CADUS CORP - FORM 10-Q - August 12, 2010

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EX-32 - CADUS CORP	v192987_ex32.htm
EX-31 - CADUS CORP	v192987_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, 2010

¨	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 ¨

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 ¨ 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, 2010 was 13,144,040.

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, 2010 (Unaudited) and December 31, 2009 (Audited)	4

	Condensed Consolidated Statements of Operations – Three Months Ended June 30, 2010 and 2009 (Unaudited)	5

	Condensed Consolidated Statements of Operations – Six Months Ended June 30, 2010 and 2009 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2010 and 2009 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8-10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	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 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 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, 2009. 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, 2010			December 31, 2009
	(Unaudited)			(Audited)

ASSETS

Current assets:
Cash and cash equivalents	$	23,976,449		$	24,098,443
Interest receivable		1,788			1,454
Prepaid and other current assets		28,890			7,890

Total current assets		24,007,127			24,107,787

Investment in other ventures		194,097			194,255
Patents, net		334,752			377,968
Total assets	$	24,535,976		$	24,680,010

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accrued expenses and other current liabilities	$	16,013		$	834
Total current liabilities		16,013			834

Commitments

Stockholders’ equity:

Common stock		132,857			132,857
Additional paid-in capital		59,847,443			59,847,443
Accumulated deficit		(35,160,262	)		(35,001,049	)
Treasury stock – at cost		(300,075	)		(300,075	)
Total stockholders’ equity		24,519,963			24,679,176
Total liabilities and stockholders’ equity	$	24,535,976		$	24,680,010

See accompanying notes to condensed consolidated financial statements.

CADUS CORPORATION

Condensed Consolidated Statements of Operations

	Three Months Ended June 30,
	2010			2009
	(Unaudited)			(Unaudited)

License and maintenance fees	$	—		$	—
Total revenues		—			—
Costs and expenses:
General and administrative expenses		70,592			123,153
Amortization of patent costs		21,609			21,609
Loss from equity in other ventures		189			—
Total costs and expenses		92,390			144,762
Operating loss		(92,390	)		(144,762	)
Other income:
Interest income		5,146			22,162
Gain on redemption of securities		—			19,270
Loss before provision for income taxes		(87,244	)		(103,330	)
Provision for income taxes		—			—
Net loss	$	(87,244	)	$	(103,330	)

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,
	2010			2009
	(Unaudited)			(Unaudited)

License and maintenance fees	$	100,000		$	100,000
Total revenues		100,000			100,000
Costs and expenses:
General and administrative expenses		223,656			305,620
Amortization of patent costs		43,216			43,217
Loss (income) from equity in other ventures		158			(328	)
Total costs and expenses		267,030			348,509
Operating loss		(167,030	)		(248,509	)
Other income:
Interest income		7,817			51,263
Gain on redemption of securities		—			21,344
Loss before provision for income taxes		(159,213	)		(175,902	)
Provision for income taxes		—			—
Net loss	$	(159,213	)	$	(175,902	)

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 Cash Flows

	Six Months Ended June 30,
	2010			2009
	(Unaudited)			(Unaudited)

Cash flows from operating activities:
Net (loss)	$	(159,213	)	$	(175,902	)
Adjustments to reconcile net (loss) to net cash used in operating activities:
Amortization of patent costs		43,216			43,217
Loss (income) from equity in other ventures		158			( 328	)
Gain on redemption of securities		—			(21,344	)
Changes in assets and liabilities:
Increase in prepaid and other current assets		(21,334	)		(20,085	)
Increase in accrued expenses and other current liabilities		15,179			11,693
Net cash used in operating activities		(121,994	)		(162,749	)
Cash flows provided by investing activities:
Proceeds from redemption of investment		—			1,934,798
Net cash provided by investing activities		—			1,934,798
Net (decrease) increase in cash and cash equivalents		(121,994	)		1,772,049
Cash and cash equivalents – beginning of period		24,098,443			19,236,212
Cash and cash equivalents – end of period	$	23,976,449		$	21,008,261

See accompanying notes to condensed consolidated financial statements.

CADUS CORPORATION

Notes to Condensed Consolidated Financial Statements

Note - 1

Organization and Basis of Preparation

Until July 30, 1999, the Company 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 to OSI Pharmaceuticals, Inc. (“OSI”) 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.

The information presented as of June 30, 2010 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, 2009 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, 2009.

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, 2010 is not necessarily indicative of the results to be expected for the year ending December 31, 2010.

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 $23,448,550 at June 30, 2010 and there were cash equivalents at December 31, 2009 of $23,440,150.

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, 2010 and 2009.

CADUS CORPORATION

Notes to Condensed Consolidated Financial Statements

Note - 4

Licensing Agreements

In February 2000, Cadus licensed to 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 paid the final annual maintenance fee of $100,000 in February 2010 and is no longer obligated to pay annual maintenance fees to Cadus. During the six month periods ended June 30, 2010 and 2009, the Company recognized $100,000 of license revenue related to this agreement.

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.

All of the Company’s marketable securities were Level 2 type assets.

The Company uses financial instruments in the normal course of its business. The carrying values of cash and cash equivalents and accounts payable approximates fair value. Marketable securities were Level 2 type assets and carried at fair value as determined by an observable market 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 respective carrying values at June 30, 2010 and 2009.

Note – 6

Newly Adopted Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued new guidance for revenue recognition with multiple deliverables. This new guidance impacts the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, it modifies the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration. This new guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, however early adoption is permitted. The Company does not expect this new guidance to have a material effect on the consolidated financial statements.

CADUS CORPORATION

Notes to Condensed Consolidated Financial Statements

Note – 6

Newly Adopted Accounting Pronouncements (continued)

In January 2010, the FASB issued new guidance which improves disclosures about fair value measurements. The new standard was effective for interim and annual periods beginning after December 15, 2009, except for certain disclosures regarding Level 3 measurements which are effective for fiscal years beginning after December 15, 2010. The Company is evaluating the impact of this guidance on its consolidated financial statements and does not expect this new guidance to have a material effect on the consolidated financial statements.

In February 2010, the FASB issued updated guidance to address certain implementation issues related to an entity’s requirements to perform and disclose subsequent events procedures. This update requires SEC filers to evaluate subsequent events through the date financial statements are issued and exempts SEC filers from disclosing the date through which subsequent events have been evaluated. The updated guidance was effective upon issuance, and did not have a material impact on the Company’s 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 to OSI 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, 2010, the Company had an accumulated deficit of approximately $35.2 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, 2010 and 2009.

Revenues

There were no revenues for the three months ended June 30, 2010 and 2009.

Costs and Expenses

General and administrative expenses decreased to $70,592 for the three months ended June 30, 2010 from $123,153 for the same period in 2009. Patent costs decreased by $6,291, accounting and legal expenses decreased by $16,890 and directors’ fees decreased by $30,000. In 2009, fees of $15,000 were paid to each of two directors who served as a special committee of the board in connection with a proposed acquisition that was not consummated. Other costs increased by $620.

For the three months ended June 30, 2010, the Company recognized a loss of $189 in its investment in Laurel Partners Limited Partnership. There was no income for the same period in 2009.

Interest Income

Interest income for the three months ended June 30, 2010 was $5,146 compared to interest income of $22,162 for the same period in 2009. This decrease is attributable primarily to lower interest rates on invested funds.

Net (Loss)

Net loss for the three months ended June 30, 2010 was $87,244 compared to a net loss of $103,330 for the same period in 2009. The decrease in net loss can be principally attributed to a decrease in general and administrative expenses of $52,561 offset by a decrease in interest income of $17,016, a decrease in gain on redemption of securities of $19,270 and a loss in 2010 from equity in other ventures of $189.

Six Months Ended June 30, 2010 and 2009

Revenues

Revenues for the six months ended June 30, 2010 and 2009 were $100,000, which is 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 $223,656 for the six months ended June 30, 2010 from $305,620 for the same period in 2009. Patent costs decreased by $17,645, accounting and legal expenses decreased by $42,092, directors fees decreased by $30,000 and other costs increased by $7,773. In 2009, fees of $15,000 were paid to each of two directors who served as a special committee of the board in connection with a proposed acquisition that was not consummated.

For the six months ended June 30, 2010, the Company recognized a loss of $158 in its investment in Laurel Partners Limited Partnership. The income for the same period in 2009 was $328.

Interest Income

Interest income for the six months ended June 30, 2010 was $7,817 compared to interest income of $51,263 for the same period in 2009. This decrease is attributable primarily to lower interest rates on invested funds.

Net (Loss)

Net loss for the six months ended June 30, 2010 was $159,213 compared to a net loss of $175,902 for the same period in 2009. General and administrative expenses and amortization of patent costs decreased by $81,965 offset by a decrease in interest income of $43,446, a decrease in income from equity in other ventures of $486, and a 2009 gain of $21,344 on redemption of securities.

Liquidity and Capital Resources

At June 30, 2010, the Company held cash and cash equivalents of $23.9 million. The Company's working capital at June 30, 2010 was $24.0 million.

The Company believes that its existing capital resources, together with interest income, will be sufficient to support its operations through the end of 2011. 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, 2009 as filed with the Securities and Exchange Commission on March 30, 2010.

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 12, 2010	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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