CADUS CORP - FORM 10-Q - August 15, 2011

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EX-32 - EXHIBIT 32 - CADUS CORP	v230405_ex32.htm
EXCEL - IDEA: XBRL DOCUMENT - CADUS CORP	Financial_Report.xls
EX-31 - EXHIBIT 31 - CADUS CORP	v230405_ex31.htm

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, 2011

o	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 Incorporation or Organization)		(I.R.S. Employer 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) 702-4315

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b-2 of the Exchange Act). (Check one):

Large accelerated filer o Accelerated filer o

Non-accelerated filer o Smaller reporting company x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act).

Yes o No x

The number of shares of registrant’s common stock, $0.01 par value, outstanding as of July 31, 2011 was 13,144,040.

CADUS CORPORATION

INDEX

		Page No.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS		2

PART I - CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets - June 30, 2011 (unaudited) and December 31, 2010 (audited)		3

Condensed Consolidated Statements of Operations - Three Months Ended June 30, 2011 and 2010 (unaudited)		4

Condensed Consolidated Statements of Operations - Six Months Ended June 30, 2011 and 2010 (unaudited)		5

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2011 and 2010 (unaudited)		6

Notes to Condensed Consolidated Financial Statements (unaudited)		7-8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	10

Item 4.	Controls and Procedures	11

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	12

Item 1A.	Risk Factors	12

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12

Item 3.	Defaults Upon Senior Securities	12

Item 5.	Other Information	12

Item 6.	Exhibits	12

SIGNATURES		13

EXHIBIT INDEX		14

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 state 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 Cadus Corporation (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, risks and uncertainties relating to the Company's ability to license its technologies to third parties, the Company's inability to acquire and operate other companies, the Company's capital needs and uncertainty of future funding, the Company's history of operating losses, the unpredictability of patent protection, risk of obsolescence of the Company's technologies, as well as other risks and uncertainties discussed in the Company’s annual report on Form 10-K for the year ended December 31, 2010. 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.

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CADUS CORPORATION

Condensed Consolidated Balance Sheets

ASSETS
	June 30, 2011			December 31, 2010
	(Unaudited)			(Audited)
Current assets:
Cash and cash equivalents	$	23,565,567		$	23,789,400
Interest receivable		193			885
Prepaid and other current assets		29,331			7,090

Total current assets		23,595,091			23,797,375

Investment in other ventures		194,009			194,232
Patents, net		248,319			291,535
Total assets	$	24,037,419		$	24,283,142

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accrued expenses and other current liabilities	$	6,373		$	4,778
Total current liabilities		6,373			4,778

Commitments

Stockholders’ equity:
Common stock		132,857			132,857
Additional paid-in capital		59,847,443			59,847,443
Accumulated deficit		(35,649,179	)		(35,401,861	)
Treasury stock		(300,075	)		(300,075	)
Total stockholders’ equity		24,031,046			24,278,364
Total liabilities and stockholders’ equity	$	24,037,419		$	24,283,142

See accompanying notes to condensed consolidated financial statements.

CADUS CORPORATION

Condensed Consolidated Statements of Operations

	Three Months Ended June 30,
	2011			2010
	(Unaudited)			(Unaudited)
License and maintenance fees	$	—		$	—
Total revenues		—			—
Costs and expenses:
General and administrative expenses		72,148			70,592
Amortization of patent costs		21,608			21,609
Loss from equity in other ventures		244			189
Total costs and expenses		94,000			92,390
Operating loss		(94,000	)		(92,390	)
Other income:
Interest income		565			5,146
Loss before provision for income taxes		(93,435	)		(87,244	)
Provision for income taxes		—			—
Net loss	$	(93,435	)	$	(87,244	)

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.

CADUS CORPORATION

Condensed Consolidated Statements of Operations

	Six Months Ended June 30,
	2011			2010
	(Unaudited)			(Unaudited)
License and maintenance fees	$	—		$	100,000
Total revenues		—			100,000
Costs and expenses:
General and administrative expenses		206,276			223,656
Amortization of patent costs		43,216			43,216
Loss from equity in other ventures		223			158
Total costs and expenses		249,715			267,030
Operating loss		(249,715	)		(167,030	)
Other income:
Interest income		2,397			7,817
Loss before provision for income taxes		(247,318	)		(159,213	)
Provision for income taxes		—			—
Net loss	$	(247,318	)	$	(159,213	)

Basic and diluted (loss) per weighted average share of common stock outstanding	$	(0.02	)	$	(0.01	)

Weighted average shares of common stock outstanding - basic and diluted		13,144,040			13,144,040

See accompanying notes to condensed consolidated financial statements.

CADUS CORPORATION

Condensed Consolidated Statements of Cash Flows

	Six Months Ended June 30,
	2011			2010
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net (loss)	$	(247,318	)	$	(159,213	)
Adjustments to reconcile net (loss) to net cash used in operating activities:
Amortization of patent costs		43,216			43,216
Loss from equity in other ventures		223			158
Changes in assets and liabilities:
Increase in prepaid and other current assets		(21,549	)		(21,334	)
Increase in accrued expenses and other current liabilities		1,595			15,179
Net cash used in operating activities		(223,833	)		(121,994	)
Net decrease in cash and cash equivalents		(223,883	)		(121,994	)
Cash and cash equivalents - beginning of period		23,789,400			24,098,443
Cash and cash equivalents - end of period	$	23,565,567		$	23,976,449

See accompanying notes to condensed consolidated financial statements.

CADUS CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note - 1 Organization and Basis of Preparation

The information presented as of June 30, 2011 and for the three month 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, 2010 condensed 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, 2010.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Cadus Technologies, Inc. All intercompany balances and transactions have been eliminated in consolidation.

The results of operations for the three and six month periods ended June 30, 2011 is not necessarily indicative of the results to be expected for the year ending December 31, 2011.

Note - 2 Cash Equivalents

The Company includes as cash equivalents all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. There were cash equivalents of $23,463,707 at June 30, 2011 and there were cash equivalents of $23,459,596 at December 31, 2010.

Note - 3 Net (Loss) Per Share

Basic net (loss) per share is computed by dividing the net (loss) by the weighted average of common shares outstanding. Diluted earnings per share is calculated based on the weighted average of common shares outstanding plus the effect of common stock equivalents (stock options). There were no outstanding stock options for the three and six months ended June 30, 2011 and 2010.

Note - 4 Licensing Agreements

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 was also obligated to pay an annual maintenance fee of $100,000 until the earlier of 2010 or the termination of the license and made its final such payment in February 2010.

CADUS CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note - 4 Licensing Agreements (continued)

On June 23, 2011, Cadus entered into a patent license agreement with a startup company pursuant to which the licensee must pay to Cadus an initial access fee of $50,000 on the earlier of (i) the closing of an equity financing of at least $500,000, and (ii) November 30, 2011. The agreement also provides for (i) an annual maintenance fee of $50,000 to Cadus beginning in March 2012 and (ii) royalties of 1% of net sales of licensed products or services against which the annual maintenance fee will be credited. The licensee may terminate the agreement at any time by giving 30 days written notice. The grant of the license is effective only upon payment to the Company of the initial access fee of $50,000 and the license agreement will terminate automatically if the licensee has not paid the initial access fee on or before November 30, 2011.

Note - 5 Fair Value of Financial Instruments

On January 1, 2008, the Company adopted the FASB accounting guidance for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a framework for measuring fair value and expands disclosures about fair value measurements. The valuation techniques required are based upon observable and unobservable inputs. Observable input reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 - Significant inputs to the valuation model are unobservable.

The Company uses financial instruments in the normal course of its business. The carrying values of cash and cash equivalents and accounts payable approximate fair value. The fair value of the Company’s investment in a privately held company is not readily available. The Company believes the fair value of this investment in a privately held company approximated its carrying value at June 30, 2011 and December 31, 2010.

Note - 6 Newly Adopted Accounting Pronouncements

In January 2010, the FASB issued new guidance which improves disclosures about fair value measurements. The new standard is effective for interim and annual periods beginning after December 15, 2010, except for certain disclosures regarding Level 3 measurements which are effective for fiscal years beginning after December 15, 2010. The Company does not expect this new guidance to have a material effect on the consolidated financial statements.

Other recent accounting pronouncements issued by the FASB, the AICPA and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company was incorporated in 1992 and until July 30, 1999, devoted substantially all of its resources to the development and application of novel yeast-based and other drug discovery technologies. On July 30, 1999, the Company sold its drug discovery assets and ceased its internal drug discovery operations and research efforts for collaborative partners. The Company currently has limited operations, no employees and the Company’s current Chief Executive Officer is a consultant. The Company is currently seeking to (i) license its wholly-owned subsidiary’s drug discovery technologies and (ii) to use a portion of its available cash to acquire or invest in companies or income producing assets.

At June 30, 2011, the Company had an accumulated deficit of approximately $35.6 million. The Company’s losses have resulted principally from costs incurred in connection with its research and development activities and from general and administrative costs associated with the Company’s operations. These costs have exceeded the Company’s revenues and interest income. As a result of the sale of its drug discovery assets and the cessation of its internal drug discovery operations and research efforts for collaborative partners, the Company ceased to have research funding revenues and substantially reduced its operating expenses. The Company expects to generate revenues in the future only if it is able to license its technologies.

Results of Operations

Three Months Ended June 30, 2011 and 2010.

Revenues

There were no revenues for the three months ended June 30, 2011 and 2010.

Costs and Expenses

General and administrative expenses increased to $72,148 for the three months ended June 30, 2011 from $70,592 for the same period in 2010. Patent costs decreased by $3,848, accounting and legal expenses increased by $3,250, stockholder relations expenses increased by $1,843 and other costs increased by $311.

For the three months ended June 30, 2011, the Company recognized a loss of $244 in its investment in Laurel Partners Limited Partnership, compared to a loss of $189 for the same period in 2010.

Interest Income

Interest income for the three months ended June 30, 2011 was $565 compared to interest income of $5,146 for the same period in 2010. This decrease is attributable primarily to significant lower interest rates earned on invested funds.

Net (Loss)

Net loss for the three months ended June 30, 2011 was $93,435 compared to a net loss of $87,244 for the same period in 2010. The increase in net loss can be principally attributed to a increase in general and administrative expenses of $1,556 and a decrease in interest income of $4,581.

Six Months Ended June 30, 2011 and 2010

Revenues

Revenues for the six months ended June 30, 2011 and 2010 were $-0- and $100,000, which was the annual maintenance fee from OSI. OSI paid the final annual maintenance fee in February 2010 and is no longer obligated to pay annual maintenance fees to Cadus.

Costs and Expenses

General and administrative expenses decreased to $206,276 for the six months ended June 30, 2011 from $223,656 for the same period in 2010. Patent costs decreased by $18,616, and accounting and legal expenses increased by $3,888. Delaware and New York franchise tax decreased by $3,943, stockholder relations expenses increased by $1,338 and other costs decreased by $47.

For the six months ended June 30, 2011, the Company recognized a loss of $223 in its investment in Laurel Partners Limited Partnership. The loss for the same period in 2010 was $158.

Interest Income

Interest income for the six months ended June 30, 2011 was $2,397 compared to interest income of $7,817 for the same period in 2010. This decrease is attributable primarily to significant lower interest rates earned on invested funds.

Net (Loss)

Net loss for the six months ended June 30, 2011 was $247,318 compared to a net loss of $159,213 for the same period in 2010. General and administrative expenses decreased by $17,380 offset by a decrease in interest income of $5,420, an increase in loss from equity in other ventures of $65 and a decrease in license fees of $100,000.

Liquidity and Capital Resources

At June 30, 2011, the Company held cash and cash equivalents of $23.6 million. The Company's working capital at June 30, 2011 was $23.6 million.

The Company believes that its existing capital resources, together with interest income, will be sufficient to support its operations through the end of 2012. 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

Based on the evaluation of the Company’s disclosure controls and procedures conducted as of the end 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. In addition, there has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. It should be noted that any system of controls, however well designed and operated, can provide only reasonable assurance, and not absolute assurance, that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the period ended December 31, 2010 as filed with the Securities and Exchange Commission on March 30, 2011.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The Exhibits listed in the Exhibit Index are included in this quarterly report on Form 10-Q.

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 15, 2011	By:	/s/ David Blitz
		David Blitz
		President and Chief Executive Officer (Authorized Officer and Principal Financial Officer)

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

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