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, 2001.
                          ----------------------------------

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

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

                         Commission File Number 0-28674
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                        CADUS PHARMACEUTICAL CORPORATION
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             (Exact name of registrant as specified in its charter)

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

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

Company's telephone number, including area code:            (212) 702-4315
                                                          ------------------

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]

<PAGE>

           The aggregate market value of Common Stock held by  non-affiliates of
the Company,  computed by reference to the closing price on March 15, 2002,  was
$9,492,143.

           Number of shares  outstanding  of each class of Common  Stock,  as of
March 15, 2002: 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") was incorporated under the
laws of the State of  Delaware in January  1992 and until July 30, 1999  devoted
substantially  all of its resources to the  development and application of novel
yeast-based and other drug discovery technologies.  On July 30, 1999, Cadus sold
its drug discovery  assets to OSI  Pharmaceuticals,  Inc.  (OSI") and ceased its
internal  drug  discovery  operations  and  research  efforts for  collaborative
partners.  In December  2001,  Cadus  formed a wholly  owned  subsidiary,  Cadus
Technologies,  Inc.  (the  "Subsidiary"),  and  transferred  all of its patents,
patent applications,  know how, licenses and drug discovery  technologies to the
Subsidiary. Cadus and the Subsidiary (collectively, the "Company") are currently
seeking to (i) realize  value from their  assets and (ii) use a portion of their
available  cash to acquire  technologies  or products or to acquire or invest in
companies.  The  Subsidiary is currently  seeking to license its drug  discovery
technologies.

           On July 30, 1999,  Cadus sold to OSI,  pursuant to an asset  purchase
agreement,  its drug discovery programs focused on G Protein-coupled  receptors,
its  directed  library  of  approximately   150,000  small


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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 Cadus's  lease to Cadus's  research  facility in
Tarrytown,  New York,  Cadus's  equipment  lease with General  Electric  Capital
Corporation  ("GECC") and Cadus's research  collaboration  and license agreement
with Solvay  Pharmaceuticals.  As  consideration  for the sale,  Cadus  received
approximately  $1,500,000 in cash and OSI assumed  certain  liabilities of Cadus
relating  to  employees  hired by OSI  aggregating  approximately  $133,000.  In
addition,  Cadus  would be  entitled  to  royalties  and up to $3.0  million  in
milestone  payments on the first product  derived from  compounds sold to OSI or
from the collaboration with Solvay  Pharmaceuticals.  Cadus licensed to OSI on a
non-exclusive  basis  certain  technology  solely to enable OSI to  fulfill  its
obligations  under the  collaboration  with Solvay  Pharmaceuticals.  Cadus also
licensed  to OSI on a  non-exclusive  basis  certain  proprietary  software  and
technology  relating to chemical  resins in order to enable OSI to fully benefit
from the compounds it acquired from Cadus.  Cadus retained  ownership of all its
other assets,  including its core yeast technology for developing drug discovery
assays,  its  collection of over 25,000  proprietary  yeast  strains,  human and
mammalian cell lines, and genetic  engineering tools, 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.,  Cadus'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  Cadus  (which  verdict  was  subsequently
reversed and the monies held in escrow were released to Cadus). Cadus ceased its
drug discovery  operations and research efforts for collaborators as a result of
this  transaction  and terminated all employees who were not hired by OSI or who
did not voluntarily resign,  except for the Chief Executive Officer who resigned
in April 2000.

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

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BACKGROUND

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

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


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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
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

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structure that cannot be maintained when the isolated  protein is put into an IN
VITRO assay format. If an assay does not accurately replicate the structure of a
target  receptor,  the  compounds  identified  in the assay may not  function as
expected  when  applied to the target  receptor on a living  cell.  Furthermore,
receptors,   signal  transduction  proteins  and  other  molecular  targets  for
therapeutic intervention do not exist in isolation in the cell. Their functional
activity results from a complex  interrelationship with numerous other molecules
within the cell. Consequently,  traditional drug screening assays often identify
compounds as potential drug candidates which, when tested in living cells, prove
to have no useful  activity  or are even toxic.  A variety of methods  have been
developed to address  these  problems,  including  using living cells in assays.
However, most live cell assays are slow, complex and expensive to maintain.

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

           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


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                  engineering  a yeast cell to replace a yeast gene coding for a
                  known  function  with the  human  gene  suspected  of having a
                  comparable  function.  If the yeast  cell  retains  its normal
                  function, it suggests that the human gene and its protein have
                  a  biological   function   similar  to  that  of  their  yeast
                  counterparts. Consequently, genetically engineered yeast cells
                  can replicate  human gene function and provide a  biologically
                  relevant context for evaluating interactions between receptors
                  and their related signaling pathways.

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

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

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

           o      Yeast  cells  replicate  rapidly.   Speed  of  replication  is
                  particularly  important  because  creating a new yeast  strain
                  that successfully incorporates new genetic material and adapts
                  to new conditions may take several  generations and the strain
                  that so adapts is identifiable by growth. In addition, because
                  a yeast cell reproduces itself every two hours,  compared with
                  24 to 48 hours for mammalian  cells, a drug screen using yeast
                  can be  developed  and  evaluated  much  faster than one using
                  human cell assays.

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

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

THE COMPANY'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


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receptors.  The Subsidiary is currently seeking to license these technologies on
a non-exclusive basis to third parties.

           HYBRID YEAST CELLS

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

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

           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

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scientists made the cell self-stimulating, or "autocrine," in that it both sends
a  signal  through  production  and  secretion  of a  ligand  and  responds,  by
replication, to that same signal through the receptor. The Company believes that
the autocrine  nature of the APEX(TM)  system makes it an effective tool for the
identification  of compounds that act as agonists or antagonists with respect to
that receptor or a molecular target in its signaling pathway.  As a result, drug
screening may be conducted in an accelerated, cost effective process as compared
to conventional screening techniques.

           SELF SELECTING COMBINATORIAL LIBRARY TECHNOLOGY (SSCL(TM))

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

           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

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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.

           Cadus has an equity interest in Axiom  Biotechnologies Inc. ("Axiom")
which is using its human cell based physio-genomics  technology and pharmacology
profiling  systems in drug  discovery,  both  internally and with  collaborative
partners. 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,  Cadus licensed to OSI, on a  non-exclusive  basis,
its yeast  technologies,  including  various  reagents  and its  library of over
25,000  yeast  strains,  and its  bioinformatics  software.  OSI paid to Cadus a
license fee of $100,000 and an access fee of $600,000.  OSI is also obligated to
pay an annual  maintenance  fee of  $100,000  until the  earlier  of 2010 or the
termination of the license and a supplemental license fee of $250,000, which was
paid in  December  2000  after  the  lifting  of the  injunction  obtained  by a
plaintiff in a patent  infringement  action against Cadus. OSI may terminate the
license at any time on 30 days prior written  notice.  In December  2001,  Cadus
transferred its license with OSI to the Subsidiary.

                                       10
<PAGE>

           In December 2001, the Subsidiary  licensed to a major  pharmaceutical
company,  on a non- exclusive basis, its yeast  technologies,  including various
reagents and its library of over 25,000 yeast strains.  The licensee paid to the
Subsidiary  an up-front  non-refundable  fee of  $500,000.  The licensee is also
obligated to pay to the  Subsidiary  an  additional  $1,000,000  if the licensee
achieves a research  milestone.  The license  terminates  on December  31, 2006;
however the  licensee  may extend the term for  additional  one-year  periods by
paying to the Subsidiary  $250,000 for each one- year extension.  The Subsidiary
is  seeking  to  license  its yeast  technologies  to other  third  parties on a
non-exclusive basis.

PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS

           The  Subsidiary  relies upon patents and trade secrets to protect its
proprietary technologies.  As of March 15, 2002, the Subsidiary was the assignee
of seven issued U.S.  patents  covering  aspects of its yeast technology and was
the exclusive  worldwide  licensee of three issued U.S.  patents for use in drug
discovery.  In  addition,  as of such  date,  the  Subsidiary  had filed or held
licenses to 18 other U.S. patent applications, as well as related foreign patent
applications.

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

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

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

                                       11
<PAGE>

           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.

           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

                                       12
<PAGE>


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 Cadus
alleging  infringement  by  Cadus  of a  patent  concerning  the  use of  cells,
engineered  to express any type of cell surface  receptor  and a reporter  gene,
used to report  results in the screening of compounds  against target assays and
seeking  injunctive  relief and monetary  damages.  After trial, on December 18,
1998,  the jury  issued a verdict  in favor of SIBIA  and  awarded  SIBIA  $18.0
million in damages. On January 29, 1999 the United States District Court granted
SIBIA's request for injunctive relief that precluded Cadus from using the method
claimed in SIBIA's  patent.  On February 26, 1999,  the United  States  District
Court denied Cadus's motions to set aside the jury verdict, to grant a new trial
and to reduce or set aside the $18.0 million judgment awarded by the jury. Cadus
appealed the judgment.  In order to stay  execution  pending appeal of the $18.0
million judgment obtained by SIBIA, in March 1999, Cadus deposited $18.5 million
in escrow to secure payment of the judgments in the event Cadus were to lose the
appeal.  On September 6, 2000 the United  States Court of Appeals ruled in favor
of Cadus and overturned the prior judgment  entered by the U.S.  District Court.
The Court of Appeals ruled that the claims of the SIBIA patent asserted  against
Cadus were invalid and that the District  Court erred in denying  Cadus's motion
for judgment as a matter of law on the issue of invalidity. On October 30, 2000,
the U.S.  District Court set aside the $18.0 million  judgment in favor of SIBIA
and vacated the injunction  against Cadus.  Separately,  in October 2000,  Cadus
obtained  the  release  of the cash  escrow of $19.9  million  representing  the
original $18.5 million and interest that accumulated thereon.

COMPETITION

           The  biotechnology  and   pharmaceutical   industries  are  intensely
competitive.  The Company's  technologies  consist  principally  of  genetically
engineered yeast cells. The Company is aware of companies, such as American Home
Products  Corporation  and Glaxo Smith Kline,  Plc, that may use yeast as a drug
discovery medium.  In addition,  many smaller companies are pursuing these areas
of research.  The Company is also aware of other  companies  that are  inserting
human orphan G  Protein-coupled  receptors  into yeast and other cells and using
these hybrid cells for drug  discovery  purposes.  Certain  other  companies are
seeking to determine the functions of human orphan G  Protein-coupled  receptors
by identifying agonists to these receptors and by other research methods. All of
the above  companies are  significant  competitors  of the Company.  Many of the
Company's  competitors  have greater  financial  and human  resources,  and more
experience  in  research  and  development  than the  Company.  There  can be no
assurance  that  competitors  of the  Company  will not develop  competing  drug
discovery  technologies  that

                                       13
<PAGE>

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 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.

                                       14
<PAGE>

           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  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

                                       15
<PAGE>

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.

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

EMPLOYEES

           As of March 15, 2002, the Company had no employees. Russell D. Glass,
the Chief Executive  Officer of Cadus and the Subsidiary,  is not an employee of
Cadus or the Subsidiary and is serving as the Chief  Executive  Officer of Cadus
and the Subsidiary without compensation.

ITEM 2.  PROPERTIES.

           Cadus leases storage space in Tarrytown, New York.

                                       16
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

           The Company is not a party to any legal  proceedings.  In March 2002,
the arbitrator in the arbitration  proceeding  commenced against Cadus by Philip
N. Sussman, the former Senior Vice President, Finance and Corporate Development,
and Chief Financial Officer of Cadus,  ruled in favor of Mr. Sussman and awarded
him  approximately  $750,000 in severance pay,  interest and attorneys and other
costs and fees.

ITEM 4.  SUBMISSION TO A VOTE OF SECURITY HOLDERS.

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

                                     PART II

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

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

           FISCAL YEAR 2001                                  HIGH         LOW
           First quarter ended March 31, 2001                $1.09        $0.63
           Second quarter ended June 30, 2001                $1.12        $0.77
           Third quarter ended September 30, 2001            $1.00        $0.75
           Fourth quarter ended December 31, 2001            $1.20        $0.81

           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

                                       17
<PAGE>

           As of March 15, 2002,  there were  approximately 67 holders of record
of Cadus's Common Stock.

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

           EQUITY COMPENSATION PLAN INFORMATION.

           The following  table sets forth certain  information  with respect to
compensation plans (including individual compensation  arrangements) under which
equity securities of Cadus were authorized for issuance as of December 31, 2001:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                            (a)                          (b)                             (c)
-----------------------------------------------------------------------------------------------------------------------
Plan Category                          Number of                  Weighted-average                Number of securities
                                       securities to be           exercise price of               remaining available
                                       issued upon                outstanding options,            for future issuance
                                       exercise of                warrants and rights             under equity
                                       outstanding                                                compensation plans
                                       options, warrants                                          (excluding securities
                                       and rights                                                 reflected in column
                                                                                                  (a))
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                             <C>                         <C>
Equity compensation                     285,906                         $1.68                       1,736,221
plans approved by
security holders
-----------------------------------------------------------------------------------------------------------------------
Equity compensation                     323,403                         $2.42                               0
plans not approved by
security holders
-----------------------------------------------------------------------------------------------------------------------
Total                                   609,309                         $2.08                       1,736,221
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

           RECENT SALES OF UNREGISTERED SECURITIES.

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

ITEM 6.  SELECTED FINANCIAL DATA.

                                       18
<PAGE>

           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.

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                               -----------------------
                                                 2001               2000                1999            1998               1997
                                                 ----               ----                ----            ----               ----
                                                                    (dollars in thousands, except share and per share data)
<S>                                         <C>                <C>                <C>             <C>                <C>
STATEMENT OF OPERATIONS DATA:
Revenues                                    $        600       $        979       $      6,028    $     12,576       $      9,013
Operating costs and expenses:
            Research and development                --                 --                9,116          15,389             11,561
           General and administrative              1,079              1,652              3,643           8,977              4,092
                                            ------------       ------------       ------------    ------------       ------------
           Total operating costs and
                    expenses                       1,079              1,652             12,759          24,366             15,653
                                            ------------       ------------       ------------    ------------       ------------
                 Operating loss                     (479)              (673)            (6,731)        (11,790)            (6,640)
Net income (loss) .......................          $(317)(1)        $18,051(2)         ($8,524)       ($29,690)(3)        ($5,411)
                                            ============       ============       ============    ============       ============
Basic and diluted net income (loss)
                    per share                     $(0.02)             $1.37             ($0.65)         ($2.32)            ($0.44)
                                            ============       ============       ============    ============       ============
      Shares used in calculation of basic
             and diluted net (loss)
             income per share                 13,144,040         13,133,615         13,068,940      12,811,525         12,225,463
</TABLE>

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                        ------------
                                         2001         2000           1999           1998          1997
                                         ----         ----           ----           ----          ----
                                                                (in thousands)
<S>                                   <C>         <C>            <C>            <C>            <C>
BALANCE SHEET DATA:
          Cash and cash equivalents   $ 24,469    $ 24,383(4)    $  5,082(4)    $ 10,976(4)    $ 36,762
                 Total assets           26,201      25,709         26,699         36,587         42,241
              Short-term debt             --          --             --             --              150
              Accumulated deficit      (34,322)    (34,005)       (52,056)       (43,532)       (13,842)
Stockholders' equity ...............    25,356      25,672          7,465         15,989         40,500
</TABLE>

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


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

            (2)   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.

            (3)   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.

                                       19
<PAGE>

            (4)   In order to stay execution pending appeal of the $18.0 million
                  judgment  obtained by SIBIA,  in March 1999,  Cadus  deposited
                  $18.5  million in escrow to secure  payment of the judgment in
                  the event  Cadus were to lose the appeal.  Such $18.5  million
                  was classified,  as of December 31, 1998, as "restricted  cash
                  noncurrent"  and  Cadus'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.

OVERVIEW

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

The  Company has  incurred  operating  losses in each year since its  inception,
including  an operating  loss of  approximately  $477,000  during the year ended
December 31, 2001. At December 31, 2001, the Company had an accumulated  deficit
of approximately $34.3 million.  The Company's losses have resulted  principally
from costs incurred in connection with its research and  development  activities
and  from  general  and  administrative  costs  associated  with  the  Company's
operations.  These costs have  exceeded  the  Company's  revenues  and  interest
income.  As a result  of the sale of its drug  discovery  assets  to OSI and the
cessation of its internal drug  discovery  operations  and research  efforts for
collaborative partners, the Company ceased to have research funding revenues and
substantially reduced its operating expenses.

The following  accounting  policies are important to understanding our financial
condition  and results of  operations  and should be read as an integral part of
the  discussion  and  analysis of the results of our  operations  and  financial
position.  For additional  accounting  policies,  see note 2 to our consolidated
financial statements, "Significant Accounting Policies"

REVENUE RECOGNITION.  We have entered into various license agreements with other
pharmaceutical  companies.  Up-front  non-refundable fees received under license
agreements  are  generally  recognized  over  the term of the  related  research
period.  Up-front non-refundable fees received under license agreements which do
not require any further  research and development  activities on the part of the
Company are  recognized  upon  receipt.  Milestone  payments,  which  reduce the
development  risk  associated with a product and are  determinable  based on the
terms of the  collaboration  agreement,  are  typically  progress  payments  for
specific events of  development,  such as completion of pre-clinical or clinical
activities, regulatory submission or approval, or manufacturing objectives prior
to   commercialization   of  a  product.   Milestone   payments  are   generally
non-refundable  and the amount of revenue recognized during an accounting period
is  determined  by  the  nature  of the  contracted  provision  included  in the
collaboration agreements.

ACCOUNTING  FOR  INCOME  TAXES.   As  part  of  the  process  of  preparing  our
consolidated  financial  statements in  conformity  with  accounting  principles
generally accepted in the United States of America,  we are


                                       20
<PAGE>

required to estimate our income taxes in each of the  jurisdictions  in which we
operate.  This process  involves us estimating  our actual  current tax exposure
together with assessing temporary differences resulting from differing treatment
of items,  such as deferred  revenue,  for tax and  accounting  purposes.  These
differences  result in deferred tax assets and  liabilities,  which are included
within our  consolidated  balance sheet. We must then assess the likelihood that
our deferred tax assets will be recovered  from future taxable income and to the
extent we believe  that  recovery is not likely,  we must  establish a valuation
allowance.  To the extent we establish a valuation  allowance  or increase  this
allowance in a period,  we must include an expense  within the tax  provision in
the  statement of  operations.  Significant  management  judgment is required in
determining  our  provision  for  income  taxes,  our  deferred  tax  assets and
liabilities and any valuation  allowance  recorded  against our net deferred tax
assets.

RESULTS OF OPERATIONS

           YEARS ENDED DECEMBER 31, 2001 AND 2000

           REVENUES

           Revenues for 2001  decreased to $600,000 from $978,500 in 2000.  This
decrease is primarily attributable to the Company receiving less licensing fees.

           OPERATING EXPENSES

           General and  administrative  expenses  decreased  to $1.1 million for
2001 from $1.7 million for 2000. This decrease was attributable primarily to the
elimination  of  approximately  $608,000  in  compensation  to the former  Chief
Executive  Officer  (including  $497,500  in  severance)  offset  in  part by an
increase in patent  maintenance  costs and  professional  fees of  approximately
$150,000.

           NET INTEREST INCOME

           Net interest  income for 2001  increased to $838,000 from $639,000 in
2000. This increase is  attributable  primarily to the increase in the Company's
unrestricted  cash  equivalent  balances  as compared to 2000 as a result of the
release  of funds  that  were  held in  escrow  in  connection  with  the  SIBIA
litigation.

           EQUITY IN OTHER VENTURES

           Equity in other  ventures in 2001 reflects  income of $3,086 from the
Company's 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

           In 2001,  pursuant to a court order the Company received  $155,402 in
reimbursement  of SIBIA  litigation  costs which was  partially  offset by legal
costs  incurred of $29,786.  The  $18,841,489  gain  recognized  in 2000 was the
result of the  United  States  Court of Appeals  ruling in favor of the  Company
overturning  a  1998  judgment  by  the  U.S.   District  Court  in  the  patent
infringement suit filed by SIBIA.

           SETTLEMENT OF ARBITRATION

                                       21
<PAGE>

           In March 2002, the arbitrator in the arbitration proceeding commenced
against Cadus by Philip N. Sussman,  the former Senior Vice  President,  Finance
and Corporate Development,  and Chief Financial Officer of Cadus, ruled in favor
of Mr. Sussman and awarded him approximately $750,000 in severance pay, interest
and attorneys and other costs and fees.

           NET (LOSS) INCOME

           The net loss for 2001 was  $317,000  compared  to net income of $18.1
million in 2000. This decrease is primarily  attributable  to the  approximately
$18.8  million  gain on the  reversal  of the SIBIA  litigation  judgment  being
recognized  in  2000  and  there  being  no  comparable  gain  in  2001  and the
arbitration award in 2001 of approximately  $750,000 against Cadus in favor of a
former employee.

           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

           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

                                       22
<PAGE>

           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.

LIQUIDITY AND CAPITAL RESOURCES

           At December  31, 2001 the Company held cash and cash  equivalents  of
$24.5  million.  The  Company's  working  capital at December 31, 2001 was $24.2
million.

           On July 30,  1999,  Cadus 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, Cadus's lease to the Company's research facility in Tarrytown, New
York and Cadus's  equipment  lease with General  Electric  Capital  Corporation.
Cadus  terminated  all  employees  who  were  not  hired  by OSI or who  did not
voluntarily  resign,  except for the Chief Executive Officer. As a result of the
foregoing,  Cadus ceased to have  research  funding  revenues and  substantially
reduced its operating expenses.

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

           In December 2001, the Subsidiary  licensed to a major  pharmaceutical
company, on a non- exclusive basis, its yeast technologies. The licensee paid to
the Subsidiary an up-front non- refundable fee of $500,000. The licensee is also
obligated to pay to the  Subsidiary  an  additional  $1,000,000  if the licensee
achieves a research  milestone.  The license  terminates  on December  31, 2006;
however,  the licensee may extend the term for  additional  one-year  periods by
paying to the Subsidiary $250,000 for each one-year extension.

           The 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 2003.  This  forecast  of the  period  of time
through which the Company's  financial resources will be adequate to support its
operation is a  forward-looking  statement  that may not prove  accurate and, as
such, actual results may vary. The Company's capital  requirements may vary as a
result of a number of factors, including the transactions,  if any, arising from
the Company's  efforts to license its technologies  and otherwise  realize value
from its assets, the transactions,  if any arising from the Company's efforts to
acquire  technologies  or products or to acquire or invest in companies  and the
expenses of pursuing such transactions.

                                       23
<PAGE>

           At  December  31,  2001  the  Company  had  tax  net  operating  loss
carryforwards of approximately $28.4 million and research and development credit
carryforwards of  approximately  $2.5 million which expire in years 2009 through
2020. 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.


RECENT ACCOUNTING PRONOUNCEMENTS

           In June 2001, the Financial  Accounting  Standards  Board issued SFAS
No. 141, "Business  Combinations"  ("SFAS 141"), and SFAS No. 142, "Goodwill and
Other  Intangible  Assets"  ("SFAS 142").  SFAS 141 addresses the accounting for
acquisitions  of businesses  and is effective for  acquisitions  occurring on or
after July 1, 2001.  SFAS 142 addresses the method of identifying  and measuring
goodwill  and  other  intangible  assets,  eliminates  further  amortization  of
goodwill and intangible  assets that have indefinite  useful lives, and requires
periodic  evaluations of impairment of goodwill balances and intangible  assets.
Statement 142 also requires that intangible assets with definite useful lives be
amortized  over  their  respective  estimated  useful  lives to their  estimated
residual  values,  and reviewed for impairment in accordance  with SFAS No. 121,
"Accounting for the Impairment of Long-Lived  Assets and for Long-Live Assets to
be Disposed Of." SFAS 142 is effective for fiscal years beginning after December
15,  2001.  The  adoption  of SFAS  141 will  have no  effect  on the  Company's
financial  position or results of operations.  SFAS 142 will require the Company
to reassess the useful lives of the  capitalized  patent costs  reflected in the
accompanying  balance sheets as other assets.  The Company  amortized $80,905 of
capitalized  patent costs during the years ended December 31, 2001 and 2000. The
Company is currently assessing the impact of the adoption of SFAS 142.

           In October 2001,  the FASB issued SFAS No. 144,  "Accounting  for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses significant
issues  relating  to the  implementation  of SFAS No. 121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of,"
and develops a single  accounting  method under which long-lived assets that are
to be disposed of by sale are  measured at the lower of book value or fair value
less cost to sell. Additionally,  SFAS No. 144 expands the scope of discontinued
operations to include all components of an entity with  operations  that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing  operations  of the  entity in a disposal  transaction.  SFAS No. 144 is
effective  for  financial  statements  issued for fiscal years  beginning  after
December 15, 2001 and its  provisions  are to be applied  prospectively.  We are
currently  assessing  the impact of SFAS No. 144 on our  financial  position and
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.

                                       24
<PAGE>

           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
Cadus as of March 15, 2002 is set forth below:

NAME                                 AGE       POSITION
----                                 ---       --------
Russell D. Glass                     39        Chief Executive Officer,
                                               President and Director

James R. Broach, Ph.D.               53        Director

Carl C. Icahn                        66        Director

Peter S. Liebert, M.D.(1)            66        Director

Professor Siegfried G. Schaefer      53        Director

Jack G. Wasserman (1)                64        Director

----------

(1)  Member of the Compensation Committee.


           RUSSELL  D.  GLASS  became  a  director  of  Cadus  in June  1998 and
President and Chief Executive  Officer in April 2000. From April 1998 until 2002
Mr. Glass served as President and Chief  Investment  Officer of Icahn Associates
Corp.,  a diversified  investment  firm,  and as  Vice-Chairman  and Director of
Lowestfare.com,  Inc., 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 Cadus and inventor of
Cadus's yeast-based drug discovery technology,  has been Director of Research of
Cadus since its inception. He is and has been since

                                       25
<PAGE>

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 Cadus 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  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  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 Great 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 Cadus 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 Cadus 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 Cadus 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

                                       26
<PAGE>

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

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

           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

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

                                       27
<PAGE>

filed reports furnished to Cadus, all of Cadus's directors, officers and greater
than ten percent  beneficial owners made all required filings during fiscal year
2001 in a timely manner.

ITEM 11.  EXECUTIVE COMPENSATION.

           The following  table sets forth certain  information  concerning  the
compensation  paid or accrued  by Cadus for  services  rendered  to Cadus in all
capacities for the fiscal years ended  December 31, 2001,  2000 and 1999, by its
Chief Executive  Officer and each of the Cadus's other executive  officers whose
total salary and bonus exceeded $100,000 during 2001  (collectively,  the "Named
Executive Officers"):

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                 LONG-TERM
                                                                                               COMPENSATION
                                                                                                  AWARDS
                                                                                               ------------
                                                                                                SECURITIES
                                                                   ANNUAL COMPENSATION          UNDERLYING            ALL OTHER
          NAME AND PRINCIPAL POSITION                              -------------------          OPTIONS (#)         COMPENSATION
          ---------------------------                                                           -----------         ------------
                                                      YEAR    SALARY ($)         BONUS ($)
                                                      ----    ----------         ---------
<S>                                                   <C>     <C>                <C>            <C>                  <C>
Russell D. Glass (1)............................      2001        --                 --             --                   --
   President and Chief Executive                      2000        --                 --             --                   --
   Officer
</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.


OPTION GRANTS

           The following table sets forth certain information  regarding options
granted  during the fiscal  year ended  December  31, 2001 by Cadus to the Named
Executive Officers:

<TABLE>
<CAPTION>
                                                       OPTION GRANTS IN LAST FISCAL YEAR

                                                             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...............       ---                  ---               ---              ---              --    --
</TABLE>

OPTION EXERCISES AND HOLDINGS

                                       28
<PAGE>

           The following  table sets forth certain  information  concerning each
exercise of stock options, during the fiscal year ended December 31, 2001 by the
Named  Executive  Officers  and  unexercised  stock  options  held by the  Named
Executive Officers as of the end of such fiscal year.


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

<TABLE>
<CAPTION>
                                                                             NUMBER OF
                                                                       SECURITIES UNDERLYING             VALUE OF UNEXERCISED
                                                                      UNEXERCISED OPTIONS AT           IN-THE-MONEY OPTIONS AT
                                                                       DECEMBER 31, 2001(#)              DECEMBER 31, 2001($)
                                                                      ----------------------            ---------------------
                                     SHARES         AGGREGATE
                                  ACQUIRED ON         VALUE
            NAME                  EXERCISE (#)    REALIZED ($)        EXERCISABLE UNEXERCISABLE        EXERCISABLE UNEXERCISABLE
            ----                  ------------    ------------        ----------- -------------        ----------- -------------
<S>                               <C>             <C>                 <C>         <C>                  <C>         <C>
Russell D. Glass.............         --                --                 --         --                    --         --
</TABLE>

       INCENTIVE PLANS

1993 STOCK OPTION PLAN

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

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

           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.

                                       29
<PAGE>

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

           During 2001, there were no stock options granted under the 1993 Stock
Option Plan.

           As of March 15, 2002, 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, 2002,  options to purchase 276,739 shares were exercisable
at prices ranging from $1.37 to $3.51 per share.

           Cadus 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

           Cadus has granted non-qualified stock options to directors, officers,
employees and consultants of Cadus by means of stock option  agreements.  During
2001, there were no stock options granted  pursuant to stock option  agreements.
As of March 15,  2002,  an  aggregate  of  323,403  shares of Common  Stock were
subject to outstanding stock options granted under stock option agreements,  and
options to purchase 323,403 shares under such option agreements were exercisable
at prices ranging from $1.50 to $6.75 per share.

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

1996 INCENTIVE PLAN

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

           The  1996  Incentive  Plan  is  administered   by  the   Compensation
Committee,  which has the power and authority  under the 1996  Incentive Plan to
determine which of Cadus's employees, consultants and directors will receive

                                       30
<PAGE>

awards, the time or times at which awards will be made, the nature and amount of
the awards,  the exercise or purchase  price,  if any, of such awards,  and such
other  terms  and  conditions  applicable  to  awards  as  it  determines  to be
appropriate or advisable.

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

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

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

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

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

                                       31
<PAGE>

SAR on the date of  exercise  over the  aggregate  base price of such  shares as
determined  by the  Compensation  Committee.  With  respect  to both  Tandem and
Nontandem  SARs,  the  Compensation  Committee  may  determine to cause Cadus to
settle its  obligations  arising out of the exercise of such rights in cash or a
combination of cash and shares, in lieu of issuing shares only.

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

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

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

           As of March 15,  2002,  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, 2002, stock options to purchase 9,167 shares were exercisable at
prices ranging from $6.38 to $6.63 per share.

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

      INTRODUCTION

                                       32
<PAGE>

           The  Compensation  Committee  of the Board of  Directors  of Cadus is
responsible  for  determining  and  administering  the  Company's   compensation
policies for the remuneration of Cadus's  officers.  The Compensation  Committee
annually evaluates  individual and corporate  performance from both a short-term
and long-term perspective. In 2001, Cadus had no officers other than its current
Chief Executive  Officer who is serving in such capacity  without  compensation.
Accordingly,  the following report of the Compensation Committee is not directly
applicable to calendar year 2001 but is presented for historical perspective.

      PHILOSOPHY

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

      COMPONENTS OF EXECUTIVE COMPENSATION

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

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

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

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.

                                       33
<PAGE>

                     Peter Liebert
                     Jack G. Wasserman

COMPARATIVE STOCK PERFORMANCE GRAPH


           The following  graph  provides a comparison of the  cumulative  total
return* for the Nasdaq Stock Market (US) Index, the Nasdaq  Biotechnology  Index
and Cadus since December 31, 1996

                 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
                    AMONG CADUS PHARMACEUTICAL CORPORATION,
                      THE NASDAQ STOCK MARKET (U.S.) INDEX
                       AND THE NASDAQ BIOTECHNOLOGY INDEX

            [Data below represents a line chart in the printed piece]

                 CADUS          NASDAQ            NASDAQ
            PHARMACEUTICAL   STOCK MARKET          BIO-
             CORPORATION       (U.S.)          TECHNOLOGY
            --------------   ------------      ----------
12/96          100.00          100.00            100.00
12/97           72.86          122.48             99.93
12/98           22.14          172.68            144.18
12/99            3.58          320.89            290.72
12/00            8.22          193.01            357.52
12/01           13.37          153.15            244.86



* $100  Invested  on  12/31/96  in stock  or  index--including  reinvestment  of
  dividends. Fiscal year ending December 31.


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


                                       34
<PAGE>

<TABLE>
<CAPTION>
                                       12/31/96  12/31/97  12/31/98 12/31/99    12/31/00  12/31/01
                                      ---------  --------  -------- --------    --------  --------
<S>                                     <C>        <C>       <C>        <C>       <C>      <C>
Cadus                                   100.00     72.86     22.14      3.58      8.22     13.37
Nasdaq Stock Market (U.S.) Index        100.00    122.48    172.68    320.89    193.01    153.15
Nasdaq Biotechnology Index              100.00     99.93    144.18    290.72    357.52    244.86
Cadus Closing Stock Price              $  8.750     6.375     1.938     0.313     0.719     1.170
</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, 2002 with respect to
(i) each person known by the Company to be the beneficial  owner of more than 5%
of the Common  Stock,  (ii) each of the Company's  directors,  (iii) each of the
Named  Executive  Officers and (iv) all directors  and officers as a group.  All
information  is based  upon  ownership  filings  made by such  persons  with the
Securities  and  Exchange  Commission  (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)                25.64%
    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..........................................                                ----                     *
Russell D. Glass.........................................                                ----                     *
Peter S. Liebert, M.D....................................                              20,334(6)                  *
Siegfried G. Schaefer, Ph.D..............................                           1,599,942(7)                12.17%
Jack G. Wasserman........................................                              14,500(8)                  *
All executive officers and directors as a................                           5,007,992(9)                37.99%
    group (7 persons)
</TABLE>
----------

                                       35
<PAGE>

       * 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, 2002,  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.

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

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

(7)        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.

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

(9)        Includes (a) 38,500 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.

           In August  1999,  Cadus'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 Cadus's guarantee. Dr. Broach
executed and  delivered  to Cadus a $286,000  interest-bearing  promissory  note
payable to the order of Cadus on August 31, 2000 to  evidence  his debt to Cadus
arising from Cadus'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

                                       36
<PAGE>

       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

(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 ( "Cadus"),  as
                         filed with the  Secretary  of State of  Delaware on
                         July 22, 1996. (1)

3.2                      By-laws of Cadus. (2)

4.1                      Specimen of Common Stock Certificate of Cadus. (2)

4.2                      1993 Cadus Pharmaceutical Corporation Stock Option
                         Plan. (2)

4.3                      Cadus Pharmaceutical Corporation 1996 Incentive
                         Plan. (2)

4.4                      Amendment to Cadus Pharmaceutical Corporation 1996
                         Incentive Plan. (1)

4.5                      Form of Incentive Stock Option Agreement utilized in
                         connection  with  issuances of stock options under
                         the Cadus  Pharmaceutical  Corporation  1996
                         Incentive Plan. (1)

4.6                      Form of Stock Option Agreement  between Cadus and each
                         of  the  following   employees  of  Cadus:  Philip  N.
                         Sussman,  John Manfredi,  Andrew Murphy,  Jeremy Paul,
                         Lauren Silverman,  Joshua Trueheart,  James S. Rielly,
                         Thomas F. Deuel,  Norman R. Klinman,  Elliott M. Ross,
                         Jeremy Thorner, Arnold Levine, John Ransom,  Christine
                         Klein, Suzanne K. Wakamoto, Christopher Pleiman, Algis
                         Anilionis,  Anupama K. Nadkarni, Mitchell Silverstein,
                         Michael A. Spruyt and David Fruhling. (1)

4.7                      Form of Stock Option Agreement  between Cadus and each
                         of the  following  non-  employee  directors of Cadus:
                         Theodore  Altman,  Harold  First,  Carl  Icahn,  Peter
                         Liebert,

                                       37
<PAGE>

                         Robert Mitchell,  Mark Rachesky,  William Scott,  Jack
                         Wasserman and Samuel D. Waksal. (1)

4.8                      Stock Purchase  Agreement between Cadus and SmithKline
                         Beecham  Corporation,  dated as of February  25, 1997.
                         (3)

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

10.1                     Form of Indemnification Agreement entered into between
                         Cadus and its directors and officers. (2)

10.2                     Form of Agreement Regarding  Assignment of Inventions,
                         Confidentiality and Non- Competition. (2)

10.3                     The   401(k)   Plan   of  the   Cadus   Pharmaceutical
                         Corporation. (2)

10.4                     Employment  Agreement  between  Jeremy  M.  Levin  and
                         Cadus. (2)

10.5                     Preferred Stock Purchase Agreement dated as of July 30,
                         1993  between  Cadus  and the  purchasers  of  Series A
                         Preferred  Stock,  together  with the First and  Second
                         Amendments  thereto  dated  as of  July  26,  1994  and
                         October 31, 1995, respectively. (2)

10.6                     Preferred  Stock Purchase  Agreement  dated as of July
                         26,  1994  between  Cadus  and  Bristol-Myers   Squibb
                         Company   ("Bristol-Myers")    concerning   Series   B
                         Preferred  Stock,  together  with the First  Amendment
                         thereto dated as of October 31, 1995. (2)

10.7                     Preferred   Stock  Purchase   Agreement  dated  as  of
                         November  1,  1995  between  Cadus  and  Physica  B.V.
                         concerning Series B Preferred Stock. (2)

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

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

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

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

                                       38
<PAGE>

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

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

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

10.15                    License  Agreement  between Cadus and National  Jewish
                         Center for Immunology and  Respiratory  Medicine dated
                         November 1, 1994. (2)

10.16                    Stock Option Agreement,  dated as of November 1, 1994,
                         between Cadus and John C. Cambier. (2)

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

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

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

10.20                    Research Collaboration Agreement,  dated as of January
                         9, 1995,  between Cadus and Houghten  Pharmaceuticals,
                         Inc.,  together with the Amendment thereto dated as of
                         March 1996. (2)

10.21                    Stock Option Agreement, dated as of December 18, 1995,
                         between Cadus and James R. Broach. (2)

10.22                    Waiver,  dated May 17,  1996,  of Section  1.05 of the
                         Preferred  Stock Purchase  Agreement  dated as of July
                         26, 1994 between Cadus and  Bristol-Myers,  as amended
                         by the First Amendment thereto dated as of October 31,
                         1995. (2)

10.23                    Waiver,  dated May 17,  1996,  of Section  1.04 of the
                         Preferred   Stock  Purchase   Agreement  dated  as  of
                         November 1, 1995 between Cadus and Physica B.V. (2)

10.24                    Research  Collaboration  and License  Agreement  among
                         Cadus,  SmithKline Beecham  Corporation and SmithKline
                         Beecham p.l.c., dated as of February 25, 1997. (3)

10.25                    Employment  Agreement,  dated  as of  June  30,  1998,
                         between Cadus and Charles Woler. (4)

                                       39
<PAGE>

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

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

10.28                    Asset Purchase  Agreement,  dated as of July 30, 1999,
                         between Cadus and OSI Pharmaceuticals, Inc. (Schedules
                         to   the   Asset   Purchase    Agreement   have   been
                         intentionally  omitted.  Cadus  hereby  undertakes  to
                         furnish  supplementally to the Securities and Exchange
                         Commission   upon   request  a  copy  of  the  omitted
                         schedules.) (6)

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

23                       Consent of KPMG LLP, independent auditors.

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


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

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

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

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

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

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

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


                                       40

<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.


<TABLE>
<CAPTION>
           NAME                                               TITLE                                               DATE
           ----                                               -----                                               ----
<S>                                                 <C>                                                           <C>
/s/ Russell D. Glass                                Chief Executive Officer, President and Director               March 28, 2002
-------------------------
Russell D. Glass                                    (Principal Executive Officer and Principal
                                                     Accounting Officer)

                                                    Director                                                      March   , 2002
---------------
Carl C. Icahn


/s/ James R. Broach                                 Director                                                      March 28, 2002
---------------------------------
James R. Broach


/s/ Peter S. Liebert                                Director                                                      March 28, 2002
----------------------------------
Peter S. Liebert


/s/ Siegfried G. Schaefer                           Director                                                      March 28, 2002
----------------------------------
Siegfried G. Schaefer


/s/ Jack G. Wasserman                               Director                                                      March 18, 2002
------------------------------------
Jack G. Wasserman
</TABLE>



                                       41

<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY




                                      INDEX
<TABLE>
<CAPTION>
                                                                                         Page No.
<S>                                                                                      <C>
    Independent Auditors' Report                                                            F-2

    Consolidated Financial Statements:

             Consolidated Balance Sheets - December 31, 2001 and 2000                       F-3

             Consolidated Statements of Operations - For the years ended
               December 31, 2001, 2000 and 1999                                             F-4

             Consolidated Statements of Stockholders' Equity - For the years
               ended December 31 2001, 2000 and 1999                                        F-5

             Consolidated Statements of Cash Flows - For the years ended
               December 31, 2001, 2000 and 1999                                             F-6

             Notes to Consolidated Financial Statements                                     F-7
</TABLE>


                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Cadus Pharmaceutical Corporation:


We  have  audited  the  accompanying   consolidated   balance  sheets  of  Cadus
Pharmaceutical  Corporation  and subsidiary  (the  "Company") as of December 31,
2001  and  2000  and  the  related   consolidated   statements  of   operations,
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended December 31, 2001. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Cadus Pharmaceutical
Corporation   and  subsidiary  as  of  December  31,  2001  and  2000,  and  the
consolidated  results of its operations and its cash flows for each of the years
in the three-year  period ended December 31, 2001 in conformity  with accounting
principles generally accepted in the United States of America.



March 15, 2002


                                      F-2
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                     ASSETS
                                                                                           December 31,       December 31,
                                                                                               2001               2000
                                                                                           -----------         -----------
<S>                                                                                        <C>                 <C>
Current assets:
  Cash and cash equivalents                                                                $24,469,357         $24,383,352
  License fee receivable                                                                       500,000                --
  Prepaid and other current assets                                                              75,000              81,250
                                                                                                               -----------

         Total current assets                                                               25,044,357          24,464,602

Investment in other ventures                                                                   165,614             162,528
Other assets, net                                                                              990,622           1,081,527
                                                                                           -----------         -----------

             Total assets                                                                  $26,200,593         $25,708,657
                                                                                           ===========         ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accrued expenses and other current
  Liabilities                                                                              $    95,032         $    36,244
  Arbitration settlement                                                                       750,000                  --
                                                                                           -----------         -----------
             Total current liabilities                                                         845,032              36,244
                                                                                           -----------         -----------

Commitments and contingencies (note 14)

Stockholders' equity:
  Common stock,  $.01 par value.  Authorized  35,000,000  shares at December 31,
    2001 and 2000;  issued  13,285,707  shares at  December  31,  2001 and 2000;
    outstanding 13,144,040 shares at December 31, 2001
    and 2000                                                                                   132,857             132,857
Additional paid-in capital                                                                  59,844,355          59,844,355
Accumulated deficit                                                                        (34,321,576)        (34,004,724)
Treasury stock, 141,667 shares of common
  stock at December 31, 2001 and 2000                                                         (300,075)           (300,075)
                                                                                           -----------         -----------
       Total stockholders' equity                                                           25,355,561          25,672,413
                                                                                           -----------         -----------
Total liabilities and stockholders'
          equity                                                                           $26,200,593         $25,708,657
                                                                                           ===========         ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                            For the Years Ended December 31,
                                                                        2001            2000             1999
                                                                    -----------     -----------       -----------
<S>                                                               <C>               <C>               <C>
Revenues, principally from
  related parties                                                 $       --        $       --        $  6,027,544

License and maintenance fees                                           600,000           978,500              --
                                                                  ------------      ------------      ------------

             Total revenues                                            600,000           978,500         6,027,544
                                                                  ------------      ------------      ------------

Costs and expenses
    Research and development costs                                        --                --           9,115,504
    General and administrative                                       1,079,614         1,652,067         3,643,365
    (Gain) loss in equity in other ventures                             (3,086)          837,062         1,334,491
    (Gain) loss on sale of equipment
      and impairment loss                                                 --            (100,000)          220,216
                                                                  ------------      ------------      ------------

             Total costs and expenses                                1,076,528         2,389,129        14,313,576
                                                                  ------------      ------------      ------------

Operating loss                                                        (476,528)       (1,410,629)       (8,286,032)
                                                                  ------------      ------------      ------------

Other income and (expenses):
Interest income                                                        837,639           638,954           551,539
    Gain on reversal of litigation
            judgment, net of legal fees                                125,616        18,841,489              --
     Arbitration settlement
                                                                      (750,000)             --                --
     Loss on sale of assets to OSI                                        --                --            (805,555)
                                                                  ------------      ------------      ------------

             Total other income and
               (expenses)                                              213,255        19,480,443          (254,016)
                                                                  ------------      ------------      ------------

Income (loss) before income tax provision (benefit)                   (263,273)       18,069,814        (8,540,048)


State and local tax provision (benefit)                                 53,579            18,419           (16,359)
                                                                  ------------      ------------      ------------

             Net income (loss)                                       ($316,852)     $ 18,051,395      ($ 8,523,689)
                                                                  ============      ============      ============

Basic and diluted net income (loss)
  per share                                                           ($  0.02)         $   1.37            ($0.65)
                                                                  ============      ============      ============

Weighted average shares of common
  stock outstanding - basic and
  diluted                                                           13,144,040        13,133,615        13,068,940
                                                                  ============      ============      ============
</TABLE>



          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                 CONSOLIDATED 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, 1999          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
  for cash 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
                                  ------------  ----------   ------------   ------------    ----------   ----------    ------------
Balance at December 31, 2000        13,285,707     132,857     59,844,355    (34,004,724)     (141,667)    (300,075)     25,672,413
                                  ------------  ----------   ------------   ------------    ----------   ----------    ------------

Net loss for the year ended
  December 31, 2001                         --          --             --       (316,852)           --           --        (316,852)
                                  ------------  ----------   ------------   ------------    ----------   ----------    ------------

Balance at December 31, 2001        13,285,707   $ 132,857    $59,844,355   ($34,321,576)     (141,667)   ($300,075)   $ 25,355,561
                                  ============  ==========   ============   ============    ==========   ==========    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        For the Years Ended December 31,
                                                                   2001            2000             1999
                                                                   ----            ----             ----
<S>                                                            <C>              <C>              <C>
Cash flows from operating activities:
Net income (loss)                                               ($316,852)      $18,051,395     ($8,523,689)
Adjustments to reconcile net income (loss)
  to net cash provided by (used in)
  operating activities:
  Depreciation and amortization                                    80,905            80,905         719,510
  (Gain) loss in equity in other ventures                          (3,086)          837,062       1,334,491
  (Gain) loss on sale of equipment and
    impairment loss                                                    --          (100,000)        220,216
  Loss on sale of assets to OSI                                        --                --         805,555
  Changes in assets and liabilities:
  Increase in license fee receivable                             (500,000)               --              --
  (Increase) decrease in prepaid and
    other current assets                                            6,250           (11,467)        215,084
  Decrease in other assets                                         10,000            11,126         117,520
  (Decrease) increase in deferred revenue                              --           (28,500)         28,500
(Decrease) increase in litigation damages                              --       (19,065,431)        565,431
(Decrease) in accounts payable                                         --           (17,644)       (199,770)
  (Decrease) increase in accrued expenses
    and other current liabilities                                 808,788           (85,599)     (1,608,178)
                                                              -----------       -----------     -----------
Net cash provided by (used in)
operating activities                                               86,005          (328,153)     (6,325,330)
                                                              -----------       -----------     -----------
Cash flows from investing activities:
  Acquisition of fixed assets                                          --                --        (470,378)
  Proceeds from sale of patents and
    fixed assets                                                       --           100,000       1,644,073
  Decrease (increase) in restricted cash                               --        19,078,997        (292,997)
   Capitalized patent costs                                            --                --        (167,500)
                                                              -----------       -----------     -----------
Net cash provided by investing activities                              --        19,178,997         713,198
                                                              -----------       -----------     -----------
Cash flows from financing activities:
   Proceeds from issuance of common stock
    upon exercise of stock options                                     --           155,660             --
   Decrease (increase in due from officer
    and director                                                       --           294,636        (281,184)
                                                              -----------       -----------     -----------

Net cash provided by (used in) financing activities                    --           450,296        (281,184)
                                                              -----------       -----------     -----------

Net increase (decrease) in cash and cash
  equivalents                                                      86,005       $19,301,140      (5,893,316)

Cash and cash equivalents -
beginning of period                                           $24,383,352       $ 5,082,212     $10,975,528
                                                              -----------       -----------     -----------


Cash and cash equivalents -
  end of period                                               $24,469,357       $24,383,352     $ 5,082,212
                                                              ===========       ===========     ===========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999


(1)       Organization and Basis of Preparation

          Cadus Pharmaceutical Corporation ("Cadus") 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, Cadus
          sold its drug discovery assets to OSI Pharmaceutical, Inc. ("OSI") and
          ceased its internal drug discovery operations and research efforts for
          collaborative  partners.  Cadus  terminated all employees who were not
          hired by OSI or who did not voluntarily  resign,  except for the chief
          executive  officer who  resigned  in April  2000.  Cadus is seeking to
          license  its  technologies  and to  otherwise  realize  value from its
          assets.  Cadus is also seeking to use a portion of its available  cash
          to  acquire  technologies  or  products  or to  acquire  or  invest in
          companies.

          In December 2001,  Cadus  organized a wholly owned  subsidiary,  Cadus
          Technologies, Inc. (the "Subsidiary"), and transferred its yeast-based
          drug discovery  technologies to the Subsidiary.  On December 19, 2001,
          the Subsidiary  licensed such yeast-based drug discovery  technologies
          on a  non-exclusive  basis  to a major  pharmaceutical  company   (see
          further discussion at note 9).

          Cadus and the Subsidiary  (collectively,  the "Company") have incurred
          operating  losses  in each  year  since the  Company's  inception.  At
          December  31,  2001,  the  Company  had  an  accumulated   deficit  of
          approximately  $34.3  million.  The  Company's  losses  have  resulted
          principally  from costs  incurred in connection  with its research and
          development  activities  and from  general  and  administrative  costs
          associated  with the Company's  operations.  These costs have exceeded
          the Company's revenues and interest income. As a result of the sale of
          its drug  discovery  assets to OSI and the  cessation  of its internal
          drug  discovery  operations  and  research  efforts for  collaborative
          partners,  the Company  ceased to have research  funding  revenues and
          substantially reduced its operating expenses.

          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 2003. 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)        Principles of Consolidation

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

         (b)      Cash Equivalents


                                      F-7
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

                  The Company  includes as cash  equivalents  all highly  liquid
                  investments  with original  maturities of three months or less
                  when  purchased to be cash  equivalents.  Included in cash and
                  cash  equivalents  at  December  31,  2001 and 2000  were cash
                  equivalents of $22,439,259 and $2,066,291, respectively.

         (c)      Other Assets

                  Other  assets  include   capitalized  patent  costs  that  are
                  amortized  on a  straight-line  basis over fifteen  years.  At
                  December  31,  2001  and  2000  accumulated   amortization  is
                  $389,272  and  $308,366,  respectively.  Amortization  expense
                  amounted to approximately  $81,000,  $81,000,  and $94,000 for
                  the years ended December 31 2001, 2000 and 1999, respectively.

         (d)      Income Taxes

                  Income taxes are  accounted  for under the asset and liability
                  method. Deferred tax assets and liabilities are recognized for
                  the  future  tax  consequences   attributable  to  differences
                  between the financial  statements carrying amounts of existing
                  assets  and  liabilities  and their  respective  tax bases and
                  operating  loss and tax  credit  carryforwards.  Deferred  tax
                  assets and  liabilities  are measured  using enacted tax rates
                  expected  to apply to  taxable  income  in the  years in which
                  those  temporary  differences  are expected to be recovered or
                  settled.  The effect on deferred tax assets and liabilities of
                  a change in tax rates is  recognized  in income in the  period
                  that includes the enactment date.

         (e)      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.

         (f)      Revenue Recognition

                  The Company has entered into various  license  agreements with
                  other pharmaceutical  companies.  Upfront  non-refundable fees
                  are generally recognized over the term of the related research
                  collaboration  period in accordance with guidance  rendered in
                  the  Securities  and  Exchange   Commission  Staff  Accounting
                  Bulletin No. 101 "Revenue in Financial Statements" as amended.
                  Milestone   payments,   which  reduce  the  development   risk
                  associated  with a product and are  determinable  based on the
                  terms  of  the  license  agreement,   are  typically  progress
                  payments  for  specific   events  of   development,   such  as
                  completion of pre-clinical or clinical activities,  regulatory
                  submission or approval,  or manufacturing  objectives prior to
                  commercialization   of  a  product.   Milestone  payments  are
                  generally  non-refundable and the amount of revenue recognized
                  during an accounting period is determined by the nature of the
                  contracted provision included in the license agreements.

         (g)      Net Income (Loss) Per Share

                  Basic net income  (loss) per share as of  December  31,  2001,
                  2000 and 1999 is computed by dividing the net income (loss) by
                  the  weighted  average  number of common  shares

                                      F-8
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

                  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  609,309,  719,976  and
                  1,190,076 at December 31, 2001,  2000 and 1999,  respectively,
                  were  not  included  in  the  net  income   (loss)  per  share
                  calculation    because    their   effect   would   have   been
                  anti-dilutive.

         (h)      Use of Estimates

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

         (i)      Fair Value of Financial Instruments

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

         (j)      Stock-Based Compensation

                  We account for  stock-based  compensation  using the intrinsic
                  value method in accordance  with APB No. 25,  "Accounting  for
                  Stock Issued to Employees." Effective July 1, 1996, we adopted
                  the disclosure  requirements of SFAS No. 123,  "Accounting for
                  Stock-Based  Compensation",  which  requires the disclosure of
                  pro forma net income and  earnings  per share as if we adopted
                  the fair value-based method in measuring compensation expense.

         (k)      Comprehensive Income

                  SFAS  No.  130  requires  that  all  items   recognized  under
                  accounting  standards as components of comprehensive income be
                  reported in an annual  financial  statement  that is displayed
                  with the same prominence as other annual financial statements.
                  Other  comprehensive   income  may  include  foreign  currency
                  translation adjustments, minimum pension liability adjustments
                  and  unrealized  gains  and  losses on  marketable  securities
                  classified as available-for-sale.  Our operations did not give
                  rise to items includible in comprehensive  income,  which were
                  not  already   included  in  net  income.   Accordingly,   our
                  comprehensive  income  is the same as our net  income  for all
                  periods presented.

         (l)      Derivative Instruments and Hedging Activities

                  Effective  January 1, 2001, the Company adopted the provisions
                  of SFAS No. 133,  "Accounting  for Derivative  Instruments and
                  Hedging   Activities,"  as  amended,   which  establishes  new
                  accounting and reporting guidelines for derivative instruments
                  and hedging activities.  SFAS No. 133 requires the recognition
                  of all  derivative  financial  instruments as either assets or
                  liabilities in the consolidated  balance sheet and measurement
                  of those

                                      F-9
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

                  instruments  at fair  value.  Changes in fair  values of those
                  derivatives   will  be   reported   in   earnings   or   other
                  comprehensive  income  depending  on  the  designation  of the
                  derivative and whether it qualifies for hedge accounting.  The
                  accounting for gains and losses associated with changes in the
                  fair value of a derivative and the effect on the  consolidated
                  financial  statements will depend on its hedge designation and
                  whether the hedge is highly effective in achieving  offsetting
                  changes  in the  fair  value  or cash  flows  of the  asset or
                  liability  hedged.  Under the  provisions  of SFAS No. 133 the
                  method that will be used for assessing the  effectiveness of a
                  hedging  derivative,  as well as the measurement  approach for
                  determining  the  ineffective  aspects of the  hedge,  must be
                  established at the inception of the hedging relationship.  For
                  derivatives designated as cash flow hedges, the change in fair
                  value of the  derivative  instrument is adjusted to fair value
                  and is reported  in other  comprehensive  income.  The Company
                  does not enter  into  derivative  instruments.  The  impact of
                  adopting SFAS No. 133 did not have any effect on the Company's
                  consolidated financial statements.

(3)      Asset Sale to OSI Pharmaceuticals

         On July 30,  1999,  Cadus 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 Cadus's lease to Cadus's
         research facility in Tarrytown,  New York, Cadus's equipment lease with
         General   Electric   Capital   Corporation  and  the  Cadus's  research
         collaboration  and license  agreement with Solvay  Pharmaceutical  B.V.
         ("Solvay  Pharmaceutical").   As  consideration  for  the  sale,  Cadus
         received  approximately  $1,500,000  in cash  and OSI  assumed  certain
         liabilities  of Cadus  relating to employees  hired by OSI  aggregating
         approximately  $133,000.  In  addition,  Cadus  would  be  entitled  to
         royalties  and up to $3.0  million in  milestone  payments on the first
         product  derived from compounds  sold to OSI or from the  collaboration
         with Solvay  Pharmaceutical.  Cadus licensed to OSI on a  non-exclusive
         basis  certain   technology   solely  to  enable  OSI  to  fulfill  its
         obligations under the collaboration with Solvay  Pharmaceutical.  Cadus
         also  licensed  to OSI on a  non-exclusive  basis  certain  proprietary
         software and technology  relating to chemical resins in order to enable
         OSI to fully  benefit from the  compounds  it acquired  from the Cadus.
         Cadus  retained  ownership of all its other assets,  including its core
         yeast technology for developing drug discovery  assays,  its collection
         of over 25,000  proprietary  yeast  strains,  human and mammalian  cell
         lines, and genetic  engineering tools, 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., Cadus's cash and cash equivalents, and
         the approximately $18.5 million (plus interest thereon) then being held
         in  escrow   pending   appeal  of  the   verdict   in  favor  of  SIBIA
         Neurosciences, Inc. ("SIBIA") (see further discussion at note 4).

                                      F-10
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

         Cadus 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
                                                         ==========

         Cadus ceased its drug  discovery  operations  and research  efforts for
         collaborators  as a result  of this  transaction.  Consequently,  Cadus
         terminated  all  employees  who  were  not  hired by OSI or who did not
         voluntarily resign, except for the chief executive officer who resigned
         in April 2000.

(4)      Litigation

         In July  1996,  SIBIA  (which  was  acquired  by Merck and Co. in 1999)
         commenced  a  patent   infringement   action   against  Cadus  alleging
         infringement  by  Cadus  of a  patent  concerning  the  use  of  cells,
         engineered to express any type of cell surface  receptor and a reporter
         gene,  used to report  results in the  screening of  compounds  against
         target assays and seeking injunctive relief and monetary damages. After
         trial,  on  December  18,  1998,  the jury issued a verdict in favor of
         SIBIA and awarded SIBIA $18.0  million in damages.  On January 29, 1999
         the United States District Court granted SIBIA's request for injunctive
         relief that  precludes  Cadus from using the method  claimed in SIBIA's
         patent.  On February 26, 1999, the United States  District Court denied
         Cadus's motions to set aside the jury verdict, to grant a new trial and
         to reduce or set aside the $18.0 million  judgment awarded by the jury.
         Cadus appealed the judgment.  In order to stay execution pending appeal
         of the $18.0 million  judgment  obtained by SIBIA in March 1999,  Cadus
         deposited  $18.5 million in escrow to secure payment of the judgment in
         the event Cadus were to lose the appeal.  Cadus  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  Cadus  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 Cadus were invalid
         and  that the  District  Court  erred in  denying  Cadus's  motion  for
         judgment as a matter of law on the issue of invalidity.  On October 30,
         2000,  the U.S.  District Court set aside the  $18,000,000  judgment in
         favor of SIBIA and vacated the injunction against Cadus. Separately, in
         October  2000,  Cadus  obtained the release of the cash escrow of $19.9
         million  representing  the original  $18.5  million and  interest  that
         accumulated  thereon. 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 for the year ended December 31, 2000.  Pursuant
         to  a  court  order,   Cadus  received  in  February  2001  a  $155,402
         reimbursement  of SIBIA  litigation costs which was partially offset by
         legal costs incurred of $29,786.

         In March 2002, the arbitrator in the arbitration  proceeding  commenced
         against Cadus by Philip N. Sussman,  the former Senior Vice  President,
         Finance  and  Corporate  Development,  and Chief  Financial  Officer of
         Cadus,  ruled in favor of Mr.  Sussman and  awarded  him  approximately
         $750,000 in severance  pay,  interest and attorneys and other costs and
         fees.  A  charge  of  $750,000   was   recorded  in  the   accompanying
         consolidated  statement of operations  for the year ended  December 31,
         2001.

                                      F-11
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

(5)      Fixed Assets

         During  fiscal year 1999,  Cadus sold a majority of its fixed assets to
         OSI and wrote off the  remaining  fixed assets as Cadus 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,  Cadus 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 year ended December 31,
         1999 was approximately $625,000.

(6)      Related Party Transactions

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

         In August 1998, Cadus 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  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 Cadus, which was payable,  together with accrued interest, on August
         31, 2000. This loan was repaid in its entirety in March 2000.

         See Notes 7 and 10 for further discussion of transactions with related
         parties.

(7)      Investments in Other Ventures

         In December  1996,  Cadus  issued a $150,000  promissory  note  bearing
         interest  at 7% per annum in  exchange  for a 42%  limited  partnership
         interest in Laurel Partners Limited Partnership  ("Laurel"),  a limited
         partnership of which a shareholder of Cadus is the general partner.  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, Cadus purchased for $160,660 in cash, a 47%
         limited  partnership  interest in Laurel from Tortoise  Corporation,  a
         corporation  wholly-owned by the  shareholder.  Laurel's  purpose is to
         invest,   directly  or  indirectly,   in  securities  of  biotechnology
         companies.  Cadus had the right to require the shareholder to match any
         future investment made by Cadus in Laurel up to an aggregate investment
         on the part of the  shareholder of $5.0 million.  This right expired on
         December  31,  1999.  Cadus  is not  required  to make  any  additional
         investment in Laurel.  The investment is accounted for under the equity
         method  with the  recognition  of losses  limited  to  Cadus's  capital
         contributions.  For the years ended  December 31,  2001,  2000 and 1999
         Cadus  recognized  gains  (losses)  of $3,086,  ($2,649)  and  $20,513,
         respectively,  related to the investment.  The remaining  investment in
         Laurel  of  $165,614  and  $162,528  at  December  31,  2001 and  2000,
         respectively,  is  included  in  investments  in other  ventures on the
         balance sheet.

                                      F-12
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

         In May 1997,  Cadus  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 Cadus its first High Throughput  Pharmacology System (HT-PS).  Cadus
         purchased an additional $2.0 million of convertible  preferred stock in
         Axiom on June 5, 1998, after Cadus received and accepted Axiom's HT-PS.
         Russell D. Glass,  Cadus's Chief  Executive  Officer,  is a director of
         Axiom. Cadus's investment is accounted for under the equity method with
         Cadus  recognizing  100% of  Axiom's  net  losses  prior to an  outside
         investment  in Axiom and 50% after  such  investment.  Such  percentage
         represents  the extent to which Cadus was deemed to be funding  Axiom's
         losses.  For the years ended  December 31, 2001,  2000 and 1999,  Cadus
         recognized  $-0-,  $834,413  and  $1,355,004,  respectively,  in losses
         generated  by Axiom.  The  investment  was  written  down to zero as of
         December 31, 2000.

(8)      Income Taxes

         Deferred tax assets of  approximately  $15,554,000  and  $15,777,000 at
         December 31, 2001 and 2000,  respectively,  relate  principally  to net
         operating loss  carryforwards of $27,990,000 and $28,387,000,  research
         and development credit carryforwards of $2,535,000 and $2,675,000,  and
         equity losses on  investments  of $4,000,000 and $4,000,000 at December
         31, 2001 and 2000, respectively.  An offsetting valuation allowance has
         been  established  for the full  amount of the  deferred  tax assets to
         reduce such assets to zero, as a result of the significant  uncertainty
         regarding their ultimate realization. The aggregate valuation allowance
         decreased  $230,000 and  $8,492,000  during the year ended December 31,
         2001 and 2000, respectively.

         The  Company's  net  operating  loss  carryforwards  and  research  and
         development  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  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)      Licensing Agreements

         In December  2001,  Cadus  Technologies,  Inc.,  Cadus's  wholly  owned
         subsidiary,  licensed its yeast-based drug discovery  technologies on a
         non-exclusive  basis  to a  major  pharmaceutical  company.  Under  the
         licensing agreement, the subsidiary received an up-front non-refundable
         fee of  $500,000  that  is  recorded  as  revenue  in the  accompanying
         consolidated  statement  of  operations  as the  Company has no further
         involvement  with the  development of the product.  The subsidiary will
         receive an  additional  licensing  fee of  $1,000,000  if the  licensee
         achieves a research  milestone.  The  licensee  is  entitled to use the
         technologies  for  five  years  if it makes  such  $1,000,000  payment.
         Following  the  initial  five year  term,  the  licensee  may renew the
         license  annually upon payment of an annual  licensing fee of $250,000.
         For the year ended December 31, 2001, the Company  recognized  $500,000
         in license  revenue  from the  licensee,  which  amount was received in
         January 2002.

         In February 2000, Cadus licensed to OSI, on a non-exclusive  basis, its
         yeast-based drug discovery technologies, including various reagents and
         its  library  of over  30,000  yeast  strains,  and its  bioinformatics
         software. OSI paid to Cadus a license fee of $100,000 and an access fee
         of  $600,000,  which have been  recorded  as license fee revenue in the
         accompanying  consolidated  statement of operations  for the year ended
         December 31, 2000. OSI is also  obligated to pay an annual  maintenance
         fee of $100,000 until the

                                      F-13
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

         earlier of 2010 or the  termination  of the license and a  supplemental
         license  fee of  $250,000  which was paid in  December  2000  after the
         lifting of the injunction obtained by SIBIA and recorded as license fee
         revenue.  OSI may  terminate  the  license at any time on 30 days prior
         written  notice.  For the years ended  Decmeber 31, 2001 and 2000,  the
         Company recognized $100,000 and $950,000,  respectively, in license and
         maintenance fees from OSI.

(10)     Research Collaboration and License Agreements

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

         For the year ended  December  31,  1999,  the Company  recognized  $1.3
         million in revenues for research  funding  from  Bristol-Myers  Squibb,
         which constituted 22% of the Company's revenues in 1999.

         For the year ended  December  31,  1999,  the Company  recognized  $1.6
         million in revenues for research funding from Solvay Pharmaceutical, an
         affiliate of Physical  B.V.,  which  constituted  26% of the  Company's
         revenues in 1999.  Siegfried G. Schaefer,  a director of Cadus,  is the
         head of worldwide research at Solvay Pharmaceutical.

         For the year ended December 31, 1999,  Cadus recognized $2.1 million in
         research  revenues and a $1.0 million research  milestone  payment from
         SmithKline Beecham p.l.c., which represented 52% of Cadus's revenues in
         1999.

(11)     Sponsored Research and License Agreements

         The Company has entered into  license  agreements  with  various  third
         parties.  Generally,  the agreements  provide that the Company will pay
         license  fees  and/or  maintenance  payments,  in return for the use of
         technology and information  and the right to manufacture,  use and sell
         future  products.  These  agreements  provide for payments based on the
         completion of milestone  events, as well as royalty payments based upon
         a percentage  of product or assay sales.  License fees and  maintenance
         payments  for the years ended  December  31,  2001,  2000 and 1999 were
         $25,000, $48,194 and approximately $536,000, respectively.

(12)     Stock Options

                                      F-14
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

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

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

        Activity under the 1993 Plan is as follows:

                                               Options Outstanding

                                         NUMBER              WEIGHTED
                                           OF                AVERAGE
                                         SHARES            EXERCISE PRICE
                                         ------            --------------
        Balance at January 1, 1999       455,311               $1.65

        1998 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

        2001 activity
           Granted                            --                  --
           Exercised                          --                  --
           Canceled                           --                  --
                                         -------
        Balance at December 31, 2001     276,739               $1.52
                                         =======

        At December 31, 2001, the range of exercise prices and weighted-average
        remaining  contractual  life of outstanding  options was $1.37 to $3.51
        and 1.63 years, respectively.

                                      F-15
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

        At December  31, 2001 and 2000,  the number of options  exercisable  was
        276,739 and the  weighted-average  exercise  price of those  options was
        $1.52.


        The following  table  summarizes  stock option  information for the 1993
Plan as of December 31, 2001:



                                      F-16
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

<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                  1.63          $1.47              270,072         $1.47
      $3.51                       6,667                  1.50          $3.51                6,667         $3.51
                                -------                                                   -------

$1.37 to $3.51                  276,739                  1.63          $1.52              276,739         $1.52
                                =======                                                   =======
</TABLE>

        (b)       Cadus entered into stock option agreements not pursuant to any
                  plan  with   certain   directors,   employees,   founders  and
                  consultants.   These  options  generally  become   exercisable
                  according  to a  schedule  of  vesting  as  determined  by the
                  Compensation Committee of the Board of Directors.  The options
                  become  exercisable in installments over a period of months or
                  years. As of December 31, 2001, an aggregate of 323,403 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:

<TABLE>
<CAPTION>
                                                              OPTIONS OUTSTANDING
                                                          NUMBER              WEIGHTED
                                                            OF                AVERAGE
                                                          SHARES            EXERCISE PRICE
                                                          ------            --------------
<S>                                                      <C>                    <C>
Balance at January 1, 1999                               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

2001 activity
  Granted                                                   --                     --
  Exercised                                                 --                     --
  Canceled
                                                        (110,667)               $2.57
                                                        --------
Balance at December 31, 2001                             323,403                $2.42
                                                        ========
</TABLE>

                                      F-17
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

        At December 31, 2001, the range of exercise prices and  weighted-average
        remaining contractual life of outstanding options was $1.50 to $6.75 and
        3.22 years, respectively.

        At December  31, 2001 and 2000,  the number of options  exercisable  was
        323,403 and 434,070,  respectively,  and the  weighted-average  exercise
        price of those options was $2.42 and $2.46, respectively.

        The following table summarizes  stock option  information for grants not
        subject to any plan as of December 31, 2001:

<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            253,334               1.84           $1.50         253,334           $1.50
                   $3.60                22,069               3.97           $3.60          22,069           $3.60
                   $6.75                48,000               4.88           $6.75          48,000           $6.75
                                       -------                                           --------
             $1.50 to $6.75            323,403               3.22           $2.42         323,403           $2.42
                                       =======                                           ========
</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 Cadus'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 Cadus in June 1997.  In
        December  1997, the maximum number of shares of common stock that may be
        the subject of awards  under the 1996  Incentive  Plan was  increased to
        1,833,334 (plus any shares that are the subject of canceled or forfeited
        awards) by the Board of Directors  and approved by the  stockholders  of
        Cadus in June 1998.

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

                                      F-18
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

        Activity under the 1996 Plan is as follows:

                                                     OPTIONS OUTSTANDING

                                                  NUMBER            WEIGHTED
                                                    OF              AVERAGE
                                                  SHARES         EXERCISE PRICE
                                                  ------         --------------
        Balance at January 1, 1999             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

        2001 activity
          Granted                                     --                --
          Exercised                                   --                --
          Canceled                                    --                --
                                              ----------
           Balance at December 31, 2001            9,167             $6.56
                                              ==========

        At December 31, 2001, the range of exercise prices and  weighted-average
        remaining contractual life of outstanding options was $6.38 to $6.63 and
        5.24 years, respectively.

        At December  31, 2001 and 2000,  the number of options  exercisable  was
        9,167 and the  weighted  average  exercise  price of those  options  was
        $6.56.

        The following  table  summarizes  stock option  information for the 1996
        Plan as of December 31, 2001:

<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                5.24              $6.56           9,167             $6.56

</TABLE>

                                      F-19
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

         Cadus  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 Cadus 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):

                                           2001        2000        1999
                                         -------     -------     -------
Net income (loss) - as reported           ($317)     $18,051     ($8,524)
Net income (loss) - pro forma             ($317)     $18,051     ($8,614)


Income (loss) per share - as reported    ($0.02)       $1.37      ($0.65)
Income (loss) per share - pro forma      ($0.02)       $1.37      ($0.65)

         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
                                          ----
Expected dividend yield                    0%
Expected stock price volatility           1.85
Risk-free interest rate                   6.31%
Expected life of options                  9 years



         The  weighted  average  fair value of options  granted  during the year
         ended  December  31,  1999 was $1.88 per  share.  There were no options
         granted during the years ended December 31, 2001 and 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:

                                      2001         2000
                                      ----         ----

Accrued professional fees           $75,608      $25,000
Other accrued expenses               19,424       11,244
                                   --------      -------
Total                              $ 95,032      $36,244
                                   ========      =======

                                      F-20
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

(14) Commitments and Contingencies

         Lease Commitments

         Cadus currently leases storage space on a month to month basis.

         Rent  expense,  excluding  utility and operating  costs,  for the years
         ended  December  31,  2001,  2000 and 1999  amounted  to  approximately
         $5,000, $5,000, and $409,507, respectively.

         Employment Agreement

         Dr. Woler was employed as President and Chief Executive Officer under a
         three year  employment  agreement  with Cadus,  which was extendable to
         four years at Cadus'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,  Cadus and Dr. Woler entered into a term
         sheet to amend his employment  agreement to provide that if Cadus 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,  Cadus 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. Cadus 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

<TABLE>
<CAPTION>
                                                                          2001               2000             1999
                                                                        --------            -------         -------
<S>                                                                   <C>                  <C>             <C>
Cash payment for:
Interest                                                              $   -                $  -            $  -
Income taxes                                                          $   -                $  -            $15,476
</TABLE>

(16) - Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
Fiscal 2001 Quarter Ended               December 31    September 30    June 30         March 31
<S>                                      <C>              <C>             <C>        <C>
License and maintenance fees             $500,000         $--             $--        $ 100,000
                                          -------    --------        --------         --------

Operating income (loss)                   232,214    (161,813)       (405,476)        (141,453)
Net income (loss)                        (448,566)     23,533        (170,683)         278,864
Net income (loss) per share:
   Basic and diluted                       $(0.03)      $0.00          $(0.01)           $0.02
</TABLE>


                                      F-21
<PAGE>

                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
Fiscal 2000 Quarter Ended         December 31    September 30       June 30          March 31
<S>                              <C>             <C>              <C>              <C>
License and maintenance fee      $   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)     $     (0.03)
</TABLE>



                                      F-22