FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

[ X ]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended ....................................December 31, 2003.

[   ]       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 in its charter)

<TABLE>
<CAPTION>
<S>                                                                   <C>
                           Delaware                                               13-3660391
--------------------------------------------------------------           ---------------------------
(State or other jurisdiction of incorporation or organization)        (I.R.S. Employer Identification No.)
</TABLE>

         767 Fifth Avenue
         New York, New York                                             10153
--------------------------------------------------------             ----------
         (Address of principal executive offices)                    (Zip Code)

Company's telephone number, including area code:         (212) 702-4367
                                                --------------------------------

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                          Common STock, $0.01 per share
                          -----------------------------
                                (Title of Class)

         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 if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined in Rule 12-b-2 of the Act).   Yes:      No: X
                                              ---      ---

         As of June 30, 2003,  the  aggregate  market value of the  registrant's
voting common equity held by non-affiliates was $8,864,100.

         Number of shares outstanding of each class of Common Stock, as of March
15, 2004: 13,144,040 shares.


<PAGE>

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain   statements   in  this   Annual   Report   on  Form   10-K   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 Annual Report
on Form 10-K 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.

                                     PART I

ITEM 1.  BUSINESS.

GENERAL

         Cadus  Corporation  ("Cadus")  was  incorporated  under the laws of the
State of Delaware in January 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,  Cadus  sold its drug
discovery  assets to OSI  Pharmaceuticals,  Inc. ("OSI") and ceased its internal
drug discovery  operations and research efforts for collaborative  partners.  In
December 2001, Cadus formed a wholly owned subsidiary, Cadus Technologies,  Inc.
(the  "Subsidiary"),  and transferred all of its patents,  patent  applications,
know how, licenses and drug discovery technologies to the



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<PAGE>


Subsidiary. Cadus and the Subsidiary (collectively, the "Company") are currently
seeking to (i) license the Subsidiary's drug discovery technologies, (ii) engage
in joint ventures that will utilize the Subsidiary's drug discovery technologies
and  (iii)  use a  portion  of their  available  cash to  acquire  or  invest in
companies or income producing assets. While such companies or assets might be in
the  biotechnology  or  pharmaceutical  industries,  the Company  will  consider
acquisitions or investments in other  industries as well. Cadus changed its name
to Cadus Corporation from Cadus Pharmaceutical Corporation on June 20, 2003. The
change in name was approved by Cadus's stockholders at Cadus's Annual Meeting of
Stockholders held on June 18, 2003.

         On July 30,  1999,  Cadus sold to OSI,  pursuant  to an asset  purchase
agreement,  its drug discovery programs focused on G Protein-coupled  receptors,
its  directed  library  of  approximately   150,000  small  molecule   compounds
specifically  designed  for drug  discovery in the G Protein-  coupled  receptor
arena,   its   collaboration   with   Solvay   Pharmaceuticals   B.V.   ("Solvay
Pharmaceuticals"),  its lease to its research  facility in  Tarrytown,  New York
together  with the  furniture  and  fixtures  and its lease to  equipment in the
facility,  and its  inventory  of  laboratory  supplies.  Pursuant  to such sale
transaction,  OSI  assumed  the Cadus's  lease to Cadus's  research  facility in
Tarrytown,  New York,  Cadus's  equipment  lease with General  Electric  Capital
Corporation  ("GECC") and Cadus's research  collaboration  and license agreement
with Solvay  Pharmaceuticals.  As  consideration  for the sale,  Cadus  received
approximately  $1,500,000 in cash and OSI assumed  certain  liabilities of Cadus
relating  to  employees  hired by OSI  aggregating  approximately  $133,000.  In
addition,  Cadus  would be  entitled  to  royalties  and up to $3.0  million  in
milestone  payments on the first product  derived from  compounds sold to OSI or
from the collaboration with Solvay  Pharmaceuticals.  Cadus licensed to OSI on a
non-exclusive  basis  certain  technology  solely to enable OSI to  fulfill  its
obligations  under the  collaboration  with Solvay  Pharmaceuticals.  Cadus also
licensed  to OSI on a  non-exclusive  basis  certain  proprietary  software  and
technology  relating to chemical  resins in order to enable OSI to fully benefit
from the compounds it acquired from Cadus.  Cadus retained  ownership of all its
other assets,  including its core yeast technology for developing drug discovery
assays,  its  collection of over 25,000  proprietary  yeast  strains,  human and
mammalian cell lines, and genetic  engineering tools and its genomics  databases
related  to  G  Protein-coupled  receptors.  Cadus  ceased  its  drug  discovery
operations  and  research  efforts  for   collaborators  as  a  result  of  this
transaction  and  terminated  all employees who were not hired by OSI or who did
not voluntarily  resign,  except for the Chief Executive Officer who resigned in
April 2000.

         Prior  to  July  30,  1999,   Cadus   developed   several   proprietary
technologies  that  exploit the  similarities  between  yeast and human genes to
elucidate gene function and cell  signaling  pathways.  In February 2000,  Cadus
licensed  its yeast  technologies  and its  bioinformatics  software to OSI on a
non-exclusive  basis.  In December 2001,  Cadus  transferred all of its patents,
patent applications,  know how, licenses and drug discovery  technologies to the
Subsidiary.  In December 2001, the Subsidiary licensed its yeast technologies to
a major  pharmaceutical  company on a  non-exclusive  basis.  The  Subsidiary is
seeking to license these technologies to other third parties on a non- exclusive
basis. Three of these technologies are used to identify small molecules that act
as agonists or  antagonists to cell surface  receptors:  (i) a hybrid yeast cell
technology  that  expresses a  functioning  human  receptor and a portion of its
signaling  pathway  in a yeast  cell,  (ii)  the  Autocrine  Peptide  Expression
("Apex(TM)")  system that  expresses  in a hybrid  yeast cell both a known human
ligand and



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the  receptor  that is  activated  by that ligand and (iii) the  Company's  Self
Selecting  Combinatorial  Library ("SSCL(TM)")  technologies,  which are used to
identify a ligand that  activates a targeted  orphan  receptor (a receptor whose
function is not known).

THE COMPANY'S DRUG DISCOVERY TECHNOLOGIES

BACKGROUND

         The human body is comprised primarily of specialized cells that perform
different  physiological  functions  and  that are  organized  into  organs  and
tissues.  All human cells contain DNA, which is arranged in a series of subunits
known as genes.  It is estimated that there are  approximately  100,000 genes in
the human genome. Genes are responsible for the production of proteins. Proteins
such as hormones, enzymes and receptors are responsible for managing most of the
physiological  functions  of humans,  including  regulating  the  body's  immune
system.  Thus,  genes are the  indirect  control  center  for all  physiological
functions.  Over the last few decades, there has been a growing recognition that
many major diseases have a genetic basis. It is now well  established that genes
play an  important  role in  diseases  such as cancer,  cardiovascular  disease,
psychiatric  disorders,  obesity, and metabolic diseases.  Significant resources
are being focused on genomics research based on the belief that the sequence and
function  of a gene,  and the  protein  that  gene  expresses,  will  lead to an
understanding  of that  gene's role in the  functioning  and  malfunctioning  of
cells.  This  understanding  is  expected  in turn to  lead to  therapeutic  and
diagnostic  applications  focused on molecular targets  associated with the gene
and the protein it expresses.

         Cell surface  receptors are an important class of proteins  involved in
cellular  functioning  because  they are the primary  mediators  of cell to cell
communication.  Their  location  on the cell  surface  also  makes them the most
accessible targets for drug discovery.  Cellular  communication  occurs when one
cell releases a chemical  messenger,  called a "ligand," which communicates with
another  cell by binding to and  activating  the receptor on the exterior of the
second  cell.  Typically,  a ligand  binds only with one  specific  receptor  or
families  of related  receptors.  This  binding  event  activates  the  receptor
triggering  the  transmission  of a  message  through  a  cascade  of  signaling
molecules from the exterior to the interior of the cell.  This process is called
signal  transduction.  When the signal is  transmitted  into the interior of the
cell,  it may,  among other  things,  activate or suppress  specific  genes that
switch  on or  switch  off  specific  biological  functions  of  the  cell.  The
biological  response of the cell,  such as the  secretion of a protein,  depends
primarily on the specific ligand and receptor involved in the communication.

         Many diseases, such as cancer, stem from the malfunctioning of cellular
communication.  Efforts  to treat a  particular  disease  often  concentrate  on
developing  drugs that interact with the receptor or signaling  pathway believed
to be  associated  with the  malfunction.  These  drugs  work by  inhibiting  or
enhancing  the  transmission  of a  signal  through  the  cascade  of  signaling
molecules  triggered by the receptor.  Drugs that inhibit signal transduction by
blocking a receptor or the intracellular  proteins that carry the signal sent by
a receptor are called antagonists and those that enhance signal  transduction by
stimulating a receptor or associated intracellular proteins are called agonists.



                                        4


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         Human cells carry many  different  types of  receptors.  Receptors  are
classified into groups based upon similarities in their chemistry and structure.
Some of the major  receptor  groups  involved  in  signal  transduction  are:  G
Protein-coupled  receptors,  tyrosine kinase receptors and  multisubunit  immune
recognition  receptors.  G Protein-coupled  receptors,  which are located on the
surface of the cell,  constitute  the largest group of receptors.  In humans,  G
Protein-coupled  receptors  are  involved  in  many  of the  body's  most  basic
functions,  including heartbeat,  sight, sense of smell,  cognition and behavior
and also  mediate  most of the body's basic  responses  such as  secretion  from
glands,  contractility  of blood  vessels,  movement  of cells,  growth and cell
death.  Tyrosine  kinase  coupled  receptors  are  involved  in cell  growth and
differentiation.  Multisubunit immune recognition  receptors activate the body's
immune defense system.

         There are approximately 2,000 G Protein-coupled  receptors estimated to
be in the human  genome,  half of which are  believed  to be  involved in taste,
smell and sight. The importance of G  Protein-coupled  receptors is demonstrated
by the fact that a large number of currently  available  prescription drugs work
by interacting with known G Protein-coupled  receptors.  These drugs include the
anti-ulcer agents Zantac and Tagamet,  the  anti-depressants  Prozac and Zoloft,
and the anti- histamine Claritin. Many of these drugs were developed through the
application of time consuming and expensive  trial and error methods  without an
understanding of the chemistry and structure of the G Protein-coupled  receptors
with which they interact.  More  efficient drug discovery  methods are available
once the gene sequence, biological function and role in disease processes of a G
Protein-coupled receptor have been determined.

         The sequences and functions of several hundred human G  Protein-coupled
receptors have been identified.  The Company believes that the identification of
the gene  sequences and functions of the remaining G  Protein-coupled  receptors
(other than those  involved in taste,  smell or sight) will yield a  substantial
number of potential  drug  discovery  targets.  Scientists  working on the Human
Genome Project have sequenced  portions of thousands of genes and have published
such  sequences  or placed them in public  databases.  Although the Human Genome
Project has produced and made publicly  available an ever  increasing  volume of
raw DNA sequences  (including  sequence fragments that may represent portions of
human G Protein-coupled  receptors),  such data cannot be used in drug discovery
until  (i)  a  DNA  sequence  is  recognized  to  comprise  a  portion  of  a  G
Protein-coupled  receptor  (ii) the full DNA  sequence of the G  Protein-coupled
receptor is identified,  (iii) the function of the G Protein-coupled receptor is
elucidated,  and (iv)  agonists  and/or  antagonists  for the G  Protein-coupled
receptor are identified.

         TRADITIONAL DRUG DISCOVERY

         Drug discovery consists of three key elements:  (i) the target, such as
a receptor,  on which the drug will act,  (ii) the  potential  drug  candidates,
which include organic chemicals,  proteins or peptides,  and (iii) the assays or
tests to screen these compounds to determine their effect on the target.

         Historically,  drug  discovery  has been an  inefficient  and expensive
process.  Traditional  drug discovery has been hampered by the limited number of
known targets and a reliance on IN VITRO



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assays as a format in which to test compounds.  Until scientists began to define
the molecular structure of receptors and ligands,  there was no simple method to
determine  the  function of such  molecules  in the cell and,  therefore,  their
utility as drug discovery targets. Even when the target's molecular structure is
known,  incorporating  that  target  effectively  into an IN VITRO  assay can be
difficult. For example, all known G Protein-coupled  receptors are woven through
the cell membrane seven times in a very complex, looped structure that cannot be
maintained when the isolated protein is put into an IN VITRO assay format. If an
assay does not  accurately  replicate  the structure of a target  receptor,  the
compounds  identified  in the assay may not function as expected when applied to
the  target  receptor  on  a  living  cell.   Furthermore,   receptors,   signal
transduction  proteins and other molecular targets for therapeutic  intervention
do not exist in isolation in the cell. Their functional  activity results from a
complex  interrelationship  with  numerous  other  molecules  within  the  cell.
Consequently,  traditional  drug screening  assays often  identify  compounds as
potential drug candidates which,  when tested in living cells,  prove to have no
useful  activity or are even toxic.  A variety of methods have been developed to
address these problems,  including using living cells in assays.  However,  most
live cell assays are slow, complex and expensive to maintain.

         In recent  years,  scientific  advances  have  created new and improved
tools for drug  discovery.  For  example,  molecular  biology is  identifying  a
growing number of targets and their gene sequences.  There have been significant
developments  in turning these gene sequences  into drug  discovery  candidates.
Cells have been  genetically  engineered to produce assays that more effectively
replicate the  physiological  environment  of a living  organism.  Robotics have
enabled  the  creation  of  high-throughput  screening  systems.   Combinatorial
chemistry has enhanced the ability to optimize lead compounds by improving their
pharmacological   characteristics.   However,   due  to  the   complexity  of  G
Protein-coupled  receptors  and limited  knowledge of their gene  sequences  and
function, these advances do not offer a comprehensive,  rapid and cost effective
approach  to the  identification  of drug  discovery  candidates  targeted  at G
Protein-coupled receptors.

         YEAST

         The Company has developed  technologies  based on yeast that are useful
in  identifying  drug  discovery   candidates   targeted  at  G  Protein-coupled
receptors. Yeast is a single-celled  microorganism that is commonly used to make
bread,  beer and wine.  In the  1980's,  scientists  discovered  structural  and
functional  similarities  between  yeast cells and human  cells.  Both yeast and
human  cells  consist  of a  membrane,  an  intracellular  region  and a nucleus
containing genes. Basic cellular processes, including metabolism, cell division,
DNA and RNA  synthesis and signal  transduction,  are the same in both human and
yeast  cells.  Yeast  also  have  signal  transduction  pathways  that  function
similarly to human cell pathways. More than 40 percent of all human gene classes
have  functional  equivalents  in yeast.  The genes in yeast  express  proteins,
including  cell-surface  receptors  such  as  G  Protein-coupled  receptors  and
signaling molecules such as protein kinases, that are similar to human proteins.

         The  Company   believes   that  yeast  cells  have  several   important
characteristics that are useful in drug discovery.



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         o        The strong  correlation  between  human and yeast gene classes
                  enables the  evaluation  of the  biological  function of human
                  proteins,  including  receptors  and signaling  molecules,  of
                  unknown  function.  Proteins with  comparable  gene  sequences
                  frequently carry out similar functions.  This fact can be used
                  to  determine  the  function  of a human  gene by  genetically
                  engineering  a yeast cell to replace a yeast gene coding for a
                  known  function  with the  human  gene  suspected  of having a
                  comparable  function.  If the yeast  cell  retains  its normal
                  function, it suggests that the human gene and its protein have
                  a  biological   function   similar  to  that  of  their  yeast
                  counterparts. Consequently, genetically engineered yeast cells
                  can replicate  human gene function and provide a  biologically
                  relevant context for evaluating interactions between receptors
                  and their related signaling pathways.

         o        In 1996, the yeast genome was fully sequenced.  This knowledge
                  has facilitated  analysis of the correlation between yeast and
                  human gene  structure and aids in the definition of human gene
                  functions.

         o        While the yeast signaling mechanism bears many similarities to
                  the  human  signaling   mechanism,   the  yeast  intracellular
                  environment  is less  complex,  thus  eliminating  much of the
                  ancillary and redundant  intracellular signaling pathways that
                  exist in human cells.

         o        Yeast have the ability to absorb DNA fragments and incorporate
                  them into their genome.  As a result,  their genetic structure
                  can be easily  manipulated  using common  genetic  engineering
                  techniques.

         o        Yeast  cells  replicate  rapidly.   Speed  of  replication  is
                  particularly  important  because  creating a new yeast  strain
                  that successfully incorporates new genetic material and adapts
                  to new conditions may take several  generations and the strain
                  that so adapts is identifiable by growth. In addition, because
                  a yeast cell reproduces itself every two hours,  compared with
                  24 to 48 hours for mammalian  cells, a drug screen using yeast
                  can be  developed  and  evaluated  much  faster than one using
                  human cell assays.

         o        Yeast can be easily and inexpensively  grown in the laboratory
                  using   standard   microbiological   techniques   and,   as  a
                  consequence,  can  readily  be  used  in  automated  screening
                  systems.

         o        Yeast  are  resistant  both to the  solvents  often  needed to
                  dissolve  potentially  active  compounds  and the toxins often
                  found in natural  products.  Consequently,  hybrid yeast cells
                  can be  used  to  screen  libraries  of  synthetic  compounds,
                  combinatorial chemicals or natural products.

         The  Company  has  developed   several   proprietary   drug   discovery
technologies  that address many of the limitations of traditional drug discovery
methods,  including  tools used to screen for compounds  that act as agonists or
antagonists to cell surface receptors and tools used to identify



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ligands to targeted  orphan  receptors.  The Subsidiary is currently  seeking to
license these technologies on a non-exclusive basis to third parties.

         HYBRID YEAST CELLS

         The Company has  developed a  proprietary  technology  to insert  human
genes into yeast cells to create  hybrid  yeast cells.  The Company  focused its
hybrid yeast cell  technology  primarily  on G  Protein-coupled  receptors.  The
Company's  scientists  typically created hybrid yeast cells by replacing yeast G
Protein-coupled  receptor genes and certain signaling molecules with their human
equivalents.   As  a  result,  these  hybrid  yeast  cells  express  a  human  G
Protein-coupled  receptor and a portion of its signaling  pathway.  These hybrid
yeast  cells can be used to  identify  those  compounds  that act as agonists or
antagonists to that receptor or a molecule that is in its signaling pathway. The
Company  has also  created  hybrid  yeast  cells  using  other  classes of human
cell-surface receptors that have a functional equivalent in yeast. To facilitate
drug screen  development,  the  Company has  designed  and  developed  more than
twenty-five  thousand  genetically  different  yeast strains that can be used to
build novel hybrid yeast cells.

         The Company  believes that hybrid yeast cells are highly  effective for
screening  compounds.  Hybrid yeast cells can be used to measure the  biological
activity of the human signaling  pathway in which  intervention  is desired.  In
addition, hybrid yeast cells contain a single human receptor which connects to a
defined signaling pathway. Accordingly, a specific change in cell behavior, such
as replication,  is easily monitored and can be attributed to the compound being
tested.  Also, because different human genes can be inserted into yeast,  hybrid
yeast cells enable the user to identify compounds that act at virtually any site
in the human cell signaling pathway. These sites include the ligand binding site
on the  receptor,  as well as  other  sites  on the  receptor,  and the  protein
components  of  individual  signaling  pathways.  Moreover,  because  yeast  are
resistant to solvents and toxins often used to dissolve test  compounds,  hybrid
yeast cells can be used to screen  synthetic  organic  libraries,  combinatorial
libraries and natural product libraries.  Hybrid yeast cells can also be used to
perform high throughput screening of compound libraries.

         The Company has  developed a biological  database that  catalogues  the
Company's collection of proprietary cells, cell lines, yeast strains and genetic
engineering  tools. This database  currently has  approximately  30,000 entries,
that include the  phenotype and the genotype of the cell or yeast strain and its
storage site.

         AUTOCRINE PEPTIDE EXPRESSION SYSTEM (APEX(TM))

         The Company  extended  its hybrid  yeast cell  technology  to develop a
novel drug screening  technology.  Biological  signaling frequently involves the
concerted behavior of at least two cells: one that sends the signal and a second
that receives and responds to that signal.  The Company's  scientists  converted
this natural  multi-cell  process into a single cell process by inserting into a
hybrid  yeast cell both the human G  Protein-coupled  receptor and the gene that
causes the yeast cell to produce the ligand that naturally binds to the receptor
being  expressed  by the same hybrid  yeast  cell.  As a result,  the  Company's
scientists made the cell self-stimulating, or "autocrine," in that it both sends



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<PAGE>



a  signal  through  production  and  secretion  of a  ligand  and  responds,  by
replication, to that same signal through the receptor. The Company believes that
the autocrine  nature of the APEX(TM)  system makes it an effective tool for the
identification  of compounds that act as agonists or antagonists with respect to
that receptor or a molecular target in its signaling pathway.  As a result, drug
screening may be conducted in an accelerated, cost effective process as compared
to conventional screening techniques.

         SELF SELECTING COMBINATORIAL LIBRARY TECHNOLOGY (SSCL(TM))

         The Company developed its proprietary SSCL(TM) technology to identify a
ligand that activates an orphan receptor.  The SSCL(TM)  technology involves the
creation of a library of peptides encoded in DNA, called a combinatorial peptide
expression library. This library is inserted into a strain of hybrid yeast cells
that all express the same orphan  receptor.  The  activation of this receptor is
functionally coupled with cell replication.  Each of the millions of yeast cells
in the strain  incorporates a different  peptide encoded in DNA,  resulting in a
library of yeast cells which all express the same orphan  receptor  but are each
programmed to secrete a different peptide. Most of the secreted peptides have no
effect on the  orphan  receptor  and the  hybrid  yeast  cells  producing  these
peptides do not  replicate.  The Company  estimates that one in a million hybrid
yeast cells generates a peptide ligand that activates the orphan receptor. These
particular hybrid yeast cells replicate and, therefore,  are readily identified.
Thus,  the SSCL(TM)  technology  uses self selection to identify the ligand that
binds to the targeted  orphan  receptor.  The sequence of the peptide ligand can
then be rapidly  identified and undergo further  evaluation.  One to ten million
peptides  can be tested in a matter of hours.  The Company has used its SSCL(TM)
technology to successfully  identify  ligands to orphan receptors in less than a
month,  significantly  accelerating  this  step in the drug  discovery  process.
Identifying   ligands  to  orphan  receptors  is  the  critical  first  step  in
determining the biological  function of orphan receptors and demonstrating their
value as drug discovery targets.

         The strains of hybrid  yeast cells  constructed  for the  SSCL(TM)  can
simultaneously  be used as screens for large  libraries  of chemical  compounds.
This  capability  enabled the Company to seek to identify a peptide ligand to an
orphan receptor while simultaneously creating a high throughput screen for small
molecule agonists and antagonists to that receptor.

         BIOINFORMATICS FOR TARGET IDENTIFICATION

         The Company has developed  proprietary  software algorithms that can be
used to rapidly  search  through the data  generated by the Human Genome Project
for DNA sequences that are likely to be those of G Protein-coupled receptors.

         HUMAN ORPHAN G PROTEIN-COUPLED RECEPTORS

         On July 25, 1998, the Company  entered into a  collaboration  agreement
with  Genome  Therapeutics   Corporation   ("GTC"),   which  has  bioinformatics
technologies  and  know-how  that it uses to  identify  and  sequence  orphan  G
Protein-coupled receptors. Pursuant to the collaboration, the Company and Genome
Therapeutics Corporation identified and isolated fifty-six (56) human orphan



                                        9


<PAGE>



G  Protein-coupled  receptors.  The rights to such fifty-six (56) human orphan G
Protein-coupled  receptors are owned jointly by the Company and GTC. Each of the
Company and GTC will share in any research funding, equity investments,  license
fees,  milestone  payments and  royalties  that may be received from third party
pharmaceutical  companies  that enter  into  collaboration  agreements  with the
Company  and/or GTC with  respect  to such G  Protein-coupled  receptors.  As of
November 1999, the Company and GTC ceased collaborating.

INVESTMENT IN SEQUENOM, INC.

         The  Company  had an  equity  interest  in Axiom  Biotechnologies  Inc.
("Axiom").  On August 30, 2002,  Axiom  entered into a merger  agreement  with a
wholly owned subsidiary of Sequenom, Inc. ("Sequenom").  Pursuant to the merger,
Cadus  received  441,446 shares of common stock in Sequenom,  a publicly  traded
company, in exchange for its equity interest in Axiom.

COLLABORATIVE ARRANGEMENTS

         The  Company  no  longer  has any  collaborations  with  pharmaceutical
companies. The Bristol- Myers Squibb Company collaboration expired in July 1999,
the Solvay  Pharmaceuticals  collaboration  was assigned to OSI in July 1999 and
the  Company  and   SmithKline   Beecham  p.l.c.   agreed  to  terminate   their
collaboration  in  September  1999.  Each of  Bristol-Myers  Squibb  Company and
SmithKline  Beecham p.l.c.  is required to make payments to the Company upon the
achievement by it of certain pre-clinical and drug development milestones and to
pay the Company  royalties on the sale of any drugs developed as a result of the
research collaboration with the Company or through the use of the Company's drug
discovery technologies.  There can be no assurance that any such milestones will
be achieved or any such drugs developed.

LICENSING ARRANGEMENTS

         In February 2000, Cadus licensed to OSI, on a non-exclusive  basis, its
yeast  technologies,  including  various reagents and its library of over 25,000
yeast strains, and its bioinformatics  software. OSI paid to Cadus a license fee
of  $100,000  and an access fee of  $600,000.  OSI is also  obligated  to pay an
annual  maintenance fee of $100,000 until the earlier of 2010 or the termination
of the license and a  supplemental  license fee of  $250,000,  which was paid in
December 2000 after the lifting of the  injunction  obtained by a plaintiff in a
patent  infringement  action against Cadus. OSI may terminate the license at any
time on 30 days prior written notice.  In December 2001,  Cadus  transferred its
license with OSI to the Subsidiary.

         In December  2001, the  Subsidiary  licensed to a major  pharmaceutical
company,  on a non- exclusive basis, its yeast  technologies,  including various
reagents and its library of over 25,000 yeast strains.  The licensee paid to the
Subsidiary an up-front  non-refundable  fee of $500,000.  In October  2002,  the
licensee  paid to the  Subsidiary  an  additional  $1,000,000  when the licensee
achieved a research  milestone.  On September 12, 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. The license terminates on December 31,



                                       10


<PAGE>



2006;  however the licensee may extend the term for additional  one-year periods
by paying to the Subsidiary $250,000 for each one-year extension. The Subsidiary
is  seeking  to  license  its yeast  technologies  to other  third  parties on a
non-exclusive basis.

PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS

         The  Subsidiary  relies upon  patents and trade  secrets to protect its
proprietary  technologies.  As of March 15, 2004, the Subsidiary is the assignee
of ten issued  U.S.  patents and 20 related  granted  foreign  patents  covering
aspects of its yeast technology and is the exclusive worldwide licensee of three
issued  U.S.  patents  and 16 related  granted  foreign  patents for use in drug
discovery.  In  addition,  as of such  date,  the  Subsidiary  has filed or held
licenses to 15 other U.S. patent applications,  as well as eight related foreign
patent applications.

         Cadus has obtained from Duke University an exclusive  worldwide license
to three issued U.S.  patents and U.S.  and  international  patent  applications
covering  hybrid  yeast  cell  technologies,  which  Cadus  transferred  to  the
Subsidiary in December 2001. These patents and patent  applications are directed
to hybrid yeast cells  engineered to express human G  Protein-coupled  receptors
and to methods of their use. In consideration  for such license,  the Subsidiary
pays a  minimum  annual  royalty  and is  required  to make  payments  upon  the
achievement by the Subsidiary of certain drug development  milestones and to pay
royalties  (net of  minimum  royalties)  on the sale of drugs by the  Subsidiary
which  were  initially  identified  by the  Subsidiary  through  the  use of the
licensed  technology.  In lieu of  milestones  and royalty  payments on sales of
drugs by sublicensees  initially  identified by sublicensees  through the use of
the licensed  technology,  the Subsidiary pays an annual fee (net of the minimum
annual royalty) for each sublicense granted by it to such technology.

         Cadus has also filed patent applications based on inventions by Cadus's
scientists  directed to hybrid yeast cells and yeast cells engineered to produce
both peptide  libraries and human  proteins that can function in certain  signal
transduction  pathways of the engineered yeast cell. These  applications seek to
protect aspects of the Apex(TM) and SSCL(TM) technologies.  Cadus has also filed
patent  applications  directed to methods,  constructs  and reagents,  including
engineered  cells, for discovering  ligands to orphan receptors.  Peptides,  and
mimetics thereof,  which have been discovered using the SSCL(TM)  technology are
also covered in these patent  applications  both as  compositions  and for their
therapeutic use. Cadus transferred  these patent  applications to the Subsidiary
in December 2001.

         The Company has granted a  non-exclusive  license to use several of its
patents and patent applications relating to its yeast-based  technologies to OSI
and, for certain limited purposes, to a major pharmaceutical  company and Solvay
Pharmaceuticals.

         In addition to patent protection, the Company relies upon trade secrets
and proprietary know-how to maintain its competitive  position.  To maintain the
confidentiality  of its trade secrets and proprietary  information,  the Company
requires its employees and  consultants  to execute  confidentiality  agreements
upon the commencement of their  relationships with the Company.  Such agreements
with employees and consultants  also provide that all inventions  resulting from
work



                                       11


<PAGE>



performed  by them  while in the  employ of the  Company  will be the  exclusive
property of the Company.

         Patent law as it relates to  inventions in the  biotechnology  field is
still evolving, and involves complex legal and factual questions for which legal
principles are not firmly established.  Accordingly,  no predictions can be made
regarding the breadth or  enforceability  of claims  allowed in the patents that
have been  issued to the  Company or its  licensors  or in  patents  that may be
issued to the Company or its licensors in the future.  Accordingly, no assurance
can be given that the claims in such patents, either as initially allowed by the
United States Patent and Trademark Office or any of its foreign  counterparts or
as may be  subsequently  interpreted  by courts  inside or  outside  the  United
States, will be sufficiently broad to protect the Company's  proprietary rights,
will be  commercially  valuable or will provide  competitive  advantages  to the
Company and its present or future collaborative partners or licensees.  Further,
there can be no  assurance  that  patents will be granted with respect to any of
the  Company's  pending  patent  applications  or  with  respect  to any  patent
applications filed by the Company in the future.  There can be no assurance that
any of the Company's  issued or licensed  patents would ultimately be held valid
or that efforts to defend any of its patents,  trade secrets,  know-how or other
intellectual property rights would be successful.

         The field of gene discovery has become intensely competitive.  A number
of pharmaceutical companies,  biotechnology companies, universities and research
institutions  have filed patent  applications or received patents covering their
gene discoveries.  Some of these applications or patents may be competitive with
the  Company's  applications  or conflict in certain  respects  with claims made
under the Company's applications.  Moreover,  because patent applications in the
United States are  maintained in secrecy until patents issue and because  patent
applications in certain other  countries  generally are not published until more
than  eighteen   months  after  they  are  filed  and  because   publication  of
technological  developments  in the scientific or patent  literature  often lags
behind the date of such developments,  the Company cannot be certain that it was
the  first to  invent  the  subject  matter  covered  by its  patents  or patent
applications  or that it was the  first  to file  patent  applications  for such
inventions.  If an issue  regarding  priority of  inventions  were to arise with
respect  to any of the  patents  or patent  applications  of the  Company or its
licensors,  the Company might have to participate in litigation or  interference
proceedings declared by the United States Patent and Trademark Office or similar
agencies  in other  countries  to  determine  priority  of  invention.  Any such
participation  could  result in  substantial  cost to the  Company,  even if the
eventual outcome were favorable to the Company.

         In some cases,  litigation  or other  proceedings  may be  necessary to
defend against or assert claims of  infringement,  to enforce  patents issued to
the  Company or its  licensors,  to protect  trade  secrets,  know-how  or other
intellectual property rights owned by the Company, or to determine the scope and
validity of the  proprietary  rights of third  parties.  Such  litigation  could
result in  substantial  cost to and  diversion of  resources by the Company.  An
adverse outcome in any such  litigation or proceeding  could subject the Company
to  significant  liabilities,  require  the  Company to cease  using the subject
technology  or require the Company to license  the subject  technology  from the
third party,  all of which could have a material adverse effect on the Company's
business,  financial  condition and results of  operations.  If any licenses are
required, there can be no assurance that the Company will



                                       12


<PAGE>



be able to obtain any such license on commercially  favorable  terms, if at all,
and if these  licenses are not  obtained,  the Company  might be prevented  from
using certain of its technologies.

         In July 1996, SIBIA  Neurosciences,  Inc. ("SIBIA") (which was acquired
by Merck & Co. in 1999)  commenced a patent  infringement  action  against Cadus
alleging  infringement  by  Cadus  of a  patent  concerning  the  use of  cells,
engineered  to express any type of cell surface  receptor  and a reporter  gene,
used to report  results in the screening of compounds  against target assays and
seeking  injunctive  relief and monetary  damages.  After trial, on December 18,
1998,  the jury  issued a verdict  in favor of SIBIA  and  awarded  SIBIA  $18.0
million in damages. On January 29, 1999 the United States District Court granted
SIBIA's request for injunctive relief that precluded Cadus from using the method
claimed in SIBIA's  patent.  On February 26, 1999,  the United  States  District
Court denied Cadus's motions to set aside the jury verdict, to grant a new trial
and to reduce or set aside the $18.0 million judgment awarded by the jury. Cadus
appealed the judgment.  In order to stay  execution  pending appeal of the $18.0
million judgment obtained by SIBIA, in March 1999, Cadus deposited $18.5 million
in escrow to secure payment of the judgments in the event Cadus were to lose the
appeal.  On September 6, 2000 the United  States Court of Appeals ruled in favor
of Cadus and overturned the prior judgment  entered by the U.S.  District Court.
The Court of Appeals ruled that the claims of the SIBIA patent asserted  against
Cadus were invalid and that the District  Court erred in denying  Cadus's motion
for judgment as a matter of law on the issue of invalidity. On October 30, 2000,
the U.S.  District Court set aside the $18.0 million  judgment in favor of SIBIA
and vacated the injunction  against Cadus.  Separately,  in October 2000,  Cadus
obtained  the  release  of the cash  escrow of $19.9  million  representing  the
original $18.5 million and interest that accumulated thereon.

COMPETITION

         The   biotechnology   and   pharmaceutical   industries  are  intensely
competitive.  The Company's  technologies  consist  principally  of  genetically
engineered yeast cells. The Company is aware of companies, such as American Home
Products  Corporation  and Glaxo Smith Kline,  Plc, that may use yeast as a drug
discovery medium.  In addition,  many smaller companies are pursuing these areas
of research.  The Company is also aware of other  companies  that are  inserting
human orphan G  Protein-coupled  receptors  into yeast and other cells and using
these hybrid cells for drug  discovery  purposes.  Certain  other  companies are
seeking to determine the functions of human orphan G  Protein-coupled  receptors
by identifying agonists to these receptors and by other research methods. All of
the above  companies are  significant  competitors  of the Company.  Many of the
Company's  competitors  have greater  financial  and human  resources,  and more
experience  in  research  and  development  than the  Company.  There  can be no
assurance  that  competitors  of the  Company  will not develop  competing  drug
discovery  technologies  that are more  effective  than those  developed  by the
Company thereby rendering the Company's drug discovery  technologies obsolete or
noncompetitive.   Moreover,  there  can  be  no  assurance  that  the  Company's
competitors  will not obtain patent  protection or other  intellectual  property
rights  that  would  limit the  Company's  ability  to use or  license  its drug
discovery  technologies,  which  could  have a  material  adverse  effect on the
Company's business, financial condition and results of operations.



                                       13


<PAGE>



         In order to  compete  successfully,  the  Company's  goal is to  obtain
patent  protection  for  its  drug  discovery  technologies  and to  make  these
technologies  available to pharmaceutical  and  biotechnology  companies through
licensing  arrangements for use in discovering drugs. There can be no assurance,
however,  that the Company will obtain patents  covering its  technologies  that
protect it against  competitors.  Moreover,  there can be no assurance  that the
Company's   competitors  will  not  succeed  in  developing   technologies  that
circumvent the Company's  technologies or that such competitors will not succeed
in developing  technologies  that are more effective than those developed by the
Company or that would  render  technology  of the Company  less  competitive  or
obsolete.

GOVERNMENT REGULATION

         The development, manufacturing and marketing of drugs developed through
the use of the  Company's  technologies  are subject to  regulation  by numerous
governmental agencies in the United States and in other countries. To date, none
of the Company's technologies has resulted in any clinical drug candidates.  The
FDA and  comparable  regulatory  agencies in other  countries  impose  mandatory
procedures  and  standards  for the conduct of certain  preclinical  testing and
clinical trials and the production and marketing of drugs for human  therapeutic
use. Product  development and approval of a new drug are likely to take a number
of years and involve the expenditure of substantial resources.

         The steps  required  by the FDA before new drugs may be marketed in the
United States include:(i) preclinical studies; (ii) the submission to the FDA of
a request for authorization to conduct clinical trials on an investigational new
drug (an "IND"); (iii) adequate and well-controlled clinical trials to establish
the safety and efficacy of the drug for its intended use; (iv) submission to the
FDA of a new drug application (an "NDA"); and (v) review and approval of the NDA
by the FDA before the drug may be shipped or sold commercially.

         In the United States, preclinical testing includes both IN VITRO and IN
VIVO laboratory  evaluation and characterization of the safety and efficacy of a
drug and its  formulation.  Laboratories  involved in  preclinical  testing must
comply with FDA  regulations  regarding Good Laboratory  Practices.  Preclinical
testing  results are submitted to the FDA as part of the IND and are reviewed by
the FDA prior to the  commencement  of human  clinical  trials.  Unless  the FDA
objects to an IND, the IND will become  effective 30 days  following its receipt
by the FDA. There can be no assurance  that  submission of an IND will result in
the commencement of human clinical trials.

         Clinical   trials,    which   involve   the   administration   of   the
investigational  drug to healthy volunteers or to patients under the supervision
of  a  qualified  principal  investigator,  are  typically  conducted  in  three
sequential  phases,  although the phases may overlap with one another.  Clinical
trials must be  conducted  in  accordance  with Good  Clinical  Practices  under
protocols that detail the objectives of the study,  the parameters to be used to
monitor safety and the efficacy criteria to be evaluated.  Each protocol must be
submitted to the FDA as part of the IND.  Further,  each clinical  study must be
conducted under the auspices of an independent  Institutional  Review Board (the
"IRB")  at the  institution  where  the study  will be  conducted.  The IRB will
consider, among other



                                       14


<PAGE>



things, ethical factors, the safety of human subjects and the possible liability
of the  institution.  Compounds  must be formulated  according to the FDA's Good
Manufacturing Practices ("GMP").

         Phase I clinical  trials  represent the initial  administration  of the
investigational drug to a small group of healthy human subjects or, more rarely,
to a group of selected patients with the targeted disease or disorder.  The goal
of Phase I clinical  trials is typically to test for safety  (adverse  effects),
dose tolerance, absorption, bio-distribution, metabolism, excretion and clinical
pharmacology and, if possible, to gain early evidence regarding efficacy.

         Phase II clinical  trials involve a small sample of the actual intended
patient  population  and seek to assess the  efficacy  of the drug for  specific
targeted indications, to determine dose tolerance and the optimal dose range and
to gather  additional  information  relating  to safety  and  potential  adverse
effects.

         Once an  investigational  drug is found to have  some  efficacy  and an
acceptable safety profile in the targeted patient population, Phase III clinical
trials are initiated to establish  further  clinical  safety and efficacy of the
investigational  drug in a broader sample of the general  patient  population at
geographically   dispersed  study  sites  in  order  to  determine  the  overall
risk-benefit  ratio  of the  drug  and to  provide  an  adequate  basis  for all
physician  labeling.  The  results  of the  research  and  product  development,
manufacturing,  preclinical testing, clinical trials and related information are
submitted  to the FDA in the form of an NDA for  approval of the  marketing  and
shipment of the drug.

         Timetables for the various  phases of clinical  trials and NDA approval
cannot be  predicted  with any  certainty.  The  Company or the FDA may  suspend
clinical trials at any time if it is believed that individuals  participating in
such trials are being exposed to unacceptable  health risks.  Even assuming that
clinical trials are completed and that an NDA is submitted to the FDA, there can
be no assurance  that the NDA will be reviewed by the FDA in a timely  manner or
that once reviewed,  the NDA will be approved.  The approval process is affected
by a number of factors, including the severity of the targeted indications,  the
availability of alternative  treatments and the risks and benefits  demonstrated
in clinical trials.  The FDA may deny an NDA if applicable  regulatory  criteria
are not satisfied, or may require additional testing or information with respect
to the investigational  drug. Even if initial FDA approval is obtained,  further
studies,  including  post-market  studies,  may be  required in order to provide
additional data on safety and will be required in order to gain approval for the
use of a product as a treatment  for clinical  indications  other than those for
which the product was initially  tested.  The FDA will also require  post-market
reporting and may require  surveillance  programs to monitor the side effects of
the drug.  Results of  post-marketing  programs  may limit or expand the further
marketing  of the drug.  Further,  if there are any  modifications  to the drug,
including  changes in  indication,  manufacturing  process or  labeling,  an NDA
supplement may be required to be submitted to the FDA.

         Each  manufacturing  establishment  for new drugs is also  required  to
receive some form of approval by the FDA. Among the conditions for such approval
is the  requirement  that the  prospective  manufacturer's  quality  control and
manufacturing procedures conform to GMP, which must be followed at all times. In
complying with standards set forth in these regulations,



                                       15


<PAGE>



manufacturers  must  continue to expend  time,  monies and effort in the area of
production   and   quality   control  to  ensure  full   technical   compliance.
Manufacturing  establishments,  both foreign and  domestic,  are also subject to
inspections  by or  under  the  authority  of the  FDA  and  may be  subject  to
inspections by foreign and other Federal, state or local agencies.

         There can be no assurance that the regulatory framework described above
will not change or that  additional  regulations  will not arise that may affect
approval  of or  delay  an IND or an NDA.  The  Company  has no  preclinical  or
clinical  development  expertise  and  intends to rely on third  party  clinical
research  organizations  to  design  and  conduct  most  of such  activities  if
required.

         Prior to the  commencement  of marketing a product in other  countries,
regulatory  approval in such countries is required,  whether or not FDA approval
has been obtained for such product.  The  requirements  governing the conduct of
clinical trials and product  approvals vary widely from country to country,  and
the time  required for approval may be longer or shorter than the time  required
for FDA approval.  Although there are some  procedures  for unified  filings for
certain European countries,  in general, each country has its own procedures and
requirements.

         The Company is also subject to regulation  under other Federal laws and
regulation  under state and local laws,  including laws relating to occupational
safety,  laboratory practices,  the use, handling and disposition of radioactive
materials,  environmental  protection and hazardous substance control.  Although
the Company believes that it is in compliance with these laws and regulations in
all material respects, there can be no assurance that it will not be required to
incur  significant  costs  to  comply  with  environmental  and  other  laws  or
regulations in the future.

EMPLOYEES

         As of March 15, 2004,  the Company had no employees.  Michele A. Paige,
the Chief Executive  Officer of Cadus and the Subsidiary,  is not an employee of
Cadus or the Subsidiary and is serving as the Chief  Executive  Officer of Cadus
and the Subsidiary without compensation.

ITEM 2.  PROPERTIES.

         Cadus leases storage space on a month-to-month basis in Tarrytown,  New
York.

ITEM 3.  LEGAL PROCEEDINGS.

         The Company is not a party to any legal proceedings.

ITEM 4.  SUBMISSION TO A VOTE OF SECURITY HOLDERS.

         No matter was  submitted  to a vote of security  holders of the Company
during the fourth quarter of the fiscal year covered by this report.



                                       16


<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Cadus's  common stock,  $.01 par value per share (the "Common  Stock"),
was traded on the Nasdaq  National  Market under the symbol KDUS until September
27, 1999 when it was delisted.  Since  September 27, 1999,  Cadus's Common Stock
has traded on the over-the-counter  bulletin board under the symbol KDUS.OB. The
table  below  sets  forth the high and low sales  price per share of the  Common
Stock for the periods indicated,  as reported by the  over-the-counter  bulletin
board.

         FISCAL YEAR 2003                              HIGH             LOW
         First quarter ended March 31, 2003            $1.16            $1.03
         Second quarter ended June 30, 2003            $1.48            $1.13
         Third quarter ended September 30, 2003        $1.51            $1.36
         Fourth quarter ended December 31, 2003        $1.57            $1.39

         FISCAL YEAR 2002                              HIGH             LOW
         First quarter ended March 31, 2002            $1.45            $1.09
         Second quarter ended June 30, 2002            $1.50            $1.15
         Third quarter ended September 30, 2002        $1.20            $1.08
         Fourth quarter ended December 31, 2002        $1.21            $1.01

         As of March 15, 2004, there were  approximately 66 holders of record of
Cadus's Common Stock.

         Cadus has not  declared or paid any cash  dividends on its Common Stock
during  the past two  fiscal  years  and does  not  anticipate  paying  any such
dividends in the  foreseeable  future.  Cadus intends to retain any earnings for
the growth of and for use in its business.

         RECENT SALES OF UNREGISTERED SECURITIES.

         Within the past three years,  Cadus has not issued and sold  securities
that were not  registered  under the  Securities  Act of 1933,  as amended  (the
"Act").

ITEM 6.  SELECTED FINANCIAL DATA.

         The  selected   financial  data  presented  below  should  be  read  in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" and the Company's  consolidated  financial statements
and notes thereto included elsewhere in this report.



                                       17


<PAGE>


<TABLE>
<CAPTION>
                                                                                               YEAR ENDED DECEMBER 31,
                                                                                               -----------------------
                                                  2003               2002              2001              2000             1999
                                                  ----               ----              ----              ----             ----
STATEMENT OF OPERATIONS DATA:                                (dollars in thousands, except share and per share data)
<S>                                         <C>                  <C>              <C>                <C>             <C>
Revenues                                         $   220             $1,100             $600               $979          $6,028
                                                 -------             ------             ----               ----          ------
Operating costs and expenses:
        Total costs and expenses                     837                886            1,077              2,389          12,759
                                                --------              -----            -----              -----          ------
        Operating (loss) gain                       (617)               214             (477)            (1,411)         (6,731)
Net (loss) income                               ($   190)(1)         $1,316(2)         ($317)(3)        $18,051(4)      ($8,524)
                                               =========             ======           ======            =======         =======

Basic and diluted net (loss) income per
share                                          ($   0.01)             $0.10           ($0.02)             $1.37          ($0.65)
                                              ==========              =====           ======              =====         =======
Shares used in calculation of basic
and diluted net (loss) income per share       13,144,040         13,144,040       13,144,040         13,133,615      13,068,940
</TABLE>


<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                                     ------------
                                             2003          2002          2001            2000              1999
                                             ----          ----          ----            ----              ----
BALANCE SHEET DATA:                                                  (in thousands)
<S>                                         <C>           <C>           <C>             <C>              <C>
Cash and cash equivalents                   $24,369       $24,923       $24,469         $24,383(5)        $5,082(5)
Total assets                                 26,807        26,870        26,201          25,709           26,699
Short-term debt                                --            --            --              --                --
Accumulated deficit                         (33,196)      (33,006)      (34,322)        (34,005)         (52,056)
Stockholders' equity                         26,758        26,458        25,356          25,672            7,465
</TABLE>

Cadus has not paid any dividends  since its  inception  and does not  anticipate
paying any dividends on its common stock in the foreseeable future.

      (1)        The net loss of $190,000  for the year ended  December 31, 2003
                 includes a realized  gain of $313,189  related to common shares
                 of Sequenom  released  from escrow  which had been  received in
                 connection  with the  merger of Axiom  (in  which  Cadus had an
                 equity interest) with Sequenom.

      (2)        The net income of  $1,316,000  for the year ended  December 31,
                 2002  includes a realized  gain of  $823,189  related to common
                 shares of Sequenom  received in  connection  with the merger of
                 Axiom (in which Cadus had an equity interest) with Sequenom.

      (3)        The net loss of $317,000  for the year ended  December 31, 2001
                 includes an arbitration award cost of approximately $750,000 to
                 a  former  employee  and  a  $155,402  reimbursement  of  SIBIA
                 litigation costs offset by legal costs of $29,786.

      (4)        The net income of $18.1 million for the year ended December 31,
                 2000  includes  the  reversal  of the  reserve  for  litigation
                 damages of $18.8  million  (net of legal  costs) as a result of
                 the  reversal by the Court of Appeals on  September  6, 2000 of
                 the judgment that had been obtained by SIBIA in December 1998.



                                       18
<PAGE>



      (5)        In order to stay execution  pending appeal of the $18.0 million
                 judgment  obtained  by SIBIA,  in March 1999,  Cadus  deposited
                 $18.5  million in escrow to secure  payment of the  judgment in
                 the event Cadus were to lose the appeal. Such $18.5 million was
                 classified,  as of  December  31,  1998,  as  "restricted  cash
                 noncurrent" and Cadus's "cash and cash equivalents" was reduced
                 by $18.5 million.  Interest  earned on the restricted  cash has
                 been  added  to  restricted  cash.  Upon the  reversal  of such
                 judgment by the Court of Appeals on  September 6, 2000 the cash
                 ceased to be  classified  as  "restricted"  and was included in
                 "cash and cash  equivalents".  The restricted  cash at December
                 31, 1999 has been  reclassified as of December 31, 2000 to cash
                 and cash equivalents for purposes of the preceding table.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS.

OVERVIEW

Cadus 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,  Cadus  sold its drug
discovery  assets to OSI  Pharmaceuticals,  Inc. ("OSI") and ceased its internal
drug discovery operations and research efforts for collaborative partners. Cadus
terminated  all employees  who were not hired by OSI or who did not  voluntarily
resign except for the Chief Executive  Officer,  who resigned in April 2000. The
Company is  currently  seeking to (i) license the  Subsidiary's  drug  discovery
technologies  and (ii) to use a portion  of its  available  cash to  acquire  or
invest in companies or income producing  assets.  While such companies or assets
might be in the  biotechnology or  pharmaceutical  industries,  the Company will
consider acquisitions or investments in other industries as well.

The  Company  has  incurred  operating  losses in each year since its  inception
except  for an  operating  gain of  approximately  $214,000  for the year  ended
December 31, 2002. At December 31, 2003, the Company had an accumulated  deficit
of approximately $33.2 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  to OSI 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.  However, the Company continues to
incur general and administrative expenses. For the year ended December 31, 2003,
such expenses  aggregated  $834,631 and included patent costs  (including  legal
fees)  and  license  fees  of  approximately  $319,000,  legal  (other  than  in
connection  with  patents) and  accounting  fees of  approximately  $242,000 and
insurance premiums of approximately $98,000. Since the Company only had revenues
of  $220,000,  it incurred  an  operating  loss of  $616,748  for the year ended
December 31, 2003.

The following  accounting  policies are important to understanding our financial
condition  and results of  operations  and should be read as an integral part of
the  discussion  and  analysis of the results of our  operations  and  financial
position.  For additional  accounting  policies,  see note 2 to our consolidated
financial statements, "Significant Accounting Policies."

REVENUE RECOGNITION.  We have entered into license agreements with two companies
under which we have  licensed to them our yeast  technology  on a  non-exclusive
basis. The agreements provide for the payment of non-refundable  license fees to
the Company. We recognize the license fees as income when received, as there are
no continuing performance obligations of the Company to the licensees.



                                       19


<PAGE>



ACCOUNTING  FOR  INCOME  TAXES.   As  part  of  the  process  of  preparing  our
consolidated  financial  statements in  conformity  with  accounting  principles
generally accepted in the United States of America,  we are required to estimate
our income taxes in each of the jurisdictions in which we operate.  This process
involves us estimating our actual  current tax exposure  together with assessing
temporary  differences  resulting  from  differing  treatment of items,  such as
deferred revenue, for tax and accounting  purposes.  These differences result in
deferred tax assets and liabilities,  which are included within our consolidated
balance sheet.  We must then assess the likelihood  that our deferred tax assets
will be recovered  from future  taxable income and to the extent we believe that
recovery is not likely, we must establish a valuation  allowance.  To the extent
we establish a valuation  allowance or increase this  allowance in a period,  we
must include an expense within the tax provision in the statement of operations.
Significant  management  judgment is required in  determining  our provision for
income  taxes,  our  deferred  tax  assets  and  liabilities  and any  valuation
allowance recorded against our net deferred tax assets.

ACCOUNTING  FOR THE  IMPAIRMENT  OF LONG-LIVED  ASSETS.  Our  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.  Our judgments regarding the existence of impairment indicators are
based on  historical  and projected  future  operating  results,  changes in our
overall business strategy, and market and economic trends. In the future, events
could cause us 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 our financial  condition and results of
operations.  The  provisions  of SFAS  No.  144 did not  have an  impact  on our
financial statements as of and for the year ended December 31, 2003.

RESULTS OF OPERATIONS

         YEARS ENDED DECEMBER 31, 2003 AND 2002

         REVENUES

         Revenues for 2003 decreased to $220,000 from  $1,100,000 in 2002.  This
decrease is  attributable  to the Company  having  received in 2002 a $1,000,000
research  milestone  payment  from a licensee  which it did not receive in 2003,
offset by a one-time fee of $120,000  received in 2003 in consideration  for the
Company's extension of a license to an affiliate of the licensee.

         OPERATING EXPENSES

         General and administrative expenses decreased to $834,631 for 2003 from
$885,406 in 2002. This decrease was attributable to a decrease of $33,037 in the
maintenance and protection of patents,  a decrease of $23,743 in insurance costs
and a decrease in directors' fees of $9,000,  offset by an increase of $9,881 in
shareholder relations costs and an increase of $5,124 in sundry expenses.

         EQUITY IN OTHER VENTURES

         Equity in other  ventures  in 2003  reflects a loss of $2,117  from the
Company's  investment in Laurel Partners Limited  Partnership.  There was a $692
loss in 2002 from such investment.



                                       20


<PAGE>



         INTEREST INCOME

         Interest  income for 2003  decreased to $171,218 from $335,614 in 2002.
This decrease was attributable primarily to the decrease in the average interest
earned on invested funds to approximately  0.7% in 2003 from  approximately 1.4%
in 2002.

         REALIZED GAIN ON MARKETABLE SECURITIES

         On  August  30,  2002,  the  Company's  equity  interest  in Axiom  was
converted into 441,446 shares of common stock of Sequenom pursuant to the merger
of Axiom with a subsidiary of Sequenom.  The Company recorded a realized gain of
$823,189  with  respect to 338,761 of such shares of common stock of Sequenom in
the consolidated statement of operations for the year ended December 31, 2002.

         Pursuant to the merger,  102,685 shares of the Company's  common shares
of Sequenom were held in escrow for a one-year period. The value of the escrowed
shares  was  recorded  as a  deferred  gain  on  marketable  securities  on  the
consolidated balance sheet of the Company as of December 31, 2002. On August 30,
2003,  the escrowed  shares were  released to the Company and  accordingly,  the
Company  recorded a realized  gain on  marketable  securities of $313,189 in the
consolidated statement of operations for the year ended December 31, 2003.

         NET (LOSS) INCOME

         The net loss for 2003 was $189,696 compared to net income of $1,315,705
for 2002.  The  decrease is  primarily  attributable  to a $880,000  decrease in
license  fees,  a decrease of the  realized  gain in  marketable  securities  of
$510,000,  a decrease  in interest  income of  $164,396  offset by a decrease of
$50,775 in general and administrative expenses.

         YEARS ENDED DECEMBER 31, 2002 AND 2001

         REVENUES

         Revenues for 2002 increased to $1,100,000  from $600,000 in 2001.  This
increase is primarily attributable to the Company receiving in 2002 a $1,000,000
research milestone payment from a licensee.

         OPERATING EXPENSES

         General and administrative expenses decreased to $885,000 for 2002 from
$1.079 million for 2001. This decrease was attributable  primarily to a decrease
in professional fees and insurance costs.

         EQUITY IN OTHER VENTURES

         Equity  in other  ventures  in 2002  reflects  a loss of $692  from the
Company's investment in Laurel Partners Limited Partnership.  In 2001, there was
a gain of  $3,086  from the  Company's  investment  in Laurel  Partners  Limited
Partnership.



                                       21


<PAGE>

         INTEREST INCOME

         Interest  income for 2002  decreased to $336,000 from $838,000 in 2001.
This decrease is attributable primarily to the decrease in interest rates.

         REALIZED GAIN ON MARKETABLE SECURITIES

         On  August  30,  2002,  the  Company's  equity  interest  in Axiom  was
converted into 441,446 shares of common stock of Sequenom pursuant to the merger
of Axiom with a subsidiary of Sequenom. Upon the closing of the transaction, the
Company  recorded a realized  gain of $823,189  with  respect to 338,761 of such
shares of common stock of Sequenom in the  consolidated  statement of operations
for the year ended December 31, 2002. The value of the remaining  102,685 shares
of common stock of Sequenom  received in the merger and being held in escrow was
recorded  as a  deferred  gain  on  marketable  securities  in the  accompanying
consolidated balance sheet.

         GAIN ON REVERSAL OF LITIGATION JUDGMENT

         In 2001,  pursuant to a court order the  Company  received  $155,402 in
reimbursement  of SIBIA  litigation  costs which was  partially  offset by legal
costs incurred of $29,786.

         SETTLEMENT OF ARBITRATION

         In March 2002, the arbitrator in the arbitration  proceeding  commenced
against Cadus by Philip N. Sussman,  the former Senior Vice  President,  Finance
and Corporate Development,  and Chief Financial Officer of Cadus, ruled in favor
of Mr. Sussman and awarded him approximately $750,000 in severance pay, interest
and attorneys and other costs and fees which was included in the 2001  statement
of operations and paid in 2002.

         NET INCOME (LOSS)

         The net  income  for  2002  was  $1,316,000  compared  to a net loss of
$317,000 for 2001. The increase is primarily attributable to a $500,000 increase
in license fees, a decrease in general and  administrative  expenses of $194,000
and a realized gain on marketable securities of $823,189 offset by a decrease in
interest  income  of  $502,000.  In  2001  there  was an  arbitration  award  of
approximately $750,000 against Cadus in favor of a former employee.

LIQUIDITY AND CAPITAL RESOURCES

         At  December  31, 2003 the Company  held cash and cash  equivalents  of
$24.4  million.  The  Company's  working  capital at December 31, 2003 was $25.8
million.

         On July 30,  1999,  Cadus  sold its drug  discovery  assets  to OSI and
ceased  its  internal  drug  discovery   operations  and  research  efforts  for
collaborative  partners.  Pursuant to such sale transaction,  OSI assumed, among
other things, Cadus's lease to the Company's research facility in Tarrytown, New
York and Cadus's  equipment  lease with General  Electric  Capital  Corporation.
Cadus  terminated  all  employees  who  were  not  hired  by OSI or who  did not
voluntarily  resign,  except for the Chief Executive Officer. As a result of the
foregoing,  Cadus ceased to have  research  funding  revenues and  substantially
reduced its operating expenses.

         In February 2000, Cadus licensed to OSI, on a non-exclusive  basis, its
yeast  technologies.  OSI paid to Cadus a license fee of $100,000  and an access
fee of  $600,000.  OSI is also  obligated  to pay an annual  maintenance  fee of
$100,000 until the earlier of 2010 or the termination of the license



                                       22


<PAGE>



and a supplemental license fee of $250,000 which was paid in December 2000 after
the lifting of the injunction  obtained by SIBIA.  OSI may terminate the license
at any time on 30 days prior written notice. In December 2001, Cadus transferred
its license with OSI to the Subsidiary.

         In December  2001, the  Subsidiary  licensed to a major  pharmaceutical
company, on a non- exclusive basis, its yeast technologies. The licensee paid to
the Subsidiary an up-front non- refundable fee of $500,000. In October 2002, the
licensee  paid to the  Subsidiary  an  additional  $1,000,000  when the licensee
achieved a research milestone.  In September 2003, the licensee agreed to pay to
the  Subsidiary  an additional  $120,000  pursuant to an addendum to the license
agreement  under which the Company  extended  the license to an affiliate of the
licensee. The license terminates on December 31, 2006; however, the licensee may
extend the term for  additional  one-year  periods  by paying to the  Subsidiary
$250,000 for each one-year extension.

         The  Company  believes  that  its  existing  resources,  together  with
interest income, will be sufficient to support its current and projected funding
requirements  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
operation is a  forward-looking  statement  that may not prove  accurate and, as
such, actual results may vary. The Company's capital  requirements may vary as a
result of a number of factors, including the transactions,  if any, arising from
the Company's  efforts to license its technologies,  the  transactions,  if any,
arising from the  Company's  efforts to acquire or invest in companies or income
producing assets and the expenses of pursuing such transactions.

         At  December  31,  2003  the  Company  had  tax  net   operating   loss
carryforwards of approximately $28.8 million and research and development credit
carryforwards of  approximately  $2.5 million which expire in years 2009 through
2022. The Company's  ability to utilize such net operating loss and research and
development  credit  carryforwards  is  subject to  certain  limitations  due to
ownership changes as defined by rules enacted with the Tax Reform Act of 1986.

ITEM 7A.  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 8.  FINANCIAL STATEMENTS.

         The financial  statements and notes thereto may be found following Item
15 of this report.  For an index to the financial  statements and  supplementary
data, see Item 15.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE.

           None.

ITEM 9A.  CONTROLS AND PROCEDURES

Based on the evaluation of the Company's  disclosure  controls and procedures as
of the end of the  period  covered  by this  Annual  Report  on Form  10-K,  the
Company's  President and Chief Executive  Officer,  who also performs  functions
similar to those of a principal financial officer, concluded that



                                       23


<PAGE>



the Company's  disclosure  controls and  procedures  are effective in the timely
identification of material  information required to be included in the Company's
periodic  filings with the Securities and Exchange  Commission.  During the year
ended  December 31, 2003,  there have been no changes in the Company's  internal
control over financial  reporting  identified in connection  with the evaluation
thereof,  which have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

         Information  with respect to the  executive  officers and  directors of
Cadus as of March 15, 2004 is set forth below:

<TABLE>
<CAPTION>
NAME                                               AGE      POSITION
----                                               ---      --------
<S>                                                <C>      <C>
Michele A. Paige                                   34       Chief Executive Officer, President and Director

James R. Broach, Ph.D.                             56       Director

Russell D. Glass                                   41       Director

Carl C. Icahn                                      68       Director

Peter S. Liebert, M.D. (1)                         68       Director

Jack G. Wasserman (1)                              66       Director
</TABLE>

----------

(1) Member of the Compensation Committee.

         MICHELE  A. PAIGE  became a director  and  President,  Chief  Executive
Officer, Treasurer and Secretary of Cadus in February 2003. From July 2001 until
February  2004 Ms. Paige served as an Investment  Associate of Icahn  Associates
Corp.  From  September  1999 until June 2001,  Ms. Paige  studied at the Harvard
Business  School,  from which she received her MBA in 2001. From 1998-1999,  Ms.
Paige was a Research Associate at The Conference Board, an economic  think-tank,
where she specialized in mergers and acquisitions. Ms. Paige currently serves as
a Trustee of The Leopold  Schepp  Foundation,  which  awards  scholarships  that
support both graduate and undergraduate  education for exceptional students with
demonstrated financial need. Ms. Paige earned her B.A. from Brown University and
a J.D. from Yale Law School, where she was a member of The Yale Law Review.

         RUSSELL D. GLASS became a director of Cadus in June 1998.  He served as
President and Chief  Executive  Officer of Cadus from April 2000 until  February
2003.  From 2002 to 2003 Mr. Glass served as  Co-Chairman  and Chief  Investment
Officer of Ranger Partners,  an investment management company. From 1998 to 2002
Mr. Glass served as President and Chief  Investment  Officer of Icahn Associates
Corp.,  a diversified  investment  firm,  and as  Vice-Chairman  and Director of
Lowestfare.com,  Inc., a travel services company. Previously, Mr. Glass had been
a  partner  in  Relational  Investors  LLC,  from 1996 to 1998,  and in  Premier
Partners  Inc.,  from 1988 to 1996,  firms  engaged in  investment  research and
management.  From 1984 to 1986 he served as an  investment  banker with  Kidder,
Peabody & Co. Previously, Mr. Glass served as a Director of Automated Travel



                                       24


<PAGE>



Systems,   Inc.,  a  software   development  firm;  Axiom   Biotechnologies,   a
pharmacology   profiling  company;   National  Energy  Group,  an  oil  and  gas
exploration and production company;  and Next Generation  Technology Holdings, a
healthcare  information technology company. He currently serves as a Director of
the A.G. Spanos  Corporation,  a national real estate developer and owner of the
NFL San Diego Chargers  Football Club. Mr. Glass earned a B.A. in economics from
Princeton  University and an M.B.A. from the Stanford University Graduate School
of Business.

         JAMES R. BROACH,  PH.D., a scientific  founder of Cadus and inventor of
Cadus's yeast-based drug discovery technology,  has been Director of Research of
Cadus  since  its  inception.  He is and has  been  since  1984 a  Professor  at
Princeton University in the Department of Molecular Biology. In 1984, Dr. Broach
and his collaborators  were the first ones to demonstrate that human genes could
be   successfully   implanted  into  yeast  cells.  He  received  his  Ph.D.  in
Biochemistry  from  University  of California at Berkeley and his B.S. from Yale
University.

          CARL C.  ICAHN  became a director  of Cadus in July  1993.  He is also
Chairman  of  the  Board  of  Directors  and  a  Director  of  Starfire  Holding
Corporation,  a Delaware  corporation  ("SHC"),  and Chairman of the Board and a
Director  of  various of SHC's  subsidiaries.  SHC is  primarily  engaged in the
business of holding, either directly or through subsidiaries, various businesses
and investments and its address is 100 South Bedford Road, Mount Kisco, New York
10549.  Mr. Icahn is on the  executive  committee of and owns the sole member of
ACF  Industries  LLC ("ACF") and was  Chairman of the Board of  Directors of its
predecessor ACF Industries Incorporated since October 29, 1984 and a Director of
ACF since June 29, 1984. ACF is a railroad  freight and tank car leasing,  sales
and manufacturing  company.  He has also been Chairman of the Board of Directors
and President of Icahn & Co., Inc. since 1968. Icahn & Co., Inc. is a registered
broker-dealer  and a member of the National  Association of Securities  Dealers.
ACF and Icahn & Co.,  Inc. are directly or  indirectly  owned and  controlled by
Carl C. Icahn.  In January  2003,  Mr. Icahn became  Chairman of the Board and a
Director of XO Communications, Inc., a telecommunications company. Mr. Icahn has
been  Chairman  of the Board of the  General  Partner of  American  Real  Estate
Partners,  L.P.  ("AREP") since November 15, 1990. Since October 1998, Mr. Icahn
has been the President and a Director of Stratosphere Corporation which operates
the  Stratosphere  Hotel and Casino and which is now a subsidiary of AREP. Since
September  29,  2000,  Mr.  Icahn has served as the  Chairman of the Board of GB
Holdings,  Inc., GB Property Funding,  Inc. and Greate Bay Hotel & Casino,  Inc.
which owns and operates the Sands Hotel.  He also owns two other Las Vegas hotel
casinos.  In  addition  to the  foregoing,  Mr.  Icahn  has  substantial  equity
interests in and/or owns various  partnerships and  corporations  that invest in
publicly traded securities.

         PETER S. LIEBERT,  M.D.,  became a director of Cadus in April 1995. Dr.
Liebert  has been a  pediatric  surgeon  in private  practice  since 1968 and is
affiliated  with  Babies  Hospital  of  Columbia  Presbyterian.  He is  Clinical
Associate  Professor of Surgery,  College of Physicians  and Surgeons,  Columbia
University.  He is also Chairman of the Board of Rx Vitamins,  Inc. Dr.  Liebert
holds an M.D. from Harvard  University  Medical School and a B.A. from Princeton
University.

         JACK G. WASSERMAN has served as a director of Cadus since May 1966. Mr.
Wasserman is an attorney and a member of the Bars of New York, Florida,  and the
District of Columbia. From 1966 until 2001 he was a senior partner of Wasserman,
Schneider, Babb & Reed, a New York-based law



                                       25


<PAGE>



firm and its  predecessors.  Since September 2001 Mr. Wasserman has been engaged
in the practice of law as a sole practitioner. Since 1993 he has been a director
of American  Property  Investors,  Inc.,  the general  partner of American  Real
Estate  Partners,   LP  and,  in  2003,   became  a  director  of  its  indirect
subsidiaries,   American   Casino  &   Entertainment   Properties  and  American
Entertainment & Casino Finance Corp. Mr.  Wasserman has been licenced by the New
Jersey  State Casino  Control  Commission  and the Nevada  State Gaming  Control
Commission.  Since  December  1, 1998,  Mr.  Wasserman  has been a  director  of
National Energy Group,  Inc. which, on December 4, 1998, sought protection under
the federal bankruptcy laws; a Plan of Reorganization became effective August 4,
2000, and a final decree  closing the case and settling all matters  relating to
the  bankruptcy  proceeding  became  effective on December  13,  2001.  In 2003,
National  Energy  Group,  Inc.,  became an indirect  subsidiary of American Real
Estate Partners, LP. On March 11, 2004, Mr. Wasserman was appointed to the Board
of Directors of Triarc Companies, Inc.

         Directors  are  elected  by the  stockholders  of Cadus at each  annual
meeting of stockholders  and serve until the next annual meeting of stockholders
and until their  successors  are elected and  qualified  or until their  earlier
removal or resignation.

         The  Board  of  Directors  of  Cadus  has  a  Compensation   Committee,
consisting  of  Messrs.  Liebert  and  Wasserman,  which  makes  recommendations
regarding  salaries and incentive  compensation for employees of and consultants
to Cadus and which administers the 1993 Stock Option Plan and the 1996 Incentive
Plan.

         The non-employee directors receive $1,000 for each meeting of the Board
of  Directors  attended and $500 for each meeting of a committee of the Board of
Directors attended.

         The  Company  does  not  have a  separately-designated  standing  audit
committee  or a committee  performing  similar  functions.  The entire  Board of
Directors of the Company acts as the audit committee.  The Board of Directors of
the Company has determined  that it does not have an "audit  commitee  financial
expert" as such term is defined in the new rules adopted by the  Securities  and
Exchange Commission  requiring companies to disclose whether or not at least one
member of the audit committee is an "audit committee financial expert." While it
might be possible to recruit a person who meets these qualifications,  the Board
of Directors  has  determined  that in order to fulfill all the functions of the
Board of  Directors,  each member of the Board of Directors  should meet all the
criteria that have been established by the Board of Directors for members of the
Board  of  Directors,  and it is not in the best  interests  of the  Company  to
nominate as a director someone who does not have all the experience,  attributes
and  qualifications  the Company seeks. The Board of Directors believes that its
members are fully qualified to monitor the performance of management, the public
disclosures  by the Company of its  financial  condition  and  performance,  the
Company's  internal  accounting  operations  and its  independent  auditors.  In
addition,  the  Board of  Directors  retains  independent  accountants  or other
consultants whenever it deems appropriate.

OTHER MATTERS RELATING TO DIRECTORS

         On  January  5,  2001,  Reliance  Group  Holdings,   Inc.  ("Reliance")
commenced  an action  in the  United  States  District  Court  for the  Southern
District of New York against Carl C. Icahn, Icahn



                                       26


<PAGE>



Associates  Corp. and High River Limited  Partnership  ("High River") (a limited
partnership controlled by Mr. Icahn) alleging that High River's tender offer for
Reliance 9% senior notes violated  Section 14(e) of the Securities  Exchange Act
of 1934.  Reliance  sought a temporary  restraining  order and  preliminary  and
permanent injunctive relief to prevent defendants from purchasing the notes. The
Court  initially  imposed  a  temporary   restraining  order.   Defendants  then
supplemented the tender offer disclosures.  The Court conducted a hearing on the
disclosures  and  other  matters  raised by  Reliance.  The  Court  then  denied
Reliance's  motion for a preliminary  injunction and ordered  dissolution of the
temporary restraining order following dissemination of the supplement.  Reliance
took an  immediate  appeal to the United  States Court of Appeals for the Second
Circuit and sought a stay to restrain  defendants from  purchasing  notes during
the  pendency of the appeal.  On January 30, 2001,  the Court of Appeals  denied
plaintiffs'  stay  application.  On January 30,  Reliance  also sought a further
temporary  restraining  order from the District Court.  The Court considered the
matter and  reimposed its original  restraint  until noon the next day, at which
time the restraint against Mr. Icahn and his affiliates was dissolved.  On March
22, 2001,  the Court of Appeals  ruled in favor of Mr.  Icahn by  affirming  the
judgment of the District Court.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the  Exchange  Act  requires  Cadus's  directors  and
executive  officers,  and persons who own more than ten percent of a  registered
class of Cadus's  equity  securities,  to file with the  Securities and Exchange
Commission  (the "SEC")  initial  reports of ownership and reports of changes in
ownership  of Common  Stock of Cadus.  Reporting  persons  are  required  by SEC
regulation  to furnish the Company  with  copies of all such filed  reports.  To
Cadus's  knowledge,  based  solely on a review of copies of such  filed  reports
furnished  to Cadus,  all of Cadus's  directors,  officers  and greater than ten
percent beneficial owners made all required filings during fiscal year 2003 in a
timely manner.

CODE OF ETHICS

         Cadus  has not  adopted a code of ethics  for its  principal  executive
officer, principal financial officer, principal accounting officer or controller
or persons  performing  similar  functions due to the fact that it does not have
any  employees,  does not have any  operations  (other than those related to the
licensing  of  its  technologies)  and  has  only  one  officer  (who  is not an
employee).

ITEM 11.  EXECUTIVE COMPENSATION.

         The  following  table sets forth  certain  information  concerning  the
compensation  paid or accrued  by Cadus for  services  rendered  to Cadus in all
capacities for the fiscal years ended  December 31, 2003,  2002 and 2001, by its
Chief Executive  Officer and each of the Cadus's other executive  officers whose
total salary and bonus exceeded $100,000 during 2003  (collectively,  the "Named
Executive Officers"):



                                       27


<PAGE>


<TABLE>
<CAPTION>
                                            Summary Compensation Table
                                            --------------------------
                                                                                           Long-term
                                                                                          Compensation
                                                                                             Awards
                                                                                             ------
                                                             Annual Compensation           Securities
                                                             -------------------           Underlying         All Other
       Name and Principal Position            Year       Salary ($)       Bonus ($)        Options (#)       Compensation
       ---------------------------            ----       ----------       ---------        -----------       ------------
<S>                                           <C>            <C>             <C>               <C>               <C>
Michele A. Paige (1).....................     2003           --              --                --                --
  President and Chief Executive               2002           --              --                --                --
  Officer                                     2001           --              --                --                --

Russell D. Glass (2).....................     2003           --              --                --                --
  President and Chief Executive               2002           --              --                --                --
  Officer                                     2001           --              --                --                --
</TABLE>

----------
(1)      Michele A. Paige has been the Company's  President and Chief  Executive
         Officer  from  February  2003 and has served in such  capacity  without
         compensation.

(2)      Mr.  Russell D. Glass was the Company's  President and Chief  Executive
         Officer from April 2000 until February 2003 and served in such capacity
         without compensation.

OPTION GRANTS

      The  following  table sets forth  certain  information  regarding  options
granted  during the fiscal  year ended  December  31, 2003 by Cadus to the Named
Executive Officers:








                                       28


<PAGE>



                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                   Individual Grants
                              -----------------------------------------------------------
                                                                                              Potential Realizable Value
                                                Percent of                                      at Assumed Annual Rates
                                                  Total                                              of Stock Price
                              Securities         Options                                        Appreciation for Option
                              Underlying        Granted to       Exercise                              Terms ($)
                                Options        Employees in       Price        Expiration       -----------------------
           Name               Granted (#)      Fiscal Year      ($/share)         Date                5%       10%
           ----               -----------      -----------      ---------      ----------             --       ---
<S>                               <C>               <C>           <C>             <C>                 <C>      <C>
Michele A. Paige...........       --                --            --              --                  --       --

Russell D. Glass...........       --                --            --              --                  --       --
</TABLE>

OPTION EXERCISES AND HOLDINGS

      The  following  table  sets  forth  certain  information  concerning  each
exercise of stock options, during the fiscal year ended December 31, 2003 by the
Named  Executive  Officers  and  unexercised  stock  options  held by the  Named
Executive Officers as of the end of such fiscal year.

               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                          FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                       Number of
                                                                 Securities Underlying               Value of Unexercised
                                                                 Unexercised Options at            In-the-money Options at
                                                                  December 31, 2003(#)               December 31, 2003($)
                               Shares          Aggregate         ----------------------             ---------------------
                             Acquired on         Value
          Name              Exercise (#)      Realized ($)      Exercisable Unexercisable          Exercisable Unexercisable
          ----              ------------      ------------      ----------- -------------          ----------- -------------
<S>                              <C>               <C>             <C>           <C>                    <C>         <C>
Michele A. Paige.........        --                --              --            --                     --          --
Russell D. Glass.........        --                --              --            --                     --          --
</TABLE>

      INCENTIVE PLANS

1993 STOCK OPTION PLAN

      Cadus's 1993 Stock Option Plan (the "1993 Stock Option Plan") provides for
the grant of options to purchase  shares of Common Stock to officers,  employees
and  consultants  of the Company.  The maximum  number of shares of Common Stock
that may be issued  pursuant to the 1993 Stock Option Plan is 666,667  (plus any
shares that are the subject of canceled or  forfeited  awards).  Effective as of
May 10, 1996, the 1993 Stock Option Plan was replaced by the 1996 Incentive Plan
with respect to all future  awards to the Company's  employees and  consultants.
See "Incentive Plans -- 1996 Incentive Plan."

      The 1993 Stock Option Plan is administered by the  Compensation  Committee
which is presently comprised of Peter Liebert and Jack G. Wasserman.



                                       29


<PAGE>



      Under the 1993 Stock Option Plan, the Compensation Committee may establish
with respect to each option granted such vesting  provisions as it determines to
be appropriate or advisable.  In general,  options  granted under the 1993 Stock
Option  Plan have a ten-year  term,  and such  options  vest or have vested over
four-year periods at various rates.  Unexercised options automatically terminate
upon the termination of the holder's relationship with the Company. However, the
Compensation  Committee may accelerate a vesting schedule and/or extend the time
for exercise of all or any part of an option in the event of the  termination of
the holder's  relationship with the Company. In addition,  the 1993 Stock Option
Plan includes a provision  authorizing the Compensation  Committee to adjust the
number of shares of Common Stock  available  for grant,  the number of shares of
Common Stock subject to outstanding awards thereunder and the per share exercise
price thereof in the event of any stock dividend, stock split, recapitalization,
merger or certain other  events.  The  Compensation  Committee may terminate the
1993 Stock Option Plan at any time but any such  termination  will not adversely
affect options previously granted.

      Options  granted  under the 1993  Stock  Option  Plan are  nontransferable
except by will or the laws of descent and distribution.

      During  2003,  there were no stock  options  granted  under the 1993 Stock
Option Plan.

      As of March 15, 2004, an aggregate of 101,737  shares of Common Stock were
subject to outstanding  stock options  granted under the 1993 Stock Option Plan.
As of March 15, 2004,  options to purchase  101,737  shares were  exercisable at
$1.50 per share.

      Cadus has  registered  the shares  issuable upon exercise of stock options
granted under the 1993 Stock Option Plan pursuant to a registration statement on
Form S-8.

STOCK OPTION AGREEMENTS

      Cadus has granted  non-qualified  stock  options to  directors,  officers,
employees and consultants of Cadus by means of stock option agreements that were
not issued pursuant to any written  incentive plan of the Company.  During 2003,
there were no stock options granted pursuant to such stock option agreements. As
of March 15, 2004,  an aggregate of 323,403  shares of Common Stock were subject
to outstanding  stock options  granted under such stock option  agreements,  and
options to purchase 323,403 shares under such option agreements were exercisable
at prices ranging from $1.50 to $6.75 per share.

      Cadus has  registered  the shares  issuable upon exercise of stock options
granted under such stock option agreements pursuant to a registration  statement
on Form S-8.

1996 INCENTIVE PLAN

      Cadus's 1996 Incentive Plan (the "1996 Incentive Plan") was adopted by the
Board of Directors and approved by the  stockholders  of Cadus in May 1996.  The
1996 Incentive Plan replaced the 1993 Stock Option Plan, effective as of May 10,
1996, with respect to all future awards by Cadus to the Company's  employees and
consultants.  However,  while  all  future  awards  will be made  under the 1996
Incentive Plan, awards made under the 1993 Stock Option Plan will continue to be
administered in accordance with the



                                       30


<PAGE>



1993 Stock  Option Plan.  See  "Incentive  Plans -- 1993 Stock Option  Plan." In
December  1996,  the Board of Directors of Cadus amended the 1996 Incentive Plan
to (i)  increase  the maximum  number of shares of Common  Stock that may be the
subject of awards under the 1996  Incentive  Plan from 333,334 to 833,334  (plus
any shares  that are the  subject of  canceled  or  forfeited  awards)  and (ii)
provide  for the  grant of stock  options  to  directors  of the  Company  . The
stockholders  of Cadus  approved such  amendments to the 1996  Incentive Plan in
June 1997. In December 1997,  the Board of Directors  amended the 1996 Incentive
Plan to increase  the maximum  number of shares of Common  Stock that may be the
subject of awards under the 1996 Incentive Plan from 833,334 to 1,833,334  (plus
any  shares  that  are  the  subject  of  canceled  or  forfeited  awards).  The
stockholders of Cadus approved this amendment to the 1996 Incentive Plan in June
1998.

      The 1996 Incentive Plan is  administered  by the  Compensation  Committee,
which has the power and  authority  under the 1996  Incentive  Plan to determine
which of Cadus's  employees,  consultants and directors will receive awards, the
time or times at which awards will be made, the nature and amount of the awards,
the exercise or purchase price, if any, of such awards, and such other terms and
conditions applicable to awards as it determines to be appropriate or advisable.

      Options granted under the 1996 Incentive Plan may be either  non-qualified
stock  options or options  intended to qualify as incentive  stock options under
Section 422 of the Code. The term of incentive  stock options  granted under the
1996  Incentive  Plan cannot  extend beyond ten years from the date of grant (or
five years in the case of a holder of more than 10% of the total combined voting
power of all classes of stock of Cadus on the date of grant).

      Shares  of Common  Stock may  either  be  awarded  or sold  under the 1996
Incentive  Plan and may be  issued  or sold with or  without  vesting  and other
restrictions, as determined by the Compensation Committee.

         Under the 1996 Incentive Plan, the Compensation Committee may establish
with respect to each option or share awarded or sold such vesting  provisions as
it  determines  to  be   appropriate   or  advisable.   Unvested   options  will
automatically  terminate  within  a  specified  period  of  time  following  the
termination of the holder's  relationship  with Cadus and in no event beyond the
expiration of the term.  Cadus may either  repurchase  unvested shares of Common
Stock at their  original  purchase  price upon the  termination  of the holder's
relationship  with the  Company  or cause  the  forfeiture  of such  shares,  as
determined by the  Compensation  Committee.  All options granted and shares sold
under the 1996 Incentive Plan to employees of the Company may, in the discretion
of the  Compensation  Committee,  become  fully  vested upon the  occurrence  of
certain  corporate  transactions  if  the  holders  thereof  are  terminated  in
connection therewith.

         The exercise price of options  granted and the purchase price of shares
sold under the 1996 Incentive Plan are determined by the Compensation Committee,
but may not,  in the case of  incentive  stock  options,  be less  than the fair
market  value of the  Common  Stock on the  date of  grant  (or,  in the case of
incentive  stock  options  granted  to a holder  of more  than 10% of the  total
combined  voting  power of all  classes  of stock of the  Company on the date of
grant,  110% of such fair  market  value),  as  determined  by the  Compensation
Committee.



                                       31


<PAGE>



         The  Compensation   Committee  may  also  grant,  in  combination  with
non-qualified  stock options and incentive  stock  options,  stock  appreciation
rights ("Tandem  SARs"),  or may grant Tandem SARs as an addition to outstanding
non-qualified  stock options.  A Tandem SAR permits the participant,  in lieu of
exercising the corresponding option, to elect to receive any appreciation in the
value of the shares  subject  to such  option  directly  from Cadus in shares of
Common Stock.  The amount  payable by Cadus upon the exercise of a Tandem SAR is
measured by the  difference  between the market value of such shares at the time
of  exercise  and the  option  exercise  price.  Generally,  Tandem  SARs may be
exercised at any time after the underlying  option vests. Upon the exercise of a
Tandem SAR, the corresponding  portion of the related option must be surrendered
and cannot  thereafter be exercised.  Conversely,  upon exercise of an option to
which a Tandem SAR is attached, the Tandem SAR may no longer be exercised to the
extent  that the  corresponding  option  has  been  exercised.  Nontandem  stock
appreciation  rights  ("Nontandem SARs") may also be awarded by the Compensation
Committee.  A Nontandem  SAR permits the  participant  to elect to receive  from
Cadus that number of shares of Common  Stock  having an  aggregate  market value
equal to the excess of the market value of the shares  covered by the  Nontandem
SAR on the date of  exercise  over the  aggregate  base price of such  shares as
determined  by the  Compensation  Committee.  With  respect  to both  Tandem and
Nontandem  SARs,  the  Compensation  Committee  may  determine to cause Cadus to
settle its  obligations  arising out of the exercise of such rights in cash or a
combination of cash and shares, in lieu of issuing shares only.

         Under the 1996  Incentive  Plan,  the  Compensation  Committee may also
award tax offset payments to assist employees in paying income taxes incurred as
a result of their  participation  in the 1996 Incentive  Plan. The amount of the
tax offset payments will be determined by applying a percentage established from
time to time by the  Compensation  Committee  to all or a portion of the taxable
income  recognizable  by the employee upon: (i) the exercise of a  non-qualified
stock option or an SAR; (ii) the disposition of shares received upon exercise of
an incentive stock option; (iii) the lapse of restrictions on restricted shares;
or (iv) the award of unrestricted shares.

         The number and class of shares  available under the 1996 Incentive Plan
may be adjusted by the Compensation Committee to prevent dilution or enlargement
of rights in the event of various changes in the capitalization of Cadus. At the
time of grant of any award,  the  Compensation  Committee  may provide  that the
number and class of shares issuable in connection with such award be adjusted in
certain circumstances to prevent dilution or enlargement of rights.

         The Board of Directors of Cadus may suspend, amend, modify or terminate
the  1996  Incentive  Plan.  However,  Cadus's  stockholders  must  approve  any
amendment  that would (i)  materially  increase the  aggregate  number of shares
issuable under the 1996 Incentive Plan,  (ii)  materially  increase the benefits
accruing to employees under the 1996 Incentive Plan or (iii)  materially  modify
the  requirements  for  eligibility to  participate in the 1996 Incentive  Plan.
Awards made prior to the  termination  of the 1996 Incentive Plan shall continue
in  accordance  with their  terms  following  such  termination.  No  amendment,
suspension or termination of the 1996 Incentive Plan shall adversely  affect the
rights of an employee or consultant in awards  previously  granted  without such
employee's or consultant's consent.



                                       32


<PAGE>



         As of March 15, 2004, an aggregate of 9,167 shares of Common Stock were
subject to outstanding  stock options  granted under the 1996 Incentive Plan. As
of March 15, 2004,  stock options to purchase  9,167 shares were  exercisable at
prices ranging from $6.38 to $6.63 per share.

         Cadus has registered the shares issuable upon exercise of stock options
granted or which may be granted  under the 1996  Incentive  Plan  pursuant  to a
registration statement on Form S-8.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Cadus's Compensation Committee is composed of Peter Liebert and Jack G.
Wasserman.  Neither  Mr.  Liebert  nor Mr.  Wasserman  is or was an  officer  or
employee of the Company.

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

      INTRODUCTION

         The  Compensation  Committee  of the  Board  of  Directors  of Cadus is
responsible  for  determining  and  administering  the  Company's   compensation
policies for the remuneration of Cadus's  officers.  The Compensation  Committee
annually evaluates  individual and corporate  performance from both a short-term
and long-term  perspective.  In 2003, Cadus had no officers other than its Chief
Executive Officer who served in such capacity without compensation. Accordingly,
the following report of the Compensation Committee is not directly applicable to
calendar year 2003 but is presented for an historical perspective.

      PHILOSOPHY

         Cadus's  executive  compensation  program  historically  has  sought to
encourage  the  achievement  of  business   objectives  and  superior  corporate
performance by the Cadus's  executives.  The program enables Cadus to reward and
retain  highly  qualified  executives  and  to  foster  a   performance-oriented
environment wherein  management's  long-term focus is on maximizing  stockholder
value through  equity-based  incentives.  The program calls for consideration of
the   nature   of  each   executive's   work   and   responsibilities,   unusual
accomplishments or achievements on the Company's behalf,  years of service,  the
executive's total compensation and the Company's financial condition generally.

      COMPONENTS OF EXECUTIVE COMPENSATION

         Historically,  Cadus's executive employees have received cash-based and
equity-based compensation.

         CASH-BASED  COMPENSATION.  Base  salary  represents  the  primary  cash
component  of  an  executive  employee's  compensation,  and  is  determined  by
evaluating the  responsibilities  associated with an employee's  position at the
Company  and the  employee's  overall  level of  experience.  In  addition,  the
Committee, in its discretion,  may award bonuses. The Compensation Committee and
the Board believe that the Company's management and employees are best motivated
through stock option awards and cash incentives.



                                       33


<PAGE>



         EQUITY-BASED  COMPENSATION.  Equity-based  compensation principally has
been in the form of stock  options.  The  Compensation  Committee  and the Board
believe that stock options  represent an important  component of a well-balanced
compensation  program.  Because  stock option  awards  provide value only in the
event of share price appreciation,  stock options enhance  management's focus on
maximizing long- term stockholder  value and thus provide a direct  relationship
between an executive's compensation and the stockholders' interests. No specific
formula  is used to  determine  stock  option  awards for an  employee.  Rather,
individual  award  levels  are  based  upon the  subjective  evaluation  of each
employee's overall past and expected future  contributions to the success of the
Company.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

         The  philosophy,  factors and  criteria of the  Compensation  Committee
generally applicable to the Company's officers have historically been applicable
to the Chief Executive Officer.  However, the Company's Chief Executive Officers
in 2003, Russell D. Glass and Michele A. Paige,  served in such capacity without
compensation  and the current  Chief  Executive  Officer,  Michele A. Paige,  is
serving in such capacity without compensation.

                  Peter Liebert
                  Jack G. Wasserman








                                       34


<PAGE>



COMPARATIVE STOCK PERFORMANCE GRAPH

         The  following  graph  provides a comparison  of the  cumulative  total
return* for the Nasdaq Stock Market (US) Index, the Nasdaq  Biotechnology  Index
and Cadus since December 31, 1998

                               [GRAPHIC OMITTED]

         Corresponding  index  values and Cadus's  Common Stock price values are
given below:

<TABLE>
<CAPTION>
                                       12/31/98  12/31/99    12/31/00    12/31/01    12/31/02   12/31/03
                                       --------  --------    --------    --------    --------   --------
<S>                                     <C>        <C>         <C>        <C>         <C>        <C>
Cadus                                   100.00      16.15       37.11      60.39       56.26      76.90
Nasdaq Stock Market (U.S.) Index        100.00     192.96      128.98      67.61       62.17      87.61
Nasdaq Biotechnology Index              100.00     226.87      291.54     245.15      150.17     220.05
Cadus Closing Stock Price                $1.94       0.31        0.72       1.17        1.09       1.49
</TABLE>

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

         The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership  of the Common  Stock as of March 15, 2004 with respect to
(i) each person known by the Company to be the



                                       35


<PAGE>


beneficial owner of more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers and (iv) all directors and
officers as a group.  All  information is based upon  ownership  filings made by
such persons with the  Securities  and Exchange  Commission or upon  information
provided by such persons to the Company.

<TABLE>
<CAPTION>
                                                    NUMBER OF SHARES
                                                    AMOUNT AND NATURE           PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL                        OF BENEFICIAL              OUTSTANDING
OWNER (1)                                               OWNERSHIP                  OWNED(2)
------------------------------                      -----------------           --------------
<S>                                                    <C>                          <C>
Carl C. Icahn...................................       4,973,158(3)                 37.80%
    767 Fifth Avenue
    New York, New York  10153

Jay D. Johnson .................................       1,090,325(4)                  8.30%
    525 Buckingham Place
    Downers Grove, IL 60516

SmithKline Beecham Corporation..................         660,962(5)                  5.03%
    One Franklin Plaza
    Philadelphia, PA  19102

James R. Broach.................................            ----                       *

Russell D. Glass................................            ----                       *

Peter S. Liebert, M.D...........................          20,334(6)                    *

Michele A. Paige................................            ----                       *

Jack G. Wasserman...............................          14,500(7)                    *

All executive officers and directors as a ......       5,007,992(8)                 37.99%
    group (6 persons)
</TABLE>

----------

       * Less than one percent

(1)      Except as otherwise  indicated  above,  the address of each stockholder
         identified  above is c/o the Company,  767 Fifth  Avenue,  New York, NY
         10153.  Except as indicated in the other  footnotes to this table,  the
         persons named in this table have sole voting and investment  power with
         respect to all shares of Common Stock.

(2)      Share ownership in the case of each person listed above includes shares
         issuable  upon the  exercise of options held by such person as of March
         15,  2004,  that may be  exercised  within 60 days  after such date for
         purposes of  computing  the  percentage  of Common  Stock owned by such
         person,  but not for purposes of  computing  the  percentage  of Common
         Stock owned by any other person.

(3)      Includes  2,258,790  shares of Common Stock held by High River  Limited
         Partnership  and  1,599,942  shares of Common  Stock  held by  Barberry
         Corp.. Mr. Icahn is the sole shareholder of Barberry Corp. and Barberry
         Corp. is the sole general  partner of High River  Limited  Partnership.
         Also includes  12,000  shares of Common Stock that Mr. Icahn  currently
         has the right to acquire upon the exercise of stock options.



                                       36


<PAGE>



(4)      Jay D. Johnson has shared voting power and shared investment power with
         respect to 1,090,325 shares of Common Stock,  Lakeshore  Capital,  Inc.
         has shared  voting power and  investment  power with respect to 718,825
         shares of Common Stock,  Hyatt Johnson  Capital,  LLC has shared voting
         power and shared  investment  power with  respect to 294,000  shares of
         Common  Stock,  and Aqua Fund L.P.  has shared  voting power and shared
         investment  power with respect to 66,000 shares of Common Stock. Jay D.
         Johnson is the  President of Lakeshore  Capital,  Inc. and the Managing
         Partner of Hyatt Johnson Capital,  LLC. Lakeshore Capital,  Inc. is the
         general partner of Aqua Fund L.P.

(5)      Includes  330,481  shares of Common  Stock held by  SmithKline  Beecham
         p.l.c., an affiliate of SmithKline Beecham Corporation.

(6)      Includes 12,000 shares of Common Stock which Dr. Liebert  currently has
         the right to acquire upon the exercise of stock options.

(7)      Consists of 14,500 shares of Common Stock which Mr. Wasserman currently
         has the right to acquire upon the exercise of stock options.

(8)      Includes  38,500  shares of Common  Stock  issuable  upon  exercise  of
         options. See footnotes (3), (6) and (7).

         EQUITY COMPENSATION PLAN INFORMATION.

         The  following  table sets forth  certain  information  with respect to
compensation plans (including individual compensation  arrangements) under which
equity securities of Cadus were authorized for issuance as of December 31, 2003:

<TABLE>
<CAPTION>
                                               (a)                     (b)                                 (c)
<S>                                 <C>                         <C>                             <C>
Plan Category                       Number of                   Weighted-average                Number of securities
                                    securities to be            exercise price of               remaining available for
                                    issued upon                 outstanding options,            future issuance under
                                    exercise of                 warrants and rights             equity compensation
                                    outstanding options,                                        plans (excluding
                                    warrants and rights                                         securities reflected in
                                                                                                column (a))

Equity compensation                             110,904                      $1.92                             1,736,221
plans approved by
security holders
Equity compensation                             323,403                      $2.42                                     0
plans not approved by
security holders
Total                                           434,307                      $2.29                             1,736,221
</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.



                                       37


<PAGE>


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The following table sets forth the fees incurred by the Company for the
services of KPMG LLP in 2003 and 2002:

                                                           2003         2002
                                                           ----         ----
        o    Audit Fees..............................   $ 64,500     $ 63,000
        o    Audit-Related Fees......................   $    -       $    -
        o    Tax Fees................................   $ 18,500     $ 23,140
        o    All Other Fees..........................   $    -       $    -

         Audit fees consist of services rendered to the Company for the audit of
the Company's annual consolidated financial statements, reviews of the Company's
quarterly financial statements and related services.

         Tax fees consist of tax compliance and related tax services.

         The Company's  policy is that,  before  accountants  are engaged by the
Company to render audit or non-audit  services,  the  engagement  is approved by
Cadus's  Board of  Directors.  Cadus's  Board of Directors  approved  KPMG LLP's
engagement  as the  Company's  independent  auditors  for the fiscal year ending
December  31,  2003 before  KPMG LLP was so  engaged.  All of the 2003  services
described above were approved by the Board of Directors.

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

<TABLE>
<CAPTION>
(a) FINANCIAL STATEMENTS                                                           PAGE
------------------------                                                           ----
<S>                                                                                <C>
      Index to Financial Statements                                                 F-1

      Independent Auditors' Report                                                  F-2

      Consolidated Financial Statements:

        Consolidated Balance Sheets                                                 F-3
        Consolidated Statements of Operations                                       F-4
        Consolidated Statements of Stockholders' Equity and Comprehensive Income    F-5
        Consolidated Statements of Cash Flows                                       F-6
        Notes to Consolidated Financial Statements                                  F-7
</TABLE>

(b)  Reports on Form 8-K

     The  Company  filed no  reports on Form 8-K during the last  quarter of the
     period covered by this report.



                                       38


<PAGE>


(c)   Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO.           DESCRIPTION OF DOCUMENT
-----------           -----------------------
<S>                   <C>
3.1                   Certificate of Amendment of Amended and Restated Certificate of Incorporation
                      of Cadus Pharmaceutical Corporation ("Cadus"), as filed with the Secretary of
                      State of Delaware on June 20, 2003, and Amended and Restated Certificate of
                      Incorporation of Cadus, as filed with the Secretary of State of Delaware on July
                      22, 1996.(1)

3.2                   By-laws of Cadus. (2)

4.1                   Specimen of Common Stock Certificate of Cadus. (2)

4.2                   1993 Cadus Pharmaceutical Corporation Stock Option Plan. (2)

4.3                   Cadus Pharmaceutical Corporation 1996 Incentive Plan. (2)

4.4                   Amendment to Cadus Pharmaceutical Corporation 1996 Incentive Plan. (1)

4.5                   Form of Incentive Stock Option Agreement utilized in connection with issuances of
                      stock options under the Cadus Pharmaceutical Corporation 1996 Incentive Plan. (1)

4.6                   Form of Stock Option Agreement between Cadus and each of the following
                      employees of Cadus:  Philip N. Sussman, John Manfredi, Andrew Murphy, Jeremy
                      Paul, Lauren Silverman, Joshua Trueheart, James S. Rielly, Thomas F. Deuel,
                      Norman R. Klinman, Elliott M. Ross, Jeremy Thorner, Arnold Levine, John
                      Ransom, Christine Klein, Suzanne K. Wakamoto, Christopher Pleiman, Algis
                      Anilionis, Anupama K. Nadkarni, Mitchell Silverstein, Michael A. Spruyt and
                      David Fruhling. (1)

4.7                   Form of Stock Option Agreement between Cadus and each of the following non-
                      employee directors of Cadus: Theodore Altman, Harold First, Carl Icahn, Peter
                      Liebert, Robert Mitchell, Mark Rachesky, William Scott, Jack Wasserman and
                      Samuel D. Waksal. (1)

4.8                   Stock Purchase Agreement between Cadus and SmithKline Beecham Corporation,
                      dated as of February 25, 1997. (3)

4.9                   Registration Rights Agreement between Cadus and SmithKline Beecham
                      Corporation,  dated as of February 25, 1997. (3)
</TABLE>



                                       39


<PAGE>


<TABLE>
<CAPTION>
<S>                   <C>
10.1                  Form of Indemnification Agreement entered into between Cadus and its directors
                      and officers.  (2)

10.2                  Form of Agreement Regarding Assignment of Inventions, Confidentiality and
                      Non-Competition. (2)

10.3                  The 401(k) Plan of the Cadus Pharmaceutical Corporation. (2)

10.4                  Employment Agreement between Jeremy M. Levin and Cadus. (2)

10.5                  Preferred Stock Purchase Agreement dated as of July 30, 1993 between Cadus and
                      the purchasers of Series A Preferred Stock, together with the First and Second
                      Amendments thereto dated as of July 26, 1994 and October 31, 1995, respectively. (2)

10.6                  Preferred Stock Purchase Agreement dated as of July 26, 1994 between Cadus and
                      Bristol-Myers Squibb Company ("Bristol-Myers") concerning Series B Preferred Stock,
                      together with the First Amendment thereto dated as of October 31, 1995. (2)

10.7                  Preferred Stock Purchase Agreement dated as of November 1, 1995 between
                      Cadus and Physica B.V. concerning Series B Preferred Stock. (2)

10.8                  Research Collaboration and License Agreement, dated as of July 26, 1994,
                      between Cadus and Bristol-Myers. (2)

10.9                  Screening and Option Agreement, dated as of July 26, 1994, between Cadus and
                      Bristol-Myers. (2)

10.10                 Research Collaboration and License Agreement, dated as of November 1, 1995
                      between Cadus and Solvay Pharmaceuticals B.V. (2)

10.11                 Sublease Agreement, dated as of October 19, 1994, between Cadus and Union
                      Carbide Corporation. (2)

10.12                 Lease, dated as of June 20, 1995 between Cadus and Keren Limited Partnership. (2)

10.13                 Consulting Agreement between Cadus and James R. Broach, dated February 1,
                      1994. (2)
</TABLE>



                                       40


<PAGE>


<TABLE>
<CAPTION>
<S>                   <C>
10.14                 Amended and Restated License Agreement between Cadus and Duke University,
                      dated May 10, 1994. (2)

10.15                 License Agreement between Cadus and National Jewish Center for Immunology
                      and Respiratory Medicine dated November 1, 1994. (2)

10.16                 Stock Option Agreement, dated as of November 1, 1994, between Cadus and John
                      C. Cambier. (2)

10.17                 Stock Option Agreement, dated as of November 1, 1994, between Cadus and Gary
                      L. Johnson. (2)

10.18                 Consulting Agreement, dated as of November 1, 1994, between Cadus and John C.
                      Cambier. (2)

10.19                 Consulting Agreement, dated as of November 1, 1994, between Cadus and Gary L.
                      Johnson. (2)

10.20                 Research Collaboration Agreement, dated as of January 9, 1995, between Cadus
                      and Houghten Pharmaceuticals, Inc., together with the Amendment thereto dated
                      as of March 1996. (2)

10.21                 Stock Option Agreement, dated as of December 18, 1995, between Cadus and
                      James R. Broach. (2)

10.22                 Waiver, dated May 17, 1996, of Section 1.05 of the Preferred Stock Purchase
                      Agreement dated as of July 26, 1994 between Cadus and Bristol-Myers, as
                      amended by the First Amendment thereto dated as of October 31, 1995. (2)

10.23                 Waiver, dated May 17, 1996, of Section 1.04 of the Preferred Stock Purchase
                      Agreement dated as of November 1, 1995 between Cadus and Physica B.V. (2)

10.24                 Research Collaboration and License Agreement among Cadus, SmithKline
                      Beecham Corporation and SmithKline Beecham p.l.c., dated as of February 25,
                      1997. (3)

10.25                 Employment Agreement, dated as of June 30, 1998, between Cadus and Charles
                      Woler. (4)

10.26                 Employment Agreement, dated as of September 10, 1998, between Cadus and
                      Philip N. Sussman. (4)
</TABLE>




                                       41


<PAGE>


<TABLE>
<CAPTION>
<S>                   <C>
10.27                 Agreement and Instructions to Stakeholder among Cadus, SIBIA and Security
                      Trust Company entered into in March 1999. (5)

10.28                 Asset Purchase Agreement, dated as of July 30, 1999, between Cadus and OSI
                      Pharmaceuticals, Inc. (Schedules to the Asset Purchase Agreement have been
                      intentionally omitted.  Cadus hereby undertakes to furnish supplementally to the
                      Securities and Exchange Commission upon request a copy of the omitted
                      schedules.)  (6)

10.29                 Yeast Technology License Agreement, dated as of February 15, 2000, between Cadus
                      and OSI Pharmaceuticals, Inc. (Exhibits to the Yeast Technology Agreement have been
                      intentionally omitted. Cadus hereby undertakes to furnish supplementally to the
                      Securities and Exchange Commission upon request a copy of the omitted exhibits.)(7)

23                    Consent of KPMG LLP, independent auditors.

24                    Power of Attorney (filed as part of the signature page to this Report).

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

99.1                  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                      906 of the Sarbanes-Oxley Act of 2002.
</TABLE>



----------

(1)   Filed with Cadus's  Quarterly Report on Form 10-Q for the quarterly period
      ended September 30, 2003.

(2)   Filed with Cadus's  Registration  Statement on Form S-1  (Registration No.
      333-4441), declared effective by the Securities and Exchange Commission on
      July 17, 1996.

(3)   Filed with Cadus's Current Report on Form 8-K, dated March 7, 1997.

(4)   Filed with Cadus's  Quarterly Report on Form 10-Q for the quarterly period
      ended September 30, 1998.



                                       42


<PAGE>


(5)   Filed with  Cadus's  Annual  Report on Form 10-K for the fiscal year ended
      December 31, 1998.

(6)   Filed with Cadus's  Quarterly Report on Form 10-Q for the quarterly period
      ended June 30, 1999.

(7)   Filed with Cadus's  Quarterly Report on Form 10-Q for the quarterly period
      ended March 31, 2000.

















                                       43


<PAGE>



                                   SIGNATURES

      Pursuant to the requirements of Section 13 of the Securities  Exchange Act
of 1934,  the  Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                CADUS CORPORATION


                By: /s/ Michele A. Paige
                    ------------------------------------
                    Michele A. Paige, Chief Executive Officer and President

         Each person whose  signature  appears  below  constitutes  and appoints
Michele A. Paige and Jack G.  Wasserman,  or either of them, each with the power
of substitution,  his true and lawful attorney-in-fact to sign any amendments to
this report and to file the same,  with exhibits  thereto and other documents in
connection  therewith,  with the  Securities  and  Exchange  Commission,  hereby
ratifying and confirming all that each said attorney-in-fact, or his substitute,
may do or choose to be done by virtue hereof.

         Pursuant to the  Requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Company and in the capacities and on the dates indicated below.

<TABLE>
<CAPTION>
         NAME                                        TITLE                                       DATE
         ----                                        -----                                       ----
<S>                                         <C>                                                  <C>
 /S/ Michele A. Paige                       Chief Executive Officer, President and Director      March 29, 2004
-------------------------                     (Principal Executive Officer and Principal
Michele A. Paige                               Accounting Officer)

 /s/ James R. Broach                        Director                                             March 26, 2004
-------------------------
James R. Broach

 /s/ Russell D. Glass                       Director                                             March 26, 2004
-------------------------
Russell D. Glass


                                            Director                                             March __, 2004
-------------------------
Carl C. Icahn


 /s/ Peter S. Liebert                       Director                                             March 26, 2004
-------------------------
Peter S. Liebert

 /s/ Jack G. Wasserman                      Director                                             March 26, 2004
-------------------------
Jack G. Wasserman
</TABLE>



                                       44

<PAGE>
                        CADUS CORPORATION AND SUBSIDIARY




                                      INDEX

                                                                        Page No.



Independent Auditors' Report                                              F-2

Consolidated Financial Statements:

   Consolidated Balance Sheets - December 31, 2003 and 2002               F-3

   Consolidated Statements of Operations - For the years ended
     December 31, 2003, 2002 and 2001                                     F-4

   Consolidated  Statements of Stockholders'  Equity and Comprehensive
     Income - For the years ended December 31 2003, 2002 and 2001         F-5

   Consolidated Statements of Cash Flows - For the years ended
     December 31, 2003, 2002 and 2001                                     F-6

   Notes to Consolidated Financial Statements                             F-7








                                       F-1


<PAGE>


                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Cadus Corporation:

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Cadus
Corporation  and  subsidiary  as of  December  31, 2003 and 2002 and the related
consolidated  statements of operations,  stockholders'  equity and comprehensive
income,  and cash  flows for each of the years in the  three-year  period  ended
December  31,   2003.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Cadus Corporation
and  subsidiary  as of  December  31,  2003 and 2002,  and the  results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2003 in  conformity  with  accounting  principles  generally
accepted in the United States of America.

Melville, New York
March 19, 2004                          /s/ KPMG LLP


                                       F-2


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS


                                                        ASSETS
                                                        ------
<TABLE>
<CAPTION>
                                                                             December 31, 2003           December 31, 2002
                                                                            ------------------          ------------------
<S>                                                                                <C>                         <C>
Current assets:

      Cash and cash equivalents                                                    $24,369,223                 $24,923,071

      Prepaid and other current assets                                                  34,393                      79,053

      Investment in marketable securities                                            1,412,627                     794,603
                                                                                     ---------                     -------

              Total current assets                                                  25,816,243                  25,796,727

Investment in other ventures                                                           162,805                     164,922

Other assets, net                                                                      827,935                     908,841
                                                                                       -------                     -------

              Total assets                                                         $26,806,983                 $26,870,490
                                                                                   ===========                 ===========


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

Current liabilities:

      Accrued expenses and other current liabilities                                   $49,164                    $227,810

      Deferred gain on marketable securities                                                --                     184,833
                                                                                        ------                     -------

              Total current liabilities                                                 49,164                     412,643
                                                                                        ------                     -------

Commitments and contingencies (Note 13)

Stockholders' equity

   Common stock, $.01 par value. Authorized 35,000,000
   shares at December 31, 2003 and 2002 issued
   13,285,707 shares at December 31, 2003 and 2002;
   outstanding 13,144,040 shares at December 31, 2003
   and 2002                                                                            132,857                     132,857

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

Accumulated deficit                                                                (33,195,567)                (33,005,871)

Accumulated other comprehensive income (loss)                                          276,249                   (213,419)

Treasury stock, 141,667 shares of common stock at
December 31, 2003 and 2002                                                            (300,075)                   (300,075)
                                                                                      --------                    --------

      Total stockholders' equity                                                    26,757,819                  26,457,847
                                                                                    ----------                  ----------

      Total liabilities and stockholders' equity                                   $26,806,983                 $26,870,490
                                                                                   ===========                 ===========
</TABLE>


See accompanying notes to consolidated financial statements.

                                       F-3


<PAGE>



                        CADUS CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                         For the Years Ended December 31,
                                                            2003                         2002                       2001
                                                      -------------------        --------------------        -------------------
<S>                                                          <C>                         <C>                        <C>
License and maintenance fees                                   $220,000                  $1,100,000                   $600,000
                                                               --------                  ----------                   --------

     Total revenues                                             220,000                   1,100,000                    600,000
                                                                -------                   ---------                    -------
Costs and expenses:

   General and administrative                                   834,631                     885,406                  1,079,614

   Loss (gain) of equity in other ventures                        2,117                         692                    (3,086)
                                                                  -----                         ---                    -------

     Total costs and expenses                                   836,748                     886,098                  1,076,528
                                                                -------                     -------                  ---------

Operating (loss) gain                                         (616,748)                     213,902                  (476,528)
                                                              ---------                     -------                  ---------
Other income (expenses):

    Interest income                                             171,218                     335,614                    837,639
    Gain on reversal of litigation judgment, net
    of legal fees                                                    --                          --                    125,616

    Arbitration settlement                                           --                          --                   (750,000)

    Realized gain on marketable securities                      313,189                     823,189                         --
                                                                -------                     -------                    -------

     Total other income, net                                    484,407                   1,158,803                    213,255
                                                                -------                   ---------                    -------

(Loss) income before income tax provision                     (132,341)                   1,372,705                   (263,273)

State tax provision                                              57,355                      57,000                     53,579
                                                                 ------                      ------                     ------
     Net (loss) income                                       ($189,696)                  $1,315,705                  ($316,852)
                                                             =========                   ==========                  =========

Basic and diluted net (loss) income per share                   ($0.01)                       $0.10                     ($0.02)
                                                                ======                        =====                     ======

Weighted average shares of common stock outstanding -        13,144,040                  13,144,040                 13,144,040
basic and diluted                                            ==========                  ==========                 ==========
</TABLE>




See accompanying notes to consolidated financial statements.


                                       F-4
<PAGE>


<TABLE>
<CAPTION>
                                                  CADUS CORPORATION AND SUBSIDIARY
                              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

                                                   Common Stock              Additional Paid-in           Accumulated
                                            Shares             Amount              Capital                  Deficit
                                     ----------------------------------     ---------------------     -----------------
<S>                                       <C>                  <C>                    <C>                 <C>
Balance at December 31, 2000              13,285,707           $132,857               $59,844,355         ($34,004,724)
Net loss for the year ended
December 31, 2001                          --                  --                    --                       (316,852)
                                     ---------------      -------------     ---------------------     -----------------
Balance at December 31, 2001              13,285,707            132,857                59,844,355          (34,321,576)

Net income for the year ended
December 31, 2002                          --                  --                    --                      1,315,705

Unrealized loss on investment in
marketable securities                      --                  --                    --                      --

Comprehensive income
                                     ---------------      -------------     ---------------------     -----------------
Balance at December 31, 2002              13,285,707            132,857                59,844,355          (33,005,871)

Net loss for the year ended
December 31, 2003                          --                  --                    --                       (189,696)

Unrealized gain on investment in
marketable securities                      --                  --                    --                      --

Comprehensive income
                                     ---------------      -------------     ---------------------     -----------------

Balance at December 31, 2003              13,285,707           $132,857               $59,844,355         ($33,195,567)
                                     ===============      =============     =====================     =================
</TABLE>


  Accumulated Other
    Comprehensive                   Treasury Stock
    Income (Loss)              Shares             Amount              Total
 --------------------    ---------------------------------     ----------------
          --                    141,667         ($300,075)          $25,672,413

          --                    --                 --                  (316,852)
 --------------------    --------------     --------------     ----------------
          --                   (141,667)          (300,075)          25,355,561

          --                   --                 --                  1,315,705

             (213,419)         --                 --                   (213,419)
                                                               ----------------
                                                                      1,102,286
 --------------------    --------------     --------------     ----------------
             (213,419)         (141,667)          (300,075)          26,457,847

          --                   --                 --                   (189,696)

              489,668          --                 --                    489,668
                                                               ----------------
                                                                        299,972
 --------------------    --------------     --------------     ----------------

             $276,249           141,667          ($300,075)         $26,757,819
 ====================    ==============     ==============     ================





See accompanying notes to consolidated financial statements.


                                       F-5


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                For the Years Ended December 31,

                                                                     2003                      2002                      2001
                                                             ------------------          ----------------          ----------------
Cash flows from operating activities:
<S>                                                                  <C>                       <C>                       <C>
Net (loss) income                                                    ($189,696)                $1,315,705                ($316,852)

Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:

    Amortization                                                         80,906                    80,906                    80,905

    Loss (gain) of equity in other ventures                               2,117                       692                   (3,086)

    Realized gain on marketable securities                            (313,189)                 (823,189)                        --

Changes in assets and liabilities:

    License fee receivable                                                   --                   500,000                 (500,000)

    Prepaid and other current assets                                     44,660                    (4,053)                    6,250

    Other assets                                                             --                       875                    10,000

    Accrued expenses and other current liabilities                    (178,646)                  (617,222)                  808,788
                                                                      ---------                   -------                   -------
Net cash (used in) provided by operating activities                   (553,848)                   453,714                    86,005
                                                                      ---------                   -------                    ------

Net (decrease) increase in cash and cash                              (553,848)                   453,714                    86,005
equivalents

Cash and cash equivalents - beginning of period                      24,923,071                24,469,357                24,383,352
                                                                     ----------                ----------                ----------

Cash and cash equivalents - end of period                           $24,369,223               $24,923,071               $24,469,357
                                                                    ===========               -----------               -----------
</TABLE>







See accompanying notes to consolidated financial statements.


                                       F-6


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

                              ====================

(1)       Organization and Basis of Preparation

          Cadus  Corporation  ("Cadus")  was  incorporated  on January 23, 1992,
          under the laws of the State of  Delaware.  Cadus  changed  its name to
          Cadus  Corporation from Cadus  Pharmaceutical  Corporation on June 20,
          2003. The change in name was approved by the  stockholders of Cadus at
          Cadus's annual meeting of stockholders held on June 18, 2003.

          Until July 30, 1999, Cadus devoted  substantially all of its resources
          to the development and application of novel yeast-based and other drug
          discovery  technologies.  As further  discussed in Note 3, on July 30,
          1999,  Cadus sold its drug  discovery  assets to OSI  Pharmaceuticals,
          Inc.  ("OSI") and ceased its internal drug  discovery  operations  and
          research  efforts  for  collaborative  partners.  Cadus is  seeking to
          license its  technologies,  to otherwise realize value from its assets
          and to use a portion of its available cash to acquire  technologies or
          products or to acquire or invest in companies.

          In December 2001,  Cadus  organized a wholly owned  subsidiary,  Cadus
          Technologies, Inc. (the "Subsidiary"), and transferred its yeast-based
          drug discovery  technologies to the Subsidiary.  On December 19, 2001,
          the Subsidiary  licensed such yeast-based drug discovery  technologies
          on a non-  exclusive  basis  to a major  pharmaceutical  company  (see
          further discussion at Note 7).

(2)       Significant Accounting Policies

          (a)       Principles of Consolidation

                    The consolidated  financial  statements include the accounts
                    of   Cadus   and  its   wholly   owned   subsidiary,   Cadus
                    Technologies,    Inc.   All   intercompany    balances   and
                    transactions  have been  eliminated  in  consolidation.  The
                    Company   operates  in  one  segment  and   licenses   novel
                    yeast-based and other drug discovery technologies.

          (b)       Cash Equivalents

                    The Company  includes as cash  equivalents all highly liquid
                    investments with original maturities of three months or less
                    when purchased to be cash equivalents.  Included in cash and
                    cash  equivalents  at  December  31, 2003 and 2002 were cash
                    equivalents of $22,921,511 and $22,757,378, respectively.

          (c)       Other Assets

                    Other non-current assets represent  capitalized patent costs
                    that are amortized on a straight-  line basis over seventeen
                    years.   At   December   31,   2003  and  2002   accumulated
                    amortization   is  $551,084  and   $470,178,   respectively.
                    Amortization  expense amounted to approximately  $81,000 for
                    each of the years ended December 31 2003, 2002 and 2001. The
                    annual   amortization  for  the  next  five  years  will  be
                    approximately $81,000 per year.

          (d)       Income Taxes

                    Income taxes are accounted for under the asset and liability
                    method.  Deferred tax assets and  liabilities are recognized
                    for the future tax consequences  attributable to differences
                    between  the  financial   statements   carrying  amounts  of
                    existing assets and liabilities and their



                                       F-7


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001



                    respective  tax  bases  and  operating  loss and tax  credit
                    carryforwards.  Deferred  tax  assets  and  liabilities  are
                    measured  using  enacted  tax  rates  expected  to  apply to
                    taxable  income  in  the  years  in  which  those  temporary
                    differences  are expected to be  recovered  or settled.  The
                    effect on deferred tax assets and liabilities of a change in
                    tax  rates  is  recognized  in  income  in the  period  that
                    includes the enactment date.

          (e)       Revenue Recognition

                    The Company has entered  into  license  agreements  with two
                    companies  to use its yeast  technology  on a  non-exclusive
                    basis.  The  agreements  provide  for  the  payment  of non-
                    refundable   license  fees  to  the  Company.   The  Company
                    recognizes  the  license  fees as income when  received,  as
                    there  are  no  continuing  performance  obligations  of the
                    Company to the licensees.

          (f)       Net (Loss) Income Per Share

                    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 is
                    calculated  based on the weighted  average of common  shares
                    outstanding   plus  the  effect  of  dilutive  common  stock
                    equivalents  (stock  options).  The effect of stock  options
                    totaling  434,307,  609,309  and 609,309 for the years ended
                    December 31,  2003,  2002 and 2001,  respectively,  were not
                    included  in the net  (loss)  income  per share  calculation
                    because their effect would have been anti-dilutive.

          (g)       Use of Estimates

                    The  preparation of financial  statements in conformity with
                    accounting  principles  generally  accepted  in  the  United
                    States of America requires  management to make estimates and
                    assumptions  that affect the reported  amounts of assets and
                    liabilities   and   disclosure  of  contingent   assets  and
                    liabilities  at  the  date  of  the  consolidated  financial
                    statements and the reported amounts of revenues and expenses
                    during the  reporting  period.  Actual  results could differ
                    from those estimates.

          (h)       Fair Value of Financial Instruments

                    Management of the Company  believes that the carrying  value
                    of its monetary  assets and  liabilities  approximates  fair
                    value as a result of the short  term  nature of such  assets
                    and liabilities.

          (i)       Stock-Based Compensation

                    The  Company  applies  the  intrinsic-value-based  method of
                    accounting  prescribed by Accounting  Principles Board (APB)
                    Opinion No. 25,  ACCOUNTING  FOR STOCK ISSUED TO  EMPLOYEES,
                    and related  interpretations  including Financial Accounting
                    Standards Board (FASB) Interpretation No. 44, ACCOUNTING FOR
                    CERTAIN  TRANSACTIONS   INVOLVING  STOCK  COMPENSATION,   AN
                    INTERPRETATION  OF APB OPINION NO. 25, issued in March 2000,
                    to account for its fixed-plan employee stock options.  Under
                    this method, compensation expense is recorded on the date of
                    grant only if the  current  market  price of the  underlying
                    stock  exceeded the exercise  price.  Statement of Financial
                    Accounting   Standards  (SFAS)  No.  123,   "Accounting  for
                    Stock-Based  Compensation,"  as  amended  by SFAS  No.  148,
                    "Accounting



                                       F-8


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

                                ===============


                    for Stock-Based  Compensation - Transition and  Disclosure,"
                    established  accounting and disclosure  requirements using a
                    fair-value-based   method  of  accounting  for   stock-based
                    employee  compensation plans. As allowed by SFAS No. 123 and
                    SFAS 148,  the  Company has elected to continue to apply the
                    intrinsic-value-based  method of accounting described above,
                    and has adopted only the disclosure requirements of SFAS No.
                    123.

                    Pro  forma  net  (loss)  income  would  be the  same  as the
                    reported  net  (loss)  income  for each of the  years in the
                    three-year   period   ended   December   31,  2003  had  the
                    fair-value-based  method  been  applied  to all  outstanding
                    awards, which were fully vested as of December 31, 1999.

                    On April 22,  2003,  the FASB  determined  that  stock-based
                    compensation should be recognized as a cost in the financial
                    statements  and that such cost be measured  according to the
                    fair  value of the  stock  options.  The FASB has not as yet
                    determined the methodology  for  calculating  fair value and
                    plans to issue an  exposure  draft  and final  statement  in
                    2004.  We will  continue to monitor  communications  on this
                    subject  from the FASB in order to  determine  the impact on
                    the Company's consolidated financial statements.

          (j)       Comprehensive Income

                    SFAS No. 130,  "Reporting  Comprehensive  Income,"  requires
                    that all items  recognized  under  accounting  standards  as
                    components of comprehensive  income be reported in an annual
                    financial   statement   that  is  displayed  with  the  same
                    prominence  as  other  annual  financial  statements.  Other
                    comprehensive    income   may   include   foreign   currency
                    translation    adjustments,    minimum   pension   liability
                    adjustments  and  unrealized  gains and losses on marketable
                    securities classified as  available-for-sale.  The Company's
                    operations  in  2003  gave  rise  to an  unrealized  gain on
                    marketable  securities classified as available for sale. The
                    Company's operations in 2002 gave rise to an unrealized loss
                    on marketable securities classified as available for sale.

(3)       Asset Sale to OSI Pharmaceuticals, Inc.

          On July 30,  1999,  Cadus sold to OSI,  pursuant to an asset  purchase
          agreement,  its drug discovery  programs focused on G  protein-coupled
          receptors,   its  directed  library  of  approximately  150,000  small
          molecule compounds  specifically  designed for drug discovery in the G
          protein-coupled   receptor  arena,  its   collaboration   with  Solvay
          Pharmaceuticals  B.V.  ("Solvay  Pharmaceuticals"),  its  lease to its
          research  facility in Tarrytown,  New York together with the furniture
          and  fixtures  and its lease to  equipment  in the  facility,  and its
          inventory of laboratory supplies. As consideration for the sale, Cadus
          received  approximately  $1,500,000  in cash and OSI  assumed  certain
          liabilities  of Cadus relating to employees  hired by OSI  aggregating
          approximately  $133,000.  In  addition,  Cadus  would be  entitled  to
          royalties  and up to $3.0 million in  milestone  payments on the first
          product  derived from compounds sold to OSI or from the  collaboration
          with Solvay Pharmaceuticals.  Cadus licensed to OSI on a non-exclusive
          basis  certain   technology  solely  to  enable  OSI  to  fulfill  its
          obligations under the collaboration with Solvay Pharmaceuticals. Cadus
          also  licensed to OSI on a  non-exclusive  basis  certain  proprietary
          software and technology relating to chemical resins in order to enable
          OSI to fully benefit from the compounds it acquired from Cadus.  Cadus
          retained  ownership of all its other assets,  including its core yeast
          technology for developing  drug  discovery  assays,  its collection of
          over 25,000 proprietary yeast strains, human and mammalian cell lines,
          genetic  engineering  tools, and its genomics  databases  related to G
          protein-coupled receptors.


                                       F-9


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

                               =================

(4)       Litigation

          In July  1996,  SIBIA  (which was  acquired  by Merck and Co. in 1999)
          commenced  a  patent   infringement   action  against  Cadus  alleging
          infringement by Cadus of a patent.  After trial, on December 18, 1998,
          the jury  issued a verdict in favor of SIBIA and  awarded  SIBIA $18.0
          million in damages.  Cadus  appealed  the  judgment.  In order to stay
          execution  pending  appeal of the $18.0 million  judgment  obtained by
          SIBIA, in March 1999 Cadus deposited $18.5 million in escrow to secure
          payment of the judgment in the event Cadus were to lose the appeal. On
          September 6, 2000 the United States Court of Appeals ruled in favor of
          Cadus and  overturned the 1998 judgment  entered by the U.S.  District
          Court.  The Court of Appeals ruled that the claims of the SIBIA patent
          asserted  against Cadus were invalid and that the District Court erred
          in denying Cadus's motion for judgment as a matter of law on the issue
          of invalidity.  On October 30, 2000, the U.S. District Court set aside
          the  $18.0  million  judgment  in  favor  of  SIBIA  and  vacated  the
          injunction against Cadus. Separately,  in October 2000, Cadus obtained
          the  release  of the cash  escrow of $19.9  million  representing  the
          original  $18.5 million and interest  that  accumulated  thereon.  The
          reserve for litigation of $18,841,489 (net of direct legal costs of $1
          million) has been reversed and credited to the statement of operations
          for the year ended December 31, 2000. Pursuant to a court order, Cadus
          received in February 2001 a $155,402 reimbursement of SIBIA litigation
          costs which was partially offset by legal costs incurred of $29,786.

          In March 2002, the arbitrator in the arbitration  proceeding commenced
          against Cadus by Philip N. Sussman,  the former Senior Vice President,
          Finance and  Corporate  Development,  and Chief  Financial  Officer of
          Cadus,  ruled in favor of Mr.  Sussman and  awarded him  approximately
          $750,000 in severance pay,  interest and attorneys and other costs and
          fees.  A  charge  of  $750,000   was  recorded  in  the   accompanying
          consolidated  statement of operations  for the year ended December 31,
          2001. The Company paid the arbitration settlement during 2002.

(5)       Investments in Other Ventures

          In December  1996,  Cadus  issued a $150,000  promissory  note bearing
          interest  at 7% per annum in exchange  for a 42%  limited  partnership
          interest in Laurel Partners Limited Partnership ("Laurel"),  a limited
          partnership  of which a shareholder  of Cadus is the general  partner.
          The principal  amount and interest  thereon was paid in December 1998.
          In  addition,  Cadus  purchased  for  $160,660 in cash,  a 47% limited
          partnership   interest  in  Laurel  from   Tortoise   Corporation,   a
          corporation  wholly-owned by the  shareholder.  Laurel's purpose is to
          invest,  directly  or  indirectly,   in  securities  of  biotechnology
          companies. Cadus had the right to require the shareholder to match any
          future  investment  made  by  Cadus  in  Laurel  up  to  an  aggregate
          investment on the part of the shareholder of $5.0 million.  This right
          expired  on  December  31,  1999.  Cadus is not  required  to make any
          additional investment in Laurel. The investment is accounted for under
          the equity method with the  recognition  of losses  limited to Cadus's
          capital contributions. For the years ended December 31, 2003, 2002 and
          2001 Cadus recognized  (losses) gains of ($2,117),  ($692) and $3,086,
          respectively,  related to the investment.  The remaining investment in
          Laurel  of  $162,805  and  $164,922  at  December  31,  2003 and 2002,
          respectively,  is reflected as  investments  in other  ventures on the
          accompanying consolidated balance sheets.

(6)       Investment In Marketable Securities

          Cadus had an equity interest in Axiom Biotechnologies, Inc. ("Axiom").
          Due to Axiom's operating losses,  Cadus's  investment was written down
          to zero as of December 31, 2000. On August 30, 2002 Axiom entered into
          a merger agreement with a wholly owned subsidiary of Sequenom, Inc.



                                      F-10


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

                                 ==============

          ("Sequenom")  whose shares of common stock are publicly  traded on the
          Nasdaq National Market. Pursuant to the merger, Cadus received 441,446
          common shares of Sequenom with a fair market value of $2.43 per share,
          in exchange for its shares of Axiom.  Pursuant to the merger,  102,685
          of Cadus's  441,446 common shares of Sequenom 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 value of the  Escrow  Shares
          received was recorded as a deferred gain on  marketable  securities on
          the December 31, 2002 consolidated  balance sheet. On August 30, 2003,
          the escrow shares were released and accordingly,  the Company recorded
          a  realized  gain  on   marketable   securities  of  $313,189  in  the
          consolidated  statement of operations  for the year ended December 31,
          2003.

          Pursuant to the  provisions of SFAS No. 115,  "Accounting  for Certain
          Debt and  Equity  Securities,"  management  deems  its  investment  in
          Sequenom to be available  for sale and reports its  investment at fair
          value   with  net   unrealized   gains  or  losses   reported   within
          stockholders'  equity. The Company's unrealized gain (loss) of 276,249
          and ($213,419) on shares  received is reflected in  accumulated  other
          comprehensive  income  (loss) at December  31, 2003 and  December  31,
          2002, respectively.

(7)       Licensing Agreements

          In December  2001,  Cadus  Technologies,  Inc.,  Cadus's  wholly owned
          subsidiary, licensed its yeast- based drug discovery technologies on a
          non-exclusive  basis  to a major  pharmaceutical  company.  Under  the
          licensing    agreement,    the   subsidiary   received   an   up-front
          non-refundable  fee of  $500,000  that is  recorded  as revenue in the
          accompanying  consolidated  statement of operations for the year ended
          December 31, 2001 as the Company has no further  involvement  with the
          development  of the product.  The  subsidiary  received an  additional
          licensing fee of $1,000,000 in October 2002 when the licensee achieved
          a research milestone.  On September 12, 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.  The  licensee is
          entitled to use the  technologies  for five years from December  2001.
          Following  the  initial  five year term,  the  licensee  may renew the
          license  annually upon payment of an annual licensing fee of $250,000.
          For the years ended  December  31,  2003,  2002 and 2001,  the Company
          recognized $120,000, $1,000,000 and $500,000, respectively, in license
          revenue from the licensee.

          In February 2000, Cadus licensed to OSI, on a non-exclusive basis, its
          yeast-based drug discovery  technologies,  including  various reagents
          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,  which have been  recorded as license fee revenue in
          the  accompanying  consolidated  statement of operations  for the year
          ended  December  31,  2000.  OSI is also  obligated  to pay an  annual
          maintenance  fee  of  $100,000  until  the  earlier  of  2010  or  the
          termination of the license and a supplemental  license fee of $250,000
          which was paid in December  2000 after the  lifting of the  injunction
          obtained  by SIBIA  and  recorded  as  license  fee  revenue.  OSI may
          terminate the license at any time on 30 days prior written notice. For
          the  years  ended  December  31,  2003,  2002 and  2001,  the  Company
          recognized  $100,000  each year in license and  maintenance  fees from
          OSI.

(8)       Research Collaboration and License Agreements



                                      F-11


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001



          Cadus no longer has any collaborations with pharmaceutical  companies.
          The Bristol-Myers Squibb Company  collaboration  expired in July 1999,
          the Solvay  Pharmaceutical  collaboration  was assigned to OSI in July
          1999 and Cadus and SmithKline Beecham p.l.c. agreed to terminate their
          collaboration in September 1999. Each of Bristol-Myers  Squibb Company
          and SmithKline  Beecham  p.l.c.  is required to make payments to Cadus
          upon  the  achievement  by  it  of  certain   pre-clinical   and  drug
          development  milestones and to pay Cadus  royalties on the sale of any
          drugs developed as a result of the research  collaboration  with Cadus
          or through the use of Cadus's drug discovery  technologies.  There can
          be no assurance that any such  milestones will be achieved or any such
          drugs developed.

          The Company has entered into  license  agreements  with various  third
          parties.  Generally,  the agreements provide that the Company will pay
          license  fees and/or  maintenance  payments,  in return for the use of
          technology and information and the right to manufacture,  use and sell
          future products.  These  agreements  provide for payments based on the
          completion of milestone events, as well as royalty payments based upon
          a percentage of product or assay sales.  License fees and  maintenance
          payments for the years ended  December  31,  2003,  2002 and 2001 were
          $27,000, $25,000 and $25,000, respectively.

(9)       Income Taxes

          Deferred tax assets of  approximately  $15,139,000  and $15,011,000 at
          December 31, 2003 and 2002,  respectively,  relate  principally to net
          operating loss carryforwards of $28,811,000 and $28,296,000,  research
          and development credit carryforwards of $2,535,000 and $2,535,000, and
          equity losses on  investments of $2,864,000 and $3,177,000 at December
          31, 2003 and 2002, respectively. An offsetting valuation allowance has
          been  established  for the full amount of the  deferred  tax assets to
          reduce such assets to zero, as a result of the significant uncertainty
          regarding  their  ultimate   realization.   The  aggregate   valuation
          allowance  increased  $128,000 and decreased $543,000 during the years
          ended December 31, 2003 and 2002, respectively.

          The  Company's  net  operating  loss  carryforwards  and  research and
          development credit  carryforwards  noted above expire in various years
          from 2009 to 2022. The Company's ability to utilize such net operating
          loss and research and development  credit  carryforwards is subject to
          certain  limitations  due to  ownership  changes,  as defined by rules
          enacted with the Tax Reform Act of 1986.  The  Company's tax provision
          for each year  represents  a minimum  New York  state tax on  capital.
          There was no provision  for federal  income taxes in 2002,  as taxable
          income was offset by the  utilization  of the Company's  available net
          operating loss carryforwards for Federal and state purposes.

(10)      Stock Options

          (a)       The 1993 Stock  Option Plan ("the 1993 Plan") was adopted in
                    January  1993.  The  1993  Plan  provides  for the  grant of
                    options to reward  executives,  consultants and employees in
                    order to  foster in such  personnel  an  increased  personal
                    interest in the future growth and  prosperity of Cadus.  The
                    options granted under the 1993 Plan may be either  incentive
                    stock  options or  nonqualified  options.  An  aggregate  of
                    666,667  common shares were reserved for issuance  under the
                    1993 Plan.

                    Options granted under the 1993 Plan expire no later than ten
                    years from the date of grant.  The option  price is required
                    to be at least 100% and 85% of the fair market  value on the
                    date of grant as  determined  by the Board of Directors  for
                    incentive   stock   options   and   nonqualified    options,
                    respectively.   The  options  generally  become  exercisable
                    according  to a schedule  of vesting  as  determined  by the
                    Compensation Committee of the Board of


                                      F-12


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

                                 =============

                    Directors.  The  schedule  prescribes  the  date or dates on
                    which the options become  exercisable,  and may provide that
                    the  option   rights   accrue  or  become   exercisable   in
                    installments over a period of months or years.

                    Activity under the 1993 Plan is as follows:

                                                       Options Outstanding

                                                  Number             Weighted
                                                    of               Average
                                                  Shares          Exercise Price
                                                  ------          --------------
        Balance at January 1, 2001                276,739              $1.52

        2001 activity

            Granted                                  -                   -
            Exercised                                -                   -
            Canceled or expired                      -                   -
                                                  -------

        Balance at December 31, 2001              276,739              $1.52

        2002 activity

            Granted                                  -                   -
            Exercised                                -                   -
            Canceled or expired                      -                   -
                                                  -------


        Balance at December 31, 2002              276,739              $1.52

        2003 activity

            Granted                                  -                   -
            Exercised                                -                   -
            Canceled or expired                  (175,002)               -
                                                 ---------


        Balance at December 31, 2003              101,737              $1.50
                                                  =======


               The following table summarizes  stock option  information for the
               1993 Plan as of December 31, 2003:

<TABLE>
<CAPTION>
                                                         Options Outstanding               Options Exercisable
                                                         -------------------               -------------------
                                                      Weighted         Weighted                         Weighted
                                                      Average           Average                          Average
           Range of               Number             Remaining         Exercise           Number        Exercise
        Exercise Prices        Outstanding        Contractual Life       Price          Exercisable       Price
        ---------------        -----------        ----------------     --------         ------------     -------
<S>                              <C>                     <C>             <C>              <C>             <C>
                  $1.50           101,737                 .30             $1.50            101,737         $1.50
</TABLE>



                                      F-13


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

                                  ============

          (b)       Cadus entered into stock option  agreements  not pursuant to
                    any plan with  certain  directors,  employees,  founders and
                    consultants.  These  options  generally  become  exercisable
                    according  to a schedule  of vesting  as  determined  by the
                    Compensation  Committee  of  the  Board  of  Directors.  The
                    options become  exercisable in installments over a period of
                    months or years.  As of December 31,  2003,  an aggregate of
                    323,403 common shares was reserved for issuance  pursuant to
                    such stock option agreements.

                    In November  1996,  the  Compensation  Committee  granted to
                    certain  directors  then in office  an  option  to  purchase
                    12,000 shares of common stock at an exercise  price of $6.75
                    per share.  Each stock option grant is fully exercisable and
                    expires in November 2006 and is included in the table below.

                    Activity for all the above grants not issued pursuant to any
                    plan is as follows:

                                                     Options Outstanding

                                                  Number          Weighted
                                                    of            Average
                                                  Shares       Exercise Price
                                                  ------       --------------
         Balance at January 1, 2001              434,070            $2.46

         2001 activity
           Granted                                   -                 -
           Exercised                                 -                 -
           Canceled or expired                  (110,667)           $2.57
                                                --------

         Balance at December 31, 2001            323,403            $2.42

         2002 activity
           Granted                                   -                 -
           Exercised                                 -                 -
           Canceled or expired                       -                 -
                                                --------

         Balance at December 31, 2002            323,403            $2.42

         2003 activity
           Granted                                   -                 -
           Exercised                                 -                 -
           Canceled or expired                       -                 -
                                                 -------

         Balance at December 31, 2003            323,403            $2.42
                                                 =======


           The following table  summarizes  stock option  information for grants
           not subject to any plan as of December 31, 2003:

<TABLE>
<CAPTION>
                                                              Options Outstanding               Options Exercisable
                                                              -------------------               -------------------
                                                           Weighted          Weighted                        Weighted
                                                           Average           Average                          Average
                 Range of              Number             Remaining          Exercise           Number       Exercise
             Exercise Prices         Outstanding       Contractual Life       Price           Exercisable     Price
             ---------------         -----------       ----------------      --------         -----------    --------
<S>              <C>                   <C>                    <C>             <C>               <C>            <C>
                 $1.50                 253,334                .84             $1.50             253,334        $1.50
</TABLE>


                                      F-14


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

                                 =============

<TABLE>
<CAPTION>

<S>                               <C>                      <C>              <C>               <C>            <C>
             $3.60                 22,069                   1.97             $3.60             22,069         $3.60
             $6.75                 48,000                   2.88             $6.75             48,000         $6.75
                                  -------                                                     -------
         $1.50 to $6.75           323,403                   1.22             $2.42            323,403         $2.42
                                  =======                                                     =======
</TABLE>

          (c)       Effective  May 10,  1996,  the 1993 Plan was replaced by the
                    1996  Incentive  Plan ("the 1996 Plan") with  respect to all
                    future awards to Cadus's employees and consultants. However,
                    awards  made  under  the  1993  Plan  will  continue  to  be
                    administered  in accordance  with the 1993 Plan. The options
                    granted  under the 1996 Plan may be either  incentive  stock
                    options or  nonqualified  options.  In  December  1996,  the
                    maximum  number of shares  of common  stock  that may be the
                    subject  of  awards  under  the  1996   Incentive  Plan  was
                    increased  from 333,334 to 833,334 (plus any shares that are
                    the subject of canceled or forfeited awards) by the Board of
                    Directors and such increase was approved by the stockholders
                    of Cadus in June 1997. In December  1997, the maximum number
                    of shares of common  stock that may be the subject of awards
                    under the 1996  Incentive  Plan was  increased  to 1,833,334
                    (plus  any  shares  that  are the  subject  of  canceled  or
                    forfeited  awards) by the Board of Directors and approved by
                    the stockholders of Cadus in June 1998.

                    Options granted under the 1996 Plan expire no later than ten
                    years from the date of grant.  The option  price is required
                    to be at least  100% of the fair  value on the date of grant
                    as  determined  by the Board of Directors  for incentive and
                    nonqualified  stock options.  The options  generally  become
                    exercisable according to a schedule of vesting as determined
                    by the Compensation Committee of the Board of Directors. The
                    schedule  prescribes  the date or dates on which the options
                    become  exercisable in installments  over a period of months
                    or years.

                    Activity under the 1996 Plan is as follows:

                                                   Options Outstanding

                                            Number                  Weighted
                                              of                    Average
                                            Shares               Exercise Price
                                            ------               --------------

         Balance at January 1, 2001          9,167                    $6.56

         2001 activity
           Granted                             -                         -
           Exercised                           -                         -
           Canceled or expired                 -                         -
                                           -------


         Balance at December 31, 2001        9,167                    $6.56

         2002 activity
           Granted                             -                         -
           Exercised                           -                         -
           Canceled or expired                 -                         -
                                           -------

         Balance at December 31, 2002        9,167                    $6.56

         2003 activity
           Granted                             -                         -
           Exercised                           -                         -
           Canceled or expired                 -                         -
                                           -------


                                      F-15


<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

                                  ============


           Balance at December 31, 2003                 9,167            $6.56
                                                   ==========


           The following table summarizes stock option  information for the 1996
           Plan as of December 31, 2003:

<TABLE>
<CAPTION>
                                                             Options Outstanding               Options Exercisable
                                                             -------------------               -------------------
                                                          Weighted           Weighted                       Weighted
                                                          Average            Average                        Average
                Range of             Number              Remaining           Exercise          Number       Exercise
             Exercise Prices       Outstanding         Contractual Life       Price         Exercisable      Price
             ---------------       -----------         ----------------     --------       -------------    --------
<S>          <C>                      <C>                    <C>              <C>              <C>            <C>
             $6.38 to $6.63           9,167                  3.24             $6.56            9,167          $6.56
</TABLE>

(11)      Accrued Expenses and Other Current Liabilities

          Accrued  expenses and other current  liabilities  are comprised of the
          following:

                                                      2003            2002
                                                  ----------       -----------
          Accrued professional fees                $  45,365         $203,943
          Other accrued expenses and taxes             3,799           23,867
                                                   ---------         --------
          Total                                    $  49,164         $227,810
                                                   =========         ========

(12)      Related Party Transactions

          One director  provides  consulting  services to the Company for patent
          and  license  related  matters.  Fees paid to this  director in fiscal
          2003,  2002 and 2001 were  approximately  $13,000,  $7,000 and $6,000,
          respectively.

(13)      Commitments

          Lease Commitments

          Cadus currently leases storage space on a month-to-month  basis.  Rent
          expense,  excluding  utility and operating  costs, for the years ended
          December 31, 2003,  2002 and 2001 amounted to  approximately  $13,400,
          $6,370 and $5,000, respectively.


                                      F-16


<PAGE>

                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

                                   ==========


(14)      Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
Fiscal 2003 Quarter Ended                        December 31                September 30           June 30              March 31

<S>                                            <C>                           <C>                <C>                    <C>
License and maintenance fees                   $            -                $  120,000         $        -             $ 100,000
Operating loss                                        (130,793)                 (49,110)          (240,791)             (196,054)
Net (loss) income                                     (153,780)                 300,522           (193,971)             (142,467)
Net (loss) income per share:
   Basic and diluted                                     (0.01)                    0.02              (0.01)                (0.01)


Fiscal 2002 Quarter Ended                        December 31                September 30           June 30              March 31

License and maintenance fees                   $     1,000,000            $          -          $        -             $ 100,000
Operating income (loss)                                848,275                (194,235)           (277,110)             (163,028)
Net income (loss)                                      864,886                 710,770            (191,491)              (68,460)
Net income (loss) per share:
   Basic and diluted                                      0.07                    0.05               (0.01)                (0.01)
</TABLE>







                                      F-17