<PAGE>
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the quarterly period ended: March 31, 2000.
OR
[_] 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:
0-30365
Paradigm Genetics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 56-2047837
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 Alexander Drive, Research Triangle Park, North Carolina 27709
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (919) 425-3000
Former name, former address, and former year, if changed since last report: Not
applicable
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 [_] No [X]
Indicate the number of shares outstanding of each of the Issuer's classes of
Common Stock, as of the latest practicable date.
Title of each class
Common stock $.01 par value
Shares outstanding on June 14, 2000............................. 25,712,372
EXPLANATORY NOTE
On June 15, 2000, Paradigm Genetics, Inc. (the "Company") announced its
financial results for the first quarter ended March 31, 2000. In that
announcement, Paradigm reported a net loss per common share of $3.11, which
reflected a beneficial conversion feature charge of $2.22 per share. For
informational purposes, Paradigm also announced that its net loss per common
share would have been $0.89 if the beneficial conversion feature had not been
reflected. On June 19, 2000, Paradigm filed with the Securities and Exchange
Commission a Report on Form 10-Q for the same quarter. In the 10-Q, Paradigm
reported a net loss per share attributable to shareholders of $0.89, which did
not reflect the beneficial conversion feature. This Amendment No. 1 to the
Report on Form 10-Q for the quarter ended March 31, 2000 is being filed in order
to reflect the net loss per common share of $3.11 for that period, which does
reflect the beneficial conversion feature.
<PAGE>
PARADIGM GENETICS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - March 31, 2000 and December 31, 1999................ 3
Condensed Statements of Operations - Three months ended
March 31, 2000 and 1999...................................................... 5
Condensed Statements of Cash Flows - Three months ended
March 31, 2000 and 1999...................................................... 6
Notes to Condensed Financial Statements........................................ 7
Item 6. Exhibits and Reports on Form 8-K............................................... 9
Signature...............................................................................10
Exhibit Index...........................................................................11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PARADIGM GENETICS, INC.
CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................... $ 883,198 $ 468,342
Short-term investments........................ 20,842,964 3,488,108
Accounts receivable........................... 222,184 256,844
Prepaid expenses.............................. 1,059,678 1,157,851
------------ ------------
Total current assets.................... 23,008,024 5,371,145
Property and equipment, net........................ 11,241,674 8,816,665
Other assets, net.................................. 398,630 37,494
Deferred stock issuance costs...................... 984,165 --
------------ ------------
Total assets............................ $ 35,632,493 $ 14,225,304
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................... $ 2,095,090 $ 1,327,423
Accrued liabilities............................ 867,900 571,184
Deferred revenue............................... 15,394,448 5,825,237
Long-term debt -- current portion.............. 1,424,529 1,182,456
Capital lease obligation -- current portion.... 102,662 100,075
------------ ------------
Total current liabilities............... 19,884,629 9,006,375
Long-term debt, net of current portion............. 7,328,669 7,823,780
Capital lease obligation, net of current portion... 196,194 222,850
------------ ------------
Total liabilities....................... 27,409,492 17,053,005
--------------- ---------------
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par value;
15,000,000 shares authorized:
Series A Convertible Preferred Stock,
8,000,000 shares designated; 7,562,500
shares issued and outstanding as of
March 31, 2000 and December 31, 1999,
respectively............................... 5,950,899 5,950,899
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
Series B Convertible Preferred Stock;
2,790,698 shares designated; 2,790,698
shares issued and outstanding as of March 31,
2000 and December 31, 1999, respectively......... 5,967,819 5,967,819
Series C Convertible Preferred Stock;
3,000,000 shares designated; 3,000,000 and -
0- shares issued and outstanding as of March
31, 2000 and December 31, 1999,
respectively..................................... 26,965,192 --
Common Stock, $.01 par value; 30,000,000
shares authorized; 5,559,024 and 5,224,257
shares issued and outstanding as of March 31,
2000 and December 31, 1999, respectively........... 55,590 52,242
Additional paid-in capital.............................. -- 3,529,452
Deferred compensation................................... (4,572,729) (3,165,430)
Accumulated deficit..................................... (26,143,770) (15,162,683)
------------ ------------
Total stockholders' equity (deficit)......... 8,223,001 (2,827,701)
------------ ------------
Total liabilities and stockholders'
equity (deficit).......................... $35,632,493 $14,225,304
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
4
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PARADIGM GENETICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Revenues:
Collaborative research agreements......................... $468,220 $320,069
Grant revenues............................................ 125,001 12,294
--------------- ---------------
Total revenues...................................... 593,221 332,363
--------------- ---------------
Operating expenses:
Research and development (excludes $102,352 and
$1,705, of stock based compensation expense for the
three months ended March 31, 2000 and
March 31, 1999, respectively)............................ 3,000,367 1,573,111
Selling, general and administrative (excludes $247,630
and $366, of stock based compensation expense for the
three months ended March 31, 2000 and
March 31, 1999, respectively)............................ 2,036,263 748,641
Stock based compensation expense.......................... 349,982 2,071
--------------- ---------------
Total operating expenses............................ 5,386,612 2,323,823
--------------- ---------------
Loss from operations........................................... (4,793,391) (1,991,460)
--------------- ---------------
Interest income (expense), net:
Interest income........................................... 296,993 40,295
Interest expense.......................................... 279,875 89,392
--------------- ---------------
Interest income (expense), net............................ 17,118 (49,097)
--------------- ---------------
Net loss....................................................... $(4,776,273) $(2,040,557)
=============== ===============
Beneficial conversion feature of Series C Preferred Stock...... (12,000,000) --
Net loss attributable to common stockholders.................. $(16,776,273) $(2,040,557)
=============== ===============
Net loss per share attributable to common stockholders -
basic and diluted................................... $(3.11) $(0.54)
Weighted average common shares outstanding - basic and
diluted............................................. 5,394,915 3,750,558
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements
5
<PAGE>
PARADIGM GENETICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
2000 1999
------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................ $(4,776,273) $(2,040,557)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Deferred revenue.................................................. 9,569,211 484,931
Depreciation and amortization..................................... 578,829 267,544
Stock based compensation.......................................... 349,982 2,071
Changes in operating assets and liabilities:
Accounts receivable............................................ 34,660 (160,491)
Prepaid expenses............................................... 98,141 (50,377)
Accounts payable............................................... 767,667 495,546
Accrued liabilities............................................ (128,889) 62,278
------------- --------------
Net cash provided by (used in) operating activities........... 6,493,328 (939,055)
------------- --------------
Cash flows from investing activities:
Purchase of property and equipment.................................. (3,003,838) (1,206,713)
Purchase of investments............................................. (28,609,395) (5,960,482)
Maturities of investments........................................... 11,254,539 2,274,621
------------- --------------
Net cash used in investing activities......................... (20,358,694) (4,892,574)
------------- --------------
Cash flows from financing activities:
Repayments of notes payable......................................... (253,038) (1,355)
Repayments of capital lease obligations............................. (24,069) (21,734)
Proceeds from issuance of convertible preferred stock, net.......... 14,965,192 5,967,819
Proceeds from exercise of stock options............................. 150,697 19,196
Deferred stock issuance costs....................................... (558,560) --
------------- --------------
Net cash provided by financing activities..................... 14,280,222 5,963,926
Net increase in cash and cash equivalents.............................. 414,856 132,297
Cash and cash equivalents, beginning of period......................... 468,342 970,688
------------- --------------
Cash and cash equivalents, end of period............................... $ 883,198 $ 1,102,985
============= ==============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
6
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization and Summary of Significant Accounting Policies
Organization
Paradigm Genetics, Inc. (the "Company" or "Paradigm") was organized on
September 9, 1997 to discover the function of genes in plant and fungal
organisms. On April 7, 2000 the Company reincorporated as a Delaware
corporation. The Company is industrializing the process of determining gene
function by creating an assembly-line process to generate information that the
Company believes will enable it to develop novel products in four major sectors
of the global economy: crop production, nutrition, human health and industrial
products. The Company has developed its GeneFunction Factory to simultaneously
study the functions of many genes in plants and fungi. The GeneFunction Factory
is designed to be an integrated, rapid, industrial-scale laboratory through
which the Company can discover and alter genes, understand the consequences of
the modifications and reliably determine the function of those genes. The
Company stores and annotates gene function information in its FunctionFinder
bioinformatics system. Paradigm generates revenues by licensing information
mined from the data in FunctionFinder for the development of products in crop
production, nutrition, human health and industrial applications. If the
Company's strategic partners commercialize products resulting from this
information, the Company is entitled to receive royalty payments based upon
product revenues.
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and pursuant to the instructions to
Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The balance sheet at December 31, 1999 has been derived
from the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000, or for any
other period. These financial statements and notes should be read in conjunction
with the financial statements and notes thereto for the year ended December 31,
1999 included in the Company's Registration Statement on Form S-1, as amended
(No. 333-30758) which was declared effective by the Securities and Exchange
Commission on May 5, 2000.
Net Loss per Share
The Company computes net loss per common share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under the
provisions of SFAS 128 and SAB No. 98, basic net loss per common share ("Basic
EPS") is computed by dividing net loss by the weighted average number of common
shares outstanding. Diluted net loss per common share ("Diluted EPS") is
computed by dividing net loss by the weighted average number of common shares
and dilutive potential common share equivalents then outstanding. Potential
common shares consist of shares issuable upon the exercise of stock options and
warrants and shares issuable upon the conversion of outstanding convertible
preferred stock.
The following table sets forth potential shares of common stock that
are not included in the diluted net loss per share because to do so would be
antidilutive for the periods indicated:
Three Months Ended
March 31,
--------------------------
2000 1999
---------- ----------
Preferred stock........................... 13,353,198 10,353,198
Options to purchase common stock.......... 1,536,792 1,778,008
Warrants.................................. 763,779 437,500
7
<PAGE>
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components in the financial statements. Comprehensive income, as defined,
includes all changes in equity during a period from non-owner sources. The
Company had no items of comprehensive income during the three months ended March
31, 2000 or the three months ended March 31, 1999.
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as "derivatives"), and for
hedging activities. SFAS 133, as amended by SFAS 137, is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000, with earlier
application encouraged. The Company does not currently, nor does it intend in
the forseeable future, to use derivative instruments and therefore does not
expect that the adoption of SFAS 133 will have any impact on its financial
position or the results of operations.
Note 2. Initial Public Offering
On May 10, 2000, the Company completed an initial public offering in
which it sold 6,000,000 shares of common stock at $7.00 per share for net
proceeds of approximately $37.9 million, net of underwriting discounts,
commissions and other offering costs. Upon the closing of the offering, all the
Company's convertible preferred stock converted into 13,353,198 shares of common
stock. After the offering, the Company's authorized capital consisted of
50,000,000 shares of common stock, $0.01 par value per share, and 5,000,000
shares of preferred stock, $0.01 par value per share. On May 31, 2000, the
underwriters exercised an over-allotment option to purchase an additional
750,000 shares resulting in net proceeds of approximately $4.9 million.
Note 3. Deferred Stock-Based Compensation
The Company accounts for stock-based compensation based on the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25") which states that no compensation
expense is recorded for stock options or other stock-based awards to employees
that are granted with an exercise price equal to or above the estimated fair
value of the Company's common stock on the grant date. In the event that stock
options are granted with an exercise price below the estimated fair value of the
Company's common stock at the grant date, the difference between the fair value
of the Company's common stock and the exercise price is recorded as deferred
compensation. The Company has recognized deferred compensation of $5,122,223 to
reflect the difference between the aggregate fair market value and exercise
price of all options granted with an exercise price below the fair market value
of the Company's common stock at the date of grant. Deferred compensation is
amortized to compensation expense over the vesting period of the related stock
option. The Company recognized non-cash compensation expense related to
amortization of deferred compensation of $349,982 for the three months ended
March 31, 2000 and $2,071 for the three months ended March 31, 1999.
Note 4. Series C Preferred Stock - Beneficial Conversion Feature
In January 2000, the Company sold 3,000,000 shares of Series C
Preferred Stock to a group of investors for gross proceeds of $15,000,000 at
$5.00 per share. The Series C Preferred Stock automatically converted into
shares of the Company's common stock at a one-to-one conversion ratio upon the
consummation of its initial public offering on May 10, 2000. The Company has
recorded a beneficial conversion feature charge of $12,000,000 to reflect the
difference between the estimated fair value of the Company's Series C Preferred
Stock of $9.00 per share and the $5.00 per share sales price of these shares.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2.1 Plan and Agreement of Merger between Paradigm Genetics, Inc.,
a North Carolina corporation and Paradigm Genetics, Inc., a
Delaware corporation (Filed as Exhibit 2.1 to Registration
Statement on Form S-1, Registration No. 333-30758, and
incorporated herein by reference).
Exhibit 3.1 Restated Certificate of Incorporation (Filed as Exhibit 3.2 to
Registration Statement on Form S-1, Registration No. 333-
30758, and incorporated herein by reference).
Exhibit 3.2 Amended and Restated Bylaws (Filed as Exhibit 3.4 to
Registration Statement on Form S-1, Registration No. 333-
30758, and incorporated herein by reference).
Exhibit 4.1 Form of Common Stock Certificate (Filed as Exhibit 4.1 to
Registration Statement on Form S-1, Registration No. 333-
30758, and incorporated herein by reference).
Exhibit 10.1 Amended and Restated Registration Rights Agreement, dated
January 21, 2000, between the Registrant and certain Founders
and Investors (Filed as Exhibit 10.6 to Registration Statement
on Form S-1, Registration No. 333-30758, and incorporated
herein by reference).
Exhibit 10.2 First Amendment to the Amended and Restated Registration
Rights Agreement between the Registrant and certain Investors
and Founders (Filed as Exhibit 10.6.1 to Registration
Statement on Form S-1, Registration No. 333-30758, and
incorporated herein by reference).
Exhibit 10.3 Tenant Certificate and Agreement, and January 11, 2000,
between the Registrant and ING Investment Management LLC
(Filed as Exhibit 10.29 to Registration Statement on Form S-1,
Registration No. 333-30758, and incorporated herein by
reference).
Exhibit 10.4 2000 Employee, Director and Consultant Stock Option Plan
(Filed as Exhibit 10.48 to Registration Statement on Form S-1,
Registration No. 333-30758, and incorporated herein by
reference).
Exhibit 10.5 2000 Employee Stock Purchase Plan (Filed as Exhibit 10.49 to
Registration Statement on Form S-1, Registration No. 333-
30758, and incorporated herein by reference).
Exhibit 10.6 Warrant to Purchase Common Stock, dated January 19, 2000,
issued by the Registrant to ARE-104 Alexander Road LLC, and
Escrow Agreement (Filed as Exhibit 10.45 to Registration
Statement on Form S-1, Registration No. 333-30758, and
incorporated herein by reference).
* Exhibit 27.1 Financial Data Schedule
** Exhibit 27.2 Financial Data Schedule
----------------
* Previously filed
** Replaces previously filed exhibit
(b) Reports on Form 8-K
Paradigm filed no reports on Form 8-K during the quarter ended March 31, 2000.
9
<PAGE>
PARADIGM GENETICS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Amendment No. 1 to its Report on Form 10-Q
for the quarter ended March 31, 2000 to be signed on its behalf by the
undersigned thereunto duly authorized.
PARADIGM GENETICS, INC.
DATE: July 27, 2000 SIGNATURE: /s/ Ian A.W. Howes
----------------------------
Ian A.W. Howes
Chief Financial Officer and
Vice President of Finance
and Operations (chief
accounting officer)
10
<PAGE>
EXHIBIT INDEX
Exhibit 2.1 Plan and Agreement of Merger between Paradigm Genetics, Inc.,
a North Carolina corporation and Paradigm Genetics, Inc., a
Delaware corporation (Filed as Exhibit 2.1 to Registration
Statement on Form S-1, Registration No. 333-30758, and
incorporated herein by reference).
Exhibit 3.1 Restated Certificate of Incorporation (Filed as Exhibit 3.2 to
Registration Statement on Form S-1, Registration No. 333-
30758, and incorporated herein by reference).
Exhibit 3.2 Amended and Restated Bylaws (Filed as Exhibit 3.4 to
Registration Statement on Form S-1, Registration No. 333-
30758, and incorporated herein by reference).
Exhibit 4.1 Form of Common Stock Certificate (Filed as Exhibit 4.1 to
Registration Statement on Form S-1, Registration No. 333-
30758, and incorporated herein by reference).
Exhibit 10.1 Amended and Restated Registration Rights Agreement, dated
January 21, 2000, between the Registrant and certain Founders
and Investors (Filed as Exhibit 10.6 to Registration Statement
on Form S-1, Registration No. 333-30758, and incorporated
herein by reference).
Exhibit 10.2 First Amendment to the Amended and Restated Registration
Rights Agreement between the Registrant and certain Investors
and Founders (Filed as Exhibit 10.6.1 to Registration
Statement on Form S-1, Registration No. 333-30758, and
incorporated herein by reference).
Exhibit 10.3 Tenant Certificate and Agreement, and January 11, 2000,
between the Registrant and ING Investment Management LLC
(Filed as Exhibit 10.29 to Registration Statement on Form S-1,
Registration No. 333-30758, and incorporated herein by
reference).
Exhibit 10.4 2000 Employee, Director and Consultant Stock Option Plan
(Filed as Exhibit 10.48 to Registration Statement on Form S-1,
Registration No. 333-30758, and incorporated herein by
reference).
Exhibit 10.5 2000 Employee Stock Purchase Plan (Filed as Exhibit 10.49 to
Registration Statement on Form S-1, Registration No. 333-
30758, and incorporated herein by reference).
Exhibit 10.6 Warrant to Purchase Common Stock, dated January 19, 2000,
issued by the Registrant to ARE-104 Alexander Road LLC, and
Escrow Agreement (Filed as Exhibit 10.45 to Registration
Statement on Form S-1, Registration No. 333-30758, and
incorporated herein by reference).
* Exhibit 27.1 Financial Data Schedule
** Exhibit 27.2 Financial Data Schedule
----------------
* Previously filed
** Replaces previously filed exhibit
11
