Notes to Condensed Consolidated Financial
Statements (Unaudited)
Note
- 1
Organization and Basis of Preparation
The information presented as
of March 31, 2018 and for the three months 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, 2017 condensed consolidated balance sheet was derived from audited consolidated financial
statements. These condensed consolidated financial statements should be read in conjunction with the Company's annual report on
Form 10-K for the year ended December 31, 2017.
The consolidated condensed financial
statements include the accounts of the Company 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 patents from its prior biomedical research and development activities and has had no revenues from the licensing of
its patents since 2010.
The results of operations for
the three month period ended March 31, 2018 is not necessarily indicative of the results to be expected for the full year ending
December 31, 2018.
Note
– 2
Pending Merger
On January 20, 2018, the Company
entered into an Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”), by and
among the Company, Starfire Holding Corporation (“Parent”) and Parent’s wholly-owned subsidiary, Cadus Merger
Sub LLC (“Merger Sub”), in accordance with the terms and subject to the conditions of which Merger Sub will be merged
with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Parent (the
“Merger”). At the effective time of the Merger, each outstanding share of the Company’s Common Stock (other than
certain shares as set forth in the Merger Agreement) will automatically be converted into the right to receive an amount in cash
equal to $1.61, without interest and less any applicable withholding taxes. If the Merger is consummated, then the Company will
become a privately held company and a wholly-owned subsidiary of Parent, which is indirectly controlled by Mr. Carl C. Icahn.
Completion of the Merger is
subject to certain conditions, including, among others: (i) receipt of the requisite vote of the Company’s stockholders adopting
the Merger Agreement (including the vote of stockholders holding a majority of the outstanding shares not owned by Parent, Merger
Sub, or any of their affiliates); (ii) the absence of any order or law prohibiting the Merger; (iii) the accuracy of the parties’
respective representations and warranties, subject in some instances to materiality or “Material Adverse Effect” qualifiers,
as of the date of the Merger Agreement and the closing date of the Merger; (iv) the parties’ respective performance in all
material respects of their respective agreements and covenants contained in the Merger Agreement at or prior to the closing of
the Merger; and (v) the absence of a “Material Adverse Effect” with respect to the Company, since the execution of
the Merger Agreement. There can be no assurance that the closing conditions will be satisfied, or that the Merger will be completed
within the required time period pursuant to the Merger Agreement. Satisfaction of the closing conditions may delay the completion
of the Merger, and if certain closing conditions are not satisfied prior to June 30, 2018, the parties will not be obligated to
complete the Merger.
CADUS CORPORATION
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Note
- 3
Cash Equivalents
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 $1,856,908 at March 31, 2018 and there were cash equivalents of $2,549,633 at December 31, 2017.
Note
- 4
Concentration of Credit Risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. Concentration of credit
risk with respect to cash and cash equivalents is limited, as the Company’s cash and cash equivalents are primarily with
high quality financial institutions.
Note
- 5
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. There were no outstanding
common stock equivalents for the three month periods ended March 31, 2018 and 2017.
Note
- 6
Fair Value of Financial Instruments
The Company uses financial instruments
in the normal course of its business. The carrying values of cash and cash equivalents, prepaid expenses and other assets, and
accrued expenses approximate fair value. The fair value of the Company’s investment in a privately held company is not readily
available. The Company believes the fair value of this investment in a privately held company approximated its carrying value at
March 31, 2018 and December 31, 2017 because the only asset held by the underlying investee was cash and cash equivalents.
Note
- 7
Variable Interest Entity
The Company evaluated whether
the Company’s investment in other ventures 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.
The Company has no obligations to make any additional capital contributions or fund any operating losses and the only amount at
risk is the remaining investment balance.
CADUS CORPORATION
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Note
- 8
Real Estate Operations
As of March 31, 2018, 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 $53,737
in real estate expenses for the three months ended March 31, 2018, consisting of real estate taxes, insurance, legal expenses,
utilities and maintenance with respect to properties owned, and $78,646 for the three months ended March 31, 2017, consisting of
real estate taxes, insurance, legal expenses, 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.
The Company signed a contract
to sell the home located at 3437 N. Moorings Way, Coconut Grove, Florida. The closing is anticipated to be held in June 2018.
After acquisition, real estate
inventory is analyzed quarterly for changes in fair values and any subsequent write down is charged to operating expenses. The
Company did not have such a write down during the three months ended March 31, 2018 and 2017.
Note
- 9
Accrued Expenses
Accrued expenses consist of
the following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Real estate costs and retainage
|
|
$
|
273,410
|
|
|
$
|
303,057
|
|
Real estate taxes
|
|
|
106,460
|
|
|
|
—
|
|
Pending merger fees
|
|
|
266,900
|
|
|
|
21,882
|
|
Property expenses
|
|
|
2,641
|
|
|
|
—
|
|
Other
|
|
|
4,300
|
|
|
|
688
|
|
|
|
$
|
653,711
|
|
|
$
|
325,627
|
|
Note
- 10
Recently Issued Accounting Standards
Recent accounting pronouncements
issued by the Financial Accounting Standards Board are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.