Shaun Noll, CFA

Phone: (707) 495-8353

Shaunsnoll@yahoo.com

This is a very simple idea, a very small company and is perhaps the most pure “dollar for
.50” I’ve seen in awhile. You will be able to know if you like it or not in about 15
minutes.
KDUS – Cadus Corp
Company Background:
Cadus developed several proprietary technologies that exploit the similarities between
yeast and human genes to elucidate gene function and cell signaling pathways. In 1999
Cadus sold its business to OSI. The company retained ownership of some of its core
technology and maintains a portfolio of patents based on its yeast technology (valued at
$500k on balance sheet but I valued them at $0 to be conservative).

The royalty stream and interest income on cash has been more than expenses while the
company has no debt. As a result, the company has been barely free cash flow positive.
KDUS has no employees other than one consultant who acts as the CEO and is paid $25k a
year (essentially for accounting services), directors are paid $3k a year (why does Carl
Icahn waste his time?!) and KDUS also leases some storage space for ~$12k a year. So
this is a shell of a company that is publicly traded looking to do an acquisition.

Analysis and Valuation:

Current market cap is ~$19M while it has $23.2M in cash and another $1.1M in a Bank of
America sub prime mortgage fund that should be redeemed and liquid as of 12/31/09.
Previous redemptions of shares in this fund have occurred at 5% discount to NAV so KDUS
is using ~5% discount to NAV for the most recent balance sheet. While discounting this
from their fair value may be prudent, given the fact that the shares were redeemed during
far more volatile times for that discount I’m not going to discount these any more than
KDUS is already, most likely they got their cash back at 100% of NAV..

KDUS also has ~$33M in R&D tax credits and NOLs from its previous years of losing money,
and these expire in various amounts over the 2009-2027 time frame.

I estimate the liquidation value of the company at $24.3M by assigning $0 value to the
$33M of tax assets, $0 in value to the publicly traded company shell and $0 to their
patent portfolio. This gives the stock 25.08% upside in a liquidation scenario.

Discounting the tax assets by 75% and giving 50% discount on the patent portfolio while
giving $0 value to the publicly traded shell creates a fair value of $33.3M, or ~81%
upside.

KDUS Valuation Analysis

current price $ 1.4000
13,140,0
shares outstanding 00
current market cap $ 18,396,000

US net cash $ 23,123,222

market cap discount to US net cash 20.44%

liquidation value $ 24,555,373

market cap discount to liquidation value 25.08%

total net cash PLUS fair value of NOLs and patents $ 33,276,123
market cap discount to net cash, st inv and fair value of NOLs 80.89%
 Shaun Noll, CFA
Phone: (707) 495-8353
Shaunsnoll@yahoo.com

The Catalyst:
I know these are pretty weak catalysts but with a company with no operations trading at
25% discount to liquid cash I feel that this is acceptable.

Icahn owns ~40% while Moab Capital Partners own ~13%. I estimate Moab’s cost basis to be
~$1.75. Icahn bought in long ago (has been director at KDUS since 1993) and is likely
deep under water. Note that both were increasing their position as recently as 2009 and
while neither appears to be aggressively looking for deals, there have been a few deals
proposed. These investors starting this year will now have more motivation/pressure than
previous years due to two factors. Rumor is that Icahn indicated he would be willing to
exit at cash value and give up the tax and patent assets.

1. KDUS royalty revenue will expire 2010 while interest income on cash is extremely
low right now, this will be the first year that the company will likely burn some
cash (very small amount).
2. At the same time the NOLs started expiring in 2009 so that value is evaporating as
the company sits.

As long as the company was paying its own expenses there was little reason to be
aggressive looking for deals but now that the company will be burning some cash and NOLs
will start going away, this will create pressure to make a deal.

Also note that previously the company had cash locked up in the BAC fund and was having
trouble redeeming that, creating incentive for the controlling shareholders to sit and
wait. As of 12/31/09 shares in the fund have been redeemed giving them full liquidity.

The Risks:
Note the OSI license revenue ends as of 2010 and the purpose of the company is to make an
acquisition. The 10k states that this acquisition could be in any industry so they are
not limited to biotech. There is the risk that they could make a terrible acquisition.
Note that this works both ways, should they make a smart acquisition and apply some
modest leverage, the company would likely began being valued based on earnings and the
upside could be tremendous.

The most important risks in my view though are opportunity cost and liquidity.

Primary concern is this company simply sits for years. If I see no progress made over
the next year I will simply cut the position.

The other risk is due to the laughable volume/liquidity of this stock, although this is
also likely the reason for the valuation discrepancy. Simply keeping position size small
will be an effective way to deal with this and this is obviously not for an institution.

Conclusion:
The two largest risks are manageable and with no operations and 25% discount to cash
value the downside risk is limited. With 2 large and smart activist shareholders who
have majority control involved I’m betting they won’t let the company sit forever and
that something intelligent gets done with the $24M given the distressed environment for
small companies and the fact that this will be the first year company value will decrease
if shareholders do nothing.

If I’m wrong though they could always liquidate and payout the company’s cash creating a
25% return 
 Shaun Noll, CFA
Phone: (707) 495-8353
Shaunsnoll@yahoo.com