SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _________
Commission File No. 0-19844
PARACELSIAN, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 16-1399565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Langmuir Laboratories, Cornell Technology Park,
Ithaca, New York 14850
(Address of principal executive offices) Zip Code
Issuer's telephone number: (607) 257-4224
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 ____
There were 10,132,215 shares of Common Stock and 2,042,870 Redeemable
Common Stock Purchase Warrants outstanding at April 26, 1996.
Paracelsian, Inc.and Subsidiary
Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996 (Unaudited)
and September 30, 1995 (Audited).
Consolidated Statements of Operations for the three months and
six months ended March 31, 1996 and 1995 and the period
from inception (April 15, 1991) to March 31, 1996 (Unaudited).
Consolidated Statements of Stockholders' Equity for the period
from inception (April 15, 1991) to March 31, 1996 (Unaudited).
Consolidated Statements of Cash Flows for the six months
ended March 31, 1996 and 1995 and the period from
inception (April 15, 1991) to March 31, 1996 (Unaudited).
Notes to Consolidated Financial Statements (Unaudited).
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
PART II - OTHER INFORMATION
Other Information
Signatures
Exhibit 27 Financial Data Schedule
Paracelsian, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheets
March 31, September 30,
1996 1995
Assets (Unaudited) (Audited)
Current Assets:
Cash and cash equivalents $1,834,124 $1,416,022
Accounts receivable 6,174 3,141
Other current assets 214,996 143,014
------------- -------------
Total current assets 2,055,294 1,562,177
------------- -------------
Equipment, net 453,004 456,555
------------- -------------
Other Assets:
TCM extracts on-hand 760,884 778,014
Licensing agreement, net 615,501 678,446
Patents and trademarks, net 217,019 209,169
Purchase Price of Nutrition Advocate,
and other assets 380,846 0
------------- -------------
1,974,250 1,665,629
------------- -------------
$4,482,548 $3,684,361
============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $85,500 $539,084
Due to related party 137,261 137,261
Accrued expenses 82,561 65,328
------------ -------------
Total current liabilities 305,322 741,673
------------ -------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized;
Series A-10,700 shares September 1995 0 107
Series B-10,000 shares September 1995 0 100
Series C-5,000 shares September 1995 0 50
Common stock, $.01 par value;
20,000,000 shares authorized;
10,132,215 shares March 1996
and 4,901,584 September 1995 101,322 49,016
Additional paid-in capital 15,881,729 11,742,899
Deficit accumulated during
the development stage (10,465,965) (8,848,484)
Treasury stock, at cost;
265,478 shares at March 31, 1996 (1,339,860) 0
------------- -------------
Total stockholders' equity 4,177,226 2,942,688
------------- -------------
$4,482,548 $3,684,361
============= =============
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
Paracelsian, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Operations
For the three months and six months ended March 31, 1996 and 1995,
And the period from inception to March 31, 1996
(Unaudited)
Cumulative
Period from
Three Months Ended Six Months Ended Inception to
March 31, March 31, March 31,
1996 1995 1996 1995 1996
Sales:
Marketing rights $0 $249,995 $0 $249,995 $249,995
Products 12,963 15,861 20,306 34,640 155,708
Subscription revenues 3,487 0 3,636 0 3,636
------------ ------------ ------------ ------------ ------------
16,450 265,856 23,942 284,635 409,339
Cost of products sold 6,717 13,573 10,538 18,285 95,023
------------ ------------ ------------ ------------ ------------
Gross profit 9,733 252,283 13,404 266,350 314,316
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and product engineering 323,022 66,579 566,864 133,389 4,461,827
Research concerning Indian herbs 0 0 0 0 375,000
Newsletter expenses 180,087 0 197,726 0 197,726
General and administrative 570,668 409,401 904,578 602,165 4,288,741
Officer stock compensation 0 1,228,275 0 1,228,275 1,228,275
------------ ------------ ------------ ------------ ------------
1,073,777 1,704,255 1,669,168 1,963,829 10,551,569
------------ ------------ ------------ ------------ ------------
Loss from operations during
the development stage (1,064,044) (1,451,972) (1,655,764) (1,697,479) (10,237,253)
Interest income, net 1,785 (125) 39,283 295 271,288
Net loss during the ------------ ------------ ------------ ------------ ------------
development stage $(1,062,259) $(1,452,097) $(1,616,481) $(1,697,184) $(9,965,965)
============ ============ ============ ============ ============
Net loss per common and
common equivalent share $(0.13) $(0.37) $(0.20) $(0.48)
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding 8,188,655 3,958,137 8,188,655 3,507,485
============ ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements.
Paracelsian, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the period from Inception to March 31, 1996
Deficit
Accumulated
Additional During the
Preferred Stock Common Stock Paid-In Development Treasury
Shares Amount Shares Amount Capital Stage Stock Total
-------- ------ ---------- -------- ----------- ------------ ------------ ------------
Issuance of Common Stock
April - July 1991 806,250 $8,063 $8,063
Issuance of Common Stock
for licensing,technology,
consulting services July,1991 333,850 3,338 3,338
Private placement of Common Stock
August,September 1991, net of costs 267,288 2,673 369,017 371,690
Net loss (April 15, 1991 to
September 30, 1991) (133,469) (133,469)
-------- ------ ---------- -------- ----------- ------------- ------------ ----------
BALANCE, September,1991 0 0 1,407,388 14,074 369,017 (133,469) 249,622
Redemption of Common Stock
November 1991 (245,000) (2,450) (2,450)
Initial Public Offering
February 1992, net of costs 1,150,000 11,500 5,103,451 5,114,951
Issuance of Warrants,
February 1992 1,000 1,000
Net loss September,1992 (1,221,943) (1,221,943)
-------- ------ ---------- -------- ----------- ------------- ------------ ------------
BALANCE, September,1992 0 0 2,312,388 23,124 5,473,468 (1,355,412) 4,141,180
Warrant dividend,September 1993 436,898 (500,000) (63,102)
Net loss September,1993 (2,022,614) (2,022,614)
-------- ------ ---------- -------- ----------- ------------- ------------ ------------
BALANCE, September,1993 0 0 2,312,388 23,124 5,910,366 (3,878,026) 2,055,464
Net loss September,1994 (1,940,262) (1,940,262)
-------- ------ ---------- -------- ----------- ------------- ------------ ------------
BALANCE, September,1994 0 0 2,312,388 23,124 5,910,366 (5,818,288) 115,202
Issuance of Common Stock for
acquisition of Pacific
Liaisons October,1994 1,116,666 11,167 1,632,833 1,644,000
Exercise of Warrants 221,200 2,212 716,644 718,856
Common Stock purchase by Officer
January,1995 705,000 7,050 1,311,075 1,318,125
Issuance of Common Stock
for services rendered
January 1995 33,330 333 21,167 21,500
April 1995 200,000 2,000 373,000 375,000
Issuance of Common Stock for
conversion of liabilities,June,1995 13,000 130 48,849 48,979
Issuance of Common Stock,August 1995 300,000 3,000 749,625 752,625
Issuance of Preferred Stock
September,1995
Series A, net of costs 10,700 107 361,018 361,125
Series B, net of costs 10,000 100 399,900 400,000
Series C, net of costs 5,000 50 218,422 218,472
Net loss September,1995 (3,031,196) (3,031,196)
-------- ------ ---------- -------- ----------- ------------- ------------ ------------
BALANCE, September,1995 25,700 257 4,901,584 49,016 11,742,899 (8,849,484) 2,942,688
(Unaudited)
Issuance of Preferred Stock
Series B, net of costs 76,651 767 3,999,233 4,000,000
Exercise of Warrants 47,818 478 154,931 155,409
Purchase of Treasury Stock
November,1995 (265,478) (2,655) (1,339,860) (1,342,515)
Conversion of Preferred
Stock (102,351) (1,024) 5,420,791 54,208 (53,184) 0
Issuance of Common Stock
for services rendered,
January, 1996 2,500 25 9,975 10,000
Issuance of Common Stock for
conversion of liabilities,
February, 1996 25,000 250 27,875 28,125
Net loss (six months ended
March 31, 1996) (1,616,481) (1,616,481)
BALANCE,March,1996 0 $0 10,132,215 $101,322 $15,881,729 $(10,465,965) $(1,339,860) $4,177,226
======== ====== ========== ======== =========== ============= ============ ============
Paracelsian, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the six months ended March 31, 1996 and 1995
And the Period From Inception to March 31, 1996
(Unaudited)
Six Months Ended Inception to
March 31, March 31, March 31,
1996 1995 1996
------------ ------------ --------------
Cash flows from operating activities:
Net loss $(1,616,481) $(1,697,184) $(1,616,481)
Adjustments to reconcile net loss to net cash
(used in)provided by operating activities:
Non-cash compensation expense 0 1,228,275 1,228,275
Other non-cash expenses 0 0 375,000
Depreciation and amortization 176,524 138,487 679,310
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (3,033) (9,337) 926
(Increase) decrease in other current assets (71,982) (13,294) (192,676)
Decrease in TCM extracts on-hand 17,130 0 57,130
(Decrease)Increase in accounts payable (453,582) (18,270) (373,992)
Increase in due to related party 0 223,819 137,261
Increase in accrued expenses 55,358 163,660 120,686
------------ ------------ --------------
Net cash (used in)provided by operating activities (1,896,066) 16,156 (7,186,061)
------------ ------------ --------------
Cash flows from investing activities:
Purchase of investments 0 0 (6,719,089)
Redemption of investments 0 0 6,719,089
Purchase of equipment (38,775) 0 (699,722)
Proceeds from sale of equipment 0 20,000 20,000
Acquisition of patents,trademarks and assets acquired (459,951) (98,773) (695,297)
------------ ------------ --------------
Net cash used in investing activities (498,726) (78,773) (1,375,019)
------------ ------------ --------------
Cash flows from financing activities:
Sale of common stock, initial public offering, net of costs 0 0 5,124,014
Sale of common and preferred stock, net of costs 4,000,000 17,905 6,101,462
Proceeds from the exercise of warrants 155,409 0 666,295
Purchase of treasury stock (1,342,515) 0 (1,342,515)
Cost of warrant dividend 0 0 (63,102)
Proceeds from short term borrowing,net 0 11,000 0
Payments on equipment contract 0 0 (90,950)
------------ ------------ --------------
Net cash provided by financing activities 2,812,894 28,905 10,395,204
------------ ------------ --------------
Net increase (decrease) in cash and cash equivalents 418,102 (33,712) 1,834,124
Cash and cash equivalents, beginning of period 1,416,022 49,629 0
------------ ------------ --------------
Cash and cash equivalents, end of period $1,834,124 $15,917 $1,834,124
============ ============ ==============
Supplemental disclosure:
Cash paid during the period for interest $7,019 $0 $14,944
============ ============ ==============
Supplemental disclosure of non-cash investing and financing
activities:
Fair value of assets acquired, net of cash acquired $0 $1,746,000 $1,746,000
Less - liabilities assumed 0 52,000 52,000
Less - issuance of common stock 0 1,644,000 1,644,000
------------ ------------- --------------
Net cash paid $0 $50,000 $50,000
============ ============== ==============
Warrant dividend $0 $0 $500,000
Issuance of common stock to reduce short-term liabilities $38,125 $248,000 $316,574
Purchase of equipment $0 $0 $90,950
Issuance of common stock - licensing,technology rights $0 $0 $3,338
============ ============ ==============
The accompanying notes to consolidated financial statements are an integral part of these statements.
Paracelsian, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 and 1995
1. MANAGEMENT REPRESENTATION:
The condensed consolidated financial statements included herein have been
prepared by Paracelsian, Inc. (the "Company") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission applicable to
quarterly reporting on Form 10-QSB and reflect, in the opinion of the Company,
all adjustments necessary to present fairly the financial information for
Paracelsian, Inc. and its consolidated subsidiary. All such adjustments are of
a normal and recurring nature. Certain information and footnote disclosures
normally included in financial statements, prepared in accordance with
generally accepted accounting principles, have been condensed or omitted as
permitted by such regulations. These consolidated financial statements and
related notes should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on
Form 10-KSB/A for the fiscal year ended September 30, 1995.
2. ORGANIZATION, BUSINESS, AND RISK FACTORS:
Organization and Business
The Company is a biotechnology company that markets and develops products from
technology related to the detection of signals from the exterior of a cell to
its nucleus (signal transduction). These signals result in the activation or
suppression of specific genes and culminate in cell division.
Cell division is the one of the basic steps in biology necessary for normal
growth of tissues to support life. The Company's technology enables researchers
to observe signal transduction and measure the effects of chemicals contained
in synthetic and natural compounds, such as herbal extracts, on cell division.
In the course of these observations, the Company can distinguish the effects of
such chemicals on targeted cells, thereby screening compounds to identify those
with promising therapeutic effects. (This proprietary technology, including the
components, methods, procedures and know-how employed in this screening process,
is referred to herein as the "Screening Technology".)
In October 1994, Pacific Liaisons, a partnership engaged in identifying and
acquiring biologically active drugs, natural products and foods from Eastern
Asia, merged with a wholly-owned subsidiary of the Company and the Company now
maintains a large library of natural medicinal extracts. These extracts are
being processed with the p34 screening assay. The Company also has access to
the informational database related to the medicinal extracts, which contains,
among other things, a history of the usage of each extract (see Note 5).
Development Stage Company and Risk Factors
The Company is a development stage company as defined in Statement of Financial
Accounting Standards No. 7, "Accounting and Reporting by Development Stage
Enterprises." Since inception, the Company has been primarily engaged in
research, product engineering and raising capital.
The Company, as a development stage enterprise, has yet to generate significant
revenues and has no assurance of substantial future revenues. Even if
marketing efforts are successful, it may take several years before significant
revenues are realized. The Company is subject to a number of risks that may
affect its ability to become an operating enterprise or impact its ability to
remain in existence, including risks related to successful development and
marketing of its products, patent protection of proprietary technology,
competition from substitute products (including technologies that may not yet
have been developed), dependence on key employees and the need to obtain
additional funds that may not be available to it.
As shown in the accompanying financial statements, the Company incurred a net
loss of approximately $1,062,000 for the six months ended March 31, 1996 and has
working capital of approximately $1,750,000 at that date. The Company
continues to expend funds on product research and development and general and
administrative expenses and has not generated significant revenues.
3. SIGNIFICANT ACCOUNTING POLICIES:
Inventories
Inventories are included in other current assets and are stated at the lower of
cost (first-in, first-out) or market. The major classifications of inventories
were as follows at March 31 and September 30:
March 31, September 30,
1996 1995
----------- -------------
Raw materials $ 60,037 $ 49,755
Finished Goods 2,500 2,500
----------- -------------
$ 62,537 $ 52,255
=========== =============
Net Loss Per Share
Net loss per share was computed by dividing net loss for the period by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period pursuant to the requirements of the Securities
and Exchange Commission Staff Accounting Bulletin No. 83 (using the treasury
stock method).
Management's Use of Estimates and Judgement
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilites and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4. PRIVATE PLACEMENT OF EQUITY SECURITIES:
In the period August through November 1995, the Company sold convertible
preferred and common stock through various private placements. The Company
sold 300,000 shares of common stock at $2.76 per share, 10,700 shares of its
Series A preferred stock at $37.50 per share, 86,651 shares of its Series B
preferred stock at an average price of $63.47 per share and 5,000 shares of its
Series C preferred stock at $50.00 per share. The net proceeds from these
issuances are and will continue to be used primarily to provide working capital
and fund future research and development.
Through February 1, 1996, all of the holders of the preferred shares had
converted such shares into common stock. The Company has issued 5,420,791
common shares to such holders in connection with such conversion and no
preferred shares remain outstanding.
5. ACQUISITIONS:
During November 1995, the Company, through its wholly-owned subsidiary,
purchased substantially all of the assets related to the Nutrition Advocate, a
newsletter promoting disease prevention through nutrition, from Advocacy
Communications, Inc. The purchase price for the acquired assets is $350,000,
which has been paid as of March 31, 1996. The purchase agreement provides for
contingent payments to be made to the China-Cornell Project, a non-profit
organization, based upon revenues to be generated by this subsidiary.
During October 1994, a wholly-owned subsidiary of the Company acquired Pacific
Liaisons for approximately $1.6 million in common stock. The acquisition has
been accounted for using the purchase method and the accompanying statement of
operations includes the results of operations of Pacific Liaisons from
October 25, 1994. The allocation of the purchase price reflected in the
accompanying balance sheet as of March 31, 1996 is based on an independent
appraisal of certain assets acquired which include traditional Chinese medicine
("TCM") extracts and a licensing agreement. The TCM extracts can be sold
outright or utilized in various research and development applications using the
Company's screening technology. The value of the TCM extracts at March 31, 1996
represents approximately 2,800 herbal extracts on hand. It is the Company's
intention to sell/license the extracts to established pharmaceutical and
biotechnology companies. Through the licensing agreement with the Institute of
Nutrition and Food Hygiene, an institute within the Chinese Academy of
Preventive Medicine, the Company has the exclusive right to acquire up to 5,000
to 10,000 extracts. The licensing agreement is being amortized over a period
of five years.
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition had occurred on October 1, 1994 after giving
effect to certain adjustments, including related income tax effects. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of what could have occurred had the acquisition been
made at the beginning of fiscal 1995 or of results which may occur in the
future. Furthermore, no effect has been given in the pro forma information for
operating and synergistic benefits that are expected to be realized through the
combination of the entities because precise estimates of such benefits can not
be quantified.
Six Months
Ended March 31,
1995
(Unaudited)
Net sales $ 284,635
=================
Net loss $ (1,737,509)
================
Net loss per common and
common equivalent share $ (.50)
================
6. CONTINGENCY:
During 1993, an action was commenced against the Company, a Vice President, and
a shareholder and former employee of the Company. The complaint seeks monetary
damages and alleges that in 1990, prior to the Company's incorporation, certain
individuals became partners with the individual defendants in a venture formed
to commercialize products which the Company had originally intended to develop.
By decision dated September 14, 1994, the court dismissed certain of the
plaintiffs' claims against the Company while permitting claims alleging unfair
competition, seeking an accounting and seeking an injunction to proceed.
Management believes the action is without merit, intends to continue to
vigorously oppose the allegations and is appealing the court's ruling to the
extent that it did not dismiss the entire complaint. Plaintiffs have filed a
cross-appeal as to the portion of the action dismissed by the court. Management
also believes that the ultimate resolution of this litigation will not have a
material adverse effect on the Company's financial position or results of
operations.
7. SUBSEQUENT EVENTS:
On April 9, 1996 the Company signed an option to acquire East West Herbs Ltd. of
Kingham, England. East West Herbs Ltd. is believed to be a market leader in
the marketing and distribution of TCM in the UK and throughout Europe. Under
terms of the option, the Company has the right to acquire all of the outstanding
shares of East West Herbs for $780,000 cash and $2,400,000 of shares of the
Company. Consideration for the option was made in the form of an option fee of
$20,000 and a working capital loan of $340,000. The loan will be used for
inventory purchases, continuing research and development including the clinical
trial of two herbal products for cancer patients in conjunction with the
Imperial Cancer Fund, and corporate working capital.
The alliance with East West Herbs Ltd. will provide a conduit for the Company's
products targeted for sales under the Dietary Supplement Health Education Act.
On April 1, 1996 the Company signed an exclusive licensing agreement with
Calbiochem-Novabiochem International to license technology for utilizing the
cdk 1 Assay as a research tool. The Company will receive an initial license
fee and an accelerating step royalty that increases to ten percent on net sales
in excess of $1 million. The Company expects that this revenue stream will be
most pronounced in the final quarter of fiscal year 1996, of which there can
be no assurance.
8. Recently Issued Accounting Pronouncements:
In March 1995, Statement of Financial Accounting Standards No.121 (SFAS No.121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," was issued. The adoption of SFAS No. 121 is not expected to
have a material effect on the consolidated financial statements of the Company.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
Results of Operations
Three Months Ended March 31, 1996 as compared to the
Three Months Ended March 31, 1995
During the second quarter of the fiscal year ending September 30, 1996 the
Company generated revenues of $16,000. These revenues consist of sales of the
Company's ELISA(trademark) kits and subscription income from the Nutrition
Advocate recognized on a deferred basis over the term of the subscription.
This is a 94% decrease from the second quarter of fiscal 1995 when revenues of
$250,000 were received from the sale of the licensing of the Ah-IMMUNOASSAY
(trademark) technology to Dow Chemical and kits sales were $15,800.
The Company's continuing strategy is to develop its products to a point where
its value can be clearly established and then license marketing and other rights
to third parties. To this end, the Company completes sufficient product
development so that prospective licensees can more readily recognize the value
of completing the product's development and its ultimate commercialization.
It is the Company's experience that a product's value to a prospective licensee
varies significantly depending on the remaining product development risk
perceived by the prospect. The Company, therefore, tailors its development
plans for each product based on the interest of prospective licensees and the
critical risk factors perceived. The Company also adjusts its plans as
conditions change during the course of development. As novel technologies
become better understood by the Company, perceived risks are frequently
reduced. Similarly, as the Company introduces novel technologies and
approaches, significant effort is expended to verify the scientific basis and
document the findings.
Since the Company's inception (April 15, 1991) through March 31, 1996, it has
invested $4,462,000 in product research, development and engineering. The
amount expended in the second quarter, $323,000, as compared to $66,600 in the
second quarter of fiscal 1995 represents an increase of 385%. This increase
was attributable to $67,000 of additional, non-cash, costs associated with the
amortization of the assets acquired in the merger with Pacific Liaisons,$28,000
of expenses associated with the clinical trial of PN355, increased wages of
$60,000, and $35,000 of additional research supplies. During the second quarter
of fiscal 1995 research and development expenses were reduced by a grant of
$60,000 for study related to the Ah-IMMUNOASSAY(trademark).
The Company intends to incur product research, development and engineering
expenses at a slightly higher amount than expenditures in the second quarter of
fiscal 1996. A significant amount of this effort will be directed at the
Company's cooperative research and development agreement ("CRADA") with the
National Cancer Institute and the National Institute of Child Health and Human
Development at the National Institutes of Health. The proposed terms of the
CRADA are included in a letter of intent signed by the parties in December 1995.
Under the proposed terms, the parties have agreed to share certain, extensive
proprietary data, methods and models for use in evaluating the efficacy of
certain of the Company's compounds against HIV and certain cancers. The
Company expects to reach a definitive CRADA during the third quarter of fiscal
1996, of which there can be no assurance.
During the second quarter of fiscal 1996 the expenses associated with the
newsletter increased over the first quarter of fiscal 1996 as it prepared to
launch its publication. The majority of these expenses were incurred in
connection with the development of the newsletter and related materials and
marketing costs associated with the launch scheduled for May 1996. The Company
believes that a significant leadership position in the publication of consumer
information concerning disease prevention through nutrition and alternative
health care will compliment the promising therapeutic effects of herbal extracts
used in TCM and the Company's drug discovery efforts.
General and administrative expenses totaled $4,289,000 during the period from
inception to March 31, 1996. Of this amount $571,000 was incurred in the second
quarter of fiscal 1996 and $409,000 in the second quarter of fiscal 1995, an
increase of 39%. These expenses relate to the administration of the research,
development and product engineering activities and support services including
raising capital, arranging for facilities, hiring employees, market analysis and
the development and administration of the Company's business and marketing
plans. The increase over the prior year period is attributable to $75,000 of
higher professional fees including legal fees and investor relations, $35,000
of higher staff and related expenses resulting from general increases in these
costs and the addition of two administrative personnel. The Company expects
general and administrative expenses to grow slightly over expenditures incurred
in the first and second quarter of fiscal 1996 in the remainder of fiscal 1996.
The Company has incurred net losses of $9,966,000 as a development stage company
from inception to March 31, 1996, of which $1,062,000 was incurred in the second
quarter of fiscal 1996 and $1,452,000 was incurred in second quarter of fiscal
1995. The net loss per share of common stock amounted to $.13 and $.37 for each
of the quarters, respectively. The Company anticipates that losses may continue
throughout fiscal 1996, increasing slightly from the amount in the second
quarter of fiscal 1996 for the reasons described above.
Liquidity and Capital Resources
At March 31, 1996, the Company had cash and cash equivalents of $1,834,000 as
compared to $1,416,000 at September 30, 1995. The increase is due to the
proceeds of private sales of equity securities subsequent to September 30, 1995
as more fully described below.
During the period between August and November 1995, the Company sold shares of
Common Stock and Series A, B and C 8%, Convertible Preferred Stock in private
transactions generating net proceeds of approximately $5,732,000. Through
February 1, 1996, all of the outstanding convertible preferred stock had been
converted into common stock. Proceeds from these financings have been, and will
continue to be used to: (1) continue and expand the current product development,
research and engineering and necessary support; and (2) make strategic
acquisitions of assets including businesses with products and approaches
complimentary with the Company's technology. During November 1995, the Company
repurchased 265,478 shares of its common stock on the open market for an
aggregate cost of $1,343,000. The Company has no further plans to make any
additional purchases of its shares.
In October 1994, the Company acquired Pacific Liaisons for approximately
$1,644,000 in common stock, which has been accounted for as using the purchase
method of accounting. See Note 5 of Notes to the Financial Statements.
The Company expects to incur additional research and development and product
engineering expenses, including personnel costs and costs related to preclinical
testing and clinical trials. The Company intends to seek additional funding
sources of capital and liquidity through collaborative agreements, and through
the exercise by the holders of outstanding warrants to purchase common stock.
In addition, the Company is presently evaluating various financing alternatives
including public and private sources of debt and equity. The Company believes
that it will be successful in these endeavors; however, there can be no
assurance that additional financing will be available on acceptable terms or at
all. If additional financing is not available, the Company anticipates that its
available cash and existing sources of funding will be adequate to satisfy its
capital requirements through mid-1996. The Company's future capital
requirements will depend on many factors, including continued scientific
progress in its research and development programs, the magnitude of such
programs and its acquisition plans.
PART II. OTHER INFORMATION
Item 6(a). Exhibits
None.
Item 6(b). Reports on Form 8-K.
None.
All other items required in Part II have been previously filed or are not
applicable for the quarter ended March 31, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PARACELSIAN, INC.
Date: April 26, 1996
BY: /s/ Keith A. Rhodes
Chairman of the Board,
President and Chief Executive Officer