<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 March 31, 1999
--------------------
[ ] 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 PHARMACEUTICAL CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3660391
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
777 Old Saw Mill River Road, Tarrytown, New York 10591-6705
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (914) 467-6200
-------------------
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
----- -----
The number of shares of registrant's common stock, $.01 par value, outstanding
as of April 30, 1999 was 13,068,940.
<PAGE>
CADUS PHARMACEUTICAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 3
PART I -- CONDENSED FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets - March 31, 1999 and December 31, 4
1998
Condensed Statements of Operations - Three months ended March
31, 1999 and 1998 5
Condensed Statements of Cash Flows - Three months ended
March 31, 1999 and 1998 6
Notes to Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
</TABLE>
2
<PAGE>
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 21E of the
Securities Exchange Act of 1934, as amended. 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, the Company's lack of developed
pharmaceutical products and uncertainties regarding its ability to develop
safe and efficacious pharmaceutical products, technological uncertainties
regarding the Company's technologies including risks and uncertainties
relating to the Company's development and commercial testing of
alternative readout methodologies to replace that found to infringe a
patent of SIBIA Neurosciences, Inc. ("SIBIA"), uncertainties regarding the
Company's future acquisition and licensing of technologies, the Company's
relationship with its collaborative partners and uncertainties regarding
its ability to enter into future collaborative agreements, the Company's
capital needs and uncertainty of future funding, risks and uncertainties
relating to the Company's ongoing litigation with SIBIA, including
uncertainties relating to the outcome of appeals and the re-examination of
SIBIA's patent at issue in the litigation, 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 and future
products becoming obsolete, uncertainties regarding the Company's ability
to attract and retain key officers, employees and consultants, as well as
other risks and uncertainties discussed in the Company's prospectus dated
July 17, 1996.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Cadus Pharmaceutical Corporation
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,205,519 $ 10,975,528
Restricted cash 286,000 286,000
Prepaid and other current assets 555,362 298,319
------------- -------------
Total current assets 9,046,881 11,559,847
Restricted cash-noncurrent (note 3) 18,500,000 18,500,000
Fixed assets, net of accumulated depreciation and amortization of
$2,503,814 at March 31, 1999 and $2,254,840 at December 31, 1998 2,674,266 2,792,268
Investments in other ventures 2,012,293 2,334,081
Other assets, net 1,461,200 1,400,870
------------- -------------
Total assets $ 33,694,640 $ 36,587,066
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 54,197 $ 217,414
Accrued expenses and other current liabilities 600,428 1,730,021
Deferred revenue 714,072 150,584
--------- --------
Total current liabilities 1,368,697 2,098,019
Reserve for litigation damages 18,500,000 18,500,000
------------- -------------
Total liabilities 19,868,697 20,598,019
Commitments and contingencies
Stockholders' equity:
Common stock 132,106 132,106
Additional paid-in capital 59,689,446 59,689,446
Accumulated deficit (45,695,534) (43,532,430)
Treasury stock (300,075) (300,075)
------------- -------------
Total stockholders' equity 13,825,943 15,989,047
------------- -------------
Total liabilities and stockholders' equity $ 33,694,640 $ 36,587,066
============= =============
</TABLE>
See accompanying notes to the condensed financial statements
4
<PAGE>
Cadus Pharmaceutical Corporation
Condensed Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
-------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues, principally from
related parties $ 3,038,776 $ 4,931,812
Costs and expenses:
Research and development costs 3,912,482 3,749,184
General and administrative expenses 1,315,216 1,236,585
----------- -----------
Total costs and expenses 5,227,698 4,985,769
----------- -----------
Operating loss (2,188,922) (53,957)
----------- -----------
Other income (expense):
Net interest income 337,175 371,358
Loss of equity in other ventures, net (321,788) (416,485)
Gain on sale of equipment 16,203 7,903
----------- -----------
Total other income (expense) 31,590 (37,224)
----------- -----------
Loss before income taxes (2,157,332) (91,181)
State and local taxes 5,772 3,635
----------- -----------
Net loss $(2,163,104) $ (94,816)
=========== ===========
Basic net loss per share (note 2) $ (0.17) $ (0.01)
=========== ===========
Shares used in calculation of basic net
loss per share (note 2) 13,068,940 12,375,245
=========== ===========
</TABLE>
See accompanying notes to the condensed financial statements
5
<PAGE>
Cadus Pharmaceutical Corporation
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,163,104) $ (94,816)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 274,404 234,066
Loss of equity in other ventures 321,788 416,485
Other non-cash gain (16,203) (7,903)
Changes in assets and liabilities:
Increase in prepaid and other current assets (257,043) (88,276)
Decrease (increase) in other assets 81,740 (17,514)
Increase in deferred revenue 579,691 -
(Decrease) in accounts payable (163,217) (784,657)
(Decrease) in accrued expenses and other current liabilities (1,129,593) (9,016)
------------- --------------
Net cash used in operating activities (2,471,537) (351,631)
------------- --------------
Cash flows from investing activities:
Acquisition of fixed assets (141,822) (292,965)
Sale of fixed assets 10,850 704,661
Patent costs (167,500) (72,771)
------------- --------------
Net cash (used in) provided by investing activities (298,472) 338,925
------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options - 143,041
------------- --------------
Net cash provided by financing activities - 143,041
------------- --------------
Net (decrease) increase in cash and cash equivalents (2,770,009) 130,335
Cash and cash equivalents at beginning of period 10,975,528 36,761,516
------------- --------------
Cash and cash equivalents at end of period $ 8,205,519 $ 36,891,851
============= ==============
</TABLE>
See accompanying notes to the condensed financial statements
6
<PAGE>
Cadus Pharmaceutical Corporation
Notes to Condensed Financial Statements
(1) Organization and Basis of Preparation
The information presented as of March 31, 1999 and for the three-month
period 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 generally accepted
accounting principles 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, 1998 balance
sheet was derived from audited 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, 1998.
The results of operations for the three-month period ended March 31, 1999
are not necessarily indicative of the results to be expected for the year
ending December 31, 1999.
(2) Net Loss Per Share
For the three-month periods ended March 31, 1999 and 1998, 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 potential common
stock equivalents (stock options and warrants) in the computation would
be anti-dilutive.
(3) Patent Litigation
In July 1996, SIBIA Neurosciences, Inc. ("SIBIA") commenced a patent
infringement action against the Company alleging infringement by the
Company of a patent concerning the use of cells, engineered to express
any type of cell surface receptor and a reporter gene, used to report
results in the screening of compounds against target assays and seeking
injunctive relief and monetary damages. After trial, on December 18,
1998, the jury issued a verdict, in favor of SIBIA and awarded SIBIA
$18.0 million in damages. On January 29, 1999, the United States District
Court granted SIBIA's request for injunctive relief that precludes the
Company from using the method claimed in SIBIA's patent. On February 26,
1999, the United States District Court denied the Company's motions to
set aside the jury verdict, to grant a new trial and to reduce or set
aside the $18.0 million damage award by the jury. The Company has
appealed the judgement. The appeal will be heard by the Court of Appeals
for the Federal Circuit in Washington, D.C. In order to stay execution
pending appeal of the $18.0 million judgement obtained by SIBIA, in March
1999, the Company deposited $18.5 million in escrow to secure payment of
the judgement in the event the Company were to lose the appeal. Such
$18.5 million was classified, as of December 31, 1998, as "restricted
cash noncurrent" and the Company's "cash and cash equivalents" was
reduced by $18.5 million. The Company recorded a reserve for litigation
damages of $18.5 million in the statement of operations for the year
ended December 31, 1998.
In January 1999, the U.S. Patent and Trademark Office granted the
Company's request to re-examine the patent issued to SIBIA that was the
subject of the litigation. The re-examination by the Patent Office is
independent of the litigation and a final decision by the Patent Office
that SIBIA's patent is invalid would take precedence over the jury
verdict. There is no evidence that the patent office will find SIBIA's
patent to be invalid.
7
<PAGE>
Cadus Pharmaceutical Corporation
Notes to Condensed Financial Statements
(4) Research Funding
SmithKline Beecham Milestone
In January 1999, the Company achieved a research milestone in its
collaboration with SmithKline Beecham Corporation. The milestone involved
the identification, during 1998, of ligands for orphan G-Protein coupled
receptors identified from the human genome. The Company received a $1.0
million payment for achieving the milestone, which payment was recorded
as revenue in January 1999.
(5) Supplemental Cash Flow Information
Three Months
ended March 31,
1999 1998
------------------------------
Cash payments for:
Income taxes.................... $5,772 $43,635
====== =======
(6) Subsequent Events
In April 1999, the Company completed a restructuring by eliminating 23
positions. The restructuring will reduce operating expenses and
concentrate the Company's resources on its internal drug discovery and
genomics based programs.
In May 1999, the Company retained a financial advisor to explore
strategic alternatives, including the possible sale or merger of the
Company.
Pursuant to its Master Lease with GECC, the Company must maintain
unrestricted cash, cash equivalents and investment grade securities (the
"Cash Equivalents") of at least $10,000,000. In March 1999, the Company
ceased to maintain Cash Equivalents of at least $10,000,000. In
accordance with the Master Lease, the Company notified GECC in April 1999
of the amount of Cash Equivalents of the Company at March 31, 1999 and
that the Company is not in compliance with the Master Lease. Pursuant to
the Master Lease, on May 5, 1999, GECC demanded that Company deliver to
GECC within thirty (30) days an irrevocable standby letter of credit (the
"Letter of Credit") in the amount of the "stipulated loss value" of the
equipment covered by the Master Lease (the "Equipment"), which amount is
currently approximately $2.9 million, to secure the Company's obligations
under the Master Lease. In order to obtain the Letter of Credit, the
Company would have to provide to the issuer thereof cash collateral in
the amount of the Letter of Credit. If the Letter of Credit is not
delivered, the Company will be in default under the Master Lease. If the
Company does not cure such default within thirty (30) days after written
notice thereof from GECC, GECC may require the Company at its own cost
and expense, to return the Equipment and to pay to GECC the stipulated
loss value of the Equipment as liquidated damages and any rentals or
other sums then due. GECC is not required to mitigate damages.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company was incorporated in 1992 and has devoted substantially all of
its resources to the development and application of novel yeast-based and
signal transduction drug discovery technologies. To date, all of the
Company's revenues have resulted from research funding provided by its
collaborative partners.
The Company has incurred operating losses in each year since its inception
including net losses of approximately $2.2 million during the three-month
period ended March 31, 1999. At March 31, 1999, the Company had an
accumulated deficit of approximately $45.7 million which includes an $18.5
million reserve for litigation damages with respect to the patent
infringement litigation with SIBIA Neurosciences, Inc. ("SIBIA"), which was
accrued as of December, 1998. The Company's losses have resulted
principally from costs incurred in research and development and from
general and administrative expenses associated with the Company's
operations. These costs have exceeded the Company's revenues and interest
income. The Company expects to continue to incur substantial additional
operating losses as a result of funding its research and product
development.
Results of Operations
Three months Ended March 31, 1999 and March 31, 1998
Revenues
Revenues for the three months ended March 31, 1999 decreased to $3.0
million from $4.9 million for the same period in 1998. This decrease was
attributable primarily to the Company only receiving a research milestone
payment of $1.0 million from SmithKline Beecham ("SmithKline") in the first
quarter of 1999 rather than the $2.0 million technology development fee it
received from SmithKline in the first quarter of 1998. In addition, the
research funding received from Bristol-Myers Squibb for the first quarter
of 1999 was approximately $500,000 less than that received for the
first quarter of 1998.
Operating Expenses
The Company's research and development expenses for the three months ended
March 31, 1999 increased to $3.9 million from $3.7 million for the same
period in 1998. This increase was attributable primarily to an increase in
research personnel and equipment leasing costs.
General and administrative expenses for the three months ended March 31,
1999 increased to $1.3 million from $1.2 million for the same period in
1998. This increase was attributable primarily an increase in facility
related expenses.
Net Interest Income
Net interest income for the three months ended March 31, 1999 decreased to
$337,000 from $371,000 for the same period in 1998. This decrease related
primarily to the decrease in the Company's cash reserves.
Equity in Other Ventures
Equity in other ventures reflects losses and gains associated with the
Company's two investments. For the three months ended March 31, 1999 and
1998, the Company recognized gains of $1,457 and $7,515, respectively,
related to its investment in Laurel Partners Limited Partnership. For the
three months ended March 31, 1999 and 1998, the Company recognized $323,245
and $424,000, respectively, in losses generated by Axiom Biotechnologies
Inc. ("Axiom"). The Company's investment in Axiom is accounted for under
the equity method with the Company recognizing 100% of Axiom's net losses
prior to an investment made by JAFCO Co., Ltd., ("JAFCO") in Axiom in June
1998. Following the JAFCO investment the Company began
9
<PAGE>
recognizing 50% of the net losses generated by Axiom which is the extent to
which the Company is deemed to be funding such losses.
Net Loss
The net loss for the three months ended March 31, 1999 increased to $2.2
million from $95,000 for the same period in 1998. This increase can be
attributed to a decrease in the Company's revenues and interest income
accompanied by an increase in operating expenses as described above.
Liquidity and Capital Resources
At March 31, 1999, the Company held cash and cash equivalents of $8.5
million. The Company's working capital at March 31, 1999 was $7.7 million.
For the three-month period ended March 31, 1999, the Company invested
approximately $142,000 in property and equipment.
Pursuant to its Master Lease with GECC, the Company must maintain
unrestricted cash, cash equivalents and investment grade securities (the
"Cash Equivalents") of at least $10,000,000. In March 1999, the Company
ceased to maintain Cash Equivalents of at least $10,000,000. In accordance
with the Master Lease, the Company notified GECC in April 1999 of the
amount of Cash Equivalents of the Company at March 31, 1999 and that the
Company is not in compliance with the Master Lease. Pursuant to the Master
Lease, on May 5, 1999, GECC demanded that Company deliver to GECC within
thirty (30) days an irrevocable standby letter of credit (the "Letter of
Credit") in the amount of the "stipulated loss value" of the equipment
covered by the Master Lease (the "Equipment"), which amount is currently
approximately $2.9 million, to secure the Company's obligations under the
Master Lease. In order to obtain the Letter of Credit, the Company would
have to provide to the issuer thereof cash collateral in the
amount of the Letter of Credit. If the Letter of Credit is not delivered,
the Company will be in default under the Master Lease. If the Company does
not cure such default within thirty (30) days after written notice thereof
from GECC, GECC may require the Company at its own cost and expense, to
return the Equipment and to pay to GECC the stipulated loss value of the
Equipment as liquidated damages and any rentals or other sums then due.
GECC is not required to mitigate damages.
The Company believes that its existing capital resources, together with
interest income and future payments due under its research collaborations,
will be sufficient to support its current and projected funding
requirements through the end of 1999. The Company will seek to reduce its
expenditures in order to preserve its financial resources and extend the
period of time that its financial resources will be able to support its
operations. In April 1999, the Company completed a restructuring by
eliminating 23 positions. The restructuring will reduce operating expenses
and concentrate the Company's resources on its internal drug discovery and
genomics based programs. 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 outcome of the
appeal of the judgement in the SIBIA patent litigation, the progress of its
drug discovery programs, competitive and technological developments, the
continuation of its existing collaborative agreements and the establishment
of additional collaborative agreements, and the progress of the development
efforts of the Company's corporate partners. The Company expects that it
will require significant additional financing in the future, which it may
seek to raise through public or private equity offerings, debt financing or
additional corporate partnerships. No assurance can be given that such
additional financing will be available when needed or that, if available,
such financing will be obtained on terms favorable to the Company. To the
extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of such securities could result
in dilution to the Company's stockholders.
In May 1999, the Company retained a financial advisor to explore strategic
alternatives, including the possible sale or merger of the Company.
Year 2000
The Company is aware of challenges associated with the inability of certain
computer systems to properly format information after December 31, 1999
(the "Year 2000 Challenge"). The Company is modifying its computer systems
to address the Year 2000 Challenge and does not expect that the cost of
modifying such systems will be material. The Company believes it will fully
remediate any of its Year 2000 Challenges in
10
<PAGE>
advance of the year 2000 and does not anticipate any material disruption in
its operations as the result of any failure by the Company to fully
remediate such challenges.
The Company is in the process of contacting all significant suppliers and
financial institutions in order to identify potential areas of concern. It
is anticipated that this inquiry will be complete by the second quarter of
1999.
Improper or inadequate remediation of Year 2000 problems by parties with
whom the Company does business could adversely affect the Company's ability
to conduct its research activities. In addition, administrative functions
essential to day to day operations of the business could be impaired if
Year 2000 remediation is not completed in a timely manner. Due to
uncertainty of the Year 2000 readiness of parties with whom the Company
does business, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material adverse impact on
the Company's results of operations, liquidity or financial condition.
Based on the responses of its significant suppliers and financial
institutions, the Company intends to develop a contingency plan to identify
and document potential business disruptions and continuity planning
procedures. The focus of this activity is on potential failures of external
systems required to carry out normal business operations, including
services provided by the public infrastructure such as electric power and
telecommunications. The Company expects this activity to be an ongoing
process well into the third quarter of 1999.
The above comments on the Year 2000 issue contain forward-looking
statements relating to the Company's plans, strategies, expectations,
intentions, and resources that should be read in conjunction with the
Company's disclosures on forward-looking statements.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which is effective for all
quarters of fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
for hedging activities. In accordance with SFAS 133, an entity is required
to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. SFAS 133 requires that changes in the derivatives' fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement and requires that a company formally document, designate and
assess the effectiveness of transactions that receive hedge accounting .
The Company does not believe that the implementation of SFAS 133 will have
a material effect on its financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material legal proceedings
other than SIBIA Neurosciences, Inc. v. Cadus Pharmaceutical
Corporation. SIBIA commenced an action on July 9, 1996 in the
United States District Court for the Southern District of
California alleging infringement by the Company of a patent
covering the use of cells, engineered to express any type of
cell surface receptor and a reporter gene, used to report
results in the screening of compounds against target assays,
and seeking injunctive relief and monetary damages. After
trial, on December 18, 1998, the jury issued a verdict in
favor of SIBIA and awarded SIBIA $18.0 million in damages. On
January 29, 1999, the United States District Court granted
SIBIA's request for injunctive relief that precludes the
Company from using the method claimed in SIBIA's patent. The
injunction does not bar the Company form engaging in
development of screening assays. The injunction also does not
bar the Company from providing certain specified screening
assays to Bristol-Myers Squibb or SmithKline Beecham which
utilize a readout covered by the SIBIA patent, and does not
bar Bristol-Myers Squibb or SmithKline Beecham from using
those assays for screening purposes, up to a specified maximum
number of compounds and/or natural product samples.
Additionally, the injunction does not bar any action which is
wholly outside the United States by Solvay Pharmaceuticals or
any other entity. On February 26, 1999, the United States
District Court denied the Company's motions to set aside the
jury verdict, to grant a new trial and to reduce or set aside
the $18.0 million damage award by the jury. The Company has
appealed the judgement. The appeal will be heard by the Court
of Appeals for the Federal Circuit in Washington, D.C. In
order to stay execution pending appeal of the $18.0 million
judgement obtained by SIBIA, in March 1999, the Company
deposited $18.5 million in escrow to secure payment of the
judgement in the event the Company were to lose the appeal.
Such $18.5 million was classified, as of December 31, 1998, as
"restricted cash noncurrent" and the Company's "cash and cash
equivalents" was reduced by $18.5 million. The Company has
begun implementing alternative readout methods in its
screening assays. Until these alternative readout methods are
further developed and commercially tested, certain aspects of
the drug discovery efforts of the Company and its
collaborative partners will be delayed. If there are delays in
further developing and commercially testing these alternative
readout methods, the Company's relationship with its
collaborative partners could be materially adversely affected.
If the Company is not successful in materially reducing or
setting side the $18.0 million damage award on appeal, the
business, financial condition and results of operations of the
Company will be materially adversely affected. The costs of
and the diversion of Company resources associated with this
litigation have had a material adverse effect on the business,
financial condition, results of operations and liquidity of
the Company.
In January 1999, the U.S. Patent and Trademark Office granted
the Company's request to reexamine the patent issued to SIBIA
that was the subject of the litigation. The re-examination by
the Patent Office is independent of the litigation and a final
decision by the Patent Office that SIBIA's patent is invalid
would take precedence over the jury verdict. There can be no
assurance that the Patent Office will find SIBIA's patent to
be invalid.
12
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
The information provided below represents a reasonable
estimate of the application through March 31, 1999 of the net
proceeds of $19,783,140 which were received from the Company's
initial public offering on July 17, 1996:
<TABLE>
<S> <C>
Construction of plant, building and facilities $829,101
Purchase and installation of machinery and equipment $2,468,061
Research and license payments to others $1,928,843
Investment in companies complementary to the
Company's business $2,150,000
Working capital used to fund operations $9,328,567
</TABLE>
Except for payments described in the following sentence, the
application of the net offering proceeds listed above
represents direct payments to others. No payments were made to
directors or officers or to their associates except for
payments made in the ordinary course of business which
include, but may not be limited to, the payment of officer
salaries, fringe benefits, and expense reimbursements or
compensation paid to directors for their services provided to
the Company under consulting arrangements. At March 31, 1999,
the Company had $3,078,568 of net offering proceeds that were
still not utilized.
Item 3. Defaults Upon Senior Securities
Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to report.
Item 5. Other Information
On May 3, 1999, the Company announced that it had retained
Hambrecht & Quist LLC as its financial advisor to explore
strategic alternatives that could enhance shareholder value,
including the possible sale or merger of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits listed in the Exhibit Index are included
in this report.
(b) Reports on Form 8-K
None
13
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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 PHARMACEUTICAL CORPORATION
(Registrant)
Date: May 13, 1999 By
----------------------------------------------
James S. Rielly
Vice President of Finance, Treasurer and Secretary
(Authorized Officer and Principal Financial Officer)
14
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit No. Description
27 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet, and Statement of Operations and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,205,519
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,046,881
<PP&E> 5,178,080
<DEPRECIATION> 2,503,814
<TOTAL-ASSETS> 33,694,640
<CURRENT-LIABILITIES> 1,368,697
<BONDS> 0
132,106
0
<COMMON> 0
<OTHER-SE> 13,693,857
<TOTAL-LIABILITY-AND-EQUITY> 33,694,640
<SALES> 0
<TOTAL-REVENUES> 3,038,776
<CGS> 0
<TOTAL-COSTS> 5,227,698
<OTHER-EXPENSES> (305,585)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,157,332)
<INCOME-TAX> 5,772
<INCOME-CONTINUING> (2,163,104)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,163,104)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> 0
</TABLE>