SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 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 September 30, 2004
                                        ------------------

[_]      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 CORPORATION
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified on its Charter)


                    Delaware                                  13-3660391
---------------------------------------------------    -------------------------
           (State of Other Jurisdiction                    (I.R.S. Employer
        of Incorporation or Organization)                 Identification No.)


      767 Fifth Avenue, New York, New York                      10153
---------------------------------------------------    -------------------------
     (Address of Principal Executive Offices)                 (Zip Code)


Registrant's Telephone Number, Including Area Code          (212) 702-4315
                                                       -------------------------


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 ___

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12-b-2 of the Exchange Act).

                              Yes ___        No _X_


The number of shares of registrant's common stock, $0.01 par value,  outstanding
as of October 31, 2004 was 13,144,040.

<PAGE>


                                CADUS CORPORATION

                                      INDEX

                                                                        Page No.
                                                                        --------
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS                           4

         PART I - CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

              Condensed Consolidated Balance Sheets - September 30, 2004
              (unaudited) and December 31, 2003 (audited)                   5

              Condensed Consolidated Statements of Operations -
              Three Months Ended September 30, 2004 and 2003 (unaudited)    6

              Condensed Consolidated Statements of Operations -
              Nine Months Ended September 30, 2004 and 2003 (unaudited)     7

              Condensed Consolidated Statements of Cash Flows -
              Nine Months Ended September  30, 2004 and 2003 (unaudited)    8

              Notes to Condensed Consolidated Financial
              Statements (unaudited)                                      9 - 11

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                       12 - 14

Item 3.  Quantitative and Qualitative Disclosures About Market Risk         14

Item 4.  Controls and Procedures                                            14

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                  15

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds        15

Item 3.  Defaults Upon Senior Securities                                    15

Item 4.  Submission of Matters to a Vote of Security Holders                15

Item 5.  Other Information                                                  15

Item 6.  Exhibits and Reports on Form 8-K                                   15

                                       2
<PAGE>


SIGNATURES                                                                  16

EXHIBIT INDEX                                                               17

                                       3
<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 27A of the Securities
Act of 1933 and Section 21E of the Securities  Exchange Act of 1934, as amended.
All statements  other than  statements of historical  fact are  "forward-looking
statements" for purposes of federal and stated  securities  laws,  including any
projections  or  expectations  of  earnings,   revenue,  financial  performance,
liquidity and capital  resources or other financial  items; any statement of our
plans,  strategies  and  objectives  for our future  operations;  any statements
regarding future economic  conditions or performance;  any statements of belief;
and  any   statements   of   assumption   underlying   any  of  the   foregoing.
Forward-looking  statements  may  include  the words  "may,"  "will,"  "should,"
"could," "would," "predicts," "potential," "continue," "expects," "anticipates,"
"future," "intends," "plans,"  "believes,"  "estimates" and other similar words.
Although  the  Company   believes  that  the   expectations   reflected  in  our
forward-looking  statements  are  reasonable,  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,
technological  uncertainties  regarding  the Company's  technologies,  risks and
uncertainties  relating to the Company's  ability to license its technologies to
third parties, the Company's ability to acquire and operate other companies, the
Company's capital needs and uncertainty of future funding, 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  becoming  obsolete,  as well as  other  risks  and
uncertainties  discussed in the Company's  other filings with the Securities and
Exchange  Commission.  The  forward-looking  statements  made in this  Quarterly
Report on Form 10-Q are made only as of the date hereof and the Company does not
have  or  undertake  any  obligation  to  publicly  update  any  forward-looking
statements  to  reflect  subsequent  events or  circumstances  unless  otherwise
required by law.

                                       4
<PAGE>


ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                CADUS CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                     ------
                                                   September 30,   December 31,
                                                       2004             2003
                                                   ------------    ------------
                                                    (Unaudited)      (Audited)

Current assets:

   Cash and cash equivalents                       $ 24,067,294    $ 24,369,223

   Prepaid and other current assets                      34,397          34,393

   Investment in marketable securities                  382,792       1,412,627
                                                   ------------    ------------
                                                     24,484,483      25,816,243
      Total current assets




Investment in other ventures                            160,250         162,805

Other assets, net                                       767,256         827,935
                                                   ------------    ------------
      Total assets                                 $ 25,411,989    $ 26,806,983
                                                   ============    ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Current liabilities:

Accrued expenses and other current liabilities     $     18,195    $     49,164
                                                   ------------    ------------

      Total current liabilities                          18,195          49,164
                                                   ------------    ------------


Commitments

Stockholders' equity:

   Common stock                                         132,857         132,857

   Additional paid in capital                        59,844,355      59,844,355

   Accumulated deficit                              (33,529,757)    (33,195,567)

   Accumulated other comprehensive (loss) income       (753,586)        276,249

   Treasury stock                                      (300,075)       (300,075)
                                                   ------------    ------------
      Total stockholders' equity                     25,393,794      26,757,819
                                                   ------------    ------------
      Total liabilities and stockholder's equity   $ 25,411,989    $ 26,806,983
                                                   ============    ============


     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>


                                CADUS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                       Three Months Ended
                                                          September 30,
                                                       2004            2003
                                                   ------------    ------------
                                                    (Unaudited)     (Unaudited)

License and maintenance fees                       $         --    $    120,000
                                                   ------------    ------------
      Total revenues                                         --         120,000
                                                   ------------    ------------
Costs and expenses:

   General and administrative expenses                  231,674         169,447

   (Gain) from equity in other ventures                    (615)           (337)
                                                   ------------    ------------
      Total costs and expenses                          231,059         169,110
                                                   ------------    ------------
Operating loss                                         (231,059)        (49,110)
                                                   ------------    ------------
Other income:

   Interest income                                       71,296          36,443

   Refund of prior year franchise tax                    42,740              --

   Realized gain on marketable securities                    --         313,189
                                                   ------------    ------------
   Total other income                                   114,036         349,632
                                                   ------------    ------------
(Loss) income before income taxes                      (117,023)        300,522

Income taxes                                                 --              --
                                                   ------------    ------------
      Net (loss) income                            $   (117,023)   $    300,522
                                                   ============    ============
Basic and diluted (loss) income per weighted
average share of common stock outstanding          $      (0.01)   $       0.02
                                                   ============    ============
Weighted average shares of common stock
outstanding - basic and diluted                      13,144,040      13,144,040
                                                   ============    ============


     See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>


                                CADUS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                        Nine Months Ended
                                                          September 30,

                                                       2004            2003
                                                   ------------    ------------
                                                    (Unaudited)    (Unaudited)

License and maintenance fees                       $    100,000    $    220,000
                                                   ------------    ------------
      Total revenues                                    100,000         220,000
                                                   ------------    ------------
Costs and expenses:

   General and administrative expenses                  616,113         703,517

   Loss from equity in other ventures                     2,555           2,438
                                                   ------------    ------------
      Total costs and expenses                          618,668         705,955
                                                   ------------    ------------
Operating loss                                         (518,668)       (485,955)
                                                   ------------    ------------
Other income:

   Interest income                                      141,738         136,850

   Refund of prior year franchise tax                    42,740              --

   Realized gain on marketable securities                    --         313,189

                                                   ------------    ------------
      Total other income                                184,478         450,039
                                                   ------------    ------------
(Loss) before income taxes                             (334,190)        (35,916)

Income taxes                                                 --              --
                                                   ------------    ------------
      Net (loss)                                   $   (334,190)   $    (35,916)
                                                   ============    ============
Basic and diluted (loss) per weighted
average share of common stock outstanding          $      (0.03)   $      (0.00)
                                                   ============    ============
Weighted average shares of common stock
outstanding - basic and diluted                      13,144,040      13,144,040
                                                   ============    ============


     See accompanying notes to condensed consolidated financial statements.

                                       7
<PAGE>


                                CADUS CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                         Nine Months Ended
                                                           September 30,
                                                       2004            2003
                                                   ------------    ------------
                                                    (Unaudited)     (Unaudited)
Cash flows from operating activities:
   Net (loss)                                      $   (334,190)   $    (35,916)
   Adjustments to reconcile net (loss) to
   net cash (used in) operating activities:
      Amortization of patent costs                       60,679          60,680
      Realized gain on marketable securities                 --        (313,189)
      Loss from equity in other ventures                  2,555           2,438
   Changes in assets and liabilities:
      (Increase) in license fee receivable                   --        (120,000)
      (Increase) in prepaid and other current asset          (4)         (9,243)
      (Decrease) in accrued expenses and
      other current liabilities                         (30,969)       (198,716)
                                                   ------------    ------------
Net cash (used in) operating activities                (301,929)       (613,946)
                                                   ------------    ------------
Net (decrease) in cash and cash equivalents            (301,929)       (613,946)
Cash and cash equivalents - beginning of period      24,369,223      24,923,071
                                                   ------------    ------------
Cash and cash equivalents - end of period          $ 24,067,294    $ 24,309,125
                                                   ============    ============


     See accompanying notes to condensed consolidated financial statements.

                                       8
<PAGE>


                                CADUS CORPORATION
              Notes to Condensed Consolidated Financial Statements


Note - 1      ORGANIZATION AND BASIS OF PREPARATION

              The  information  presented as of  September  30, 2004 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 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,  2003
              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, 2003.

              The consolidated  financial statements include the accounts of the
              Company and its wholly owned subsidiary, Cadus Technologies, Inc.,
              organized  in  December  2001.  All  inter-company   balances  and
              transactions have been eliminated in consolidation.

              The  results  of  operations  for  the  nine-month   period  ended
              September 30, 2004 are not  necessarily  indicative of the results
              to be expected for the year ending December 31, 2004.

Note - 2      NET (LOSS) INCOME PER SHARE

              For the three and nine-month  periods ended September 30, 2004 and
              2003,  basic net (loss)  income per share is  computed by dividing
              the net (loss)  income by the  weighted  average  number of common
              shares  outstanding.  Diluted  earnings  per  share  for the three
              months ended September 30, 2003 was the same as basic earnings per
              share as all of the Company's  outstanding  options' and warrants'
              exercise  prices were greater than the average market price of the
              common  shares.  For  this  reason,  for the  three  months  ended
              September  30, 2003,  434,307  options and warrants  were excluded
              from the calculation of diluted earnings per share.

              The Company incurred a loss for all other periods  presented;  the
              inclusion  of  common  stock  equivalents  in the  calculation  of
              diluted loss per share would be  anti-dilutive  and has  therefore
              been excluded.

Note - 3      LICENSING AGREEMENTS

              In  December  2001,  the Company  licensed  its  yeast-based  drug
              discovery  technologies  on  a  non-exclusive  basis  to  a  major
              pharmaceutical company. Under the licensing agreement, the Company
              received  an  up-front  non-refundable  fee of  $500,000  that was
              recorded  as  revenue  in  the  December  31,  2001   consolidated
              statement of operations as the Company has no further  involvement
              with the development of the product.  The Company received payment
              in January 2002. The Company received an additional  licensing fee
              in 2002 of  $1,000,000  upon the  licensee  achieving  a  research
              milestone.  The licensee is entitled to use the  technologies  for
              five years from the date of the  agreement.  Following the initial
              five-year  term, the licensee may renew the license  annually upon
              payment of an annual licensing fee of $250,000. In September 2003,
              the parties entered into an addendum to the agreement  pursuant to
              which the  Company  extended  the license to an  affiliate  of the
              licensee  in  consideration  for  the  licensee  agreeing  to  pay
              $120,000 to the Company.

              In February 2000, Cadus licensed to OSI Pharmaceuticals, Inc.
              ("OSI"), on a non-exclusive basis, its yeast-based drug discovery
              technologies, including various reagents

                                       9
<PAGE>


                                CADUS CORPORATION
              Notes to Condensed Consolidated Financial Statements


              and  its  library  of  over   30,000   yeast   strains,   and  its
              bioinformatics  software.  OSI  paid  to  Cadus a  license  fee of
              $100,000  and an access fee of  $600,000  and in  December  2000 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.  OSI may terminate the license at
              any time on 30 days prior written  notice.  During the  nine-month
              periods ended September 30, 2004 and 2003, the Company  recognized
              $100,000 of license revenue related to this agreement.

Note - 4      INVESTMENT IN MARKETABLE SECURITIES

              The Company had an equity interest in Axiom Biotechnologies,  Inc.
              ("Axiom").   Due  to  Axiom's  operating  losses,   the  Company's
              investment  was written down to $0 at December 31, 2001. On August
              30, 2002,  Axiom  entered into a merger  agreement  with a wholly-
              owned subsidiary of Sequenom, Inc. which is publicly traded on the
              Nasdaq National Market. In connection with the merger, the Company
              received  441,446  common  shares of  Sequenom,  Inc.  with a fair
              market  value of $2.43 per  share in  exchange  for its  shares in
              Axiom.  Pursuant to the merger,  102,685 of the Company's  441,446
              common  shares of Sequenom,  Inc. were held in escrow (the "Escrow
              Shares")  for a one-year  period that  expired on August 30, 2003.
              The Escrow Shares were held to secure  rights to  indemnification,
              compensation and  reimbursement of Sequenom and other  indemnitees
              as  provided  in the  merger  agreement.  Upon the  closing of the
              transaction, Cadus recorded a realized gain of $823,189 related to
              the 338,761 common shares received in the  consolidated  statement
              of operations  for the year ended  December 31, 2002.  The Company
              was advised that the Escrow Shares had been released on August 30,
              2003 and,  accordingly,  the Company  recorded a realized  gain on
              marketable  securities related to the Escrow Shares of $313,189 in
              the  consolidated  statement  of  operations  for the  year  ended
              December  31,  2003.  In May 2004,  the Company  became aware that
              38,507 shares of the 102,685 Escrow Shares were forfeited pursuant
              to the  indemnification  provisions  of the merger  agreement  and
              therefore not issued to the Company.  Accordingly, to reflect this
              reduction  of the  Escrow  Shares  received  by the  Company,  the
              investment in marketable securities was reduced by $123,222 on the
              March 31, 2004 consolidated balance sheet.

              Pursuant to the  provisions  of Statement of Financial  Accounting
              Standards  No.  115,  "Accounting  for  Certain  Debt  and  Equity
              Securities"  management deems its investment in Sequenom,  Inc. to
              be  available  for sale and reports its  investment  at fair value
              with net unrealized gains or losses reported in accumulated  other
              comprehensive income within stockholders' equity.

Note - 5      ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS

              Statement of Financial  Accounting  Standards 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.  The Company's  long-lived  assets
              (principally capitalized patent costs) are required to be measured
              at the lower of carrying amount or fair value,  less cost to sell,
              whether   reported  in  continuing   operations  or   discontinued
              operations.   Intangibles  with   determinable   lives  and  other
              long-lived  assets are reviewed for impairment  whenever events or
              changes in  circumstances  indicate that the carrying  value of an
              asset may not be recoverable.  The Company's  judgments  regarding
              the existence of impairment indicators are based on historical and
              projected


                                       10
<PAGE>


                                CADUS CORPORATION
              Notes to Condensed Consolidated Financial Statements


              future  operating  results,   changes  in  the  Company's  overall
              business strategy,  and market and economic trends. In the future,
              events  could  cause  the  Company  to  conclude  that  impairment
              indicators exist and that certain  intangibles  with  determinable
              lives and other long-lived assets are impaired which may result in
              an adverse impact on the Company's financial condition and results
              of  operations.  The  provisions  of SFAS No.  144 did not have an
              impact on the  Company's  financial  statements  as of and for the
              nine months ended September 30, 2004.

Note - 6      RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

              In March 2004, the Emergency  Issues Task Force  ("EITF")  reached
              consensus on Issue No. 03-1, "The Meaning of  Other-Than-Temporary
              Impairment and Its Application to Certain  Investments"  regarding
              disclosures about unrealized losses on available-for-sale debt and
              equity  securities   accounted  for  under  Financial   Accounting
              Standards  Board  Statements  No.  115,  "Accounting  for  Certain
              Investments  in  Debt  and  Equity   Securities,"   and  No.  124,
              "Accounting  for  Certain   Investments  Held  by   Not-for-Profit
              Organizations."  The guidance for evaluating whether an investment
              is  other-than-temporarily  impaired  should  be  applied  in such
              evaluations  made in reporting  periods  beginning  after June 15,
              2004. The disclosures are effective in annual financial statements
              for fiscal years ending after December 15, 2003,  for  investments
              accounted  for  under  Statements  115  and  124.  For  all  other
              investments  within the scope of this Issue,  the  disclosures are
              effective in annual  financial  statements for fiscal years ending
              after June 15, 2004.  The additional  disclosures  for cost method
              investments  are  effective for fiscal years ending after June 15,
              2004. The Company does not expect that the  implementation of EITF
              03-1 will have a material effect on its financial statements.

              In  October  2004,  the  Financial   Accounting   Standards  Board
              announced that Statement 123R,  "Share-Based Payment," which would
              require  all  companies  to  measure  compensation  cost  for  all
              share-based  payments  (including  employee stock options) at fair
              value,  would be  effective  for public  companies  for interim or
              annual  periods  beginning  after  June  15,  2005.  The  proposed
              standard would require  companies to expense the fair value of all
              stock options that have future vesting  provisions,  are modified,
              or are newly granted  beginning on the grant date of such options.
              The Company will evaluate the  requirements of the final standard,
              which is expected to be issued on or around  December 15, 2004, to
              determine the impact on the results of its operations.

                                       11
<PAGE>


              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.

              At September 30, 2004, the Company had an  accumulated  deficit of
              approximately  $33.5 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.
              The Company expects to generate  revenues in the future only if it
              is able to license its technologies.

              RESULTS OF OPERATIONS

              THREE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003

              REVENUES

              There were no revenues for the three months  ended  September  30,
              2004.  There was  $120,000  of license  fee  revenue for the three
              months  ended  September  30, 2003 due to an addendum to a license
              agreement pursuant to which the Company extended the license to an
              affiliate of the licensee.

              COSTS AND EXPENSES

              General and administrative  expenses increased to $231,674 for the
              three months ended  September  30, 2004 from $169,447 for the same
              period in 2003.  Patent costs and  professional  fees increased by
              $68,497;  insurance expense decreased by $8,958 and there were net
              increases in other expenses of $2,688.

              OTHER INCOME

              Interest  income for the three months ended September 30, 2004 was
              $71,296 compared to interest income of $36,443 for the same period
              in  2003.  This  increase  is  attributable  primarily  to  higher
              interest rates earned on invested funds.

              During the three months  ended  September  30,  2004,  the Company
              received a $42,740 New York State franchise tax refund.

                                       12
<PAGE>


              REALIZED GAIN ON MARKETABLE SECURITIES

              On  August  20,  2002,  the  Company's  equity  interest  in Axiom
              Biotechnologies,  Inc.  ("Axiom")  was  converted  into  shares of
              Sequenom,  Inc.  ("Sequenom")  pursuant to the merger of Axiom and
              Sequenom.  On August 20, 2003,  102,685  shares were released from
              escrow and accordingly,  the Company recorded a gain on marketable
              securities  of $313,189 in the three month period ended  September
              30, 2003.

              NET (LOSS) INCOME

              Net  loss  for the  three  months  ended  September  30,  2004 was
              $117,023,  compared to net income of $300,522  for the same period
              in 2003. This decrease can be attributed  primarily to there being
              a  non-recurring  license fee of $120,000  and a realized  gain on
              marketable  securities  of  $313,189  for the three  months  ended
              September 30, 2003.

              NINE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003

              REVENUES

              Revenues for the nine months ended September 30, 2004 decreased to
              $100,000,  from $220,000 for the same period in 2003. The decrease
              is  attributable  to there  being a  non-recurring  license fee of
              $120,000 for the nine months ended September 30, 2003.

              COSTS AND EXPENSES

              General and administrative  expenses decreased to $616,113 for the
              nine months ended  September  30, 2004 from  $703,517 for the same
              period in 2003.  Patent costs and  professional  fees decreased by
              $59,785,  insurance  expense  decreased  by $44,782;  there was an
              increase in sales taxes of $12,960 in connection  with the sale of
              assets to OSI in 1999 as a result of an audit;  and there were net
              increases in other expenses of $4,203.

              For  the  nine  months  ended   September  30,  2004  the  Company
              recognized a loss of $2,555 in its  investment in Laurel  Partners
              Limited  Partnership.  The loss for the  same  period  in 2003 was
              $2,438.

              OTHER INCOME

              Interest  income for the nine months ended  September 30, 2004 was
              $141,738  compared  to interest  income of  $136,850  for the same
              period in 2003. This increase is attributable  primarily to higher
              interest rates earned on invested funds.

              During the nine  months  ended  September  30,  2004,  the Company
              received a $42,740 New York State franchise tax refund.

              NET (LOSS)

              Net loss for the nine months ended September 30, 2004 was $334,190
              compared  to a net loss of  $35,916  for the same  period in 2003.
              This  increase in net loss can be  attributed  primarily  to there
              being a non-recurring  license fee of $120,000 and a realized gain
              on  marketable  securities  of $313,189  for the nine months ended
              September 30, 2003,  offset by the Company's receipt of a New York
              State  franchise  tax  refund  of  $42,740  and  the  decrease  in
              insurance expense and professional fees in 2004.

                                       13
<PAGE>


              LIQUIDITY AND CAPITAL RESOURCES

              At September  30, 2004 the Company held cash and cash  equivalents
              of approximately  $24.1 million.  The Company's working capital at
              September 30, 2004 was approximately $24.5 million.

              The Company believes that its existing capital resources, together
              with interest income, will be sufficient to support its operations
              through  the end of 2005.  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  acquire  or  invest  in   companies   and
              income-producing   assets  and  the  expenses  of  pursuing   such
              transactions.

              Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

              The Company's  earnings and cash flows are subject to fluctuations
              due to changes in interest rates  primarily from its investment of
              available  cash balances in money market funds with  portfolios of
              investment  grade corporate and U.S.  government  securities.  The
              Company  does not believe it is  materially  exposed to changes in
              interest  rates.  Under its current  policies the Company does not
              use interest rate  derivative  instruments  to manage  exposure to
              interest rate changes.

              Item 4. CONTROLS AND PROCEDURES

              EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

              Based on the evaluation of the Company's  disclosure  controls and
              procedures  conducted  as of the period  covered by this report on
              Form 10-Q, the Company's  President and Chief  Executive  Officer,
              who also performs the functions of a principal  financial officer,
              concluded  that the Company's  disclosure  controls and procedures
              (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the
              Securities Exchange Act of 1934) are effective.

              CHANGES IN INTERNAL CONTROLS

              There  were  no  significant  changes  in the  Company's  internal
              controls or in other factors that could significantly affect these
              controls subsequent to the date of their evaluation,  nor were any
              corrective   actions   required   with   regard   to   significant
              deficiencies and material weaknesses.  It should be noted that any
              system of  controls,  however  well  designed  and  operated,  can
              provide only  reasonable  assurance,  and not absolute  assurance,
              that the objectives of the system are met. In addition, the design
              of any control  system is based in part upon  certain  assumptions
              about the likelihood of future events.  Because of these and other
              inherent limitations of control systems, there can be no assurance
              that any design will succeed in  achieving  its stated goals under
              all potential future conditions, regardless of how remote.

                                       14
<PAGE>


              PART II - OTHER INFORMATION

              Item 1.   Legal Proceedings.

                        None.

              Item 2.   Unregistered Sales of Equity Securities and Use
                        of Proceeds.

                        None.

              Item 3.   Defaults Upon Senior Securities.

                        None.

              Item 4.   Submission of Matters to a Vote of Security Holders.

                        None.

              Item 5.   Other Information.

                        None.

              Item 6.   Exhibits and Reports on Form 8-K.

                        (a)   The  Exhibits  listed  in the  Exhibit  Index  are
                              included in this quarterly report on Form 10-Q.

                        (b)   Reports on Form 8-K.

                              None.

                                       15
<PAGE>


                                   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 CORPORATION
                                    (REGISTRANT)


Dated:   November 10, 2004          By:  /s/ David Blitz
                                        -------------------------------
                                        David Blitz
                                        President and Chief Executive Officer
                                        (Authorized Officer and Principal
                                        Financial Officer)

                                       16
<PAGE>


                                  EXHIBIT INDEX


       The following exhibits are filed as part of this Quarterly Report on Form
10-Q:

       Exhibit No.     Description
       ----------      -----------

       31              Certifications

       32              Certification  Pursuant  to 18 U.S.C.  Section  1350,  as
                       Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                       of 2002

                                       17