<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

  X         Quarterly report pursuant to Section 13 or 15(d) of the Securities
_____       Exchange Act of 1934. For the quarterly period 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 Number

                                     0-27410

                       INCARA PHARMACEUTICALS CORPORATION
                       ----------------------------------
             (Exact Name of Registrant as Specified in its Charter)


          Delaware                                      56-1924222
------------------------------           ---------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

P.O. Box 14287
79 T.W. Alexander Drive
4401 Research Commons, Suite 200
Research Triangle Park, NC                                       27709
---------------------------                          ---------------------------
(Address of Principal Executive Office)                         (Zip Code)

Registrant's Telephone Number, Including Area Code         919-558-8688
                                                 -------------------------------

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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

           Class                             Outstanding as of February 11, 2002
     ------------------                      -----------------------------------
Common Stock, par value $.001                         12,717,093 Shares




<PAGE>

                       INCARA PHARMACEUTICALS CORPORATION

                               INDEX TO FORM 10-Q
<TABLE>
                                                                                PAGE
<S>                                                                             <C>
PART I.  FINANCIAL INFORMATION

         Item 1.           Financial Statements

         Consolidated Balance Sheets as of December 31, 2001 (unaudited)
         and September 30, 2001................................................. 3

         Consolidated Statements of Operations for the Three Months ended
         December 31, 2001 and 2000 (unaudited)................................. 4

         Consolidated Statements of Cash Flows for the Three Months ended
         December 31, 2001 and 2000 (unaudited)................................. 5

         Notes to Consolidated Financial Statements............................. 6


         Item 2.           Management's Discussion and Analysis of Financial

                           Condition and Results of Operations.................. 9


PART II. OTHER INFORMATION

         Item 6.           Exhibits and Reports on Form 8-K.....................14

         SIGNATURE..............................................................15
</TABLE>

                                       2

<PAGE>

                        INCARA PHARMACEUTICALS CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                   (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                          December 31,        September 30,
                                                                                              2001                2001
                                                                                        -----------------   ------------------
                                                                                          (Unaudited)
                                                      ASSETS
<S>                                                                                     <C>                 <C>
Current assets:
       Cash and cash equivalents                                                                 $ 3,870              $ 5,453
       Accounts receivable from Incara Development                                                   540                1,147
       Prepaids and other current assets                                                             262                  321
                                                                                        -----------------   ------------------
                    Total current assets                                                           4,672                6,921

Property and equipment, net                                                                        1,417                1,341
Other assets                                                                                         356                  356
                                                                                        -----------------   ------------------
                                                                                                 $ 6,445              $ 8,618
                                                                                        =================   ==================

                                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
       Accounts payable                                                                          $ 1,241              $ 1,437
       Accrued expenses                                                                              359                  523
       Accumulated losses of Incara Development in excess of investment                              510                  969
       Current portion of capital lease obligations                                                   25                   25
       Current portion of notes payable                                                              132                    -
                                                                                        -----------------   ------------------
                   Total current liabilities                                                       2,267                2,954

Long-term portion of capital lease obligations                                                        10                   17
Long-term portion of notes payable                                                                 1,268                    -

Stockholders' equity:
       Preferred stock, $.01 par value per share, 3,000,000 shares authorized:
           Series C convertible exchangeable preferred stock, 20,000 shares
               authorized; 12,015 issued and outstanding (liquidation value of $12,881)                1                    1
           Series B convertible preferred stock, 600,000 shares authorized;
               28,457 shares issued and outstanding                                                    1                    1
       Common stock, $.001 par value per share, 40,000,000 shares authorized,
           12,717,093 shares issued and outstanding                                                   13                   13
       Additional paid-in capital                                                                112,842              112,516
       Restricted stock                                                                              (84)                (112)
       Accumulated deficit                                                                      (109,873)            (106,772)
                                                                                        -----------------   ------------------
                   Total stockholders' equity                                                      2,900                5,647
                                                                                        -----------------   ------------------
                                                                                                 $ 6,445              $ 8,618
                                                                                        =================   ==================
</TABLE>

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

                                       3

<PAGE>

                       INCARA PHARMACEUTICALS CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                             December 31,
                                                                   -----------------------------
                                                                       2001            2000
                                                                   -------------   -------------
<S>                                                                <C>             <C>
Revenue:
    Cell processing revenue                                        $          35   $           -
                                                                   -------------   -------------

Costs and expenses:
    Research and development                                               2,073           1,807
    General and administrative                                               663             683
                                                                   -------------   -------------
         Total costs and expenses                                          2,736           2,490
                                                                   -------------   -------------

Loss from operations                                                      (2,701)         (2,490)
Equity in loss of Incara Development                                        (338)              -
Investment income, net                                                         2              84
Other income                                                                 150             767
                                                                   -------------   -------------

Net loss                                                                  (2,887)         (1,639)

Preferred stock dividend accreted                                           (214)              -
                                                                   -------------   -------------

Net loss attributable to common stockholders                       $      (3,101)  $      (1,639)
                                                                   =============   =============

Net loss per common share:
   Basic and diluted                                               $       (0.25)  $       (0.24)
                                                                   =============   =============

Weighted average common shares outstanding:
   Basic and diluted                                                      12,501           6,924
                                                                   =============   =============
</TABLE>

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

                                       4

<PAGE>

                       INCARA PHARMACEUTICALS CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                             December 31,
                                                                   -----------------------------
                                                                       2001            2000
                                                                   -------------   -------------
<S>                                                                <C>             <C>
Cash flows from operating activities:
   Net loss                                                        $      (2,887)  $      (1,639)
   Adjustments to reconcile net loss to net cash
    used in operating activities:
        Depreciation and amortization                                         96              26
        Equity in loss of Incara Development                                 397               -
        Gain on settlement of accrued liability                                -            (767)
        Noncash compensation                                                 140              30
        Change in assets and liabilities:
           Accounts receivable from Incara Development                       607               -
           Prepaids and other assets                                          59             (90)
           Accounts payable and accrued expenses                            (360)            142
                                                                   -------------   -------------
Net cash used in operating activities                                     (1,948)         (2,298)
                                                                   -------------   -------------

Cash flows from investing activities:
   Investment in Incara Development                                         (857)              -
   Proceeds from sales and maturities of marketable securities                 -           3,072
   Purchases of property and equipment                                      (172)            (36)
                                                                   -------------   -------------
Net cash provided by (used in) investing activities                       (1,029)          3,036
                                                                   -------------   -------------

Cash flows from financing activities:
   Proceeds from notes payable                                             1,437               -
   Principal payments on notes payable                                       (37)            (27)
   Principal payments on capital lease obligations                            (6)             (5)
                                                                   -------------   -------------
Net cash provided by (used in) financing activities                        1,394             (32)
                                                                   -------------   -------------

Net increase (decrease) in cash and cash equivalent                       (1,583)            706
Cash and cash equivalents at beginning of period                           5,453           1,877
                                                                   -------------   -------------
Cash and cash equivalents at end of period                         $       3,870   $       2,583
                                                                   =============   =============

Supplemental disclosure of financing activities:
   Series C preferred stock dividend accreted                      $         214   $           -
                                                                   =============   =============
   Common stock issued in settlement of accrued liability          $           -   $         416
                                                                   =============   =============
</TABLE>

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

                                       5

<PAGE>

                       INCARA PHARMACEUTICALS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.       Basis of Presentation
         ---------------------

         The Company is developing therapies focused on tissue protection,
repair and regeneration. In particular, the Company is focused on developing
adult liver cell therapy for the treatment of liver failure. The Company is also
conducting research and development of a series of catalytic antioxidant
molecules and, in collaboration with Elan Corporation, plc, an Irish company,
and its subsidiaries ("Elan"), is conducting a Phase 2/3 clinical trial of
deligoparin, an ultra-low molecular weight heparin for the treatment of
ulcerative colitis. Deligoparin was previously known as OP2000.

         The "Company" refers collectively to Incara Pharmaceuticals
Corporation, a Delaware corporation ("Incara Pharmaceuticals"), its two wholly
owned subsidiaries, Aeolus Pharmaceuticals, Inc., a Delaware corporation
("Aeolus"), and Incara Cell Technologies, Inc., a Delaware corporation ("Cell
Technologies"), as well as its equity investee, Incara Development, Ltd., a
Bermuda corporation ("Incara Development"). As of December 31, 2001, Incara
Pharmaceuticals owned 80.1% of Incara Development and 35.0% of CPEC LLC. While
Incara Pharmaceuticals owns 80.1% of the outstanding stock of Incara
Development, Elan has retained significant minority investor rights, including
50% control of the management committee which oversees the deligoparin program,
that are considered "participating rights" as defined in the Emerging Issues
Task Force Consensus No. 96-16. Accordingly, Incara Pharmaceuticals does not
consolidate the financial statements of Incara Development, but instead accounts
for its investment in Incara Development under the equity method of accounting.
Incara Development had net operating expenses and a net loss of approximately
$481,000 for the quarter ended December 31, 2001 and no activity for the quarter
ended December 31, 2000.

         All significant intercompany activity has been eliminated in the
preparation of the consolidated financial statements. The unaudited consolidated
financial statements have been prepared in accordance with the requirements of
Form 10-Q and Rule 10-01 of Regulation S-X. Some information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to those rules and regulations. In the opinion of management, the
accompanying unaudited consolidated financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the consolidated financial position, results of operations and cash flows of the
Company. The consolidated balance sheet at September 30, 2001 was derived from
the Company's audited financial statements included in the Company's Annual
Report on Form 10-K. The unaudited consolidated financial statements included
herein should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 2001 and in the

                                       6

<PAGE>

Company's other SEC filings. Results for the interim period are not necessarily
indicative of the results for any other period.

B.       Recent Accounting Pronouncements
         --------------------------------

         In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS 141 supersedes Accounting
Principles Board Opinion No. 16, "Business Combinations," and is applicable for
all business combinations initiated after June 30, 2001. The most significant
provisions of SFAS 141 require (a) the application of the purchase method of
accounting for all business combinations; (b) the establishment of specific
criteria for the recognition of intangible assets separately from goodwill; and
(c) unallocated negative goodwill to be written off immediately as an
extraordinary gain. SFAS 142 supersedes APB No. 17, "Intangible Assets," and
first became effective for the Company's quarter ended December 31, 2001. The
most significant provisions of SFAS 142 provide (a) goodwill and indefinite
lived intangible assets can no longer be amortized; (b) goodwill and intangible
assets deemed to have an indefinite life must be tested at least annually for
impairment; and (c) the amortization period of intangible assets with finite
lives is no longer limited to forty years. Adopting SFAS 142 did not have a
material effect on the Company's financial position or results of operations as
the Company currently has no goodwill and no intangible assets.

C.       Net Loss Per Common Share
         -------------------------

         The Company computes basic net loss per weighted share attributable to
common stockholders using the weighted average number of shares of common stock
outstanding during the period. The Company computes diluted net loss per
weighted share attributable to common stockholders using the weighted average
number of shares of common and dilutive potential common shares outstanding
during the period. Potential common shares consist of stock options, restricted
common stock, warrants and convertible preferred stock, which are excluded if
their effect is antidilutive. At December 31, 2001, diluted weighted average
common shares excluded incremental shares of approximately 6,052,000 related to
stock options, unvested shares of restricted common stock, convertible preferred
stock and warrants to purchase common and preferred stock. These shares are
excluded due to their antidilutive effect as a result of the Company's loss from
operations.

D.       Notes Payable
         -------------

         In October 2001, the Company executed a Master Loan and Security
Agreement with Transamerica Technology Finance Corporation to finance equipment
purchases. In October 2001, the Company borrowed $565,000 from Transamerica and
pledged equipment with a cost of $686,000 as collateral.

         In October 2001, Incara Pharmaceuticals borrowed $857,000 from Elan
pursuant to the terms of a note arrangement that it has with Elan. See
"Subsequent Event" (Note F).

                                       7

<PAGE>

E.       Commitments and Contingencies
         -----------------------------

         In December 1999, Incara Pharmaceuticals sold IRL, its anti-infectives
division, to a private pharmaceutical company. Incara Pharmaceuticals remains
contingently liable through May 2007 on debt and lease obligations of
approximately $6,500,000 assumed by the purchaser, including the IRL facility
lease in Cranbury, New Jersey.

F.       Subsequent Event
         ----------------

         On February 13, 2002, the Company, with Elan's consent, converted
$1,400,000 of principal and accrued interest on a note payable owed by Incara
Pharmaceuticals to Elan into 480,000 shares of common stock and 58,883 shares of
Series B preferred stock. The $1,400,000 of principal and accrued interest
consisted of $857,000 of principal outstanding on December 31, 2001, $518,000
that Incara Pharmaceuticals borrowed under the note payable in February 2002 and
$25,000 of accrued interest on the note payable.

                                       8

<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         -----------------------------------------------------------------------
         of Operations.
         --------------

Introduction
------------

         Unless otherwise noted, the phrase "we" or "our" refers collectively to
Incara Pharmaceuticals Corporation and our two wholly owned subsidiaries, Aeolus
Pharmaceuticals, Inc. and Incara Cell Technologies, Inc., as well as our equity
investee, Incara Development, Ltd. At December 31, 2001, Incara Pharmaceuticals
owned 80.1% of Incara Development.

         This Report contains, in addition to historical information, statements
by us with respect to expectations about our business and future results, which
are "forward-looking" statements under the Private Securities Litigation Reform
Act of 1995. These statements and other statements made elsewhere by us or our
representatives, which are identified or qualified by words such as "likely,"
"will," "suggests," "expects," "might," "believe," "could," "should," "may,"
"estimates," "potential," "predict," "continue," "would," "anticipates,"
"plans," or similar expressions, are based on a number of assumptions that are
subject to risks and uncertainties. Actual results could differ materially from
those currently anticipated or suggested due to a number of factors, including
those set forth herein, those set forth in our Annual Report on Form 10-K and in
our other SEC filings, and including risks relating to the need for additional
funds, the early stage of products under development, uncertainties relating to
clinical trials and regulatory reviews, competition and dependence on
collaborative partners. All forward-looking statements are based on information
available as of the date hereof, and we do not assume any obligation to update
such forward-looking statements.

         We are focused on the development of potential therapies for protection
and regeneration of tissue damaged by injury and disease. We currently have
programs in three areas: liver cell therapy and progenitor cell therapy as
treatments for liver failure; catalytic antioxidants as treatment for stroke and
other tissue damage; and deligoparin, an ultra-low molecular weight heparin
being developed with Elan Corporation through Incara Development, for treatment
of ulcerative colitis.

Results of Operations
---------------------

         We had a net loss attributable to common stockholders of $3,101,000 for
the three months ended December 31, 2001 versus a net loss of $1,639,000 for the
three months ended December 31, 2000. The net loss for the three months ended
December 31, 2001 was reduced by a $150,000 gain recognized on the sale of
trademarks for a discontinued program. The net loss for the three months ended
December 31, 2000 was reduced by a $767,000 gain recognized on the settlement of
a disputed accrued liability for a discontinued program.

         We had cell processing revenue of $35,000 for the three months ended
December 31, 2001. This revenue resulted from fees we earned for processing
liver cells that are used for research purposes by other pharmaceutical
companies.

                                        9

<PAGE>

         Our research and development, or R&D, expenses increased $266,000 (15%)
to $2,073,000 for the three months ended December 31, 2001 from $1,807,000 for
the three months ended December 31, 2000. R&D expenses were higher this fiscal
quarter primarily due to significant increases in spending on our liver cell
therapy program, offset by a reduction in R&D expenses due to how expenses are
classified for our deligoparin program.

         Deligoparin expenses incurred during the first quarter of fiscal 2001
were $335,000, which were charged to R&D expenses. In January 2001, Incara
Pharmaceuticals transferred the rights to deligoparin to Incara Development.
Costs for deligoparin incurred after the transfer are on behalf of Incara
Development. Amounts billable to Incara Development for expenses incurred and
work performed by Incara Pharmaceuticals for deligoparin are netted against R&D
expenses. Subsequent to our investment in Incara Development, our expenses
associated with development of deligoparin flow through "Equity in loss of
Incara Development." For the first quarter of fiscal 2002, our equity in loss of
Incara Development was $338,000. As of January 31, 2002, we had enrolled 91
patients in our Phase 2/3 clinical trial at the 34 clinical sites that are
participating in the clinical trial. No unexpected safety issues have been
reported as of January 31, 2002.

         R&D expenses for Cell Technologies increased $824,000 (167%) to
$1,317,000 for the three months ended December 31, 2001 from $493,000 for the
three months ended December 31, 2000. Our research and development for the
treatment of liver disorders, using liver cell therapy, is conducted through
Incara Cell Technologies. Expenses were higher this quarter due to increased
activity in the program and the establishment of our own laboratory facility in
August 2001. We incurred increases in spending on laboratory supplies,
personnel, patent costs and sponsored research.

         R&D expenses for Aeolus increased $54,000 (8%) to $698,000 for the
three months ended December 31, 2001 from $644,000 for the three months ended
December 31, 2000. Our research and development of small molecule antioxidants
for disorders such as stroke and other tissue damage, is conducted through
Aeolus. Expenses were higher this quarter due to increased preclinical contract
services.

         General and administrative expenses decreased $20,000 (3%) to $663,000
for the three months ended December 31, 2001 from $683,000 for the three months
ended December 31, 2000.

         We accreted $214,000 of dividends on our Series C preferred stock
during the quarter ended December 31, 2001. From the date of issue until the
earlier of December 21, 2006 or the date the Series C preferred stock is
exchanged or converted, we will accrete the Series C preferred stock for the 7%
dividend, compounded annually from its recorded value up to its redemption
value.

                                       10

<PAGE>

Liquidity and Capital Resources
-------------------------------

         At December 31, 2001, we had cash and cash equivalents of $3,870,000, a
decrease of $1,583,000 from September 30, 2001. Cash decreased primarily due to
the net loss of $2,887,000 for the first quarter offset by $1,437,000 proceeds
from notes payable.

         During the past two years, we have incurred average operational
expenses of approximately $10,000,000 per year, on an annualized basis,
including expenses of our R&D programs, but excluding non-cash charges for the
purchase of in-process research and development. We anticipate our annual net
operational costs to remain at approximately this level, or slightly higher,
during fiscal 2002 and for the foreseeable future, although our ongoing cash
requirements will depend on numerous factors, particularly the progress of our
R&D programs and our ability to negotiate and complete collaborative agreements.
Without additional financing or other funding, at our current spending level, we
would run out of cash during the third quarter of fiscal 2002. In order to fund
our on-going operating cash requirements, we need to raise significant
additional funds during 2002 and beyond. We intend to:

      .  establish new collaborations for our current research programs that
         include initial cash payments and on-going research support;

      .  sell additional shares of our stock; and

      .  borrow additional cash from Elan under the terms of an existing note
         arrangement that we have with Elan to meet our obligations for Incara
         Development.

         There are uncertainties as to all of these potential sources of
capital. Due to market conditions and other limitations on the stock offerings,
we might not be able to sell securities under these arrangements, or raise other
funds on terms acceptable or favorable to us. In our Proxy Statement for our
Annual Meeting to be held in March 2002, we are asking our stockholders to
approve the sale of up to $25 million of our securities. At times it is
difficult for biotechnology companies to raise funds in the equity markets. Any
additional equity financing, if available, would likely result in substantial
dilution to our stockholders.

         The continued funding of our operations is affected by our ability to
sell additional equity in the form of common or preferred stock. Our common
stock is not actively traded and the price of our common stock has fluctuated
from $1.00 to $11.00 during the last two years. Further, we must meet certain
minimum capital requirements set by the Nasdaq National Market. If we fail to
meet such listing requirements, our common stock might be delisted and become
more illiquid.

         Similarly, our access to capital might be restricted because we might
not be able to enter into collaborations for any of our programs or to enter
into any collaborations on terms acceptable or favorable to us due to conditions
in the pharmaceutical industry or in the economy in general or based on the
prospects of any of our programs. Even if we are successful in obtaining
collaborations for any of our programs, we might have to relinquish

                                       11

<PAGE>

rights to technologies, product candidates or markets that we might otherwise
develop ourselves.

         We may borrow up to $4,806,000 through December 21, 2003 under the note
arrangement with Elan to fund our 80.1% pro rata interest in the operating costs
of Incara Development. We borrowed $857,000 under the note in October 2001 and
$518,000 in February 2002. Advances under the note are subject to the mutual
consent of Elan and Incara Pharmaceuticals. The note matures on December 21,
2006.

         If we are unable to enter into new collaborations or raise additional
capital to continue to support our operations, we will be required to scale
back, delay or discontinue one or more of our programs, which could have a
material adverse affect on our business. Reduction or discontinuation of any of
our programs could result in additional charges, which would be reflected in the
period of the reduction or discontinuation.

         The following pro forma balance sheet reflects the effects of the
borrowing of an additional $518,000 from Elan in February 2002 pursuant to the
note arrangement and the conversion to equity of $1,400,000 of debt owed to Elan
in February 2002, as if the events had taken place as of December 31, 2001.

                                       12

<PAGE>

                         INCARA PHARMACEUTICALS CORPORATION

                         PRO FORMA CONSOLIDATED BALANCE SHEETS
                                      (Unaudited)
                         (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                               December 31, 2001
                                                                                ----------------------------------------------------
                                                                                                      Pro Forma         Pro Forma
                                                                                    Actual            Adjustments       As Adjusted
                                                                                ---------------    ---------------    --------------
                               ASSETS
<S>                                                                                <C>              <C>                  <C>
Current assets:

   Cash and cash equivalents                                                       $   3,870        $       -        $   3,870
   Accounts receivable from Incara Development                                           540                               540
   Prepaids and other current assets                                                     262                               262
                                                                                   ---------        ---------        ---------
         Total current assets                                                          4,672                -            4,672

Property and equipment, net                                                            1,417                             1,417
Other assets                                                                             356                               356
                                                                                   ---------        ---------        ---------
                                                                                   $   6,445        $       -        $   6,445
                                                                                   =========        =========        =========

                               LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                               $   1,241        $    (518)/(b)/  $     723
    Accrued expenses                                                                     359                               359
    Accumulated losses of Incara Development in excess of investment                     510                               510
    Current portion of capital lease obligations                                          25                                25
    Current portion of notes payable                                                     132                               132
                                                                                   ---------        ---------        ---------
         Total current liabilities                                                     2,267             (518)           1,749
Long-term portion of capital lease obligations                                            10                                10
Long-term portion of notes payable                                                     1,268             (872)/(a)/        396

Stockholders' equity:
   Preferred stock, $.01 par value per share, 3,000,000 shares authorized:
       Series C convertible exchangeable preferred stock, 20,000
           shares authorized; 12,015 issued and outstanding
           (liquidation value of $12,881)                                                  1                                 1
       Series B convertible preferred stock, 600,000 shares authorized; 28,457
           and 87,340 shares issued and outstanding on an actual and pro forma
           basis, respectively                                                             1                                 1
   Common stock, $.001 par value per share, 40,000,000 shares authorized,
       12,717,093 and 13,197,093 shares issued and outstanding on an actual and
       pro forma basis, respectively                                                      13                                13
    Additional paid-in capital                                                       112,842            1,390/(a)(b)/  114,232
    Restricted stock                                                                     (84)                              (84)
    Accumulated deficit
                                                                                    (109,873)                         (109,873)
                                                                                   ---------        ---------        ---------
         Total stockholders' equity                                                    2,900            1,390            4,290
                                                                                   ---------        ---------        ---------
                                                                                   $   6,445        $       -        $   6,445
                                                                                   =========        =========        =========
</TABLE>

/(a)/Reflects the conversion to equity of $872 of debt owed to Elan at December
     31, 2001
/(b)/Reflects the borrowing of $518 from Elan in February 2002 and the
     conversion of the debt to equity

                                       13

<PAGE>

Part II.         OTHER INFORMATION

Item 6.          Exhibits and Reports on Form 8-K.
                 --------------------------------

(a)    Exhibits

       10.75     Agreement and Fourth Amendment, effective February 13, 2002, by
                 and among Incara Pharmaceuticals Corporation, Elan
                 International Services, Ltd., Elan Pharma International Limited
                 and Elan Pharmaceutical Investments III, Ltd.

(b)    No reports on Form 8-K were filed by the Company during the three months
       ended December 31, 2001.

                                       14

<PAGE>

                                    SIGNATURE
                                    ---------

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

                               INCARA PHARMACEUTICALS CORPORATION


Date: February 14, 2002        By:

                                   /s/ Richard W. Reichow
                                   ------------------------------------------
                                   Richard W. Reichow, Executive Vice President,
                                   Chief Financial Officer and Treasurer
                                   (Principal Financial and Accounting Officer)

                                       15