UNITED STATES
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 JUNE 30, 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 11,053,415 shares of Common Stock and 2,042,870 Redeemable
Common Stock Purchase Warrants outstanding at August 6, 1996.
Paracelsian, Inc.
and Subsidiary
Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 (Unaudited) and
September 30, 1995 (Audited).
Consolidated Statements of Operations for the three months and nine
months ended June 30, 1996 and 1995 and the period from inception (April
15, 1991) to June 30, 1996 (Unaudited).
Consolidated Statements of Stockholders' Equity for the period from
inception (April 15, 1991) to June 30, 1996 (Unaudited)
Consolidated Statements of Cash Flows for the nine months ended June 30,
1996 and 1995 and the period from inception (April 15, 1991) to June 30,
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
Paracelsian, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheets
June 30, September 30, 1996 1995
(Unaudited) (Audited)
Assets
Current Assets:
Cash and cash equivalents $2,637,535 $1,416,022
Accounts receivable 4,124 3,141
Other current assets 247,102 143,014
Total current assets 2,888,761 1,562,177
Equipment, net 441,804 456,555
Other Assets:
TCM extracts on-hand 661,314 778,014
Licensing agreement, net 633,401 678,446
Patents and trademarks, net 220,038 209,169
Investment in ParaComm 350,000 -
Purchase option and loan to EastWest Herbs 422,016 -
2,286,769 1,665,629
--------- ----------
$5,617,334 $3,684,361
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $161,897 $539,084
Due to related party 119,929 137,261
Accrued expenses 162,584 65,328
--------- --------
Total current liabilities 444,410 741,673
Commitments and Contingencies
Stockholders' Equity:
Preferred stock,$.01 par value;1,000,000 shares authorized;
Series A - 10,700 shares outstanding at September 1995 - 107
Series B - 10,000 shares outstanding at September 1995 - 100
Series C - 5,000 shares outstanding at September 1995 - 50
Common stock, $.01 par value; 20,000,000 shares
authorized; 10,865,549 shares outstanding June 1996
and 4,901,584 September 1995 108,655 49,016
Additional paid-in capital 17,882,392 11,742,899
Deficit accumulated during development stage (11,478,263) (8,849,484)
Treasury stock, at cost;
265,478 shares at June 30, 1996 (1,339,860) -
Total stockholders' equity 5,172,924 2,942,688
___________ _ __________
$5,617,334 $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 nine months ended June 30, 1996 and 1995,
And the period from inception to June 30, 1996
(Unaudited)
Cumulative
Period from
Three Months Ended Nine Months Ended Inception to
June 30, June 30, June 30,
1996 1995 1996 1995 1996
Sales:
Marketing rights $ - $ - $ - $ 249,995 $ 249,995
Products - 9,659 20,306 44,299 155,708
Subscription income 9,563 - 13,199 - 13,199
----------- --------- ----------- ---------- ------------
9,563 9,659 33,505 294,294 418,902
Cost of products sold - 4,603 10,538 22,888 95,023
----------- --------- ----------- ----------- -------------
Gross profit 9,563 5,056 22,967 271,406 323,879
----------- --------- ----------- ----------- -------------
Operating expenses:
Research and product engineering 409,437 90,204 976,302 223,593 4,871,265
Research concerning Indian herbs - - - - 375,000
Newsletter expenses 213,805 - 411,531 - 411,531
General and administrative 422,863 321,466 1,327,441 923,631 4,711,604
Officer stock compensation - - - 1,228,275 1,228,275
----------- --------- ------------ ----------- ------------
1,046,105 411,670 2,715,274 2,375,499 11,597,675
Loss from operations during ----------- --------- ----------- ----------- ------------
development stage (1,036,542) (406,614) (2,692,307) (2,104,093) (11,273,796)
Interest income,net 24,244 4,660 63,528 4,955 295,533
----------- --------- ----------- ----------- -------------
Net loss during the development stage $(1,012,298) $(401,954) $(2,628,779) $(2,099,138) $(10,978,263)
============ ========== ============ ============= =============
Net loss per common and
common equivalent share $(0.10) $(0.10) $(0.34) $(0.56)
======= ======= =======
Weighted average common and common
equivalent shares outstanding 10,148,511 4,221,351 7,802,257 3,761,334
========== ========= ========= =========
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 June 30, 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
Issuance of Common Stock June,1996 733,334 7,333 1,965,663 1,972,996
Sale of Warrants June,1996 35,000 35,000
Net loss (nine months ended
June 30, 1996) (2,628,779) (2,628,779)
BALANCE,June,1996 0 $0 10,865,549 $108,655 $17,882,392 $(11,478,263) $(1,339,860) $5,172,924
======== ====== ========== ======== =========== ============= ============ ============
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 Cash Flows
For the nine months ended June 30, 1996 and 1995
And the Period From Inception to June 30, 1996
(Unaudited)
Cumulative
Period from
Nine Months Ended Inception to
June 30, June 30, June 30,
1996 1995 1996
------------ ------------ --------------
Cash flows from operating activities:
Net loss $(2,628,779) $(2,099,138) $(10,978,263)
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 183,549 202,188 686,335
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (983) 23,957 2,926
(Increase) decrease in other current assets (104,088) 49,431 (224,782)
Decrease in TCM extracts on-hand 116,700 0 156,700
(Decrease)Increase in accounts payable (339,062) 226,617 488,512
Increase in due to related party (17,332) 15,296 119,929
Increase in accrued expenses 97,256 207,574 162,584
------------ ------------ --------------
Net cash (used in)provided by operating activities (2,692,739) (145,800) (7,982,734)
------------ ------------ --------------
Cash flows from investing activities:
Purchase of investments 0 0 (6,719,089)
Redemption of investments 0 0 6,719,089
Purchase of equipment (47,497) 0 (708,444)
Proceeds from sale of equipment 0 20,000 20,000
Acquisition of patents,trademarks and assets acquired (859,141) (98,773) (1,094,487)
------------ ------------ --------------
Net cash used in investing activities (906,638) (78,773) (1,782,931)
------------ ------------ --------------
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 5,972,996 184,910 8,074,458
Proceeds from the exercise of warrants 155,409 0 666,295
Proceeds from the sale of warrants 35,000 0 0
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 4,820,890 195,910 12,403,200
------------ ------------ --------------
Net increase (decrease) in cash and cash equivalents 1,221,513 (28,663) 2,637,535
Cash and cash equivalents, beginning of period 1,416,022 49,629 0
------------ ------------ --------------
Cash and cash equivalents, end of period $2,637,535 $20,966 $2,637,535
============ ============ ==============
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.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 or death.
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 pathways 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 $2,629,000 for the nine months ended June 30, 1996 and has
working capital of approximately $2,444,000 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 June 30 and September 30:
June 30, September 30,
1996 1995
Raw Materials $49,709 $49,755
Finished Goods 2,000 2,500
------- -------
$51,709 $52,255
======= =======
Accrued Expenses
Included in accrued expenses at June 30, 1996 and September 30, 1995
respectively are:
June 30, September 30,
1996 1995
Accrued payroll,taxes $84,569 $65,328
Defered subscription revenue 38,188 0
Other accrued expenses 39,827 0
------- --------
$162,584 $65,328
======== ========
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 Judgment
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
4. PRIVATE PLACEMENTS OF EQUITY SECURITIES:
The Company sold additional common shares and warrants on June 26, 1996.
The shares were sold to institutional investors, in private
transactions, on the following basis:
1) 733,334 shares of Common Stock at $2.75 per share;
2) Warrants, immediately exercisable, to purchase 733,334 shares of
Common Stock at an exercise price of $3.25 per share, at any time prior
to June 26, 2001; and
3) Warrants to purchase 333,334 shares of Common Stock at an exercise
price of $4.50 per share, of which the right to purchase 250,000 shares
is not immediately exercisable and is void after the 5th anniversary of
the date on which they first become exercisable and of which the right
to purchase 83,334 shares is immediately exercisable and void after June
26, 2001.
The Company intends to use the proceeds to finance continuing research
and development and for working capital.
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 issuance's 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:
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 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 by EastWest Herbs Ltd. for inventory
purchases, continuing research and development including the clinical
trials of two herbal products for cancer patients in conjunction with the
Imperial Cancer Fund, and corporate working capital
During November 1995, the Company, through its wholly-owned subsidiary,
purchased substantially all of the assets related to the New Century
Nutrition (formerly 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 June
30, 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 June 30, 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.
6. CONTINGENCY:
During 1993, an action was commenced against the Company, a Vice
President, and a 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 that 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 July 1, 1996 an additional investor purchased shares of Common Stock
and warrants in the same private placement as described on June 26, 1996
1) 91,667 shares of Common Stock at $2.75 per share;
2) Warrants, immediately exercisable, to purchase 91,667 shares of
Common Stock at an exercise price of $3.25 per share, at any time prior
to June 26, 2001; and
3) Warrants to purchase 41,667 shares of Common Stock at an exercise
price of $4.50 per share which is immediately exercisable and void after
June 26, 2001.
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 and Nine Months Ended June 30, 1996 as compared to
the Three Months and Nine Months Ended June 30, 1995
During the third quarter of the fiscal year ending September 30, 1996
the Company generated revenues of $9,500. These revenues consist of
subscription income from the New Century Nutrition (formerly Nutrition
Advocate) recognized on a deferred basis over the term of the
subscription. This is a decrease of less than 1% from the third quarter
of fiscal 1995. At that time all revenues were received from the sales
of the Company's ELISA( kits. Under an exclusive licensing agreement
signed in April 1996, Calbiochem-Novabiochem International will market
licensed products utilizing the cdk 1 Assay technology as a research
tool. The Company received an initial license fee and future revenues
to the Company will consist of an accelerating step royalty that
increases to ten percent on net sales in excess of $1 million. In the
nine months ended June 30, 1996 the Company had revenues of $33,500 as
compared to $294,000 in the nine months ended June 30, 1995. The
decrease is due to a one time payment of $249,000 from Dow Chemical for
the license of the Company's Ah-IMMUNASSAY(trademark) in the nine months
ended June 30, 1995.
A portion of the Company's strategy is to develop certain of 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.
In addition, the Company's strategy is to directly market those products
which it believes can be marketed without significant marketing
expenditures and without the time-consuming process of having such
products approved by regulatory agencies such as the Food and Drug
Administration.
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 June 30, 1996, it
has invested $4,871,000 in product research, development and
engineering. The amount expended in the third quarter of fiscal 1996,
$409,000, as compared to $90,000 in the third quarter of fiscal 1995
represents an increase of 354%. This increase was attributable to costs
associated with the amortization of the assets acquired in the merger
with Pacific Liaisons, costs attributed to the clinical studies of
ANDROVIR and the compassionate use trail of PN27,1 and increased
personnel expenses. During the third quarter of fiscal 1995 research
and development expenses were primarily related to the development of
the Ah-IMMUNOASSAY(trademark). Research and product engineering costs
during the nine months ended June 30, 1996 total $976,000 as compared to
$220, 000 in the nine months ended June 30, 1995. The increase is
largely due to the expanded study of ANROVIR and the and the resulting
increase in research supplies, equipment and personnel.
During the quarter, a second patent was issued for the Company's
Ah-IMMUNOASSAY(trademark) technology for the detection of dioxin-like
compounds. This patent covers an expansion of applications of the
Company's Ah-IMMUNOASSAY(trademark) technology and potential derivative
products using this technology.
Also during the quarter, in connection with the Company's collaboration
at the National Cancer Institute, the principal investigator presented
research that has identified a protein shown to be involved in HIV-1
propagation and T-cell death. The research under the Company's
cooperative research and development agreement ("CRADA") has shown that
the Company's PN355 is active against this protein and inhibition of
HIV-1 propagation in laboratory studies. This research is a significant
milestone in the Company's efforts to identify the specific mechanism of
action of PN355. Clinical trials of PN355 continue at Bastyr University
in Seattle.
The Company intends to incur product research, development and
engineering expenses at a slightly higher amount than expenditures in
the third quarter of fiscal 1996. A significant amount of this effort
during the fourth quarter of fiscal 1996 will be directed at the
National Cancer Institute as part of the CRADA. 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 in early fiscal 1997;however, there can be no assurance that the
Company will be successful in this endeavor.
During the third quarter of fiscal 1996 the expenses associated with the
newsletter totaled $213,800. 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 of the
newsletter, New Century Nutrition. The total expenses for the
newsletter are $411,500 for the nine month period ended June 30, 1996.
General and administrative expenses totaled $4,712,000 during the period
from inception to June 30, 1996. Of this amount $423,000 was incurred
in the third quarter of fiscal 1996 and $321,000 in the third quarter of
fiscal 1995, an increase of 32%. 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. General
and administrative expenses are $1,300,000 for the nine months ended
June 30, 1996 and $900,000 for the nine months ended June 30, 1995, and
increase of 31%. The increase from the prior year period is
attributable to additional personnel expenses and professional fees.
The Company expects general and administrative expenses in the fourth
quarter of fiscal 1996 to grow slightly over expenditures in the third
quarter of fiscal 1996.
The Company has incurred net losses of $10,980,000 as a development
stage company from inception to June 30, 1996, of which $1,012,000 was
incurred in the third quarter of fiscal 1996 and $402,000 was incurred
in third quarter of fiscal 1995. The net loss for the nine months ended
June 30, 1996 is $2,628,779 compared to $2,099,138 for the nine months
ended June 30, 1995. The net loss per share of common stock amounted to
$.10 for the quarter ended June 30, 1996 and the quarter ended June
30,1995. The net loss computation results in an identical amount per
share because of the increase in the number of weighted average common
and common equivalent shares outstanding of 152%. Net loss per share
for the nine months ended June 30, 1996 was $.34 compared to $.56 for
the nine months ended June 30, 1995. The Company anticipates that
losses may continue throughout fiscal 1996, increasing slightly from the
amount in the final quarter of fiscal 1996 for the reasons described
above.
Liquidity and Capital Resources
At June 30, 1996, the Company had cash and cash equivalents of
$2,637,000 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.
In June and July 1996, the Company sold common stock and warrants to
purchase common stock to The Travelers Insurance Company and three other
institutional investors for approximately $2.25 million. See notes 4
and 7 to the financial statements.
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.
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 continually 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 such 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 operating cash and capital requirements only
through mid-1997. 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 4. Submission of Matters to a Vote of Security Holders.
The Company held the annual meeting for the fiscal year ending September
30, 1995 on April 12, 1996. Elected at the meeting were: Michael A.
Gallo, Bruce Hawley, James Nichols. Others directors whose terms
continued are: Keith A. Rhodes, T. Colin Campbell, John G. Babish and
Theodore P. Nikolis. All of the directors was elected by a vote of
6,459,642 votes for and 310,290 votes against.
Also voted on at the meeting were amendments to the Company's 1991
Amended Stock Option Plan: (i)Provide for the continued award to
non-employee Directors of options to purchase 2,500 shares of the
Company's Common Stock upon their election to the Board of Directors.
(ii) Limit the number of shares that may be subject to options granted
to any one optionee in any fiscal year to 100,000, subject to the 1991
Plan's anti-dilution provisions. 6,042,142 votes were voted in favor of
the amendment, 81,700 against with 284,790 abstentions.
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 June 30, 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: August 12, 1996 BY: /s/ Keith A. Rhodes
Chairman of the Board,
President and Chief Executive Officer