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                                  United States
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A
                                (Amendment No. 1)

 [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001

 [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______

                           Commission File No. 0-12943

                            Cypress Bioscience, Inc.
             (Exact name of registrant as specified in its charter)

                                 ---------------

                    Delaware                                   22-2389839
         (State or other jurisdiction of                    (I.R.S. Employer
          incorporation or organization)                   Identification No.)

         4350 Executive Drive, Suite 325
               San Diego, California                              92121
         (Address of principal executive                       (Zip Code)
                   offices)

       Registrant's telephone number, including area code: (858) 452-2323



        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                           Common Stock $.02 Par Value
                                (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 (Section 229.405 of this chapter) 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]

The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 15, 2002 was $14,272,816*

The number of shares outstanding of the Registrant's common stock as of March
15, 2002 was 6,349,221.

DOCUMENTS INCORPORATED BY REFERENCE:  None

---------------------

* Calculated based on 4,460,255 shares of common stock held as of March 15, 2002
by non-affiliates and a per share market price of $3.20. Excludes 1,888,966
shares of common stock held by directors and executive officers and stockholders
whose ownership exceeds five percent of the common stock outstanding at March
15, 2002. Exclusion of such shares should not be construed to indicate that any
such person possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of the Registrant or that such person is
controlled by or under common control with the Registrant.

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Explanatory Note

The Form 10-K of Cypress Bioscience, Inc., for the year ended December 31, 2001
(the "Form 10-K") is being amended to (i) revise Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operations to include the
total amount of upfront payments we made to Pierre Fabre and the total amount of
milestone payments we are obligated to make to Pierre Fabre upon achievement of
certain milestones, for our exclusive license to develop and sell any products
with the compound milacipran as an active ingredient for the treatment of FMS
and other related chronic pain syndromes; and (ii) to re-file Exhibits 10.22 and
10.23 set forth in Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K to include information that we previously redacted and requested
confidential treatment for from the Securities and Exchange Commission. There
are no other changes to the Form 10-K.

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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

OVERVIEW

         We are focusing our expertise and resources on developing products that
improve the diagnosis and treatment of patients with fibromyalgia syndrome, or
FMS, and other pain and central nervous system disorders. We recently licensed
our first product candidate for development in the treatment of FMS and have
on-going internal research programs for FMS and related pain and central nervous
system conditions.

         As of December 31, 2001, we had working capital of approximately ($2.1)
million ($4.3 million excluding the deferred revenue from the Fresenius
agreement) and an accumulated deficit of approximately $103.5 million. Our
future success depends on our ability to raise additional capital and to develop
and market new products for the treatment of FMS or other related disorders.

         From March 1999 through January 31, 2002, all our revenue was
recognized pursuant to the terms of our agreement with Fresenius, pursuant to
which we licensed to Fresenius rights with respect to the PROSORBA Column. The
original license and distribution agreement was entered into in March 1999,
referred to as the Original Fresenius Agreement. The agreement was amended in
January 2001, referred to as the First Fresenius Amendment and then again in
February 2002, referred to as the Second Fresenius Amendment. From January
through March 1999, our revenue consisted of the sales of the PROSORBA column by
us.

         In April 1999, Fresenius exercised its option to acquire the PROSORBA
column manufacturing facility and related assets, located in Redmond,
Washington, for $5.2 million. In 2001, our reported net loss was approximately
$7.2 million, compared to $8.5 million in 2000 and $7.8 million in 1999. During
1999, we recognized a gain on the sale of assets of approximately $2.4 million.
Excluding the effect of this gain, the net loss would have been $10.2 million
for 1999. Without consideration to the non-recurring events in 1999, the net
loss in 2000 decreased by approximately $1.7 million from 1999. The decrease in
2001 is a direct result of the decreased production, sales and marketing, and
research and development costs related to the PROSORBA column, offset partially
by decreased revenue from the restructure of the Fresenius agreement. The
decrease in 2000 was a direct result of the increased revenue from the Fresenius
agreement and decreased production costs.

         The Original Fresenius Agreement entered into in March 1999 governed
our relationship with Fresenius from March 1999 to January 2001. Revenue for the
year ended December 31, 2000 and from March 1999 to December 31, 1999, consisted
of our pro rata share of PROSORBA column sales by Fresenius. Our pro rata share
of PROSORBA column sales was determined as the total of allowable expenses
incurred by us for royalty, research and development and sales and marketing
expenses plus our share of any remaining net profit generated under the
agreement. Our share of remaining net profit was calculated as the gross profit
from PROSORBA column sales less our reimbursed expenses and reimbursed expenses
incurred by Fresenius. As such, current year revenues are not directly
comparable to revenues recorded in the prior periods.

         The First Fresenius Amendment entered into in January 2001 governed our
relationship with Fresenius from January 2001 through January 2002. Revenues for
2001 consisted of the first year of amortization of the upfront payment of
approximately $8.0 million we received under the First Fresenius Amendment. For
the fiscal year 2001, this upfront payment was recognized as revenue on a
straight-line basis over a five-year term. The unamortized amount of the upfront
payment was recorded during 2001 as deferred revenue.

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         In February 2002, we executed the Second Fresenius Amendment which
extended the license fee period to seven years and set the future licensing fees
based on sales during the licensing fee period. Future license fees will be
based on unit sales of the PROSORBA column during the license period and may
result in a one time payment due on January 30, 2008. If aggregate unit sales
are less than 35,000 units during the licensing period, then no final licensing
fee will be due. If unit sales during the licensing period are greater than
35,000 units but less than 50,000 units, then the final payment will be $1.0
million. If unit sales during the licensing period are greater than 50,000 units
then the final payment will be $2.0 million. As a result of the Second Fresenius
Amendment, the unamortized upfront payment of $6.4 million will be recognized as
revenue in the first quarter of 2002 and revenues for the 2002 and 2001 periods
will not be directly comparable.

Results of Operations

Revenues

         Revenues for the year ended December 31, 2001 totaled $1.6 million,
compared to $3.0 million for the same periods of 2000. This decrease for 2001 is
attributable to the restructuring of the agreement with Fresenius in January
2001 pursuant to the First Fresenius Amendment and the resulting change in the
method of revenue recognition. Revenues for 2001 consisted of amortization of
the upfront payment of approximately $8.0 million we received under the First
Fresenius Amendment in January 2001. For the fiscal year 2001, this upfront
payment was recognized as revenue on a straight-line basis over a five-year
term. The unamortized amount of the upfront payment was recorded as deferred
revenue. As a result, revenues for the 2001, 2000 and 1999 periods are not
directly comparable. As a result of the Second Fresenius Amendment in the first
quarter of 2002 the unamortized upfront payment of $6.4 million will be
recognized as revenue.

         In contrast, revenues for the year ended December 31, 2000 and 1999
consisted of reimbursement to us by Fresenius of our allowable expenses and our
share of profits from the sale of the PROSORBA column under the Original
Fresenius Agreement. The increase in revenue for 2000 over 1999 is attributable
to the higher PROSORBA column sales in 2000 that included the purchase by
Fresenius Medical Care North America or FMCNA that equaled approximately 47% of
the total sales of the PROSORBA column for the year. In addition, the agreement
with Fresenius was completed in March 1999, and we did not begin recognizing
revenue from the Fresenius agreement until April 1999.

         We will not receive any additional royalties from Fresenius. The only
additional payment that we may receive will be a one time payment on January 30,
2008 of $1 million if unit sales of the PROSORBA column from January 2001
through December 2007 are greater than 35,000 units but less than 50,000 units
or if they are greater than 50,000 units, it will be a payment of $2 million.
However, in the event the unit sales are below 35,000 units, we will not receive
any additional payment from Fresenius.

         During 2000, and from April 1999 through December 31, 1999, we
recognized revenue based on pro rata share of sales by Fresenius, which was
generally determined as reimbursement of allowable expenses incurred by us
related to the PROSORBA column, and included royalty, research and development,
and sales and marketing expenses plus our share of any remaining net profit
generated by the agreement.

         Our direct product sales for the year ended December 31, 1999 totaled
approximately $588,000. As of April 1999, we no longer recorded revenues from
the sale of the PROSORBA column and instead began recognizing revenue under the
Fresenius agreement as described above. Therefore, we did not

                                      18.

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record any direct product sales in 2001 or 2000. Accordingly, revenues for the
year ended December 31, 2001 and 2000 are not directly comparable to prior
periods.

         Total sales of the PROSORBA column by both Fresenius and us for the
year ended December 31, 2000 totaled approximately $8.6 million, compared to
$3.1 million for the same period in 1999. The increase in PROSORBA column sales
in 2000 over 1999 of $5.5 million was primarily attributable to a $4.0 million
purchase of 4,000 PROSORBA columns by FMCNA, an affiliate of Fresenius, coupled
with an increase in PROSORBA column sales of $1.5 million.

Operating Expenses

         Consolidated operating expenses for the years ended December 31, 2001,
2000 and 1999 were approximately $8.9 million, $11.6 million and $12.4 million,
respectively. The decrease in operating expenses of approximately $2.7 million
in 2001 from the same period in 2000 was primarily due to decreased production
costs and sales and marketing costs associated with the PROSORBA column,
partially offset by increased research and development and general and
administrative expenditures associated with FMS and milnacipran. The decrease in
operating expenses of approximately $800,000 in 2000 from the same period in
1999 was due to decreased production costs and general and administrative
expenditures.

Production Costs

         Production costs were $0, and approximately $427,000, and $888,000 for
the years ended December 31, 2001, 2000 and 1999, respectively. In April 1999,
Fresenius purchased our PROSORBA column manufacturing facility and related
assets. However, we remained responsible for paying royalties to certain third
parties based on the sales of the PROSORBA column prior to the First Fresenius
Amendment in January 2001. Therefore, between May 1999 and January 2001,
production costs represented royalties incurred by us for PROSORBA column sales
payable to third parties. The decrease in production costs of approximately
$427,000 for the year ended December 31, 2000 compared to $461,000 in the same
period in 1999 reflects the transfer of the manufacturing responsibilities and
costs to Fresenius.

Sales and Marketing

         Sales and marketing costs were approximately $0, $5.9 million and $5.9
million for the years ended December 31, 2001, 2000 and 1999, respectively. The
decrease in sales and marketing costs for the years ended December 31, 2001
compared to the same period in 2000 and 1999, reflects the transfer of the all
sales and marketing responsibilities and costs related to the PROSORBA column to
Fresenius. During 2000 and 1999, in the United States, we jointly marketed with
Fresenius the PROSORBA column. Under the Original Fresenius Agreement, during
2000 and 1999 we could recover a portion of each of our respective sales and
marketing expenses. The amount recovered was a function of total PROSORBA column
sales.

Research and Development

         Research and development expenses were approximately $3.8 million, $1.9
million and $1.9 million in 2001, 2000 and 1999, respectively. The increase in
research and development costs for the year ended December 31, 2001 compared to
the same period in 2000, was primarily due to the following: (i) $750,000
licensing fee paid to Pierre Fabre for the licensing of milnacipran; (ii) the
costs associated with filing the IND application with the FDA, (which was filed
in December of 2001); (iii) the costs of launching our FMS genomic research
program; and (iv) implementation of a database for our physician

                                      19.

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and patient registries focused on patients with FMS and physicians that treat
patients with FMS. These cost increases were partially offset by the assumption
of the research and development activities related to the PROSORBA column by
Fresenius.

         This increase in research and development for milnacipran represents a
shift in our focus from research and development related to the maintenance of
the PROSORBA column in 2000, to the development of milnacipran for the treatment
of FMS. All of the costs related to the PROSORBA column after January 1, 2001
are the obligation of Fresenius. Our research and development expenses and
efforts for 2001 have been focused on the development of FMS and were
approximately $3.3 million and consisted of licensing fees to Pierre Fabre for
milnacipran, submission of the IND application to the FDA for milnacipran, and
FMS science programs.

         In addition, in our efforts to evaluate our alternatives with respect
to Cyplex we spent approximately $373,000 in 2001.

         Expenses for 2000 from the same period in 1999 remained relatively
constant. During 2000 and 1999, we shared with Fresenius the expenses of the
post-approval clinical trials for the PROSORBA column mandated by the FDA.
Research and development expenses typically increase with each phase of a
product's development as such product advances to FDA approval. We recorded
research and development costs as incurred, including the costs associated with
its clinical trials. We enrolled patients in various clinical trial sites and
recorded the related cost as the work was performed by the respective research
entities. We accrued costs related to clinical trials until such costs were
actually paid. As a result of the restructuring of the Fresenius agreement in
January 2001 (the First Fresenius Amendment), all these future costs related to
the PROSORBA column will be incurred and paid by Fresenius.

General and Administrative

         General and administrative expenses were approximately $5.2 million,
$3.3 million and $3.7 million for the years ended December 31, 2001, 2000 and
1999, respectively. The increase in general and administrative expenses of
approximately $1.9 million in 2001 from the same period in 2000 was primarily
due to business development activity associated with the execution of our
license agreement with Pierre Fabre and our efforts to license other product
candidates for the treatment of the FMS, as well as to the non-cash expense of
approximately $785,000 in connection with our stock option cancel and regrant
program. We will continue to record a similar non-cash expense in future
quarters to reflect the difference between the exercise price of the regranted
options, which is $2.50, and the fair market value of the options, until each of
the options held under the cancel and regrant program has been exercised or is
terminated. We expect general and administrative costs will fluctuate from
quarter to quarter depending on our business development activities and upon the
impact of the stock option and regrant program.

         The decrease in general and administrative expenses of approximately
$358,000 in 2000 from the same period in 1999 was due to a decrease in business
development activities related to the PROSORBA column, partially offset by
retention bonuses paid to executive officers of approximately $400,000, and the
settlement with Ditassa S.A. related to distribution of the PROSORBA column in
Spain.

Interest Income

         Interest income was approximately $434,000, $634,000, and $497,000 for
the years ended December 31, 2001, 2000 and 1999, respectively. The decrease in
interest income of approximately $200,000 in 2001 from the same period in 2000
was primarily due to lower interest rates offered for our cash investments and
lower cash and cash equivalent balances maintained during 2001. The increase in

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interest income of approximately $137,000 in 2000 from the same period in 1999
was due to higher cash and cash equivalent balances from the exercising of
employee stock options, resulting in $4.5 million in proceeds, and the advances
on a term loan totaling $3.0 million in the fourth quarter of 1999.

Interest Expense

         Interest expense was approximately $273,000, $549,000 and $161,000 for
the years ended December 31, 2001, 2000 and 1999, respectively. The decrease in
interest expense of approximately $276,000 in 2001 over the same period in 2000
was due to repayment of the convertible debentures and repayment of the maturing
portion of the line of credit. The increase in interest expense of approximately
$388,000 in 2000 over the same period in 1999 was due to the $3.0 million in
proceeds received by us during 1999 on a line of credit.

         On March 31, 2001, our outstanding 7% convertible debentures matured
and we paid $292,668, which included $17,668 of accrued interest to the holders
of the debentures.

Gain on Sale of Assets

         In April 1999, Fresenius exercised their option to purchase the
PROSORBA column manufacturing facility from us. The option price for our
manufacturing facility, related assets and product inventory was approximately
$5.2 million. After final adjustments related to the sales price of the facility
were determined in the fourth quarter of 1999, a total gain of approximately
$2.4 million was recognized.

Net Loss

         Net loss applicable to common stockholders was approximately $7.2
million, $8.5 million and $7.8 million for the years ended December 31, 2001,
2000 and 1999, respectively. The decrease of approximately $1.3 million in 2001
from the same period in 2000 was primarily due to the decrease in sales and
marketing and production costs as a result of the restructured Fresenius
agreement in 2001, partially offset by decreased revenue from the same Fresenius
agreement and increased research and development costs and general and
administrative expenses associated with milnacipran, and the non-cash expenses
of the re-priced options.

         The increase of approximately $717,000 in 2000 from the same period in
1999 was primarily due to the recognized gain on the sale of assets of
approximately $2.4 million during 1999, partially offset by increased revenue
from the Fresenius agreement, which includes the purchase of $4.0 million of
PROSORBA columns by FMCNA. Excluding the effect of the gain on sale of assets of
approximately $2.4 million, the net loss would have been $10.2 million for 1999.
The decrease in net loss from $10.2 million for 1999 to $8.5 million for 2000 of
approximately $1.7 million was primarily due to the increased revenue from the
Fresenius agreement.

Liquidity and Capital Resources

         Our principal sources of liquidity are our cash and cash equivalents.
Our cash and cash equivalents totaled approximately $5.9 million and $7.1
million at December 31, 2001 and 2000, respectively. The decrease in cash and
cash equivalents of approximately $1.2 million was primarily due to $6.8 million
used for general operating activities and repayment of notes payable of
approximately $1.8 million and restriction of cash of approximately $605,000,
partially offset by cash received from the restructured Fresenius agreement of
approximately $8.0 million. Working capital at December 31, 2001 and 2000 was
approximately ($2.1) million ($4.3 million excluding the deferred revenue from
the

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Fresenius agreement) and $4.5 million, respectively. In January 2001, we
received approximately $8.0 million from Fresenius in exchange for most of our
assets related to the PROSORBA column and for the prepayment of certain
royalties on sale of the PROSORBA column.

         On August 1, 2001, we entered into a license and trademark agreement
with Pierre Fabre. The agreement provides us with an exclusive license to
develop and sell any products with the compound milnacipran as an active
ingredient, for the treatment of FMS and related chronic pain syndromes in the
United States and Canada. We also have an option to expand the license to
include other indications in these markets. We paid Pierre Fabre upfront
payments of $1.5 million and additional payments to Pierre Fabre of up to a
total of $5.5 million will be based on meeting certain clinical and regulatory
milestones. If the product is commercialized, Pierre Fabre will manufacture the
active ingredient used in the commercial product and we will pay Pierre Fabre a
transfer price and royalties based on net sales. Pierre Fabre retains the right
to sell products developed by us for the FMS indication outside of North America
and will pay us a royalty based on net sales for such marketing rights.

         We have an outstanding term loan that will be repaid in full in
September 2002. Prior to the sale of PROSORBA related assets to Fresenius, the
loan was secured by certain of our assets. In January 2001, the debt covenants
related to this loan were restructured and the loan was secured with a $2.1
million interest bearing restricted cash account held as collateral by the
lender. The interest bearing restricted cash has been and will continue to be
used to retire the loan over its term. The remaining balance of the restricted
cash account at December 31, 2002 was $605,240.

Subsequent Event

         In February 2001, we attended a hearing of the Nasdaq Qualifications
Panel, or the Panel, to appeal a decision that our securities would be delisted
from The Nasdaq SmallCap Market, or Nasdaq. The Panel indicated that it would
continue to allow our securities to be listed on Nasdaq, subject to our filing
with this Form 10-K an unaudited balance sheet no older than 45 days, including
pro forma adjustments for post-balance sheet date events (which includes our
recently completed financing) showing net tangible assets at least $12.0 million
and/or net shareholders' equity at least $12.5 million. This unaudited balance
sheet dated February 28, 2002, or the Interim Balance Sheet, is included as
Exhibit 10.25 and shows shareholder equity of approximately $18.9 million.
Therefore, we anticipate that the Panel will determine to continue to list our
securities on Nasdaq.

         The Interim Balance Sheet includes the cash raised in our private
placement financing which we closed on March 28, 2002. In this financing, we
received approximately $15.5 million in net proceeds. We believe our cash
balance following the close of this financing will allow us to fund our
operations into 2003.

         In connection with this financing, we engaged an investment banking
firm in an effort to raise capital. We were unable to complete a successful
financing with this firm. Therefore, in February 2002, we engaged the services
of Paramount Capital, Inc. and Evolution Capital as placement agents. Paramount
Capital, Inc., one of the placement agents in the financing, is affiliated with
Paramount Capital Asset Management, Inc., a 28.1% stockholder of the Company. On
the basis of the information we received from our interaction with prospective
investors and the research performed by Paramount Capital and Evolution Capital,
we concluded that we could complete a financing on the following terms. We
issued and sold to each purchaser shares of our Common Stock and warrants to
purchase shares of our Common Stock. The purchase price for each security was
$2.47 which equaled 90% of the average of the closing bid price of our Common
Stock as reported on Nasdaq ( "CYPB") for the 10 trading days immediately
preceding the date of the execution of the Agreement, ending February 15, 2002.
For each two shares of our Common Stock purchased by a purchaser, the purchaser
received a warrant to purchase

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one share of Common Stock at an exercise price approximately equal to $3.09,
which is 125% of the purchase price. The warrant is exercisable for five years
from March 28, 2002. We have the right to redeem the warrants for $0.02 per
share of Common Stock underlying the warrants upon notice to the record holders
of the warrants if the average of the closing price of our Common Stock exceeds
$6.18 for 20 consecutive trading days.

         In exchange for its services as a placement agent, Paramount received a
cash commission of $594,040 and a warrant to purchase 343,573 shares of the
Company's common stock for purchasers that were introduced to the Company by
Paramount. Tim McInerney and Scott Katzmann both participated in the financing
and are Senior Managing Directors at Paramount. In addition, Lindsay Rosenwald,
the President of Paramount Capital Asset Management, Inc., is a member of the
Managing Member of Orion Biomedical Fund, LP and Orion Biomedical Offshore Fund,
LP, both of which participated in the financing. Dr. Larry Kessel, a member of
the Board of Directors of the Company and Daniel Kessel, Dr. Kessel's brother,
and Dr. Jay Kranzler, the Company's Chief Executive Officer and the Chairman of
the Board of Directors, also participated in the financing.

         Additionally, to the extent we decide to develop and/or acquire
products related to the treatment of FMS, we will be required to raise
additional capital. The amount of capital that we may require is dependent upon
many factors, including the following:

          .    the proposed clinical trials of milnacipran to treat FMS;

          .    results of current research and development efforts related to
               products to treat FMS; and

          .    the FDA regulatory process, costs of commercialization of
               products and potential competitive and technological advances and
               levels of product sales.

         Because we are unable to predict the outcome of the foregoing factors,
some of which are beyond our control, we cannot estimate with certainty our mid
to long-term capital needs. Although we may seek to raise additional capital
through a combination of equity sources, we may not be able to raise additional
capital through such sources, and even if we raise money, the funds we raise may
not be sufficient to allow us to maintain our current and planned operations. If
we are unable to obtain additional capital, we will be required to delay, scale
back or eliminate some or all of our planned research and development activities
related to additional product opportunities.

Significant Accounting Policies

         Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to revenue recognition, patent costs and income taxes. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. We believe the
following critical accounting policies affect the significant judgments and
estimates used in the preparation of our consolidated financial statements (see
also the notes to our financial statements).

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Revenue Recognition

         In accordance with Staff Accounting Bulletin ("SAB") No. 101, Revenue
Recognition in Financial Statement, revenues are recognized when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the price is fixed and determinable and collectibility is reasonably
assured. Revenue is deferred for fees received before earned.

         Per the terms of the First Fresenius Amendment, we received $8 million
in January 2001 in exchange for a license to Fresenius, which was royalty-free
for the 10,000 unit sales for each of the first five years, with a royalty of
$200 per unit on sales exceeding 10,000 units in any year. Cypress was to
receive royalties on all unit sales after the fifth year. As the up-front
payment was a prepayment on the first five years of sales and the terms of the
agreement did not state that the payment was non-refundable, we deferred the
recognition of this payment over the initial prepaid period of five years. In
February 2002, Cypress and Fresenius amended certain provisions of the license
agreement (the Second Fresenius Amendment). Under the Second Fresenius
Amendment, the initial $8 million payment received in January 2001 was made
non-refundable under any circumstances. The Second Fresenius Amendment also
eliminated the payment of royalties of PROSORBA column sales in excess of 10,000
in the first five years of the agreement and eliminated all royalties on
PROSORBA column sales beyond five years. A contingent payment is due to us in
the amount of $1 million if sales during the first seven years exceed 35,000
units, $2 million if they exceed 50,000 units and none if the sales are less
than 35,000 units. Such payment, if any, will be due on June 30, 2008 and is
non-refundable. As a result of this amendment, we will recognize the remaining
deferred revenue, which amounted to $6.4 million as of December 31, 2001, as
revenue in the quarter ended March 31, 2002.

         Revenue from the Fresenius agreement for the year ended December 31,
2000 consisted of our pro rata share of the PROSORBA column sales by Fresenius
as determined under the agreement entered into in March 1999. Our pro rata share
of the PROSORBA column sales was determined as a total of allowable
reimburseable expenses incurred by us for royalty, research and development and
sales and marketing expenses plus our share of any remaining profit generated
under the agreement. Our share of remaining net profit was calculated as the
gross profit from the PROSORBA column sales less reimbursed expense incurred by
us and Fresenius.

Technology Licenses for Research and Development

         We expense research and development costs as incurred pursuant to SFAS
No. 2, Accounting for Research and Development Costs, as the ultimate
commercialization of the related products is uncertain and the technology has no
alternative uses. In August 2001, Cypress entered into a license agreement with
Pierre Fabre, the pharmaceutical division of bioMerieux Pierre Fabre of Paris,
France. The agreement provides us with an exclusive license to develop and sell
and product with the compound milnacipran as an active ingredient, for the
treatment of FMS and related chronic pain syndromes in the U.S. and Canada. The
agreement also gives us an option to expand the license to include other
indications in these markets. In connection with the license, we paid an
up-front fee and are obligated to make additional payments based on meeting
certain clinical and regulatory milestones. The payments which have been accrued
through December 31, 2001 have been expensed. If the drug is commercialized, we
will pay Pierre Fabre a transfer price and royalties based on net sales. Pierre
Fabre retains the right to sell products developed by us for the FMS indication
outside North America and will pay us a royalty based on net sales for such
marketing.

                                      24.

<PAGE>

Stock Based Compensation

         We grant stock options for a fixed number of shares to employees in
accordance with Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees, as amended by SFAS No. 123 ("FAS
123"), Accounting for Stock Based Compensation. Accordingly, we recognize no
compensation expense for the stock option grants to employees provided that the
option exercise price is not less than the fair market value of the underlying
stock on the date of grant. The value of options or stock awards issued to
non-employees have been determined in accordance with FAS 123 and Emerging
Issues Task Force No.96-18, Accounting for Equity Instruments that are Issued to
Other than Employees for Acquiring or in Conjunction with selling Goods and
Services, and are periodically re-measured as the options vest. Warrants from
common stock are value at the date of issuance and are recorded to the expense
category related to the services provided.

         In June 2001, Cypress entered into an option cancel and regrant
program, which resulted in variable accounting for the newly issued options
under Financial Accounting Standards Board Interpretation No. 44 ("FIN 44"),
Accounting for Certain Transaction Involving Stock Compensation - An
Interpretation of APB 25. As a result, we recorded stock compensation totaling
approximately $785,000 for the year ended December 31, 2001. The intrinsic value
of the options to purchase common stock will be re-measured at the end of each
period for the life of the option and amortized over the vesting period.

Valuation Allowance for Deferred Tax Assets

         A valuation allowance is provided for deferred tax assets if it is more
likely than not these items will either expire before we are able to realize
their benefit, or that future deductibility is uncertain. In general, companies
that have a history of operating losses are faced with a difficult burden of
proof on their ability to generate sufficient future income within the next two
years in order to realize the benefit of the deferred tax assets. We have
recorded a valuation against our deferred tax assets based on our history of
losses. The deferred tax assets are still available for us to use in the future
to offset taxable income, which would result in the recognition of tax benefit
and a reduction to our effective tax rate.

                                      25.

<PAGE>

ITEM 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(1)  Financial Statements

Our financial statements are included herein as required under Item 8 of this
Annual Report on Form 10-K. See Index on page F-1. (Previously filed on Form
10-K for the year ended December 31, 2001).

(2)  Financial Statement Schedules

Financial statement schedules have been omitted since they are either not
required, not applicable, or the information is otherwise included.

(3)  Exhibits
<TABLE>
<CAPTION>
     Exhibit No.          Description                                  Incorporated by Reference to
     -------------------- -------------------------------------------- -----------------------------------------------------
<S>  <C>                  <C>                                          <C>
     3.1                  Amended and Restated Certificate of          Exhibit 3.1 to Form 10-Q for the quarter ended
                          Incorporation                                March 30, 1996
     3.2                  Certificate of Amendment filed on            Exhibit 3.2 to Form 10-K for the year ended
                          March 9, 2001                                December 31, 2000
     3.3                  By-Laws, as amended                          Exhibit 3.2 to Form 10-K for the year ended
                                                                       December 31, 1995
     4.1                  Form of Stock Certificate                    Exhibit 4.1 to Form S-1 Registration Statement No.
                                                                       33-41225
     10.1                 Agreement and Plan of Merger and             Exhibit 2.1 to Form 10-Q for quarter ended
                          Reorganization dated October 10, 1996, by    September 30, 1996
                          and among Registrant, Cypress Acquisition
                          Sub, Inc. and PRP, Inc.
     10.2                 1996 Equity Incentive Plan (the "1996        Exhibit 99.1 to Form S-8 Registration Statement No.
                          Plan")                                       333-06771
     10.3                 Form of Incentive Stock Option Agreement     Exhibit 3.1 to Form 10-Q for the quarter ended
                          under the 1996 Plan                          March 30, 1996
     10.4                 Form of Non-Statutory Stock Option           Exhibit 3.1 to Form 10-Q for the quarter ended
                          Agreement under 1996 Equity Incentive Plan   March 30, 1996
     10.5                 Incentive Stock Option and Appreciation      Exhibit 99.4 to Form S-8 Registration Statement No.
                          Plan, as amended June 29, 1992               333-06771
     10.6                 Amended and Restated 1988 Nonqualified       Exhibit 99.6 to Form S-8 Registration Statement No.
                          Stock Option Plan                            333-06771
     10.7                 Form of Nonqualified Stock Option            Exhibit 99.7 to Form S-8 Registration Statement No.
                          Agreement under the 1988 Plan                333-06771
     10.8                 Form of Stock Option Agreement for           Exhibit 99.8 to Form S-8 Registration Statement No.
                          issuance's of all non-plan options           333-06771
     10.9                 Stock Option and Stock Appreciation Plan     Exhibit 28.1 to Form S-8 Registration Statement No.
                                                                       333-06771
     10.10                Employment Agreement dated December 28,      Exhibit 10.8 to Form 10-K for the year ended
                          1996 between the Registrant and Jay D.       December 31, 1995
                          Kranzler
     10.11                Letter Amendment dated July 19, 1996 to      Exhibit 10.11 to Form 10-K for the year ended
                          Employment Agreement between the             December 31, 2000
                          Registrant and Jay D. Kranzler
     10.12                Second Amendment dated July 1, 2000 to       Exhibit 10.12 to Form 10-K for the year ended
                          Employment Agreement between the             December 31, 2000
                          Registrant and Jay D. Kranzler

</TABLE>

                                      45.

<PAGE>
<TABLE>
<CAPTION>
<S>  <C>                  <C>                                          <C>
     10.13                Third Amendment to Employment Agreement      Exhibit 10.13 to Form 10-K for the year ended
                          dated January 31, 2001 between the           December 31, 2000
                          Registrant and Jay D. Kranzler
     10.14                Employment Agreement dated December 1,       Exhibit 10.14 to Form 10-K for the year ended
                          2001 between the Registrant and R. Michael   December 31, 2001
                          Gendreau
     10.15                Sublease dated February 1, 1999 between      Exhibit 10.41 to 1998 Form 10-K
                          the Company and Cardia Pacemakers, Inc.
                          and related lease dated August 1991
                          between Michael R. Mastro and Redmond East
                          Associates and Incontrol, Inc. and
                          Amendments One through Ten
     10.16                Loan and Securities Agreement between the    Exhibit 10.1 to Form 10-Q from the quarter ended
                          Registration, PRP, Inc. and Transamerica     September 30, 1999
                          Business Credit Corporation
     10.17                Stock Subscription Warrant to Purchase       Exhibit 10.2 to Form 10-Q from the quarter ended
                          Common Stock of the Registration between     September 30, 1999
                          the Registrant and TBCC Funding Trust II
                          or its registered assigns
     10.18                Amended and Restated License and             Exhibit 2.2 to Form 8-K filed on January 22, 2001
                          Distribution Agreement dated January 19,
                          2001 between the Registrant and Fresenius
     10.19                2000 Equity Incentive Plan                   Exhibit 10.25 to Form 10-K for the year ended
                                                                       December 31, 2000
     10.20                Form of Stock Option Agreement for use       Exhibit 10.26 to Form 10-K for the year ended
                          with the 2000 Equity Incentive Plan          December 31, 2000
     10.21                Employment Agreement dated June 18, 2001     Exhibit 10.1 to Form 10-Q for the quarter ended
                          between Dr. John N. Bonfiglio and the        June 30, 2001
                          Registrant
     10.22                Restated License Agreement dated
                          November 13, 2001 between Pierre Fabre
                          Medicament and the Registrant*
     10.23                Trademark Agreement dated August 1, 2001
                          between Pierre Fabre Medicament and the
                          Registrant*
     10.24                Letter Amendment dated February 1, 2002 to   Exhibit 10.24 to Form 10-K for the year ended
                          the Amended and Restated License Agreement   December 31, 2001
                          dated January 19, 2001 between the
                          Registrant and Fresenius
     10.25                Consolidated Balance Sheets                  Exhibit 10.25 to Form 10-K for the year ended
                                                                       December 31, 2001
     23.1                 Consent of Ernst & Young LLP, Independent
                          Auditors                                     Exhibit 23.1 to Form 10-K for the year ended
                                                                       December 31, 2001

(b)      Reports on Form 8-K

         Form 8-K filed on March 12, 2002 announcing recent decision of Nasdaq
         and attaching financial statements.

         Form 8-K filed on February 21, 2002 announcing the execution of
         Securities Purchase Agreements with various investors in connection
         with a proposed private financing.

*Confidential Treatment has been requested for certain portions of this
agreement.
</TABLE>

                                      46.

<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>
                                              CYPRESS BIOSCIENCE, INC.


<S>       <C>                               <C>
          Date: July 19, 2002              By:  /s/ Jay D. Kranzler
                                                 ----------------------------------------------------
                                                 Chief Executive Officer and Chairman of the Board
                                                 (Principal Executive Officer)

          Date: July 19, 2002              By:  /s/ Sabrina Martucci Johnson
                                                 ----------------------------------------------------
                                                 Chief Financial Officer and Vice President
                                                 Marketing
</TABLE>

                                   47.

<PAGE>

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

<TABLE>
<CAPTION>

Signature                                     Title                                                 Date
---------                                     -----                                                 ----

<S>                                           <C>                                                  <C>
/s/ Jay D. Kranzler, M.D., Ph.D.              Chief Executive Officer and Chairman of the Board     July 19, 2002
--------------------------------------------- (Principal Executive Officer and Principal
Jay D. Kranzler, M.D., Ph.D.                  Financial and Accounting Officer)

/s/ Sabrina Martucci Johnson                  Chief Financial Officer and Vice President            July 19, 2002
--------------------------------------------- Marketing
Sabrina Martucci Johnson                      (Principal Financial and Accounting Officer)

/s/ Jack H. Vaughn*                           Director                                              July 19, 2002
---------------------------------------------
Jack H. Vaughn

/s/ Samuel D. Anderson*                       Director                                              July 19, 2002
---------------------------------------------
Samuel D. Anderson

/s/ Larry J. Kessel, M.D.*                    Director                                              July 19, 2002
---------------------------------------------
Larry J. Kessel, M.D.

/s/ Charles Nemeroff, M.D., Ph.D.*            Director                                              July 19, 2002
---------------------------------------------
Charles Nemeroff, M.D., Ph.D.

/s/ Martin B. Keller, M.D.*                   Director                                              July 19, 2002
---------------------------------------------
Martin B. Keller, M.D.

/s/ Sheldon Drobny*                           Director                                              July 19, 2002
---------------------------------------------
Sheldon Drobny
</TABLE>

* By: /s/ Sabrina Martucci Johnson
      ----------------------------
           Attorney-in-fact


                                      48.