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, 2015

 

¨

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  Suite 4700, New York, New York		10153
(Address of Principal Executive Offices)		(Zip Code)
Registrant’s Telephone Number, Including Area Code		(212) 702-4300

 

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 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 x          No ¨

 

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  ¨	Accelerated filer  ¨
	Non-accelerated filer  ¨	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 ¨            No x

 

The number of shares of registrant’s common stock, $0.01 par value, outstanding as of July 31, 2015 was 26,288,080.

 

 

CADUS CORPORATION

 

INDEX

		Page No.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS		3
PART I - CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets - June 30, 2015 (Unaudited) and December 31, 2014 (Audited)	4
	Condensed Consolidated Statements of Operations - Three Months Ended June 30, 2015 and 2014 (Unaudited)	5
	Condensed Consolidated Statements of Operations - Six Months Ended June 30, 2015 and 2014 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2015 and 2014 (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	11-13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	13
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	14
Item 5.	Other Information	14
Item 6.	Exhibits	14
SIGNATURES		15
EXHIBIT INDEX		16

 

 

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 acquire residential homes or land for renovation or construction and resale, the Company’s ability to engage contractors to perform such renovation and construction, the Company’s ability to sell such renovated or new homes at a profit, the Company’s ability to acquire or invest in other businesses or assets, the Company’s capital needs and uncertainty of future funding, as well as other risks and uncertainties discussed in the Company’s annual report on Form 10-K for the year ended December 31, 2014. 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

 

		June 30, 2015				December 31, 2014
		(Unaudited)				(Audited)
ASSETS
Assets:
Real estate held for development		$	31,164,786			$	30,183,696
Cash and cash equivalents			10,578,730				11,877,951
Interest receivable			85				156
Prepaid and other assets			68,070				12,498
Investment in other ventures			192,662				193,101
Patents, net			1				1
Total assets		$	42,004,334			$	42,267,403
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accrued expenses and other liabilities		$	177,605			$	84,583
Total liabilities			177,605				84,583
Commitments and contingencies
Stockholders’ equity:
Common stock			264,297				264,297
Additional paid-in capital			80,291,992				80,291,992
Accumulated deficit			(38,429,485	)			(38,073,394	)
Treasury stock – at cost			(300,075	)			(300,075	)
Total stockholders’ equity			41,826,729				42,182,820
Total liabilities and stockholders’ equity		$	42,004,334			$	42,267,403

 

See accompanying notes to condensed consolidated financial statements.

 

 

CADUS CORPORATION

Condensed Consolidated Statements of Operations

 

		Three Months Ended June 30,
		2015				2014
		(Unaudited)				(Unaudited)
Total revenues		$	-0-			$	-0-
Costs and expenses:
General and administrative expenses			116,825				110,894
Real estate expenses			16,106				78,440
Amortization of patent costs			-0-				10,627
Loss from equity in other ventures			315				247
Total costs and expenses			133,246				200,208
Operating loss			(133,246	)			(200,208	)
Other income:
Interest income			668				3,481
Loss before provision for income taxes			(132,578	)			(196,727	)
Provision for income taxes			-0-				-0-
Net loss		$	(132,578	)		$	(196,727	)
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			26,288,080				16,795,162

 

See accompanying notes to condensed consolidated financial statements.

 

 

CADUS CORPORATION

Condensed Consolidated Statements of Operations

 

		Six Months Ended June 30,
		2015				2014
		(Unaudited)				(Unaudited)
Total revenues		$	-0-			$	-0-
Costs and expenses:
General and administrative expenses			324,905				364,864
Real estate expenses			31,695				174,187
Amortization of patent costs			-0-				32,235
Loss from equity in other ventures			439				373
Total costs and expenses			357,039				571,659
Operating loss			(357,039	)			(571,659	)
Other income:
Interest income			948				3,825
Loss before provision for income taxes			(356,091	)			(567,834	)
Provision for income taxes			-0-				-0-
Net loss		$	(356,091	)		$	(567,834	)
Basic and diluted (loss) per weighted average share of common stock outstanding		$	(0.01	)		$	(0.04	)
Weighted average shares of common stock outstanding – basic and diluted			26,288,080				14,969,601

 

See accompanying notes to condensed consolidated financial statements.

 

 

CADUS CORPORATION

Condensed Consolidated Statements of Cash Flows

 

		Six Months Ended June 30,
		2015				2014
		(Unaudited)				(Unaudited)
Cash flows from operating activities:
Net loss		$	(356,091	)		$	(567,834	)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Amortization of patent costs			-0-				32,235
Loss from equity in other ventures			439				373
Changes in assets and liabilities:
Increase in prepaid and other assets			(55,501	)			(33,265	)
Increase in escrow deposits			-0-				(467,653	)
Increase in real estate investments			(981,090	)			(20,883,351	)
Increase in accrued expenses and other liabilities			93,022				54,955
Net cash used in operating activities			(1,299,221	)			(21,864,540	)
Financing activities:
Capital contributed by shareholder			-0-				515,900
Sale of common stock less registration costs			-0-				19,847,089
Net cash provided by financing activities			-0-				20,362,989
Net decrease in cash and cash equivalents			(1,299,221	)			(1,501,551	)
Cash and cash equivalents - beginning of period			11,877,951				22,134,451
Cash and cash equivalents - end of period		$	10,578,730			$	20,632,900

 

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, 2015 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 as permitted by 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, 2014 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, 2014.

 

In connection with the Company’s program for the purchase of individual homes or residential lots for purposes of renovation or construction and resale, in the fourth quarter of 2013 the company formed three subsidiaries, Blivet LLC, MB 2013 LLC and Happy Dragon LLC.

 

The consolidated financial statements include the accounts of Cadus and its wholly owned subsidiaries, Cadus Technologies, Inc., Blivet LLC, MB 2013 LLC and Happy Dragon LLC. All intercompany balances and transactions have been eliminated in consolidation. The Company operates in one segment: the purchase of homes and land for purposes of renovation or construction and resale. As previously reported, the Company will not maintain or seek to license its drug discovery technologies.

 

The results of operations for the six month period ended June 30, 2015 is not necessarily indicative of the results to be expected for the year ending December 31, 2015.

 

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 $10,201,093 at June 30, 2015 and there were cash equivalents of $11,200,483 at December 31, 2014.

 

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 six months ended June 30, 2015 and 2014.

 

Note - 4

Fair Value of Financial Instruments

 

The Company uses financial instruments in the normal course of its business. The carrying values of cash and cash equivalents and accrued expenses 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, 2015 and December 31, 2014.

 

 

CADUS CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

  

Note - 5

Real Estate Operations

 

In connection with the Company’s program to purchase residential properties for purposes of renovation or construction and resale, as of June 30, 2015, the Company had purchased for an aggregate original price of approximately $29.9 million, and continued to own, through two indirect wholly-owned subsidiaries, twelve residential properties in Miami-Dade County, Florida and one residential property in East Hampton, New York.

 

The company incurred $31,695 in real estate expenses for the six months ended June 30, 2015, consisting of utilities, maintenance and other operating costs and expenses with respect to properties acquired.

 

Real estate held for development is recorded at cost. The cost of residential property includes the purchase price of the property, legal fees and other acquisition costs (e.g. recording, title search, survey, lien and permit searches, and inspection costs). Costs directly related to planning, developing and constructing a property are capitalized and classified as real estate held for development in the consolidated balance sheets. Capitalized development costs include interest, property taxes, insurance, and other direct project costs incurred during the period of development.

 

After acquisition, real estate held for development is analyzed periodically for changes in fair values and any subsequent write down is charged to operating expenses. The Company did not have such a write down during the six months ended June 30, 2015.

 

Note - 6

Accrued Expenses

 

Accrued expenses consist of the following:

		June 30, 2015				December 31, 2014
Architect costs		$	-0-			$	50,638
Franchise tax			-0-				7,315
Real estate taxes			145,574				-0-
License fee			25,000				-0-
Legal			540				5,314
Accounting			-0-				2,000
Property maintenance			5,361				3,506
Insurance			-0-				9,544
Transfer agent			630				-0-
Stockholder relations			-0-				6,266
Sundry			500				-0-
		$	177,605			$	84,583

 

 

CADUS CORPORATION

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note - 7

Recently Issued Accounting Standards

 

Recent accounting pronouncements issued by the Financial Accounting Standards Board 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. Subsequent to the sale of its drug discovery assets, the Company had continued to license, and seek to license, its technologies. The Company has received no revenues from the licensing of its technologies since 2010, has not entered into a new license for its technologies since 2000, and has determined not to maintain or seek to license its drug discovery technologies. In recent years, the Company had also sought to use all or a portion of its available cash, and where appropriate, seek additional debt or equity financing, to acquire or invest in one or more companies or other assets. Although it pursued a number of prospective acquisitions, none was consummated.

 

Since the fourth quarter of 2013, the Company has sought opportunities to profit from purchasing individual homes or individual residential lots for purposes of renovation or construction and resale in Miami-Dade County, Florida; the Company has purchased a single-family residential zoned vacant lot in East Hampton, New York. In addition to its real estate activities, the Company may continue to consider acquisitions or investments in other industries.

 

At June 30, 2015, the Company had an accumulated deficit of approximately $38.4 million. The Company’s losses have resulted principally from costs incurred in connection with its prior biomedical 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. The Company expects to generate revenues in the future only if it is able to profit from its real estate operations.

 

Results of Operations

 

Three Months Ended June 30, 2015 and 2014.

 

Revenues

 

There were no revenues for the three months ended June 30, 2015 and for the three months ended June 30, 2014.

 

Costs and Expenses

 

General and Administrative Expenses increased to $116,825 for the three months ended June 30, 2015 from $110,894 for the same period in 2014. Patent costs increased by $6,228 due to the maintenance of some patents. There were other net decreases of $297.

 

Real estate expenses for the three months ended June 30, 2015 were $16,106 consisting of maintenance and utilities for properties owned. Real estate expenses for the three months ended June 30, 2014 were $78,440 consisting of operating and legal expenses for properties acquired and negotiations for properties that were not acquired.

 

 

Results of Operations (Continued)

 

For the three months ended June 30, 2015 and 2014, the Company recognized a loss of $315 and $247, respectively, in its investment in Laurel Partners Limited Partnership.

 

Interest Income

 

Interest income for the three months ended June 30, 2015 was $668 compared to interest income of $3,481 for the same period in 2014. This decrease is attributable primarily to a decrease in funds being invested.

 

Net (Loss)

 

Net loss for the three months ended June 30, 2015 was $132,578 compared to a net loss of $196,727 for the same period in 2014. The decrease in net loss can be principally attributed to a decrease in real estate expenses of $62,334 and a decrease in patent amortization of $10,627, offset by an increase in general and administrative expenses of $5,931 and a decrease in interest income of $2,813.

 

Six Months Ended June 30, 2015 and 2014.

 

Revenues

 

There were no revenues for the six months ended June 30, 2015 and for the six months ended June 30, 2014.

 

Costs and Expenses

 

General and administrative expenses decreased to $324,905 for the six months ended June 30, 2015 from $364,864 for the same period in 2014. Professional fees decreased by $88,129 for the six months ended June 30, 2015 from those incurred for the same period in 2014 due to required filings with the Securities and Exchange Commission in 2014 as a result of the Company ceasing to be a shell company. Payroll and payroll taxes increased by $33,209 due to the employment of the Company’s President for the entire six months in 2015. Shareholder relations increased by $9,407 due to printing and mailing costs and service fees relating to the Annual Shareholder’s Meeting in December 2014. There were other net increases of $5,554.

 

Real estate expenses for the six months ended June 30, 2015 were $31,695 consisting of maintenance and utilities for properties owned. Real estate expenses for the six months ended June 30, 2014 were $174,187 consisting of operating and legal expenses in connection with properties that were acquired and negotiations for properties that were not acquired.

 

For the six months ended June 30, 2015 and 2014, the Company recognized a loss of $439 and $373, respectively, in its investment in Laurel Partners Limited Partnership.

 

Interest Income

 

Interest income for the six months ended June 30, 2015 was $948 compared to interest income of $3,825 for the same period in 2014. This decrease is attributable primarily to a decrease in funds being invested.

 

 

Results of Operations (Continued)

 

Net (Loss)

 

Net loss for the six months ended June 30, 2015 was $356,091 compared to a net loss of $567,834 for the same period in 2014. The decrease in net loss can be principally attributed to an decrease in general and administrative expenses of $39,959, a decrease in real estate expenses of $142,492, and a decrease in patent amortization of $32,235, offset by a decrease in interest income of $2,877.

 

Liquidity and Capital Resources

 

At June 30, 2015, the Company held cash and cash equivalents of $10.6 million.

 

Depending on the availability of transactions acceptable to the Company in connection with its real estate activities, all or a portion of the Company’s available cash may be utilized, and the Company may seek debt or additional equity financing. 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, renovate, construct and sell residential properties. There can be no assurance that the Company will raise sufficient capital on a timely basis or on satisfactory terms or at all to meet such capital requirements.

 

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Under SEC regulations, we are considered a smaller reporting company and are not required to provide the information under this item.

 

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 and the Company’s Treasurer (who performs functions similar to those 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, 2014 as filed with the Securities and Exchange Commission on March 31, 2015.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

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 14, 2015	By:	/s/ Hunter C. Gary
	Hunter C. Gary
	President and Chief Executive Officer
Dated: August 14, 2015	By:	/s/ David Blitz
	David Blitz
	Treasurer and Secretary

 

 

EXHIBIT INDEX

 

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase