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ITEM 1.
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CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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CADUS CORPORATION
Condensed Consolidated Balance Sheets
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September
30,
2017
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December 31,
2016
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(Unaudited)
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ASSETS
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|
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Assets:
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Real estate inventory
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$
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36,050,111
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$
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35,121,788
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Cash and cash equivalents
|
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3,832,853
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|
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5,675,047
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Interest receivable
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2,709
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|
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1,835
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Prepaid and other assets
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|
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193,469
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|
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61,109
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Investment in other venture
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|
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194,143
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|
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193,086
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Website, net
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8,333
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|
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13,333
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Total assets
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$
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40,281,618
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$
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41,066,198
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Liabilities:
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Accrued expenses and other liabilities
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$
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651,098
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$
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152,882
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Total liabilities
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651,098
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|
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152,882
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|
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Commitments
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Stockholders’ equity:
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Common stock
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264,297
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|
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264,297
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Additional paid-in capital
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80,291,992
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80,291,992
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Accumulated deficit
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(40,625,694
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)
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(39,342,898
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)
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Treasury stock – at cost
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(300,075
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)
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(300,075
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)
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Total stockholders’ equity
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39,630,520
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|
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40,913,316
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Total liabilities and stockholders’ equity
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$
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40,281,618
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|
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$
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41,066,198
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See accompanying notes to condensed consolidated
financial statements.
CADUS CORPORATION
Condensed Consolidated Statements of
Operations
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Three Months Ended
September 30,
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2017
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2016
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(Unaudited)
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(Unaudited)
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Total revenues
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$
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—
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$
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—
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Costs and expenses:
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|
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General and administrative expenses
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103,927
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101,396
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Real estate expenses
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79,553
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45,912
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Impairment to real estate inventory
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700,000
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|
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—
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Amortization of website
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1,667
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1,667
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Equity in earnings in other venture
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(629
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)
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81
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Total costs and expenses
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884,518
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|
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149,056
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Operating loss
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|
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(884,518
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)
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|
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(149,056
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)
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Other income:
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|
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|
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Interest income
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8,591
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5,727
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Loss before provision for income taxes
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(875,927
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)
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(143,329
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)
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Provision for income taxes
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|
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—
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|
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—
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Net loss
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$
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(875,927
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)
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$
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(143,329
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)
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Basic and diluted net (loss) per weighted average share of common stock outstanding
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$
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(0.03
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)
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$
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(0.01
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)
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Weighted average shares of common stock outstanding – basic and diluted
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|
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26,288,080
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26,288,080
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See accompanying notes to condensed consolidated
financial statements.
CADUS CORPORATION
Condensed Consolidated Statements of
Operations
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Nine Months Ended
September 30,
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2017
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2016
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(Unaudited)
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(Unaudited)
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Total revenues
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$
|
—
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$
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—
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Costs and expenses:
|
|
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|
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General and administrative expenses
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374,670
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385,266
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Real estate expenses
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226,886
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|
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103,699
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Impairment of real estate inventory
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700,000
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|
|
|
—
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Amortization of website
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|
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5,000
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|
|
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5,000
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Equity in earnings in other venture
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|
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(1,057
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)
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|
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(152
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)
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Total costs and expenses
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1,305,499
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|
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493,813
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Operating loss
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(1,305,499
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)
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|
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(493,813
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)
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Other income:
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|
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Interest income
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22,703
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14,227
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Loss before provision for income taxes
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(1,282,796
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)
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(479,586
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)
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Provision for income taxes
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—
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|
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—
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Net loss
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$
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(1,282,796
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)
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$
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(479,586
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)
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Basic and diluted net (loss) per weighted average share of common stock outstanding
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$
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(0.05
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)
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$
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(0.02
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)
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Weighted average shares of common stock outstanding – basic and diluted
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|
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26,288,080
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|
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26,288,080
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See accompanying notes to condensed consolidated
financial statements.
CADUS
CORPORATION
Condensed Consolidated Statements of
Cash Flows
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Nine Months Ended
September 30,
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2017
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2016
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(Unaudited)
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(Unaudited)
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Cash flows from operating activities:
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Net loss
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$
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(1,282,796
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)
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$
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(479,586
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)
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Adjustments to reconcile net (loss) to net cash used in operating activities:
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Impairment of real estate inventory
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700,000
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—
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Amortization of website
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5,000
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5,000
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Equity in earnings in other venture
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|
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(1,057
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)
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(152
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)
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Changes in assets and liabilities:
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Increase in prepaid and other assets
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(133,234
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)
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(14,183
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)
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Increase in real estate inventory
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(1,314,961
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)
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(1,838,078
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)
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Increase in accrued expenses and other liabilities
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184,854
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73,860
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Net cash used in operating activities
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(1,842,194
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)
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(2,253,139
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)
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Net decrease in cash and cash equivalents
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(1,842,194
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)
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(2,253,139
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)
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Cash and cash equivalents - beginning of period
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5,675,047
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8,936,147
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Cash and cash equivalents - end of period
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$
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3,832,853
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$
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6,683,008
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See accompanying notes to condensed consolidated
financial statements.
CADUS CORPORATION
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Note - 1
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Organization and Basis of Preparation
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The information presented as
of September 30, 2017 and for the three and nine 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 (“GAAP”) 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, 2016 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, 2016.
The consolidated condensed 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. The Company has decided not to maintain
its drug discovery technologies.
The results of operations for
the three and nine month periods ended September 30, 2017 are not necessarily indicative of the results to be expected for the
year ending December 31, 2017.
Note - 2
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Cash Equivalents
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The Company includes as cash
equivalents all highly liquid investments with original maturities of three months or less when purchased. There were cash equivalents
of $3,541,541 at September 30, 2017 and there were cash equivalents of $5,319,730 at December 31, 2016.
Note - 3
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Net (Loss) Per Share
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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 nine month periods ended September 30, 2017 and 2016.
Note - 4
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Fair Value of Financial Instruments
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The Company uses financial instruments
in the normal course of its business. The carrying values of cash and cash equivalents, prepaid expenses and other assets, and
accrued expenses and other liabilities 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 September 30, 2017 and December 31, 2016. The Company evaluated whether the Company’s investment is
a variable interest and concluded that it is a variable interest. The Company then evaluated whether Laurel Partners Limited Partnership
(“Laurel”) is a variable interest entity. The Company, as the limited partner, has no substantive kick out rights,
nor any substantive participating rights, therefore, Laurel Partners Limited Partnership is a variable interest entity. In order
to determine whether the Company is the primary beneficiary of Laurel, the Company evaluated the extent of its power over the activities
that most significantly impact Laurel’s economic performance. Based on this evaluation, the Company concluded that it was
not the primary beneficiary and, therefore, would not consolidate Laurel.
CADUS CORPORATION
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Note - 5
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Real Estate Operations
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As of September 30, 2017, 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 $226,886
in real estate expenses for the nine months ended September 30, 2017, consisting of real estate taxes, insurance, legal expenses,
utilities, maintenance and selling expenses with respect to properties owned, and $103,699 for the nine months ended September
30, 2016, consisting of real estate taxes, insurance, utilities, maintenance and selling expenses with respect to properties owned.
Real estate inventory is recorded
at cost upon acquisition. 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 inventory 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
inventory is analyzed quarterly for changes in net realizable value and any subsequent write down is charged to operating expenses.
For the three months ended September 30, 2017, the Company wrote down the value of two houses in Coconut Grove, Florida, one at
3506 Main Lodge Drive and the other at 3437 N. Moorings Way, by a total of $700,000 due to a change in market conditions in Coconut
Grove, Florida. The Company did not have such a write down during the three months ended September 30, 2016.
Note - 6
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Accrued Expenses
|
Accrued expenses consist of
the following:
|
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September 30, 2017
|
|
|
December 31, 2016
|
|
Real estate taxes
|
|
$
|
320,332
|
|
|
$
|
—
|
|
Real estate inventory
|
|
|
313,362
|
|
|
|
150,554
|
|
Legal
|
|
|
8,271
|
|
|
|
1,373
|
|
Property expenses
|
|
|
9,133
|
|
|
|
—
|
|
Sundry
|
|
|
—
|
|
|
|
955
|
|
|
|
$
|
651,098
|
|
|
$
|
152,882
|
|
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Overview
The Company seeks opportunities to profit
from the purchase of individual homes or individual residential lots for purposes of renovation or construction and resale. The
Company has completed renovation of two homes - one located at 3506 Main Lodge Road, Coconut Grove, FL, and the other located at
3437 N. Moorings Way, Coconut Grove, FL. The Company has started construction of a new home on its vacant lot located at 2535 Shelter
Avenue, Miami Beach, FL 33140. In addition to its real estate activities, the Company may consider acquisitions or investments
in other industries.
At September 30, 2017, the Company had
an accumulated deficit of approximately $40.6 million. The Company’s losses have resulted principally from costs incurred
in connection with its prior biomedical research and development activities, its current real estate 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 September 30, 2017 and 2016.
Revenues
There were no revenues for the three months
ended September 30, 2017 and for the three months ended September 30, 2016.
Costs and Expenses
General and administrative expenses increased
to $103,927 for the three months ending September 30, 2017 from $101,396 for the same period in 2016. Professional fees increased
by $3,063 due to filings with the SEC. There were additional net decreases of $532.
Real estate expenses for the three months
ended September 30, 2017 were $79,553, including real estate taxes, insurance and selling expense totaling $44,067 on the completed
renovated properties and $15,120 of legal expenses for litigation in connection with the fraudulent transfer of one of the Company’s
properties. The balance of $20,366 is for maintenance and utilities of the properties owned. Real estate expenses for the three
months ended September 30, 2016 were $45,912, including real estate taxes, insurance, and selling expenses of $33,911 on completed
renovated properties and $12,001 for maintenance and utilities for the properties owned.
For the three months ended September 30,
2017 and 2016, the Company recognized equity in earnings of $629 and a loss of $81, respectively, in its investment in Laurel Partners
Limited Partnership.
After acquisition, real estate inventory
is analyzed quarterly for changes in net realizable value and any subsequent write down is charged to operating expenses. For the
three months ended September 30, 2017, the Company wrote down the value of two houses in Coconut Grove, Florida, one at 3506 Main
Lodge Drive and the other at 3437 N. Moorings Way, by a total of $700,000 due to a change in market conditions in Coconut Grove,
Florida. The Company did not have such a write down during three months ended September 30, 2016.
Interest Income
Interest income for the three months ended
September 30, 2017 was $8,591 compared to interest income of $5,727 for the same period in 2016. This increase is attributable
primarily to an increase in interest rates.
Net Loss
Net loss for the three months ended September
30, 2017 was $875,927 compared to a net loss of $143,329 for the same period in 2016. The increase in net loss is attributable
to an increase in general and administrative expenses of $2,531, an increase in real estate expenses of $33,641, an impairment
loss on real estate inventory of $700,000, offset by an increase of $710 in equity in earnings in other venture and an increase
of $2,864 in interest income.
Nine Months Ended September 30, 2017 and 2016.
Revenues
There were no revenues for the nine months
ended September 30, 2017 and for the nine months ended September 30, 2016.
Costs and Expenses
General and administrative expenses decreased
to $374,670 for the nine months ended September 30, 2017 from $385,266 for the same period in 2016. Professional fees decreased
by $3,027 due to the elimination of outside bookkeeping services. Storage and shredding decreased by $8,366 due to the Company
no longer leasing storage space or shredding old files. There were additional increases of $797.
Real estate expenses for the nine months
ended September 30, 2017 were $226,886, including real estate taxes, insurance, and selling expense totaling $131,079 on the completed
renovated properties and $31,632 of legal expenses in connection with the fraudulent transfer of one of the Company’s properties.
The balance of $64,175 is for maintenance and utilities for properties owned. Real estate expenses for the nine months ended September
30, 2016 were $103,699, including real estate taxes, insurance, and selling expenses of $66,100 on completed renovated properties.
The balance of $37,599 is for maintenance and utilities for properties owned.
For the nine months ended September 30,
2017 and 2016, the Company recognized equity in earnings of $1,057 and $152, respectively, in its investment in Laurel Partners
Limited Partnership.
After acquisition, real estate inventory
is analyzed quarterly for changes net realizable value and any subsequent write down is charged to operating expenses. For the
nine months ended September 30, 2017, the Company wrote down the value of two houses in Coconut Grove, Florida, one at 3506 Main
Lodge Drive and the other at 3437 N. Moorings Way, by a total of $700,000 due to a change in market conditions in Coconut Grove,
Florida. The Company did not have such a write down during the nine months ended September 30, 2016.
Interest Income
Interest income for the nine months ended
September 30, 2017 was $22,703, compared to interest income of $14,227 for the same period in 2016. This increase is attributable
primarily to an increase in interest rates.
Net Loss
Net loss for the nine months ended September
30, 2017 was $1,282,796 compared to a net loss of $479,586 for the same period in 2016. The increase in net loss can be attributed
to an increase in real estate expenses of $123,187, an impairment loss on real estate inventory of $700,000, offset by a decrease
in general and administrative expenses of $10,596, an increase in interest income of $8,476 and an increase of $905 in equity in
earnings in other venture.
Liquidity and Capital Resources
At September 30, 2017, the Company held
cash and cash equivalents of $3.8 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.