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 June 30, 2004
-------------
[ ] 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 Identification No.)
Incorporation or Organization)
767 Fifth Avenue, New York, New York 10153
- ----------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 702-4315
---------------------------
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, 2004 was 13,144,040.
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 - June 30, 2004 (unaudited) and 5
December 31,2003 (audited)
Condensed Consolidated Statements of Operations - Three Months Ended 6
June 30, 2004 and 2003 (unaudited)
Condensed Consolidated Statements of Operations - Six Months Ended June 7
30, 2004 and 2003 (unaudited)
Condensed Consolidated Statements of Cash Flows - Six Months Ended 8
June 30, 2004 and 2003 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited) 9 - 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 12 - 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13 - 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8K 14
2
SIGNATURES 15
EXHIBIT INDEX 16
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
June 30, December 31,
2004 2003
-------------- --------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 24,171,033 $ 24,369,223
Prepaid and other current assets 36,217 34,393
Investment in marketable securities 588,291 1,412,627
-------------- --------------
Total current assets 24,795,541 25,816,243
Investment in other ventures 159,635 162,805
Other assets, net 787,482 827,935
-------------- --------------
Total assets $ 25,742,658 $ 26,806,983
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses and other current liabilities $ 26,342 $ 49,164
-------------- --------------
Total current liabilities 26,342 49,164
-------------- --------------
Commitments
Stockholders' equity:
Common stock 132,857 132,857
Additional paid-in capital 59,844,355 59,844,355
Accumulated deficit (33,412,734) (33,195,567)
Accumulated other comprehensive (loss) income (548,087) 276,249
Treasury stock (300,075) (300,075)
-------------- --------------
Total stockholders' equity 25,716,316 26,757,819
-------------- --------------
Total liabilities and stockholder's equity $ 25,742,658 $ 26,806,983
============== ==============
See accompanying notes to condensed consolidated financial statements.
5
CADUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
2004 2003
------------ ------------
(Unaudited) (Unaudited)
License and maintenance fees $ -- $ --
------------ ------------
Total revenues -- --
------------ ------------
Costs and expenses:
General and administrative expenses 159,884 241,152
(Gain) from equity in other ventures (128) (361)
------------ ------------
Total costs and expenses 159,756 240,791
------------ ------------
Operating loss (159,756) (240,791)
Other income:
Interest income 36,065 46,820
------------ ------------
(Loss) before income taxes (123,691) (193,971)
Income taxes -- --
------------ ------------
Net (loss) $ (123,691) $ (193,971)
============ ============
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.
6
CADUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
June 30,
2004 2003
------------ ------------
(Unaudited) (Unaudited)
License and maintenance fees $ 100,000 $ 100,000
------------ ------------
Total revenues 100,000 100,000
------------ ------------
Costs and expenses:
General and administrative expenses 384,439 534,070
Loss from equity in other ventures 3,170 2,775
------------ ------------
Total costs and expenses 387,609 536,845
------------ ------------
Operating loss (287,609) (436,845)
Other income:
Interest income 70,442 100,407
------------ ------------
(Loss) before income taxes (217,167) (336,438)
Income taxes -- --
------------ ------------
Net (loss) $ (217,167) $ (336,438)
============ ============
Basic and diluted loss per weighted average share
of common stock outstanding $ (0.02) $ (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
Six Months Ended
June 30,
2004 2003
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net (loss) $ (217,167) $ (336,438)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Amortization of patent costs 40,453 40,452
Loss of equity in other ventures 3,170 2,775
Changes in assets and liabilities:
(Increase) decrease in prepaid and other current assets (1,824) 38,273
(Decrease) in accrued expenses and other current
liabilities (22,822) (148,584)
------------ ------------
Net cash (used in) operating activities (198,190) (403,522)
------------ ------------
Net (decrease) in cash and cash equivalents (198,190) (403,522)
Cash and cash equivalents - beginning of period 24,369,223 24,923,071
------------ ------------
Cash and cash equivalents - end of period $ 24,171,033 $ 24,519,549
============ ============
See accompanying notes to condensed consolidated financial statements.
8
CADUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note - 1 ORGANIZATION AND BASIS OF PREPARATION
The information presented as of June 30, 2004 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, 2003
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, 2003.
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,
2004 are not necessarily indicative of the results to be expected
for the year ending December 31, 2004.
Note - 2 NET LOSS PER SHARE
For the three and six-month periods ended June 30, 2004 and 2003
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 332,570 and 495,975 shares of potential common
stock equivalents (stock options and warrants) in the computation
at June 30, 2004 and 2003, 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. In September 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
9
CADUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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,
2004 and 2003, 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. In connection with the merger, the Company
received 441,446 common shares of Sequenom, Inc. with a fair
market value of $2.43 per share 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 that expired on August 30, 2003.
The Escrow Shares were held to secure rights to indemnification,
compensation and reimbursement of Sequenom and other indemnitees
as provided in the merger agreement. Upon the closing of the
transaction, Cadus recorded a realized gain of $823,189 related to
the 338,761 common shares received in the consolidated statement
of operations for the year ended December 31, 2002. The Company
was advised that the Escrow Shares had been released on August 30,
2003 and, accordingly, the Company recorded a realized gain on
marketable securities related to the Escrow Shares of $313,189 in
the consolidated statement of operations for the year ended
December 31, 2003. In May 2004, the Company became aware that
38,507 shares of the 102,685 Escrow Shares were forfeited pursuant
to the indemnification provisions of the merger agreement and
therefore not issued to the Company. Accordingly, to reflect this
reduction of the Escrow Shares received by the Company, the
investment in marketable securities was reduced by $123,222 on the
March 31,2004 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 within stockholders' equity.
Note - 5 ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
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. The Company's long-lived assets
(principally capitalized patent costs) are required to be measured
at the lower of carrying amount of fair value, less cost to sell,
whether reported in continuing operations or discontinued
operations. Intangibles with determinable lives and other
long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an
asset may not be recoverable. The Company's judgments regarding
the existence of impairment indicators are based on historical and
projected future operating results, changes in the Company's
overall business strategy, and market and economic trends. In the
future, events could cause the Company to conclude that impairment
indicators exist and that certain intangibles with determinable
lives and other long-lived assets are impaired
10
CADUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
which may result in an adverse impact on the Company's financial
condition and results of operations. The provisions of SFAS No.
144 did not have an impact on the Company's financial statements
as of and for the six months ended June 30, 2004.
Note - 6 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 2004, the Emergency Issues Task Force ("EITF") reached
consensus on Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments" regarding
disclosures about unrealized losses on available-for-sale debt and
equity securities accounted for under Financial Account Standards
Board Statements No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," and No. 124, "Accounting for Certain
Investments Held by Not-for-Profit Organizations." The guidance
for evaluating whether an investment is other-than-temporarily
impaired should be applied in such evaluations made in reporting
periods beginning after June 15, 2004. The disclosures are
effective in annual financial statements for fiscal years ending
after December 15, 2003, for investments accounted for under
Statements 115 and 124. For all other investments within the scope
of this Issue, the disclosures are effective in annual financial
statements for fiscal years ending after June 15, 2004. The
additional disclosures for cost method investments are effective
for fiscal years ending after June 15, 2004. The Company does not
expect that the implementation of EITF 03-1 will have a material
effect on its 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 June 30, 2004, the Company had an accumulated deficit of approximately $33.4
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, 2004 AND JUNE 30, 2003
REVENUES
There were no revenues for the three months ended June 30, 2004 and 2003.
COSTS AND EXPENSES
General and administrative expenses decreased to $159,884 for the three months
ended June 30, 2004 from $241,152 for the same period in 2003. Patent costs and
professional fees decreased by $64,425; insurance expense decreased by $17,912;
and there were net increases in other expenses of $1,069.
INTEREST INCOME
Interest income for the three months ended June 30, 2004 was $36,065 compared to
interest income of $46,820 for the same period in 2003. This decrease is
attributable primarily to lower interest rates earned on invested funds.
NET (LOSS)
Net loss for the three months ended June 30, 2004 was $123,691, compared to a
net loss of $193,971 for the same period in 2003. This decrease in net loss can
be attributed primarily to a decrease in professional fees and insurance expense
offset by a decrease in interest income.
SIX MONTHS ENDED JUNE 30, 2004 AND JUNE 30, 2003
REVENUES
Revenues for the six months ended June 30, 2004 and 2003 were $100,000, which is
the annual maintenance fee from OSI.
12
COSTS AND EXPENSES
General and administrative expenses decreased to $384,439 for the six months
ended June 30, 2004 from $534,070 for the same period in 2003. Patent costs and
professional fees decreased by $129,307, insurance expense decreased by $35,824;
there was an increase in sales taxes of $12,960 due in connection with the sale
of assets to OSI in 1999 as a result of an audit; and there were net increases
in other expenses of $2,540.
For the six months ended June 30, 2004 the Company recognized a loss of $3,170
in its investment in Laurel Partners Limited Partnership. The loss for the same
period in 2003 was $2,775.
INTEREST INCOME
Interest income for the six months ended June 30, 2004 was $70,442 compared to
interest income of $100,407 for the same period in 2003. This decrease is
attributable primarily to lower interest rates earned on invested funds.
NET (LOSS)
Net loss for the six months ended June 30, 2004 was $217,167, compared to a net
loss of $336,438 for the same period in 2003. This decrease in net loss can be
attributed primarily to a decrease in professional fees and insurance expense
offset by a decrease in interest income.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2004 the Company held cash and cash equivalents of $24.2 million.
The Company's working capital at June 30, 2004 was $24.7 million.
The Company believes that its existing capital resources, together with interest
income, will be sufficient to support its operations through the end of 2005.
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.
13
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, Use of Proceeds and Issuer Purchases of Equity
Securities.
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 Exhibits listed in the Exhibit Index are included in this
quarterly report on Form 10-Q.
(b) Reports on Form 8-K.
A Current Report on Form 8-K was filed on May 11, 2004 to
report a change in the Company's certifying accountant to
Grant Thornton LLP from KPMG LLP.
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)
Dated: August 16, 2004 By: /s/ David Blitz
-------------------------------------
David Blitz
President and Chief Executive Officer
(Authorized Officer and Principal
Financial Officer)
15
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
16