PARADIGM GENETICS INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2004.

¨	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

incorporation or organization)

(I.R.S. Employer

Identification No.)

108 T.W. 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 x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12B-2 of the Exchange Act). 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 August 3, 2004

36,322,525

PARADIGM GENETICS, INC.

INDEX



		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Balance Sheets – June 30, 2004(unaudited) and December 31, 2003	3

	Condensed Statements of Operations – Three and six months ended June 30, 2004 and 2003 (unaudited)	4

	Condensed Statements of Cash Flows – Six months ended June 30, 2004 and 2003 (unaudited)	5

	Notes to Condensed Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	24

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 2.	Changes in Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Submission of Matters to a Vote of Security Holders	25

Item 5.	Other Information – Risk Factors	26

Item 6.	Exhibits and Reports on Form 8-K	33

Signature		34

Exhibit Index		35

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

PARADIGM GENETICS, INC.

CONDENSED BALANCE SHEETS


	June 30, 2004			December 31, 2003
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	4,685,913		$	7,157,308
Short-term investments		6,037,290			9,127,200
Accounts receivable		1,587,156			2,975,800
Interest receivable		41,474			116,493
Prepaid expenses		534,989			784,350
Inventory		223,739			128,621

Total current assets		13,110,561			20,289,772
Restricted cash		1,404,543			1,404,543
Property and equipment, net		16,486,345			17,337,042
Other assets, net		3,775,366			422,357

Total assets	$	34,776,815		$	39,453,714

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	1,853,654		$	1,131,946
Accrued liabilities		2,810,310			2,141,000
Deferred revenue		6,899,396			8,200,970
Long-term debt—current portion		2,146,281			2,152,663
Capital lease obligation—current portion		61,854			109,991
Revolving line of credit		—			2,331,514
Other current liabilities		—			25,724

Total current liabilities		13,771,495			16,093,808
Long-term debt, less current portion		2,815,702			3,807,173
Capital lease obligation, less current portion		—			39,055
Contingent purchase consideration		1,108,453			—

Total liabilities		17,695,650			19,940,036

Commitments
Stockholders’ equity:
Convertible preferred stock, $0.01 par value; 5,000,000 shares authorized, none issued or outstanding		—			—
Common stock, $0.01 par value; 100,000,000 and 50,000,000 shares authorized; 36,290,476 and 32,605,493 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively		362,904			326,055
Additional paid-in capital		108,528,764			103,647,048
Deferred compensation		—			(1,806	)
Accumulated deficit		(91,848,483	)		(84,559,208	)
Accumulated other comprehensive income		37,980			101,589

Total stockholders’ equity		17,081,165			19,513,678

Total liabilities and stockholders’ equity	$	34,776,815		$	39,453,714

The accompanying notes are an integral part of these condensed financial statements.

PARADIGM GENETICS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Revenues:
Commercial and government contracts	$	5,910,524		$	5,281,995		$	10,275,143		$	9,120,839
Grant revenues		343,923			314,784			867,362			543,123

Total revenues		6,254,447			5,596,779			11,142,505			9,663,962

Operating expenses:
Research and development		6,754,551			6,542,106			12,876,882			12,392,037
Selling, general and administrative		3,056,605			2,416,310			5,454,236			4,650,254

Total operating expenses		9,811,156			8,958,416			18,331,118			17,042,462

Loss from operations		(3,556,709	)		(3,361,637	)		(7,188,613	)		(7,378,500	)

Other income (expense):
Interest income		53,068			94,896			113,307			203,561
Interest expense		(117,245	)		(198,609	)		(239,916	)		(431,875	)

Other income (expense), net		(64,177	)		(103,713	)		(126,609	)		(228,314	)

Loss from continuing operations		(3,620,886	)		(3,465,350	)		(7,315,222	)		(7,606,814	)
Discontinued operations:
Gain (loss) from discontinued operations		3,225			(121,314	)		25,950			(96,645	)

Net loss	$	(3,617,661	)	$	(3,586,664	)	$	(7,289,272	)	$	(7,703,459	)

Per common share—basic and diluted:
Loss from continuing operations	$	(0.10	)	$	(0.11	)	$	(0.21	)	$	(0.24	)
Gain (loss) from discontinued operations		—			—			—			—

Net loss	$	(0.10	)	$	(0.11	)	$	(0.21	)	$	(0.24	)

Weighted average common shares outstanding – basic and diluted		36,240,749			32,068,378			34,832,896			32,054,311

The accompanying notes are an integral part of these condensed financial statements.

PARADIGM GENETICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2004			2003
Cash flows from operating activities:
Net loss	$	(7,289,272	)	$	(7,703,459	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,747,372			2,573,873
Stock-based compensation		1,806			719,681
(Gain) loss on sale of property and equipment		(34,674	)		131,961
Changes in operating assets and liabilities excluding impact of acquisition:
Accounts receivable		1,389,178			812,180
Interest receivable		75,019			166,542
Prepaid expenses and other assets		232,076			588,283
Inventory		(95,118	)		—
Accounts payable		700,180			313,234
Accrued and other current liabilities		(78,144	)		649,653
Deferred revenue		(1,308,390	)		(1,697,759	)

Net cash used in operating activities		(3,659,967	)		(3,445,811	)

Cash flows from investing activities:
Purchase of property and equipment		(455,411	)		(434,307	)
Proceeds from sale of property and equipment		220,000			320,000
Acquisition costs		(465,834	)		—
Cash from acquisition		2,521,982			—
Purchase of investments		(3,043,089	)		(3,013,444	)
Maturities of investments		6,069,390			9,089,130

Net cash provided by investing activities		4,847,038			5,961,379

Cash flows from financing activities:
Repayments of notes payable		(680,140

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