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, 2004.

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

For the transition period from                         to                      .
                               -----------------------   ----------------------

Commission File Number                      0-28674
                       ---------------------------------------------------------

                                CADUS CORPORATION
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             (Exact name of registrant as specified in its charter)

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

         767 Fifth Avenue
         NEW YORK, NEW YORK                                  10153
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         (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 whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.            Yes: _X_       No: ___

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

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

        As of June 30, 2004, the aggregate market value of the registrant's
voting common equity held by non-affiliates was $11,946,601.74.

        Number of shares outstanding of each class of Common Stock, as of March
15, 2005: 13,144,040 shares.

<PAGE>


SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical fact are "forward-looking
statements" for purposes of federal and stated securities laws, including any
projections or expectations of earnings, revenue, financial performance,
liquidity and capital resources or other financial items; any statement of 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,
technological uncertainties regarding the Company's technologies, risks and
uncertainties relating to the Company's ability to license its technologies to
third parties, the Company's ability to acquire and operate other companies, the
Company's capital needs and uncertainty of future funding, the Company's history
of operating losses, the Company's dependence on proprietary technology and the
unpredictability of patent protection, intense competition in the pharmaceutical
and biotechnology industries, rapid technological development that may result in
the Company's technologies becoming obsolete, as well as other risks and
uncertainties discussed in the Company's other filings with the Securities and
Exchange Commission. The forward-looking statements made in this Annual Report
on Form 10-K are made only as of the date hereof and the Company does not have
or undertake any obligation to publicly update any forward-looking statements to
reflect subsequent events or circumstances unless otherwise required by law.


                                     PART I

ITEM 1.  BUSINESS.

GENERAL

        Cadus Corporation ("Cadus") was incorporated under the laws of the State
of Delaware in January 1992 and until July 30, 1999 devoted substantially all of
its resources to the development and application of novel yeast-based and other
drug discovery technologies. In December 1998, in an action brought by SIBIA
Neurosciences, Inc. ("SIBIA") against Cadus alleging infringement by Cadus of a
patent concerning the use of cells, engineered to express any type of cell
surface receptor and a reporter gene, used to report results in the screening of
compounds against target assays, SIBIA was awarded $18.0 million in damages and
in January 1999, it was granted injunctive relief that

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precluded Cadus from using the method claimed in SIBIA's patent. Pending appeal,
Cadus deposited $18.5 million in escrow to secure payment of the judgment in the
event Cadus were to lose the appeal. Following the SIBIA award, 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. On appeal, in October 2000, the SIBIA award was
overturned and the injunction vacated. Cadus then obtained the release of the
original $18.5 million placed in escrow plus the interest accrued thereon. In
December 2001, Cadus formed a wholly owned subsidiary, Cadus Technologies, Inc.
(the "Subsidiary"), and transferred all of its patents, patent applications,
know how, licenses and drug discovery technologies to the Subsidiary.

        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. Cadus changed its name
to Cadus Corporation from Cadus Pharmaceutical Corporation on June 20, 2003. The
change in name was approved by Cadus's stockholders at Cadus's Annual Meeting of
Stockholders held on June 18, 2003.

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

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Company's current Chief Executive Officer is a consultant. See Item 10.
Directors and Executive Officers of the Company.

        Prior to July 30, 1999, Cadus developed several proprietary technologies
that exploit the similarities between yeast and human genes to elucidate gene
function and cell signaling pathways. In February 2000, Cadus licensed its yeast
technologies and its bioinformatics software to OSI on a non-exclusive basis. In
December 2001, Cadus transferred all of its patents, patent applications, know
how, licenses and drug discovery technologies to the Subsidiary. In December
2001, the Subsidiary licensed its yeast technologies to a major pharmaceutical
company on a non-exclusive basis. The Subsidiary is seeking to license these
technologies to other third parties on a non- exclusive basis. Three of these
technologies are used to identify small molecules that act as agonists or
antagonists to cell surface receptors: (i) a hybrid yeast cell technology that
expresses a functioning human receptor and a portion of its signaling pathway in
a yeast cell, (ii) the Autocrine Peptide Expression ("Apex(TM)") system that
expresses in a hybrid yeast cell both a known human ligand and the receptor that
is activated by that ligand and (iii) the Company's Self Selecting Combinatorial
Library ("SSCL(TM)") technologies, which are used to identify a ligand that
activates a targeted orphan receptor (a receptor whose function is not known).

THE COMPANY'S DRUG DISCOVERY TECHNOLOGIES

BACKGROUND

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

        Cell surface receptors are an important class of proteins involved in
cellular functioning because they are the primary mediators of cell to cell
communication. Their location on the cell surface also makes them the most
accessible targets for drug discovery. Cellular communication occurs when one
cell releases a chemical messenger, called a "ligand," which communicates with
another cell by binding to and activating the receptor on the exterior of the
second cell. Typically, a ligand binds only with one specific receptor or
families of related receptors. This binding event activates the receptor
triggering the transmission of a message through a cascade of signaling


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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.

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

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

        The sequences and functions of several hundred human G Protein-coupled
receptors have been identified. The Company believes that the identification of
the gene sequences and functions of the remaining G Protein-coupled receptors
(other than those involved in taste, smell or sight) will yield a substantial
number of potential drug discovery targets. Scientists working on the Human
Genome Project have sequenced portions of thousands of genes and have
published such sequences or placed them in public databases. Although the Human
Genome Project has produced and made publicly available an ever increasing
volume of raw DNA sequences (including sequence fragments

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that may represent portions of human G Protein-coupled receptors), such data
cannot be used in drug discovery until (i) a DNA sequence is recognized to
comprise a portion of a G Protein-coupled receptor (ii) the full DNA sequence of
the G Protein-coupled receptor is identified, (iii) the function of the G
Protein-coupled receptor is elucidated, and (iv) agonists and/or antagonists for
the G Protein-coupled receptor are identified.

        TRADITIONAL DRUG DISCOVERY

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

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

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

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        YEAST

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

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

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

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

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

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

        o   Yeast cells replicate rapidly. Speed of replication is particularly
            important because creating a new yeast strain that successfully
            incorporates new genetic material and adapts to new conditions may
            take several generations and the strain that so adapts is
            identifiable by growth. In addition, because a yeast cell reproduces
            itself every two


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            hours, compared with 24 to 48 hours for mammalian cells, a drug
            screen using yeast can be developed and evaluated much faster than
            one using human cell assays.

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

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

        The Company has developed several proprietary drug discovery
technologies that address many of the limitations of traditional drug discovery
methods, including tools used to screen for compounds that act as agonists or
antagonists to cell surface receptors and tools used to identify ligands to
targeted orphan receptors. The Subsidiary is currently seeking to license these
technologies on a non-exclusive basis to third parties.

        HYBRID YEAST CELLS

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

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

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

        AUTOCRINE PEPTIDE EXPRESSION SYSTEM (APEX(TM))

        The Company extended its hybrid yeast cell technology to develop a novel
drug screening technology. Biological signaling frequently involves the
concerted behavior of at least two cells: one that sends the signal and a second
that receives and responds to that signal. The Company's scientists converted
this natural multi-cell process into a single cell process by inserting into a
hybrid yeast cell both the human G Protein-coupled receptor and the gene that
causes the yeast cell to produce the ligand that naturally binds to the receptor
being expressed by the same hybrid yeast cell. As a result, the Company's
scientists made the cell self-stimulating, or "autocrine," in that it both sends
a signal through production and secretion of a ligand and responds, by
replication, to that same signal through the receptor. The Company believes that
the autocrine nature of the APEX(TM) system makes it an effective tool for the
identification of compounds that act as agonists or antagonists with respect to
that receptor or a molecular target in its signaling pathway. As a result, drug
screening may be conducted in an accelerated, cost effective process as compared
to conventional screening techniques.

        SELF SELECTING COMBINATORIAL LIBRARY TECHNOLOGY (SSCL(TM))

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

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

        BIOINFORMATICS FOR TARGET IDENTIFICATION

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

        HUMAN ORPHAN G PROTEIN-COUPLED RECEPTORS

        On July 25, 1998, the Company entered into a collaboration agreement
with Genome Therapeutics Corporation ("GTC"), which has bioinformatics
technologies and know-how that it uses to identify and sequence orphan G
Protein-coupled receptors. Pursuant to the collaboration, the Company and GTC
identified and isolated fifty-six (56) human orphan G Protein-coupled receptors.
The rights to such fifty-six (56) human orphan G Protein-coupled receptors are
owned jointly by the Company and GTC. Each of the Company and GTC will share in
any research funding, equity investments, license fees, milestone payments and
royalties that may be received from third party pharmaceutical companies that
enter into collaboration agreements with the Company and/or GTC with respect to
such G Protein-coupled receptors. As of November 1999, the Company and GTC
ceased collaborating.

INVESTMENT IN SEQUENOM, INC.

        The Company had an equity interest in Axiom Biotechnologies Inc.
("Axiom"). On August 30, 2002, Axiom entered into a merger agreement with a
wholly owned subsidiary of Sequenom, Inc. ("Sequenom"). Pursuant to the merger,
Cadus originally received 441,446 shares of common stock in Sequenom, a publicly
traded company, in exchange for its equity interest in Axiom. Of these 441,446
shares, 38,507 shares were forfeited pursuant to indemnification provisions of
the merger agreement.

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COLLABORATIVE ARRANGEMENTS

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

LICENSING ARRANGEMENTS

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

        In December 2001, the Subsidiary licensed to a major pharmaceutical
company, on a non- exclusive basis, its yeast technologies, including various
reagents and its library of over 25,000 yeast strains. The licensee paid to the
Subsidiary an up-front non-refundable fee of $500,000. In October 2002, the
licensee paid to the Subsidiary an additional $1,000,000 when the licensee
achieved a research milestone. On September 12, 2003, the parties entered into
an addendum to the agreement pursuant to which the Company extended the license
to an affiliate of the licensee in consideration for the licensee agreeing to
pay $120,000 to the Company. The license terminates on December 31, 2006;
however the licensee may extend the term for additional one-year periods by
paying to the Subsidiary $250,000 for each one-year extension. The Subsidiary is
seeking to license its yeast technologies to other third parties on a
non-exclusive basis.

PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS

        The Subsidiary relies upon patents and trade secrets to protect its
proprietary technologies. As of March 15, 2005, the Subsidiary is the assignee
of 13 issued U.S. patents and 30 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 has filed or held
licenses to 15 other U.S. patent applications, as well as 13 related foreign
patent applications.

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

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

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

        In addition to patent protection, the Company relies upon trade secrets
and proprietary know-how to maintain its competitive position. To maintain the
confidentiality of its trade secrets and proprietary information, the Company
has generally required its employees and consultants to execute confidentiality
agreements upon the commencement of their relationships with the Company. Such
agreements with employees and consultants also provide that all inventions
resulting from work performed by them while in the employ of the Company will be
the exclusive property of the Company.

        Patent law as it relates to inventions in the biotechnology field is
still evolving, and involves complex legal and factual questions for which legal
principles are not firmly established. Accordingly, no predictions can be made
regarding the breadth or enforceability of claims allowed in the patents that
have been issued to the Company or its licensors or in patents that may be
issued to the Company or its licensors in the future. Accordingly, no assurance
can be given that the claims in such patents, either as initially allowed by the
United States Patent and Trademark Office or any of its foreign counterparts or
as may be subsequently interpreted by courts inside or outside the United
States, will be sufficiently broad to protect the Company's proprietary rights,
will be commercially valuable or will provide competitive advantages to the
Company and its present or future collaborative partners or licensees. Further,
there can be no assurance that patents will be granted

                                       12
<PAGE>


with respect to any of the Company's pending patent applications or with respect
to any patent applications filed by the Company in the future. There can be no
assurance that any of the Company's issued or licensed patents would ultimately
be held valid or that efforts to defend any of its patents, trade secrets,
know-how or other intellectual property rights would be successful.

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

        In some cases, litigation or other proceedings may be necessary to
defend against or assert claims of infringement, to enforce patents issued to
the Company or its licensors, to protect trade secrets, know-how or other
intellectual property rights owned by the Company, or to determine the scope and
validity of the proprietary rights of third parties. Such litigation could
result in substantial cost to and diversion of resources by the Company. An
adverse outcome in any such litigation or proceeding could subject the Company
to significant liabilities, require the Company to cease using the subject
technology or require the Company to license the subject technology from the
third party, all of which could have a material adverse effect on the Company's
business, financial condition and results of operations. If any licenses are
required, there can be no assurance that the Company will be able to obtain any
such license on commercially favorable terms, if at all, and if these licenses
are not obtained, the Company might be prevented from using certain of its
technologies.

        In July 1996, SIBIA (which was acquired by Merck & Co. in 1999)
commenced a patent infringement action against Cadus alleging infringement by
Cadus of a patent concerning the use of cells, engineered to express any type of
cell surface receptor and a reporter gene, used to report results in the
screening of compounds against target assays and seeking injunctive relief and
monetary damages. After trial, on December 18, 1998, the jury issued a verdict
in favor of SIBIA and awarded SIBIA $18.0 million in damages. On January 29,
1999 the United States District Court granted SIBIA's request for injunctive
relief that precluded Cadus from using the method claimed in SIBIA's patent. On
February 26, 1999, the United States District Court denied Cadus's motions to
set aside the jury verdict, to grant a new trial and to reduce or set aside the
$18.0 million judgment awarded by the jury. Cadus appealed the judgment. In
order to stay execution pending appeal of the

                                       13
<PAGE>


$18.0 million judgment obtained by SIBIA, in March 1999, Cadus deposited $18.5
million in escrow to secure payment of the judgments in the event Cadus were to
lose the appeal. On September 6, 2000 the United States Court of Appeals ruled
in favor of Cadus and overturned the prior judgment entered by the U.S. District
Court. The Court of Appeals ruled that the claims of the SIBIA patent asserted
against Cadus were invalid and that the District Court erred in denying Cadus's
motion for judgment as a matter of law on the issue of invalidity. On October
30, 2000, the U.S. District Court set aside the $18.0 million judgment in favor
of SIBIA and vacated the injunction against Cadus. Separately, in October 2000,
Cadus obtained the release of the cash escrow of $19.9 million representing the
original $18.5 million and interest that accumulated thereon.

COMPETITION

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

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

GOVERNMENT REGULATION

        The development, manufacturing and marketing of drugs developed through
the use of the Company's technologies are subject to regulation by numerous
governmental agencies in the United States and in other countries. To date, none
of the Company's technologies has resulted in any

                                       14
<PAGE>


clinical drug candidates. The FDA and comparable regulatory agencies in other
countries impose mandatory procedures and standards for the conduct of certain
preclinical testing and clinical trials and the production and marketing of
drugs for human therapeutic use. Product development and approval of a new drug
are likely to take a number of years and involve the expenditure of substantial
resources.

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

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

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

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

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

                                       15
<PAGE>


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

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

        Each manufacturing establishment for new drugs is also required to
receive some form of approval by the FDA. Among the conditions for such approval
is the requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to GMP, which must be followed at all times. In
complying with standards set forth in these regulations, manufacturers must
continue to expend time, monies and effort in the area of production and quality
control to ensure full technical compliance. Manufacturing establishments, both
foreign and domestic, are also subject to inspections by or under the authority
of the FDA and may be subject to inspections by foreign and other Federal, state
or local agencies.

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

         Prior to the commencement of marketing a product in other countries,
regulatory approval in such countries is required, whether or not FDA approval
has been obtained for such product. The requirements governing the conduct of
clinical trials and product approvals vary widely from country to country, and
the time required for approval may be longer or shorter than the time required
for

                                       16
<PAGE>


FDA approval. Although there are some procedures for unified filings for certain
European countries, in general, each country has its own procedures and
requirements.

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

EMPLOYEES

         As of March 15, 2005, 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 2.  PROPERTIES.

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

ITEM 3.  LEGAL PROCEEDINGS.

         The Company is not a party to any legal proceedings.

ITEM 4.  SUBMISSION TO A VOTE OF SECURITY HOLDERS.

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

                                     PART II

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

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

         FISCAL YEAR 2004                                  HIGH          LOW
         First quarter ended March 31, 2004                $1.73         $1.44
         Second quarter ended June 30, 2004                $1.68         $1.56

                                       17
<PAGE>


         Third quarter ended September 30, 2004            $1.66         $1.53
         Fourth quarter ended December 31, 2004            $1.61         $1.54

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


         As of March 15, 2005, there were approximately 68 holders of record of
Cadus's Common Stock.

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

         RECENT SALES OF UNREGISTERED SECURITIES.

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

ITEM 6.  SELECTED FINANCIAL DATA.

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

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                --------------------------------------------------------------------------
                                                   2004          2003             2002            2001             2000
                                                ----------    ----------       ----------      ----------       ----------
                                                            (dollars in thousands, except share and per share data)
<S>                                             <C>           <C>              <C>             <C>              <C>
STATEMENT OF OPERATIONS DATA:
Revenues                                        $      100    $      220       $    1,100      $      600       $      979
                                                ----------    ----------       ----------      ----------       ----------
Operating costs and expenses:
    Total costs and expenses                           778           837              886           1,077            2,389
                                                ----------    ----------       ----------      ----------       ----------
    Operating  (loss) gain                            (678)         (617)             214            (477)          (1,411)

Net (loss) income                               ($     394)   ($     190)(1)   $    1,316(2)   ($     317)(3)   $   18,051(4)
                                                ==========    ==========       ==========      ==========       ==========
Basic and diluted net (loss) income per share   ($    0.03)   ($    0.01)      $     0.10      ($    0.02)      $     1.37
                                                ----------    ==========       ==========      ==========       ==========
Shares used in calculation of basic             13,144,040    13,144,040       13,144,040      13,144,040       13,133,615
and diluted net (loss) income per share
</TABLE>

                                       18
<PAGE>


<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                --------------------------------------------------------------------------
                                                   2004          2003             2002            2001             2000
                                                ----------    ----------       ----------      ----------       ----------
BALANCE SHEET DATA:                                                           (in thousands)
<S>                                             <C>           <C>              <C>             <C>              <C>
Cash and cash equivalents                       $   24,046    $   24,369       $   24,923      $   24,469       $   24,383
Total assets                                        25,546        26,807           26,870          26,201           25,709
Accumulated deficit                                (33,589)      (33,196)         (33,006)        (34,322)         (34,005)
Stockholders' equity                                25,532        26,758           26,458          25,356           25,672
</TABLE>

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

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

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

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

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

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 June 15, 2005.

SFAS No. 123R permits public companies to choose between the following two
adoption methods:

1.       A "modified prospective" method 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, or

2.       A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits entities to
restate based on the amounts


                                       19
<PAGE>


previously recognized under SFAS No. 123 for purposes of pro forma disclosures
either (a) all prior periods presented or (b) prior interim periods of the year
of adoption.

As permitted by SFAS No. 123, the Company currently accounts for share-based
payments to employees using the APB No. 25 intrinsic value method and recognizes
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 minor
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. Due to timing of the release of SFAS No. 123R, the
Company has not yet completed the analysis of the ultimate impact that this new
pronouncement will have on the results of operations, nor the method of adoption
for this new standard.

In December 2004, the FASB issued SFAS No. 153, EXCHANGES OF NONMONETARY ASSETS,
AN AMENDMENT OF APB NO. 29, ACCOUNTING FOR NONMONETARY TRANSACTIONS. SFAS No.
153 requires exchanges of productive assets to be accounted for at fair value,
rather than at carryover basis, unless (1) neither the asset received nor the
asset surrendered has a fair value that is determinable within reasonable limits
or (2) the transactions lack commercial substance. SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. The Company does not expect the adoption of this standard to have a
material effect on its financial position, results of operations or cash flows.

In March 2004, the FASB Emerging Issues Task Force ("EITF") released Issue No.
03-1, "THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO
CERTAIN INVESTMENTS." EITF 03-1 provides guidance for determining whether
impairment for certain debt and equity investments is other-than-temporary and
the measurement of an impaired loss. The recognition and measurement
requirements of EITF 03-1 were initially effective for reporting periods
beginning after June 15, 2004. In September 2004, the FASB Staff issued FASB
Staff Position ("FSP") EITF 03-1-1 that delayed the effective date for certain
measurement and recognition guidance contained in EITF 03-1. The FSP requires
that entities continue to apply previously existing "other-than-temporary"
guidance until a final consensus is reached. Management does not anticipate that
issuance of a final consensus will materially impact the Company's financial
condition or results of operations.


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

OVERVIEW

Cadus was incorporated in 1992 and until July 30, 1999, devoted substantially
all of its resources to the development and application of novel yeast-based and
other drug discovery technologies. On July 30, 1999, Cadus sold its drug
discovery assets to OSI Pharmaceuticals, Inc. ("OSI") and ceased its internal
drug discovery operations and research efforts for collaborative partners. Cadus
terminated all employees who were not hired by OSI or who did not voluntarily
resign except for the Chief Executive Officer, who resigned in April 2000. The
Company'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.

                                       20
<PAGE>


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, 2004, the Company had an accumulated deficit
of approximately $33.6 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, legal and other
costs relating to the maintenance of patents, the amortization of patents and
insurance costs. For the year ended December 31, 2004, such expenses aggregated
$772,388 and included patent costs (including legal fees) and license fees of
approximately $268,000, legal fees (other than in connection with patents) of
approximately $119,000, bookkeeping, accounting and tax preparation fees of
approximately $128,000 and insurance premiums of approximately $48,000. Since
the Company only had revenues of $100,000, it incurred an operating loss of
$677,556 for the year ended December 31, 2004.

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

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.

                                       21
<PAGE>


RESULTS OF OPERATIONS

         YEARS ENDED DECEMBER 31, 2004 AND 2003

         REVENUES

         Revenues for 2004 decreased to $100,000 from $220,000 in 2003. This
decrease is attributable to the Company having received a one-time fee of
$120,000 in 2003 in consideration for the Company's extension of a license to an
affiliate of the licensee and not having received such a fee in 2004.

         OPERATING EXPENSES

         General and administrative expenses decreased to $772,388 for 2004 from
$834,631 in 2003. This decrease was attributable to a decrease of $48,754 in
insurance costs, a decrease of $27,000 in license costs, a decrease of $4,899 in
patent costs and professional fees, offset by an increase in sales tax of
$12,960 in connection with the sale of assets to OSI in 1999. There was an
increase of $5,450 in sundry expenses.

         EQUITY IN OTHER VENTURES

         Equity in other ventures in 2004 reflects a loss of $5,168 from the
Company's investment in Laurel Partners Limited Partnership. There was a $2,117
loss in 2003 from such investment.

         INTEREST INCOME

         Interest income for 2004 increased to $255,913 from $171,218 in 2003.
This increase was attributable primarily to a switch in money market funds with
a higher yield. The average interest earned on invested funds was approximately
1.1% in 2004 and 0.7% in 2003.

         NET (LOSS)

         The net loss for 2004 was $393,503 compared to net loss of $189,696 for
2003. The increase is primarily attributable to a $120,000 decrease in license
fees in 2004 and a $313,189 realized gain on marketable securities in 2003
compared to no such gain in 2004, offset by an increase in interest income of
$84,695 and a decrease in taxes and in total costs and expenses of $144,687.

         YEARS ENDED DECEMBER 31, 2003 AND 2002

         REVENUES

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

         OPERATING EXPENSES

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

                                       22
<PAGE>


         EQUITY IN OTHER VENTURES

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

         INTEREST INCOME

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

         REALIZED GAIN ON MARKETABLE SECURITIES

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

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

         NET (LOSS) INCOME

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

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2004 the Company held cash and cash equivalents of
$24.0 million. The Company's working capital at December 31, 2004 was $24.6
million.

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

         In December 2001, the Subsidiary licensed to a major pharmaceutical
company, on a non- exclusive basis, its yeast technologies. The licensee paid to
the Subsidiary an up-front non- refundable fee of $500,000. In October 2002, the
licensee paid to the Subsidiary an additional $1,000,000 when the licensee
achieved a research milestone. In September 2003, the licensee agreed to pay to
the Subsidiary an additional $120,000 pursuant to an addendum to the license
agreement under which the Company extended the license to an affiliate of the
licensee. The license terminates

                                       23
<PAGE>


on December 31, 2006; however, the licensee may extend the term for additional
one-year periods by paying to the Subsidiary $250,000 for each one-year
extension.

         The Company believes that its existing resources, together with
interest income, will be sufficient to support its current and projected funding
requirements through the end of 2006. 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.

         At December 31, 2004 the Company had tax net operating loss
carryforwards of approximately $29.2 million and research and development credit
carryforwards of approximately $2.5 million which expire in years 2009 through
2023. The Company's ability to utilize such net operating loss and research and
development credit carryforwards is subject to certain limitations due to
ownership changes as defined by rules enacted with the Tax Reform Act of 1986.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8.  FINANCIAL STATEMENTS.

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

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

         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.
The Board of Directors decided to solicit proposals from independent accounting
firms during March 2004. After receiving these proposals and considering a
variety of factors, the Board of Directors voted to engage Grant Thornton LLP as
the Company's new independent accountants and to dismiss KPMG LLP effective upon
the engagement of Grant Thornton LLP.

         The reports of KPMG LLP on the consolidated financial statements of the
Company as of and for the fiscal years ended December 31, 2003 and 2002
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. In connection
with the audits of the consolidated financial statements of the Company as of
and for the fiscal years ended December 31, 2003 and 2002, and during the period
from January 1, 2004 through May 4, 2004, the Company did not have any
disagreements with KPMG 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 KPMG LLP would have caused
it to make reference to the subject matter of the disagreements in connection
with its reports on the Company's

                                       24
<PAGE>


consolidated financial statements as of and for the fiscal years ended December
31, 2003 and 2002. During the period of time from January 1, 2002 through May 4,
2004, there were no "reportable events" as defined in Item 304(a)(1)(v) of
Regulation S-K adopted by the Securities and Exchange Commission.

         During the fiscal years ended December 31, 2003 and 2002, and during
the period from January 1, 2004 through May 4, 2004, the Company did not consult
with Grant Thornton LLP regarding any of the matters specified in Item 304(a)(2)
of Regulation S-K.

ITEM 9A. CONTROLS AND PROCEDURES

         Based on the evaluation of the Company's disclosure controls and
procedures as of the end of the period covered by this Annual Report on Form
10-K, the Company's President and Chief Executive Officer, who also performs
functions similar to those of a principal financial officer, concluded that 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, 2004, 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 AND EXECUTIVE OFFICERS OF THE COMPANY.

         Information with respect to the executive officers and directors of
Cadus as of March 15, 2005 is set forth below:

NAME                              AGE      POSITION

James R. Broach, Ph.D.            57       Director

Russell D. Glass                  42       Director

Carl C. Icahn                     69       Director

Peter S. Liebert, M.D. (1)        69       Director

Jack G. Wasserman (1)             68       Director

David Blitz                       73       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 is and has

                                       25
<PAGE>


been since 1984 a Professor at Princeton University in the Department of
Molecular Biology. In 1984, Dr. Broach and his collaborators were the first ones
to demonstrate that human genes could be successfully implanted into yeast
cells. He received his Ph.D. in Biochemistry from University of California at
Berkeley and his B.S. from Yale University.

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

         CARL C. ICAHN became a director of Cadus in July 1993. Mr. Icahn has
served as Chairman of the Board and a director of Starfire Holding Corporation
("Starfire") (formerly Icahn Holding Corporation), a privately-held holding
company, and as Chairman of the Board and a director of various subsidiaries of
Starfire, since 1984. Mr. Icahn is and has been since 1994 a majority
shareholder, the Chairman of the Board and a Director of American Railcar
Industries, Inc. ("ARI"), a Missouri corporation. ARI is primarily engaged in
the business of manufacturing, managing, leasing and selling of railroad freight
and tank cars. Mr. Icahn has also been Chairman of the Board and President of
Icahn & Co., Inc., a registered broker-dealer and a member of the National
Association of Securities Dealers, since 1968. 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
that invests in real estate and holds various other interests, including the
interests in its subsidiaries that are engaged, among other things, in the oil
and gas business and casino entertainment business. From August 1998 to August
2002, Mr. Icahn served as Chairman of the Board of Maupintour Holding LLC
(f/k/a/ Lowestfare.com, LLC), an internet travel reservations company. From
October 1998 through May, 2004, Mr. Icahn was the President and a director of
Stratosphere Corporation, which operates the Stratosphere Hotel and Casino.
Since September 29, 2000, Mr. Icahn has served as the Chairman of the Board of
GB Holdings, Inc., which owns all of the outstanding stock of Atlantic Coast
Entertainment Holdings, Inc., which through its wholly-owned subsidiary owns and
operates The Sands Hotel and Casino in Atlantic City, New Jersey. Mr. Icahn also
serves in the same capacity with Atlantic Coast Entertainment Holdings, Inc. In
January 2003, Mr. Icahn became Chairman of the Board and a director of XO
Communications, Inc., a telecommunications company. Mr. Icahn received his B.A.
from Princeton University in 1957.

                                       26
<PAGE>


         PETER S. LIEBERT, M.D., became a director of Cadus in April 1995. Dr.
Liebert has been a pediatric surgeon in private practice since 1968 and is
affiliated with the Children's Hospital of Columbia Presbyterian. He is Clinical
Associate Professor of Surgery, College of Physicians and Surgeons, Columbia
University. He is a past president of the Westchester County Medical Society and
is currently Chairman of its Finance Committee. He is also Chairman of the Board
of Rx Vitamins, Inc. Dr. Liebert 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. which, on December 4, 1998, sought
protection under the federal bankruptcy laws; a Plan of Reorganization became
effective August 4, 2000, and a final decree closing the case and settling all
matters relating to the bankruptcy proceeding became effective on December 13,
2001. In 2003, National Energy Group, Inc., became an indirect subsidiary of
American Real Estate Partners, LP. On March 11, 2004, Mr. Wasserman was
appointed to the Board of Directors of Triarc Companies, Inc. 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, acting 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.

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

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

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

                                       27
<PAGE>


         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 new rules adopted by the Securities and
Exchange Commission requiring companies to disclose whether or not at least one
member of the audit committee is an "audit committee financial expert." 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.

OTHER MATTERS RELATING TO DIRECTORS

         On January 5, 2001, Reliance Group Holdings, Inc. ("Reliance")
commenced an action in the United States District Court for the Southern
District of New York against Carl C. Icahn, Icahn Associates Corp. and High
River Limited Partnership ("High River") (a limited partnership controlled by
Mr. Icahn) alleging that High River's tender offer for Reliance 9% senior notes
violated Section 14(e) of the Securities Exchange Act of 1934. Reliance sought a
temporary restraining order and preliminary and permanent injunctive relief to
prevent defendants from purchasing the notes. The Court initially imposed a
temporary restraining order. Defendants then supplemented the tender offer
disclosures. The Court conducted a hearing on the disclosures and other matters
raised by Reliance. The Court then denied Reliance's motion for a preliminary
injunction and ordered dissolution of the temporary restraining order following
dissemination of the supplement. Reliance took an immediate appeal to the United
States Court of Appeals for the Second Circuit and sought a stay to restrain
defendants from purchasing notes during the pendency of the appeal. On January
30, 2001, the Court of Appeals denied plaintiffs' stay application. On January
30, Reliance also sought a further temporary restraining order from the District
Court. The Court considered the matter and reimposed its original restraint
until noon the next day, at which time the restraint against Mr. Icahn and his
affiliates was dissolved. On March 22, 2001, the Court of Appeals ruled in favor
of Mr. Icahn by affirming the judgment of the District Court.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires Cadus's directors and
executive officers, and persons who own more than ten percent of a registered
class of Cadus's equity securities, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock of Cadus. Reporting persons are required by SEC
regulation to furnish the Company with copies of all such filed reports. To
Cadus's knowledge, based solely on a review of copies of such filed reports
furnished to Cadus, all of Cadus's directors, officers and greater than ten
percent beneficial owners made all required filings during fiscal year 2004 in a
timely manner.

                                       28
<PAGE>


CODE OF ETHICS

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

ITEM 11. EXECUTIVE COMPENSATION.

         The following table sets forth certain information concerning the
compensation paid or accrued by Cadus for services rendered to Cadus in all
capacities for the fiscal years ended December 31, 2004, 2003 and 2002, by its
Chief Executive Officer and each of the Cadus's other executive officers whose
total salary and bonus exceeded $100,000 during 2004 (collectively, the "Named
Executive Officers"):

                           Summary Compensation Table
                           --------------------------

<TABLE>
<CAPTION>


                                                                                           Long-Term
                                                                                          Compensation
                                                             Annual Compensation             Awards
                                                             -------------------          ------------
       Name and Principal Position                                                         Securities
       ---------------------------                                                         Underlying        All Other
                                              Year       Salary ($)       Bonus ($)       Options (#)       Compensation
                                              ----       ----------       ---------       -----------       ------------
<S>                                           <C>          <C>               <C>               <C>               <C>
David Blitz (1) ...........................   2004         $15,625           --                --                --
President and Chief Executive Officer         2003              --           --                --                --
                                              2002              --           --                --                --

Michele A. Paige (2) ......................   2004              --           --                --                --
   President and Chief Executive Officer      2003              --           --                --                --
                                              2002              --           --                --                --

Russell D. Glass (3) ......................   2004              --           --                --                --
   President and Chief Executive Officer      2003              --           --                --                --
                                              2002              --           --                --                --
</TABLE>

----------
(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.

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

OPTION GRANTS

         The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 2004 by Cadus to the Named
Executive Officers:

                                       29
<PAGE>


                        OPTION GRANTS IN LAST FISCAL YEAR

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

OPTION EXERCISES AND HOLDINGS

         The following table sets forth certain information concerning each
exercise of stock options, during the fiscal year ended December 31, 2004 by the
Named Executive Officers and unexercised stock options held by the Named
Executive Officers as of the end of such fiscal year.

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

<TABLE>
<CAPTION>
                                                                         Number of
                                                                   Securities Underlying               Value of Unexercised
                                                                   Unexercised Options at            In-The-Money Options at
                                                                    December 31, 2004(#)               December 31, 2004($)
                               Shares          Aggregate         --------------------------        ---------------------------
                             Acquired on         Value
          Name              Exercise (#)      Realized ($)       Exercisable  Unexercisable        Exercisable   Unexercisable
          ----              ------------      ------------       -----------  -------------        -----------   -------------
<S>                              <C>               <C>               <C>           <C>                  <C>           <C>
David Blitz ...............      --                --                --            --                   --            --

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

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

      INCENTIVE PLANS

1993 Stock Option Plan
----------------------

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

      As of March 15, 2005, no shares of Common Stock were subject to
outstanding stock options granted under the 1993 Stock Option Plan.

                                       30
<PAGE>


Stock Option Agreements
-----------------------

      Cadus has granted non-qualified stock options to directors, officers,
employees and consultants of Cadus by means of stock option agreements that were
not issued pursuant to any written incentive plan of the Company. During 2004,
there were no stock options granted pursuant to such stock option agreements. As
of March 15, 2005, an aggregate of 70,069 shares of Common Stock were subject to
outstanding stock options granted under such stock option agreements, and
options to purchase 70,069 shares under such option agreements were exercisable
at prices ranging from $3.60 to $6.75 per share.

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

1996 Incentive Plan
-------------------

      Cadus's 1996 Incentive Plan (the "1996 Incentive Plan") was adopted by the
Board of Directors and approved by the stockholders of Cadus in May 1996. The
1996 Incentive Plan replaced the 1993 Stock Option Plan, effective as of May 10,
1996, with respect to all future awards by Cadus to the Company's employees and
consultants. However, while all future awards will be made under the 1996
Incentive Plan, awards made under the 1993 Stock Option Plan will continue to be
administered in accordance with the 1993 Stock Option Plan. See "Incentive Plans
-- 1993 Stock Option Plan." In December 1996, the Board of Directors of Cadus
amended the 1996 Incentive Plan to (i) increase the maximum number of shares of
Common Stock that may be the subject of awards under the 1996 Incentive Plan
from 333,334 to 833,334 (plus any shares that are the subject of canceled or
forfeited awards) and (ii) provide for the grant of stock options to directors
of the Company . The stockholders of Cadus approved such amendments to the 1996
Incentive Plan in June 1997. In December 1997, the Board of Directors amended
the 1996 Incentive Plan to increase the maximum number of shares of Common Stock
that may be the subject of awards under the 1996 Incentive Plan from 833,334 to
1,833,334 (plus any shares that are the subject of canceled or forfeited
awards). The stockholders of Cadus approved this amendment to the 1996 Incentive
Plan in June 1998.

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

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

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

                                       31
<PAGE>


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

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

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

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

                                       32
<PAGE>


      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, 2005, an aggregate of 9,167 shares of Common Stock were
subject to outstanding stock options granted under the 1996 Incentive Plan. As
of March 15, 2005, stock options to purchase 9,167 shares were exercisable at
prices ranging from $6.38 to $6.63 per share.

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

Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

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

Board Compensation Committee Report On Executive Compensation
-------------------------------------------------------------

      INTRODUCTION

         The Compensation Committee of the Board of Directors of Cadus is
responsible for determining and administering the Company's compensation
policies for the remuneration of Cadus's officers. The Compensation Committee
annually evaluates individual and corporate performance from both a short-term
and long-term perspective. In 2004, Cadus had no officers other than its former
Chief Executive Officer who served in such capacity without compensation and 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 2004
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

                                       33
<PAGE>


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

      COMPONENTS OF EXECUTIVE COMPENSATION

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

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

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

Compensation of the Chief Executive Officer
-------------------------------------------

         The philosophy, factors and criteria of the Compensation Committee
generally applicable to the Company's officers have historically been applicable
to the Chief Executive Officer. However, of the Company's Chief Executive
Officers in 2004, Michele A. Paige served in such capacity without compensation
and 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.

                  Peter Liebert
                  Jack G. Wasserman

                                       34
<PAGE>


Comparative Stock Performance Graph
-----------------------------------

         The following graph provides a comparison of the cumulative total
return* for the Nasdaq Stock Market (US) Index, the Nasdaq Biotechnology Index
and Cadus since December 31, 1999.

                                       35
<PAGE>


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

<TABLE>
<CAPTION>
                                       12/31/99  12/31/00    12/31/01    12/31/02    12/31/03   12/31/04
                                       --------  --------    --------    --------    --------   --------
<S>                                     <C>       <C>         <C>         <C>         <C>        <C>
Cadus                                   100.00    229.71      373.80      348.24      476.04     488.82
Nasdaq Stock Market (U.S.) Index        100.00     60.30       45.49       26.40       38.36      40.51
Nasdaq Biotechnology Index              100.00    153.84      124.26       69.11       96.95     100.60
Cadus Closing Stock Price                $0.31      0.72        1.17        1.09        1.49       1.53
</TABLE>

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

         The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of March 15, 2005 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.


<PAGE>


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

SmithKline Beecham Corporation                   660,962(4)             5.03%
    One Franklin Plaza
    Philadelphia, PA  19102

James R. Broach                                       ----                *

Russell D. Glass                                      ----                *

Peter S. Liebert, M.D                             20,334(5)               *

Michele A. Paige                                      ----                *

Jack G. Wasserman                                 14,500(6)               *

David Blitz                                           ----                *
    c/o Joel Popkin & Company, P.C.
    1430 Broadway (Suite 1805)
    New York, NY 10018

All executive officers and directors as a      5,007,992(7)            37.99%
    group (6 persons)

                             * Less than one percent

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

(2)  Share ownership in the case of each person listed above includes shares
     issuable upon the exercise of options held by such person as of March 15,
     2005, that may be exercised within 60 days after such date for purposes of
     computing the percentage of Common Stock owned by such person, but not for
     purposes of computing the percentage of Common Stock owned by any other
     person.

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

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

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

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

(7)  Includes 38,500 shares of Common Stock issuable upon exercise of options.
     See footnotes (3), (5) and (6).

                      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, 2004:

<PAGE>


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                      (a)                       (b)                         (c)
Plan Category                      Number of              Weighted-average          Number of securities
                                securities to be         exercise price of        remaining available for
                                  issued upon           outstanding options,       future issuance under
                                  exercise of           warrants and rights         equity compensation
                              outstanding options,                                    plans (excluding
                              warrants and rights                                   securities reflected
                                                                                       in column (a))
-----------------------------------------------------------------------------------------------------------
<S>                                   <C>                       <C>                       <C>
Equity compensation                   9,167                     $6.56                     1,736,221
plans approved by
security holders
-----------------------------------------------------------------------------------------------------------
Equity compensation                  70,069                     $5.76                             0
plans not approved by
security holders
-----------------------------------------------------------------------------------------------------------
Total                                79,236                     $5.85                     1,736,221
-----------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         James Broach provides consulting services to the Company for patent and
license related matters for which he was paid $13,000, $13,000 and $7,000 in
calendar years 2004, 2003 and 2002, 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 2004, the Company paid $15,625 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. $54,687 for such
accounting services and $8,000 for tax preparation services performed in 2004
and anticipates that it will pay similar amounts for such services in 2005.

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.
The following table sets forth the aggregate fees incurred by the Company for
the services of its principal accountants in 2004 and 2003:

                                                              2004       2003
                                                            -------    --------
         o   Audit Fees................................     $51,500    $ 64,500
         o   Audit-Related Fees........................     $    --    $     --
         o   Tax Fees..................................     $    --    $ 18,500
         o   All Other Fees............................     $    --    $     --

<PAGE>


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

         Tax fees consist of tax compliance and related tax services.

         The Company's policy is that, before accountants are engaged by the
Company to render audit or non-audit services, the engagement is approved by
Cadus's Board of Directors. Cadus's Board of Directors approved Grant Thornton
LLP's engagement as the Company's independent auditors for the fiscal year
ending December 31, 2004 before Grant Thornton LLP was so engaged. All of the
2004 services described above were approved by the Board of Directors.

         Cadus Corporation has agreed to indemnify and hold KPMG LLP, the
Company's former accountants, harmless against and from any and all legal costs
and expenses incurred by KPMG LLP in successful defense of any legal action or
proceeding that arises as a result of KPMG LLP's consent to the incorporation by
reference of its audit report on the Company's past financial statements
included herein and incorporated by reference in registration statements on Form
S-8 (Nos. 333-58151 and 333-21871).


                                     PART IV

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

(a)   FINANCIAL STATEMENTS PAGE

      Index to Financial Statements                                          F-1

      Report of Independent Registered Public Accounting
      Firm: Grant Thornton LLP                                               F-2

      Report of Independent Registered Public Accounting
      Firm: KPMG LLP                                                         F-3

      Consolidated Financial Statements:
        Consolidated Balance Sheets                                          F-4
        Consolidated Statements of Operations                                F-5
        Consolidated Statements of Stockholders' Equity
          and Comprehensive Income                                           F-6
        Consolidated Statements of Cash Flows                                F-7
        Notes to Consolidated Financial Statements                           F-8

<PAGE>


(b)   Reports on Form 8-K

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

(c)   Exhibits

EXHIBIT NO.   DESCRIPTION OF DOCUMENT


3.1           Certificate of Amendment of Amended and Restated Certificate of
              Incorporation of Cadus Pharmaceutical Corporation ("Cadus"), as
              filed with the Secretary of State of Delaware on June 20, 2003,
              and Amended and Restated Certificate of Incorporation of Cadus, as
              filed with the Secretary of State of Delaware on July 22, 1996.(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)

<PAGE>


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)

<PAGE>


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

<PAGE>


              intentionally omitted. Cadus hereby undertakes to furnish
              supplementally to the Securities and Exchange Commission upon
              request a copy of the omitted schedules.) (6)

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

23.1          Consent of Grant Thornton LLP

23.2          Consent of KPMG LLP

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

31            Certifications

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





(1)   Filed with Cadus's Registration Statement on Form S-8 (Registration No.
      333-21871), dated February 14, 1997.

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

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

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

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

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

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

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

<PAGE>


                                   SIGNATURES

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


                   CADUS CORPORATION


                   By:    /s/ David Blitz
                       ---------------------------------------------------------
                           David Blitz, Chief Executive Officer and President

Date: March 29, 2005

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

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

         NAME                         TITLE                            DATE

 /s/ David Blitz         Chief Executive Officer and President    March 29, 2005
---------------------    (Principal Executive Officer and
David Blitz              Principal Accounting Officer)


 /s/ James R. Broach     Director                                 March 29, 2005
---------------------
James R. Broach


 /s/ Russell D. Glass    Director                                 March 29, 2005
---------------------
Russell D. Glass


                         Director                                 March 29, 2005
---------------------
Carl C. Icahn


 /s/ Peter S. Liebert    Director                                 March 29, 2005
---------------------
Peter S. Liebert


 /s/ Jack G. Wasserman   Director                                 March 29, 2005
---------------------
Jack G. Wasserman

<PAGE>



                        CADUS CORPORATION AND SUBSIDIARY



                                      INDEX



                                                                        Page No.


Report of Independent Registered Public Accounting Firm:
Grant Thornton LLP                                                        F-2

Report of Independent Registered Public Accounting Firm:
KPMG LLP                                                                  F-3

Consolidated Financial Statements:

     Consolidated Balance Sheets - December 31, 2004 and 2003             F-4

     Consolidated Statements of Operations - For the years ended
       December 31, 2004, 2003 and 2002                                   F-5

     Consolidated Statements of Stockholders' Equity and Comprehensive
       Income - For the years ended December 31, 2004, 2003 and 2002      F-6

     Consolidated Statements of Cash Flows - For the years ended
       December 31, 2004, 2003 and 2002                                   F-7

     Notes to Consolidated Financial Statements                           F-8


                                      F-1
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of
Cadus Corporation:


We have audited the accompanying consolidated balance sheet of Cadus Corporation
and  subsidiary  (the  "Company")  as of  December  31,  2004,  and the  related
consolidated  statements of operations,  stockholders'  equity and comprehensive
income (loss),  and cash flows for year then ended.  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  auditing  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  present fairly, in all
material  respects,  the  financial  position of the Company as of December  31,
2004,  and the results of its  operations  and its cash flows 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-2
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
Cadus Corporation:

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

We conducted our audits in accordance  with 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.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

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


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


                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                                                CADUS CORPORATION AND SUBSIDIARY
                                                   CONSOLIDATED BALANCE SHEETS

                                                       ASSETS
                                                                        December 31,            December 31, 2003
                                                                            2004
                                                                    ---------------------     -----------------------
<S>                                                                      <C>                          <C>
Current assets:
      Cash and cash equivalents                                          $ 24,045,800                 $ 24,369,223
      Prepaid and other current assets                                         15,550                       34,393
      Investment in marketable securities                                     580,232                    1,412,627
                                                                         ------------                 ------------
                                                                           24,641,582                   25,816,243
           Total current assets
Investment in other ventures                                                  157,637                      162,805
Other assets, net                                                             747,029                      827,935
                                                                         ------------                 ------------
           Total assets                                                  $ 25,546,248                 $ 26,806,983
                                                                         ============                 ============

                                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Accrued expenses and other current liabilities                     $     14,327                 $     49,164
                                                                         ------------                 ------------
           Total current liabilities                                           14,327                       49,164
                                                                         ------------                 ------------

Commitments and contingencies
Stockholders' equity:

      Common stock, $.01 par value.  Authorized
      35,000,000 shares at December 31, 2004 and
      2003;  issued  13,285,707 shares at December 31,
      2004 and 2003; outstanding 13,144,040 shares at
      December 31, 2004 and 2003                                              132,857                      132,857

      Additional paid-in capital                                           59,844,355                   59,844,355
      Accumulated deficit                                                 (33,589,070)                 (33,195,567)
      Accumulated other comprehensive (loss) income                          (556,146)                     276,249
      Treasury stock                                                         (300,075)                    (300,075)
                                                                         ------------                 ------------
                 Total stockholders' equity                                25,531,921                   26,757,819
                                                                         ------------                 ------------
                 Total liabilities and stockholder's equity              $ 25,546,248                 $ 26,806,983
                                                                         ============                 ============
</TABLE>

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


                                      F-4
<PAGE>

                        CADUS CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                     For the Years Ended December 31,
                                                   2004            2003           2002
                                               ------------    ------------    -----------
<S>                                            <C>             <C>             <C>
License and maintenance fees                   $    100,000    $    220,000    $ 1,100,000
                                               ------------    ------------    -----------
           Total revenues                           100,000         220,000      1,100,000
                                               ------------    ------------    -----------
Costs and expenses:

      General and administrative expenses           772,388         834,631        885,406

      Loss from equity in other ventures              5,168           2,117            692
                                               ------------    ------------    -----------
           Total costs and expenses                 777,556         836,748        886,098
                                               ------------    ------------    -----------
Operating (loss) gain                              (677,556)       (616,748)       213,902
                                               ------------    ------------    -----------
Other income:
      Interest income                               255,913         171,218        335,614
      Realized gain on marketable securities             --         313,189        823,189
                                               ------------    ------------    -----------
           Total other income                       255,913         484,407      1,158,803
                                               ------------    ------------    -----------
(Loss) income before income tax provisions         (421,643)       (132,341)     1,372,705
State tax provision (benefit)                       (28,140)         57,355         57,000
                                               ------------    ------------    -----------
           Net (loss) income                   ($   393,503)   ($   189,696)   $ 1,315,705
                                               ============    ============    ===========
Basic and diluted (loss) income per share      ($      0.03)   ($      0.01)   $      0.10
                                               ============    ============    ===========
Weighted average shares of common stock
outstanding - basic and diluted                  13,144,040      13,144,040     13,144,040
                                               ============    ============    ===========
</TABLE>


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


                                      F-5
<PAGE>


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

<TABLE>
<CAPTION>



                                               COMMON STOCK                  ADDITIONAL         ACCUMULATED
                                          SHARES           AMOUNT          PAID-IN CAPITAL        DEFICIT
                                        ----------        --------         ---------------      ------------
<S>                                    <C>                <C>                <C>                <C>
Balance at December 31, 2001            13,285,707        $132,857           $59,844,355        ($34,321,576)

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

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

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

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

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

Comprehensive income
                                        ----------        --------           -----------        ------------
Balance at December 31, 2003            13,285,707         132,857            59,844,355         (33,195,567)

Net loss for the year ended
December 31, 2004                               --              --                    --            (393,503)

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

Comprehensive loss
                                        ----------        --------           -----------        ------------
Balance at December 31, 2004            13,285,707        $132,857           $59,844,355        ($33,589,070)
                                        ==========        ========           ===========        ============
</TABLE>

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



<PAGE>

<TABLE>
<CAPTION>

                                         ACCUMULATED
                                            OTHER
                                        COMPREHENSIVE          TREASURY STOCK
                                         INCOME (LOSS)      SHARES        AMOUNT             TOTAL
                                        --------------   ---------    ----------        -------------
<S>                                      <C>             <C>          <C>               <C>
Balance at December 31, 2001                   $ --      (141,667)     ($300,075)         $25,355,561

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

Unrealized loss on investment in
marketable securities                      (213,419)           --             --            (213,419)
                                                                                         -----------
Comprehensive income                                                                       1,102,286
                                          ---------       -------     ----------         -----------
Balance at December 31, 2002               (213,419)    (141,667)       (300,075)         26,457,847

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

Unrealized gain on investment in
marketable securities                       489,668            --             --             489,668
                                                                                         -----------
Comprehensive income                                                                         299,972
                                          ---------       -------     ----------         -----------
Balance at December 31, 2003                276,249       141,667       (300,075)         26,757,819

Net loss for the year ended
December 31, 2004                                --            --             --            (393,503)

Unrealized loss on investment in
marketable securities                      (832,395)           --             --           ( 832,395)
                                                                                         -----------
Comprehensive loss                                                                        (1,275,898)
                                          ---------       -------      ---------         -----------
Balance at December 31, 2004              ($556,146)      141,667      ($300,075)        $25,531,921
                                          =========       =======      =========         ===========
</TABLE>

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

                                      F-6
<PAGE>

                        CADUS CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                        For the Years Ended December 31,
                                                      2004            2003            2002
                                                  ------------    ------------    ------------
<S>                                               <C>             <C>             <C>
Cash flows from operating activities:
      Net (loss) income                           ($   393,503)   ($   189,696)   $  1,315,705
      Adjustments to reconcile net (loss)
      income to net cash (used in) provided
      by operating activities:

         Amortization                                   80,906          80,906          80,906

         Loss of equity in other ventures                5,168           2,117             692

         Realized gain on marketable securities             --        (313,189)       (823,189)
      Changes in assets and liabilities:
         License fee receivable                             --              --         500,000

         Prepaid and other current assets               18,843          44,660           4,053)

         Other assets                                       --              --             875

         Accrued expenses and other current
         liabilities                                   (34,837)       (178,646)       (617,222)
                                                  ------------    ------------    ------------
Net cash (used in) provided by operating              (323,423)       (553,848)        453,714
activities
                                                  ------------    ------------    ------------
Net (decrease) increase in cash and cash              (323,423)       (553,848)        453,714
equivalents

Cash and cash equivalents - beginning of period     24,369,223      24,923,071      24,469,357
                                                  ------------    ------------    ------------
Cash and cash equivalents - end of period         $ 24,045,800    $ 24,369,223    $ 24,923,071
                                                  ============    ============    ============
</TABLE>


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


                                      F-7
<PAGE>

                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------


(1)      Organization and Basis of Preparation

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

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

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

(2)      Significant Accounting Policies

         (a)      Principles of Consolidation

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

         (b)      Cash Equivalents

                  The Company  includes as cash  equivalents  all highly  liquid
                  investments  with original  maturities of three months or less
                  when  purchased to be cash  equivalents.  Included in cash and
                  cash  equivalents  at  December  31,  2004 and 2003  were cash
                  equivalents of $23,171,572 and $22,921,511, respectively.

         (c)      Other Assets

                  Other non-current  assets represent  capitalized  patent costs
                  that are  amortized on a  straight-line  basis over  seventeen
                  years. At December 31, 2004 and 2003


                                      F-8
<PAGE>

                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------

                  accumulated    amortization    is   $631,990   and   $551,084,
                  respectively.  Amortization  expense  recorded  in general and
                  administrative  expenses amounted to approximately $81,000 for
                  each of the years ended  December 31 2004,  2003 and 2002. The
                  annual   amortization   for  the  next  five   years  will  be
                  approximately  $81,000  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.

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

         (f)      Net (Loss) Income  Per Share

                  Basic net (loss)  income per share is computed by dividing the
                  net (loss)  income by the  weighted  average  number of common
                  shares  outstanding.  Diluted earnings per share is calculated
                  based on the  weighted  average of common  shares  outstanding
                  plus the effect of dilutive  common stock  equivalents  (stock
                  options).  The  effect of stock  options  totaling  79,236 and
                  434,307  for the  years  ended  December  31,  2004 and  2003,
                  respectively,  were not included in the net (loss)  income per
                  share  calculation   because  their  effect  would  have  been
                  anti-dilutive.  Diluted  earnings per share for the year ended
                  December  31,  2002  was the  same as  basic  earnings  as the
                  exercise  prices  of all of the  Company's  outstanding  stock


                                       F-9
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------


                  options  were  greater  than the average  market  price of the
                  common  shares.  For this reason,  for the year ended December
                  31, 2002, the outstanding  stock options  totaling 609,309 for
                  the year  ended  December  31,  2002  were  excluded  from the
                  calculation of diluted earnings per share.

         (g)      Use of Estimates

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

         (h)      Fair Value of Financial Instruments

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

         (i)      Stock-Based Compensation

                  As permitted by the  provisions  of SFAS No. 123,  "ACCOUNTING
                  FOR  STOCK-BASED  COMPENSATION,"  the  Company  has elected to
                  follow Accounting  Principles Board, APB, No. 25,  "ACCOUNTING
                  FOR STOCK ISSUED TO EMPLOYEES," which uses the intrinsic value
                  method  and  generally  recognizes  no  compensation  cost for
                  employee stock option  grants.  The Company does not recognize
                  any  compensation  expense  for options  granted to  employees
                  because it grants all options at fair market value on the date
                  of grant.  The  adoption of SFAS No. 123R in 2005 will require
                  the Company to expense stock option grants.

                  Pro forma net (loss) income would be the same as the reported
                  net (loss) income for each of the years in the three-year
                  period ended December 31, 2004 had the fair-value-based method
                  been applied to all outstanding awards, which were fully
                  vested as of December 31, 1999.

         (j)      Comprehensive Income

                  Comprehensive  income is  comprised  of net income  (loss) and
                  other  comprehensive  income  (losses) (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-


                                      F-10
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------

                  for-sale securities. Comprehensive income (loss) for the years
                  ended  December 31, 2004,  2003 and 2002 has been reflected in
                  the  consolidated  statements  of  stockholders'  equity.  The
                  Company's  operations in 2004 gave rise to an unrealized  loss
                  on marketable securities classified as available for sale. The
                  Company's  operations in 2003 gave rise to an unrealized  gain
                  on marketable securities classified as available for sale. The
                  Company's  operations in 2002 gave rise to an unrealized  loss
                  on marketable securities classified as available for sale.

         (k)      Recently Issued Accounting Standards

                  In December  2004,  the FASB issued SFAS No. 123R "SHARE BASED
                  PAYMENT."  This  statement  is a  revision  to SFAS  No.  123,
                  supersedes  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 June 15, 2005.

                  SFAS No. 123R permits  public  companies to choose between the
                  following two adoption methods:

                  1. A "modified  prospective" method 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, or

                  2.  A  "modified  retrospective"  method  which  includes  the
                  requirements  of the  modified  prospective  method  described
                  above,  but also  permits  entities  to  restate  based on the
                  amounts previously  recognized under SFAS No. 123 for purposes
                  of  pro  forma  disclosures   either  (a)  all  prior  periods
                  presented  or  (b)  prior  interim  periods  of  the  year  of
                  adoption.

                  As permitted by SFAS No. 123, the Company  currently  accounts
                  for  share-based  payments to  employees  using the APB No. 25
                  intrinsic value method and recognizes 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 minor  exceptions.  For
                  information  about  what the  Company's


                                      F-11
<PAGE>

                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------

                  reported  results of  operations  and earnings per share would
                  have been had it  adopted  SFAS No.  123,  see the  discussion
                  under the heading "Stock-Based Compensation" in this note. 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.  Due to
                  timing of the  release of SFAS No.  123R,  the Company has not
                  yet  completed  the analysis of the ultimate  impact that this
                  new pronouncement will have on the results of operations,  nor
                  the method of adoption for this new standard.

                  In December 2004,  the FASB issued SFAS No. 153,  EXCHANGES OF
                  NONMONETARY ASSETS, AN AMENDMENT OF APB No. 29, ACCOUNTING FOR
                  NONMONETARY  TRANSACTIONS.  SFAS No. 153 requires exchanges of
                  productive  assets to be accounted  for at fair value,  rather
                  than at carryover basis, unless (1) neither the asset received
                  nor  the  asset   surrendered   has  a  fair   value  that  is
                  determinable  within reasonable limits or (2) the transactions
                  lack  commercial  substance.  SFAS No.  153 is  effective  for
                  nonmonetary  asset  exchanges   occurring  in  fiscal  periods
                  beginning after June 15, 2005. The Company does not expect the
                  adoption  of this  standard  to have a material  effect on its
                  financial position, results of operations or cash flows.

                  In March 2004, the EITF released Issue No. 03-1,  "THE MEANING
                  OF  OTHER-THAN-TEMPORARY  IMPAIRMENT  AND ITS  APPLICATION  TO
                  CERTAIN   INVESTMENTS."   EITF  03-1  provides   guidance  for
                  determining  whether  impairment  for certain  debt and equity
                  investments is other-than-temporary  and the measurement of an
                  impaired loss. The recognition and measurement requirements of
                  EITF 03-1  were  initially  effective  for  reporting  periods
                  beginning  after June 15, 2004.  In September  2004,  the FASB
                  Staff issued FASB Staff  Position EITF 03-1-1 that delayed the
                  effective  date  for  certain   measurement   and  recognition
                  guidance  contained  in  EITF  03-1.  The  FSP  requires  that
                  entities    continue    to    apply    previously     existing
                  "other-than-temporary"  guidance  until a final  consensus  is
                  reached.  Management  does not  anticipate  that issuance of a
                  final consensus will materially impact the Company's financial
                  condition or results of operations.

(3)      Asset Sale to OSI Pharmaceuticals, Inc.

         On July 30,  1999,  Cadus sold to OSI,  pursuant  to an asset  purchase
         agreement,  its drug discovery  programs  focused on G  protein-coupled
         receptors, its directed library of approximately 150,000 small molecule
         compounds   specifically   designed   for  drug   discovery  in  the  G
         protein-coupled   receptor  arena,   its   collaboration   with  Solvay
         Pharmaceuticals  B.V.  ("Solvay  Pharmaceuticals"),  its  lease  to its
         research  facility in  Tarrytown,  New York together with the furniture
         and  fixtures  and its  lease to  equipment  in the  facility,  and its
         inventory of laboratory supplies. 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


                                      F-12
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------

         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.

(4)      Litigation

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

(5)      Investments in Other Ventures

         In December  1996,  Cadus  issued a $150,000  promissory  note  bearing
         interest  at 7% per annum in  exchange  for a 42%  limited  partnership
         interest in Laurel Partners Limited Partnership  ("Laurel"),  a limited
         partnership of which a shareholder of Cadus is the general partner. The
         principal  amount and interest  thereon was paid in December  1998.  In
         addition,   Cadus  purchased  for  $160,660  in  cash,  a  47%  limited
         partnership interest in Laurel from Tortoise Corporation, a corporation
         wholly-owned  by  the  shareholder.  Laurel's  purpose  is  to  invest,
         directly or indirectly, in securities of biotechnology companies. Cadus
         had the right to require the shareholder to match any future investment
         made by Cadus in Laurel up to an  aggregate  investment  on the part of
         the  shareholder  of $5.0  million.  This right expired on December 31,
         1999.  Cadus is not  required  to make  any  additional  investment  in
         Laurel. As of and for the year ended December 31, 2004, Laurel's assets
         and net loss totaled $274,636 and $5,793, 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, 2004, 2003 and 2002 Cadus recognized  losses of ($5,168),  ($2,117)
         and ($692),  respectively,  related to the  investment.  The  remaining
         investment  in Laurel of $157,637 and $162,805 at December 31, 2004 and
         2003,  respectively,  is reflected as  investments in other ventures in
         the accompanying consolidated balance sheets.

(6)      Investment In Marketable Securities

         Cadus had an equity interest in Axiom Biotechnologies,  Inc. ("Axiom").
         Due to Axiom's operating losses, Cadus's investment was written down to
         zero as of December 31, 2000.  On August 30, 2002 Axiom  entered into a
         merger  agreement  with a wholly owned  subsidiary  of  Sequenom,  Inc.
         ("Sequenom")  whose shares of common  stock are publicly  traded on the
         Nasdaq National Market.  Pursuant to the merger, Cadus received 441,446


                                      F-13
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------

         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.  The Escrow Shares were held to
         secure rights to  indemnification,  compensation  and  reimbursement of
         Sequenom  and other  indemnitees  as provided in the merger  agreement.
         Upon the closing of the transaction,  Cadus recorded a realized gain of
         $823,189   related  to  the  338,761  common  shares  received  in  the
         consolidated  statement of operations  for the year ended  December 31,
         2002. The Company was  restricted  from selling the shares for a period
         of one year  from  August  30,  2002.  The value of the  Escrow  Shares
         received was recorded as a deferred  gain on  marketable  securities on
         the December 31, 2002  consolidated  balance sheet. On August 30, 2003,
         the Escrow Shares were released and accordingly, the Company recorded a
         realized gain on marketable  securities of $313,189 in the consolidated
         statement of operations for the year ended December 31, 2003.

         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.

         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) gain of ($556,146) and $276,249
         on shares  received is reflected  in  accumulated  other  comprehensive
         income (loss) at December 31, 2004 and December 31, 2003, respectively.

(7)      Licensing Agreements

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


                                      F-14
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------

         2004, 2003 and 2002, the Company  recognized $0, $120,000,  $1,000,000,
         respectively, in license revenue from the licensee.

         In February 2000, Cadus licensed to OSI, on a non-exclusive  basis, its
         yeast-based drug discovery technologies, including various reagents and
         its  library  of over  30,000  yeast  strains,  and its  bioinformatics
         software. OSI paid to Cadus a license fee of $100,000 and an access fee
         of $600,000.  OSI is also obligated to pay an annual maintenance fee of
         $100,000  until the earlier of 2010 or the  termination  of the license
         and a  supplemental  license fee of $250,000 which was paid in December
         2000 after the lifting of the injunction obtained by SIBIA and recorded
         as license fee revenue. OSI may terminate the license at any time on 30
         days prior written notice.  For the years ended December 31, 2004, 2003
         and 2002,  the  Company  recognized  $100,000  each year in license and
         maintenance fees from OSI.

(8)      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, 2004,  2003 and 2002 were $0,
         $27,000 and $25,000, respectively.

(9)      Income Taxes

         Deferred tax assets of  approximately  $15,588,000  and  $15,139,000 at
         December 31, 2004 and 2003,  respectively,  relate  principally  to net
         operating loss  carryforwards of $29,204,000 and $28,811,000,  research
         and development credit carryforwards of $2,535,000 and $2,535,000,  and
         equity losses on  investments  of $2,864,000 and


                                      F-15
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------

         $2,864,000 at December 31, 2004 and 2003,  respectively.  An offsetting
         valuation  allowance  has been  established  for the full amount of the
         deferred  tax assets to reduce such assets to zero,  as a result of the
         significant  uncertainty  regarding  their  ultimate  realization.  The
         aggregate  valuation  allowance  increased $449,000 and $128,000 during
         the years ended December 31, 2004 and 2003, respectively.

         The  Company's  net  operating  loss  carryforwards  and  research  and
         development  credit  carryforwards  noted above expire in various years
         from 2007 to 2023. The Company's  ability to utilize such net operating
         loss and research and development  credit  carryforwards  is subject to
         certain  limitations  due to  ownership  changes,  as  defined by rules
         enacted  with  the  Tax  Reform  Act  of  1986.   The   Company's   tax
         provision/benefit for each year represents an amount for New York state
         capital tax.  There was no provision for federal  income taxes in 2004,
         2003 and 2002,  due to the  current  year loss in 2004 and 2003 and the
         2002  taxable  income was offset by the  utilization  of the  Company's
         available net operating loss carryforwards.

(10)     Stock Options

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

                  Options  granted  under the 1993 Plan expire no later than ten
                  years from the date of grant.  The option price is required to
                  be at least 100% and 85% of the fair market  value on the date
                  of grant as determined by the Board of Directors for incentive
                  stock  options and  nonqualified  options,  respectively.  The
                  options generally become  exercisable  according to a schedule
                  of vesting as determined by the Compensation  Committee of the
                  Board of Directors.  The schedule prescribes the date or dates
                  on which the options become exercisable,  and may provide that
                  the option rights accrue or become exercisable in installments
                  over a period of months or years.


                                      F-16
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------


                  Activity under the 1993 Plan is as follows:

                                             Options Outstanding
                                          Number of        Weighted Average
                                            Shares          Exercise Price
                                         ------------     ------------------
Balance at December 31, 2001                276,739          $   1.52
2002 activity                                    --                --
                                           --------
Balance at December 31, 2002                276,739          $   1.52
2003 activity
    Canceled                               (175,002)               --
                                           --------
Balance at December 31, 2003                101,737          $   1.50
2004 activity
    Canceled                               (101,737)               --
                                           --------
Balance at December 31, 2004                    -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.  As of December 31, 2004, an aggregate of 70,069 common
                  shares was reserved for issuance pursuant to such stock option
                  agreements.

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

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

                                             Options Outstanding
                                          Number of        Weighted Average
                                            Shares          Exercise Price
                                         ------------     ------------------
Balance at December 31, 2001                 323,403         $   2.42
2002 activity                                     --               --
                                           ---------
Balance at December 31, 2002                 323,403         $   2.42
2003 activity                                     --               --
                                           ---------
Balance at December 31, 2003                 323,403         $   2.42
2004 activity
    Cancelled                               (253,334)              --
                                           ---------
Balance at December 31, 2004                  70,069         $   5.76
                                           =========


                                      F-17
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------

The following table summarizes  stock option  information for grants not subject
to any plan as of December 31, 2004:
<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                                         -------------------------------------      -----------------------------
                                         WEIGHTED AVERAGE
      RANGE OF            NUMBER             REMAINING       WEIGHTED AVERAGE         NUMBER     WEIGHTED AVERAGE
   EXERCISE PRICES      OUTSTANDING      CONTRACTUAL LIFE     EXERCISE PRICE        EXERCISABLE   EXERCISE PRICE
   ---------------      -----------      ----------------    -----------------      -----------  ----------------
<S>    <C>                 <C>                  <C>                <C>                <C>             <C>
       $3.60               22,069               .97                $3.60              22,069          $3.60
       $6.75               48,000              1.88                $6.75              48,000          $6.75
                           ------                                                     ------
                           70,069              1.29                $5.76              70,069          $5.76
                           ======
</TABLE>


                                      F-18
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------

         (c)      Effective May 10, 1996, the 1993 Plan was replaced by the 1996
                  Incentive  Plan ("the 1996 Plan")  with  respect to all future
                  awards to Cadus's employees and consultants.  However,  awards
                  made under the 1993 Plan will continue to be  administered  in
                  accordance  with the 1993 Plan. The options  granted under the
                  1996  Plan  may  be  either   incentive   stock   options   or
                  nonqualified  options. In December 1996, the maximum number of
                  shares of common stock that may be the subject of awards under
                  the 1996  Incentive Plan was increased from 333,334 to 833,334
                  (plus any shares that are the subject of canceled or forfeited
                  awards)  by the  Board  of  Directors  and such  increase  was
                  approved  by the  stockholders  of  Cadus  in  June  1997.  In
                  December  1997,  the maximum  number of shares of common stock
                  that may be the  subject  of awards  under the 1996  Incentive
                  Plan was increased to 1,833,334  (plus any shares that are the
                  subject  of  canceled  or  forfeited  awards)  by the Board of
                  Directors  and approved by the  stockholders  of Cadus in June
                  1998. On December 31, 2004, 1,736,221 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.

                  Activity under the 1996 Plan is as follows:


                                             Options Outstanding
                                          Number of        Weighted Average
                                            Shares          Exercise Price
                                         ------------     ------------------
Balance at December 31, 2001                 9,167            $   6.56
2002 activity                                   --                  --
                                          --------
Balance at December 31, 2002                 9,167            $   6.56
2003 activity                                   --                  --
                                          --------
Balance at December 31, 2003                 9,167            $   6.56
2004 activity
                                          --------
Balance at December 31, 2004                 9,167            $   6.56
                                          ========


                                      F-19
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------

The following table summarizes stock option  information for the 1996 Plan as of
December 31, 2004:
<TABLE>
<CAPTION>

                                                 OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                                         -------------------------------------      -----------------------------
                                         WEIGHTED AVERAGE
      RANGE OF            NUMBER             REMAINING       WEIGHTED AVERAGE         NUMBER     WEIGHTED AVERAGE
   EXERCISE PRICES      OUTSTANDING      CONTRACTUAL LIFE     EXERCISE PRICE        EXERCISABLE   EXERCISE PRICE
   ---------------      -----------      ----------------    -----------------      -----------  ----------------
<S>    <C>                 <C>                  <C>                <C>                <C>             <C>
   $6.38 to $6.63           9,167               2.24               $6.56              9,167            $6.56
</TABLE>

(11)     Accrued Expenses and Other Current Liabilities

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

                                               2004               2003
                                               ----               ----

Accrued professional fees                  $ 14,327           $ 45,365
Other accrued expenses                           --              3,799
                                           --------           --------
Total                                      $ 14,327           $ 49,164
                                           ========           ========

(12)     Related Party Transactions

         James Broach provides consulting services to the Company for patent and
         license  related  matters,  for which he was paid $13,000,  $13,000 and
         $7,000 in  calendar  years  2004,  2003 and 2002,  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, 2004, 2003
         and 2002.

         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 2004,  the Company paid
         $15,625 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.  $54,687 for such  accounting  services and $8,000 for tax
         preparation services performed in 2004.

(13)     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, 2004,  2003 and 2002  amounted to  approximately  $12,708,
         $13,400 and $6,370, respectively.


                                      F-20
<PAGE>


                        CADUS CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2004, 2003 AND 2002
                                 ---------------
<TABLE>
<CAPTION>

(14) Condensed Quarterly Financial Data (Unaudited)

Fiscal 2004 Quarter Ended                        December 31        September 30            June 30          March 31
<S>                                                <C>                 <C>                <C>               <C>
License and maintenance fees                     $       --         $        --         $       --         $ 100,000
Operating (loss)                                   (201,628)           (188,319)          (159,756)         (127,853)
Net (loss)                                          (59,313)           (117,023)          (123,691)          (93,476)
Net (loss) per share:
    Basic and diluted                                 (0.00)              (0.01)             (0.01)            (0.01)

Fiscal 2003 Quarter Ended                        December 31        September 30            June 30          March 31

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


                                      F-21