weighted average
share of common stock outstanding $ 0.02 $ 0.05
=========== ===========
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 OPERATIONS
Nine Months Ended
September 30,
2003 2002
----------- -----------
(Unaudited) (Unaudited)
License and maintenance fees $ 220,000 $ 100,000
----------- -----------
Total revenues 220,000 100,000
----------- -----------
Costs and expenses:
General and administrative expenses 703,517 733,081
Loss from equity in other ventures 2,438 1,292
----------- -----------
Total costs and expenses 705,955 734,373
----------- -----------
Operating loss ( 485,955) ( 634,373)
----------- -----------
Other income:
Interest income 136,850 262,003
Realized gain on marketable securities 313,189 823,189
----------- -----------
Total other income 450,039 1,085,192
----------- -----------
(Loss ) income before income taxes ( 35,916) 450,819
Income taxes -- --
----------- -----------
Net (loss) income ($ 35,916) $ 450,819
=========== ===========
Basic and diluted (loss) income per weighted
average share of common stock outstanding ($ 0.00) $ 0.03
=========== ===========
Weighted average shares of common stock
outstanding - basic and diluted 13,144,040 13,144,040
=========== ===========
See accompanying notes to condensed consolidated financial statements.
7
CADUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2003 2002
----------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net (loss) income ($ 35,916) $ 450,819
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Amortization of patent costs 60,680 60,680
Realized gain on marketable securities ( 313,189) ( 823,189)
Loss from equity in other ventures 2,438 1,292
Changes in assets and liabilities:
(Increase) decrease in license fee
receivable ( 120,000) 500,000
Increase in prepaid and other
current assets ( 9,243) ( 75,598)
Decrease in accrued expenses and other
current liabilities ( 198,716) ( 688,604)
----------- -----------
Net cash used in operating activities ( 613,946) ( 574,600)
----------- -----------
Net decrease in cash and cash equivalents ( 613,946) ( 574,600)
Cash and cash equivalents - beginning of period 24,923,071 24,469,357
----------- -----------
Cash and cash equivalents - end of period $24,309,125 $23,894,757
=========== ===========
See accompanying notes to condensed consolidated financial statements.
8
CADUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note - 1 ORGANIZATION AND BASIS OF PREPARATION
Cadus Pharmaceutical Corporation changed its name to Cadus
Corporation ("Cadus") on June 20, 2003. The change in name was
approved by the stockholders of Cadus at Cadus' Annual Meeting of
Stockholders held on June 18, 2003.
The information presented as of September 30, 2003 and for the three
and nine month periods then ended, is unaudited, but includes all
adjustments (consisting only of normal recurring accruals) that
Cadus' 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
Cadus 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 Cadus' annual report on Form 10-K for
the year ended December 31, 2002.
The consolidated financial statements include the accounts of the
Cadus and its wholly owned subsidiary Cadus Technologies, Inc.
(collectively with Cadus, the "Company"), organized in December
2001. All inter-company balances and transactions have been
eliminated in consolidation.
The results of operations for the nine month period ended September
30, 2003 are not necessarily indicative of the results to be
expected for the year ending December 31, 2003.
Note - 2 NET (LOSS) INCOME PER COMMON SHARE
For the three and nine month periods ended September 30, 2003 and
2002 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 434,307
shares of potential common stock equivalents (stock options and
warrants) in the computation for the three and nine- month periods
ended September 30, 2003 would be anti-dilutive. Diluted net income
per share is the same as basic net income per share since the
inclusion of 609,309 shares of potential common stock equivalents in
the computation for the three and nine-month periods ending
September 30, 2002 would be anti-dilutive.
9
CADUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. On September 12, 2003, the parties
entered into an addendum to the agreement pursuant to which the
Company extended the license to an affiliate of the licensee in
consideration for the licensee agreeing to pay $120,000 to the
Company.
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
nine-month period ended September 30, 2003 and 2002, the Company
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. were held in escrow (the "Escrow Shares")
for a one-year period. The Escrow Shares were 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 on the consolidated balance sheet as of
December 31, 2002. On August 30, 2003, the escrow
10
CADUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
shares were released and, accordingly, the Company recorded a
realized gain on marketable securities of $313,189 in the
three-month period ended September 30, 2003.
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 $289,493 as of September 30, 2003 on
shares received is reflected in accumulated other comprehensive
income (loss).
Note - 5 ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
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 nine months ended September 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 September 30, 2003
and for the three and nine months ended September 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 and
final statement 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.
11
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 September 30, 2003, the Company had an accumulated deficit of approximately
$33.0 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 SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002
REVENUES
There was $120,000 of license fee revenue for the three months ended September
30, 2003 due to an addendum to a license agreement pursuant to which the Company
extended the license to an affiliate of the licensee. There were no revenues for
the three months ended September 30, 2002.
COSTS AND EXPENSES
General and administrative expenses decreased to $169,447 for the three months
ended September 30, 2003 from $191,536 for the same period in 2002. The decrease
can be attributed primarily to a decrease in professional and directors fees and
insurance costs.
For the three months ended September 30, 2003, the Company recognized a gain of
$337 in its investment in Laurel Partners Limited Partnership ("Laurel"). The
loss for the same period in 2002 was $2,699.
OTHER INCOME
Interest income for the three months ended September 30, 2003 was $36,443
compared to interest income of $81,816 for the same period in 2002. This
decrease is attributable primarily to lower interest rates earned on invested
funds.
On August 30, 2002, the Company's equity interest in Axiom Biotechnologies, Inc.
("Axiom") was converted into 441,446 shares of Sequenom, Inc. ("Sequenom")
pursuant to the merger of Axiom and Sequenom. Upon closing of the transaction,
the Company recorded a realized gain of $823,189 related to the 338,761 common
shares received in the condensed consolidated statement of operations for the
three months ended September
12
30, 2002. The remaining value of the 102,685 shares held in escrow was recorded
as a deferred gain on exchange of equity interest on the consolidated balance
sheet. On August 30, 2003, 102,685 shares were released from escrow and,
accordingly, the Company recorded a gain on marketable securities of $313,189 in
the three-month period ended September 30, 2003.
NET INCOME
Net income for the three months ended September 30, 2003 was $300,522 compared
to net income of $710,770 for the same period in 2002. This decrease in net
income can be attributed primarily to a decrease in interest income and realized
gains on marketable securities, offset by an increase in license fee revenues.
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND SEPTEMBER 30, 2002
REVENUES
Revenues increased to $220,000 for the nine months ended September 30, 2003 from
$100,000 for the same period in 2002. The increase is attributable to a fee due
in connection with an addendum to a license agreement pursuant to which the
Company extended the license to an affiliate of the licensee.
COSTS AND EXPENSES
General and administrative expenses decreased to $703,517 for the nine months
ended September 30, 2003 from $733,081 for the same period in 2002. The decrease
can be attributed primarily to a decrease in license, professional and directors
fees offset by an increase in shareholder relations.
For the nine months ended September 30, 2003, the Company recognized a loss of
$2,438 in its investment in Laurel. The loss for the same period in 2002 was
$1,292.
OTHER INCOME
Interest income for the nine months ended September 30, 2003 was $136,850
compared to interest income of $262,003 for the same period in 2002. This
decrease is attributable primarily to lower interest rates earned on invested
funds.
On August 30, 2002, the Company's equity interest in Axiom was converted into
441,446 shares of Sequenom pursuant to the merger of Axiom and Sequenom. Upon
closing of the transaction, the Company recorded a realized gain of $823,189
related to the 338,761 common shares received in the condensed consolidated
statement of operations for the nine months ended September 30, 2002. The
remaining value of the 102,685 shares held in escrow was recorded as a deferred
gain on exchange of equity interest on the consolidated balance sheet as of
December 31, 2002. On August 30, 2003, 102,685 shares were released from escrow
and, accordingly, the Company recorded a gain on marketable securities of
$313,189 in the nine-month period ended September 30, 2003.
NET (LOSS) INCOME
Net loss for the nine months ended September 30, 2003 was $35,916 compared to
net income of $450,819 for the same period in 2002. This decrease in net income
can be attributed primarily to the decrease in
13
interest income and realized gains on marketable securities, offset by an
increase in license fee revenues and a decrease in general and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2003 the Company held cash and cash equivalents of $24.3
million. The Company's working capital at September 30, 2003 was $25.9 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.
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-15(e) and 15d-15(e) 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.
14
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 are included in this
report.
(b) Reports on Form 8-K.
None.
15
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: November 13, 2003 By: /s/ Michele A. Paige
--------------------------------------------------
Michele A. Paige
President and Chief Executive Officer (Authorized
Officer and Principal Financial Officer)
16
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
EXHIBIT NO. DESCRIPTION
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
17