UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM. 10-QSB

[ X ] QUARTERLY REPORTS UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999.

OR

[ ] QUARTERLY REPORTS UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ______________.

Commission File No. 0-19844

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PARACELSIAN, INC.

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(Exact name of small business issuer as specified in its charter)

(I.R.S. Employer Identification No.)

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 [ ]

(A Development Stage Company)

Consolidated Balance Sheet

December 31, 1999

(Unaudited)

Three Months Ended

Three Months Ended
December 31

See accompanying notes to consolidated financial statements

Paracelsian, Inc. and Subsidiary

(A Development Stage Company)

(Unaudited)

1. BASIS OF PRESENTATION:

The consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles 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 position and results of operations 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 of 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 for the fiscal year ended September 30, 1999.

2. ORGANIZATION, BUSINESS, AND RISK FACTORS:

Paracelsian, Inc. (the "Company") is a bio-science and technology company that utilizes its proprietary screening technology to identify novel therapeutic compounds from herbal and other botanical sources and to define and/or confirm the biological mechanisms through which traditional herbs and other botanicals provide the therapeutic or functional benefits suggested by their traditional use. This technology has been developed by the Company to identify potential products that inhibit the biological signals generated by targeted cells that result in controlled or uncontrolled growth and division. The Company’s screening technology evaluates the effects of herbal and other botanical products on intracellular signals referred to as "Signal Transduction Technology."

Cell division is one of the basic steps in biology 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 or natural compounds, and chemicals occurring in nature such as herbs and combinations of 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 favorable 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 (Pacific), 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 Company’s screening technology to identify potential candidates for drug or dietary supplement development. 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.

The Company is considered to be 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. 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, government regulation, 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 $359,000 for the three months ended December 31, 1999 and had a working capital deficit of approximately $414,000 at December 31, 1999. Management believes that revenues from its BioFIT program, its Ah-Immunoassay, its Internet project and the sales of its inventory will be sufficient throughout the year to enable the Company to achieve positive cash flow during 2000. BioSignia, Inc., the Company’s largest shareholder, has advanced interim funds into 2000. Management is currently seeking a capital infusion of at least $1 million to strengthen its working capital position and bridge its needs until the revenue stream is sustained. Management believes that the combination of additional capital combined with increased revenues will enable the Company to continue its operations.

3. SIGNIFICANT ACCOUNTING POLICIES:

The consolidated financial statements of the Company include the accounts of Paracelsian, Inc. and its wholly owned subsidiary ParaComm, Inc. formerly known as Para Acquisition Corp. All intercompany balances and transactions have been eliminated.

Cash equivalents consist of highly liquid investments with an original maturity of three months or less. The Company had no cash equivalents as of December 31, 1999.

Company-sponsored research and product engineering expenditures have been charged to expense as incurred. These costs consist primarily of employee salaries and direct laboratory costs. The cost of extracts used in research and development activities is expensed as consumed.

Basic loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. The Company’s basic and diluted per share amounts are the same since the assumed exercise of stock options and warrants are anti-dilutive.

The Company has acquired or applied for certain patent and trademark rights. Costs associated with the acquisition and application for these rights have been capitalized and are being amortized on the straight-line method over the estimated legal life of the assets which range from 15 to 17 years.

Equipment is stated at cost and is depreciated over the estimated useful lives of the assets using the straight-line method.

The preparation of the consolidated 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 the disclosures of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Three months Ended December 31, 1999 as compared to the

Three months Ended December 31, 1998

The Company’s net loss for the first quarter of fiscal 2000 was approximately $359,000 compared to $503,000 in the first quarter of fiscal 1999. Revenues for the three month period were $77,000 in 1999 as compared to $12,000 in 1998. The increase in revenues is primarily due to $50,000 from the Kubota Corporation related to the Ah-IMMUNOASSAY™ technology. These revenues are not representative of the Company’s future plans and expectations. Operating expenses for the three month period were approximately $453,000 compared to $515,000 for the first fiscal quarter of the prior year. The decrease of $63,000 is due to management’s commitment to utilize its resources in the most efficient manner. The management team is continuing to operate with modest staff levels and has been focusing on continuing to conserve resources, and generating revenues.

As of December 31, 1999, the Company had cash of $7,800 and a net working capital deficit of $414,000. Management believes that it can continue to raise additional capital through private placements, to support its operations until such time as the revenue stream is sufficient to realize positive cash flow in 2000. The Company is actively pursuing additional capital of $1 million to $1.5 million to provide resources to strengthen its working capital position until sufficient revenues are achieved. Management believes that the additional financings coupled with its expected revenues from the BioFIT™ program, the Ah-Immunoassay, the Internet Program and the sale of its inventory of Andrographolide will enable the Company, (1) to further increase its operating efficiency; and (2) to continue its operations into the future.

On January 31, 2000 the Company announced that Dr. T. Colin Campbell was named Chairman, CEO & President. Dr. Campbell replaces Bernard M. Landes, who served as Chairman, CEO and President the previous two years. Dr. Campbell served on the Board of Directors of the Company for several years prior to taking this new position. On February 8, 2000 the Company announced that Dr. Max Shaibe has accepted an invitation to serve on the Company’s Board. Dr. Shaibe’s appointment to the Board lasts until the annual shareholders’ meeting on June 12, 2000, when he will stand for election. Dr. Shaibe’s background includes significant positions in academia, government and the private sector. Perhaps most noteworthy, Dr. Shaibe is a co-inventor of the Internet. In addition Gary G. Chabot has joined the Company as the Chief Financial Officer.

The management of the Company will be focusing their efforts on producing ongoing revenues and controlling expenses.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

In addition to routine litigation that is incidental to its business, the Company is a party to the following litigation:

     Hadyk, et al. V. John G. Babish, et al.: This case was commenced in New York State Supreme Court (Onondaga County) in June 1993 by certain persons, individually and doing business as In Vitro Bioanalytic Systems, against the Company, Dr. John G. Babish, a former officer and director of the Company, and Edward Heslop, a founding shareholder of the Company, primarily as an action for money damages and injunctive relief against the Company for alleged misappropriation of proprietary information and unfair competition. The plaintiffs allege, among other things, that in 1990, prior to the Company’s incorporation, a partnership has been formed with Messrs. Babish and Heslop to commercialize products that the Company was developing. Damages, an accounting and an injunction are being sought against the Company. By decision dated September 14, 1994, the Court dismissed certain of the plaintiffs’ claims against the Company while permitting a claim alleging unfair competition to proceed. Discovery has been temporarily stayed pending resolution of a motion for summary judgment brought by certain of the Company’s co-defendants. That motion, if successful, will fully resolve the case in favor of the Company. The Company believes that the suit against it is without merit and intends to defend the case vigorously.

Item 6(a)   Exhibits

               None

Item 6(b)   Reports on Form 8-K

                None

SIGNATURES

     In accordance with Section 13 or 15 (d) of the Securities and Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date March 3, 2000

PARACELSIAN, INC.