| 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 June 30, 2001.

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

-----------

PARACELSIAN,          INC.

------------------------------------------------------

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

| Delaware                                                                                                          |   | 16-1399565                                    |
|-------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|
| -----------                                                                                                       |   | -----------------                             |
| (State          or other jurisdiction of incorporation or organization)                                           |   | (I.R.S.          Employer 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 23,526,849 shares of Common Stock outstanding at May 1, 2001

**(PAGE          1)**

**Paracelsian,          Inc. and Subsidiary**

Index |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Page |
| PART I. - FINANCIAL          INFORMATION

Item 1.  Financial          Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Consolidated Balance Sheet          as of June 30, 2001 (Unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 3 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Consolidated Statements          of Operations for the three months and nine months ended June 30, 2001          and 2000 and the cumulative period from inception to June 30, 2001 (Unaudited)                                                                                                                                                                                                                                                                                                                                                          | 4 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Consolidated Statements          of Cash Flows for the nine months ended June 30, 2001 and 2000 and the          cumulative period from inception to June, 2001 (Unaudited)                                                                                                                                                                                                                                                                                                                                                                              | 5 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Notes to Consolidated Financial Statements (Unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 7 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Item. 2 — Management’s Discussion and Analysis          of Financial Condition and Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                       | 10 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| PART II — OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Item 1 — Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 12 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Item 6 — Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 13 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Signatures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 13 |

| **Paracelsian,          Inc. and Subsidiary**(A Development          Stage Company)           Consolidated Balance Sheet           June 30, 2001 (Unaudited) |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|            |                      | March          31, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          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|            | Assets                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Current Assets: |                      |
|            | Cash and cash equivalents | $13,718          
Prepaid expenses          

10,440          
Other current assets          

28,226
    
        Total          current assets

52,384            
Equipment, net          

90,162        
Interest Receivable

54,335        
Note Receivable

148,750        
Other Assets: 
   
Patents and trademarks,          net 

202,876
      
496,123
      
$548,507
    
Liabilities          and Stockholders' Equity (Deficit) 
  
Current Liabilities:          
    
Accounts payable          

$403,869          
Accrued expenses          

873,405          
Current portion          of capital lease obligation 

1,762          
Current portion          of notes payable 

100,440          
Advances from related          party

310,678            
        Total          current liabilities 

1,690,154

Long-term Liabilities:          
    
 Long-term portion          of capital lease obligation 

6,084
 Long-term        portion of notes payable 10,800    
        Total          current and long-term liabilities 

1,707,038
      
Stockholders' Equity          (Deficit) 
    
Common Stock, $.01          par value; 35,000,000 shares authorized; 
    
         23,526,849          shares outstanding 

235,431
        
Additional paid-in-capital          

25,413,029          
Deficit accumulated          during the development stage

(25,464,476)          
Treasury stock,          at cost; 265,478

(1,342,515)
    
        Total          stockholders' equity (deficit) 

(1,158,531)
    $548,507  See        accompanying notes to consolidated financial statements.  
**Paracelsian, Inc. and Subsidiary**

(A          Development Stage Company)Consolidated Statements of OperationsFor the three months and nine months ended June          30, 2001 and 2000,And the cumulative period from inception to June          30, 2001(Unaudited)
              
Three          Months Ended           June 30,

Nine          Months Ended           June 30, 

Cumulative          Period          from Inception to          June 30, 
  
2001          

2000          

2001          

2000          

2001

Revenues: 
               Ah-IMMUNOASSAY®
83,620        
166,800        
206,741        
283,158        
665,365  
Marketing rights          

-        
-        
-        
-        
393,048  
 Products 

365        
14        
3,879        
1,152        
259,545  
Product testing          

3,727        
28,954        
12,989        
79,846        
171,718  
Product royalties          

-        
-        
-        
-        
1,246  
Subscription revenue          

-        
-        
-        
-        
 31,625    
        Total          Revenues 

87,712

195,768

195,768

195,768

1,522,547
              
Operating expenses:          
            
Research and product          engineering 

36,224        
289,164        
291,920        
593,950        
 9,473,951          
General and administrative          

431,269        
452,036        
896,827        
1,028,373        
15,347,010          
Product launch          costs 

-        
-        
-        
-        
300,544          
Cost of products          sold 

180        
-        
1,932        
-        
268,644            
        Total          Operating expenses 

467,673

741,200

1,190,679

1,622,323

25,390,149
    
Loss from operations          during the development stage 

(379,961)

(545,432)

(967,070)

(1,258,167)

(23,867,602)
              
Interest income          (expenses), net 

(13,077)

-

7,200

16,312

486,310
            
Gain on sale of          assets 

6,328

-

-

-

44,816
    
Net loss during          the development stage 

$(386,710)

(545,432)

(959,870)

(1,241,855)

(23,336,476)
      
Basic and diluted          net loss per share of common stock 

$(0.01)

(0.03)

(0.04)

(0.06)
        
Weighted average          number of Common Shares outstanding 

23,529,201

20,731,317

23,500,739

20,925,273
            
See accompanying          notes to consolidated financial statements.
  
**(PAGE 4)**

**Paracelsian,  Inc. and Subsidiary**(A Development Stage Company)Consolidated Statements of Cash FlowsFor the nine months ended June 30, 2001 and 2000,And the cumulative period from inception to June 30, 2001(Unaudited)
      
Cumulative          
      
Period          from 
  Nine          Months Ended  
Inception          to 
  June          30 ,  
June          30 , 
  2001 2000           
2001          
 Cash        flows from operating activities:   
Net loss 

$(959,870)         
(1,241,855)         
(23,336,476)         
Adjustments to          reconcile net loss to net cash used in operating activities:               
          
Gain on the sale          of assets 

(6,328)         
-         
(13,296)  
Non-cash compensation          expense 

-         
-         
1,484,477          
Other non-cash          expenses 

9,176         
61,734         
2,071,985          
Depreciation and          amortization 

59,169         
177,237         
2,406,514          
Changes in assets          and liabilities: 
        Interest        receivable 
(19,135)
 
- 
 
(45,988)
   Inventories        
926
 
- 
 
- 
   
Prepaid expenses          and other current assets 

(46,528)
 
17,349
 
(89,827)
   
Accounts payable          

103,782
 
143,420
 
466,032
   
Deferred revenue          

- 
 
(57,000)
 
- 
   
Accrued expenses          

168,569
 
(89,257)
 
566,312
               Net        cash provided by (used in) operating activities: 
(433,088)         
(843,592)         
(16,233,116)                    Cash        flows from investing activities:         Purchase        of equipment 
(3,237)         
-         
(741,103) Proceeds        from sale of equipment 
10,860         
-         
37,828         Acquisition        of licensed technology 
-         
-         
(53,656)         Acquisition        of patents and trademarks 
(6,079)         
-         
(499,251)         Acquisition        of New Century Nutrition newsletter 
-         
-         
(350,000)         Acquisition        of option for East West Herbs, Ltd. and related acquisition costs 
-         
-         
(92,866)         Loan        to East West Herbs, Ltd.
-         
-         
(340,000) Proceeds        from loan to East West Herbs, Ltd.
-         
-         
42,500                    Net        cash used in investing activities 
1,544         
-         
(1,996,548)              Cash        flows from financing activities:         Sale        of common stock, initial public offering, net of costs 
-         
-         
5,124,014         Sale        of common and preferred stock, net of costs 
-         
-         
11,776,088         Proceeds        from the sale of common stock 
-         
500,000         
500,000         Proceeds        from the exercise of warrants
-         
-         
1,219,640         Proceeds        from the exercise of options 
-         
-         
68,900         Purchase        of treasury stock 
-         
-         
(1,342,515)         Cost        of warrant dividend 
-         
-         
(63,102)         Increase        in capital lease obligations and notes payable 
-        
-        
115,868         Payment        on capital lease obligations 
(703)         
(7,674)         
(23,366)         Proceeds        from advances from related party 
-         
-         
797,350         Payments        on advances from related party 
-         
-         
(105,473)         (Decrease)        increase in notes payable
218,842         
280,673         
175,978                      Net        cash provided by financing activities
218,139         
772,999         
18,243,382              Net        increase (decrease) in cash and cash equivalents
(213,405)         
(70,593)         
13,718        Cash        and cash equivalents, beginning of period 
227,123         
72,754         
-              Cash        and cash equivalents, end of period
$13,718         
2,161         
13,718              Supplemental        disclosures:         Cash        paid during the period for interest
8,018         
3,421         
89,332              Supplemental        disclosure of non-cash investing & financing activities:         Fair        value of assets acquired, net of cash acquired
$-         
-         
1,733,212 Less        - liabilities assumed
-         
-         
83,212         Less        - issuance of common stock
-         
-         
1,644,000                      Net        cash paid
-         
-         
6,000               Warrant        dividend
-         
-         
500,000         Issuance        of common stock/warrants for services and to reduce liabilities 
-         
-         
1,455,432         Purchase        of equipment
-         
-         
90,950         Purchase        of officer stock subscription receivable 
-         
-         
89,850         Issuance        of common stock for licensing and technology rights 
$-         
-         
3,338                 See        accompanying notes to consolidated financial statements        
**(PAGE 5)**

See accompanying notes to consolidated          financial statements

**Paracelsian,          Inc. and Subsidiary**

(A Development          Stage Company)

NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS           June 30, 2001 

(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 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 for the fiscal year ended September 30,          2000.

 

2. 	ORGANIZATION,          BUSINESS, AND RISK FACTORS:

Organization and          Business

Paracelsian is a development stage company, which develops          and applies bioassays to monitor environmental toxins, to determine          the quality of herbal products, and to identify therapeutic compounds          from herbal sources (www.paracelsian.com). 

The Company has developed a highly sensitive, user friendly,          cost effective testing system for the detection and quantification of          highly toxic environmental chemicals generally known as dioxin and dioxin-like          compounds. It is called the Ah-IMMUNOASSAY® Kit (AH-1 Method).

Since the discovery of the dioxin compounds, during          the late 1950’s, extensive research has been undertaken into their          chemical and biological properties. And as more information becomes          available, it is now clear that the original and narrowly defined group          of ‘dioxins’ is becoming more expansive to include many other          highly toxic, chemically similar compounds. 

Dioxin, although singular in name, is actually comprised          of at least 17 chemical variants or congeners of a larger dioxin family.          These chemicals are highly toxic, with the most active congener (TCDD)          being the most toxic chemical ever discovered. The number of chemicals          with dioxin-like activity is even much larger still than the 17 original          polychlorodibenzo-p-dioxin (PCDD) families, such as the polychlorodibenzofurans          (PCDF), the polychlorinated biphenyls (PCBs), the polybrominated biphenyls          (PBBs), the polycyclic aromatic hydrocarbons (PAHs), the heterocyclic          amines (HAs), among others.

Probably no other group of chemicals has invoked more          public health concern and received more media attention than these dioxin          and dioxin-like substances, both because of their widespread distribution          and their capability for serious toxicity (e.g., cancer, birth defects,          diabetes, hormone disruption, immunologic dysfunction, etc.). The Environmental          Protection Agency (EPA) of the United States has concluded, for example,          that more than 100 of these dioxins and dioxin-like chemicals are likely          human carcinogens.

Waste incineration is a major source of these chemicals.          Paper mill bleaching and varied industrial syntheses also add significant          amounts to the environment. Following release into the air, perhaps          also into waste water or sludge, these chemicals then settle on plant          material, soil, and water where they are likely to persist for very          long periods of time. As a consequence, they tend to accumulate either          onto particulate matter (such as found at the bottom of bodies of water),          or into body fat reservoirs of animals and fishes which feed on the          plants. And because of their stability and persistence, these chemicals          accumulate to relatively high levels in animal based foods.

Investigating the distribution and toxicities of these          chemicals has been challenging, both because of the ever-growing number          of chemicals with dioxin-like activity and the difficulty of predicting          toxicities. Because of these complexities, analysis of these chemicals          has been very expensive, with the results being difficult to interpret.

More recently, simpler analytical methods have been          developed, such as the AH-1 Method, based on the use of biologically          based concepts. Dioxins and dioxin-like chemicals (also called ligands),          enter the cell and bind to a protein in the cytoplasm called Ah receptor          (AhR), thus giving a ligand-AhR complex. This complex, by dropping and          adding some smaller proteins (e.g., AhR translocator or ARNT, hsp-90          protein) is said to be ‘transformed’, thus enabling it to          enter the nucleus to bind to a specific ‘dioxin receptor element’          (or enhancer) (DRE) of DNA. This interaction with DNA occurs ‘upstream’          of genes which then are activated to produce certain enzymes, some of          which are highly correlated with the subsequent toxicity. 

The AH-I Method takes advantage of these facts. It is          generally acknowledged, for example, that AhR binding appears to be          essential for the development of toxicity by these chemicals. It is          as if ligand binding of AhR is the main traffic intersection through          which these chemicals pass on their way to produce their respective          toxicities. 

In the AH-I Method, where an excess of AhR protein is          provided, the amount of AhR-ligand complex that transforms is dependent          on the amount of dioxin ligand present in the sample being assayed.          The amount of the transformed complex is detected by using an antibody          specific for the Ah-I protein component of the complex, thus giving          the ‘Immunoassay’ name to the method. (For the scientifically          minded reader, there really are two antibodies: the first interacts          with the ARNT protein in the complex while the second, containing an          enzyme that catalyzes the formation of the color reaction, binds to          the first antibody. The color being produced in the reaction shows how          much of the complex is present.). 

Dioxin is a toxic chemical group of widespread public          health concern, and more information is needed, especially on the distribution          of this material in the environment. More survey data are needed not          only to identify potential ‘hot spots’ but also to allay unwarranted          concerns. Until now, such survey work has been prohibitively expensive,          but with the introduction of simpler and much more cost effective bioassay          methods, such as the AH-1 Method, it is now possible to gather far more          information in order to make wiser decisions.

The herbal supplement market presents the opportunity          to commercialize a quality assurance program that identifies the bioactivity          present in herbal products, which are complex mixtures of substances.          This product is a significant advance versus current practices for verifying          the quality and the bioactivity of herbal products. This is the Company’s          BioFITTM Quality Assurance Certification Program. 

Typically, the Company will investigate the effect of          a compound or mixture of compounds on a disease (such as cancer) or          a symptom (such as depression). The Company scientists conduct in depth          research of the scientific literature and review the results of successful          clinical trials to establish the best scientific explanation for the          positive results seen in such trials. Based on their review, they identify          the biological mechanism which, if activated, would best explain the          positive clinical results. By defining such mechanisms of action associated          with a wide variety of biological effects the Company scientists can          then test a wide variety of natural materials in "in vitro"          models which demonstrate these effects for the purpose of either discovering          or confirming these biological activities. Such discovery or confirmation          provides the Company with the basis for its BioFITTM Program.

The Company is continuing to work with its Chinese colleagues,          during the appropriate market conditions, to expand the scope of the          BioFITTM program to the rest of the world. 

The Company is engaged in an internet-based health exchange          between the US and China and currently maintains the website www.newcenturynutrition.com.          The Company has excellent relations with recognized health authorities          and organizations within the People’s Republic of China. This website          serves to provide a forum for the exchange of nutrition, health and          related information. At its core is the New Century Nutrition website          where renowned researchers, teachers and physicians from both countries          can discuss their philosophies, research findings and health advice.          Other components of the site include an herbal resource center featuring          herbal databases from China, a nutrition resource center featuring healthy          recipes and a technology center featuring the Ah-IMMUNOASSAY® Kit          and the BioFITTM Program. Our goal is to combine the best of Chinese          medical practice with the best of Western practice creating new opportunities          for information on health and disease prevention.

Development Stage          Company and Risk Factors

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          $960,000 for the nine months ended June 30, 2001 and had a working capital          deficit of approximately $1,638,000 at June 30, 2001. Operating expenses          decreased by $431,000 (27%) as a result of decreases in a variety of          expense categories including salaries, office expenses, materials and          supplies, director fees and amortization, as part of the company's program          to control costs. Management believes that revenues          from the sale of Ah-IMMUNOASSAY® Kits, additional license fees and          funding for kit upgrades will accelerate throughout the coming year,          and coupled with a continual program to control costs, the Company will          achieve positive cash flow from operations during 2002. Until such revenues          are realized on a sustained basis, the Company will require additional          capital to meet its obligations and continue operations. 
- COMMITMENTS:

On January 19, 1995 Paracelsian, Inc. granted to DOW          Chemical Company a worldwide non-exclusive license to evaluate and practice          all aspects of proprietary information related to environmental bioassay          apparatus and testing. The proprietary information referred to is Paracelsian’s          Ah-IMMUNOASSAY® Kit. DOW paid the Company $250,000 for the non-exclusive          license. On November 2, 1998 officials of the DOW Chemical Company and          Paracelsian Inc. signed a License Revocation Agreement. Paragraph 3.3          of the agreement states that Paracelsian agrees to pay DOW 10% of all          sublicensing fees and 10% of any net sales derived from the proprietary          information which were the subject of the License Agreement between          DOW and Paracelsian. The maximum total value for any and all such payments          shall not exceed $250,000. To date, the Company has received $407,995          in sublicensing fees and sales derived from the proprietary information,          and the Company has accrued $40,799.50 to account for its liability          to DOW. 

On July 1, 1991 the Cornell Research Foundation (CRF)          granted to Paracelsian, Inc., under a royalty agreement, an exclusive          license to make, have made, use or sell Licensed Products referred to          as Paracelsian’s Ah-IMMUNOASSAY® Kit. Paracelsian agreed to          pay to CRF a royalty of three percent on the net sales price of Licensed          Products, and the Company has accrued $7,739.85 to account for the royalty.          Paracelsian also agreed to pay CRF for all expenses incurred in the          preparation, filing, prosecution, renewal and continuation of License          Patents and Applications, as well as a 15% administrative fee. The Company          has accrued the charges invoiced of $137,399 to account for these expenses,          and is contesting the amount.

In December 1999, the SEC issued Staff Accounting Bulletin          No. 101 (SAB 101), which provides guidance in applying revenue recognition          and financial statements under accounting principals generally accepted          in the United States of America. SAB 101, as amended, will require implementation          by the Company in the fourth quarter of fiscal 2001. The Company is          presently reviewing the SAB to determine the impact the Bulletin will          have on the Company's financial statements.

**(Page          7)**

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

Nine          months ended June 30, 2001 as compared to the 

Nine          months ended June 30, 2000

As a development stage          enterprise, the Company, since inception, has been primarily engaged          in research, product engineering, and capital formation. As such, the          Company has not generated significant revenues to date on a recurring          basis.

The Company signed a          final Licensing Agreement on January 21, 2000 with Kubota Corporation          for the sale of Paracelsian’s Ah-IMMUNOASSAY® in the Japanese          market and began manufacturing and selling kits to Kubota. This 'bioassay'          based kit is rugged, user-friendly, portable, analytically sensitive,          and low cost when compared with existing methodology. The agreement          with Kubota will provide revenues from the sale of kits and royalties.          

On June 15, 2000 the          Company announced that in accordance with the License Agreement, Kubota          agreed to pay the initial $150,000 License Fee. The License Agreement          also calls for a second payment of $150,000 within (30) days of the          third anniversary of the Agreement. Kubota after using and evaluating          the Ah-IMMUNOASSAY® concluded that the methodology is effective          for their purposes, and Kubota paid the $150,000 on August 8, 2001,          seventeen months sooner. Also, on June 17, 2001 Kubota announced that          they will be paying the Company $350,000, earmarked for upgrading the          Ah-IMMUNOASSAY® Kits. The first payment of $175,000 will be made          in September 2001. The remaining 50% will be paid in three installments          beginning December 2001. 

The Ah-IMMUNOASSAY®          Kits are continuing to be sold to the Kubota Corporation          for the sale and distribution of the Ah-IMMUNOASSAY®          in Japan. Kubota has been ordering kits on a regular          basis, placing orders for approximately 30-50 kits per month since the          Fall of 2000, and in June 2001 the Company filled orders for a 100 kits,          the first time this level has been reached within a 30 day period. The          breakeven point for the Company is 200 kits per month, and manufacturing          procedures are in place to process orders of that magnitude.

In July 2001, representatives of a large          customer of Kubota visited the Company and shared the results of 135          samples for fly ash, an incinerator by-product. Working with the representatives,          the Company was able to support the further use of the Kit for their          future screening needs.

Kits have also been sold to Cypress          Diagnostics in Belgium for the testing of animal feed. The University          of Liege in Belgium has purchased kits for animal serum and tissue screening,          and on July 14, 2001 a leading worldwide dioxin researcher from the          University visited the Company to review the results of his work on          cleanup procedures for various sample types. 

The Danish and Veterinary and Food Administration          have purchased kits for the testing of fish, milk and fat. MCS Diagnostics          is testing our kit for use in the German milk program. Dynex Technologies          is using the kit for animal feed, food and environmental samples in          the Czech and Slovak Republics. KNJ Engineering is using the kit with          one of their customers, LG Chemical of Korea. KNJ sells dioxin-sampling          equipment to incinerators and other applications in Korea. The Company          has also begun discussions with Marubeni for exclusive distribution          in Korea. Solutia has purchased the kit for testing organic material,          and Scientific Supply Company purchased the kit for soil, milk powder          and feed samples. 

Sales have also been made to Bristol          Myers Squibb, Lockheed Martin and a firm in Portugal. We are in continual          contact with representatives at Lockheed Martin on the use of our Kit,          reviewing with them test results and working toward performing test          of samples in our laboratory.

Additionally, the Company has a note receivable outstanding,          including accrued interest, with a balance outstanding of $370,000.          The Company is continuing its efforts to collect the entire amount of          this receivable, and has submitted a proposal to the holder of the note          for cash, plus the assignment of the note holder’s interest in          his USA subsidiary. 

The Company also has an inventory of Andrographis paniculata          that it is attempting to sell through its Internet sites (www.newcenturynutrition.com          and www.paracelsian.com/). Andrographis is an annual plant that grows          in much of Asia. Modern research has examined the effect of Andrographis          on various viral infections and general immunological functions, and          the research has indicated very promising results. Because this inventory          has been slow moving, the Company has written it off completely. However,          the Company will continue with its efforts to sell this inventory. If          it is successful in its efforts, the retail value could approximate          $400,000. 

The Company’s plan is to continue to advance the          Ah-IMMUNOASSAY®          technology so as to be the premier screening and          monitoring methodology within the worldwide marketplace. To fund certain          of its continual development expenses the Company, in July 2001, received          word that a grant from the New York State Energy Research and Development          Authority, which could result in funding up to $180,000, is in the final          stages for approval. 

On July 16, 2001 the Company signed an agreement with          the Institute of Nutrition and Food Hygiene, the leading laboratory          of the national government located in Beijing, People’s Republic          of China. The Institute agreed to provide research services to Paracelsian,          related to acceleration of advancements to the Ah-IMMUNOASSAY ®          Kit, and assistance in achieving a leadership position in the worldwide          marketplace.

Management is also aggressively seeking an investment          of at least $1,000,000 to strengthen its working capital position, and          active discussions with a number of interested parties are continuing.          Current monthly cash requirements in order to sustain meaningful operations          are approximately $65,000 and management fully expects to meet its financial          obligations as described above. 

The actions described above represent the Company’s          plans to generate cash flow, thereby enabling the Company to continue          to operate as a going concern. There is no assurance that these efforts          will be successful.

**Results of Operations**

The Company’s net          loss for the third quarter of fiscal 2001 was approximately $387,000          compared to $545,000 in the third quarter of fiscal 2000. Revenues for          the three-month period were $88,000 in 2001 as compared to $196,000          in 2000. The decrease in revenues of $108,000 is due to the receipt          of the initial $150,000 license fee from Kubota Corporation in June          2000, offset by additional sales of the Ah-IMMUNOASSAY® Kit. Operating          expenses for the three-month period were approximately $468,000 compared          to $741,000 for the third fiscal quarter of the prior year. The decrease          of $273,000 (37%) is due to a decrease in a number of expense categories          including salaries, office expenses, materials and supplies, director          fees and amortization. The management team is continuing to operate          with modest staff levels and has been focusing on continuing to optimize          the use of its resources, increasing its customer base and generating          revenues.

**Liquidity & Capital          Resources**

As of June 30, 2001,          the Company had cash of $13,700 and a net working capital deficit of          $1,638,000. Management believes that it can continue to raise additional          capital, to support its operations until such time as the revenue stream          is sufficient to realize positive cash flow in 2002. Management believes          that the additional financing coupled with its expected revenues from          the Ah-IMMUNOASSAY®, additional license fees, funding of kit upgrades,          the collection of the outstanding note receivable and the sale of its          inventory of Andrographolide will enable the Company to further improve          its operating efficiency and to continue its operations into the future.

**Management and The          Board**

On July 27, 2001 the Board of Directors announced the          appointment of NoriYoshi Inoue to the position of President & CEO.          Mr. Inoue is a Senior Executive with over twenty-five years of international          management, manufacturing, corporate strategy, marketing and sales experience.          He has been Deputy General Manager and International Marketing Manager          for Kubota Corporation. Mr. Inoue will retain his seat on the Board          of Paracelsian, and Dr. T. Colin Campbell will retain the title of Chairman          of the Board. The Board also approved of Gary G. Chabot, the Chief Financial          Officer of Paracelsian, also assuming the position of Chief Operating          Officer.

The management of the Company will be focusing their          efforts on bringing the Company products and services to market in a          timely manner, producing ongoing revenues and controlling expenses.          

**Short Term Advances**

BioSignia, Inc., the          Company’s largest shareholder, has advanced interim funds to the          Company for working capital purposes. The Company agreed to repay the          funds, together with interest at an annual rate of 10%, at the earlier          of 30 days from the date of the advance or the receipt by the Company          of proceeds from the sale of stock. On June 19, 2000, the Board of Directors          agreed to accept BioSignia's offer to convert $500,000 of debt into          common stock of Paracelsian at $.40 per share. Through June 30, 2001,          the principal portion of advances from BioSignia aggregated $310,677.

**Patents**

The Japanese Patent Office in March 2001 issued to the          Company Patent # 3144689 for the detection of dioxin-like compounds          through the use of the Paracelsian’s Ah-IMMUNOASSAY® Kit. This          patent, which is equivalent to US patent # 6,127,136 is Paracelsian’s          sixth patent related to the Ah-IMMUNOASSAY® Kit

**Forward Looking Statements**

Certain statements in this Form 10-Q "Management's Discussion          and Analysis of Financial Condition and Results of Operations" constitute          "forward looking statements" within the meaning of the Private Securities          Litigation Reform act of 1995. Such forward looking statements involve          known and unknown risks, uncertainties and other factors which may cause          the actual results, performance or achievements of the Company to be          materially different from any future results, performance or achievements          expressed or implied by such forward looking statements. Such factors          include, among others, the following: success of operating initiative,          advertising and promotional efforts, acceptance of new product offerings,          availability, changes in business strategy or development plan, availability          and terms of capital, labor and employee benefit costs, and other factors          specifically referred to in this 10-Q.

**(Page          10)**

PART II		OTHER INFORMATION

Item 1.		Legal Proceedings

Hadyk, et al. V. John G. Babish, et al.

On February 14, 2001 the *Hadyk, et al. V. John G.          Babish, et al.* case that was commenced in the New York State Supreme          Court (Onondaga County) in June 1993 by certain persons against the          Company was dismissed. 

This case was commenced by certain person, 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 alleged, among other things, that in 1990, prior to the          Company’s incorporation, a partnership had been formed with Messrs.          Babish and Heslop to commercialize products that the Company was developing.          Damages, an accounting and an injunction were 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 had been temporarily          stayed pending resolution of a motion for summary judgment brought by          certain of the Company’s co-defendants. That motion was successfully          and fully resolved, and the Court, on February 14, 2001, ruled in favor          of the Company. The Court not only exonerated the Company of any wrongdoing,          but also rejected the plaintiffs’ fundamental premise that they          had a property interest in the technology at issue in this case. 

**(Page          12)**

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	August 14, 2001

PARACELSIAN, INC.

 

                                                                                                         PARACELSIAN, INC.

                                                                                                                                                                                                         By:/s/          NoriYoshi Inoue                                                                                                                   -------------------------------------                                                                                                                  NoriYoshi Inoue                                                                                                                  President,                                                                                                                  Chief Executive Officer

                                                                                              By/s/          GARY G. CHABOT                                                                                                                  ---------------------------------                                                                                                                  Gary G. Chabot                                                                                                                  Principal Accounting Officer

 

**(PAGE          13)** |