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, 2002.

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

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

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

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

            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
----------------------------------------    ------------------------------------
(Address of principal executive offices)                (Zip Code)

Company's telephone number, including area code:          (212) 702-4367
                                                 -------------------------------

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

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

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

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

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

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

       The aggregate market value of Common Stock held by  non-affiliates of the
Company,  computed by  reference  to the closing  price on March 15,  2003,  was
$6,292,100.

       Number of shares  outstanding of each class of Common Stock,  as of March
15, 2003: 13,144,040 shares.

<PAGE>


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,  uncertainties
regarding the Company's  ability to license its  technologies  to third parties,
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) license the Subsidiary's drug discovery technologies and (ii) use
a portion of their  available  cash to acquire or invest in  companies or income
producing  assets.  While such companies or assets might be in the biotechnology
or  pharmaceutical   industries,  the  Company  will  consider  acquisitions  or
investments in other industries as well.

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       On July 30,  1999,  Cadus  sold to OSI,  pursuant  to an  asset  purchase
agreement,  its drug discovery programs focused on G Protein-coupled  receptors,
its  directed  library  of  approximately   150,000  small  molecule   compounds
specifically  designed  for drug  discovery in the G Protein-  coupled  receptor
arena,   its   collaboration   with   Solvay   Pharmaceuticals   B.V.   ("Solvay
Pharmaceuticals"),  its lease to its research  facility in  Tarrytown,  New York
together  with the  furniture  and  fixtures  and its lease to  equipment in the
facility,  and its  inventory  of  laboratory  supplies.  Pursuant  to such sale
transaction,  OSI  assumed  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 and its genomics  databases
related  to  G  Protein-coupled  receptors.  Cadus  ceased  its  drug  discovery
operations  and  research  efforts  for   collaborators  as  a  result  of  this
transaction  and  terminated  all employees who were not hired by OSI or who did
not voluntarily  resign,  except for the Chief Executive Officer who resigned in
April 2000.

       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).

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

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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  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.

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

       The sequences and  functions of several  hundred human G  Protein-coupled
receptors have been identified.  The Company believes that the identification of
the gene  sequences and functions of the remaining G  Protein-coupled  receptors
(other than those  involved in taste,  smell or sight) will yield a  substantial
number of potential  drug  discovery  targets.  Scientists  working on the Human
Genome Project have sequenced  portions of thousands of genes and have published
such  sequences  or placed them in public  databases.  Although the Human Genome
Project has produced and made publicly  available an ever  increasing  volume of
raw DNA sequences  (including  sequence fragments that may represent portions of
human G Protein-coupled  receptors),  such data cannot be used in drug discovery
until  (i)  a  DNA  sequence  is  recognized  to  comprise  a  portion  of  a  G
Protein-coupled  receptor  (ii) the full DNA  sequence of the G  Protein-coupled
receptor is identified,  (iii) the function of the G Protein-coupled receptor is
elucidated,  and (iv)  agonists  and/or  antagonists  for the G  Protein-coupled
receptor are identified.

       TRADITIONAL DRUG DISCOVERY

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

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

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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  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.

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       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
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


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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
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.

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       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  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


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respect to such G  Protein-coupled  receptors.  As of November 1999, the Company
and GTC ceased collaborating.

INVESTMENT IN SEQUENOM, INC.

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

       In December  2001,  the  Subsidiary  licensed  to a major  pharmaceutical
company,  on a non- exclusive basis, its yeast  technologies,  including various
reagents and its library of over 25,000 yeast strains.  The licensee paid to the
Subsidiary an up-front  non-refundable  fee of $500,000.  In October  2002,  the
licensee  paid to the  Subsidiary  an  additional  $1,000,000  when the licensee
achieved a research  milestone.  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.

                                       10
<PAGE>


PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS

       The  Subsidiary  relies  upon  patents  and trade  secrets to protect its
proprietary technologies.  As of March 15, 2003, the Subsidiary was the assignee
of nine 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 15 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.

       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.

                                       11
<PAGE>


       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  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.

                                       12
<PAGE>


       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 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

                                       13
<PAGE>


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.

       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

                                       14
<PAGE>


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  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

                                       15
<PAGE>


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, 2003, the Company had no employees.  Michele  Paige,  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.

ITEM 3.  LEGAL PROCEEDINGS.

       The Company is not a party to any legal proceedings.

                                       16
<PAGE>


ITEM 4.  SUBMISSION TO A VOTE OF SECURITY HOLDERS.

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

                                     PART II

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

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

       FISCAL YEAR 2002                                 HIGH             LOW
       First quarter ended March 31, 2002               $1.45            $1.09
       Second quarter ended June 30, 2002               $1.50            $1.15
       Third quarter ended September 30, 2002           $1.20            $1.08
       Fourth quarter ended December 31, 2002           $1.21            $1.01

       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

       As of March 15, 2003,  there were  approximately  65 holders of record of
Cadus's Common Stock.

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

       RECENT SALES OF UNREGISTERED SECURITIES.

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

                                       17
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA.

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

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                        ----------------------------------------------------------------------------------
                                           2002              2001               2000               1999            1998
                                        ----------        ----------         ----------         ----------      ----------
STATEMENT OF OPERATIONS DATA:                         (dollars in thousands, except share and per share data)
<S>                                     <C>               <C>                <C>                <C>             <C>
Revenues                                    $1,100              $600               $979             $6,028         $12,576
                                        ----------        ----------         ----------         ----------      ----------
Operating costs and expenses:
    Research and development                    --                --                 --              9,116          15,389

    General and administrative                 885             1,079              1,652              3,643           8,977
                                        ----------        ----------         ----------         ----------      ----------
    Total operating costs and
        expenses                               885             1,079              1,652             12,759          24,366
                                        ----------        ----------         ----------         ----------      ----------
    Operating gain (loss)                      214              (479)              (673)            (6,731)        (11,790)

Net income (loss)                           $1,316(1)          $(317)(2)        $18,051(3)         ($8,524)       ($29,690)(3)
                                        ==========        ==========         ==========         ==========      ==========
Basic and diluted net income (loss)
    per share                                $0.10            ($0.02)             $1.37             ($0.65)         ($2.32)
                                        ==========        ==========         ==========         ==========      ==========
Shares used in calculation of basic
    and diluted net income (loss)
    per share                           13,144,040        13,144,040         13,133,615         13,068,940      12,811,525

<CAPTION>
                                                                            DECEMBER 31,
                                        ----------------------------------------------------------------------------------
                                           2002              2001               2000               1999            1998
                                        ----------        ----------         ----------         ----------      ----------
<S>                                     <C>               <C>                <C>                <C>             <C>
BALANCE SHEET DATA:                                                        (in thousands)
Cash and cash equivalents                  $24,923           $24,469            $24,383(4)          $5,082(4)      $10,976(4)
Total assets                                26,870            26,201             25,709             26,699          36,587
Short-term debt                                 --                --                 --                 --              --
Accumulated deficit                        (33,006)          (34,322)           (34,005)           (52,056)        (43,532)
Stockholders' equity                        26,458            25,356             25,672              7,465          15,989
</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 income of $1,316,000  for the year ended December 31, 2002
              includes a realized  gain of $823,189  related to common shares of
              Sequenom received in connection with the merger of Axiom, in which
              Cadus had an equity interest, with Sequenom.

       (2)    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.

                                       18
<PAGE>


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

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

       (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 is  currently  seeking to (i) license the  Subsidiary's  drug  discovery
technologies  and (ii) to use a portion  of its  available  cash to  acquire  or
invest in companies or income producing  assets.  While such companies or assets
might be in the  biotechnology or  pharmaceutical  industries,  the Company will
consider acquisitions or investments in other industries as well.

The  Company  has  incurred  operating  losses in each year since its  inception
except for an operating  gain of  approximately  $214,000  during the year ended
December 31, 2002. At December 31, 2002, the Company had an accumulated  deficit
of approximately $33.0 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 license agreements with two companies
under which we have  licensed to them our yeast  technology  on a  non-exclusive
basis. The agreements provide for the payment of non-refundable  license fees to
the Company. We recognize the license fees as income when received, as there are
no continuing performance obligations of the Company to the licensees.

                                       19
<PAGE>



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 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, 2002 AND 2001

       REVENUES

       Revenues for 2002  increased to $1,100,000  from  $600,000 in 2001.  This
increase  is  primarily  attributable  to the  Company  receiving  a  $1,000,000
research milestone payment from a licensee.

       OPERATING EXPENSES

       General and  administrative  expenses decreased to $885,000 for 2002 from
$1.079 million for 2001. This decrease was attributable  primarily to a decrease
in professional fees and insurance.

       INTEREST INCOME

       Interest  income for 2002  decreased to $336,000  from  $838,000 in 2001.
This decrease is attributable primarily to the decrease in interest rates.

       EQUITY IN OTHER VENTURES

       Equity  in  other  ventures  in 2002  reflects  a loss of $692  from  the
Company's investment in Laurel Partners Limited Partnership.

                                       20
<PAGE>


       REALIZED GAIN ON MARKETABLE SECURITIES

       On August 30, 2002, the Company's  equity interest in Axiom was converted
into 441,446 shares of common stock of Sequenom  pursuant to the merger of Axiom
with a subsidiary of Sequenom. Upon the closing of the transaction,  the Company
recorded a realized  gain of  $823,189  with  respect to the  338,761  shares of
common stock of Sequenom received in the merger in the consolidated statement of
operations  for the year ended  December  31, 2002.  The value of the  remaining
102,685 shares of common stock of Sequenom received in the merger and being held
in escrow was recorded as a deferred gain on exchange of equity  interest in the
accompanying consolidated balance sheet.

       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.

       SETTLEMENT OF ARBITRATION

       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 which was included in the 2001  statement
of operations and paid in 2002.

       NET INCOME (LOSS)

       The net income for 2002 was $1,316,000 compared to a net loss of $317,000
for 2001.  The  increase is  primarily  attributable  to a $500,000  increase in
license fees, a decrease in general and administrative  expenses of $194,000 and
a realized  gain on marketable  securities  of $823,189  offset by a decrease in
interest  income  of  $502,000.  In  2001  there  was an  arbitration  award  of
approximately $750,000 against Cadus in favor of a former employee.

       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.

                                       21
<PAGE>


       INTEREST INCOME

       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. was 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

       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 which was included in the 2001  statement
of operations.

       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.

LIQUIDITY AND CAPITAL RESOURCES

       At December 31, 2002 the Company held cash and cash  equivalents of $24.9
million. The Company's working capital at December 31, 2002 was $25.4 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

                                       22
<PAGE>


annual  maintenance fee of $100,000 until the earlier of 2010 or the termination
of the license  and a  supplemental  license  fee of $250,000  which was paid in
December  2000 after the lifting of the  injunction  obtained by SIBIA.  OSI may
terminate the license at any time on 30 days prior written  notice.  In December
2001, Cadus transferred its license with OSI to the Subsidiary.

       In December  2001,  the  Subsidiary  licensed  to a major  pharmaceutical
company, on a non- exclusive basis, its yeast technologies. The licensee paid to
the Subsidiary an up-front non-refundable fee of $500,000. In October 2002,  the
licensee  paid to the  Subsidiary  an  additional  $1,000,000  when the licensee
achieved a research  milestone.  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 2004.  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,  the  transactions,  if any,
arising from the  Company's  efforts to acquire or invest in companies or income
producing assets and the expenses of pursuing such transactions.

       At December 31, 2002 the Company had tax net operating loss carryforwards
of approximately $28.3 million and research and development credit carryforwards
of  approximately  $2.5 million  which expire in years 2009  through  2022.  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.


                                       23
<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8.  FINANCIAL STATEMENTS.

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

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
----                       ---   --------
Michele Paige              33    Chief Executive Officer, President and Director

James R. Broach, Ph.D.     54    Director

Russell D. Glass           40    Director

Carl C. Icahn              67    Director

Peter S. Liebert, M.D.(1)  67    Director

Jack G. Wasserman(1)       65    Director

----------
(1)    Member of the Compensation Committee.

                                       24
<PAGE>


       MICHELE PAIGE became a director and President,  Chief Executive  Officer,
Treasurer and Secretary of Cadus in February 2002.  From July 2001 Ms. Paige has
served as an Investment  Associate of Icahn Associates Corp. From September 1999
until June 2001, Ms. Paige studied at the Harvard  Business  School,  from which
she received her MBA in 2001. From 1998-1999, Ms. Paige was a Research Associate
at The  Conference  Board,  an economic  think-tank,  where she  specialized  in
mergers and acquisitions. Ms. Paige currently serves as a Trustee of The Leopold
Schepp  Foundation,  which awards  scholarships  that support both  graduate and
undergraduate  education for exceptional  students with  demonstrated  financial
need.  Ms. Paige earned her B.A. from Brown  University and a J.D. from Yale Law
School, where she was a member of The Yale Law Review.

       RUSSELL D. GLASS  became a director  of Cadus in June 1998.  He served as
President and Chief  Executive  Officer of Cadus from April 2000 until  February
2003. Since 2002 Mr. Glass has been the Co-Chairman and Chief Investment Officer
of Ranger  Partners,  an investment  management  company.  From 1998 to 2002 Mr.
Glass  served as  President  and Chief  Investment  Officer of Icahn  Associates
Corp.,  a diversified  investment  firm,  and as  Vice-Chairman  and Director of
Lowestfare.com,  Inc., travel services company. Previously, Mr. Glass had been a
partner in Relational  Investors LLC, from 1996 to 1998, and in Premier Partners
Inc.,  from 1988 to 1996,  firms engaged in investment  research and management.
From 1984 to 1986 he served as an investment  banker with Kidder,  Peabody & Co.
Previously,  Mr. Glass served as a Director of Automated Travel Systems, Inc., a
software  development  firm;  Axiom  Biotechnologies,  a pharmacology  profiling
company;  National  Energy  Group,  an oil and gas  exploration  and  production
company;  and Next  Generation  Technology  Holdings,  a healthcare  information
technology  company.  He  currently  serves  as a  Director  of the A.G.  Spanos
Corporation,  a national  real estate  developer  and owner of the NFL San Diego
Chargers  Football  Club.  Mr. Glass earned a B.A. in economics  from  Princeton
University  and an  M.B.A.  from the  Stanford  University  Graduate  School  of
Business.

       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  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

                                       25
<PAGE>


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.

       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 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

                                       26
<PAGE>


restraining  order.  Defendants then supplemented the tender offer  disclosures.
The Court  conducted a hearing on the  disclosures  and other matters  raised by
Reliance.  The Court then denied Reliance's motion for a preliminary  injunction
and  ordered   dissolution  of  the  temporary   restraining   order   following
dissemination of the supplement. Reliance took an immediate appeal to the United
States  Court of Appeals  for the Second  Circuit  and sought a stay to restrain
defendants from purchasing  notes during the pendency of the appeal.  On January
30, 2001, the Court of Appeals denied  plaintiffs' stay application.  On January
30, Reliance also sought a further temporary restraining order from the District
Court.  The Court  considered  the matter and reimposed  its original  restraint
until noon the next day, at which time the  restraint  against Mr. Icahn and his
affiliates was dissolved. On March 22, 2001, the Court of Appeals ruled in favor
of Mr. Icahn by affirming the judgment of the District Court.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

       Section  16(a)  of  the  Exchange  Act  requires  Cadus's  directors  and
executive  officers,  and persons who own more than ten percent of a  registered
class of Cadus's  equity  securities,  to file with the  Securities and Exchange
Commission  (the "SEC")  initial  reports of ownership and reports of changes in
ownership  of Common  Stock of Cadus.  Reporting  persons  are  required  by SEC
regulation  to furnish the Company  with  copies of all such filed  reports.  To
Cadus's  knowledge,  based  solely on a review of copies of such  filed  reports
furnished  to Cadus,  all of Cadus's  directors,  officers  and greater than ten
percent beneficial owners made all required filings during fiscal year 2002 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, 2002,  2001 and 2000, by its
Chief Executive  Officer and each of the Cadus's other executive  officers whose
total salary and bonus exceeded $100,000 during 2002  (collectively,  the "Named
Executive Officers"):

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                           Long-Term
                                                                                          Compensation
                                                                                             Awards
                                                        Annual Compensation                Securities
                                              -------------------------------------        Underlying        All Other
       Name and Principal Position            Year       Salary ($)       Bonus ($)       Options (#)       Compensation
       ---------------------------            ----       ----------       ---------       -----------       ------------
<S>                                           <C>            <C>             <C>               <C>               <C>
Russell D. Glass (1).....................     2002           --              --                --                --
    President and Chief Executive             2001           --              --                --                --
    Officer                                   2000           --              --                --                --
</TABLE>

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

                                       27
<PAGE>


OPTION GRANTS

       The following  table sets forth  certain  information  regarding  options
granted  during the fiscal  year ended  December  31, 2002 by Cadus to the Named
Executive Officers:

                        OPTION GRANTS IN LAST FISCAL YEAR

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


OPTION EXERCISES AND HOLDINGS

       The  following  table  sets forth  certain  information  concerning  each
exercise of stock options, during the fiscal year ended December 31, 2002 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, 2002(#)                 December 31, 2002($)
                                 Shares          Aggregate         --------------------------          --------------------------
                               Acquired on         Value
          Name                Exercise (#)      Realized ($)       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.

                                       28
<PAGE>


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

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

       During 2002,  there were no stock  options  granted  under the 1993 Stock
Option Plan.

       As of March 15, 2003, an aggregate of 163,405 shares of Common Stock were
subject to outstanding  stock options  granted under the 1993 Stock Option Plan.
As of March 15, 2003,  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
2002, there were no stock options granted  pursuant to stock option  agreements.
As of March 15,  2003,  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

                                       29
<PAGE>


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

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

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

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

       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.

                                       30
<PAGE>


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

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

       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.

                                       31
<PAGE>


       As of March 15,  2003,  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, 2003,  stock options to purchase  9,167 shares were  exercisable at
prices ranging from $6.38 to $6.63 per share.

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

    INTRODUCTION

       The  Compensation  Committee  of the  Board  of  Directors  of  Cadus  is
responsible  for  determining  and  administering  the  Company's   compensation
policies for the remuneration of Cadus's  officers.  The Compensation  Committee
annually evaluates  individual and corporate  performance from both a short-term
and long-term  perspective.  In 2002, Cadus had no officers other than its Chief
Executive Officer who served in such capacity without compensation. Accordingly,
the following report of the Compensation Committee is not directly applicable to
calendar year 2002 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.

                                       32
<PAGE>


       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 Company's Chief Executive Officer
in 2002, Russell D. Glass, served in such capacity without  compensation and the
current Chief  Executive  Officer,  Michele  Paige,  is serving in such capacity
without compensation.

       Peter Liebert
       Jack G. Wasserman

                                       33
<PAGE>


COMPARATIVE STOCK PERFORMANCE GRAPH


         The  following  graph  provides a comparison  of the  cumulative  total
return* for the Nasdaq Stock Market (US) Index, the Nasdaq  Biotechnology  Index
and Cadus since December 31, 1997

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

                               [LINE CHART OMITTED]

* $100 Invested on 12/31/97 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:

<TABLE>
<CAPTION>
                                       12/31/97  12/31/98    12/31/99    12/31/00    12/31/01   12/31/02
                                       --------  --------    --------    --------    --------   --------
<S>                                     <C>       <C>         <C>         <C>         <C>         <C>
Cadus                                   100.00     30.39        4.91       11.28       18.35      17.10
Nasdaq Stock Market (U.S.) Index        100.00    140.99      261.48      157.42      124.89      86.34
Nasdaq Biotechnology Index              100.00    156.02      359.99      450.07      376.78     234.15
Cadus Closing Stock Price                $6.375     1.938       0.31        0.72        1.17       1.09
</TABLE>

                                       34
<PAGE>


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

       The  following  table  sets  forth  certain  information   regarding  the
beneficial  ownership  of the Common  Stock as of March 15, 2003 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.


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

Bristol-Myers Squibb....................          1,232,500           9.38%
    345 Park Avenue
    New York, New York 10154

Jay D. Johnson .........................          663,140(4)          5.05%
    525 Buckingham Place
    Downers Grove, IL 60516

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

James R. Broach.........................                 --             *

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

Peter S. Liebert, M.D...................           20,334(6)            *

Michele Paige...........................               ----             *

Jack G. Wasserman.......................           14,500(7)            *

All executive officers and directors ...        5,007,992(8)         37.99%
    as a group (6 persons)

----------
     * Less than one percent

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

(2)    Share  ownership in the case of each person listed above includes  shares
       issuable upon the exercise of options held by such person as of March 15,
       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 and 1,599,942  shares of Common Stock held by Barberry Corp..
       Mr. Icahn is the sole


                                       35
<PAGE>


       shareholder  of Barberry  Corp.  and Barberry  Corp.  is the sole general
       partner of High River Limited Partnership. Also includes 12,000 shares of
       Common Stock that Mr. Icahn  currently  has the right to acquire upon the
       exercise of stock options.

(4)    Jay  Johnson has shared  voting  power and shared  investment  power with
       respect to 663,140 shares of Common Stock,  Lakeshore  Capital,  Inc. has
       shared voting power and  investment  power with respect to 551,240 shares
       of Common  Stock,  and Aqua Fund L.P. has shared  voting power and shared
       investment  power with respect to 228,100 shares of Common Stock.  Jay D.
       Johnson  is the  President  of  Lakeshore  Capital,  Inc.  and  Lakeshore
       Capital, Inc. is the general partner of Aqua Fund L.P.

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

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

       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, 2002:

<TABLE>
<CAPTION>
                                            (a)                        (b)                               (c)
------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                         <C>                             <C>
Plan Category                       Number of                   Weighted-average                Number of securities
                                    securities to be            exercise price of               remaining available for
                                    issued upon                 outstanding options,            future issuance under
                                    exercise of                 warrants and rights             equity compensation
                                    outstanding options,                                        plans (excluding
                                    warrants and rights                                         securities reflected in
                                                                                                column (a))
------------------------------------------------------------------------------------------------------------------------
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>

                                       36
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

ITEM 14.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Based on the  evaluation of the  Company's  disclosure  controls and  procedures
conducted  within 90 days of the date of filing this annual report on Form 10-K,
the Company's President and Chief Executive Officer, who also performs functions
similar to those of a principal financial officer,  concluded that the Company's
disclosure   controls  and  procedures  (as  defined  in  Rules   13a-14(c)  and
15(d)-14(c)   promulgated  under  the  Securities  Exchange  Act  of  1934)  are
effective.

CHANGES IN INTERNAL CONTROLS

There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their  evaluation,  nor were any  corrective  actions  required  with  regard to
significant deficiencies and material weaknesses.

                                     PART IV

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

(A)    FINANCIAL STATEMENTS                                             PAGE

       Index to Financial Statements                                     F-1

       Independent Auditors' Report                                      F-2

       Consolidated Financial Statements:
         Consolidated Balance Sheets                                     F-3
         Consolidated Statements of Operations                           F-4
         Consolidated Statements of Stockholders' Equity
           and Comprehensive Income
         Consolidated Statements of Cash Flows                           F-6
         Notes to Consolidated 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

                                       37
<PAGE>


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, 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)

                                       38
<PAGE>


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

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

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

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

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

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

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

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

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

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

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

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

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)

                                       39
<PAGE>


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

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

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

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

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

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

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

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

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

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

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

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

                                       40
<PAGE>


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).

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


----------

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

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

                                       41
<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/ Michele Paige
                                      ------------------------------------------
                                      Michele Paige, Chief Executive Officer
                                      and President

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

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

         Name                        Title                             Date

/s/ Michele Paige       Chief Executive Officer, President        March 28, 2003
--------------------    and Director
Michele Paige           (Principal Executive Officer and
                        Principal Accounting Officer)


/s/ James R. Broach     Director                                  March 28, 2003
--------------------
James R. Broach


/s/ Russell D. Glass    Director                                  March 28, 2003
--------------------
Russell D. Glass


                        Director                                  March __, 2003
--------------------
Carl C. Icahn


/s/ Peter S. Liebert    Director                                  March 28, 2003
--------------------
Peter S. Liebert


                        Director                                  March __, 2003
--------------------
Jack G. Wasserman

                                       42
<PAGE>


                            CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michele Paige,  President and Chief Executive Officer of Cadus Pharmaceutical
Corporation, certify that:

1.     I have reviewed  this annual report on Form 10-K of Cadus  Pharmaceutical
       Corporation;

2.     Based on my  knowledge,  this  annual  report does not contain any untrue
       statement of a material fact or omit to state a material  fact  necessary
       to make the statements  made, in light of the  circumstances  under which
       such  statements  were made,  not  misleading  with respect to the period
       covered by this annual report;

3.     Based on my knowledge,  the  financial  statements,  and other  financial
       information  included  in  this  annual  report,  fairly  present  in all
       material respects the financial condition, results of operations and cash
       flows of the  registrant  as of, and for,  the periods  presented in this
       annual report;

4.     The  registrant's  other  certifying  officers and I are  responsible for
       establishing  and  maintaining  disclosure  controls and  procedures  (as
       defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant  and
       we have:

       a)     designed such  disclosure  controls and  procedures to ensure that
              material  information  relating to the  registrant,  including its
              consolidated  subsidiaries,  is made known to us by others  within
              those entities particularly during the period in which this annual
              report is being prepared;

       b)     evaluated  the   effectiveness  of  the  registrant's   disclosure
              controls  and  procedure  as of a date within 90 days prior to the
              filing date of this annual report (the "Evaluation Date"); and

       c)     presented  in  this  annual  report  our  conclusions   about  the
              effectiveness  of the disclosure  controls and procedures based on
              our evaluation as of the Evaluation Date;

5.     The registrant's other certifying officers and I have disclosed, based on
       our most recent  evaluation,  to the registrant's  auditors and the audit
       committee of the registrant's  board of directors (or persons  performing
       the equivalent functions):

       a)     all  significant  deficiencies  in  the  design  or  operation  of
              internal  controls which could adversely  affect the  registrant's
              ability to record,  process,  summarize and report  financial data
              and have  identified  for the  registrant's  auditors any material
              weaknesses in internal controls; and

       b)     any fraud,  whether or not material,  that involves  management or
              other  employees who have a significant  role in the  registrant's
              internal controls; and

6.     The registrant's  other certifying  officers and I have indicated in this
       quarterly  report  whether  or not  there  were  significant  changes  in
       internal  controls or in other  factors that could  significantly  affect
       internal controls  subsequent to the date of our most recent  evaluation,
       including any corrective actions with regard to significant  deficiencies
       and material weaknesses.

Date:   March 28, 2003


                         /s/ Michele Paige
                         ----------------------------------------------
                         Michele Paige
                         President and Chief Executive Officer (Chief
                         Executive Officer and Chief Financial Officer)

                                       43

<PAGE>



                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY




                                      INDEX

                                                                        Page No.



Independent Auditors' Report                                                 F-2

Consolidated Financial Statements:

     Consolidated Balance Sheets - December 31, 2002 and 2001                F-3

     Consolidated Statements of Operations - For the years ended
       December 31, 2002, 2001 and 2000                                      F-4

     Consolidated Statements of Stockholders' Equity and Comprehensive
       Income - For the years ended December 31 2002, 2001 and 2000          F-5

     Consolidated Statements of Cash Flows - For the years ended
       December 31, 2002, 2001 and 2000                                      F-6

     Notes to Consolidated Financial Statements                              F-7

                                       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 as of December 31, 2002 and 2001 and
the related  consolidated  statements of  operations,  stockholders'  equity and
comprehensive  income,  and cash  flows for each of the years in the  three-year
period ended December 31, 2002. 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 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, 2002 and 2001, and the results of
its operations and its cash flows for each of the years in the three-year period
ended  December 31, 2002 in  conformity  with  accounting  principles  generally
accepted in the United States of America.



March 17, 2003

                                       F-2
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

                                   ==========

                                     ASSETS

                                                   December 31,    December 31,
                                                       2002            2001
                                                   ------------    ------------


Current assets:
  Cash and cash equivalents                        $ 24,923,071    $ 24,469,357
  License fee receivable                                     --         500,000
  Prepaid and other current assets                       79,053          75,000
  Investment in marketable securities - restricted      794,603              --
                                                   ------------    ------------


         Total current assets                        25,796,727      25,044,357

Investment in other ventures                            164,922         165,614
Other assets, net                                       908,841         990,622
                                                   ------------    ------------

             Total assets                           $26,870,490     $26,200,593
                                                   ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accrued expenses and other current
     liabilities                                   $    227,810    $     95,032
   Arbitration settlement                                    --         750,000
  Deferred gain on exchange of equity interest          184,833              --
                                                   ------------    ------------

             Total current liabilities                  412,643         845,032
                                                   ------------    ------------

Commitments (note 14)

Stockholders' equity:
  Common stock, $.01 par value. Authorized
    35,000,000 shares at December 31, 2002
    and 2001; issued 13,285,707 shares at
    December 31, 2002 and 2001; outstanding
    13,144,040 shares at December 31, 2002
    and 2001                                            132,857         132,857
  Additional paid-in capital                         59,844,355      59,844,355
  Accumulated deficit                               (33,005,871)    (34,321,576)
  Accumulated other comprehensive loss                 (213,419)             --
  Treasury stock, 141,667 shares of common
    stock at December 31, 2002 and 2001                (300,075)       (300,075)
                                                   ------------    ------------

         Total stockholders' equity                  26,457,847      25,355,561
                                                   ------------    ------------

         Total liabilities and stockholders'
           equity                                  $ 26,870,490    $ 26,200,593
                                                   ============    ============

See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                           For the Years Ended December 31,

                                             2002         2001          2000
                                         -----------  -----------   -----------

License and maintenance fees             $ 1,100,000  $   600,000   $   978,500
                                         -----------  -----------   -----------
            Total revenues                 1,100,000      600,000       978,500
                                         -----------  -----------   -----------
Costs and expenses
  General and administrative                 885,406    1,079,614     1,652,067
  (Gain) loss in equity in
    other ventures                               692       (3,086)      837,062
  Gain on sale of equipment                       --           --      (100,000)
                                         -----------  -----------   -----------

            Total costs and expenses         886,098    1,076,528     2,389,129
                                         -----------  -----------   -----------

Operating gain (loss)                        213,902     (476,528)   (1,410,629)
                                         -----------  -----------   -----------

Other income (expenses):
  Interest income                            335,614      837,639       638,954
  Gain on reversal of litigation
    judgment, net of legal fees                   --      125,616    18,841,489
  Arbitration settlement                          --     (750,000)           --
  Realized gain on marketable securities     823,189           --            --
                                         -----------  -----------   -----------

            Total other income, net        1,158,803      213,255    19,480,443
                                         -----------  -----------   -----------

Income (loss) before income tax provision  1,372,705     (263,273)   18,069,814

State tax provision                           57,000       53,579        18,419
                                         -----------  -----------   -----------

            Net income (loss)            $ 1,315,705  $  (316,852)  $18,051,395
                                         ===========  ===========   ===========
Basic and diluted net income (loss)
  per share                              $      0.10  $      (.02)  $      1.37
                                         ===========  ===========   ===========
Weighted average shares of common
  stock outstanding - basic and
  diluted                                 13,144,040   13,144,040    13,133,615
                                         ===========  ===========   ===========


See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME


<TABLE>
<CAPTION>
                                                                                   Accumulated
                                                      Additional                      Other
                                    Common Stock        Paid-in      Accumulated  Comprehensive    Treasury Stock
                                 Shares     Amount      Capital        Deficit    Income (Loss)  Shares      Amount        Total
                               ----------  --------  ------------   ------------  ------------- --------   ---------   ------------
<S>                            <C>         <C>        <C>           <C>             <C>         <C>        <C>           <C>
Balance at January 1, 2000     13,210,607  $132,106   $59,689,446   $(52,056,119)   $      --   (141,667)  $(300,075)    $7,465,358

Issuance of common stock
   in connection with
   exercise of options             75,100       751       154,909             --           --         --          --        155,660

Net income for 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

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

Unrealized loss on investment
  in marketable securities             --        --            --             --     (213,419)        --          --       (213,419)
                                                                                                                       ------------

Comprehensive income                                                                                                      1,102,286
                               ----------  --------  ------------   ------------    ---------   --------   ---------   ------------
Balance at December 31, 2002   13,285,707  $132,857   $59,844,355   $(33,005,871)   $(213,419)  (141,667)  $(300,075)   $26,457,847
                               ==========  ========  ============   ============    =========   ========   =========   ============
</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,
                                                      2002            2001            2000
                                                   -----------     -----------     -----------
<S>                                                <C>             <C>             <C>
Cash flows from operating activities:
Net income (loss)                                  $ 1,315,705     $  (316,852)    $18,051,395
Adjustments to reconcile net income (loss)
  to net cash provided by (used in)
  operating activities:
  Depreciation and amortization                         80,906          80,905          80,905
  Loss (gain) of equity in other ventures                  692          (3,086)        837,062
  (Gain) on sale of equipment                               --              --        (100,000)
Realized gain on marketable securities                (823,189)             --              --
Changes in assets and liabilities:
  Decrease (increase) in license fee receivable        500,000        (500,000)             --
  (Increase) decrease in prepaid and
    other current assets                                (4,053)          6,250         (11,467)
  Decrease in other assets                                 875          10,000          11,126
  Decrease in deferred revenue                              --              --         (28,500)
  Decrease in litigation damages                            --              --     (19,065,431)
  Decrease in accounts payable                              --              --         (17,644)
  (Decrease) increase in accrued expenses
    and other current liabilities                     (617,222)        808,788         (85,599)
                                                   -----------     -----------     -----------
Net cash provided by (used in)
  operating activities                                 453,714          86,005        (328,153)
                                                   -----------     -----------     -----------
Cash flows from investing activities:
  Proceeds from sale of patents
    and fixed assets                                        --              --         100,000
  Decrease in restricted cash                               --              --      19,078,997
                                                   -----------     -----------     -----------

 Net cash provided by investing activities                  --              --      19,178,997
                                                   -----------     -----------     -----------
Cash flows from financing activities:
   Proceeds from issuance of common stock
    upon exercise of stock options                          --              --         155,660
   Decrease in due from officer
    and director                                            --              --         294,636
                                                   -----------     -----------     -----------

Net cash provided by financing activities                   --              --         450,296
                                                   -----------     -----------     -----------

Net increase in cash and cash equivalents              453,714          86,005      19,301,140


Cash and cash equivalents -
  beginning of period                               24,469,357      24,383,352       5,082,212
                                                   -----------     -----------     -----------

Cash and cash equivalents -
  end of period                                    $24,923,071     $24,469,357     $24,383,352
                                                   ===========     ===========     ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

(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).

       At  December  31,  2002,  Cadus  and the  Subsidiary  (collectively,  the
       "Company") had an accumulated deficit of approximately $33.0 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 2004. 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;  the  transactions,  if any,  arising  from  the  Company's
       efforts to acquire or invest in companies or income producing assets; and
       the expenses of pursuing such transactions.

(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.


                                       F-7
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

       (b)    Cash Equivalents

              The  Company  includes  as  cash  equivalents  all  highly  liquid
              investments with original  maturities of three months or less when
              purchased  to be  cash  equivalents.  Included  in cash  and  cash
              equivalents at December 31, 2002 and 2001 were cash equivalents of
              $22,757,378 and $22,439,259, respectively.

       (c)    Other Assets

              Other non-current assets consists of capitalized patent costs that
              are  amortized on a  straight-line  basis over fifteen  years.  At
              December 31, 2002 and 2001  accumulated  amortization  is $470,178
              and  $389,272,  respectively.  Amortization  expense  amounted  to
              approximately  $81,000  for each of the years  ended  December  31
              2002,  2001 and 2000.  The annual  amortization  for the next five
              years will be approximately $81,000 per year.

       (d)    Income Taxes

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

       (e)    Revenue Recognition

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

       (f)    Net Income (Loss) Per Share

              Basic net income  (loss) per share as of December 31,  2002,  2001
              and 2000 is  computed  by  dividing  the net income  (loss) by the
              weighted  average  number of common  shares  outstanding.  Diluted
              earnings per share is calculated  based on the weighted average of
              common shares outstanding plus the effect of dilutive common stock
              equivalents (stock options).  The effect of stock options totaling
              609,309,  609,309 and 719,976 at December 31, 2002, 2001 and 2000,
              respectively, were not included in the net income (loss) per share
              calculation because their effect would have been anti-dilutive.

       (g)    Use of Estimates

              The  preparation  of  financial   statements  in  conformity  with
              accounting  principles  generally accepted in the United States of
              America requires management to make estimates and


                                       F-8
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

              assumptions  that  affect  the  reported  amounts  of  assets  and
              liabilities and disclosure of contingent assets and liabilities at
              the date of the consolidated financial statements and the reported
              amounts of revenues  and  expenses  during the  reporting  period.
              Actual results could differ from those estimates.

       (h)    Fair Value of Financial Instruments

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

       (i)    Stock-Based Compensation

              The Company applies the intrinsic-value-based method of accounting
              prescribed  by Accounting  Principles  Board (APB) Opinion No. 25,
              ACCOUNTING   FOR  STOCK   ISSUED   TO   EMPLOYEES,   and   related
              interpretations  including FASB  Interpretation No. 44, ACCOUNTING
              FOR  CERTAIN   TRANSACTIONS   INVOLVING  STOCK  COMPENSATION,   AN
              INTERPRETATION  OF APB  OPINION NO. 25,  issued in March 2000,  to
              account  for its  fixed-plan  stock  options.  Under this  method,
              compensation  expense is recorded on the date of grant only if the
              current market price of the underlying stock exceeded the exercise
              price. Statement of Financial Accounting Standards (SFAS) No. 123,
              ACCOUNTING FOR STOCK-BASED  COMPENSATION,  established  accounting
              and disclosure  requirements  using a  fair-value-based  method of
              accounting for stock-based employee compensation plans. As allowed
              by SFAS No. 123,  the Company has elected to continue to apply the
              intrinsic-value-based  method of accounting  described  above, and
              has adopted only the disclosure  requirements of SFAS No. 123. Pro
              forma net  income  (loss)  would be the same as the  reported  net
              income (loss) for each of the years in the three-year period ended
              December 31, 2002 had the fair-value-based  method been applied to
              all outstanding awards, which were fully vested as of December 31,
              1999.

       (j)    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  in  2002  gave  rise  to  an
              unrealized loss on marketable  securities  classified as available
              for sale.

       (k)    Recent Accounting Pronouncements

              In June 2001, the Financial Accounting Standards Board issued SFAS
              No. 141,  "Business  Combinations" and SFAS No. 142, "Goodwill and
              Other  Intangible  Assets." SFAS No. 141 addresses the  accounting
              for  acquisitions of businesses and is effective for  acquisitions
              occurring  on or after July 1,  2001.  SFAS No 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.  SFAS No. 142 also  requires that  intangible  assets with
              determinable  useful  lives be  amortized  over  their  respective
              estimated

                                      F-9
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========



              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  Long-Lived  Assets  to be
              Disposed of." SFAS No. 142 is effective for fiscal years beginning
              after  December 15, 2001.  Pursuant to the  provisions of SFAS No.
              142 the Company has reassessed the useful lives of the capitalized
              patent costs reflected in the accompanying balance sheets as other
              assets.  The  adoption  of SFAS No.  141 and  SFAS No.  142 had no
              effect  on  the  Company's   financial   position  or  results  of
              operations.

              In August 2001, the FASB issued SFAS No. 144,  "Accounting for the
              Impairment or Disposal of Long-Lived Assets" which supercedes SFAS
              No. 121,  "Accounting for the Impairment of Long-Lived  Assets and
              for Long-Lived  Assets to be Disposed Of." SFAS No. 144 provides a
              single  accounting  model for long-lived  assets to be disposed of
              and is effective  for fiscal years  beginning  after  December 15,
              2001.  There was no impact on the Company's  financial  statements
              from the adoption of SFAS No.144 as of January 1, 2002.

(3)    Asset Sale to OSI Pharmaceuticals

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

(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


                                      F-10
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

       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.  The Company paid the
       arbitration settlement during 2002.

(5)    Fixed Assets

       During fiscal year 2000, after having sold a majority of its fixed assets
       to OSI and writing off its fixed assets in 1999, 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 on sale of
       equipment on the statements of operations.

(6)    Investments in Other Ventures

       In  December  1996,  Cadus  issued a  $150,000  promissory  note  bearing
       interest  at 7% per  annum  in  exchange  for a 42%  limited  partnership
       interest in Laurel Partners  Limited  Partnership  ("Laurel"),  a limited
       partnership of which a shareholder of Cadus is the general  partner.  The
       principal  amount and  interest  thereon  was paid in December  1998.  In
       addition, Cadus purchased for $160,660 in cash, a 47% limited partnership
       interest in Laurel from Tortoise Corporation,  a corporation wholly-owned
       by  the  shareholder.   Laurel's  purpose  is  to  invest,   directly  or
       indirectly, in securities of biotechnology companies. Cadus had the right
       to require the  shareholder to match any future  investment made by Cadus
       in Laurel up to an aggregate investment on the part of the shareholder of
       $5.0  million.  This right  expired on December  31,  1999.  Cadus is not
       required to make any additional  investment in Laurel.  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, 2002, 2001 and 2000 Cadus recognized gains (losses) of ($692), $3,086
       and  ($2,649),  respectively,  related to the  investment.  The remaining
       investment  in


                                      F-11
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

       Laurel  of  $164,922   and  $165,614  at  December  31,  2002  and  2001,
       respectively, is included in investments in other ventures on the balance
       sheet.

       Cadus had an equity interest in Axiom  Biotechnologies,  Inc.  ("Axiom").
       Due to Axiom's operating losses,  Cadus's  investment was written down to
       zero as of December  31,  2000.  On August 30, 2002 Axiom  entered into a
       merger  agreement  with a  wholly  owned  subsidiary  of  Sequenom,  Inc.
       ("Sequenom")  whose  shares of common  stock are  publicly  traded on the
       Nasdaq National  Market.  Pursuant to the merger,  Cadus received 441,446
       common shares of Sequenom with a fair market value of $2.43 per share, in
       exchange  for its shares of Axiom.  Pursuant  to the  merger,  102,685 of
       Cadus's 441,446 common shares of Sequenom are held in escrow (the "Escrow
       Shares")  for a one-year  period.  The  Escrow  Shares are held to secure
       rights to indemnification, compensation and reimbursement of Sequenom and
       other indemnitees as provided in the merger  agreement.  Upon the closing
       of the transaction, Cadus recorded a realized gain of $823,189 related to
       the 338,761  common  shares  received in the  consolidated  statement  of
       operations  for  the  year  ended  December  31,  2002.  The  Company  is
       restricted  from  selling the shares for a period of one year from August
       30,  2002.  The value of the Escrow  Shares  received  was  recorded as a
       deferred  gain  on  exchange  of  equity  interests  in the  accompanying
       consolidated  balance sheets.  Pursuant to the provisions of Statement of
       Financial  Accounting Standards No. 115, "Accounting for Certain Debt and
       Equity  Securities,"  management  deems its  investment in Sequenom to be
       available  for sale and  reports  its  investment  at fair value with net
       unrealized  gains or losses reported  within  shareholders'  equity.  The
       Company's  unrealized loss of $213,419 on shares received is reflected in
       accumulated  other  comprehensive  income (loss) as of December 31, 2002.
       The Company's unrealized loss of $64,692 on Escrow Shares is reflected as
       an offset to the  deferred  gain on  exchange of equity  interests  as of
       December 31, 2002.

(8)    Income Taxes

       Deferred  tax assets of  approximately  $15,011,000  and  $15,554,000  at
       December  31,  2002 and 2001,  respectively,  relate  principally  to net
       operating loss carryforwards of $28,296,000 and $27,990,000, research and
       development credit carryforwards of $2,535,000 and $2,535,000, and equity
       losses on  investments  of $3,177,000 and $4,000,000 at December 31, 2002
       and  2001,  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
       $543,000 and $230,000  during the year ended  December 31, 2002 and 2001,
       respectively.

       The  Company's  net  operating  loss   carryforwards   and  research  and
       development credit carryforwards noted above expire in various years from
       2009 to 2022.  The Company's  ability to utilize such net operating  loss
       and research and development  credit  carryforwards is subject to certain
       limitations  due to ownership  changes,  as defined by rules enacted with
       the Tax Reform Act of 1986.  The  Company's  tax  provision for each year
       represents  a  minimum  New  York  state  tax on  capital.  There  was no
       provision for income taxes in 2002,  2001 and 2000 as taxable  income was
       offset by the  utilization of the Company's  available net operating loss
       carryforwards for Federal and state purposes.

(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


                                      F-12
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

       as revenue in the accompanying  consolidated  statement of operations for
       the  year  ended  December  31,  2001  as  the  Company  has  no  further
       involvement with the development of the product.  The subsidiary received
       an  additional  licensing  fee of  $1,000,000  in  October  2002 when the
       licensee achieved a research  milestone.  The licensee is entitled to use
       the  technologies  for five years.  Following the initial five year term,
       the  licensee  may renew the license  annually  upon payment of an annual
       licensing  fee of  $250,000.  For the years ended  December  31, 2002 and
       2001, the Company recognized  $1,000,000 and $500,000,  respectively,  in
       license revenue from the licensee.

       In February 2000,  Cadus licensed to OSI, on a non-exclusive  basis,  its
       yeast-based drug discovery  technologies,  including various reagents and
       its  library  of  over  30,000  yeast  strains,  and  its  bioinformatics
       software.  OSI paid to Cadus a license fee of $100,000  and an access fee
       of  $600,000,  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 earlier of 2010 or the  termination of the license
       and a  supplemental  license fee of  $250,000  which was paid in December
       2000 after the lifting of the  injunction  obtained by SIBIA and recorded
       as license fee revenue.  OSI may  terminate the license at any time on 30
       days prior written  notice.  For the years ended December 31, 2002,  2001
       and  2000,  the  Company  recognized  $100,000,  $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.

(11)   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,  2002,  2001 and 2000 were
       $25,000, $25,000 and $48,194, respectively.

(12)   Stock Options

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


                                      F-13
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

              nonqualified  options.  An aggregate of 666,667 common shares were
              reserved for issuance under the 1993 Plan.

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

                                      F-14
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

       Activity under the 1993 Plan is as follows:

                                                        Options Outstanding

                                                     Number          Weighted
                                                       of            Average
                                                     Shares       Exercise Price
                                                    --------      --------------
       Balance at January 1, 2000                    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

       2002 activity
          Granted                                         --             --
          Exercised                                       --             --
          Canceled                                        --             --
                                                    --------
       Balance at December 31, 2002                  276,739          $1.52
                                                    ========

       At December 31, 2002, the range of exercise  prices and  weighted-average
       remaining  contractual life of outstanding options was $1.37 to $3.51 and
       .63 years, respectively.

       At December  31,  2002 and 2001,  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, 2002:

                                      F-15
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

<TABLE>
<CAPTION>
                                              Options Outstanding           Options Exercisable
                                          ---------------------------    ------------------------
                                              Weighted       Weighted                    Weighted
                                              Average        Average                      Average
           Range of            Number        Remaining       Exercise       Number       Exercise
       Exercise Prices      Outstanding   Contractual Life    Price      Exercisable      Price
       ---------------      -----------   ----------------   --------    -----------      -----
<S>                           <C>               <C>           <C>           <C>           <C>
       $1.37 to $1.50         270,072           .63           $1.47         270,072       $1.47
            $3.51               6,667           .50           $3.51           6,667       $3.51
                              -------                                       -------

       $1.37 to $3.51         276,739           .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,  2002,  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 fully exercisable and expires in November 2006.

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

                                                       Options Outstanding
                                                    Number         Weighted
                                                      of           Average
                                                    Shares      Exercise Price
                                                   -------      --------------
       Balance at January 1, 2000                   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

       2002 activity
         Granted                                         --            --
         Exercised                                       --            --
         Canceled                                        --            --
                                                    -------

       Balance at December 31, 2002                 323,403         $2.42
                                                    =======

                                      F-16
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

       At December 31, 2002, the range of exercise  prices and  weighted-average
       remaining  contractual life of outstanding options was $1.50 to $6.75 and
       2.22 years, respectively.

       At December  31,  2002 and 2001,  the number of options  exercisable  was
       323,403,  and the  weighted-average  exercise  price of those options was
       $2.42.

       The following table  summarizes  stock option  information for grants not
       subject to any plan as of December 31, 2002:

<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                2.97            $3.60           22,069          $3.60
           $6.75                48,000                3.88            $6.75           48,000          $6.75
                              --------                                               -------
       $1.50 to $6.75          323,403                2.22            $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-17
<PAGE>


                 CADUS PHARMACEUTICAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

                                   ==========

       Activity under the 1996 Plan is as follows:

                                                        Options Outstanding

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

       Balance at January 1, 2000                    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

        2002 activity
          Granted                                         --           --
          Exercised                                       --           --
          Canceled                                        --           --
                                                    --------

           Balance at December 31, 2002                9,167        $6.56
                                                    ========

       At December 31, 2002, the range of exercise  prices and  weighted-average
       remaining  contractual life of outstanding options was $6.38 to $6.63 and
       4.24 years, respectively.

       At December  31,  2002 and 2001,  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, 2002:

<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                   4.24            $6.56              9,167            $6.56
</TABLE>

                                      F-18
<PAGE>


(13)   Accrued Expenses and Other Current Liabilities

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

                                                     2002          2001
                                                   --------       -------
       Accrued professional fees                    203,943       $75,608
       Other accrued expenses and taxes              23,867        19,424
                                                   --------       -------
       Total                                       $227,810       $95,032
                                                   ========       =======

(14)   Commitments

       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, 2002, 2001 and 2000 amounted to approximately $6,370, $5,000
       and $5,000, respectively.


       Employment Agreement

       Dr. Charles 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)   Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
       Fiscal 2002 Quarter Ended         December 31     September 30       June 30          March 31
<S>                                      <C>               <C>             <C>             <C>
       License and maintenance fees       $1,000,000       $      --       $      --       $ 100,000
       Operating income (loss)               848,275        (194,235)       (277,110)       (163,028)
       Net income (loss)                     864,886         710,770        (191,491)        (68,460)
       Net income (loss) per share:
          Basic and diluted                     0.07            0.05           (0.01)          (0.01)


       Fiscal 2001 Quarter Ended         December 31     September 30       June 30          March 31

       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-19