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, 2000

[    ]  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 PHARMACEUTICAL CORPORATION
                        --------------------------------

             (Exact name of registrant as specified in its charter)

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

</TABLE>

767 Fifth Avenue
New York, New York                                                 10153
---------------------------------------                          ----------
(Address of principal executive offices)                         (Zip Code)


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

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $0.01 per share
                          -----------------------------
                                (Title of Class)

     Indicate  by check mark  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]

     The aggregate  market value of Common Stock held by  non-affiliates  of the
Company,  computed by  reference  to the closing  price on March 15,  2001,  was
$8,047,025.

<PAGE>




     Number of shares outstanding of each class of Common Stock, as of March 15,
2001: 13,144,040 shares.


SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

     Certain  statements in this Annual Report on Form 10-K,  particularly under
Items 1 through 8, constitute "forward-looking statements" within the meaning of
Section  21E  of  the  Securities  Exchange  Act  of  1934,  as  amended.   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,  the
Company's   capital  needs  and  uncertainty  of  future   funding,   risks  and
uncertainties  relating  to the  Company's  ability  to  realize  value from its
assets,   uncertainties   regarding  the   Company's   ability  to  license  its
technologies  to third  parties,  uncertainties  regarding the Company's  future
acquisition and in-licensing of technologies, 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 prospectus dated July 17, 1996.


                                     PART I
ITEM 1.  BUSINESS.

GENERAL

     Cadus   Pharmaceutical   Corporation   ("Cadus"  or  the   "Company")   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.  Since
July 30, 1999, the Company has been seeking to (i) license its  technologies and
otherwise  realize value from its assets and (ii) use a portion of its available
cash to acquire technologies or products or to acquire or invest in companies.


     On July 30, 1999, the Company sold to OSI  Pharmaceuticals,  Inc.  ("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 the Company's lease to the Company's research
facility in  Tarrytown,  New York,  the Company's  equipment  lease with General
Electric Capital Corporation  ("GECC") and the Company's research  collaboration
and license  agreement with Solvay  Pharmaceuticals.  As  consideration  for the
sale, the Company received approximately

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$1,500,000 in cash and OSI assumed certain  liabilities of the Company  relating
to employees hired by OSI aggregating  approximately  $133,000. In addition, the
Company  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.  The  Company  licensed to OSI on a
non-exclusive  basis  certain  technology  solely to enable OSI to  fulfill  its
obligations under the  collaboration  with Solvay  Pharmaceuticals.  The Company
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 the Company.  The Company 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, its joint ownership of
the  human  orphan  G  Protein-coupled  receptors  identified  pursuant  to  its
collaboration with Genomic Therapeutics  Corporation,  its proprietary software,
its genomics  databases related to G Protein-coupled  receptors,  all assays and
technologies  reverting to it from its collaboration with  Bristol-Myers  Squibb
Company, its equity position in Axiom  Biotechnologies  Inc., the Company's cash
and cash equivalents,  and the approximately $18.5 million plus interest thereon
being held in escrow  pending appeal of the verdict in favor of a plaintiff in a
patent  infringement  action against the Company (which verdict was subsequently
reversed  and the monies  held in escrow  were  released  to the  Company).  The
Company  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.

     Prior  to  July  30,  1999,  the  Company  developed  several   proprietary
technologies  that  exploit the  similarities  between  yeast and human genes to
elucidate  gene function and cell  signaling  pathways.  In February  2000,  the
Company licensed its yeast technologies and its  bioinformatics  software to OSI
on a non-exclusive  basis. The Company 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") 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")  technologies,  which are used to  identify a ligand  that  activates a
targeted orphan receptor (a receptor whose function is not known).

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

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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
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 more than 60% of all currently  available  prescription  drugs work by
interacting with known G Protein-coupled receptors. These drugs include


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<PAGE>


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  approximately  200 human G  Protein-coupled
receptors  have  been  identified.  This  knowledge  has also  been used to help
identify the sequence of at least 100 more orphan G  Protein-coupled  receptors.
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  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.

                                       5

<PAGE>


     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.

     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.
                                       6


<PAGE>


     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 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.

CADUS'S DRUG DISCOVERY TECHNOLOGIES

     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 Company 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

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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.

     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


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<PAGE>

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.

     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 Genome  Therapeutics
Corporation   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 AXIOM BIOTECHNOLOGIES INC.

     The Company has an equity interest in Axiom  Biotechnologies Inc. ("Axiom")
which is developing a High Throughput  Pharmacology  System  ("HT-PS(TM)").  The
HT-PS(TM) measures the immediate  physiological  responses to chemical compounds
of natural or genetically  engineered  human cells and performs both selectivity
profiles and dose-response  curves. By automating the slow,  labor-intensive and
costly  process  of  assessing  the  pharmacological   properties  of  potential
therapeutic


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<PAGE>

compounds identified through primary screening, the HT-PS(TM) enables scientists
to accelerate the secondary  screening  process and thus the  identification  of
lead compounds.  Russell D. Glass, the Company's Chief Executive  Officer,  is a
director of Axiom.

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, the Company  licensed to OSI, on a  non-exclusive  basis,
its yeast  technologies,  including  various  reagents  and its  library of over
30,000 yeast strains, and its bioinformatics software. OSI paid to the Company 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 the Company. OSI may terminate
the license at any time on 30 days prior written notice.  The Company is seeking
to license these technologies to other third parties on a non-exclusive basis.

PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS

     The  Company   relies  upon  patents  and  trade  secrets  to  protect  its
proprietary technologies.  As of March 15, 2001, the Company was the assignee of
two issued U.S.  patents  covering  aspects of its yeast  technology and was the
exclusive  worldwide  licensee  of two  issued  U.S.  patents  for  use in  drug
discovery.  In addition, as of such date, the Company had filed or held licenses
to 23  other  U.S.  patent  applications,  as well  as  related  foreign  patent
applications.


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


                                       10
<PAGE>

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 Company pays an annual fee (net of the minimum annual
royalty) for each sublicense granted by it to such technology.

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

     During 1999, the Company  ceased  providing to  Massachusetts  Institute of
Technology ("M.I.T.") research funding for the LivingChip(TM), a technology that
was being co-developed by the Company and M.I.T. to miniaturize and automate the
Company's hybrid yeast cell technology.  In March 2000, the Company's license to
M.I.T.'s LivingChip(TM) technology was terminated.

     The  Company has granted a license to use several of its patents and patent
applications  relating to its  yeast-based  technologies to OSI and, for certain
purposes, to Solvay Pharmaceuticals and SmithKline Beecham.

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

                                       11
<PAGE>


     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  Neurosciences,  Inc.  ("SIBIA") (which was acquired by
Merck & Co. in 1999) commenced a patent  infringement action against the Company
alleging  infringement  by the Company 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 precludes the Company from using the
method  claimed in SIBIA's  patent.  On February  26,  1999,  the United  States
District  Court denied the Company'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.  The Company  appealed  the  judgment.  In order to stay  execution
pending appeal of the $18.0 million  judgment  obtained by SIBIA, in March 1999,
the Company deposited $18.5 million in escrow to secure payment of the judgments
in the event the  Company  were to lose the  appeal.  On  September  6, 2000 the
United States Court of Appeals ruled in favor of the Company 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


                                       12
<PAGE>


against the Company were  invalid and that the  District  Court erred in denying
the Company'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  the  Company.
Separately, in October 2000, the Company 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 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



                                       13
<PAGE>

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.

     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


                                       14
<PAGE>

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


                                       15

<PAGE>

     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 its safety  procedures  for handling and disposing of
radioactive  compounds and other  hazardous  materials  used in its research and
development  activities comply with the standards  prescribed by Federal,  state
and local regulations, the risk of accidental contamination or injury from these
materials  cannot be completely  eliminated.  In the event of any such accident,
the  Company  could be held  liable  for any  damages  that  result and any such
liability could exceed the resources of the Company.

EMPLOYEES

     As of March 15, 2001,  the Company had no  employees.  Charles  Woler,  the
former Chief Executive Officer of the Company,  resigned in April 2000.  Russell
D. Glass, the current Chief Executive Officer, is not an employee of the Company
and is serving as the Company's Chief Executive Officer without compensation.

ITEM 2.  PROPERTIES.

     The Company leases storage space in Tarrytown, New York.

ITEM 3.  LEGAL PROCEEDINGS.

     The  Company  is not a party to any  legal  proceedings  that  will  have a
material  adverse  effect on the Company's  operations  or financial  condition.
However,  the Company is the respondent in an arbitration  proceeding commenced
by Philip N. Sussman,  the former Senior Vice  President,  Finance and Corporate
Development, and Chief Financial Officer of the Company, against the Company, on
October 4, 1999,  seeking severance pay of approximately  $525,000.  The Company
believes that Mr.  Sussman is not entitled to such  severance pay and intends to
vigorously defend the action.

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.

     The Company'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, the Company's  Common
Stock has traded on the  over-the-counter  bulletin board under the symbol KDUS.
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 Nasdaq  National Market or
the over-the-counter bulletin board, as the case may be.

                                       16

<PAGE>


FISCAL YEAR 2000                                   HIGH             LOW
First quarter ended March 31, 2000                $5.56           $0.30
Second quarter ended June 30, 2000                $2.00           $0.69
Third quarter ended September 30, 2000            $1.72           $0.53
Fourth quarter ended December 31, 2000            $1.22           $0.38

FISCAL YEAR 1999                                   HIGH             LOW
First quarter ended March 31, 1999                $ 2.31          $ 1.00
Second quarter ended June 30, 1999                $ 1.13          $ 0.75
Third quarter ended September 30, 1999            $ 0.91          $ 0.22
Fourth quarter ended December 31, 1999            $ 0.44          $ 0.09

     As of March 15, 2001, there were  approximately 55 holders of record of the
Company's Common Stock.

     The Company 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. The Company 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,  the Company has issued and sold the following
securities that were not registered under the Securities Act of 1933, as amended
(the "Act"), in reliance on an exemption from required  registration pursuant to
Section 3(b) or 4(2) of the Act:


     In May  1998,  the  Company  sold  660,962  shares of its  Common  Stock to
SmithKline Beecham p.l.c. and SmithKline  Beecham  Corporation for approximately
$7.56 per share or an aggregate consideration of $5.0 million.

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  financial  statements and notes thereto  included
elsewhere in this report.


                                       17

<PAGE>

<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31,
                                                                           -----------------------
                                                     2000            1999            1998             1997         1996
                                                     ----            ----            ----             ----         ----
<S>                                                  <C>             <C>             <C>              <C>          <C>
STATEMENT OF OPERATIONS DATA:
                                                             (dollars in thousands, except share and per share data)
Revenues                                             $979          $6,028         $12,576           $9,013        $6,500
Operating costs and expenses:
    Research and development ...............           --           9,116          15,389           11,561         8,283
    General and administrative .............        1,652           3,643           8,977            4,092         2,315
                                                    -----           -----           -----            -----         -----
    Total operating costs and
     expenses ..............................        1,652          12,759          24,366           15,653        10,598
                                                    -----          ------          ------           ------        ------
      Operating loss .......................         (673)         (6,731)        (11,790)          (6,640)       (4,098)
Net income (loss) ..........................      $18,051(1)      ($8,524)       ($29,690)(1)      ($5,411)      ($2,441)
                                                  =======         =======         =======           ======        ======
Basic and diluted net income (loss)
   per share ...............................        $1.37          ($0.65)         ($2.32)          ($0.44)       ($0.39)
                                                    =====          ======          ======           ======         =====
Shares used in calculation of basic
  and diluted net income (loss) per share...   13,133,615      13,068,940      12,811,525       12,225,463     6,280,917

</TABLE>
<TABLE>
<CAPTION>

                                                                                 DECEMBER 31,
                                                                                 ------------
                                                     2000            1999            1998             1997         1996
                                                     ----            ----            ----             ----         ----
<S>                                                <C>             <C>           <C>                 <C>          <C>
BALANCE SHEET DATA:
                                                                               (in thousands)
  Cash and cash equivalents ................      $24,383(1)       $5,082(2)      $10,976          $36,762       $43,153
      Total assets .........................       25,709          26,699          36,587           42,241        47,287
    Short-term debt ........................           --              --              --              150            13
    Long-term debt .........................           --              --              --               --           166
  Accumulated deficit ......................      (34,005)        (52,056)        (43,532)         (13,842)       (8,431)

Stockholders' equity .......................       25,672           7,465          15,989           40,500        45,181


</TABLE>


The  Company  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 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.  The net loss of $29.7  million for the year ended
     December 31, 1998, includes an $18.5 million reserve for litigation damages
     with respect to the patent infringement litigation with SIBIA.

(2)  In order to stay  execution  pending  appeal of the $18.0 million  judgment
     obtained by SIBIA,  in March 1999, the Company  deposited  $18.5 million in
     escrow to secure  payment of the  judgment in the event the Company were to
     lose the appeal.  Such $18.5  million was  classified,  as of December  31,
     1998, as  "restricted  cash  noncurrent"  and the Company's  "cash and cash
     equivalents"  was  reduced  by  $18.5  million.   Interest  earned  on  the
     restricted  cash has been added to  restricted  cash.  Upon the reversal of
     such  judgment by the Court of Appeals on September 6, 2000 the cash ceased
     to be  classified  as  "restricted"  and was  included  in  "cash  and cash
     equivalents".

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


                                       18

<PAGE>

OVERVIEW

     The  Company  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, the Company
sold its drug discovery assets to OSI  Pharmaceuticals,  Inc. ("OSI") and ceased
its internal drug discovery  operations and research  efforts for  collaborative
partners.  The Company 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 has incurred operating losses in each year since its inception,
including  an operating  loss of  approximately  $673,000  during the year ended
December 31, 2000. At December 31, 2000, the Company had an accumulated  deficit
of approximately $34.0 million,  which reflects the reversal of an $18.5 million
charge plus interest  thereon for litigation  damages with respect to the patent
infringement  litigation with SIBIA upon reversal by the Court of Appeals of the
judgment  in  SIBIA's  favor  in  2000.  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.

RESULTS OF OPERATIONS

     YEARS ENDED DECEMBER 31, 2000 AND 1999

     REVENUES

     Revenues  for 2000  decreased to $978,500  from $6.0 million in 1999.  This
decrease  was  primarily  attributable  to the Company  having  ceased  research
efforts for collaborators and, therefore,  not receiving any research funding in
2000.  The Company's  revenues in 2000 were derived solely from its licensing of
its yeast technology to OSI.

     OPERATING EXPENSES


     The Company's  research and  development  expenses for 2000 decreased to $0
from $9.1 million for 1999. This decrease was attributable to the Company having
ceased its drug discovery  operations and research efforts for collaborators and
having no research personnel after its asset sale in July 1999.

     General and administrative expenses decreased to $1.7 million for 2000 from
$3.6  million  for  1999.  This  decrease  was  attributable  primarily  to  the
elimination  of facility  related  expenses and the reduction in  administrative
personnel. In 2000, the Chief Executive Officer's compensation was approximately
$608,000 which includes $497,500 in severance pay.

     NET INTEREST INCOME

                                       19
<PAGE>


     Net interest  income for 2000  increased to $639,000 from $552,000 in 1999.
The  increase  is  attributable  primarily  to the  increase  in  the  Company's
unrestricted  cash  equivalent  balances as compared to 1999 upon release of the
funds that were held in escrow in connection with the SIBIA litigation.

     EQUITY IN OTHER VENTURES

     Equity in other ventures  reflects losses associated with the Company's two
equity  investments.  For 2000 the Company  recognized a net loss of $834,413 in
its  investment in Axiom  Biotechnologies,  Inc. and a net loss of $2,649 in its
investment  in Laurel  Partners  Limited  Partnership.  The  investment in Axiom
Biotechnologies, Inc. has been written down to zero as of December 31, 2000.

     GAIN ON REVERSAL OF LITIGATION JUDGMENT

     On September 6, 2000 the United  States Court of Appeals  ruled in favor of
the Company and overturned the 1998 judgment entered by the U.S.  District Court
in the patent  infringement suit filed by SIBIA. The gain recognized  represents
the original $18.5 million  reserve plus interest  accrued on the escrow balance
of $1,341,489  less legal fees of $1,000,000 that were contingent on the success
of the appeal.

NET INCOME (LOSS)

     The net  income for 2000  increased  to $18.1  million  from a loss of $8.5
million for 1999.  This  increase can be attributed to the reversal of the SIBIA
litigation  reserve for litigation damages (net of legal expense) and a decrease
in operating expenses partially offset by a decrease in revenue.

     YEARS ENDED DECEMBER 31, 1999 AND 1998

     REVENUES

     Revenues for 1999  decreased  to $6.0  million from $12.6  million in 1998.
This  decrease  was  primarily  attributable  to the  Company  only  receiving a
research  milestone  payment of $1.0  million  from  SmithKline  Beecham  p.l.c.
("SmithKline")  in 1999 as compared to the $2.0 million  technology  development
fee it received from  SmithKline in 1998;  the  termination  in July 1999 of the
research collaboration with Bristol-Myers Squibb; the termination in August 1999
of the  research  collaboration  with  SmithKline;  and  the  sale to OSI of the
research collaboration with Solvay Pharmaceuticals on July 30, 1999.

     OPERATING EXPENSES

     The Company's research and development  expenses for 1999 decreased to $9.1
million  from $15.4  million in 1998 due to the  reduction in staff and research
activities as a result of the asset sale to OSI on July 30, 1999.

     General and administrative expenses for 1999 decreased to $3.6 million from
$9.0  million in 1998.  This  decrease is  attributable  primarily  to decreased
litigation expenses and the sale of drug discovery operations to OSI.

                                       20

<PAGE>


     NET INTEREST INCOME

     Net interest  income for 1999  decreased  to $552,000  from $1.8 million in
1998.  This  decrease is  attributable  primarily  to decrease in the  Company's
unrestricted cash balances as compared to 1998.

     EQUITY IN OTHER VENTURES

     Equity in other  ventures  reflects  losses and gains  associated  with the
Company's  two equity  investments.  For the years ended  December  31, 1999 and
1998,  the  Company  recognized  gains  of  approximately  $21,000  and  $8,000,
respectively,  related to its investment in Laurel Partners Limited Partnership.
For the  years  ended  December  31,  1999  and  1998,  the  Company  recognized
approximately $1.4 million and $1.2 million,  respectively,  in losses generated
by Axiom.  The  Company's  investment in Axiom is accounted for under the equity
method with the  Company  recognizing  100% of Axiom's  net losses  prior to the
investment made by JAFCO Co. Ltd. ("JAFCO") in Axiom in June 1998. Following the
JAFCO investment,  the Company began recognizing 50% of the net losses generated
by Axiom which is the extent to which the  Company is deemed to be funding  such
losses.

     NET LOSS

     The net loss for 1999 decreased to $8.5 million from $29.7 million in 1998.
This decrease can be attributed  primarily to the  establishment  in 1998 of the
$18.5  million  reserve  for  litigation  damages  with  respect  to the  patent
infringement  litigation  with  SIBIA  as well as a  decrease  in the  operating
expenses  of the Company as  described  above  which was  partially  offset by a
decrease in revenues.

LIQUIDITY AND CAPITAL RESOURCES

     At December  31, 2000 the Company held cash and cash  equivalents  of $24.4
million. The Company's working capital at December 31, 2000 was $24.4 million.

     On July 30,  1999,  the Company sold its drug  discovery  assets to OSI and
ceased  its  internal  drug  discovery   operations  and  research  efforts  for
collaborative  partners.  Pursuant to such sale transaction,  OSI assumed, among
other  things,  the  Company's  lease  to the  Company's  research  facility  in
Tarrytown,  New York and the  Company's  equipment  lease with General  Electric
Capital Corporation.  The Company 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. As a result of the foregoing,  the Company ceased to
have research funding revenues and substantially reduced its operating expenses.

     In February 2000, the Company  licensed to OSI, on a  non-exclusive  basis,
its yeast technologies. OSI paid to the Company 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.

     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 2002.  This  forecast  of the  period  of time
through which the Company's  financial resources will be adequate to


                                       21

<PAGE>


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 technologies or products or to acquire or invest in
companies and the expenses of pursuing such transactions.

     At December 31, 2000 the Company had tax net operating  loss  carryforwards
of approximately $27.7 million and research and development credit carryforwards
of  approximately  $2.7 million  which expire in years 2009  through  2019.  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.


NEW ACCOUNTING PRONOUNCEMENTS

     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative  Instruments and
Hedging  Activities"  as amended by SFAS 137 and SAFS 138, which will be adopted
by the  Company  in the first  quarter  of  fiscal  2001.  SFAS 133  establishes
accounting and reporting standards for derivative instruments, including certain
derivative  instruments  embedded in other contracts and for hedging activities.
It  requires  that an entity  recognize  all  derivatives  as  either  assets or
liabilities   in  the  statement  of  financial   position  and  measures  those
instruments  at fair value.  Implementation  of this  statement  will not have a
material impact on the Company's financial position or results of operations.

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 14
of this report. For an index to the financial statements and supplementary data,
see Item 14.


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

  None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

     Information  with respect to the  executive  officers and  directors of the
Company as of March 15, 2001 is set forth below:

                                       22
<PAGE>


NAME                          AGE     POSITION
----                         ----    ---------
Russell D. Glass              38     Chief Executive Officer, President and
                                      Director

James R. Broach, Ph.D.        52      Director

Carl C. Icahn                 65      Director

Peter S. Liebert, M.D.(1)     65      Director

Professor Siegfried G.
 Schaefer                     52      Director

Jack G. Wasserman (1)         63      Director
-------------

(1)  Member of the Compensation Committee.


     RUSSELL  D.  GLASS  became  a  director  of the  Company  in June  1998 and
President and Chief Executive  Officer in April 2000. Since April 1998 Mr. Glass
has been President and Chief  Investment  Officer of Icahn  Associates  Corp., a
diversified   investment   firm.  Since  August  1998  he  has  also  served  as
Vice-Chairman  and  Director  of   Lowestfare.com,   Inc.,  an  internet  travel
reservations  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.  He  currently  serves as a  Director  of Axiom  Biotechnologies  Inc.,  a
developer of pharmacology profiling systems; National Energy Group, Inc., an oil
& gas exploration and production company;  Next Generation  Technology Holdings,
Inc.;  and 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.

     JAMES R. BROACH, PH.D., a scientific founder of the Company and inventor of
the  Company's  yeast-based  drug  discovery  technology,  has been  Director of
Research of the  Company  since its  inception.  He is and has 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.

     CARL C. ICAHN  became a  director  of the  Company  in July 1993.  He was a
Co-Chairman  of the Board of Directors  from May 1995 to May 1996. Mr. Icahn has
served as Chairman of the Board and a Director of Starfire  Holding  Corporation
(formerly Icahn Holding  Corporation),  a privately-held  holding  company,  and
Chairman  of the Board and a  Director  of  various  subsidiaries  of  Starfire,
including ACF Industries,  Incorporated,  a  privately-held  railcar leasing and
manufacturing  company,  since 1984.  He 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

                                       23
<PAGE>

Investors,  Inc., the general partner of American Real Estate Partners,  L.P., a
public limited  partnership  that invests in real estate.  Since August 1998, he
has also  served as Chairman  of the Board of  Lowestfare.com,  LLC, an internet
travel reservations company. From October 1998, Mr. Icahn has been 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., GB Property Funding, Inc. and Greate Bay Hotel &
Casino,  Inc.  which owns and operates the Sands Hotel in Atlantic City, NJ. Mr.
Icahn received his B.A. from Princeton University.

     PETER S. LIEBERT, M.D., became a director of the Company in April 1995. Dr.
Liebert  has been a  pediatric  surgeon  in private  practice  since 1968 and is
affiliated  with  Babies  Hospital  of  Columbia  Presbyterian.  He is  Clinical
Associate  Professor of Surgery,  College of Physicians  and Surgeons,  Columbia
University.  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.

     PROFESSOR SIEGFRIED G. SCHAEFER became a director of the Company in January
1998. Dr. Schaefer has been head of worldwide research at Solvay Pharmaceuticals
since  July  1997  and  the  head of  research  at a Dutch  division  of  Solvay
Pharmaceuticals from May 1996 to July 1997. From September 1992 to July 1997 Dr.
Schaefer was a department head for project  management at an affiliate of Solvay
Pharmaceuticals.  Dr.  Schaefer has a Ph.D.  in Biology from the  University  of
Bochum and a Doctorate in  Pharmacology  and  Toxicology  from the University of
Munich. Dr. Shaefer is currently a Professor at the University of Hamburg in the
Department of Pharmacology and Toxicology.

     JACK G.  WASSERMAN  became a director of the  Company in May 1996.  For the
past  five  years,  Mr.  Wasserman  has  been a  senior  partner  in  Wasserman,
Schneider,  Babb & Reeds, a New York law firm that  concentrates its practice in
legal matters  relating to  international  trade. Mr. Wasserman is a director of
American Property  Investors,  Inc., the general partner of American Real Estate
Partners,  L.P., a public limited  partnership that invests in real estate.  Mr.
Wasserman is also a director of National  Energy Group,  Inc., a public  company
engaged  in  oil  exploration.  Mr.  Wasserman  received  a  B.A.  from  Adelphi
University,  a J.D. from Georgetown  University and a Graduate  Diploma from the
Johns Hopkins University School of Advanced International Studies.

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

     The non-employee  directors receive $1,000 for each meeting of the Board of
Directors  attended  and $500 for each  meeting of a  committee  of the Board of
Directors attended.

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

                                       24

<PAGE>


     Section  16(a) of the Exchange Act requires  the  Company's  directors  and
executive  officers,  and persons who own more than ten percent of a  registered
class of the  Company'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 the  Company.  Reporting  persons are
required by SEC  regulation to furnish the Company with copies of all such filed
reports. To the Company's knowledge,  based solely on a review of copies of such
filed reports furnished to the Company, all of the Company's directors, officers
and greater than ten percent  beneficial owners made all required filings during
fiscal year 2000 in a timely manner.

ITEM 11.  EXECUTIVE COMPENSATION.

     The  following  table  sets  forth  certain   information   concerning  the
compensation paid or accrued by the Company for services rendered to the Company
in all capacities  for the fiscal years ended December 31, 2000,  1999 and 1998,
by its  Chief  Executive  Officer  and  each of the  Company's  other  executive
officers   whose  total  salary  and  bonus   exceeded   $100,000   during  2000
(collectively, the "Named Executive Officers"):

                           Summary Compensation Table
                           --------------------------
<TABLE>
<CAPTION>

                                                                              Long-Term
                                                                            Compensation
                                                                               Awards
                                                                             ----------
                                                    Annual Compensation      Securities
                                                  ----------------------     Underlying      All Other
Name and Principal Postion           Year         Salary($)      Bonus($)    Options(#)    Compensation
--------------------------           ----         ---------     --------     -----------   -------------
<S>                                  <C>         <C>            <C>          <C>           <C>
Russell D. Glass (1)...............  2000             --           --             --             --
Charles Woler (2)..................  2000        110,000           --             --        497,500(2)
  President and Chief Executive      1999        307,500           --        129,855             --
  Officer                            1998        125,000(3)        --        295,145         53,225(4)

</TABLE>
___________________

(1)  Mr.  Russell D. Glass became the Company's  President  and Chief  Executive
     Officer in April 2000. He serves in such capacity without compensation.

(2)  Dr. Woler resigned as President and Chief Executive  Officer of the Company
     in April 2000 and received a severance  payment of $497,500 pursuant to his
     employment agreement.

(3)  Dr.  Woler  joined the Company in October 1998 and received a salary at the
     rate of $300,000 per annum for 1998.

(4)  All other compensation  consists of relocation expenses paid by the Company
     on behalf of Dr. Woler.


OPTION GRANTS

     The  following  table  sets forth  certain  information  regarding  options
granted  during the fiscal  year ended  December  31, 2000 by the Company to the
Named Executive Officers:

        OPTION GRANTS IN LAST FISCAL YEAR

                                       25
<PAGE>


<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>
Russell D. Glass.......   --              --                 --              --               --          --
Charles Woler..........   --              --                 --              --               --          --
</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, 2000 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
                       Shares          Aggregate               December 31, 2000(#)                   December 31, 2000($)
                     Acquired on         Value             -------------------------------       ------------------------------
Name                 Exercise(#)      Realized($)          Exercisable       Unexercisable       Exercisable      Unexercisable
-----               ------------      ------------         -----------       -------------       -----------      -------------
<S>                 <C>                <C>                 <C>               <C>                 <C>               <C>
Russell D. Glass....    --                 --                  --                 --                 --                --
Charles Woler....... 30,000              $82,500               --                 --                 --                --
</TABLE>

INCENTIVE PLANS

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."

     The 1993 Stock Option Plan is  administered by the  Compensation  Committee
which is presently comprised of Peter Liebert and Jack G. Wasserman.

                                       26
<PAGE>


     Under the 1993 Stock Option Plan, the Compensation  Committee may establish
with respect to each option granted such vesting  provisions as it determines to
be appropriate or advisable.  In general,  options  granted under the 1993 Stock
Option  Plan have a ten-year  term,  and such  options  vest or have vested over
four-year periods at various rates.  Unexercised options automatically terminate
upon the termination of the holder's relationship with the Company. However, the
Compensation  Committee may accelerate a vesting schedule and/or extend the time
for exercise of all or any part of an option in the event of the  termination of
the holder's  relationship with the Company. In addition,  the 1993 Stock Option
Plan includes a provision  authorizing the Compensation  Committee to adjust the
number of shares of Common Stock  available  for grant,  the number of shares of
Common Stock subject to outstanding awards thereunder and the per share exercise
price thereof in the event of any stock dividend, stock split, recapitalization,
merger or certain other  events.  The  Compensation  Committee may terminate the
1993 Stock Option Plan at any time but any such  termination  will not adversely
affect options previously granted.

     Options granted under the 1993 Stock Option Plan are nontransferable except
by will or the laws of descent and distribution.

     During  2000,  there  were no stock  options  granted  under the 1993 Stock
Option Plan.

     As of March 15, 2001,  an aggregate of 276,739  shares of Common Stock were
subject to outstanding  stock options  granted under the 1993 Stock Option Plan.
As of March 15, 2001,  options to purchase  276,739  shares were  exercisable at
prices ranging from $1.37 to $3.51 per share.

     The Company  has  registered  the shares  issuable  upon  exercise of stock
options  granted  under the 1993 Stock  Option Plan  pursuant to a  registration
statement on Form S-8.

STOCK OPTION AGREEMENTS

     The Company has granted non-qualified stock options to directors, officers,
employees and  consultants  of the Company by means of stock option  agreements.
During  2000,  there were no stock  options  granted  pursuant  to stock  option
agreements. As of March 15, 2001, an aggregate of 434,070 shares of Common Stock
were subject to outstanding stock options granted under stock option agreements,
and  options to  purchase  434,070  shares  under such  option  agreements  were
exercisable at prices ranging from $1.50 to $6.75 per share.

     The Company  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

     The Company's 1996 Incentive Plan (the "1996  Incentive  Plan") was adopted
by the Board of Directors and approved by the stockholders of the Company 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 the  Company  to its
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

                                       27
<PAGE>


1993 Stock  Option Plan.  See  "Incentive  Plans -- 1993 Stock Option  Plan." In
December  1996,  the Board of Directors  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 the
Company  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 the
Company 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 the Company'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 the Company on the date of grant).

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

     Under the 1996  Incentive  Plan, the  Compensation  Committee may establish
with respect to each option or share awarded or sold such vesting  provisions as
it  determines  to  be   appropriate   or  advisable.   Unvested   options  will
automatically  terminate  within  a  specified  period  of  time  following  the
termination of the holder's relationship with the Company and in no event beyond
the expiration of the term. The Company 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.

                                       28
<PAGE>

     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 the Company in shares
of Common Stock. The amount payable by the Company 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 the
Company 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 the Company 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.

     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 the Company.  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  may suspend,  amend,  modify or terminate  the 1996
Incentive Plan. However,  the Company'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.

                                       29
<PAGE>


     As of March 15,  2001,  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, 2001,  stock options to purchase  9,167 shares were  exercisable at
prices ranging from $6.38 to $6.63 per share.

     The Company  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

     The Company'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 is responsible for determining and
administering  the Company's  compensation  policies for the remuneration of the
Company's officers. The Compensation Committee annually evaluates individual and
corporate performance from both a short-term and long-term perspective. In 2000,
the Company had no officers other than its current Chief  Executive  Officer who
is serving in such capacity without  compensation and its former Chief Executive
Officer  who  resigned  in April  2000 and who was paid in  accordance  with his
existing  employment  agreement  with the Company.  Accordingly,  the  following
report of the Compensation Committee is not directly applicable to calendar year
2000 but is presented for historical perspective.

      PHILOSOPHY

     The Company's  executive  compensation  program  historically has sought to
encourage  the  achievement  of  business   objectives  and  superior  corporate
performance  by the  Company's  executives.  The program  enables the Company 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,  the Company'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


                                       30
<PAGE>


discretion,  may award bonuses. The Compensation Committee and the Board believe
that the Company's  management  and employees are best  motivated  through stock
option awards and cash incentives.

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

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

     The  philosophy,   factors  and  criteria  of  the  Compensation  Committee
generally applicable to the Company's officers have historically been applicable
to the Chief Executive  Officer.  However,  the current Chief Executive Officer,
Russell D. Glass, is serving in such capacity without compensation.

     Peter Liebert
     Jack G. Wasserman

COMPARATIVE STOCK PERFORMANCE GRAPH


     The following  graph provides a comparison of the cumulative  total return*
for the Nasdaq Composite Index, the Nasdaq  Biotechnology  Index and the Company
since the Company's initial public offering on July 17, 1996.


                                       31
<PAGE>


                      COMPARISON OF CUMULATIVE TOTAL RETURN
   among Cadus Pharmaceutical Corporation, the Nasdaq Composite Index and the
                           Nasdaq Biotechnology Index

[GRAPH OMITTED]

*    $100 invested July 17, 1996 in the Company's Common Stock or in the index
     indicated, including reinvestment of dividends.


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


<TABLE>
<CAPTION>


                                       7/17/96        12/31/96        12/31/97     12/31/98         12/31/99      12/31/00
                                      -------         --------        -------      --------         --------      --------
<S>                                    <C>             <C>            <C>            <C>            <C>            <C>
Cadus                                  100.000         125.00          91.071         27.686          4.429         10.287
Nasdaq Composite Index                 100.000         118.808        144.513        201.784        374.482        227.352

Nasdaq Biotechnology Index             100.000         112.562        112.484        162.291        327.240        402.476

Cadus Closing Stock Price               $7.000           8.750          6.375          1.938          0.31           0.72
</TABLE>



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.


     The following table sets forth certain information regarding the beneficial
ownership  of the  Common  Stock as of March 15,  2001 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

                                       32

<PAGE>

filings made by such persons with the  Securities and Exchange  Commission  (the
"Commission") or upon information provided by such persons to the Company.


<TABLE>
<CAPTION>


                                                                   Number of Shares
                                                                   Amount and Nature          Percentage of Outstanding
Name and Address of Beneficial Owner(1)                         of Beneficial Ownership              Owned (2)
---------------------------------------                         -----------------------       --------------------------
<S>                                                                 <C>                               <C>
Carl C. Icahn .......................................               3,373,216(3)                      25.66%
    767 Fifth Avenue
    New York, New York  10153

Bristol-Myers Squibb................................                 1,927,673                        14.67%
    P.O. Box 4000
    Route 206 and Province Line Road
    Princeton, New Jersey  08543-4000

Physica B.V. (4)....................................                 1,599,942                        12.17%
    C.J. van Houtenlaan 36
    1381 CP Weesp
    The Netherlands

SmithKline Beecham Corporation......................                   660,962(5)                      5.03%
    One Franklin Plaza
    Philadelphia, PA  19102



Charles Woler.......................................                     --                              *

James R. Broach.....................................                   110,667(6)                        *

Russell D. Glass....................................                      *                              *

Peter S. Liebert, M.D...............................                    20,334(7)                        *

Siegfried G. Schaefer, Ph.D.........................                   1,599,942(8)                     12.17%


Jack G. Wasserman...................................                      14,500(9)                      *

All executive officers and directors as a
    group (7 persons) ..............................                   5,118,659(10)                    38.83%

</TABLE>

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

       * 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,
     2001, 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.  Mr. Icahn is the sole shareholder of 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)  Physica B.V. is an affiliate of Solvay Pharmaceuticals.

                                       33


<PAGE>



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

(6)  Consists of 110,667  shares of Common Stock which Dr. Broach  currently has
     the right to acquire upon the exercise of stock options.

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

(8)  Consists  of  1,599,942  shares of Common  Stock held by Physica  B.V.,  an
     affiliate  of Solvay  Pharmaceuticals.  Professor  Schaefer  is the head of
     worldwide  research at Solvay  Pharmaceuticals.  Professor  Schaefer may be
     deemed the beneficial owner of the 1,599,942 shares of Common Stock held by
     Physica B.V., but disclaims such beneficial ownership.

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

(10) Includes  (a) 149,167  shares of Common  Stock  issuable  upon  exercise of
     options and (b)  1,599,942  shares of Common Stock held by Physica B.V. See
     footnotes (3), (6), (7), (8) and (9).

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     During 1998, the Company  loaned  $15,000 to Dr.  Charles Woler,  the Chief
Executive  Officer of the  Company.  The loan bore  interest  at 5.5% per annum.
Principal and interest  were  repayable in monthly  installments  of $453 over 3
years. In April 2000, Dr. Woler repaid the remaining balance of the loan.

     In August 1999,  the  Company's  guarantee  of a $286,000  loan made to Dr.
James  Broach  by a third  party was  called by such  third  party,  which  also
foreclosed on $286,000 of cash collateral securing the Company's guarantee.  Dr.
Broach  executed  and  delivered  to the  Company  a  $286,000  interest-bearing
promissory  note  payable  to the order of the  Company  on August  31,  2000 to
evidence his debt to the Company  arising from the  Company's  guarantee of such
loan. In March 2000, Dr. Broach prepaid the promissory note in its entirety.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)     Financial Statements                    Page
        --------------------                    -----
Index to Financial Statements                   F-1

Independent Auditors' Report                    F-2

Financial Statements:
  Balance Sheets                                F-3
  Statements of Operations                      F-4
  Statements of Stockholders' Equity            F-5
  Statements of Cash Flows                      F-6
  Notes to Financial Statements                 F-7

                                       34

<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             Amended  and  Restated  Certificate  of  Incorporation  of Cadus
                Pharmaceutical  Corporation (the  "Company"),  as filed with the
                Secretary of State of Delaware on July 22, 1996. (1)

3.2             By-laws of the Company. (2)

4.1             Specimen of Common Stock Certificate of the Company. (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 the Company and each of
                the following employees of the Company:  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 the Company and each of
                the following  non-employee  directors of the Company:  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 the  Company and  SmithKline
                Beecham Corporation, dated as of February 25, 1997. (3)


                                       35
<PAGE>

4.9             Registration Rights Agreement between the Company and SmithKline
                Beecham Corporation, dated as of February 25, 1997. (3)

10.1            Form of  Indemnification  Agreement  entered  into  between  the
                Company 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 the Company.
                (2)

10.5            Preferred  Stock  Purchase  Agreement  dated as of July 30, 1993
                between  the Company  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   the   Company   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  the  Company  and  Physica  B.V.  concerning  Series  B
                Preferred Stock. (2)

10.8            Research  Collaboration and License Agreement,  dated as of July
                26, 1994, between the Company and Bristol-Myers. (2)

10.9            Screening  and  Option  Agreement,  dated as of July  26,  1994,
                between the Company and Bristol-Myers. (2)

10.10           Research  Collaboration  and  License  Agreement,  dated  as  of
                November 1, 1995 between the Company and Solvay  Pharmaceuticals
                B.V. (2)

10.11           Sublease  Agreement,  dated as of October 19, 1994,  between the
                Company and Union Carbide Corporation. (2)

10.12           Lease,  dated as of June 20, 1995  between the Company and Keren
                Limited Partnership. (2)

10.13           Consulting  Agreement  between the Company and James R.  Broach,
                dated February 1, 1994. (2)

10.14           Amended and Restated License  Agreement  between the Company and
                Duke University, dated May 10, 1994. (2)

                                       36
<PAGE>

10.15           License Agreement between the Company 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
                the Company and John C. Cambier. (2)

10.17           Stock Option  Agreement,  dated as of November 1, 1994,  between
                the Company and Gary L. Johnson.(2)

10.18           Consulting Agreement,  dated as of November 1, 1994, between the
                Company and John C. Cambier. (2)

10.19           Consulting Agreement,  dated as of November 1, 1994, between the
                Company and Gary L. Johnson. (2)

10.20           Research Collaboration  Agreement,  dated as of January 9, 1995,
                between the Company 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
                the Company 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 the
                Company  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
                the Company and Physica B.V. (2)

10.24           Research  Collaboration and License Agreement among the Company,
                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 the
                Company and Charles Woler. (4)

10.26           Employment  Agreement,  dated as of September 10, 1998,  between
                the Company and Philip N. Sussman. (4)

10.27           Agreement and  Instructions  to  Stakeholder  among the Company,
                SIBIA and Security Trust Company entered into in March 1999. (5)

10.28           Asset Purchase Agreement, dated as of July 30, 1999, between the
                Company and OSI  Pharmaceuticals,  Inc.  (Schedules to the Asset
                Purchase Agreement have been



                                       37
<PAGE>



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

23              Consent of KPMG LLP, independent auditors.

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

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

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

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

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

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

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

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



                                       38
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION




                                      INDEX

                                                                  Page No.


Independent Auditors' Report                                        F-2

Financial Statements:

      Balance Sheets - December 31, 2000 and 1999                   F-3

      Statements of Operations - For the years ended
        December 31, 2000, 1999 and 1998                            F-4
      Statements of Stockholders' Equity - For the years
        ended December 31, 2000, 1999 and 1998                      F-5

      Statements of Cash Flows - For the years ended
        December 31, 2000, 1999 and 1998                            F-6

      Notes to Financial Statements                                 F-7





<PAGE>




                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Cadus Pharmaceutical Corporation:


We  have  audited  the  accompanying  balance  sheets  of  Cadus  Pharmaceutical
Corporation  (the  "Company")  as of December  31, 2000 and 1999 and the related
statements of operations,  stockholders'  equity, and cash flows for each of the
years  in the  three-year  period  ended  December  31,  2000.  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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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 financial  statements  referred to above present fairly, in
all  material  respects,   the  financial   position  of  Cadus   Pharmaceutical
Corporation  as of December 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 2000 in conformity  with  accounting  principles  generally  accepted in the
United States of America.



March 22, 2001


                                   F-2
<PAGE>

                        CADUS PHARMACEUTICAL CORPORATION
                                 BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>


                                                                     DECEMBER 31,         DECEMBER 31,
                                                                         2000                 1999
                                                                    ------------         -------------
<S>                                                                 <C>                  <C>
Current assets:
  Cash and cash equivalents                                        $ 24,383,352          $  5,082,212
  Restricted cash                                                          --                  13,566
  Due from officer and director                                            --                 294,636
  Prepaid and other current assets                                       81,250                69,783
                                                                   ------------          ------------

    Total current assets                                             24,464,602             5,460,197

Restricted cash-noncurrent                                                 --              19,065,431
Investment in other ventures                                            162,528               999,590
Other assets, net                                                     1,081,527             1,173,558
                                                                   ------------          ------------
    Total assets                                                   $ 25,708,657          $ 26,698,776
                                                                   ============          ============
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                $       --            $     17,644
   Accrued expenses and other current
     liabilities                                                         36,244               121,843
   Deferred revenue                                                        --                  28,500
                                                                   ------------          ------------
   Total current liabilities                                             36,244               167,987
Reserve for litigation damages                                             --              19,065,431
                                                                   ------------          ------------
    Total liabilities                                                    36,244            19,233,418

Stockholders' equity:
  Common stock, $.01 par value. Authorized
  35,000,000 shares at December 31, 2000
  and 1999; issued 13,285,707 shares at
  December 31, 2000 and 13,210,607 shares
  at December 31, 1999; outstanding
  13,144,040 shares at December 31, 2000
  and 13,068,940 shares at December 31, 1999                            132,857               132,106
  Additional paid-in capital                                         59,844,355            59,689,446
  Accumulated deficit                                               (34,004,724)          (52,056,119)
  Treasury stock, 141,667 shares of common
    stock at December 31, 2000 and 1999                                (300,075)             (300,075)
                                                                   ------------          ------------
    Total stockholders' equity                                       25,672,413             7,465,358
                                                                   ------------          ------------

    Total liabilities and stockholders'
      equity                                                       $ 25,708,657          $ 26,698,776
                                                                   ============          ============
</TABLE>


                See accompanying notes to financial statements.

                                      F-3
<PAGE>

                        CADUS PHARMACEUTICAL CORPORATION
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                  FOR THE YEARS ENDED DECEMBER 31,
                                                         2000                1999                 1998
                                                     -----------         ------------         ------------
<S>                                                 <C>                  <C>                  <C>
Revenues, principally from
  related parties                                   $       --           $  6,027,544         $ 12,576,469

License and maintenance fee                              978,500                  --                   --
                                                     -----------         ------------         ------------
     Total revenues                                      978,500            6,027,544           12,576,469
                                                     -----------         ------------         ------------
Costs and expenses
  Research and development costs                              --            9,115,504           15,388,991
  General and administrative                           1,652,067            3,643,365            8,977,408
  Loss in equity in other ventures                       837,062            1,334,491            1,144,148
  (Gain) loss on sale of equipment
    and impairment loss                                 (100,000)             220,216              (16,368)
                                                     -----------         ------------         ------------
     Total costs and expenses                          2,389,129           14,313,576           25,494,179
                                                     -----------         ------------         ------------
Operating loss                                        (1,410,629)          (8,286,032)         (12,917,710)
                                                     -----------         ------------         ------------
Other income and (expenses):
  Interest income                                        638,954              551,539            1,844,177
  Interest expense                                            --                  --               (10,500)
  Gain on reversal of litigation
    judgment, net of legal fees (note 4)              18,841,489                  --                    --
  Reserve for litigation damages                              --                  --           (18,500,000)
  Loss on sale of assets to OSI                               --             (805,555)                  --
                                                     -----------         ------------         ------------
     Total other income and
      (expenses)                                      19,480,443             (254,016)         (16,666,323)

Income (loss) before income taxes                     18,069,814           (8,540,048)         (29,584,033)

State and local tax provision (benefit)                   18,419              (16,359)             106,170
                                                     -----------         ------------         ------------
     Net income (loss)                               $18,051,395          ($8,523,689)        ($29,690,203)
                                                     ===========         ============         ============
Basic and diluted net income (loss)
  per share                                          $      1.37               ($0.65)              ($2.32)
                                                     ===========         ============         ============
Weighted average shares of common
  stock outstanding - basic and
  diluted                                             13,133,615           13,068,940           12,811,525
                                                     ===========         ============           ==========
</TABLE>

                 See accompanying notes to financial statements.

                                      F-4
<PAGE>


        CADUS PHARMACEUTICAL CORPORATION
        STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                        Additional
                                 Common           Stock        Paid-in    Accumulated           Treasury Stock
                                 Shares           Amount       Capital      Deficit          Shares         Amount       Total
                                 ----------      --------   -----------  -------------      ---------     ----------   ---------
<S>                              <C>             <C>        <C>           <C>                <C>           <C>        <C>
Balance at January 1, 1998       12,500,156      $125,001   $54,517,519   ($13,842,227)      (141,667)     ($300,075) $ 40,500,218

Issuance of common stock
  for cash in connection
  with exercise of options           49,489           495       178,537             --             --             --       179,032

Issuance of restricted
  common stock in connec-
  tion with Stock Purchase
  Agreement with SmithKline
  Beecham                           660,962         6,610     4,993,390             --             --             --     5,000,000

Net loss for year ended
  December 31, 1998                      --            --            --    (29,690,203)            --             --    29,690,203)
                                -----------      --------   -----------   ------------    -----------      ---------  ------------

Balance at December 31, 1998     13,210,607       132,106    59,689,446    (43,532,430)      (141,667)      (300,075)   15,989,047

Net loss for year ended
  December 31, 1999                     --            --            --      (8,523,689)            --             --    (8,523,689)
                                -----------      --------   -----------   ------------    -----------      ---------  ------------

Balance at December 31, 1999     13,210,607       132,106    59,689,446    (52,056,119)      (141,667)      (300,075)    7,465,358

Issuance of common stock
  in connection with
  exercise of options                75,100           751       154,909            --             --             --        155,660
Net income for the year ended
  December 31, 2000                     --            --            --      18,051,395            --             --     18,051,395
                                -----------      --------   -----------   ------------    -----------      ---------  ------------
                                 13,285,707      $132,857   $59,844,355   ($34,004,724)      (141,667)     ($300,075)  $25,672,413
                                ===========      ========   ===========   ============    ===========      =========  ============
</TABLE>


                 See accompanying notes to financial statements.

                                      F-5
<PAGE>

                        CADUS PHARMACEUTICAL CORPORATION
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                       For the Years Ended December 31,
                                                     2000          1999            1998
                                                     ----          ----            ----
<S>                                             <C>             <C>           <C>
Cash flows from operating activities:
Net income (loss)                               $ 18,051,395   ($ 8,523,689)  ($29,690,203)
Adjustments to reconcile net income (loss)
  to net cash used in
  operating activities:
    Depreciation and amortization                     80,905        719,510        992,224
    Loss in equity in other ventures                 837,062      1,334,491      1,144,148
    (Gain) loss on sale of equipment
      and impairment loss                           (100,000)       220,216        (16,368)
    Loss on sale of assets to OSI                        --         805,555            --
    Changes in assets and liabilities:
    (Increase) decrease in prepaid and
      other current assets                           (11,467)       215,084        120,730
    Decrease (increase) in other assets               11,126        117,520        (53,171)
    (Decrease) Increase in deferred revenue           28,500         28,500            --
    (Decrease) increase in litigation damages    (19,065,431)       565,431     18,500,000
    (Decrease) in accounts payable                   (17,644)      (199,770)      (675,222)
    (Decrease) increase in accrued expenses
      and other current liabilities                  (85,599)    (1,608,178)     1,125,875
                                                ------------    -----------   ------------
Net cash used in
operating activities                                (328,158)    (6,325,330)    (8,551,987)
                                                ------------    -----------   ------------

Cash flows from investing activities:
  Acquisition of fixed assets                            --        (470,378)    (3,450,130)
  Proceeds from sale of patents and
    fixed assets                                     100,000      1,644,073            --
  Sale and leaseback of fixed assets                     --             --       2,463,888
  Decrease (increase) in restricted cash          19,078,997       (292,997)   (18,786,000)
  Investments in other ventures                          --             --      (2,150,000)
  Capitalized patent costs                               --        (167,500)      (477,339)
                                                ------------    -----------   ------------
Net cash provided by (used in) investing
   activities                                     19,178,997        713,198    (22,399,581)
                                                ------------    -----------   ------------
Cash flows from financing activities:
  Proceeds from issuance of common stock
    upon exercise of stock options                   155,660            --         179,032
  Proceeds from issuance of common stock                 --             --       5,000,000
  Decrease (increase) in due from officer
    and director                                     294,636       (281,184)       (13,452)
                                                ------------    -----------   ------------
Net cash provided by financing activities            450,296       (281,184)    (5,165,580)
                                                ------------    -----------   ------------
Net increase (decrease) in cash and cash          19,301,140     (5,893,316)   (25,785,988)
  equivalents

Cash and cash equivalents -
  beginning of period                              5,082,212     10,975,528     36,761,516
                                                ------------    -----------   ------------
Cash and cash equivalents -
  end of period                                 $ 24,383,352    $ 5,082,212   $ 10,975,528
                                                ============    ===========   ============
</TABLE>

                 See accompanying notes to financial statements.

                                      F-6
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================
(1)  Organization and Basis of Preparation

     Cadus  Pharmaceutical  Corporation  (the  "Company")  was  incorporated  on
     January 23,  1992,  under the laws of the State of Delaware  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.  As
     further  discussed in Note 3, on July 30,  1999,  the Company sold its drug
     discovery  assets  to OSI  Pharmaceutical,  Inc.  ("OSI")  and  ceased  its
     internal drug discovery  operations and research efforts for  collaborative
     partners.  Pursuant to such sale  transaction,  OSI  assumed the  Company's
     lease to its  research  facility  in  Tarrytown,  New York,  the  Company's
     equipment lease with General Electric Capital Corporation ("GECC"), and the
     Company's   research   collaboration  and  license  agreement  with  Solvay
     Pharmaceutical B.V. ("Solvay Pharmaceuticals").  The Company 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 is seeking to license its  technologies  and to  otherwise  realize
     value from its assets.  The Company is also seeking to use a portion of its
     available cash to acquire  technologies or products or to acquire or invest
     in companies.

     The Company has incurred operating losses in each year since its inception.
     At  December  31,  2000,  the  Company  had  an   accumulated   deficit  of
     approximately  $34.0 million,  after reversing the $18.5 million charge for
     litigation damages with respect to the patent infringement  litigation with
     SIBIA after the Court of Appeals ruled in the Company's  favor in 2000. 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.

     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 2001.  This forecast of the period of time
     through which the Company's financial resources will be adequate to support
     its operations 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  technologies  or  products  or to
     acquire  or  invest  in  companies;  and  the  expenses  of  pursuing  such
     transactions.

(2)  Significant Accounting Policies

     (a)  Cash Equivalents

          The Company  considers  all highly  liquid  investments  with original
          maturities  of  three  months  or  less  when  purchased  to  be  cash
          equivalents.  Included in restricted and unrestricted cash at December
          31, 2000 and 1999 were cash equivalents of $24,383,352 and $5,095,778,
          respectively.

                                      F-7
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================

     (b)  Other Assets, Net

          Other assets include  capitalized patent costs that are amortized on a
          straight-line  basis over fifteen years. At December 31, 2000 and 1999
          accumulated   amortization  is  $308,366  and  $227,461  respectively.
          Amortization expense amounted to $81,000,  $94,000 and $78,000 for the
          years ended December 31 2000, 1999 and 1998, respectively.

     (c)  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
          statement  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.

     (d)  Research and Development

          Research  and  development  costs are expensed as incurred and include
          direct costs of research  scientists and supplies and an allocation of
          shared facilities, services and overhead.

     (e)  Revenue Recognition

          The Company had entered into research agreements that provided for the
          payment  of  nonrefundable  fees  during  the  term  of  the  research
          programs. In addition, the agreement provided for payment of fees when
          certain  milestone  events had  occurred.  These fees are reflected as
          revenue when earned,  as related costs are incurred or when  milestone
          events have occurred.

          Revenue recognized in the accompanying statements of operations is not
          subject  to  repayment.  Revenue  received  that is  related to future
          performance under such contracts is deferred and recognized as revenue
          when earned.

          On December 3, 1999,  the  Securities  and Exchange  Commission  (SEC)
          issued Staff  Accounting  Bulletin No. 101,  "Revenue  Recognition  in
          Financial  Statements"  (SAB No.  101).  SAB No. 101  provides the SEC
          staff's views on the recognition of revenue  including  non-refundable
          technology   access  fees  received  by  biotechnology   companies  in
          connection with research  collaborations  with third parties.  SAB No.
          101 states that in certain  circumstances  the SEC staff believes that
          up-front  fees,  even  if  non-refundable,   should  be  deferred  and
          recognized systematically over the term of the research agreement. SAB
          No.  101B,  which  amends  the  implementation  date for SAB No.  101,
          requires  registrants  to  adopt  the  accounting  guidance  contained
          therein by no later than the fourth fiscal  quarter of the fiscal year
          beginning after December 15, 1999. The adoption of SAB No. 101 did not
          have any  financial  impact on the  Company's  financial  position  or
          result of operations.

     (f)  Net Income (Loss) Per Share

                                      F-8
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================



          Basic net income  (loss) per share as of December 31,  2000,  1999 and
          1998 is  computed by dividing  the net income  (loss) by the  weighted
          average  number of common  shares  outstanding.  Diluted  earnings per
          share is  calculated  based on the weighted  average of common  shares
          outstanding  plus the  effect of  dilutive  common  stock  equivalents
          (stock  options).  The  effect  of  stock  options  totaling  719,976,
          1,190,076  and  2,571,808  at  December  31,  2000,   1999  and  1998,
          respectively,  were not  included  in the net income  (loss) per share
          calculation because their effect would have been anti-dilutive.

     (g)  Use of Estimates

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles 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 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 book 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

          The Company has elected to follow Accounting  Principles Board Opinion
          No.  25,  "Accounting  for  Stock  Issued to  Employees"  (APB 25) and
          related  interpretations in accounting for its employee stock options.
          Under APB 25,  because the exercise  price of employee  stock  options
          equals the market price of the underlying  stock on the date of grant,
          no  compensation  expense is  recorded.  The  Company  has adopted the
          disclosure-only   provisions  of  Statement  of  Financial  Accounting
          Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No.
          123).

     (j)  Comprehensive Income

          The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,
          " which  requires  companies to report all changes in equity  during a
          period,   except  those   resulting  from  investment  by  owners  and
          distribution  to owners,  for the period in which they are recognized.
          Comprehensive income is the total of net income and all other nonowner
          changes in equity (or other  comprehensive  income) such as unrealized
          gains/losses on securities classified as  available-for-sale,  foreign
          currency   translation   adjustments  and  minimum  pension  liability
          adjustments.

          Comprehensive and other  comprehensive  income must be reported on the
          face  of  annual  financial  statements  or in  the  case  of  interim
          reporting,  the  footnote  approach  may be  utilized.  The  Company's
          operations  did not give  rise to items  includible  in  comprehensive
          income  which  were  not  already   included  in  net  income  (loss).
          Accordingly, the Company's comprehensive income is the same as its net
          income (loss) for all periods presented.

     (3)  Asset Sale to OSI Pharmaceuticals

                                      F-9
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================

          On July  30,  1999,  the  Company  sold to OSI  Pharmaceuticals,  Inc.
          ("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 the Company's lease to
          the Company's research facility in Tarrytown,  New York, the Company's
          equipment lease with GECC and the Company's research collaboration and
          license  agreement with Solvay  Pharmaceuticals.  As consideration for
          the sale, the Company  received  approximately  $1,500,000 in cash and
          OSI assumed certain  liabilities of the Company  relating to employees
          hired by OSI  aggregating  approximately  $133,000.  In addition,  the
          Company  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. The Company
          licensed to OSI on a non-exclusive  basis certain technology solely to
          enable OSI to fulfill its  obligations  under the  collaboration  with
          Solvay  Pharmaceuticals.  The  Company  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 the Company.  The Company 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,  its  joint  ownership  of  the  human  orphan  G
          protein-coupled  receptors  identified  pursuant to its  collaboration
          with Gennome Therapeutics  Corporation,  its proprietary software, its
          genomics databases related to G protein-coupled  receptors, all assays
          and  technologies   reverting  to  it  from  its  collaboration   with
          Bristol-Meyers   Squibb   Company,   its  equity   position  in  Axiom
          Biotechnologies,  Inc., the Company's cash and cash  equivalents,  and
          the approximately  $18.5 million (plus interest thereon) being held in
          escrow pending appeal of the verdict in favor of SIBIA  Neurosciences,
          Inc. ("SIBIA").

          The Company  recognized a loss on the sale of assets to OSI in 1999. A
          summary of the loss recognized is as follows:

                  Proceeds:
          Purchase price                              $1,500,000
          Liabilities assumed by OSI                     133,000
                                                      ----------
          Total                                        1,633,000

          Less:
          Net book value of patents sold                 183,000
          Net book value of other assets sold          2,256,000
                                                      ----------
          Loss on sale of assets                      $  806,000
                                                      ==========


          The Company ceased its drug discovery  operations and research efforts
          for collaborators as a result of this transaction.  Consequently,  the
          Company  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.

     (4)  Litigation

          In July  1996,  SIBIA  (which was  acquired  by Merck and Co. in 1999)
          commenced a patent  infringement  action against the Company  alleging
          infringement  by the Company of a patent  concerning

                                      F-10
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================

          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  precludes the Company from using
          the method claimed in SIBIA's patent. On February 26, 1999, the United
          States  District  Court denied the Company'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. The Company appealed the
          judgment.  In order to stay  execution  pending  appeal  of the  $18.0
          million  judgment  obtained  by  SIBIA  in  March  1999,  the  Company
          deposited $18.5 million in escrow to secure payment of the judgment in
          the event the Company were to lose the appeal.  Such $18.5 million was
          classified,  as of December 31, 1998, as "restricted  cash-noncurrent"
          and the  Company's  "cash and cash  equivalents"  was reduced by $18.5
          million in 1998. The Company recorded a reserve for litigation damages
          of $18.5  million in its  statement of  operations  for the year ended
          December 31, 1998. Interest earned on the restricted cash was added to
          the  reserve  for  litigation  damages,  which  was $19.1  million  at
          December  31, 1999.  On  September 6, 2000 the United  States Court of
          Appeals ruled in favor of the Company and overturned the 1998 judgment
          entered by the U.S.  District  Court.  The Court of Appeals ruled that
          the claims of the SIBIA  patent  asserted  against  the  Company  were
          invalid and that the  District  Court  erred in denying the  Company'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  $18,000,000
          judgment  in favor of SIBIA and  vacated  the  injunction  against the
          Company. Separately, in October 2000, the Company obtained the release
          of the cash escrow of $19.9 million  representing  the original  $18.5
          million  and  interest  that  accumulated  thereon.  The  reserve  for
          litigation  of  $18,841,489  (net of direct legal costs of $1 million)
          has been  reversed and credited to the  statement of  operations as of
          December 31, 2000.

          On  October  4,  1999,  Philip N.  Sussman,  the  former  Senior  Vice
          President,  Finance and  Corporate  Development,  and Chief  Financial
          Officer of the Company commenced an arbitration proceeding against the
          Company seeking severance pay of approximately  $525,000.  The Company
          believes  that Mr.  Sussman is not entitled to such  severance pay and
          intends to vigorously defend the action.

     (5)  Fixed Assets

          During  fiscal  year 1999,  the  Company  sold a majority of its fixed
          assets to OSI and wrote off the remaining  fixed assets as the Company
          ceased its drug  discovery  operations.  The loss on the impairment of
          the fixed  assets of  $370,801  is  included in gain (loss) on sale of
          equipment and impairment loss on the statement of operations.

          During  fiscal  year  2000,  the  Company  sold  its  remaining  fully
          depreciated fixed assets to M.I.T. for $100,000.  The gain on the sale
          of these  fixed  assets of $100,000 is included in gain (loss) on sale
          of equipment and impairment loss on the statement of operations.

          Depreciation and amortization expense for the years ended December 31,
          2000,  1999 and 1998 was  approximately  $-0-,  $625,000  and $914,000
          respectively.

     (6)  Related Party Transactions

          During 1998, the Company  loaned  $15,000 to Dr.  Charles  Woler,  the
          former Chief Executive Officer of the Company.  The loan bore interest
          at 5.5% per annum.  Principal and interest  were  repayable in monthly
          installments  of $453 over three  years.  At December  31,  1999,  the
          outstanding balance of the loan was $8,636. This loan was fully repaid
          in 2000.

          In August 1998, the Company  guaranteed the payment of a $286,000 loan
          made to a board member and secured its guarantee  obligation with cash
          collateral  of  $286,000.  In August  1999,  the lender

                                      F-11
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================



          called on the guarantee and  foreclosed  on the cash  collateral.  The
          Director executed an interest bearing promissory note in the amount of
          $286,000 in favor of the  Company,  which was payable,  together  with
          accrued  interest,  on August 31, 2000. The amount owed as of December
          31, 1999 of $286,000  is  included in due from  officer and  director.
          This loan was repaid in its entirety in March 2000.

          See Notes 7 and 9 for further  discussion of transactions with related
          parties.

     (7)  Investments in Other Ventures

          In  December  1996,  the  Company  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 the
          Company is the general  partner.  An  interest  payment of $10,500 was
          accrued at December 31, 1997 and paid in January  1998.  The principal
          amount and interest  thereon was paid in December  1998.  In addition,
          the Company 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. The
          Company had the right to require the  shareholder  to match any future
          investment made by the Company in Laurel up to an aggregate investment
          on the part of the shareholder of $5.0 million.  This right expired on
          December 31, 1999.  The Company is not required to make any additional
          investment in Laurel. The investment is accounted for under the equity
          method with the recognition of losses limited to the Company's capital
          contributions.  For the years ended  December 31, 2000,  1999 and 1998
          the Company recognized (losses) gains of ($2,649), $20,513 and $7,968,
          respectively,  related to the investment.  The remaining investment in
          Laurel  of  $162,528  and  $165,177  at  December  31,  2000 and 1999,
          respectively,  is included  in  investments  in other  ventures on the
          balance sheet.

          In May  1997,  the  Company  purchased  $2.0  million  of  convertible
          preferred stock in Axiom Biotechnologies, Inc. ("Axiom"), representing
          approximately  26%  of  the  outstanding  shares  of  Axiom  on  an as
          converted basis. As part of the  arrangement,  Axiom agreed to deliver
          and  license to the  Company  its first High  Throughput  Pharmacology
          System  (HT-PS).  The Company  purchased an additional $2.0 million of
          convertible  preferred  stock  in  Axiom on June 5,  1998,  after  the
          Company received and accepted Axiom's HT-PS. The additional investment
          increased the Company's equity interest in Axiom to approximately  30%
          of Axiom's  outstanding  shares on an as converted basis, after taking
          into account an investment in Axiom by JAFCO Co., Ltd., ("JAFCO"),  an
          affiliate  of the  Nomura  Group,  in  1998.  Russell  D.  Glass,  the
          Company's  Chief  Executive  Officer,  is a  director  of  Axiom.  The
          Company's investment is accounted for under the equity method with the
          Company  recognizing  100% of Axiom's  net  losses  prior to the JAFCO
          investment and 50% after such investment.  Such percentage  represents
          the  extent to which the  Company  is  deemed  to be  funding  Axiom's
          losses.  For the years ended  December  31, 2000,  1999 and 1998,  the
          Company recognized $834,413, $1,355,004 and $1,152,116,  respectively,
          in losses  generated by Axiom.  The  remaining  investment in Axiom of
          $-0- and  $834,413 at December  31,  2000 and 1999,  respectively,  is
          included in investments in other ventures on the balance sheet.

     (8)  Income Taxes

          Deferred tax assets of  approximately  $13,764,000  and $22,256,000 at
          December 31, 2000 and 1999,  respectively,  related principally to tax
          net operating  loss  carryforwards  of  $27,723,000  and  $30,656,000,
          research  credit   carryforwards  of  $2,675,000  and  $2,594,000  and
          litigation  reserves of $0 and  $19,100,000  at December  31, 2000 and
          1999  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

                                      F-12
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================



          result  of  the  significant   uncertainty  regarding  their  ultimate
          realization.  The aggregate valuation  allowance decreased  $8,492,000
          during the year ended December 31, 2000 as a result of a reversal of a
          litigation judgment (see Note 4), and increased  $2,674,000 during the
          year ended  December 31, 1999.  The reversal of the litigaion  reserve
          (other than the portion  attributable to accrued interest) in 2000 did
          not generate  taxable income as the original charge was not deductible
          when taken in 1998.

          The  Company's  net  operating  loss  carryforwards  and  research and
          development  tax credit  carryforwards  noted above  expire in various
          years from 2009 to 2019.  The  Company's  ability to utilize  such net
          operating loss and research and development  tax 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 is subject to New York State tax on capital.

     (9)  Research Collaboration and License Agreements

          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.

          For the years  ended  December  31,  2000,  1999 and 1998 the  Company
          recognized  $-0-,  $1.3  million and $4.4  million,  respectively,  in
          revenues  for  research  funding  from  Bristol-Myers   Squibb,  which
          constituted 0%, 22% and 35%,  respectively,  of the Company's revenues
          in 2000, 1999 and 1998.

          For the years ended  December  31,  2000,  1999 and 1998,  the Company
          recognized  $-0-,  $1.6  million and $2.6  million,  respectively,  in
          revenues  for  research  funding  from  Solvay   Pharmaceuticals,   an
          affiliate  of  Physical  B.V.,  which  constituted  0%,  26% and  21%,
          respectively,  of the  Company's  revenues  in 2000,  1999  and  1998.
          Siegfried  G.  Schaefer,  a director  of the  Company,  is the head of
          worldwide research at Solvay Pharmaceuticals.

          For the year ended December 31, 2000, the Company received no research
          revenues or technology  development fees from SmithKline Beecham.  For
          the year ended December 31, 1999, the Company  received and recognized
          $2.1  million  in  research  revenues  and  a  $1.0  million  research
          milestone  payment from SmithKline  Beecham,  which represented 52% of
          the Company's  revenues in 1999. For the year ended December 31, 1998,
          the  Company  recognized  $3.5  million in research  revenues  and the
          one-time  $2.0  million  technology  development  fee from  SmithKline
          Beecham, which represented 44% of the Company's revenues in 1998.

     (10) Sponsored Research and License Agreements

          In January 1998 and January 1999,  the Company  entered into sponsored
          research   agreements  with  Massachusetts   Institute  of  Technology
          ("M.I.T.")  pursuant  to  which  M.I.T.  will  use  its  expertise  in
          micro-robotics  to  co-develop  the   LivingChip(TM),   a  novel  drug
          discovery  screening  tool that would  miniaturize  and  automate  the
          Company's  proprietary hybrid yeast cell technology.  During 1999, the
          Company ceased providing M.I.T.  with research funding and its license
          to M.I.T.'s  LivingChip(TM)

                                      F-13
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================


          technology was terminated in March 2000. The Company  provided  M.I.T.
          with full research funding for 1998 and partial funding for 1999.

          The Company has  entered  into  several  other  license and  sponsored
          research  agreements  with  various  third  parties.   Generally,  the
          agreements  provide that the Company will make  research  payments and
          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.  Licenses fees and
          maintenance payments, including payments made to M.I.T., for the years
          ended December 31, 1999 and 1998,  amounted to approximately  $536,000
          and $2.0 million, respectively. There were no payments made during the
          year ended December 31, 2000.


     (11) Equity Transactions

          In May 1998, the Company sold, in a private placement,  660,962 shares
          of its  common  stock to  SmithKline  Beecham  p.l.c.  and  SmithKline
          Beecham  Corporation for approximately $7.56 per share or an aggregate
          consideration of $5.0 million.

     (12) 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 the Company.  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-14
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================



Activity under the 1993 Plan is as follows:

                                                   Options Outstanding
                                           Number       Weighted
                                            of           Average
                                           Shares     Exercise Price
                                         --------    ---------------
Balance at January 1, 1998                474,360           $1.65

1998 activity
  Granted                                     --              --
  Exercised                               (18,813)           1.48
  Canceled                                   (236)           3.00
                                          -------
Balance at December 31, 1998              455,311            1.65

1999 activity
  Granted                                     --              --
  Exercised                                   --              --
  Canceled                               (138,572)           2.00
                                         --------
Balance at December 31, 1999              316,739            1.50

2000 activity
  Granted                                     --
  Exercised                               (40,000)           1.37
  Canceled                                    --              --
                                         --------
Balance at December 31, 2000              276,739           $1.52
                                         ========

At  December  31,  2000,  the  range of  exercise  prices  and  weighted-average
remaining  contractual  life of outstanding  options was $1.37 to $3.51 and 2.63
years, respectively.

At December 31, 2000 and 1999, the number of options exercisable was 276,739 and
316,739,  respectively, and the weighted-average exercise price of those options
was $1.52 and $1.50, respectively.

The following table summarizes stock option  information for the 1993 Plan as of
December 31, 2000:

<TABLE>
<CAPTION>


                                                Options Outstanding               Options Exercisable
                                          ------------------------------     ----------------------------
                                             Weighted         Weighted                           Weighted
                                              Average          Average                           Average
   Range of              Number             Remaining          Exercise         Number           Exercise
Exercise Prices       Outstanding         Contractual Life      Price         Exercisable         Price
----------------      -----------        -----------------  ------------     ------------       ---------
<S>                     <C>                     <C>             <C>             <C>               <C>
$1.37 to $1.50          270,072                 2.64            $1.47           270,072           $1.47
    $3.51                 6,667                 2.50            $3.51             6,667           $3.51
                       --------                                                --------
$1.37 to $3.51          276,739                 2.63            $1.52           276,739           $1.52
                       ========                                                ========
</TABLE>

                                      F-15
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================



(b)  The Company  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, 2000, an aggregate of 434,070  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 exercisable
     in four  cumulative  annual  installments  of 3,000  shares  commencing  in
     November 1997 and expires in November 2006.

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


                                                   Options Outstanding
                                           Number       Weighted
                                            of           Average
                                           Shares     Exercise Price
                                         --------    ---------------
Balance at January 1, 1998                610,800         $3.02

1998 activity
  Granted                                      --            --
  Exercised                                    --            --
  Canceled                                (13,543)         2.84
                                         --------
Balance at December 31, 1998              597,257          3.02

1999 activity
  Granted                                      --            --
  Exercised                                    --            --
  Canceled                               (158,087)         4.56
                                         --------
Balance at December 31, 1999              439,170          2.47

2000 activity
  Granted                                      --            --
  Exercised                                (5,100)         3.60
  Canceled                                     --            --
                                         --------
Balance at December 31, 2000              434,070         $2.46
                                         ========

At  December  31,  2000,  the  range of  exercise  prices  and  weighted-average
remaining  contractual  life of outstanding  options was $1.50 to $6.75 and 3.28
years, respectively.

                                      F-16
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================

At December 31, 2000 and 1999, the number of options exercisable was 434,070 and
427,170,  respectively, and the weighted-average exercise price of those options
was $2.46 and $2.35, respectively.

The following table summarizes  stock option  information for grants not subject
to any plan as of December 31, 2000:

<TABLE>
<CAPTION>

                                                Options Outstanding                Options Exercisable
                                          ------------------------------     ----------------------------
                                             Weighted          Weighted                          Weighted
                                              Average          Average                           Average
    Range of             Number             Remaining          Exercise         Number           Exercise
 Exercise Prices      Outstanding         Contractual Life      Price         Exercisable         Price
----------------      -----------        -----------------  ------------     ------------       ---------
<S>                     <C>                    <C>              <C>            <C>                <C>
$1.50 to $2.57          364,001                2.84             $1.83          364,001            $1.83
    $3.60                22,069                4.97             $3.60           22,069            $3.60
    $6.75                48,000                5.88             $6.75           48,000            $6.75
                        -------                                                -------
$1.50 to $6.75          434,070                3.28             $2.46          434,070            $2.46
                        =======                                                =======
</TABLE>

(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 the  Company's
     employees and  consultants.  However,  awards made under the 1993 Plan will
     continue to be administered in accordance with the 1993 Plan.

     The 1996 Plan was adopted in May 1996.  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 the Company 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 the Company in June 1998.

     Options granted under the 1996 Plan expire no later than ten years from the
     date of grant. The option price is required to be at least 100% of the fair
     value on the  date of grant as  determined  by the  Board of  Director  for
     incentive and  nonqualified  stock options.  The options  generally  become
     exercisable  according  to a  schedule  of  vesting  as  determined  by the
     Compensation  Committee of the Board of Directors.  The schedule prescribes
     the date or dates on which the options become  exercisable in  installments
     over a period of months or years.

                                      F-17
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================


Activity under the 1996 Plan is as follows:


                                                   Options Outstanding

                                           Number       Weighted
                                            of           Average
                                           Shares     Exercise Price
                                         --------    ---------------



Balance at January 1, 1998                655,406         $7.17

1998 activity
   Granted                                941,145          3.13
   Exercised                              (17,133)         6.57
   Canceled                               (60,178)         6.68
                                       ----------
Balance at December 31, 1998            1,519,240          4.70

1999 activity
   Granted                                129,855          1.88
   Exercised                                   --            --
   Canceled                            (1,214,928)         5.15
                                       ----------
Balance at December 31, 1999              434,167          2.57

2000 activity
   Granted                                     --            --
   Exercised                              (30,000)         2.75
   Canceled                              (395,000)         2.46
                                       ----------
Balance at December 31, 2000                9,167         $6.56
                                       ==========

At  December  31,  2000,  the  range of  exercise  prices  and  weighted-average
remaining  contractual  life of outstanding  options was $6.38 to $6.63 and 6.24
years, respectively.

At December 31, 2000 and 1999, the number of options  exercisable  was 9,167 and
172,790,  respectively, and the weighted average exercise price of those options
was $6.56 and $2.91, respectively.

The following table summarizes stock option  information for the 1996 Plan as of
December 31, 2000:

<TABLE>
<CAPTION>

                                                Options Outstanding               Options Exercisable
                                          ------------------------------     ----------------------------
                                             Weighted          Weighted                          Weighted
                                              Average          Average                           Average
    Range of             Number             Remaining          Exercise         Number           Exercise
 Exercise Prices      Outstanding         Contractual Life      Price         Exercisable         Price
----------------      -----------        -----------------  ------------     ------------       ---------
<S>                   <C>                  <C>               <C>              <C>              <C>

$6.38 to $6.63           9,167                   6.24            $6.56           9,167             $6.56

</TABLE>

                                      F-18
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================

     The Company  applies APB 25 in  accounting  for its stock option plans and,
     accordingly, no compensation cost has been recognized for its stock options
     in the  financial  statements.  If the  Company  had  elected to  recognize
     compensation  cost  based on the fair value of the  options  granted at the
     grant date  under SFAS No.  123,  net income  (loss) and income  (loss) per
     share would have been  increased to the pro forma amounts  indicated in the
     table below (in thousands, except per share amounts):

                                          2000             1999         1998
                                        -------         ---------     --------
Net income (loss) - as reported         $18,051         ($8,524)    ($29,690)
Net income (loss) - pro forma           $18,051         ($8,614)    ($31,314)

Income (loss) per share - as reported   $  1.37           ($.65)      ($2.32)
Income (loss) per share - pro forma     $  1.37           ($.65)      ($2.44)

     Pro forma net income  (loss)  reflects  only  options  granted  since 1995.
     Therefore,  the full  impact  of  calculating  compensation  cost for stock
     options  under  SFAS No. 123 is not  reflected  in the pro forma net income
     (loss) amounts presented above because  compensation cost is reflected over
     the options' vesting period and compensation cost for options granted prior
     to January 1, 1995 is not considered.

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes option-pricing model with the following assumptions:

                                    1999             1998
                                    ----             ----
Expected dividend yield             0%                 0%
Expected stock price volatility     1.85          .88 to .99
Risk-free interest rate             6.31%        4.46% to 5.72%
Expected life of options            9 years         8 years

     The weighted  average fair value of options  granted during the years ended
     December  31, 1999 and 1998 was $1.88 per share and $2.67 per share.  There
     were no options  granted during the year ended December 31, 2000.  There is
     no remaining compensation expense relating to options previously granted.

(13) Accrued Expenses and Other Current Liabilities

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

                                  2000          1999
                                ---------     --------
Accrued professional fees       $ 25,000      $100,000
Other accrued expenses            11,244        21,843
                                ---------     --------
Total                           $ 36,244      $121,843
                                =========     ========

                                      F-19
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================

(14) Commitments



     Lease Commitments

     In October 1994, the Company  entered into a sublease  agreement with Union
     Carbide  Corporation to sublease  laboratory and office space in Tarrytown,
     New York.  The term of this  agreement  was for a period  of  approximately
     three years  commencing  on May 15, 1995 and expiring on December 30, 1997.
     Pursuant to this agreement, the Company received the first four months rent
     free,  which was  amortized  through  December  30, 1997 so as to produce a
     level amount of rent expense over the life of the lease.

     During 1997,  the Company  exercised  its option to lease these  facilities
     directly  from the landlord for a five-year  period  commencing  January 1,
     1998.  Pursuant to the asset  purchase  agreement with OSI, OSI assumed the
     lease of the Company's facilities in July 1999.

     Rent expense,  excluding  utility and operating  costs, for the years ended
     December 31, 2000, 1999 and 1998 amounted to approximately $5,000, $409,507
     and $728,407, respectively.

     Equipment Lease Line of Credit

     In November 1997, the Company signed a $3.5 million Master Lease  Agreement
     ("Master  Lease") with GECC.  Under the  agreement,  the Company  purchased
     equipment  and then entered  into a  sale-leaseback  arrangement  with GECC
     whereby the  Company  sold the  equipment  to GECC and then leased back the
     equipment for a period of 37 months. The lease arrangements were considered
     operating leases for financial reporting purposes.  Any gains recognized on
     the  difference  between  the  equipment's  book  value and sale price were
     booked to  deferred  revenue  and  recognized  over the life of the  lease.
     Pursuant  to the  asset  purchase  agreement  with  OSI,  OSI  assumed  the
     equipment lease with GECC in July 1999.

                                      F-20
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================


        The Company made the following drawdowns against the Master Lease:

                                  Monthly
                                   Lease
                    Amount        Payment      Deferred
                -------------   ----------     --------
Round #1        November 1997   $  600,871      $13,650   $ 80,936
Round #2        December 1997      219,158        4,926     16,535
Round #3        March 1998         704,478       15,890     37,974
Round #4        July 1998          611,431       13,766     21,864
Round #5        October 1998       748,434       15,985     34,519
Round #6        December 1998      379,364        8,080      8,002
                                ----------    ---------   --------
Totals                          $3,263,736    $  72,297   $199,830
                                ==========    =========   ========

     The gains totaling  $199,830  relating to the sale of the equipment to GECC
     were  credited  to  deferred  revenue on the  balance  sheet and were being
     amortized  over the life of the  individual  leases.  In July 1999 upon the
     signing of the asset purchase  agreement  with OSI, the Company  recognized
     the remaining  deferred revenue of $112,778 related to the GECC lease. Such
     amount is  included  in loss on sale of  assets to OSI in the  accompanying
     statement of operations. At December 31, 1998, $45,965 of the deferred gain
     was recognized as gain on sale of equipment in the  accompanying  statement
     of operations.

     Employment Agreement

     Dr. Woler was employed as President  and Chief  Executive  Officer  under a
     three year employment  agreement with the Company,  which was extendable to
     four years at the Company's option, entered into effective as of October 1,
     1998.  Pursuant to his agreement,  Dr. Woler received an annual base salary
     of $300,000 for his first year of employment,  $330,000 for his second year
     of employment  and $360,000 for his third year of  employment.  In November
     1999,  the Company  and Dr.  Woler  entered  into a term sheet to amend his
     employment  agreement to provide that if the Company fails to make at least
     a $20 million  investment in  biotechnology  prior to April 15, 2000 and if
     Dr. Woler resigns during the 90 day period beginning on April 15, 2000, the
     Company will pay to Dr.  Woler a lump sum  severance  payment  equal to the
     base  salary he would have  earned for the  balance of his  agreement.  The
     Company did not make the $20 million  investment in  biotechnology  and Dr.
     Woler  resigned and received a severance  payment of $497,500.  This amount
     has been recorded in general and  administrative  expenses in the statement
     of operations as of December 31, 2000.

(15) Supplemental Cash Flow Information

                                  2000             1999           1998
                                 ------            ----           ----
Cash payment for:
Interest                        $  --           $    --         $21,000
Income taxes                    $  --           $15,476         $89,170

                                      F-21
<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                      DECEMBER 31, 2000 AND 1999 AND 1998
                      ====================================



(16) Employee Benefits

     The  Company  terminated  its 401 (k)  savings  plan in October  1999.  The
     Company did not make a matching  contribution  for the year ended  December
     31,  1999 to  participants  under its 401 (k) plan.  In 1998,  the  Company
     elected to match 25% of each participant's  contribution up to a maximum of
     $2,500.  The total Company  contribution  for the years ended  December 31,
     2000, 1999 and 1998 was $-0-, $-0- and $89,976 respectively.

(17) License with OSI

     In February 2000, the Company  licensed to OSI, on a  non-exclusive  basis,
     its yeast technologies,  including various reagents and its library of over
     30,000 yeast  strains,  and its  bioinformatics  software.  OSI paid to the
     Company a license fee of $100,000 and an access fee of $600,000,  which has
     been recorded as license fee revenue for the year ended  December 31, 2000.
     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.


(18) - Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>

Fiscal 2000 Quarter Ended         December 31    September 30        June 30        March 31
<S>                             <C>              <C>               <C>             <C>

Revenues                       $      --        $        --        $      --       $      --
License and maintenance fee        255,030             23,470             --           700,000
                               -----------      -------------      -----------     -----------
    Total revenues                 255,030             23,470             --           700,000
Operating income (loss)             58,350           (354,649)        (701,514)       (412,816)
Net income (loss)                  447,969         18,574,415         (629,870)       (341,119)
Net income (loss) per share:
    Basic and diluted          $      0.04      $        1.41      $     (0.05)    $      (.03)


Fiscal 1999 Quarter Ended       December 31      September 30        June 30         March 31

Revenues                       $     --         $     949,992      $ 2,038,776     $ 3,038,776
License and maintenance fee          --                 --               --              --
                               -----------      -------------      -----------     -----------
    Total revenues                   --               949,992        2,038,776       3,038,776
Operating loss                  (1,285,687)        (1,807,301)      (2,698,537)     (2,494,507)
Net loss                        (1,227,818)        (2,537,320)      (2,595,447)     (2,163,104)
Net loss per share:
    Basic and diluted          $     (0.09)     $       (0.19)     $     (0.20)    $      (.17)
</TABLE>

                                      F-22
<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 PHARMACEUTICAL CORPORATION


                   By: /s/ Russell D. Glass
                       -------------------------------------
                       Russell D. Glass,
                       Chief Executive Officer and President

     Each person whose signature  appears below constitutes and appoints Russell
D.  Glass  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/ Russell D. Glass        Chief Executive Officer,              March 26, 2001
-------------------------   President and Director
Russell D. Glass            (Principal Executive Officer and
                            Principal Accounting Officer)


                            Director                              March   , 2001
-------------------------
Carl C. Icahn


/s/ James R. Broach         Director                              March 26, 2001
-------------------------
James R. Broach


/s/ Peter S. Liebert        Director                              March 26, 2001
-------------------------
Peter S. Liebert


/s/ Siegfried G. Schaefer   Director                              March 28, 2001
-------------------------
Siegfried G. Schaefer


/s/ Jack G. Wasserman       Director                              March 26, 2001
-------------------------
Jack G. Wasserman