November 09, 2001
CADUS PHARMACEUTICAL CORP (KDUS.OB)
Quarterly Report (SEC form 10-Q)
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 terminated all employees who were not hired by the purchaser of its assets or who did not voluntarily resign except for the Chief Executive Officer who resigned in April 2000.
The Company has incurred operating losses in each year since its inception. At September 30, 2001, the Company had an accumulated deficit of approximately $33.9 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
REVENUES
There were no revenues for the three months ended September 30, 2001. The revenues for the three months ended September 30, 2000 were $23,470 representing the amortization of license fees.
OPERATING EXPENSES
General and administrative expenses decreased to $163,639 for the three months ended September 30, 2001 from $251,701 for the same period in 2000. The decrease is attributable primarily to a decrease in legal costs of approximately $118,000 offset by increases of approximately $21,000 in patent costs and license fees.
OTHER INCOME
Interest income for the three months ended September 30, 2001 increased to $185,346 from $71,394 for the same period in 2000. The increase is attributable primarily to the increase in the Company's unrestricted cash equivalent balances as compared to the same period in 2000 as a result of the release of funds that were held in escrow in connection with the SIBIA litigation.
On September 6, 2000 the United States Court of Appeals ruled in favor of the Company and overturned the 1998 judgment entered by the U.S. District Court in the patent infringement suit filed by SIBIA. The gain recognized represents the original $18.5 million reserve plus interest accrued on the escrow balance of $1,341,489 less legal fees of $1,000,000 that were contingent on the success of the appeal.
EQUITY IN OTHER VENTURES
For the three months ended September 30, 2001 the Company recognized a net gain of $1,826 in its investment in Laurel Partners Limited Partnership ("Laurel"). The loss for the same period in 2000 was $126,418 representing a net gain in Laurel of $3,379 and losses of $129,797 in Axiom Biotechnologies, Inc. ("Axiom"). The Company's investment in Axiom was written down to zero in the fiscal year 2000.
NET INCOME
Net income for the three months ended September 30, 2001 decreased to $23,533 from net income of $18,574,415 for the same period in 2000. The net income for the same period in 2000 was principally attributable to the reversal of the SIBIA litigation judgment.
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
REVENUES
Revenues for the nine months ended September 30, 2001 decreased to $100,000 from $723,470 for the same period in 2000. This decrease is attributable primarily to the Company not receiving an access fee similar to the $600,000 it received in February 2000 in connection with its licensing agreement with OSI.
OPERATING EXPENSES
General and administrative expenses decreased to $812,547 for the nine months ended September 30, 2001 from $1,451,793 for the same period in 2000. Such expenses for the nine months ended September 30, 2000 included $607,500 in compensation (including $497,500 in severance) paid to the Company's former Chief Executive Officer. The Company does not currently compensate its Chief Executive Officer. General and administrative expenses for the nine months ended September 30, 2001 principally consisted of patent maintenance costs, professional fees and insurance costs.
OTHER INCOME
Interest income for the nine months ended September 30, 2001 increased to $714,840 from $214,735 for the same period in 2000. The increase is attributable primarily to the increase in the Company's unrestricted cash equivalent balances as compared to the same period in 2000 as a result of the release of funds that were held in escrow in connection with the SIBIA litigation.
Pursuant to a court order, the Company received in February 2001 a $155,402 reimbursement of SIBIA litigation costs which was partially offset by legal costs incurred of $29,786.
On September 6, 2000 the United States Court of Appeals ruled in favor of the Company and overturned the 1998 judgment entered by the U.S. District Court in the patent infringement suit filed by SIBIA. The gain recognized represents the original $18.5 million reserve plus interest accrued on the escrow balance of $1,341,489 less legal fees of $1,000,000 that were contingent on the success of the appeal.
EQUITY IN OTHER VENTURES
For the nine months ended September 30, 2001 the Company recognized a net gain of $3,805 in Laurel. The loss for the same period in 2000 was $840,656 representing losses in Laurel of $6,243 and in Axiom of $834,413. The Company's investment in Axiom was written down to zero in the fiscal year 2000.
NET INCOME
Net income for the nine months ended September 30, 2001 decreased to $131,714 from net income of $17,603,426 for the same period in 2000. The net income for the same period in 2000 was principally attributable to the reversal of the SIBIA litigation judgment.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001 the Company held cash and cash equivalents of $24.7 million. The Company's working capital at September 30, 2001 was $24.6 million.
In February 2000, the Company licensed to OSI, on a non-exclusive basis, its yeast technologies. OSI has paid to the Company a license fee of $100,000, an access fee of $600,000 and a supplemental license fee of $250,000. OSI is also obligated to pay an annual maintenance fee of $100,000 until the earlier of 2010 or the termination of the license. The Company received an annual maintenance fee of $100,000 in February 2001. OSI may terminate the license at any time on 30 days prior written notice.
The Company believes that its existing capital resources, together with interest income, will be sufficient to support its operations through mid-2003. 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 license its technologies and otherwise realize value from its assets; the transactions, if any, arising from the Company's efforts to acquire technologies or products or to acquire or invest in companies; and the expenses of pursuing such transactions.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" ("SFAS 141"), and SFAS No. 142, "Goodwill And Other Intangible Assets" ("SFAS 142"). SFAS 141 addresses the accounting for acquisitions of businesses and is effective for acquisitions occurring on or after July 1, 2001. SFAS 142 addresses the method of identifying and measuring goodwill and other intangible assets, eliminates further amortization of goodwill and intangible assets that have indefinite useful lives, and requires periodic evaluations of impairment of goodwill balances and intangible assets. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 142 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 141 will have no effect on the Company's financial position or results of operations. SFAS 142 will require the Company to reassess the useful lives of its capitalized patent costs reflected in the accompanying balance sheets as other assets. The Company amortized $60,679 of capitalized patent costs during the nine month periods ended September 30, 2001 and 2000. The Company is currently assessing the impact of the adoption of SFAS 142.
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143") requires recognition of fair value liability for any retirement obligation associated with long-lived assets. The offset to any liability recorded is added to the recorded asset where the additional amount is depreciated over the same period as the long-lived asset for which the retirement obligation is established. SFAS 143 is effective beginning January 1, 2003.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144") addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and is effective for financial statements issued for fiscal years beginning January 1, 2002.
The adoption of these standards should not have a significant effect on the Company's financial position and results of operations. |
