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, 2008





 ̈           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
transition period fromto______________________


Commission
File Number0-28674





CADUS
CORPORATION


(Exact
name of registrant as specified in its charter)


Delaware
              
              13-3660391(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)
 
 
 767
      Fifth Avenue New York, New York
              
              10153(Address
      of principal executive offices)
              
              (Zip
      Code)


Company's
telephone number, including area code: (212)
702-4351





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 if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act of 1933.Yes:  ̈No: x





Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934.Yes:  ̈No: x





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: xNo:  ̈





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.   ̈










Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.  See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12-b-2 of the Exchange Act).  (Check one):




Large
      accelerated filer   ̈
              Accelerated
      filer   ̈Non-accelerated
      filer   ̈
                (Do not check if a smaller reporting
      company)
              Smaller
      reporting company  x


Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).Yes:  ̈No:
x





As of June 30, 2008, the aggregate
market value of the registrant’s voting common equity held by non-affiliates was
$9,309,519.





Number of shares outstanding of each
class of Common Stock, as of March 15, 2009: 13,144,040 shares.





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 the
Company’s plans, strategies and objectives for the Company’s  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 the Company’s 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, risks and uncertainties
relating to the Company's ability to license its technologies to third parties,
the Company's inability to acquire and operate other companies, the Company's
capital needs and uncertainty of future funding, the Company's history of
operating losses, the unpredictability of patent protection, risk of
obsolescence of the Company's technologies, as well as other risks and
uncertainties discussed in the Risk Factors section in Item 1A of this Annual
Report on Form 10-K.  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.





2





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.  Cadus has
a wholly owned subsidiary, Cadus Technologies, Inc. (the “Subsidiary”), which
holds all patents, patent applications, know how, licenses and drug discovery
technologies of the Company.





Cadus and the Subsidiary (collectively,
the “Company”) currently have no employees and limited
operations.  The Company is presently 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.





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.  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”).  Pursuant to such sale transaction, 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.  To date no such payments have been received and
there can be no assurance that Cadus will be entitled to any such payments in
the future.  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.  The Company’s current Chief Executive Officer is a
consultant.  See Item 10.  Directors and Executive Officers
of the Company.





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. 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 (“ApexTM”) system that expresses in a hybrid yeast
cell both a known human ligand and the receptor that is activated by that ligand
and (iii) the Company’s Self Selecting Combinatorial Library (“SSCLTM”)
technologies, which are used to identify a ligand that activates a targeted
orphan receptor (a receptor whose function is not known).




3





The
Company’s Proprietary Drug Discovery Technologies





As
described below, the Company has no employees, no internal or external drug
discovery operations, and no research efforts with collaborative partners.
However, the Company maintains various U.S. and foreign patents as well as a
license obtained from Duke University for certain U.S. and foreign patents. The
value of these intellectual property rights is difficult to measure, and
although the Company continues to seek to license these technologies to third
parties, the Company’s income from these rights is significantly exceeded by the
cost of maintaining them. The following describes the background, nature and
purposes of the Company’s existing proprietary rights.





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
at least 25,000 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.





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





The majority of cell surface receptors
encoded by the human genome are structurally and functionally related proteins
called G protein-coupled receptors (GPCRs).  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.





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




5





Hybrid
Yeast Cells





The Company developed a proprietary
technology to insert human genes into yeast cells to create hybrid yeast cells.
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 designed and developed more than
twenty-five thousand genetically different yeast strains that can be used to
build novel hybrid yeast cells (the “Yeast System”).





Applications
of the Yeast System





High
Throughput Screening





The Yeast
System provides a facile means of identifying molecules that alter the activity
of G protein coupled receptors through high throughput
screening.  Screens using the Yeast System have been run in the high
throughput screening facilities of several different companies.  These
studies have confirmed the various attributes of the Yeast System as a means of
identifying modulators of receptor function.





·
            Functional
      readout:  Since the Yeast System reports the activity of the
      target GPCR, one can screen compounds directly for agonists or antagonists
      of the target receptor.





·
            Low
      cost:  Receptor bearing yeast grow in inexpensive microbial
      media, provide a limitless source of material and require no biochemical
      extraction or purification.  In addition, assays have been
      performed in as small a volume as 80
nanoliters.





·
            Accurate
      response:  Extensive comparisons of the pharmacologic response
      of several human GPCRs have demonstrated that the response of a human GPCR
      in yeast accurately reflects the properties of the GPCR in human
      cells.





·
            Highly
      reproducible:  High throughput assays using the Yeast System
      yield extremely low coefficient of variation, comparable to the most
      reliable high throughput assays.





Identification
of Ligands for Orphan GPCRs





The Yeast
System also provides a procedure for identifying natural and artificial ligands
for orphan G protein coupled receptors, i.e., proteins predicted to be GPCRs but
whose function in the organism is not known.  The most valuable
reagent for characterizing orphan receptors is the natural
ligand.  Screening methods using the Yeast System in conjunction with
natural extracts provide an avenue for identification of natural
ligands.  However, even artificial ligands, which can be recovered
from high throughput screens of orphan receptors expressed in yeast, can open
the door to functional characterization of an orphan receptor to determine
whether the receptor would be a reasonable target for therapeutic intervention
in a disease.




6





Using an
agar-based screening platform in a multiplexed format, Cadus scientists were
able to screen large numbers of discrete small molecules against many human
orphan receptors.  Other formats – high density microtiter plates, for
example - also have been successfully used with the Yeast System to interrogate
orphan receptors.  A number of natural and surrogate ligands to human
orphan receptors have been identified using the Yeast System.





Resources




The Company maintains all its strains
as well as 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,
which include the phenotype and the genotype of the cell or yeast strain and its
storage site.





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.  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.  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, 2009, the Subsidiary is the assignee of 23 issued U.S. patents and 21
related granted foreign patents covering aspects of its yeast technology and is
the exclusive worldwide licensee of five issued U.S. patents and 18 related
granted foreign patents for use in drug discovery.  In addition, as of
such date, the Subsidiary owns or holds licenses to four other pending U.S.
patent applications, as well as five related pending foreign patent
applications.




7




The Company has obtained from Duke
University an exclusive worldwide license to five issued U.S. patents and 18
related granted foreign patents as well as U.S. and international patent
applications covering hybrid yeast cell technologies.  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.





The Company 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 ApexTM
and SSCLTM technologies. The Company 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 SSCLTM technology are also covered in these patent
applications both as compositions and for their therapeutic use.





The Company has granted to OSI a
non-exclusive license to use several of its patents and patent applications
relating to its yeast-based technologies.





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 has generally required its employees and
consultants to execute confidentiality agreements upon the commencement of their
relationships with the Company.





Patent law as it relates to inventions
in the biotechnology field is still evolving, and involves complex legal and
factual questions for a number of 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.





8





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 and abroad are published not
earlier than eighteen months from their earliest effective filing date 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 invention
were to arise with respect to any of the U.S. patents or U.S. 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.





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 Glaxo Smith Kline, Plc, that may use
yeast as a drug discovery medium.  In addition, many smaller companies
are pursuing these areas of research.  Many of the Company’s
competitors have greater financial and human resources 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.





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.




9





Employees





As of March 15, 2009, the Company had
no employees.  David Blitz, the acting Chief Executive Officer of
Cadus and the Subsidiary, is not an employee of Cadus or the Subsidiary, and is
serving under a consulting arrangement as the acting Chief Executive Officer of
Cadus and the Subsidiary at the rate of $25,000 per annum.





Item
1A.  Risk Factors.





An
investment in the shares of Cadus’ common stock involves a high degree of risk.
Accordingly, investors and prospective investors should consider carefully the
following risk factors, as well as all other information contained in this
Annual Report on Form 10-K, in connection with investments in shares of Cadus’
common stock.





The
Company May Be Unable to Derive Revenues from its Technologies





The
Company has licensed its yeast technologies to OSI.  Under its
license, OSI is obligated to pay an annual maintenance fee of $100,000 until the
earlier of 2010 or the termination of the license.  OSI may terminate
the license at any time on 30 days prior notice.   The Company is
seeking to license its yeast technologies to other third
parties.  There can be no assurance that the existing licensing
arrangement with OSI will not be terminated or that the Company will enter into
new licensing arrangements with other third parties.





Certain
of the Company’s former collaborative partners are required to make payments to
the Company upon the achievement by them 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 past research collaboration with the Company or through
the use of the Company’s drug discovery technologies.  The Company's
receipt of revenues from drug development milestones or royalties on sales under
agreements with its former collaborative partners is dependent upon the
activities and the development, manufacturing and marketing resources of its
former collaborative partners.  Development of new pharmaceutical
products is highly uncertain, and no assurance can be given that the Company's
drug discovery technologies will result in any commercially successful products
developed by the Company’s former collaborative partners.  There can
be no assurance that such former collaborative partners will pursue the
development and commercialization of such products, that any such development or
commercialization would be successful or that the Company will derive any
additional revenue from such arrangements. While the Company pursuant to
arrangements with its former collaborative partners may be entitled to receive
milestone payments and royalties with respect to drugs developed from compounds
identified or confirmed using the Company's technologies, there can be no
assurance that disputes will not arise over whether or not specific compounds
were identified or confirmed using the Company's technologies and are,
therefore, covered by such royalty and milestone provisions. Furthermore, there
can be no assurance that the Company’s former collaborative partners will not
pursue alternative technologies in preference to those of the Company. To date,
the Company has not received revenues from its former collaborative partners
from drug development milestones or royalties.




10





History
of Operating Losses





The
Company has incurred operating losses in each year since its inception with the
exception of 2002.   At December 31, 2008, the Company had an
accumulated deficit of approximately $34.7 million. The Company's losses have
resulted principally from costs incurred in connection with its previous
research and development activities and from general and administrative costs
associated with the Company's operations.  These costs have exceeded
the Company's revenues.  The Company expects to incur additional
operating losses over the next several years.





Uncertainty of Utilization of
Operating Loss and Research and Development Credit
Carryforwards.





The
Company had a net operating loss carryforward of approximately $27,052,000 and a
research and development credit carryforward of approximately $2,535,000 at
December 31, 2008.  These net operating loss carryforwards and the
research and development credit carryforward expire in various years from 2009
to 2027.  The Company's ability to utilize such net operating loss and
research and development credit carryforwards for income tax savings is subject
to certain limitations, and there can be no assurance that the Company will be
able to utilize such carryforwards.





Uncertainty
of Future Profitability





The
Company's ability to generate revenues and become profitable is dependent in
large part on the ability of the Company to enter into additional licensing
arrangements. There can be no assurance that the Company will be able to do so
or that the Company will ever achieve profitability.





Uncertainty
of Protection of Patents and Proprietary Rights





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
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.




11





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.





Risk
of Obsolescence or Limitations on the Company’s Technologies





The Company’s technologies consist
principally of genetically engineered yeast cells.  The Company is
aware of companies, such as Glaxo Smith Kline, Plc, that may use yeast as a drug
discovery medium.  In addition, many smaller companies are pursuing
these areas of research.  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.





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.




12





Inability
to Identify Acquisitions or Investments





The
Company is presently seeking to use a portion of its available cash and
short-term investments to acquire or invest in companies or income producing
assets.  To date the Company has not been able to identify an
appropriate acquisition or investment and there can be no assurance that it will
do so.  There also can be no assurance that acquisitions or
investments by the Company will be profitable.





Uncertainty
of Access to Capital





There can
be no assurance that additional funding, if necessary, will be available on
favorable terms, if at all.





Control
by Existing Stockholders; Concentration of Stock Ownership





Carl C.
Icahn beneficially owns, as of March 15, 2009, approximately 40% of the
outstanding shares of Common Stock. As a result, Mr. Icahn, acting alone, will
be able to control most matters requiring approval by the stockholders of the
Company, including the election of directors, the adoption of charter
amendments, and the approval of mergers and other extraordinary corporate
transactions. Such a concentration of ownership may have the effect of delaying
or preventing a change in control of the Company, including transactions in
which stockholders might otherwise receive a premium for their shares over then
current market prices.





Possible
Volatility of Stock Price





The
market prices for securities of biotechnology companies have been highly
volatile and the market has experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Announcements of technological innovations or new commercial products
by the Company’s licensees or its competitors, developments concerning
proprietary rights, including patents and litigation matters, publicity
regarding actual or potential results with respect to products or compounds
under development by the Company’s licensees or former collaborative partners,
regulatory developments in both the United States and foreign countries, changes
in reimbursement policies, developments in the Company's relationship with
current or future licensees, if any, public concern as to the safety and
efficacy of drugs developed by the Company’s licensees or former collaborative
partners using the Company’s technologies, public concern as to the efficacy of
new technologies, general market conditions, as well as quarterly fluctuations
in the Company's revenues, if any, and financial results and other factors, may
have a significant effect on the market price of the Common Stock. In
particular, the realization of any of the risks described in these "Risk
Factors" could have an adverse effect on the market price of the Company's
Common Stock.




13




Anti-Takeover Effect of Delaware
Corporate Law




Certain
provisions of the Delaware corporate law may have the effect of deterring
hostile takeovers or delaying or preventing changes in the control or management
of the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over the then current market
prices.




Absence
of Dividends





The Company has not paid any dividends
on its Common Stock and does not anticipate paying dividends in the foreseeable
future.





Illiquidity
of Short Term Investment in Bank of America’s Columbia Strategic Cash
Portfolio





The
company invested its excess cash in Bank of America’s Columbia Strategic Cash
Portfolio (the "Fund"), which had maintained a stable unit price of $1.00 per
unit.  The units were redeemable in cash on the same day requested and
were classified by the Company as cash equivalents.  On December 10,
2007, the Fund notified the Company that conditions in the short term credit
markets had created a broad based perception of risk in non-subprime
asset-backed securities causing illiquidity across the market which led to
extreme pricing pressures in those securities.  The Fund also notified
the Company that the Fund was primarily invested in such securities, that it
would begin an orderly liquidation of such securities, that unitholders would no
longer be able to redeem their units in the Fund and that the Fund would redeem
its units as it liquidated its investments.  The Fund also began to
value its securities based on market value rather than amortized value for the
purposes of determining its net asset value per unit.  From December
10, 2007 through February 28, 2009 the Fund redeemed 20,483,799 units held by
the Company in the Fund for $19,649,068 (or an average of $0.959 per unit),
which redemptions were $834,731 in the aggregate less than the cost of such
units.  At the close of business on February 28, 2009, the Company
still owned 5,069,541 units in the Fund which had an aggregate value at such
time of $4,182,372. The Fund has advised the Company that it anticipates that
the balance, or most of the balance, of the Company’s investment in the Fund
will be redeemed by December 31, 2009. However, there can be no assurance as to
when further redemptions will take place nor as to the net asset value at which
the Company’s investment in the Fund will be redeemed.





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
material 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.




14





PART
II





Item
5.  Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.





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 2008
                
                High
                
                
                LowFirst
      quarter ended March 31, 2008
                
                $
                1.88
                
                
                $
                1.69Second
      quarter ended June 30, 2008
                
                $
                1.85
                
                
                $
                1.58Third
      quarter ended September 30, 2008
                
                $
                1.70
                
                
                $
                1.25Fourth
      quarter ended December 31, 2008
                
                $
                1.60
                
                
                $
                1.16Fiscal
      Year 2007
                
                High
                
                
                LowFirst
      quarter ended March 31, 2007
                
                $
                1.85
                
                
                $
                1.59Second
      quarter ended June 30, 2007
                
                $
                1.92
                
                
                $
                1.59Third
      quarter ended September 30, 2007
                
                $
                1.97
                
                
                $
                1.73Fourth
      quarter ended December 31, 2007
                
                $
                1.97
                
                
                $
                1.75




As of March 15, 2009, there were
approximately 70 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.





As a smaller reporting company, Cadus
has elected scaled disclosure reporting and therefore is not required to provide
information that otherwise would be required by this Item 6.




15





Item
      7.
            Management’s
      Discussion and Analysis of Financial ConditionAnd
      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 currently has limited operations, no employees and
the Company’s current Chief Executive Officer is a consultant.  See
Item 10.  Directors and Officers of the Company.  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, 2008, the Company had an
accumulated deficit of approximately $34.7 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.  Despite the fact that the Company has
no employees and limited operations, it continues to incur general and
administrative expenses.  These, for the most part, relate to legal,
accounting and other costs associated with maintaining a public company and
legal and other costs relating to the maintenance of patents.  For the
year ended December 31, 2008, such expenses aggregated $557,744 and included
patent costs (including legal fees) and license fees of approximately $190,000,
legal fees (other than in connection with patents) of approximately $136,000,
bookkeeping, and accounting and tax preparation fees of approximately
$114,000.  Since the Company only had revenues of $100,000, it
incurred an operating loss of $537,000 for the year ended December 31,
2008.





The
following accounting policies are important to understanding the Company’s
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.  The Company has entered into a license agreement
with OSI under which it has licensed to OSI its yeast technology on a
nonexclusive basis.  The agreement provides 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 licensee.




16





Accounting for
income taxes.  As part of the process of preparing the
Company’s consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, the Company is
required to estimate its income taxes in each of the jurisdictions in which it
operates.  This process involves the Company estimating its 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 the Company’s consolidated balance
sheet.  The Company must then assess the likelihood that its deferred
tax assets will be recovered from future taxable income and to the extent the
Company believes that recovery is not likely, it must establish a valuation
allowance.  To the extent it establishes a valuation allowance or
increases this allowance in a period, the Company must include an expense within
the tax provision in the statement of operations.  Significant
management judgment is required in determining the Company’s provision for
income taxes, its deferred tax assets and liabilities and any valuation
allowance recorded against its net deferred tax assets.





Result
of Operations





Years
Ended December 31, 2008 and 2007





Revenues





Revenues for 2008 and 2007 were
$100,000 which is the annual maintenance fee from OSI.





Operating Expenses





General and administrative expenses
decreased to $557,744 for 2008 from $557,938 in 2007.  This decrease
was attributable to a decrease in patent costs and license fees of $31,441,
offset by an increase in professional fees of $19,659 and stockholder relations
of $7,151.  There was a net increase of $4,437 in sundry
expenses.





Equity in Other Ventures





Equity in other ventures in 2008
reflects a recognized gain of $6,928 from the Company’s investment in Laurel
Partners Limited Partnership.  There was a recognized $13,363 gain in
2007 from such investment.





Interest Income





Interest income for 2008 decreased to
$714,670 from $1,312,283 in 2007.  This decrease was attributable
primarily to investment in money market funds with a lower yield.  The
average interest earned on invested funds was approximately 2.85% in 2008 and
5.22% in 2007.




17




Net Loss




Net loss for 2008 was $1,268,898
compared to a net loss of $272,110 in 2007.  The increase in net loss
is attributable to a decrease in interest income of $597,613, an increase in
loss on redemption and reduction to net asset value of short-term investments of
$408,453, a reduction of income in other ventures of $6,435 offset by a decrease
in provision for franchise and income taxes of $15,519 and a decrease in general
and administrative expenses of $194.





Liquidity
and Capital Resources





At December 31, 2008, the Company held
cash of $19.2 million and short-term investments of $5.0 million.  The
Company’s working capital at December 31, 2008 was $24.3 million.





In February 2000, Cadus licensed to
OSI, on a nonexclusive basis, its yeast technologies.  OSI is also
obligated to pay an annual maintenance fee of $100,000 until the earliest of
2010 or the termination of the license.  OSI may terminate the license
at any time on 30 days prior written notice.





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
2010.  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 and otherwise realize value
from its assets, 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.





Net
Operating Loss Carryforwards





At December 31, 2008, the Company had
tax net operating loss carryforwards of approximately $27.1 million and research
and development credit carryforwards of approximately $2.5 million which expire
in years 2009 through 2027.  Such net operating loss carryforwards may
be utilized under certain conditions as a deduction against future income and
such development credit carryforwards may be utilized under certain
circumstances as an offset against future taxes.  The Company’s
ability to utilize such net operating loss and research and development credit
carryforwards may be subject to certain limitations due to ownership
changes as defined by rules enacted with the Tax Reform Act of
1986.




18




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 short-term investments and money market
funds with portfolios of investment grade corporate and U.S. government
securities.  Due to the short-term nature of these investments, the
Company does not believe it is materially exposed to changes in interest
rates.  However, the Company’s investment with the Bank of America in
its Columbia Strategic Cash Portfolio (the “Fund”) is currently subject to
redemption only in connection with an orderly liquidation of the Fund undertaken
in response to illiquidity in the short-term credit markets that has affected
the market value of the Fund’s investments.  As a result, the net
asset value at which the Company’s investment in the Fund is being redeemed is
subject to ongoing illiquidity in the short-term credit
markets.  Under its current policies, the Company does not use
interest rate derivative instruments to manage exposure to interest rate
changes.





Item
8.  Financial Statements and Supplementary Data.





The financial statements and notes
thereto may be found following Item 15 of this report and are incorporated
herein by reference.  For an index to the financial statements, see
Item 15.





Item
9.  Changes in and Disagreements with Accountants
on  Accounting and Financial Disclosure.





None.





Item
9A(T).  Controls and Procedures.





Disclosure
Controls and Procedures





The Company carried out an evaluation,
under the supervision and with the participation of the Company’s President and
Chief Executive Officer, who also performs functions similar to those of a
principal financial officer, of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934) as of the end of the period covered
by this Annual Report on Form 10-K.  Based upon that evaluation, the
Company’s President and Chief Executive Officer, who also performs functions
similar to those of a principal financial officer, concluded that 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.





Management’s
Annual Report on Internal Control Over Financial Reporting





Management is responsible for
establishing and maintaining adequate internal control over financial reporting
to provide reasonable assurance regarding the reliability of the Company’s
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States.  Internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records
that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that could have a
material effect on the financial statements.





19





Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements.  Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.  All internal control systems,
no matter how well designed, have inherent limitations.  Accordingly,
even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation.  Because of the inherent limitations of internal
control, there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial
reporting.  However, these inherent limitations are known features of
the financial reporting process.  Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this
risk.





Management, which is comprised of the
President and Chief Executive Officer, who also performs functions similar to
those of a principal financial officer, assessed the Company’s internal control
over financial reporting as of December 31, 2008, the end of the Company’s
fiscal year.  Management based its assessment on criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Management’s assessment
included evaluation of such elements as the design and operating effectiveness
of key financial reporting controls, process documentation, accounting policies
and the Company’s overall control environment.





Based upon its assessment, management
has concluded that the Company’s internal control over financial reporting was
effective as of December 31, 2008 to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with accounting principles
generally accepted in the United States.





This annual report does not include an
attestation report of the company’s registered public accounting firm regarding
internal control over financial reporting.  Management’s report was
not subject to attestation by the Company’s registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.





During the quarter ended December 31,
2008, 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.





Item
9B.  Other Information.





None.




20


PART
III
  Item
10.  Directors, Executive Officers and Corporate
Governance.





Information with respect to the
executive officers and directors of Cadus as of March 15, 2009 is set forth
below:





Name
              
              Age
              
              PositionJames
      R. Broach, Ph.D.
              
              61
              
              DirectorRussell
      D. Glass
              
              46
              
              DirectorCarl
      C. Icahn
              
              73
              
              DirectorPeter
      S. Liebert, M.D. (1)
              
              73
              
              DirectorJack
      G. Wasserman (1)
              
              72
              
              DirectorDavid
      Blitz
              
              77
              
              Chief
      Executive Officer and President
  (1)  Member
of the Compensation Committee.





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 has
been a Professor at Princeton University since 1984 in the Department of
Molecular Biology, where he is currently Associate Chair and Associate Director
of the Lewis Sigler Institute for Integrative Genomics. In 1984, Dr. Broach and
his collaborators were the first ones to demonstrate that human genes could be
successfully implanted into yeast cells. Dr. Broach is a member of the Board of
Trustees of the University of Medicine and Dentistry of New Jersey, a
Commissioner on the New Jersey Commission for Cancer Research and a member of
the Scientific Advisory Board of the U.S. Food and Drug
Administration.  He received his Ph.D. in Biochemistry from University
of California at Berkeley and his B.S. from Yale University.





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.  Mr.
Glass is a private investor and Managing Member of RDG Capital LLC. 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 management and research.  From 1984
to 1986 he served as an investment banker with Kidder, Peabody &
Co.  Previously, Mr. Glass served as a Director of Automated Travel
Systems, Inc., a software development firm; Axiom Biotechnologies, a
pharmacology profiling company; National Energy Group, an oil & 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.




21





Carl C. Icahn has served as a
Director of Cadus since July 1993.  Mr. Icahn, has served as chairman
of the board and a director of Starfire Holding Corporation, a privately-held
holding company, and chairman of the board and a director of various
subsidiaries of Starfire, since 1984.  Through his position as Chief
Executive Officer of Icahn Capital L.P., a wholly owned subsidiary of Icahn
Enterprises L.P., and certain related entities, Mr. Icahn’s principal occupation
since August 2007, is managing private investment funds, including Icahn
Partners L.P., Icahn Partners Master Fund L.P., Icahn Partners Master Fund II
L.P. and Icahn Partners Master Fund III L.P.  Prior to August 2007,
Mr. Icahn conducted this occupation through his entities CCI Onshore Corp. and
CCI Offshore Corp since September 2004.  Mr. Icahn has been chairman
of the board of Icahn Enterprises G.P. Inc., the general partner of Icahn
Enterprises L.P. since November 1990.  Icahn Enterprises L.P. is a
diversified holding company engaged in a variety of businesses, including
investment management, metals, real estate and home fashion.  Mr.
Icahn also has served as chairman of the board and as a director of American
Railcar Industries, Inc., a company that is primarily engaged in the business of
manufacturing covered hopper and tank railcars, since 1994.  Mr. Icahn
was chairman of the board and president of Icahn & Co., Inc., a registered
broker-dealer and a member of the National Association of Securities Dealers,
from 1968 to 2005.  From October 1998 through May 2004, Mr. Icahn was
the president and a director of Stratosphere Corporation, the owner and operator
of the Stratosphere Hotel and Casino in Las Vegas, which, until February 2008,
was a subsidiary of Icahn Enterprises L.P.  From September 2000 to
February 2007, Mr. Icahn served as the chairman of the board of GB Holdings,
Inc., which owned an interest in Atlantic Coast Holdings, Inc., the owner and
operator of The Sands casino in Atlantic City until November
2006.  Mr. Icahn also has been chairman of the board and a director of
XO Holdings, Inc., a telecommunications services provider, since February 2006,
and of its predecessor from January 2003 to February 2006.  In May
2005, Mr. Icahn became a director of Blockbuster Inc., a provider of in-home
movies and game entertainment for sale and rent.  In October 2005, Mr.
Icahn became a director of WestPoint International, Inc., a manufacturer of bed
and bath home fashion products.  From September 2006 to November 2008,
Mr. Icahn was a director of ImClone Systems Incorporated, a biopharmaceutical
company, and from October 2006 to November 2008 was the chairman of the board of
ImClone.  In August 2007, Mr. Icahn became a director of WCI
Communities, Inc., a homebuilding company, and since September 2007 has been the
chairman of the board of WCI.  In December 2007, Mr. Icahn became a
director of Federal-Mogul Corporation, a supplier of automotive products, and
since January 2008 has been the chairman of the board of
Federal-Mogul.  In August 2008, Mr. Icahn became a director of Yahoo!
Inc., a company that provides Internet services to users, advertisers,
publishers, and developers worldwide.  Mr. Icahn received his B.A.
from Princeton University.





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 Chief of Pediatric Surgery at the
Stamford Hospital in Stamford, Connecticut.  He is president of the
Westchester Surgical Society.  He is a past president of the
Westchester County Medical Society and is currently Chairman of its Finance
Committee.  He is also Chairman of the Board of Rx Vitamins,
Inc.   Dr. Liebert served as a director of ImClone Systems
Incorporated from October 2006 to November 2008.  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 1996.
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 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
Icahn Enterprises G.P., Inc. (formerly American Property Investors, Inc.), the
general partner of Icahn Enterprises L.P. (formerly American Real Estate
Partners, L.P.). Mr. Icahn controls Icahn Enterprises G.P. and its subsidiaries.
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.  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.
and was elected by the stockholders to the Board of Directors in June 2004; he
serves on Triarc’s Audit and Compensation Committees. Mr. Wasserman received a
B.A. from Adelphi University, a J.D. from Georgetown University Law Center, and
a Graduate Diploma from Johns Hopkins University School of Advanced
International Studies.  In 2007 he received a professional Certificate
in Financial Analysis from New York University’s School of Continuing and
Professional Studies.  22





David Blitz became acting
President, Chief Executive Officer, Treasurer and Secretary of Cadus in May
2004. Mr. Blitz, a retired partner of Deloitte & Touche, has been employed
as a certified public accountant by Joel Popkin & Co., P.C. since January
1990.  Mr. Blitz, as an employee of Joel Popkin & Co., P.C., has
been performing Cadus Corporation's internal accounting since March
2000.  He earned his B.A. in Economics from Brooklyn
College.





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 2008 in a timely manner, except that Moab Partners,
L.P., which, according to its filings with the SEC, owns more than ten percent
of Cadus’ common stock, filed four late reports on Form 4 and did not file a
Form 5.





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 the
evaluation of acquisition and investment opportunities) and has only one officer
(who is not an employee).




23





Corporate
Governance





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 1996 Incentive
Plan.





The Company does not have a
separately-designated standing nominating committee or a committee performing
similar functions.  Because of the small size of the Board of
Directors, the Board of Directors performs this function.  The Board
of Directors considers certain factors when selecting candidates for director
positions, including, but not limited to, the current composition and diversity
of skills of the Board of Directors, the expertise and experience of a director
leaving the Board of Directors, and the expertise required in connection with a
particular corporate need for specific skills.  The Board of Directors
considers the following characteristics when considering a prospective candidate
for the Board: (i) a desire to serve on the Board of Directors primarily to
contribute to the growth and prosperity of the Company and help create long-term
value for its shareholders; (ii) business or professional knowledge and
experience that will contribute to the effectiveness of the Board of Directors;
(iii) the ability to understand and exercise sound judgment on issues related to
the goals of the Company;  and (iv) a willingness and ability to
devote the time and effort required to serve effectively on the Board of
Directors, including preparation for and attendance at Board
meetings.





The Board
of Directors will consider stockholder nominations for directors timely given in
writing to the Company prior to the annual meeting of
stockholders.  To be timely, the stockholder’s nomination must be
delivered, to the attention of the President of the Company, within the time
permitted for submission of a stockholder proposal as described in the Company’s
proxy statement and filings with the SEC.  Such notice shall set forth
(a) as to each person whom the stockholder proposes to nominate for election or
reelection as a director, (i) the name, age, business address and residential
address of each such person, (ii) the principal occupation or employment of such
person, (iii) the number of shares of the Company that are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Exchange Act, including, without limitation, such person’s written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected; and (b) as to the stockholder giving the notice (i) the name and
address of such stockholder and (ii) the number of shares of the Company that
are beneficially owned by such stockholder (and, if the stockholder is not a
record holder of the shares, verification of ownership from the record
holder).  The President of the Company will forward such notice on to
one or more of the directors for screening and review and such director’s or
directors’ determination whether to recommend that the full Board of Directors
consider the nomination contained in such notice.




24





In the
ordinary course, absent special circumstances or a change in the criteria for
Board membership, the Board of Directors may renominate incumbent directors who
continue to be qualified for Board services and are willing to continue as
directors.





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 committee financial expert" as such term is defined in
the 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."  The Board of Directors believes
that the aggregate technical, commercial and financial experience of its
members, together with their knowledge of the Company, provides the Board with
the ability to monitor and direct the goals of the Company and to protect the
best interests of its shareholders and 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 is
authorized to engage independent financial consultants, auditors and counsel
whenever it believes it is necessary and appropriate to do so.





Item
11.  Executive Compensation.





Summary
Compensation Table





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, 2008 and 2007, by (i) all individuals serving as
Cadus’s principal executive officer or principal financial officer, or acting in
a similar capacity,  (ii) the three most highly compensated executive
officers other than the executive officers in clause (i), who were serving as
executive officers at the end of such fiscal year and (iii) up to two additional
most highly compensated executive officers who would have otherwise been
included in clause (ii) but for the fact that they were not serving as executive
officers at the end of such fiscal year (collectively, the “Named Executive
Officers”):





25





Summary Compensation Table
For 2008 and 2007 Fiscal Years




Name and Principal Position
              
              Year
              
              Salary ($)
              
              
              Bonus ($)
              
              
              All
      Other Compensation
($)
              
              
              Total ($)David
      Blitz (1)
              
              2008
              
              $
              25,000
              
              
              -
              
              
              -
              
              
              $
              25,000President
      and Chief Executive Officer
              
              2007
              
              $
              25,000
              
              
              -
              
              
              -
              
              
              $
              25,000


___________________


(1)
            Mr.
      David Blitz has been the Company’s acting President and Chief Executive
      Officer from May 2004 and serves in such capacity at the rate of $25,000
      per annum.





Grants
of Plan Based Awards.





There
were no grants by Cadus of awards to Named Executive Officers during the fiscal
year ended December 31, 2008.





Outstanding
Equity Awards at Fiscal Year-End





No Named
Executive Officer had any outstanding Cadus equity awards as of December 31,
2008.





Option
Exercises and Stock Vested





During
the fiscal year ended December 31, 2008, no Named Executive Officer exercised
any stock option, stock appreciation right or similar instrument and no Cadus
stock (including any restricted stock, restricted stock unit or similar
instrument) vested for any Named Executive Officer.





Director
Compensation





The
following table sets forth certain information concerning the compensation paid
or accrued by Cadus for services rendered to Cadus by its directors in all
capacities for the fiscal year ended December 31, 2008:





26




Director Compensation Table
For 2008 Fiscal Year





Name
            
            Fees
      Earned or Paidin Cash ( $)
      (1)
            
            
            All
      Other Compensation
($)
            
            
            Total ($)James
      R. Broach
            
            $
            3,000
            
            
            $
            12,000
            (2)
            
            $
            15,000Russell
      D. Glass
            
            $
            3,000
            
            
            
            --
            
            
            $
            3,000Carl
      C. Icahn
            
            $
            3,000
            
            
            
            --
            
            
            $
            3,000Peter
      S. Liebert
            
            $
            3,000
            
            
            
            --
            
            
            $
            3,000Jack
      G. Wasserman
            
            $
            3,773
            
            
            
            --
            
            
            $
            3,773


___________________


(1)
            Each
      non-employee director receives $3,000 in annual compensation, payable
      quarterly in arrears.  Jack G. Wasserman received an additional
      $773 in compensation and reimbursement of expenses in connection with his
      attendance at the annual meeting of stockholders held on June 19,
      2008.


(2)
            James
      R. Broach provides consulting services to the Company for patent and
      license related matters, for which he was paid $12,000 in the fiscal year
      ended December 31, 2008.





Incentive
Plans





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.  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).




27





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.





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.




28





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.





As of March 15, 2009, there were no
outstanding  stock options granted under the 1996 Incentive
Plan.





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.





Compensation Discussion and
Analysis





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 2008, Cadus had no officers other than its acting
Chief Executive Officer who served in a consultative capacity at the rate of
$25,000 per annum for the interim period during which the Company continued its
search for a new Chief Executive Officer.  Accordingly, the following
report of the Compensation Committee is not entirely applicable to calendar year
2008 but is presented for an historical perspective.




29





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.





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 current acting Chief Executive Officer, David Blitz, is serving on a
consultative basis at the rate of $25,000 per annum for the interim period
during which the Company continues its search for a new Chief Executive
Officer.




30





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, 2009 with respect to (i) each person known by the Company to be the
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.


Name
      and Address of Beneficial Owner
      (1)
            
            Number
      of Shares Amount and Nature of Beneficial
      Ownership
            
            
            Percentage
      of Common Stock
    Owned(2)Carl
      C. Icahn
              767
      Fifth Avenue
              New
      York, New York 10153
            
            
            5,255,438
            (3)
            
            
            39.98
            %Moab
      Partners, L.P.
              152
      East 62nd
      Street
              New
      York, NY  10021
            
            
            1,719,350
            (4)
            
            
            13.08
            %GlaxoSmithKline
      plc
              980
      Great West Road
              Brentford,
      Middlesex TW89GS
              England
            
            
            660,962
            (5)
            
            
            5.03
            %James
      R. Broach
            
            
            --
            
            
            
            *Russell
      D. Glass
            
            
            94,500
            
            
            
            *Peter
      S. Liebert, M.D.
            
            
            8,334
            
            
            
            *Jack
      G. Wasserman
            
            
            --
            
            
            
            *David
      Blitz
              c/o
      Joel Popkin & Company, P.C.
              1430
      Broadway (Suite 1805)
              New
      York, NY 10018
            
            
            --
            
            
            
            *All
      executive officers and directors as a group (6 persons)
            
            
            5,358,272
            
            
            
            40.77
            %





* 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.




31





(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, 2009,
      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.  None of the persons listed above held options as of
      Mach 15, 2009.





(3)
            Based
      on the most recent filings of SEC Form 4 by the reporting
      party.  Includes 2,258,790 shares of Common Stock held by High
      River Limited Partnership and 1,894,222 shares of Common Stock held by
      Barberry Corp.  Mr. Icahn is the sole shareholder of Barberry
      Corp. and Barberry Corp. is the sole member of Hopper Investments L.L.C.
      which is the general partner of High River Limited
      Partnership.





(4)
            Based
      on the most recent filings of SEC Form 4 by the reporting
      party.





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





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, 2008:





(a)
            (b)
            (c)Plan
      Category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted-average
      exercise price of outstanding options, warrants and rights
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))Equity
      compensation plans approved by security holders
            0
            --
            1,745,388Equity
      compensation plans not approved by security holders
            0
            --
            0Total
            0
            --
            1,745,388





Item
13.  Certain Relationships and Related Transactions, and Director
Independence.





Since January 1, 2008 the Company has
not been a participant in any transaction with a “related person” (as defined in
Item 404 of Regulation S-K) where the amount involved exceeds the lesser of
$120,000 or one percent of the average of the Company’s total assets at year end
for the last two completed fiscal years, nor is any such transaction currently
proposed.  The Company recognizes that related person transactions can
present potential or actual conflicts of interest.  Accordingly, if a
proposed transaction appears to or does involve a related person, and the amount
involved exceeds $60,000, the transaction must be presented to the Board of
Directors for its review and approval or ratification.  The Board of
Directors may retain and pay such independent advisors as it deems necessary to
properly evaluate the proposed transaction, including, without limitation,
outside legal counsel and financial advisors to determine the fair value of the
transaction.  Related party transactions where the amount involved
does not exceed $60,000 do not require formal Board of Directors approval, but
must be disclosed to the Board of Directors.   The foregoing
procedures are designed to ensure that transactions with related persons are
fair to the Company and in the Company’s best interests.




32




James Broach provides consulting
services to the Company for patent and license related matters for which he was
paid $12,000 and $12,000 in calendar years 2008 and 2007,
respectively.





In May 2004, the Board of Directors
appointed David Blitz the acting Chief Executive Officer of the Company at the
rate of $25,000 per annum for the interim period during which the Company is
continuing its search for a new Chief Executive Officer.  In 2008, the
Company paid $25,000 to Mr. Blitz in such capacity.  Mr. Blitz remains
an employee of Joel Popkin & Co., P.C., in which capacity he will continue
to perform the Company’s internal accounting as he has done since March
2000.  The Company paid Joel Popkin & Co. $52,281 for such
accounting services and $8,000 for tax preparation services performed in 2008
and anticipates that it will pay similar amounts for such services in
2009.





Cadus has the following
directors:  James R. Broach, Russell D. Glass, Carl C. Icahn, Peter S.
Liebert and Jack G. Wasserman.  Each of the directors, except for Carl
C. Icahn, meets the standards for independence set forth in Rule 4200(a)(15) of
the Nasdaq Marketplace Rules.  The entire Board of Directors of the
Company acts as the audit committee.  Each of the directors, except
for Carl C. Icahn and James R. Broach, meets the standards for independence for
audit committee members set forth in Rule 4350(d) of the Nasdaq Marketplace
Rules.





Item 14.  Principal
Accountant Fees and Services.





The following table sets forth the
aggregate fees incurred by the Company for the services of its principal
accountants in 2008 and 2007:




2008
              
              
              2007Audit
      Fees
              
              $
              44,255
              
              
              $
              45,000Audit-Related
      Fees
              
              $
              -
              
              
              $
              -Tax
      Fees
              
              $
              -
              
              
              $
              -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.





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 Holtz Rubenstein Reminick LLP’s engagement as the Company’s
independent auditors for the fiscal year ending December 31, 2008 before Holtz
Rubenstein Reminick LLP was so engaged.  All of the 2008 services
described above were approved by the Board of Directors.




33





PART
IV





Item
15.  Exhibits and Financial Statement Schedules.





(1)  Documents
Filed as Part of this Annual Report on Form 10-K







(a)
                Financial
      Statements
                PageIndex
      to Financial Statements
                F-1Report
      of Independent Registered Public Accounting Firm: Holtz Rubenstein
      Reminick LLP
                F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheets
                F-3Consolidated
      Statements of Operations
                F-4Consolidated
      Statements of Stockholders’ Equity
                F-5Consolidated
      Statements of Cash Flows
                F-6Notes
      to Consolidated Financial Statements
                F-7
  (b) 
Financial Statement
Schedules





There are
no financial statement schedules filed as part of this annual report since the
required information is included in the consolidated financial statements,
including the notes thereto, or the circumstances requiring inclusion of such
schedules are not present.





(c) Exhibits





The
Exhibits listed below are filed or incorporated by reference as part of this
annual report.




Exhibit
      No.
              Description of
      Document3.1
              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.(8)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)
  34
  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)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)
  35
  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)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)
  36
  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)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 Holtz Rubenstein Reminick LLP24
              Power
      of Attorney (filed as part of the signature page to this
      Report).31
              Certifications32
              Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002


_________________________




37


(1)
              Filed
      with Cadus’s Registration Statement on Form S-8 (Registration No.
      333-21871), dated February 14, 1997, and incorporated by
      reference.(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, and incorporated by reference.(3)
              Filed
      with Cadus’s Current Report on Form 8-K, dated March 7, 1997, and
      incorporated by reference.(4)
              Filed
      with Cadus’s Quarterly Report on Form 10-Q for the quarterly period ended
      September 30, 1998, and incorporated by reference.(5)
              Filed
      with Cadus’s Annual Report on Form 10-K for the fiscal year ended December
      31, 1998, and incorporated by reference.(6)
              Filed
      with Cadus’s Quarterly Report on Form 10-Q for the quarterly period ended
      June 30, 1999, and incorporated by reference.(7)
              Filed
      with Cadus’s Quarterly Report on Form 10-Q for the quarterly period ended
      March 31, 2000, and incorporated by reference.(8)
              Filed
      with Cadus’s Quarterly Report on Form 10-Q for the quarterly period ended
      June 30, 2003, and incorporated by
reference.




38





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
      CORPORATIONBy:
              /s/ David
      BlitzDavid
      Blitz, Chief Executive Officer and President


Date:
March 31, 2009





Each person whose signature appears
below constitutes and appoints David Blitz 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.





Name
              
              Title
              Date/s/ David Blitz
              
              Chief
      Executive Officer and President
              March
      31, 2009David
      Blitz
              
              (Principal
      Executive Officer and Principal Accounting Officer)/s/ James R. Broach
              
              Director
              March
      31, 2009James
      R. Broach/s/ Russell D. Glass
              
              Director
              March
      31, 2009Russell
      D. GlassDirector
              March
      __, 2009Carl
      C. Icahn/s/ Peter S. Liebert
              
              Director
              March
      31, 2009Peter
      S. Liebert/s/ Jack G. Wasserman
              
              Director
              March
      31, 2009Jack
      G. Wasserman










CADUS
CORPORATION AND SUBSIDIARY





INDEX




Page
      No.Report
      of Independent Registered Public Accounting Firm:
                  Holtz
      Rubenstein Reminick LLP
                F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheets - December 31, 2008 and 2007
                F-3Consolidated
      Statements of Operations - For the years endedDecember
      31, 2008 and 2007
                F-4Consolidated
      Statements of Stockholders' Equity - For the years ended December 31, 2008
      and 2007
                F-5Consolidated
      Statements of Cash Flows - For the years ended December 31, 2008 and
      2007
                F-6Notes
      to Consolidated Financial Statements
                F-7










REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






To the
Board of Directors


and
Stockholders of Cadus Corporation:




We have
audited the accompanying consolidated balance sheets of Cadus Corporation and
subsidiary (the “Company”) as of December 31, 2008 and 2007 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years ended December 31, 2008 and 2007.  Cadus
Corporation’s management is responsible for these consolidated financial
statements.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated 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 as of
December 31, 2008 and 2007, and the results of its operations and its cash flows
for each of the two years ended December 31, 2008 and 2007 in conformity with
accounting principles generally accepted in the United States of
America.






/s/HOLTZ
RUBENSTEIN REMINICK LLP






New York,
New York


March 23,
2009




F-2





CADUS
CORPORATION AND SUBSIDIARY


CONSOLIDATED
BALANCE SHEETS





ASSETS


December
      31,
              2008
            
            
            December
      31,
              2007Current
      assets:Cash
      and cash equivalents
            
            $
            19,236,212
            
            
            $
            2,444,376Short
      term investments
            
            
            5,048,775
            
            
            
            22,960,545Interest
      receivable
            
            
            13,116
            
            
            
            102,518Prepaid
      and other current assets
            
            
            14,090
            
            
            
            1,150Total
      current assets
            
            
            24,312,193
            
            
            
            25,508,589Investment
      in other ventures
            
            
            193,718
            
            
            
            186,790Patents,
      net
            
            
            464,401
            
            
            
            550,834Total
      assets
            
            $
            24,970,312
            
            
            $
            26,246,213




LIABILITIES AND
      STOCKHOLDERS’ EQUITY




Current
      liabilities:Accrued
      expenses and other current liabilities
            
            $
            15,055
            
            
            $
            22,352Total
      current liabilities
            
            
            15,055
            
            
            
            22,352Commitments
      and contingenciesStockholders’
      equity:Common
      stock, $.01 par value.  Authorized 35,000,000 shares at December
      31, 2008 and 2007; issued 13,285,707 shares at December 31, 2008 and 2007;
      outstanding 13,144,040 shares at December 31, 2008 and
2007
            
            
            132,857
            
            
            
            132,857Additional
      paid-in capital
            
            
            59,847,443
            
            
            
            59,847,149Accumulated
      deficit
            
            
            (34,724,968
            )
            
            
            (33,456,070
            )Treasury
      stock, at cost
            
            
            ( 300,075
            )
            
            
            ( 300,075
            )Total
      stockholders’ equity
            
            
            24,955,257
            
            
            
            26,223,861Total
      liabilities and stockholders' equity
            
            $
            24,970,312
            
            
            $
            26,246,213





The
accompanying notes are an integral part of these consolidated financial
statements.





F-3





CADUS
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF OPERATIONS





For
      the Years Ended December 31,2008
            
            
            2007License
      and maintenance fees
            
            $
            100,000
            
            
            $
            100,000Total
      revenues
            
            
            100,000
            
            
            
            100,000Costs
      and expenses:General
      and administrative
            
            
            557,744
            
            
            
            557,938Amortization
      of patent costs
            
            
            86,433
            
            
            
            86,433Income
      from equity in other ventures
            
            
            ( 6,928
            )
            
            
            ( 13,363
            )Total
      costs and expenses
            
            
            637,249
            
            
            
            631,008Operating
      (loss)
            
            
            ( 537,249
            )
            
            
            ( 531,008
            )Other
      income (expense):Interest
      income
            
            
            714,670
            
            
            
            1,312,283Loss
      on sale and redemption of marketable securities
            
            
            ( 222,305
            )
            
            
            ( 668,246
            )Investment
      reduction to net asset value
            
            
            ( 1,174,756
            )
            
            
            ( 320,362
            )Total
      other income (expense)
            
            
            ( 682,391
            )
            
            
            323,675(Loss)
      before income tax provision
            
            
            ( 1,219,640
            )
            
            
            ( 207,333
            )Provision
      for franchise and income taxes
            
            
            49,258
            
            
            
            64,777Net
      (loss)
            
            $
            (
      1,268,898
            )
            
            $
            ( 272,110
            )Basic
      and diluted net (loss) per share
            
            $
            ( 0.10
            )
            
            $
            ( 0.02
            )Weighted
      average shares of common stock outstanding - basic and
    diluted
            
            
            13,144,040
            
            
            
            13,144,040






The
accompanying notes are an integral part of these consolidated financial
statements.





F-4





CADUS
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY




Common
      Stock
              
              
              Additional
                Paid-in
      Capital
              
              
              
              
              
              Accumulated
      Other
                Comprehensive
                (Loss)
      Income
              
              
              Treasury
      StockShares
              
              
              Amount
              
              
              
              
              Accumulated
                Deficit
              
              
              
              
              Shares
              
              
              Amount
              
              
              TotalBalance
      at December 31, 2006
              
              
              13,285,707
              
              
              $
              132,857
              
              
              $
              59,844,355
              
              
              $
              (33,183,960
              )
              
              $
              (507,793
              )
              
              
              (141,667
              )
              
              $
              (300,075
              )
              
              $
              25,985,384Short
      term swing profits by shareholder
              
              
              --
              
              
              
              --
              
              
              
              2,794
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              2,794Net
      loss for the year ended
                December
      31, 2007
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              (272,110
              )
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              (272,110
              )Reclassification
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              507,793
              (a)
              
              
              
              
              
              
              
              
              
              
              507,793Balance
      at December 31, 2007
              
              
              13,285,707
              
              
              
              132,857
              
              
              
              59,847,149
              
              
              
              (33,456,070
              )
              
              
              --
              
              
              
              (141,667
              )
              
              
              (300,075
              )
              
              
              26,223,861Short
      term swing profits by shareholder
              
              
              --
              
              
              
              --
              
              
              
              294
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              294Net
      loss for the year ended December 31, 2008
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,268,898
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,268,898
              )Balance
      at December 31, 2008
              
              
              13,285,707
              
              
              $
              132,857
              
              
              $
              59,847,443
              
              
              $
              (34,724,968
              )
              
              $
              --
              
              
              
              (141,667
              )
              
              $
              (300,075
              )
              
              $
              24,955,257


(a)Reclassification adjustment for loss included in net
loss






The
accompanying notes are an integral part of these consolidated financial
statements.





F-5





CADUS
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS





For
      the Years Ended December 31,2008
            
            
            2007Cash
      flows from operating activities:Net
      (loss)
            
            $
            (1,268,898
            )
            
            $
            ( 272,110
            )Adjustments
      to reconcile net (loss) to net cash provided by operating
      activities:Amortization
      of patent costs
            
            
            86,433
            
            
            
            86,433(Income)
      from equity in other ventures
            
            
            ( 6,928
            )
            
            
            ( 13,363
            )Loss
      on sale and redemption of marketable securities
            
            
            222,305
            
            
            
            668,246Investment
      reduction to net asset value
            
            
            1,174,756
            
            
            
            320,362Changes
      in assets and liabilities:(Increase)
      decrease in prepaid and other current assets
            
            
            ( 12,940
            )
            
            
            4,060Decrease
      (increase) in interest receivable
            
            
            89,404
            
            
            
            ( 102,518
            )(Decrease)
      in accrued expenses and other current liabilities
            
            
            ( 7,297
            )
            
            
            ( 38,955
            )Net
      cash provided by operating activities
            
            
            276,835
            
            
            
            652,155Cash
      flows provided by (used in) investing activities:Investment
      in short term securities
            
            
            --
            
            
            
            (23,280,907
            )Proceeds
      from sale and redemption of marketable securities
            
            
            16,514,707
            
            
            
            468,132Net
      cash provided by (used in) investing activities
            
            
            16,514,707
            
            
            
            (22,812,775
            )Cash
      flows provided by financing activities:Short
      term swing profits by shareholder
            
            
            294
            
            
            
            2,794Net
      cash provided by financing activities
            
            
            294
            
            
            
            2,794Net
      increase (decrease) in cash and cash equivalents
            
            
            16,791,836
            
            
            
            (22,157,826
            )Cash
      and cash equivalents - beginning of year
            
            
            2,444,376
            
            
            
            24,602,202Cash
      and cash equivalents - end of year
            
            $
            19,236,212
            
            
            $
            2,444,376Supplemental
      disclosure of cash-flow information:Cash
      paid for federal income taxes
            
            $
            11,256
            
            
            $
            1,568





The
accompanying notes are an integral part of these consolidated financial
statements.





F-6




CADUS
CORPORATION AND SUBSIDIARY
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007


(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' 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 4, 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.





(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.  There are no cash equivalents at December 31, 2008
and 2007.





(c)           Patents





Patents
represent the costs of developing the patents of $1,439,820 that are amortized
on a straight-line basis principally over seventeen years.  At
December 31, 2008 and 2007 accumulated amortization is $975,419 and $888,986
respectively.  Amortization expense recorded in general and
administrative expenses amounted to approximately $86,000 for each of the years
ended December 31, 2008 and 2007.  The annual amortization for the
next five years will be approximately $86,000 per year.  The Company
reviews the carrying value of its patents whenever events or changes in
circumstances indicate that the historical cost carrying value of the patents
may no longer be appropriate.




F-7




CADUS
CORPORATION AND SUBSIDIARY
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007





The
amortizable patents are tested for impairment based on undiscounted cash flows
and, if impaired, written down to fair value based on either discounted cash
flows or appraised values.





(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
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 entered into a license agreement with OSI for OSI to use the Company’s
yeast technology on a non-exclusive basis.  The agreements provides
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 licensee.





(f)           Net
(Loss) Per Share





Basic net
(loss) per share is computed by dividing the net (loss) 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).  There
were no outstanding stock options for the two years ended December 31, 2008 and
2007.





(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.





F-8




CADUS
CORPORATION AND SUBSIDIARY
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007





(h)           Fair
Value of Financial Instruments





On
January 1, 2008, the Company adopted the provisions of FASB Statement No. 157,
“Fair Value
Measurements” (“SFAS No. 157”), for fair value measurements of financial
assets and financial liabilities and for fair value measurements of nonfinancial
items that are recognized or disclosed at fair value in the financial statements
on a recurring basis.  SFAS 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.  SFAS
157 also establishes a framework for measuring fair value and expands
disclosures about fair value measurements.  The valuation techniques
required by SFAS 157 are based upon observable and unobservable
inputs.  Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the Company’s market
assumptions.  These two types of inputs create the following fair
value hierarchy:




Level 1
-                      Quoted
prices for identical instruments in active markets.





Level 2
-                      Quoted
prices for similar instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and model-derived valuations
whose inputs are observable or whose significant value drivers are
observable.





Level 3
-                      Significant
inputs to the valuation model are unobservable.





All of
the Company’s marketable securities are Level 2 type assets.





The
Company uses financial instruments in the normal course of its
business.  The carrying values of cash and cash equivalents and
accounts payable approximates fair value.  Marketable securities are
Level 2 type assets and carried at fair value as determined by an observable
market value.  The fair value of the Company’s investments in
privately held companies is not readily available.  The Company
believes the fair values of these investments in privately held companies
approximated their respective carrying values at December 31, 2008 and
2007.





Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of temporary cash investments.  From time to
time, the cash balances exceed the Federal Depository Insurance Coverage
Limit.  At December 31, 2008, the cash balance approximated
$19,236,212.  The Company places its cash with a high credit quality
financial institution.




F-9




CADUS
CORPORATION AND SUBSIDIARY
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007




(i)           Stock-Based
Compensation





The
Company uses the modified prospective method in accounting for share based
payment in which compensation cost is recognized with the effective date (a)
based on the requirements of SFAS 123R for all share based payments granted
after the effective date and (b) based on requirements of SFAS No. 123 for all
awards granted to employees prior to the effective date of SFAS 123R that remain
unvested on the effective date.  The adoption of SFAS No. 123R
requires the Company to expense stock option grants.




(j)           Comprehensive
Income





Comprehensive
income is comprised of net (loss) income and other comprehensive (losses) income
(or OCI).  OCI includes certain changes in stockholders’ equity that
are excluded from net (loss) income.  Specifically, the Company
includes in OCI changes in unrealized gains and losses on its available-for-sale
securities. There was no comprehensive income for the years ended
December 31, 2008 and December 31, 2007.





(k)           Recently
Issued Accounting Standards





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option forFinancialAssets and Financial
Liabilities” (“SFAS 159”), which permits certain financial assets and
financial liabilities to be measured at fair value, using an
instrument-by-instrument election. The initial effect of adopting SFAS 159 must
be accounted for as a cumulative-effect adjustment to opening retained earnings
for the fiscal year in which we apply SFAS 159. Retrospective application of
SFAS 159 to fiscal years preceding the effective date is not permitted. SFAS 159
has no effect on the Company’s financial statements.





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
141(R)”). SFAS 141(R) expands the definition of transactions and events that
qualify as business combinations; requires that the acquired assets and
liabilities, including contingencies, be recorded at the fair value determined
on the acquisition date and changes thereafter reflected in revenue, not
goodwill; changes the recognition timing for restructuring costs; and requires
acquisition costs to be expensed as incurred. Adoption of SFAS 141(R) is
required for combinations for periods beginning after December 15, 2008. Early
adoption and retroactive application of SFAS 141(R) to fiscal years preceding
the effective date are not permitted. The adoption of SFAS 141(R) may have an
effect on the Company's financial statements.




F-10




CADUS
CORPORATION AND SUBSIDIARY
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007
  
 SFAS No.
160, In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in
Consolidated Financial Statements” (“SFAS 160”). SFAS 160
re-characterizes minority interests in consolidated subsidiaries as
non-controlling interests and requires the classification of minority interests
as a component of equity. Under SFAS 160, a change in control will be measured
at fair value, with any gain or loss recognized in earnings. The effective date
for SFAS 160 is for annual periods beginning on or after December 15,
2008.  We are evaluating the impact of adoption on our consolidated
financial statements.
 
 In April
2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP FAS 142-3”).  FSP FAS 142-3 amends the
factors considered in developing renewal or extension assumptions used to
determine the useful  life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other Intangible Assets,” in order to improve the
consistency between the useful life of the recognized intangible asset and the
period of expected cash flows used to measure the fair value of the
asset.  FSP FAS 142-3 applies to: (1) intangible assets that are
acquired individually or with a group of other assets, and (2) intangible
assets acquired both in business combinations and asset acquisition. FSP FAS
142-3 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal
years.  Early adoption is prohibited.  As a result, the
company will apply the provisions of FSP FAS 142-3 prospectively to intangible
assets acquired on or after January 1, 2009.  The Company is currently
evaluating the potential impact, if any, the adoption of FSP FAS 142-3 may have
on the Company’s consolidated financial statements.


(3)           Short
Term Investments





The
company invested its excess cash with Bank of America in its Columbia Strategic
Cash Portfolio (the “Fund”), which maintained a stable unit price of $1.00 per
unit.  The units were redeemable in cash on the same day requested and
were classified by the Company as cash equivalents.





On
December 10, 2007, the Fund notified the Company that conditions in the short
term credit markets had created a broad based perception of risk in non-subprime
asset-backed securities causing illiquidity across the market which led to
extreme pricing pressure in those securities.  The Fund also notified
the Company that it is primarily invested in such securities, that it will begin
an orderly liquidation of such securities, that unitholders would no longer be
able to redeem their units in the Fund and that the Fund would redeem its units
as it liquidated its investments.  The Fund also began to value its
securities based on market value rather than amortized value for the purposes of
determining net asset value per unit.  The Fund has continued to pay
interest monthly.  At December 31, 2007, the Company reclassified its
investment in the Fund from cash equivalents to short term
investments.  From December 10, 2007 through December 31, 2008, the
Fund redeemed 19,445,459 units held by the Company for $18,787,142, which
redemption was $658,317 in the aggregate less than the cost of such
units.  During 2008, the Company reduced the value of its investments
in the Fund by $1,174,756 to the net asset value thereof.  From
January 1, 2009 through February 28, 2009, the Fund has redeemed an
additional 1,038,340 units in the Fund for $861,926, which redemption was
$176,414 in the aggregate less than the original $1,038,340 cost of such
units.  At the close of business on February 28, 2009, the Company
still owned 5,069,541 units in the Fund which had an aggregate value at such
time of $4,182,372. Such 5,069,541 units were valued at $4,190,483 at December
31, 2008. The Fund has advised the Company that it anticipates that the balance
or most of the balance, of the Company’s investment in the Fund will be redeemed
by December 31, 2009. However, there can be no assurance as to when further
redemptions will take place or as to the net asset value at which the Company’s
investment in the Fund will be redeemed.




F-11




CADUS
CORPORATION AND SUBSIDIARY
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007


(4)           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 and its collaboration with Solvay Pharmaceuticals B.V. ("Solvay
Pharmaceuticals"), and certain other assets.  Cadus is 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.
 
 (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 was to invest, directly or indirectly, in securities of biotechnology
companies.  Cadus is not required to make any additional investment in
Laurel. As of and for the year ended December 31, 2008, Laurel’s assets and net
income totaled $315,081 and $7,766, respectively. 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, 2008 and 2007
Cadus recognized income of $6,928 and $13,363, respectively, related to the
investment. The Company’s investment in Laurel of $193,718 and $186,790 at
December 31, 2008 and 2007, respectively, is reflected as investments in other
ventures in the accompanying consolidated balance sheets.


F-12
  CADUS
CORPORATION AND SUBSIDIARY
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007


(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. ("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’ 441,446 common shares
of Sequenom were held in escrow (the “Escrow Shares”) for a one-year
period.





38,507
Escrow Shares were forfeited pursuant to the indemnification provisions of the
merger agreement and therefore were not issued to the Company.




On June
1, 2006, Sequenom, Inc. effected a one-for-three reverse stock split and the
Company owned 134,313 common shares of Sequenom, Inc.  In April 2007
all the shares of Sequenom were sold, resulting in a recognized loss on sale of
securities of $668,246.





Pursuant
to the provisions of SFAS No. 115, "Accounting for Certain Debt and
Equity Securities" management deemed its investment in Sequenom, Inc. to
be available for sale and reported its investment at fair value with net
unrealized gains or losses reported within stockholders'
equity.  There was no comprehensive (loss) income in 2008 and
2007.





(7)           Licensing
Agreements





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 is also obligated to
pay an annual maintenance fee of $100,000 until the earlier of 2010 or the
termination of the license. OSI may terminate the license at any time on 30 days
prior written notice. For the years ended December 31, 2008 and 2007, the
Company recognized $100,000 each year in license and maintenance fees from
OSI.




F-13




CADUS
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008 and 2007







Cadus 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 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, 2008 and
2007 were $25,000 and $25,000, respectively.
 
 (9)           Income
Taxes
 
 Deferred
tax assets of approximately $15,421,000 and $15,290,000 at December 31,
2008 and 2007, respectively, relate principally to net operating loss
carryforwards of $27,052,000 and $28,162,000, research and development credit
carryforwards of $2,535,000 and $2,535,000 and equity losses on investments of
$3,554,000 and $2,878,000 at December 31, 2008 and 2007,
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 $131,000 in
2008 and decreased $153,000 in 2007.


The
Company’s net operating loss carryforwards, research and development credit
carryforwards and equity losses on investments noted above expire in various
years from 2009 to 2027. The Company’s ability to utilize such net operating
loss, research and development credit carryforwards and equity losses on
investmentsmay be 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/benefit for each year represents an
amount for New York state tax on capital and in 2007 $6,568 in federal income
tax.





The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”), on January 1, 2007.  As required by
Interpretation 48, which clarifies SFAS No. 109, “Accounting for Income Taxes”,
the Company recognizes the financial statement benefit of a tax position only
after determining that the relevant tax authority would more likely than not
sustain the position following an audit.  For tax positions meeting
this standard, the amount recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of being realized upon
ultimate settlement with the relevant tax authority.  At the adoption
date, the Company applied FIN 48 to all tax positions for which the statute of
limitations remained open.  The adoption of FIN 48 did not have a
material impact in the financial statements during the year ended December 31,
2008.




F-14




CADUS
CORPORATION AND SUBSIDIARY
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007
   (10)           Stock
Options
 
 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' employees and
consultants.  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. On December 31, 2008, 1,745,388 shares of stock remained available for
awards under the 1996 Plan.
 
 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 Director, 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.
 F-15


CADUS
CORPORATION AND SUBSIDIARY
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007


Activity
under the 1996 Plan is as follows:





Options
      OutstandingNumber
      of Shares
            
            
            Weighted
      Average Exercise PriceBalance
      at December 31, 2006
            
            
            2,500
            
            
            $
            6.382007
      activity
              Cancelled
            
            
            (2,500
            )Balance
      at December 31, 2008 and 2007
            
            
            -0-





(11)         Accrued
Expenses and Other Current Liabilities





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




2008
            
            
            2007Accrued
      professional fees
            
            $
            15,055
            
            
            $
            22,352





(12)         Related
Party Transactions





James
Broach, a member of Cadus’ Board of Directors, provides consulting services to
the Company for patent and license related matters, for which he was paid
$12,000, and $12,000 in calendar years 2008 and 2007.  These
consulting services were recorded as a component of general and administrative
expenses during each of the respective periods.  No amounts were
included in accrued expenses as of December 31, 2008 and 2007.





In May
2004, the Board of Directors appointed David Blitz the acting Chief Executive
Officer of the Company at the rate of $25,000 per annum for the interim period
during which the Company is continuing its search for a new Chief Executive
Officer.  In 2008 and 2007, the Company paid $25,000 and $25,000,
respectively, to Mr. Blitz in such capacity.  Mr. Blitz remains an
employee of Joel Popkin & Co. P.C., in which capacity he has performed the
Company’s internal accounting since March 2000.  The Company paid Joel
Popkin & Co., $52,281 and $52,593 for such accounting services in 2008 and
2007, respectively, and $8,000 and $8,000 in 2008 and 2007, respectively, for
tax preparation and examination services.




F-16




CADUS
CORPORATION AND SUBSIDIARY
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007




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, 2008 and 2007 amounted to $12,600 and $12,600,
respectively.




F-17