**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, 2006




o  TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934





For
      the
      transition period from ________________ to
      ________________




Commission
      File Number 0-28674





CADUS
      CORPORATION


(Exact
      name of registrant as specified in its charter)




Delaware
            
            13-3660391(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)





767
                Fifth AvenueNew
                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:
      o  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:
      o 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: x   No:
o





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





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





Large
      Accelerated Filer o   Accelerated
      Filer o   Non-Accelerated
      Filer x





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





As
      of
      June 30, 2006, the aggregate market value of the registrant’s voting common
      equity held by non-affiliates was $11,812,215.88.





Number
      of
      shares outstanding of each class of Common Stock, as of March 15, 2007:
      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.





**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.





2


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. In December 2001, the Subsidiary licensed its
      yeast technologies to a major pharmaceutical company on a non-exclusive basis
      for an initial five-year term, subject to annual renewals thereafter. That
      license was not renewed after the expiration of the initial five-year term
      in
      December 2006. 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).





**The
      Company’s Proprietary Drug Discovery Technologies**





The
      following relates to the Company’s existing proprietary technology. Since Cadus
      sold its drug discovery assets to OSI in 1999, the Company has had no internal
      drug discovery operations nor has it engaged in research efforts for
      collaborative partners.





3




*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.





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.





4


*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.





*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”).





5




*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.





In
      December 2001, the Subsidiary licensed to a major pharmaceutical company, on
      a
      non-exclusive basis, its yeast technologies, including various reagents and
      its
      library of over 25,000 yeast strains. The licensee paid to the Subsidiary an
      up-front non-refundable fee of $500,000. In October 2002, the licensee paid
      to
      the Subsidiary an additional $1,000,000 when the licensee achieved a research
      milestone. On September 12, 2003, the parties entered into an addendum to the
      agreement pursuant to which the Company extended the license to an affiliate
      of
      the licensee in consideration for the licensee agreeing to pay $120,000 to
      the
      Company. The licensee was entitled to use the technologies for five years from
      December 2001. Following the initial five-year term, the licensee was entitled
      to renew the license annually upon payment of an annual licensing fee of
      $250,000. The license was not renewed at the end of the initial five-year term
      in December 2006. The Subsidiary is seeking to license its yeast technologies
      to
      other third parties on a non-exclusive basis.





7




**Patents,
      Proprietary Technology and Trade Secrets**





The
      Subsidiary relies upon patents and trade secrets to protect its proprietary
      technologies. As of March 15, 2007, the Subsidiary is the assignee of 16 issued
      U.S. patents and 28 related granted foreign patents covering aspects of its
      yeast technology and is the exclusive worldwide licensee of four 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 14 other
      pending U.S. patent applications, as well as 13 related pending foreign patent
      applications.





The
      Company has obtained from Duke University an exclusive worldwide license to
      four
      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.





8


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.





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.





9


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.





**Employees**





As
      of
      March 15, 2007, 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.





10


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.





**History
      of Operating Losses**





The
      Company has incurred operating losses in each year since its inception with
      the
      exception of 2002. At December 31, 2006, the Company had an accumulated deficit
      of approximately $33.2 million. The Company's losses have resulted principally
      from costs incurred in connection with its 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 $28,850,000 and a research
      and
      development credit carryforward of $2,535,000 at December 31, 2006. These net
      operating loss carryforwards and the research and development credit
      carryforward expire in various years from 2007 to 2025. The Company's ability
      to
      utilize such net operating loss and research and development credit
      carryforwards 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.





11




**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.





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.





12




**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.





**Inability
      to Identify Acquisitions or Investments**





At
      December 31, 2006, the Company had cash and cash equivalents of $24.6 million.
      The Company is presently seeking to use a portion of its available cash 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 approximately 38% 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.





13




**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.





**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.





**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 2006**
              
              **High**
              
              **Low**First
                  quarter ended March 31, 2006
              
              $
              1.67
              
              $
              1.60Second
                  quarter ended June 30, 2006
              
              $
              1.67
              
              $
              1.55Third
                  quarter ended September 30, 2006
              
              $
              1.62
              
              $
              1.48Fourth
                  quarter ended December 31, 2006
              
              $
              1.67
              
              $
              1.52
 
 **Fiscal
                  Year 2005**
              
              **High**
              
              **Low**First
                  quarter ended March 31, 2005
              
              $
              1.58
              
              $
              1.46Second
                  quarter ended June 30, 2005
              
              $
              1.59
              
              $
              1.47Third
                  quarter ended September 30, 2005
              
              $
              1.67
              
              $
              1.51Fourth
                  quarter ended December 31, 2005
              
              $
              1.65
              
              $
              1.56





As
      of
      March 15, 2007, 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”).





15




**Item
      6. Selected Financial Data.**





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




**Year
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002****Statement
                  of Operations Data:**
              
              (dollars
                  in thousands, except share and per share data)Revenues
              
              $
              100
              
              $
              100
              
              $
              100
              
              $
              220
              
              $
              1,100Operating
                  costs and expenses:Total
                  costs and expenses
              
              
              784
              
              
              808
              
              
              778
              
              
              837
              
              
              886Operating
                  (loss) income
              
              
              (
                  684
              )
              
              (
                  708
              )
              
              (
                  678
              )
              
              (
                  617
              )
              
              214Net
                  income (loss)
              
              $
              446
              
              
              ($41
              )
              
              ($394
              )
              
              ($
                  190
              )(1)
              $
              1,316
              (2)Basic
                  and diluted net income (loss) per share
              
              $
              0.03
              
              $
              0.00
              
              
              ($0.03
              )
              
              ($
                  0.01
              )
              $
              0.10Shares
                  used in calculation of basic and diluted net income (loss) per
                  share
              
              
              13,144,040
              
              
              13,144,040
              
              
              13,144,040
              
              
              13,144,040
              
              
              13,144,040




**December
                31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****Balance
                Sheet Data:**
            
            (in
                thousands)Cash
                and cash equivalents
            
            $
            24,602
            
            $
            24,045
            
            $
            24,046
            
            $
            24,369
            
            $
            24,923Total
                assets
            
            
            26,047
            
            
            25,212
            
            
            25,546
            
            
            26,807
            
            
            26,870Accumulated
                deficit
            
            
            (33,184
            )
            
            (33,630
            )
            
            (33,589
            )
            
            (33,196
            )
            
            (33,006
            )Stockholders’
                equity
            
            
            25,985
            
            
            25,185
            
            
            25,532
            
            
            26,758
            
            
            26,458





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





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





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




16




**Recently
      Issued Accounting Standards**




In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123R *"Share
      Based Payment."* This
      statement is a revision to SFAS No. 123, supersedes Accounting Principles Board
      (“APB”) No. 25, *"Accounting
      for Stock Issued to Employees,"* and
      amends SFAS No. 95, *"Statement
      of Cash Flows."* This
      statement will require the Company to expense the cost of employee services
      received in exchange for an award of equity instruments. This statement also
      provides guidance on valuing and expensing these awards, as well as disclosure
      requirements, and is effective for the first interim reporting period that
      begins after December 31, 2005.





On
      March
      20, 2006, the Company adopted the modified prospective method in accounting
      for
      share-based payment in which compensation cost is recognized beginning with
      the
      effective date (a) based on the requirements of SFAS No. 123R for all
      share-based payments granted after the effective date and (b) based on the
      requirements of SFAS No. 123 for all awards granted to employees prior to the
      effective date of SFAS No. 123R that remain unvested on the effective date.
      Previously, as permitted by SFAS No. 123, the Company accounted for share-based
      payments to employees using the APB No. 25 intrinsic value method and recognized
      no compensation cost for employee stock options. The impact of the adoption
      of
      SFAS No. 123R cannot be predicted at this time because it will depend on levels
      of share-based payments granted in the future. However, valuation of employee
      stock options under SFAS No. 123R is similar to SFAS No. 123, with some
      exceptions. The adoption of SFAS No. 123R's fair value method may have an impact
      on the Company's results of operations, although it will have no impact on
      its
      overall financial position.





Pro
      forma
      net income and basic and diluted earnings per share as if the fair-value-based
      method had been applied to all awards is not required since all options were
      vested prior to all periods presented.





In
      June
      2006, the FASB issued Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
      109* ”,
      which
      provides guidance for the financial statement recognition and measurement of
      a
      tax position taken or expected to be taken in a tax return as well as subsequent
      changes in a tax position, calculation of interest and penalties, accounting
      in
      interim periods, disclosure, and transition. The Interpretation becomes
      effective for the Company on January 1, 2007 and is not expected to have a
      significant impact on the Company’s financial position or results of operations.





In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measures* ”,
      which
      defines fair value, establishes a framework for measuring fair value under
      generally accepted accounting principles, and expands disclosures about fair
      value measures. This Statement applies under other accounting pronouncements
      that require or permit fair value measurements; it does not require any new
      fair
      value measures. SFAS No. 157 becomes effective for the Company on January 1,
      2008 and is not expected to have a significant impact on the Company’s financial
      position or results of operations.





In
      September 2006, the SEC released Staff Accounting Bulletin 108, " *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* ”
("SAB
      108"), which provides guidance on how the effects of the carryover on reversal
      of prior year misstatements should be considered in quantifying a current year
      misstatement. In some situations, companies will be required to record errors
      that occurred in prior years even though those errors were immaterial for each
      year in which they arose. Companies may choose to either restate all previously
      presented financial statements or record the cumulative effect of such errors
      as
      an adjustment to retained earnings at the beginning of the period in which
      SAB
      108 is applied. SAB 108 is effective for fiscal years ending after November
      15,
      2006, and was adopted by the Company on December 31, 2006. The adoption of
      SAB
      108 did not have a material impact on the Company’s financial
      statements.





17


In
      October 2006, the FASB issued FSP FAS 123(R)-5, “ *Amendment
      to FSP FAS 123(R)-1.* ”
The
      FSP
      123(R)-5 provides that instruments that were originally issued as employee
      compensation and then modified, and that modification is made to the terms
      of
      the instrument solely to reflect an equity restructuring that occurs when the
      holders are no longer employees, then no change in the recognition or the
      measurement (due to a change in classification) of those instruments will result
      if both of the following conditions are met: (a) there is no increase in fair
      value of the award (or the ratio of intrinsic value to the exercise price of
      the
      award is preserved, that is, the holder is made whole), or the antidilution
      provision is not added to the terms of the award in contemplation of an equity
      restructuring; and (b) all holders of the same class of equity instruments
      (for
      example, stock options) are treated in the same manner. The provisions in this
      FSP shall be applied in the first reporting period beginning after the date
      the
      FSP is posted to the FASB website. Currently, this pronouncement has no effect
      on the Company’s financial statements.





**Item
      7. Management’s Discussion And Analysis Of Financial Condition** **And
      Results Of Operations.**





**Overview**





Cadus
      was
      incorporated in 1992 and until July 30, 1999, devoted substantially all of
      its
      resources to the development and application of novel yeast-based and other
      drug
      discovery technologies. On July 30, 1999, Cadus sold its drug discovery assets
      to OSI Pharmaceuticals, Inc. ("OSI") and ceased its internal drug discovery
      operations and research efforts for collaborative partners. Cadus 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, 2006, the Company had an accumulated deficit of
      approximately $33.2 million. The Company's losses have resulted principally
      from
      costs incurred in connection with its research and development activities and
      from general and administrative costs associated with the Company's operations.
      These costs have exceeded the Company's revenues and interest income.





As
      a
      result of the sale of its drug discovery assets to OSI and the cessation of
      its
      internal drug discovery operations and research efforts for collaborative
      partners, the Company ceased to have research funding revenues and substantially
      reduced its operating expenses. 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,
      2006, such expenses aggregated $795,884 and included patent costs (including
      legal fees) and license fees of approximately $336,000, legal fees (other than
      in connection with patents) of approximately $139,000, bookkeeping, and
      accounting and tax preparation fees of approximately $117,000. Since the Company
      only had revenues of $100,000, it incurred an operating loss of $684,000 for
      the
      year ended December 31, 2006.





18


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 non-exclusive 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.





***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.





**Results
      of Operations**





*Years
      Ended December 31, 2006 and 2005*





*Revenues*





Revenues
      for 2006 and 2005 were $100,000 which is the annual maintenance fee from OSI.





*Operating
      Expenses*





General
      and administrative expenses decreased to $795,884 for 2006 from $812,031 in
      2005. This decrease was attributable to a decrease in patent costs and license
      fees of $25,478, offset by an increase in professional fees of $11,576. There
      was a net decrease of $2,245 in sundry expenses.





19






*Equity
      in Other Ventures*





Equity
      in
      other ventures in 2006 reflects a gain of $12,021 from the Company’s investment
      in Laurel Partners Limited Partnership. There was a $3,769 gain in 2005 from
      such investment.





*Interest
      Income*





Interest
      income for 2006 increased to $1,196,308 from $751,430 in 2005. This increase
      was
      attributable primarily to investment in money market funds with a higher yield.
      The average interest earned on invested funds was approximately 4.93% in
      2006.





*Net
      Income (Loss)*





Net
      income for 2006 was $446,194 compared to a net loss of $41,084 in 2005. The
      increase in net income is attributable to increases in interest income of
      $444,878 and in income in other ventures of $8,252, and by decreases in
      operating expenses of $16,147 and in state taxes of $18,001.




*Years
      Ended December 31, 2005 and 2004*





*Revenues*





Revenues
      for 2005 and 2004 were $100,000 which is the annual maintenance fee from OSI.





*Operating
      Expenses*





General
      and administrative expenses increased to $812,031 for 2005 from $772,388 in
      2004. This increase was attributable to an increase in patent costs of $41,934
      and an increase in patent licensing costs of $52,000, offset by a decrease
      in
      insurance costs of $49,378 and a decrease in sales tax of $12,960 in connection
      with the sale of assets to OSI in 1999. There was an increase of $8,047 in
      sundry expenses.





*Equity
      in Other Ventures*





Equity
      in
      other ventures in 2005 reflects a gain of $3,769 from the Company’s investment
      in Laurel Partners Limited Partnership. There was a $5,168 loss in 2004 from
      such investment.





*Interest
      Income*




20




Interest
      income for 2005 increased to $751,430 from $255,913 in 2004. This increase
      was
      attributable primarily to investment in money market funds with a higher yield.
      The average interest earned on invested funds was approximately 3.1% in
      2005.





*Net
      (Loss)*





The
      net
      loss for 2005 was $41,084 compared to net loss of $393,503 in 2004. The decrease
      in net loss is primarily attributable to increases in interest income of
      $495,517 and in income in other ventures of $8,937, offset by increases in
      operating expenses of $39,643 and in state taxes of $112,392.





**Liquidity
      and Capital Resources**





At
      December 31, 2006 the Company held cash and cash equivalents of $24.6 million.
      The Company's working capital at December 31, 2006 was $25.2 million.





In
      February 2000, Cadus licensed to OSI, on a non-exclusive basis, its yeast
      technologies. 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, the Company licensed to a major pharmaceutical company, on a
      non-exclusive basis, its yeast technologies for an initial five-year term.
      The
      licensee paid to the Subsidiary an up-front non-refundable fee of $500,000.
      In
      October 2002, the licensee paid to the Subsidiary an additional $1,000,000
      when
      the licensee achieved a research milestone. In September 2003, the licensee
      paid
      an additional $120,000 pursuant to an addendum to the license agreement under
      which the Company extended the license to an affiliate of the licensee. This
      license was not renewed after the expiration of the initial five-year term
      in
      December 2006.





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 2008. 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, 2006 the Company had tax net operating loss carryforwards of
      approximately $28.9 million and research and development credit carryforwards
      of
      approximately $2.5 million which expire in years 2007 through 2025. 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 is subject to certain limitations due to
      ownership changes as defined by rules enacted with the Tax Reform Act of
      1986.




21




**Item
      7A. Quantitative and Qualitative Disclosures About Market
      Risk.**





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





**Item
      8. Financial Statements.**





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





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





On
      June
      23, 2005, the Board of Directors of the Company engaged Holtz Rubenstein
      Reminick LLP as the Company’s new independent accountants to replace Grant
      Thornton LLP. The Board of Directors decided to solicit proposals from
      independent accounting firms during April and May 2005. After receiving these
      proposals and considering a variety of factors, the Board of Directors voted
      to
      engage Holtz Rubenstein Reminick LLP as the Company’s new independent
      accountants and to dismiss Grant Thornton LLP effective upon the engagement
      of
      Holtz Rubenstein Reminick LLP.





The
      report of Grant Thornton LLP on the consolidated financial statements of the
      Company as of and for the fiscal year ended December 31, 2004 contained no
      adverse opinion or disclaimer of opinion and was not qualified or modified
      as to
      uncertainty, audit scope or accounting principles. In connection with the audit
      of the consolidated financial statements of the Company as of and for the fiscal
      year ended December 31, 2004, and during the period from January 1, 2005 through
      June 23, 2005, the Company did not have any disagreements with Grant Thornton
      LLP on any matter of accounting principles or practices, financial statement
      disclosure, or auditing scope or procedure, which disagreements if not resolved
      to the satisfaction of Grant Thornton LLP would have caused it to make reference
      to the subject matter of the disagreements in connection with its reports on
      the
      Company’s consolidated financial statements as of and for the fiscal year ended
      December 31, 2004. During the period of time from May 4, 2004, when the Company
      engaged Grant Thornton LLP, through June 23, 2005, there were no “reportable
      events” as defined in Item 304(a)(1)(v) of Regulation S-K adopted by the
      Securities and Exchange Commission (the “Commission”).





During
      the fiscal years ended December 31, 2004 and December 31, 2003, and during
      the
      period from January 1, 2005 through June 23, 2005, the Company did not consult
      with Holtz Rubenstein Reminick LLP regarding any of the matters specified in
      Item 304(a)(2) of Regulation S-K.





**Item
      9A. Controls and Procedures.**





22


Based
      on
      the evaluation of the Company’s disclosure controls and procedures as of the end
      of the period covered by this Annual Report on Form 10-K, the Company’s
      President and Chief Executive Officer, who also performs functions similar
      to
      those of a principal financial officer, concluded that the Company’s disclosure
      controls and procedures are effective in the timely identification of material
      information required to be included in the Company’s periodic filings with the
      Securities and Exchange Commission. During the year ended December 31, 2006,
      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.





**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,
      2007 is set forth below:


Name
              
              Age
              
              PositionJames
                  R. Broach, Ph.D.
              
              59
              
              DirectorRussell
                  D. Glass
              
              44
              
              DirectorCarl
                  C. Icahn
              
              71
              
              DirectorPeter
                  S. Liebert, M.D.(1)
              
              71
              
              DirectorJack
                  G. Wasserman(1)
              
              70
              
              DirectorDavid
                  Blitz
              
              75
              
              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. 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 research and management. From 1984 to 1986
      he
      served as an investment banker with Kidder, Peabody & Co. Previously, Mr.
      Glass served as a Director of Automated Travel 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.





23


*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. Since February 2005, Mr. Icahn has served
      as a director of CCI Onshore Corp. and CCI Offshore Corp., which are in the
      business of managing private investment funds, and from September 2004 to
      February 2005, Mr. Icahn served as the sole member of their predecessors, CCI
      Onshore LLC and CCI Offshore LLC, respectively. Mr. Icahn was also 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.
      Since 1994, Mr. Icahn has been the principal beneficial stockholder of American
      Railcar Industries, Inc., currently a publicly traded company that is primarily
      engaged in the business of manufacturing covered hopper and tank railcars,
      and
      has served as chairman of the board and as a director of American Railcar
      Industries, Inc. since 1994. Since November 1990, Mr. Icahn has been chairman
      of
      the board of American Property Investors, Inc., the general partner of American
      Real Estate Partners, L.P., a public limited partnership controlled by Mr.
      Icahn
      that invests in real estate and holds various other interests, including the
      interests in its subsidiaries that are engaged, among other things, in the
      casino entertainment business and the home textile business. From October 1998
      through May 2004, Mr. Icahn was the president and a director of Stratosphere
      Corporation, which operates the Stratosphere Hotel and Casino. Mr. Icahn has
      been chairman of the board and a director of XO Holdings, Inc. since February
      2006 and was chairman of the board and a director of XO Communications, Inc.
      (XO
      Holdings' predecessor) from January 2003 to February 2006. XO Holdings is a
      publicly traded telecommunications services provider controlled by Mr. Icahn.
      In
      May 2005, Mr. Icahn became a director of Blockbuster Inc., a publicly traded
      provider of in-home movie rental and game entertainment. In September 2006,
      Mr.
      Icahn became a director of ImClone Systems Incorporated, a publicly traded
      biopharmaceutical company, and since October 2006 has been the chairman of
      the
      board of ImClone Systems. Mr. Icahn received his B.A. from Princeton
      University.




24




*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 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. and a member of the Board of
      Directors of ImClone
      Systems Incorporated .
      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 American Property Investors, Inc., the general partner
      of
      American Real Estate Partners, LP and, in 2003, became a director of its
      indirect subsidiaries, American Casino & Entertainment Properties and
      American Entertainment & Casino Finance Corp. Mr. Wasserman has been
      licenced by the New Jersey State Casino Control Commission and the Nevada State
      Gaming Control Commission. Since December 1, 1998, Mr. Wasserman has been a
      director of National Energy Group, Inc. 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.





*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 2006 in a timely manner.




25


**Code
      of Ethics**





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




**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.





26


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, 2006, 2005 and 2004, 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) and
      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”):





27




**Summary
        Compensation Table For 2006, 2005 and 2004 Fiscal
        Years**


Name
                and Principal Position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            All
                OtherCompensation
                ($)
            
            Total
                ($)David
                Blitz(1)
            
            2006
            
            $
            25,000
            
            
            —
            
            
            —
            
            $
            25,000President
                and Chief Executive
            
            2005
            
            $
            25,000
            
            
            —
            
            
            —
            
            $
            25,000Officer
            
            2004
            
            $
            15,625
            
            
            —
            
            
            —
            
            $
            15,625Michele
                A. Paige(2)
            
            2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —President
                and Chief Executive
            
            2005
            
            
            —
            
            
            —
            
            
            —
            
            
            —Officer
            
            2004
            
            
            —
            
            
            —
            
            
            —
            
            
            —







(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.


(2)
            Ms.
                Michele A. Paige was the Company’s President and Chief Executive Officer
                from February 2003 until April 2004 and served in such capacity without
                compensation.




**Grants
      of Plan Based Awards.**





There
      were no grants by Cadus of awards to Named Executive Officers during the fiscal
      year ended December 31, 2006.





**Outstanding
      Equity Awards at Fiscal Year-End**





No
      Named
      Executive Officer had any outstanding Cadus equity awards as of December 31,
      2006.





**Option
      Exercises and Stock Vested**





During
      the fiscal year ended December 31, 2006, 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.




28




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, 2006:





**Director
      Compensation Table For 2006 Fiscal Year**




Name
            
            Fees
                Earned or
              Paidin
              Cash
                ( $)(1)
            
            All
                Other
              Compensation
                ($)
            
            Total
                ($)James
                R. Broach
            
            $
            3,000
            
            $
            13,000
            (2)
            $
            16,000Russell
                D. Glass
            
            $
            3,000
            
            
            —
            
            $
            3,000Carl
                C. Icahn
            
            $
            3,000
            
            
            —
            
            $
            3,000Peter
                S. Liebert
            
            $
            3,000
            
            
            —
            
            $
            3,000Jack
                G. Wasserman
            
            $
            3,000
            
            
            —
            
            $
            3,000





(1)
            Each
                non-employee director receives $3,000 in annual compensation, payable
                quarterly in arrears.


(2)
            James
                R. Broach provides consulting services to the Company for patent
                and
                license related matters, for which he was paid $13,000 in the fiscal
                year
                ended December 31, 2006.





**Incentive
      Plans**





Stock
      Option Agreements





Cadus
      has
      previously granted non-qualified stock options to directors, officers, employees
      and consultants of Cadus by means of stock option agreements that were not
      issued pursuant to any written incentive plan of the Company. During 2006,
      there
      were no stock options granted pursuant to such stock option agreements. As
      of
      March 15, 2007, no shares of Common Stock were subject to outstanding stock
      options granted under such stock option agreements.





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.





29


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





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





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





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





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.





30


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





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





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





As
      of
      March 15, 2007, an aggregate of 2,500 shares of Common Stock were subject to
      outstanding stock options granted under the 1996 Incentive Plan. As of March
      15,
      2007, stock options to purchase 2,500 shares were exercisable at $6.38 per
      share.





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





Compensation
      Committee Interlocks and Insider Participation





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





31


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 2006, 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 2006 but
      is
      presented for an historical perspective.





*Philosophy*





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





*Components
      of Executive Compensation*





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





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





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.





32


*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.





Compensation
      Committee Report





The
      Compensation Committee has reviewed and discussed the Compensation Discussion
      and Analysis above with management and based upon such review and discussions,
      the Compensation Committee recommended to the Board of Directors that the
      Compensation Discussion and Analysis be included in the Company’s annual report
      on Form 10-K.





Peter
      Liebert


Jack
      G.
      Wasserman





33


Comparative
      Stock Performance Graph





The
      following graph provides a comparison of the cumulative total return* for Cadus,
      the Nasdaq Stock Market (US) Index and the Nasdaq Biotechnology Index since
      December 31, 2000.


**COMPARISON
        OF 5 YEAR CUMULATIVE TOTAL RETURN***
 Among
        Cadus Corporation, The NASDAQ Composite Index
 And
        The
        NASDAQ Biotechnology Index




*
        $100
        invested on 12/31/01 in stock or index-including reinvestment of
        dividends.
 Fiscal
        year ending December 31.




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





12/31/01
            
            12/31/02
            
            12/31/03
            
            12/31/04
            
            12/31/05
            
            12/31/06Cadus
            
            
            100.00
            
            
            93.16
            
            
            127.35
            
            
            130.77
            
            
            136.75
            
            
            136.75Nasdaq
                Stock Market (U.S.) Index
            
            
            100.00
            
            
            71.97
            
            
            107.18
            
            
            117.07
            
            
            120.50
            
            
            137.02Nasdaq
                Biotechnology Index
            
            
            100.00
            
            
            62.08
            
            
            90.27
            
            
            99.08
            
            
            111.81
            
            
            110.06Cadus
                Closing Stock Price
            
            
            1.17
            
            
            1.09
            
            
            1.49
            
            
            1.53
            
            
            1.60
            
            
            1.60





34





**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, 2007 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 AvenueNew
                York, New York 10153
            
            
            4,961,158
            (3)
            
            37.74
            %GlaxoSmithKline
                plc
              980
                Great West Road
              Brentford,
                Middlesex TW89GSEngland
            
            
            660,962
            (4)
            
            5.03
            %James
                R. Broach
            
            
            —
            
            
            *Russell
                D. Glass
            
            
            37,500
            
            
            *Peter
                S. Liebert, M.D.
            
            
            8,334
            
            
            *Michele
                A. Paige
            
            
            —
            
            
            *Jack
                G. Wasserman
            
            
            2,500
            (5)
            
            *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)
            
            
            5,009,492
            (6)
            
            38.11
            %





*
      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.




35




(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,
                2007,
                that may be exercised within 60 days after such date for purposes
                of
                computing the percentage of Common Stock owned by such person, but
                not for
                purposes of computing the percentage of Common Stock owned by any
                other
                person.





(3)
            Includes
                2,258,790 shares of Common Stock held by High River Limited Partnership
                and 1,599,942 shares of Common Stock held by Barberry Corp. Mr. Icahn
                is
                the sole shareholder of Barberry Corp. and Barberry Corp. is the
                sole
                general partner of High River Limited Partnership.





(4)
            Includes
                330,481 shares of Common Stock held by SmithKline Beecham p.l.c.,
                an
                affiliate of GlaxoSmithKline plc.





(5)
            Consists
                of 2,500 shares of Common Stock which Mr. Wasserman currently has
                the
                right to acquire upon the exercise of stock
                options.





(6)
            Includes
                2,500 shares of Common Stock issuable upon exercise of options. See
                footnote (5).





**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, 2006:





(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
            
            
            2,500
            
            $
            6.38
            
            
            1,742,888Equity
                compensation plans not approved by security holders
            
            
            0
            
            
            —
            
            
            0Total
            
            
            2,500
            
            $
            6.38
            
            
            1,742,888





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





Since
      January 1, 2006 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 $120,000, 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.





36


James
      Broach provides consulting services to the Company for patent and license
      related matters for which he was paid $13,000, $17,000 and $13,000 in calendar
      years 2006, 2005 and 2004, 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 2006, 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. $52,425 for such accounting
      services and $11,150 for tax preparation and examination services performed
      in
      2006 and anticipates that it will pay similar amounts for such services in
      2007.





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, 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.





On
      May 4,
      2004, the Board of Directors of the Company engaged Grant Thornton LLP as the
      Company's new independent accountants to replace KPMG LLP and, on June 23,
      2005,
      the Board of Directors of the Company engaged Holtz Rubenstein Reminick LLP
      as
      the Company’s new independent accountants to replace Grant Thornton LLP. The
      following table sets forth the aggregate fees incurred by the Company for the
      services of its principal accountants in 2006 and 2005:


2006
              
              2005Audit
                  Fees
              
              $
              53,779
              
              $
              55,045Audit-Related
                  Fees
              
              $
              —
              
              $
              —Tax
                  Fees
              
              $
              —
              
              $
              —All
                  Other Fees
              
              $
              —
              
              $
              —
  37




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,
      2006 before Holtz Rubenstein Reminick LLP was so engaged. All of the 2006
      services described above were approved by the Board of Directors.




**PART
      IV**





**Item
      15. Exhibits and Financial Statement Schedules.**





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





(a)
            
            Financial
                StatementsPageIndex
                to Financial Statements
            
            F-1Report
                of Independent Registered Public AccountingFirm:
                Holtz Rubenstein Reminick LLP
            
            F-2Report
                of Independent Registered Public AccountingFirm:
                Grant Thornton LLP
            
            F-3Consolidated
                Financial Statements:Consolidated
                Balance Sheets
            
            F-4Consolidated
                Statements of Operations
            
            F-5Consolidated
                Statements of Stockholders’ Equity and Comprehensive (Loss)
                Income
            
            F-6Consolidated
                Statements of Cash Flows
            
            F-7Notes
                to Consolidated Financial Statements
            
            F-8





(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.




38




(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)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)




39




10.1
            
            Form
                of Indemnification Agreement entered into between Cadus and its directors
                and officers. (2)10.2
            
            Form
                of Agreement Regarding Assignment of Inventions, Confidentiality
                and
                Non-Competition. (2)10.3
            
            The
                401(k) Plan of the Cadus Pharmaceutical Corporation.
                (2)10.4
            
            Employment
                Agreement between Jeremy M. Levin and Cadus. (2)10.5
            
            Preferred
                Stock Purchase Agreement dated as of July 30, 1993 between Cadus
                and the
                purchasers of Series A Preferred Stock, together with the First and
                Second
                Amendments thereto dated as of July 26, 1994 and October 31, 1995,
                respectively. (2)10.6
            
            Preferred
                Stock Purchase Agreement dated as of July 26, 1994 between Cadus
                and
                Bristol-Myers Squibb Company (“Bristol-Myers”) concerning Series B
                Preferred Stock, together with the First Amendment thereto dated
                as of
                October 31, 1995. (2)10.7
            
            Preferred
                Stock Purchase Agreement dated as of November 1, 1995 between Cadus
                and
                Physica B.V. concerning Series B Preferred Stock. (2)10.8
            
            Research
                Collaboration and License Agreement, dated as of July 26, 1994, between
                Cadus and Bristol-Myers. (2)10.9
            
            Screening
                and Option Agreement, dated as of July 26, 1994, between Cadus and
                Bristol-Myers. (2)10.10
            
            Research
                Collaboration and License Agreement, dated as of November 1, 1995
                between
                Cadus and Solvay Pharmaceuticals B.V. (2)10.11
            
            Sublease
                Agreement, dated as of October 19, 1994, between Cadus and Union
                Carbide
                Corporation. (2)10.12
            
            Lease,
                dated as of June 20, 1995 between Cadus and Keren Limited Partnership.
                (2)10.13
            
            Consulting
                Agreement between Cadus and James R. Broach, dated February 1, 1994.
                (2)10.14
            
            Amended
                and Restated License Agreement between Cadus and Duke University,
                dated
                May 10, 1994. (2)




40




10.15
            
            License
                Agreement between Cadus and National Jewish Center for Immunology
                and
                Respiratory Medicine dated November 1, 1994. (2)10.16
            
            Stock
                Option Agreement, dated as of November 1, 1994, between Cadus and
                John C.
                Cambier. (2)10.17
            
            Stock
                Option Agreement, dated as of November 1, 1994, between Cadus and
                Gary L.
                Johnson. (2)10.18
            
            Consulting
                Agreement, dated as of November 1, 1994, between Cadus and John C.
                Cambier. (2)10.19
            
            Consulting
                Agreement, dated as of November 1, 1994, between Cadus and Gary L.
                Johnson. (2)10.20
            
            Research
                Collaboration Agreement, dated as of January 9, 1995, between Cadus
                and
                Houghten Pharmaceuticals, Inc., together with the Amendment thereto
                dated
                as of March 1996. (2)10.21
            
            Stock
                Option Agreement, dated as of December 18, 1995, between Cadus and
                James
                R. Broach. (2)10.22
            
            Waiver,
                dated May 17, 1996, of Section 1.05 of the Preferred Stock Purchase
                Agreement dated as of July 26, 1994 between Cadus and Bristol-Myers,
                as
                amended by the First Amendment thereto dated as of October 31, 1995.
                (2)10.23
            
            Waiver,
                dated May 17, 1996, of Section 1.04 of the Preferred Stock Purchase
                Agreement dated as of November 1, 1995 between Cadus and Physica
                B.V.
                (2)10.24
            
            Research
                Collaboration and License Agreement among Cadus, SmithKline Beecham
                Corporation and SmithKline Beecham p.l.c., dated as of February 25,
                1997.
                (3)10.25
            
            Employment
                Agreement, dated as of June 30, 1998, between Cadus and Charles Woler.
                (4)10.26
            
            Employment
                Agreement, dated as of September 10, 1998, between Cadus and Philip
                N.
                Sussman. (4)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)




41




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)23.1
            
            Consent
                of Holtz Rubenstein Reminick LLP23.2
            
            Consent
                of Grant Thornton 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





(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.


42


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 30, 2007





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
                David
                  Blitz
            
            Chief
                Executive Officer and President
                (Principal
                  Executive Officer and
                  Principal
                    Accounting Officer)
            
            March
                30, 2007/s/
                James R. Broach
                James
                  R. Broach
            
            Director
            
            March
                30, 2007/s/
                Russell D. Glass
                Russell
                  D. Glass
            
            Director
            
            March
                30, 2007Carl
                  C. Icahn
            
            Director
            
            March
                __, 2007/s/
                Peter S. Liebert
                Peter
                  S. Liebert
            
            Director
            
            March
                30, 2007/s/
                Jack G. Wasserman
                Jack
                  G. Wasserman
            
            Director
            
            March
                30, 2007










CADUS
      CORPORATION AND SUBSIDIARY




INDEX




Page
                No.Report
                of Independent Registered Public Accounting Firm:Holtz
                Rubenstein Reminick LLP
            
            F-2Report
                of Independent Registered Public Accounting Firm:Grant
                Thornton LLP
            
            F-3Consolidated
                Financial Statements:Consolidated
                Balance Sheets - December 31, 2006 and 2005
            
            F-4Consolidated
                Statements of Operations - For the years endedDecember
                31, 2006, 2005 and 2004
            
            F-5Consolidated
                Statements of Stockholders' Equity and Comprehensive(Loss)
                Income - For the years ended December 31, 2006, 2005 and 2004
            
            F-6Consolidated
                Statements of Cash Flows - For the years endedDecember
                31, 2006, 2005 and 2004
            
            F-7Notes
                to Consolidated Financial Statements
            
            F-8





F-1




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, 2006 and 2005, and the related
      consolidated statements of operations, stockholders’ equity and comprehensive
      income (loss), and cash flows for each of the two years then ended. These
      consolidated financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.




We
      conducted our audits in accordance with 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 financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements, assessing the accounting principles used and significant estimates
      made by management, as well as evaluating the overall financial statement
      presentation. We believe that our audit provides a reasonable basis for our
      opinion.




In
      our
      opinion, the consolidated financial statements present fairly, in all material
      respects, the financial position of the Company as of December 31, 2006 and
      2005, and the results of its operations and its cash flows for each of the
      years
      in the two-year period ended December 31, 2006 in conformity with accounting
      principles generally accepted in the United States of America.





As
      discussed in Note 2 to the consolidated financial statements, the Company
      adopted Financial Accounting Standards Board Statement (FASB) No. 123(R), *Share-Based
      Payments* effective January 1, 2006.





/s/
      HOLTZ
      RUBENSTEIN REMINICK LLP





New
      York,
      New York


March
      13,
      2007





F-2




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To
      the
      Board of Directors and Shareholders of


Cadus
      Corporation




We
      have
      audited the accompanying consolidated statements of operations, stockholders’
equity and comprehensive income (loss) and cash flows of Cadus Corporation
      and
      subsidiary (the “Company”) for the year ended December 31, 2004. These financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audit.




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 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 financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated results of operations, changes in
      stockholders’ equity and cash flows of the Company for the year ended December
      31, 2004, in conformity with accounting principles generally accepted in the
      United States of America.





/s/
      GRANT
      THORNTON LLP





New
      York,
      New York


February
      18, 2005




F-3




CADUS
      CORPORATION AND SUBSIDIARY


CONSOLIDATED
      BALANCE SHEETS





December
                31,
              2006
            
            December
                31,
              2005**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            24,602,202
            
            $
            24,044,619Prepaid
                and other current assets
            
            
            5,210
            
            
            8,170Investment
                in marketable securities
            
            
            628,585
            
            
            273,999Total
                current assets
            
            
            25,235,997
            
            
            24,326,788Investment
                in other ventures
            
            
            173,427
            
            
            161,406Patents
            
            
            637,267
            
            
            723,700Total
                assets
            
            $
            26,046,691
            
            $
            25,211,894**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accrued
                expenses and other current liabilities
            
            $
            61,307
            
            $
            27,290Total
                current liabilities
            
            
            61,307
            
            
            27,290Commitments
                and contingenciesStockholders’
                equity:Common
                stock, $.01 par value. Authorized 35,000,000 shares at December 31,
                2006
                and 2005; issued 13,285,707 shares at December 31, 2006 and 2005;
                outstanding 13,144,040 shares at December 31, 2006 and
                2005
            
            
            132,857
            
            
            132,857Additional
                paid-in capital
            
            
            59,844,355
            
            
            59,844,355Accumulated
                deficit
            
            
            (
                33,183,960
            )
            
            (
                33,630,154
            )Accumulated
                other comprehensive (loss) income
            
            
            (
                507, 793
            )
            
            (
                862,379
            )Treasury
                stock
            
            
            (
                300,075
            )
            
            (
                300,075
            )Total
                stockholders’ equity
            
            
            25,985,384
            
            
            25,184,604Total
                liabilities and stockholder’s equity
            
            $
            26,046,691
            
            $
            25,211,894





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




F-4


CADUS
      CORPORATION AND SUBSIDIARY


CONSOLIDATED
      STATEMENTS OF OPERATIONS





For
                the Years Ended December 31,2006
            
            2005
            
            2004License
                and maintenance fees
            
            $
            100,000
            
            $
            100,000
            
            $
            100,000Total
                revenues
            
            
            100,000
            
            
            100,000
            
            
            100,000Costs
                and expenses:General
                and administrative expenses
            
            
            795,884
            
            
            812,031
            
            
            772,388(Gain)
                loss from equity in other ventures
            
            
            (
                12,021
            )
            
            (
                3,769
            )
            
            5,168Total
                costs and expenses
            
            
            783,863
            
            
            808,262
            
            
            777,556Operating
                (loss)
            
            
            (
                683,863
            )
            
            (
                708,262
            )
            
            (
                677,556
            )Other
                income:Interest
                income
            
            
            1,196,308
            
            
            751,430
            
            
            255,913Total
                other income
            
            
            1,196,308
            
            
            751,430
            
            
            255,913Income
                (loss) before income tax provision
            
            
            512,445
            
            
            43,168
            
            
            (
                421,643
            )State
                tax
            
            
            66,251
            
            
            84,252
            
            
            (
                28,140
            )Net
                income (loss)
            
            $
            446,194
            
            
            ($
                41,084
            )
            
            ($
                393,503
            )Basic
                and diluted net income (loss) per share
            
            $
            0.03
            
            
            ($
                0.00
            )
            
            ($
                0.03
            )Weighted
                average shares of common stock outstanding - basic and
                diluted
            
            
            13,144,040
            
            
            13,144,040
            
            
            13,144,040




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





F-5




CADUS
      CORPORATION AND SUBSIDIARY


CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE (LOSS) INCOME


AccumulatedAdditional
              
              
              
              
              
              OtherCommon
                  Stock
              
              
              Paid-in
              
              
              Accumulated
              
              
              Comprehensive
              
              
              Treasury
                  StockShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              (Loss)
                  Income
              
              
              Shares
              
              
              Amount
              
              
              TotalBalance
                  at December 31, 2003
              
              
              13,285,707
              
              
              $
              132,857
              
              
              $
              59,844,355
              
              
              
              ($33,195,567
              )
              
              $
              276,249
              
              
              
              (141,667
              )
              
              
              ($300,075
              )
              
              $
              26,757,819Net
                  loss for the year ended December 31, 2004
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (393,503
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (393,503
              )Unrealized
                  loss on investment in marketable securities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (832,395
              )
              
              
              —
              
              
              
              —
              
              
              
              (832,395
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,225,898
              )Balance
                  at December 31, 2004
              
              
              13,285,707
              
              
              
              132,857
              
              
              
              59,844,355
              
              
              
              (33,589,070
              )
              
              
              (556,146
              )
              
              
              (141,667
              )
              
              
              (300,075
              )
              
              
              25,531,921Net
                  loss for the year ended December 31, 2005
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (41,084
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (41,084
              )Unrealized
                  loss on investment in marketable securities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (306,233
              )
              
              
              —
              
              
              
              —
              
              
              
              (306,233
              )Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (347,317
              )Balance
                  at December 31, 2005
              
              
              13,285,707
              
              
              
              132,857
              
              
              
              59,844,355
              
              
              
              (33,630,154
              )
              
              
              (862,379
              )
              
              
              (141,667
              )
              
              
              (300,075
              )
              
              
              25,184,604Net
                  income for the year ended December 31, 2006
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              446,194
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              446,194Unrealized
                  income on investment in marketable securities
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              354,586
              
              
              
              —
              
              
              
              —
              
              
              
              354,586Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              800,780Balance
                  at December 31, 2006
              
              
              13,285,707
              
              
              $
              132,857
              
              
              $
              59,844,355
              
              
              
              ($33,183,960
              )
              
              
              ($507,793
              )
              
              
              (141,667
              )
              
              
              ($300,075
              )
              
              $
              25,985,384





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




F-6




CADUS
      CORPORATION AND SUBSIDIARY


CONSOLIDATED
      STATEMENTS OF CASH FLOWS





For
                the Years Ended December 31,2006
            
            2005
            
            2004Cash
                flows from operating activities:Net
                income (loss)
            
            $
            446,194
            
            
            ($
                41,084
            )
            
            ($
                393,503
            )Adjustments
                to reconcile net income (loss) to net cash provided by (used in)
                operating
                activities:Amortization
            
            
            86,433
            
            
            84,130
            
            
            80,906(Gain)
                loss from equity in other ventures
            
            
            (12,021
            )
            
            (3,769
            )
            
            5,168Changes
                in assets and liabilities:Prepaid
                and other current assets
            
            
            2,960
            
            
            7,380
            
            
            18,843Accrued
                expenses and other current liabilities
            
            
            34,017
            
            
            12,963
            
            
            (34,837
            )Net
                cash provided by (used in) operating activities
            
            
            557,583
            
            
            59,620
            
            
            (323,423
            )Cash
                flows from investing activities: Patent acquisitions
            
            
            —
            
            
            (60,801
            )
            
            —Net
                cash used in investment activities
            
            
            —
            
            
            (60,801
            )
            
            —Net
                increase (decrease) in cash and cash equivalents
            
            
            557,583
            
            
            (1,181
            )
            
            (323,423
            )Cash
                and cash equivalents - beginning of period
            
            
            24,044,619
            
            
            24,045,800
            
            
            24,369,223Cash
                and cash equivalents - end of period
            
            $
            24,602,202
            
            $
            24,044,619
            
            $
            24,045,800




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





F-7







CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004




(1)
            Organization
                and Basis of Preparation





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





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





In
      December 2001, Cadus organized a wholly owned subsidiary, Cadus Technologies,
      Inc. (the “Subsidiary”), and transferred its yeast-based drug discovery
      technologies to the Subsidiary.





(2)
            Significant
                Accounting Policies





(a)
            Principles
                of Consolidation





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





(b)
            Cash
                Equivalents





The
      Company includes as cash equivalents all highly liquid investments with original
      maturities of three months or less when purchased to be cash equivalents.
      Included in cash and cash equivalents at December 31, 2006 and 2005 were cash
      equivalents of $24,504,620 and $23,912,020, respectively.





(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,
      2006
      and 2005 accumulated amortization is $802,553 and $716,120, respectively.
      Amortization expense recorded in general and administrative expenses amounted
      to
      approximately $86,000, $84,000 and $81,000 for each of the years ended December
      31 2006, 2005 and 2004. 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. 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.


F-8





CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





(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 has entered into a license agreement with OSI for OSI to use the
      Company’s yeast technology on a non-exclusive 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.





(f)
            Net
                Income (Loss) Per Share





Basic
      net
      income (loss) per share is computed by dividing the net income (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). The effect
      of
      stock options totaling 2,500, 57,167 and 79,236 for the years ended December
      31,
      2006, 2005 and 2004, respectively, were not included in the net income (loss)
      per share calculation because their effect would have been
      anti-dilutive.


F-9





CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





(g)
            Use
                of Estimates





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





(h)
            Fair
                Value of Financial Instruments





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





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, 2006, the cash balance approximated $24,504,000. The Company places
      its temporary cash investments with high credit quality financial
      institutions.





(i)
            Stock-Based
                Compensation





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




Pro
      forma
      net income (loss) would be the same as the reported net income (loss) for each
      of the years in the three-year period ended December 31, 2006 had the
      fair-value-based method been applied to all outstanding awards, which were
      fully
      vested prior to all periods presented.


F-10





CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





(j)
            Comprehensive
                (Loss) Income





Comprehensive
      (loss) income is comprised of net income (loss) and other comprehensive (losses)
      income (or OCI). OCI includes certain changes in stockholders' equity that
      are
      excluded from net income (loss). Specifically, the Company includes in OCI
      changes in unrealized gains and losses on its available-for-sale securities.
      Comprehensive (loss) income for the years ended December 31, 2006, 2005 and
      2004
      has been reflected in the consolidated statements of stockholders' equity.
      The
      Company’s operations in 2006 gave rise to an unrealized gain on marketable
      securities classified as available for sale. The Company’s operations in each of
      2005 and 2004 gave rise to an unrealized loss on marketable securities
      classified as available for sale.





(k)
            Recently
                Issued Accounting Standards





In
      May
      2005, the FASB issued SFAS No. 154, " *Accounting
      Changes and Error Corrections* ”
(“SFAS
      No. 154”), a replacement of APB Opinion No. 20 and FASB Statement No. 3, which
      changes the requirements for the accounting for and reporting of a change in
      accounting principle. SFAS No. 154 applies to all voluntary changes in
      accounting principle. It also applies to changes required by an accounting
      pronouncement in the unusual instance that the pronouncement does not include
      specific transition provisions. Opinion 20 previously required that most
      voluntary changes in accounting principle be recognized by including in net
      income of the period of the change the cumulative effect of changing to the
      new
      accounting principle. SFAS No. 154 requires retrospective application to prior
      periods’ financial statements of changes in accounting principle, unless it is
      impracticable to determine either the period-specific effects or the cumulative
      effect of the change. SFAS No. 154 also requires that a change in depreciation,
      amortization, or depletion method for long-lived, nonfinancial assets be
      accounted for as a change in accounting estimate effected by a change in
      accounting principle. SFAS No. 154 is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2005.





In
      June
      2006, the FASB issued Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
      109* ”,
      which
      provides guidance for the financial statement recognition and measurement of
      a
      tax position taken or expected to be taken in a tax return as well as subsequent
      changes in a tax position, calculation of interest and penalties, accounting
      in
      interim periods, disclosure, and transition. The Interpretation becomes
      effective for the Company on January 1, 2007 and is not expected to have a
      significant impact on the Company’s financial position or results of operations.


F-11





CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measures* ”,
      which
      defines fair value, establishes a framework for measuring fair value under
      generally accepted accounting principles, and expands disclosures about fair
      value measures. This Statement applies under other accounting pronouncements
      that require or permit fair value measurements; it does not require any new
      fair
      value measures. SFAS No. 157 becomes effective for the Company on January 1,
      2008 and is not expected to have a significant impact on the Company’s financial
      position or results of operations.





In
      September 2006, the SEC released Staff Accounting Bulletin 108, " *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* ”
("SAB
      108"), which provides guidance on how the effects of the carryover on reversal
      of prior year misstatements should be considered in quantifying a current year
      misstatement. In some situations, companies will be required to record errors
      that occurred in prior years even though those errors were immaterial for each
      year in which they arose. Companies may choose to either restate all previously
      presented financial statements or record the cumulative effect of such errors
      as
      an adjustment to retained earnings at the beginning of the period in which
      SAB
      108 is applied. SAB 108 is effective for fiscal years ending after November
      15,
      2006, and was adopted by the Company on December 31, 2006. The adoption of
      SAB
      108 did not have a material impact on the Company’s financial
      statements.





In
      October 2006, the FASB issued FSP FAS 123(R)-5, “ *Amendment
      to FSP FAS 123(R)-1.* ”
The
      FSP
      123(R)-5 provides that instruments that were originally issued as employee
      compensation and then modified, and that modification is made to the terms
      of
      the instrument solely to reflect an equity restructuring that occurs when the
      holders are no longer employees, then no change in the recognition or the
      measurement (due to a change in classification) of those instruments will result
      if both of the following conditions are met: (a) there is no increase in fair
      value of the award (or the ratio of intrinsic value to the exercise price of
      the
      award is preserved, that is, the holder is made whole), or the antidilution
      provision is not added to the terms of the award in contemplation of an equity
      restructuring; and (b) all holders of the same class of equity instruments
      (for
      example, stock options) are treated in the same manner. The provisions in this
      FSP shall be applied in the first reporting period beginning after the date
      the
      FSP is posted to the FASB website. Currently, this pronouncement has no effect
      on the Company’s financial statements.





(3)
            Asset
                Sale to OSI Pharmaceuticals, Inc.





On
      July
      30, 1999, Cadus sold to OSI, pursuant to an asset purchase agreement, its drug
      discovery programs focused on G protein-coupled receptors, its directed library
      of approximately 150,000 small molecule compounds specifically designed for
      drug
      discovery in the G protein-coupled receptor arena, its collaboration with Solvay
      Pharmaceuticals B.V. ("Solvay Pharmaceuticals"), 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.


F-12





CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





(4)
            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 Carl C. Icahn
      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 Carl C. Icahn. Cadus is not required to make any additional
      investment in Laurel. As of and for the year ended December 31, 2006 Laurel’s
      assets and net income totaled $292,336 and $13,475, 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, 2006, 2005
      and 2004 Cadus recognized income (losses) of $12,021, $3,769 and ($5,168),
      respectively, related to the investment. The Company’s investment in Laurel of
      $173,427 and $161,406 at December 31, 2006 and 2005, respectively, is reflected
      as investments in other ventures in the accompanying consolidated balance
      sheets.


F-13





CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





(5)
            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’s 441,446 common shares of Sequenom were held in escrow (the “Escrow
      Shares”) for a one-year period.





In
      May
      2004, the Company became aware that 38,507 shares of the 102,685 Escrow Shares
      were forfeited pursuant to the indemnification provisions of the merger
      agreement and therefore were not issued to the Company. Accordingly, to reflect
      this reduction of the Escrow Shares received by the Company, the investment
      in
      marketable securities was reduced by $123,222.





On
      June
      1, 2006, Sequenom effected a one-for-three reverse stock split and the Company
      currently owns 134,313 common shares of Sequenom.





Pursuant
      to the provisions of SFAS No. 115, “ *Accounting
      for Certain Debt and Equity Securities* ,”
      management deems its investment in Sequenom to be available for sale and reports
      its investment at fair value with net unrealized gains or losses reported within
      stockholders’ equity. The Company’s unrealized (loss) of ($507,793) and
      ($862,379) on shares received is reflected in accumulated other comprehensive
      (loss) income at December 31, 2006 and December 31, 2005, respectively.





(6)
            Licensing
                Agreements





In
      December 2001, Cadus Technologies, Inc., Cadus’s wholly owned subsidiary,
      licensed its yeast-based drug discovery technologies on a non-exclusive basis
      to
      a major pharmaceutical company. On September 12, 2003, the parties entered
      into
      an addendum to the agreement pursuant to which the Company extended the license
      to an affiliate of the licensee in consideration for the licensee agreeing
      to
      pay $120,000 to the Company. The licensee was entitled to use the technologies
      for five years from December 2001. Following the initial five-year term, the
      licensee was entitled to renew the license annually upon payment of an annual
      licensing fee of $250,000. The license was not renewed at the end of the initial
      five-year term in December 2006. For the years ended December 31, 2006, 2005
      and
      2004, the Company recognized $0 each year in license revenue from the licensee.




F-14




CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





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 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, 2006, 2005 and 2004,
      the
      Company recognized $100,000 each year in license and maintenance fees from
      OSI.





(7)
            Research
                Collaboration and License
                Agreements





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





The
      Company has entered into license agreements with various third parties.
      Generally, the agreements provide that the Company will pay license fees and/or
      maintenance payments, in return for the use of technology and information and
      the right to manufacture, use and sell future products. These agreements provide
      for payments based on the completion of milestone events, as well as royalty
      payments based upon a percentage of product or assay sales. License fees and
      maintenance payments for the years ended December 31, 2006, 2005 and 2004 were
      $25,000, $52,000 and $0, respectively.





(8)
            Income
                Taxes





Deferred
      tax assets of approximately $15,443,000 and $15,610,000 at December 31, 2006
      and
      2005, respectively, relate principally to net operating loss carryforwards
      of
      $28,850,000 and $29,260,000, research and development credit carryforwards
      of
      $2,535,000 and $2,535,000, and equity losses on investments of $2,864,000 and
      $2,864,000 at
      December 31, 2006 and 2005, respectively .
      The
      deferred tax assets are not reflected in the financial statements since 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 decreased $167,000 in 2006 and increased $22,000 in 2005.




F-15





CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





The
      Company's net operating loss carryforwards and research and development credit
      carryforwards noted above expire in various years from 2007 to 2025. The
      Company's ability to utilize such net operating loss and research and
      development credit carryforwards is subject to limitations in the event
      of 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. There has been no provision for federal
      income taxes in 2006, 2005 and 2004.





(9)
            Stock
                Options





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





Activity
      under the 1993 Plan is as follows:





Options
                OutstandingNumber
                of Shares
            
            Weighted
                Average Exercise PriceBalance
                at December 31, 2003
            
            
            101,737
            
            $
            1.502004
                activityCanceled
            
            
            (101,737
            )
            
            —Balance
                at December 31, 2004, 2005 and 2006
            
            
            -0-
            
            
            —





(b)
            Cadus
                entered into stock option agreements not pursuant to any plan with
                certain
                directors, employees, founders and consultants. These options generally
                become exercisable according to a schedule of vesting as determined
                by the
                Compensation Committee of the Board of Directors. The options become
                exercisable in installments over a period of months or
                years.





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




F-16





CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





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





Options
                OutstandingNumber
                of Shares
            
            Weighted
                Average Exercise PriceBalance
                at December 31, 2003
            
            
            323,403
            
            $
            2.422004
                activityCancelled
            
            
            (253,334
            )
            
            —Balance
                at December 31, 2004
            
            
            70,069
            
            $
            5.762005
                activityCancelled
            
            
            (22,069
            )
            
            —Balance
                at December 31, 2005
            
            
            48,000
            
            $
            6.752006
                activityCancelled
            
            
            (48,000
            )
            
            —Balance
                at December 31, 2006
            
            
            -0-
            
            
            —





(c)
            Effective
                May 10, 1996, the 1993 Plan was replaced by the 1996 Incentive Plan
                ("the
                1996 Plan") with respect to all future awards to Cadus's employees
                and
                consultants. 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, 2006,****1,742,888
                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 Directors for incentive and
      nonqualified stock options. The options generally become exercisable according
      to a schedule of vesting as determined by the Compensation Committee of the
      Board of Directors. The schedule prescribes the date or dates on which the
      options become exercisable in installments over a period of months or
      years.


F-17





CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





Activity
      under the 1996 Plan is as follows:





Options
                OutstandingNumber
                of Shares
            
            Weighted
                Average Exercise PriceBalance
                at December 31, 2003
            
            
            9,167
            
            $
            6.562004
                activity
            
            
            —
            
            
            —Balance
                at December 31, 2004
            
            
            9,167
            
            $
            6.562005
                activity
            
            
            —
            
            
            —Balance
                at December 31, 2005
            
            
            9,167
            
            $
            6.562006
                activityCancelled
            
            
            (6,667
            )
            
            —Balance
                at December 31, 2006
            
            
            2,500
            
            $
            6.38




The
      following table summarizes stock option information for the 1996 Plan as of
      December 31, 2006:





Options
                Outstanding
            
            Options
                ExercisableRange
                of
              Exercise
                Prices
            
            NumberOutstanding
            
            Weighted
                Average
              Remaining
              Contractual
                Life
            
            Weighted
                AverageExercise
                Price
            
            NumberExercisable
            
            Weighted
                AverageExercise
                Price$6.38
            
            
            2,500
            
            
            .93
            
            $
            6.38
            
            
            2,500
            
            $
            6.38





(10)
            Accrued
                Expenses and Other Current
                Liabilities





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




2006
            
            2005Accrued
                professional fees
            
            $
            61,307
            
            $
            27,290





(11)
            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
      $13,000, $17,000 and $13,000 in calendar years 2006, 2005 and 2004,
      respectively. 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, 2006, 2005 and
      2004.




F-18





CADUS
      CORPORATION AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006, 2005 AND 2004





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 2006, 2005 and 2004, the Company paid $25,000, $25,000 and $15,625,
      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.
      $52,424, $52,261 and $54,687 for such accounting services in 2006, 2005 and
      2004, respectively, and $11,150, $8,000 and $8,000 in 2006, 2005 and 2004,
      respectively, for tax preparation and examination services.





(12)
            Commitments
                and Contingencies





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, 2006,
      2005 and 2004 amounted to approximately $13,650, $11,550 and $12,708,
      respectively.





(13)
            Condensed
                Quarterly Financial Data
                (Unaudited)





Fiscal
                2006 Quarter Ended
            
            December
                31
            
            September
                30
            
            June
                30
            
            March
                31License
                and maintenance fees
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            100,000Operating
                (loss)
            
            
            (
                189,242
            )
            
            (
                119,083
            )
            
            (
                216,705
            )
            
            (
                158,833
            )Net
                income (loss)
            
            
            69,661
            
            
            200,335
            
            
            75,387
            
            
            100,811Net
                income (loss) per share:Basic
                and diluted
            
            
            0.01
            
            
            0.02
            
            
            0.01
            
            
            0.01





Fiscal
                2005 Quarter Ended
            
            December
                31
            
            September
                30
            
            June
                30
            
            March
                31License
                and maintenance fees
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            100,000Operating
                (loss)
            
            
            (
                104,774
            )
            
            (
                186,836
            )
            
            (
                314,907
            )
            
            (
                101,745
            )Net
                income (loss)
            
            
            45,629
            
            
            14,856
            
            
            (
                142,258
            )
            
            40,689Net
                income (loss) per share:Basic
                and diluted
            
            
            0.00
            
            
            0.00
            
            
            (
                0.01
            )
            
            0.00




F-19