|SECURITIES
        AND EXCHANGE COMMISSION
        WASHINGTON, D.C. 20549
        FORM. 10-KSB
      [ X ]	ANNUAL REPORT
        UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
        FISCAL YEAR ENDED SEPTEMBER 30, 2001.
      [    ]
        TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ______________.
      Commission
        File No. 0-19844
        ----------------------------------------------------------
      PARACELSIAN,
        INC.
        ----------------------------------------------------------------------------------(Name of small
        business issuer in its charter)
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|Delaware
          -------------------------- (State or other jurisdiction
          of incorporation or organization)                                                                                                          | 16-1399565
          ---------------------------- (I.R.S. Employer
          Identification No.)
|                                                                                                                                                                                                                                |                                                                                                 
|222
          Langmuir Laboratories 
          Cornell Technology Park
          Ithaca, New York----------------------------------------------------------------------------(Address of principal
          executive offices) | 14850-----------------------Zip Code                                                            
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|Issuer's
          telephone number: (607) 257- 4224
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|Securities
          registered under Section 12(b) of the Act: None                                                                                                                                                            |                                                                                                 
|Securities
          registered under Section 12(g) of the Act:                                                                                                                                                                 |                                                                                                 
|                                                                                                                                                                                                                                |                                                                                                 
|Common
          Stock, $.01 par value
          ------------------------------------------------- 
          (Title of class)                                                                                                  |                                                                                                 
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|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
        [  ] No [ X ]
      Check if there is
        no disclosure of delinquent filers in response to Item 405 of Regulation
        S-B is not contained in this form, and no disclosure will be contained,
        to the best of registrant's knowledge, in definitive proxy or information
        statements incorporated by reference in Part III of this Form 10-KSB or
        any amendment to this Form 10-KSB. [  ]
      Issuer's revenues
        for its most recent fiscal year were $284,318
      The aggregate market
        value of the voting stock (based on the closing price of such stock on
        NASD OTC Electronic Bulletin Board) held by non- affiliates of the Registrant
        at January 14, 2002 was approximately $3,970,030
      There were 23,929,388
        shares of Common Stock outstanding at January 14, 2002.
      PART
        I
      Item 1. DESCRIPTION
        OF BUSINESS
      Company History
      Paracelsian, Inc.
        ("Paracelsian" or the "Company") is a Delaware corporation that was incorporated
        in 1990. The Companys initial strategy was to refine and commercialize
        the Ah-IMMUNOASSAY® for environmental applications. Management of
        the Company at that time believed that the refined Ah-IMMUNOASSAY®
        would be effective as an inexpensive and easy to use test for the screening
        and monitoring of polluted soil and water samples. The Company received
        a patent for this application in October 1993, and began to develop a
        program to commercialize the technology. The result of this work is the
        Toxicological Screening Assay system.
      In 1994, the Company
        purchased Pacific Liaisons. Pacific Liaison brought to Paracelsian a close
        working relationship with health and research authorities. Pacific Liaison
        also contributed to Paracelsian a library of 2,764 Traditional Chinese
        Medicine (TCM) herbal extracts, and access to Chinese medical and herbal
        databases which contained clinical and research data on the known functions,
        active compounds, and mechanisms of action for each of the 2,764 herbal
        extracts.
      In 1995, other patented
        assays developed as a result of the Companys ongoing research with
        Ah-IMMUNOASSAY® were used to screen Paracelsians library of
        TCM herbal extracts for natural compounds which would be effective in
        treating different types of cancer.
      In January 1998,
        BioSignia, Inc. (formerly Biomar International, Inc.), a Delaware corporation
        with its principal office in Chapel Hill, North Carolina ("BioSignia"),
        purchased a significant interest in the Company and a new board and management
        team was installed.
      On January 21, 2000,
        Paracelsian, Inc. and Kubota Corporation signed a License Agreement whereby
        Kubota will commercialize Paracelsians Ah-IMMUNOASSAY® in Japan.
      Company Business
      Paracelsian is a
        development stage company, which develops and applies bioassays to monitor
        environmental toxins, and to determine the quality of herbal products.
      To date, the Company
        has developed specific need-driven bioassay systems for two markets: (1)
        environmental testing and (2) herbal supplements.
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PARACELSIAN PRODUCTS


|PRODUCT                                   | MARKET                        | NEED                                                                           
|----------------------------------------- | ----------------------------- | -------------------------------------------------------------------------------
|Ah-IMMUNOASSAY®
        Kit               | Environmental
        Testing | Quick,
        low cost user friendly test for dioxin and dioxin-like chemicals
|BioFIT
        Quality Assurance Program | HerbalSupplements             | Establish
        a quality assurance program that confirms product bioactivity



|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. A public service group in Japan, for example, has compared
        the relative contributions to human exposure of the original group of
        dioxins and furans in 4 countries, and showed that food contributes about
        98% of the total exposure. Among the food residues, 80-88% of the total
        is consumed from seafood, milk, dairy products, meat and eggs; in Japan,
        the proportion of dioxin consumption from fish is much higher than for
        other countries.
      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 uses of the AH-1
        Method are twofold: screening and monitoring. On screening, a sufficient
        number of samples taken from the site under investigation will need to
        be assayed in order to identify hot spot areas with the highest
        contamination. This type of screening allows not only the setting aside
        of incorrectly suspected contamination areas, but also permits identification
        of areas of contamination needing more attention. Subsequent efforts and
        resources can then be focused on areas and samples most in need of attention
        and possible remediation.
      Monitoring refers
        to the assay of positive samples before and after treatment or remediation.
        In the case of fly ash, attempts are presently being made to destroy dioxin-like
        substances during the production process, thus the AH-I Method can be
        used to monitor the success of the intervention program. In the case of
        soil contaminated areas, there are new methods that are said to have the
        potential of degrading the dioxin-like substances already present.
      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 websitewww.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.
      The Company is attempting
        to sell its inventory of Andrographis Paniculata through the website.
        Andrographis is an annual plant that grows in much of Asia and has been
        used for centuries in India, China, Sri Lanka, and Indonesia. The herb
        is traditionally used to fight some viral infections and the associated
        symptoms, including fever, diarrhea, cough, and gastrointestinal problems.
        Modern research has been conducted over the past three decades, and much
        of this research has returned very promising results, supporting the traditional
        use of Andrographis over the past several hundred years.
      The Company owns
        an extract library of approximately 2,800 Traditional Chinese Medicines
        and other plant materials which it has screened using its proprietary
        screening technology. Through the screening process, the Company has identified
        the (10) extracts with potent in vitro activity against cancer cells as
        potential drug discovery and development candidates.
      Future revenues are
        anticipated to be derived from the sale of the dioxin testing product
        the Ah-IMMUNOASSAY® Kits and dioxin and dioxin-like chemical testing
        services, and ecommerce sales through the Internet. There can be no assurance
        that the Company will be able to attain such revenues in sufficient amounts
        to achieve profitable operations. Results of operations in the future
        will be influenced by numerous factors, including the ability of the Company
        to develop and manage the introduction of its products and services, market
        acceptance, competition and the ability to control costs.
      In 2002, the Company
        will continue to pursue the following strategies: (i) Identify and develop
        new markets in industries which will benefit from the adoption of the
        bioassay testing technologies and services; (ii) Form co-development,
        strategic partnerships and licensing partnerships in these new markets
        with the industry leaders; (iii) Structure development agreements that
        will provide up front licensing payments; and (iv) Promote the bioassay
        technologies and services as the "Industry Benchmark". These strategies
        will be executed by focusing the Companys primary activities on
        the Companys patented AH-1 Method that detects dioxins in the environment
        and provides quick, accurate and inexpensive results compared to traditional
        analytical techniques.
      Market
      Worldwide, there
        is increasing awareness of the enormous health hazards of dioxins and
        dioxin-like chemicals. This awareness is derived from a combination of
        regulatory, economic and political pressures. Many governments, including
        those in North America, Western Europe and Japan, have set levels of dioxin
        pollution that will be allowed in the environment. In addition, international
        agencies, especially those associated with the United Nations and the
        World Trade Organization, have begun formal discussions that are leading
        to the establishment of similar international regulations in the future.
      Because the demand
        for pollution abatement is driven almost entirely by government regulation,
        Paracelsian is focusing its marketing efforts on those countries that
        already have set standards for dioxin pollution. In addition, we are introducing
        our technology to key government regulators and encouraging them to consider
        the kit for use as their governments testing standard.
      The Company began
        to focus on the Japanese market for the following reasons: (1) Japan has
        a widely recognized dioxin pollution problem largely due to the greater
        us of waste incinerators for which the government has begun to enforce
        emission requirements, (2) Incinerators that do not meet government emission
        requirements are being shut down, causing disruption in many industries
        and, (3) The Japanese government has not yet imposed standards and types
        of tests to be used in monitoring pollution discharge and, as a result,
        companies are more open to new technologies which save money.
      On January 21, 2000,
        Paracelsian, Inc. and Kubota Corporation signed a License Agreement whereby
        Kubota will commercialize Paracelsians AH-1 Method in Japan. This
        agreement will provide both license fees ($300,000) and royalties. Kubota,
        a company with approximately $9 billion of revenue, is a leader in the
        control and resolution of environmental contamination problems in Japan.
        They have subsidiaries and affiliates that manufacture and/or market Kubota
        products in more than 130 countries. On June 1, 2000, as part of the License
        Agreement, Paracelsian delivered an Assessment Plan to Kubota Corp., detailing
        the Kits functionality. Kubota reviewed and evaluated the Assessment Plan,
        and accepted the AH-1 Method. Kubotas acceptance of the Assessment
        Plan, the Kit and our methodology is a milestone for Paracelsian. Kubota
        and Paracelsian are now focusing their efforts to market, sell and distribute
        the Kit throughout Japan.
      The Company also
        has received inquiries on, or has provided demonstration of the AH-1 Method
        to several other countries around the world, including China, Thailand,
        Vietnam, South Korea, The Czech Republic, The Netherlands, Belgium, Israel,
        Canada and Germany; similar initiatives have also developed in the USA.
        A proposal also has been made to the U.S. State Department that they make
        use of the AH-1 Method in their proposed joint study with Vietnam on dioxin
        contamination caused by Agent Orange.
      Paracelsian is implementing
        its marketing program through Government & Export Sales Specialists
        (GESS). GESS is a consulting/marketing company active in technology research,
        development, commercialization and marketing.
      Orders have been
        placed, training has been requested, and/or inquiries have been made for
        possible licensing for the Ah-IMMUNOASSAY® Kit from the Kubota Corporation
        (Japan), Lockheed-Martin Corporation (US), Scientific Supply Co. (for
        Thailand), Cypress Diagnostics (Belgium), and MCS Diagnostice BV (The
        Netherlands), among a few other individual customers
      Competition
      There are companies
        who have been developing bioassay type methods, similar to that of the
        AH-1 Method of Paracelsian. Several approaches have been tried, with two
        being the more prominent. Unfortunately, one requires the use of radioactivity
        while the other requires the use of live cell cultures; both therefore
        require considerable technical expertise. Neither appears to be as cost
        effective as the Paracelsian AH-1 Method, as timely, and/or, according
        to our information, as patented protected.
      The Paracelsian product
        is the first receptor based system that works in a simple-to-use and cost
        effective form. Compared to the products of the closest competitors, the
        AH-1 Method is more user friendly, provides much faster turnaround time,
        is more cost-effective, requires less technical skills and sophisticated
        laboratory facilities, and is more meaningful of toxicological risk assessment
        because of its theoretical basis. The beauty of our system is its taking
        advantage of the observation that these chemicals travel through a common
        pathway in the cell according to their concentration and their relative
        toxicity. The AH-1 Method measures the central event in this pathway,
        one which shows the extent of activation of the receptor involved in the
        initiation of the myriad toxic events. That is, measurement of the central
        event is more meaningful than, say, measurement of a downstream outcome
        event which represents only one of many such events possibly involved
        in toxicological outcomes.
      Patents
      Where possible, the
        Company has applied for product and process patents. In the course of
        its research, the Company obtained 3 patents (#s 5,496,703, 5,529,899
        and 5,833,994) prior to 2000 for the Dioxin Assay Systems which cover
        a wide range of commercial applications for the AH-1 Method and other
        assay technologies. During 2000, the Company was granted two additional
        patents. The US Patent & Trademark Office in October 2000 issued to
        the Company Patent # 6,127,136 for the detection of dioxin-like compounds.
        This patent relates to new, improved and user friendly methods of detecting
        dioxin-like compounds by detecting the transformed Ah receptor. This patent
        gives the Company the protection it needs to continue to strengthen its
        presence in the worldwide dioxin detection marketplace. In November 2000
        the US Patent & Trademark Office issued to the Company Patent # 6,140,063,
        in vitro screening assay for the identification of compounds that inhibit
        destruction of cells due to viral infection. This patent represents a
        potential new screening pathway for anti-viral compounds. On March 16,
        2001 the Japanese Patent Office issued to Paracelsian, Inc. Patent # 3,144,689
        for the detection of dioxin-like compounds through the use of the Companys
        Ah-IMMUNOASSAY® Kit. The Company is actively seeking partners to fully
        develop the market potential of these patents. Patents have a statutory
        duration of twenty years.
      The Company believes
        that patent protection of materials or processes it develops and any products
        that may result from the Company's research and development efforts are
        important to the possible commercialization of these products. However,
        there can be no assurance that the Company's patents will afford adequate
        protection to the Company or its licensees. Further, there can be no assurance
        that any patents that have been or may be issued will provide the Company
        with significant protection from competitors. Other private and public
        entities may file applications for patents and other proprietary rights
        to technology which could be harmful to the commercialization of the services
        and products developed by the Company. The ultimate scope and validity
        of patents which are now owned by or which may be granted to third parties
        in the future, the extent to which the Company may wish or be required
        to acquire rights under such patents, and the cost or availability of
        such rights cannot be determined by the Company at this time.
      The Company also
        relies on unpatented proprietary technology and no assurance can be given
        that others will not independently develop substantially equivalent proprietary
        information or otherwise gain access to the Companys proprietary
        technology or that the Company can meaningfully protect its rights in
        such unpatented proprietary technology.
      In addition, although
        all of the Company's employees are parties to confidentiality agreements
        which are intended to protect the Company's proprietary technology, there
        can be no assurance that any of such employees will not compromise any
        of the Company's proprietary rights.
      Dependence on
        a Key Distributor and Certain Industries
      The Company has entered
        into an Agreement with the Kubota Corporation for the sale of the Companys
        AH-1 Method in the Japanese market. The Licensing Agreement provides the
        Company with licensing fees and a royalty on sales in the Japanese market.
        In return, the Company provides Kubota with an exclusive license to manufacture
        and distribute the AH-1 Method in Japan. Future revenues from these licensing
        fees and royalties are dependent on market receptivity of the AH-1 Method.
        As with any new product, acceptance is not guaranteed, and future earnings
        could be negatively impacted.
      Government Regulation
      The dioxin and dioxin-like
        compound and the health care industries are the subject of significant
        proposed legislation. The Company cannot predict what new legislation
        might be enacted or what regulations might be adopted or amended, or if
        enacted, adopted or amended, the effect thereof on the Companys
        operations. Any change in applicable law or regulation may have a material
        effect on the business of the Company.
      Funding of Research
        and Development
      The Company expended
        $272,047 in 2001 and $761,673 in 2000 on research and development.
      Costs of Environmental
        Compliance
      The Company believes
        it is in compliance with all applicable environmental laws and the cost
        of such compliance to the Company has been minimal.
      Employees and
        Board
      The Company employs
        5 full time people and 1 part-time person. None of the Companys
        employees are covered by a collective bargaining agreement. The Company
        considers its relationship with its employees to be excellent. All employees
        of the Company are signatories to confidentiality agreements that restrict
        proprietary right in, and commercial development of, all technology developed
        by the employees.
      On July 23, 2001
        the Company announced that NoriYoshi Inoue was named President & CEO.
        Mr. Inoue replaces Dr. T. Colin Campbell, who served as Chairman, CEO
        and President since January 31, 2000. Dr. Campbell will retain the title
        of Chairman and Mr. Inoue will retain his seat on the Board. Previously,
        Mr. Inoue was a Senior Executive with over 25 years of Japanese and international
        management, marketing and sales experience. He has had significant success
        in creating and implementing profitable worldwide marketing programs and
        strategies. Gary G. Chabot, the Chief Financial Officer has also assumed
        the position of Chief Operating Officer effective July 25, 2001. On November
        13, 2001 Mac Shaibe resigned from the Board. The Board is pursuing a replacement
        for Mr. Shaibe.
      Item 2. 	DESCRIPTION
        OF PROPERTIES
      The Companys
        executive offices and research facilities are located at Langmuir Laboratories
        in Ithaca, New York, and occupy 6,210 square feet at that location. The
        Company occupies this space under a one-year lease from Cornell University,
        which expires in April 2002, and provides for automatic renewals. At this
        time, the Company believes that this space is sufficient for its administrative
        offices as well as the Internet operation, and the current manufacturing
        and research and development activities.
      Item 3.	LEGAL
        PROCEEDINGS
      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 against the Company was dismissed.
        This case was commenced in New York State Supreme Court (Onondaga County)
        in June 1993 by certain persons, individually and doing business as In
        Vitro Bioanalytic Systems, against the Company, Dr. John G. Babish, a
        former officer and director of the Company, and Edward Heslop, a founding
        shareholder of the Company, primarily as an action for money damages and
        injunctive relief against the Company for alleged misappropriation of
        proprietary information and unfair competition. The plaintiffs allege,
        among other things, that in 1990, prior to the Companys incorporation,
        a partnership has been formed with Messrs. Babish and Heslop to commercialize
        products that the Company was developing. Damages, an accounting and an
        injunction are being sought against the Company. By decision dated September
        14, 1994, the Court dismissed certain of the plaintiff's claims against
        the Company while permitting a claim alleging unfair competition to proceed.
        Discovery has been temporarily stayed pending resolution of a motion for
        summary judgment brought by certain of the Companys defendants.
        That motion was successfully and fully resolved, and the Judge, on March
        7, 2001 signed an order dismissing all of the plaintiff's refining claims
        against the Company. The Judge not only exonerated the Company of any
        wrongdoing, but also rejected the plaintiff's fundamental premise that
        they had a property interest in the technology at issue in this case.
        In December 2001, the plaintiffs filed an appeal. The Company intends
        to be fully responsive to the appeal and is confident of the summary judgment
        motion being upheld.
      Item 4.	SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS
      None.
      
      PART
        II
      Item
        5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
      The Companys
        Common Stock, par value $0.01 per share (the "Common Stock"), commenced
        trading on February 11, 1992 on the over- the-counter market and was quoted
        on the National Association of Securities Dealers Automated Quotation
        System ("NASDAQ") until October 7, 1998 when it moved to the over-the-counter
        Bulletin Board, under the symbol PRLN.OB.
      The following table
        sets forth the high and low bid prices for the Common Stock during the
        periods indicated as reported by NASDAQ. The prices reported reflect inter-dealer
        quotations, may not represent actual transactions and do not include retail
        mark-ups, markdowns or commissions.
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|               | Common
          Stock
|-------------- | ----------------------
|               | High
          Bid    
|               |                       
|Fiscal 2000    |                       
|First Quarter  | 1/2                   
|Second Quarter | 1-5/32                
|Third Quarter  | 19/32                 
|Fourth Quarter | 19/32                 
|               |                       
|Fiscal 2001    |                       
|First Quarter  | 17/32                 
|Second Quarter | 15/64                 
|Third Quarter  | 1/5                   
|Fourth Quarter | 11/32                 



|As of January 14,
        2002, the Company had 23,929,388 shares of Common Stock outstanding held
        by 323 record holders.
      The Company did not
        pay cash dividends on the Common Stock during the two fiscal years ended
        September 30, 2001. It is the present policy of the Company to retain
        earnings, if any, to finance the development and growth of its business.
        Accordingly, the Company does not anticipate that cash dividends will
        be paid until earnings of the Company warrant such dividends, and there
        can be no assurance that the Company can achieve such earnings or any
        earnings.
      Item 6. MANAGEMENTS
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS
      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.
      On July 20, 1999
        the Company signed a Development Agreement with Kubota Corporation to
        further develop the Companys patented AH-1 Method for use in the
        monitoring of municipal waste incinerators in Japan. The Company signed
        a final Licensing Agreement with the Kubota Corporation on January 18,
        2000 for the sale of the Companys AH-1 Method in the Japanese market.
        On June 1, 2000, as part of the License Agreement, Paracelsian delivered
        an Assessment Plan to Kubota, detailing the Kits' functionality. Kubota
        reviewed and evaluated the Assessment Plan, and paid the License Fee of
        $150,000. The payment signified Kubotas acceptance of the AH-1 Method.
        In return, the Company provided Kubota with an exclusive license to manufacture
        and distribute the AH-1 Method in Japan. On October 1, 2001 Kubota concluded
        that the AH-1 Method is effective for their purpose and therefore they
        paid the second installment of $150,000 on their license agreement, seventeen
        months early. Through October 31, 2001, Kubota has purchased 480 kits
        (for 3,600 tests) for distribution in Japan. Also, on October 1, 2001
        Kubota agreed to pay $350,000 in installments which is earmarked for upgrading
        of the Ah-IMMUNOASSAY® Kits. The first payment of $175,000 was made
        on September 28, 2001, the second installment of $40,000 was paid on December
        28, 2001 and the third and fourth installments are due in March 2002 and
        in September 2002. The first payment of $175,000 has been reflected in
        long-term deferred revenue on the accompanying balance sheet.
      The Ah-IMMUNOASSAY®
        Kits are continuing to be sold to the Kubota Corporation for the sale
        and distribution of the Kits in Japan. 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.
        SGS Agrilab in Antwerp, Belgium is the worlds largest inspection
        organization with 340 laboratories worldwide. SGS is waiting for the University
        of Liege screening results, and predicts a large market in Belgium. 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 and Lockheed Martin.
      In July 2001 the
        Company announced that they have 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
        agrees to provide research services to Paracelsian related to acceleration
        of advancement to the Ah-IMMUNOASSAY® Kit, and assistance in achieving
        a leadership position in the worldwide marketplace.
      Paracelsian and the
        New York State Energy Research and Development Authority (NYSERDA) announced
        in September 2001 a joint $360,000 contract for the development of extraction
        kits for the companys Ah-IMMUNOASSAY® Kit. NYSERDA is a public
        benefit corporation created in 1975 by the New York State Legislature.
        With this contract, Paracelsian will develop cost effective extraction
        methods, suitable for various emerging markets, that are compatible and
        can be sold with existing Ah-IMMUNOASSAY ® Kits.
      The Company is also
        participating in the initial analysis for the Hudson River PCB clean up
        project. In March 2002 we will be given 45 soil/sediment samples, taken
        from the Hudson River, to test using our kit.
      The Japanese Patent
        Office in March 2001 issued to Paracelsian Patent #3,144,689, detection
        of dioxin-like compounds through the use of the companys Ah-IMMUNOASSAY®
        Kit. This is Paracelsians sixth patent related to the companys
        core technology, and the first outside of the United States. This patent
        which is equivalent to the US patent # 6,127,136 (October 5, 2000) continues
        the process of strengthening Paracelsian's position in the worldwide dioxin
        detection marketplace.
      Results of Operations
      The Companys
        fiscal 2001 net loss after cumulative effect of a change in accounting
        principle of approximately $1,617,000 is approximately $230,000 less than
        the fiscal 2000 loss of $1,847,000. Revenues decreased by $145,000 primarily
        as a result of revenues received and deferred license revenue from the
        Ah-IMMUNOASSAY® license agreement with Kubota Corporation. Operating
        expenses decreased by $705,000 as a result of decreases in payroll, utilities,
        legal, office expense, consulting and director fees, supplies and amortization,
        as part of the Companys program to control costs, and optimizing
        the use of its resources.
      Included in the net
        loss during the development stage for 2001 is $211,215 of expense resulting
        from increasing the reserve for the note receivable and related accrued
        interest receivable from East West Herbs, Ltd. (see note 3 (a) to the
        consolidated financial statements). Also included in the net loss during
        the development stage for 2001 is $160,363 of expense resulting from writing
        off patent and trademark costs which the Company had determined were either
        no longer enforceable or of continuing value. As required by accounting
        principles generally accepted in the United States of America and because
        of the Company's historic losses and concerns about liquidity and capital
        resources, management will continue to monitor the recoverability of the
        remaining intangible assets.
      Liquidity and
        Capital Resources
      As of September 30,
        2001, the Company had cash of approximately $163,000 and a net working
        capital deficit of approximately $1,318,000. Management believes that
        revenues from the sale of Ah-IMMUNOASSAY® Kits will accelerate throughout
        the coming year and that 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. BioSignia, the Companys largest shareholder,
        has advanced additional funds of $118,800 during the current fiscal year.
        In January and February 2001 the Company issued three Convertible Promissory
        Agreements in the amounts of $50,000, $30,000 and $10,000. The Agreements
        mature in one year from the issuance date and each holder may convert
        the Agreement into shares of Restricted Common Stock of the Company at
        any time up to and including the maturity date but not thereafter. The
        $50,000 Agreement expires on February 15, 2002. The $30,000 Agreement
        expired on January 10, 2002 and was extended to July 10, 2002 and the
        $10,000 Agreement expired on January 9, 2002 and was extended to July
        9, 2002.
      On August 10, 2000
        the Company received an equity investment of $500,000 in a private placement
        transaction. In addition to the sale of common stock, the Company issued
        1,833,333 warrants that could result in additional investment of $1.5
        million by December 31, 2000, if the warrants are exercised in full. The
        warrants expired on December 31, 2000. Prior to the expiration date, no
        warrants were exercised.
      The Company, on July
        1, 1991 signed an exclusive License Agreement with the Cornell Research
        Foundation (CRF) for the exclusive right to make, have made, use or sell
        Paracelsian Ah-IMMUNOASSAY® Kits. The Agreement states that Paracelsian
        will pay a royalty of 3% to CRF on any sales of the Kits and $8,490 has
        been accrued as of September 30, 2001. The Agreement also stipulates that
        any patent costs incurred by CRF shall be reimbursed by Paracelsian. As
        of September 30, 2001, the Company has accrued $137,399 for reimbursable
        patent costs billed by CRF.
      Management is seeking
        a capital infusion of at least $1 million to strengthen its working capital
        position and bridge its needs until the revenue stream is sustained. Current
        monthly cash requirements in order to sustain meaningful operations are
        approximately $80,000. Management will continue to evaluate the most cost
        effective means of raising any additional needed capital. Although management
        is confident of its ability to raise needed capital, there can be no assurance
        that additional financing will be available on acceptable terms or at
        all.
      Item 7. FINANCIAL
      STATEMENTS
      Independent Auditors
        Report.
      Consolidated Balance
        Sheet as of September 30, 2001.
      Consolidated Statements
        of Operations for the years ended September 30, 2001 and 2000, and the
        cumulative period from April 15, 1991 (inception) to September 30, 2001.
      Consolidated Statements
        of Stockholders Equity (Deficit) for the years ended September 30,
        2001 and 2000 and the cumulative period from April 15, 1991 (inception)
        to September 30, 2001.
      Consolidated Statements
        of Cash Flows for the years ended September 30, 2001 and 2000 and the
        cumulative period from April 15, 1991 (inception) to September 30, 2001.
      Notes to Consolidated
        Financial Statements.
      
      The Board of Directors
        and Stockholders 
        Paracelsian, Inc.:
      We have audited the
        accompanying consolidated balance sheet of Paracelsian, Inc. and subsidiary
        (a development stage enterprise) as of September 30, 2001, and the related
        consolidated statements of operations, stockholders' equity (deficit),
        and cash flows for the years ended September 30, 2001 and 2000 and for
        the period from April 15, 1991 (inception) to September 30, 2001. These
        consolidated financial statements are the responsibility of the Company's
        management. Our responsibility is to express an opinion on these consolidated
        financial statements based on our audits. The cumulative statements of
        operations, stockholders' equity (deficit), and cash flows for the period
        April 15, 1991 (inception) to September 30, 2001 include amounts for the
        period from April 15, 1991 (inception) to September 30, 1995, which were
        audited by other auditors whose report has been furnished to us, and our
        opinion, insofar as it relates to the amounts included for the period
        April 15, 1991 (inception) through September 30, 1995 is based solely
        on the report of the other auditors.
      We conducted our
        audits in accordance with auditing standards generally accepted in the
        United States of America. Those standards require that we plan and perform
        the audit to obtain reasonable assurance about whether the financial statements
        are free of material misstatement. An audit includes examining, on a test
        basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the overall financial statement presentation. We believe that our audits
        provide a reasonable basis for our opinion.
      In our opinion, based
        on our audits and the report of the other auditors, the consolidated financial
        statements referred to above present fairly, in all material respects,
        the financial position of Paracelsian, Inc. and subsidiary (a development
        stage enterprise) as of September 30, 2001 and the results of their operations
        and their cash flows for the years ended September 30, 2001 and 2000 and
        for the period April 15, 1991 (inception) to September 30, 2001, in conformity
        with accounting principles generally accepted in the United States of
        America.
      The accompanying
        financial statements have been prepared assuming that the Company will
        continue as a going concern. As discussed in Note (1) (b) to the financial
        statements, the Company has suffered recurring losses from operations
        and has a net capital deficiency that raise substantial doubt about its
        ability to continue as a going concern. Management'ss plans in regard
        to these matters are also discussed in Note (1) (b). Additionally, the
        Company is subject to litigation as described in Note (7)(e). The financial
        statements do not include any adjustments that might result from the outcome
        of these uncertainties.
      /s/KPMG LLP
        Raleigh, NC
        December 28, 2001
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|PARACELSIAN,
        INC. AND SUBSIDIARY(A Development Stage Company)
        Consolidated Balance Sheet
        September 30, 2001
|-----------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                   
|Assets                                                                                                                             
|                                                                                                                                   
|Current
      Assets:                                                                                                              
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Equipment,
      net                                                                                                               
|Interest
      Receivable, net of reserve of $62,465                                                                               
|Note Receivable,
      net of reserve of $148,750                                                                                  
|Other
      Assets:                                                                                                                
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Liabilities
        and Stockholders' Deficit                                                                                      
|Current
      Liabilities:                                                                                                         
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Long term
      portion of capital lease obligation                                                                                
|Long term
      portion of notes payable                                                                                           
|Long term
      portion of deferred revenue                                                                                        
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Stockholders'
      Deficit:                                                                                                       
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Commitments
      and contingency                                                                                                  
|                                                                                                                                   
|                                                                                                                                   
|See accompanying
      notes to consolidated financial statements                                                                  





|PARACELSIAN,
        INC. AND SUBSIDIARY(A Development Stage Company)
        Consolidated Statements of Operations
        For the years ended September 30, 2001 and 2000
        and cumulative period from April 15, 1991 (inception) to September 30,
        2001
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Revenues:                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Operating
      expenses:                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
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|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Interest
      income (expenses), net                                                                                                                                                                                                                                  
|Gain
      (loss) on sale of assets                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
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|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|Weighted
      average number of shares outstanding                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                       
|See accompanying
      notes to consolidated financial statements                                                                                                                                                                                                      



|PARACELSIAN,
        INC. AND SUBSIDIARY(A Development Stage Company)
        Consolidated Statements of Stockholders' Equity (Deficit)
        For the years ended September 30, 2001 and 2000
        and the cumulative period from April 15, 1991 (inception) to September
        30, 2000
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                               
|Issuance
      of Common Stock                                                                                                                                                                                                                                                                 
|Redemption
      of Common Stock                                                                                                                                                                                                                                                               
|Initial
      Public Offering, Net of Costs                                                                                                                                                                                                                                                    
|Issuance
      of Warrants & Options                                                                                                                                                                                                                                                           
|Warrant
      Dividend                                                                                                                                                                                                                                                                         
|Termination
      of Warrants                                                                                                                                                                                                                                                                  
|Issuance
      of Preferred Stock                                                                                                                                                                                                                                                              
|Acquisition
      of Treasury Stock                                                                                                                                                                                                                                                            
|Conversion
      of Preferred Stock                                                                                                                                                                                                                                                            
|Preferred
      Dividends and Beneficial Conversion Feature                                                                                                                                                                                                                                    
|Repayment
      of Officer Stock Subscription Receivable                                                                                                                                                                                                                                       
|Exercise
      of Warrants and Options                                                                                                                                                                                                                                                         
|Surrender
      of shares                                                                                                                                                                                                                                                                      
|Net loss                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                               
|Balance,
      September 30,1999                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                               
|Issuance
      of Common Stock                                                                                                                                                                                                                                                                 
|Issuance
      of Common Stock for services rendered                                                                                                                                                                                                                                           
|Issuance
      of Common Stock for debt conversion                                                                                                                                                                                                                                             
|Exercise
      of Warrants                                                                                                                                                                                                                                                                     
|Net loss                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                               
|Balance,
      September 30, 2000                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                               
|Issuance
      of Common Stock for services rendered                                                                                                                                                                                                                                           
|Contributed
      Capital                                                                                                                                                                                                                                                                      
|Net loss                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                               
|Balance,
      September 30, 2001                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                               
|See accompany
      notes to consolidated financial statements                                                                                                                                                                                                                                 



|PARACELSIAN,
        INC. AND SUBSIDIARY
        (A Development Stage Company)
        Consolidated Statements of Cash Flows
        For the years ended September 30, 2001 and 2000
        and the cumulative period from April 15, 1991 (inception) to September
        30, 2001
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|Cash flows
      from operating activities:                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
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|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|Cash flows
      from investing activities:                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
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|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|Cash flows
      from financing activities:                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
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|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|Net
      increase (decrease) in cash and cash equivalents                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                    
|Cash
      and cash equivalents, beginning of period                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                    
|Cash
      and cash equivalents, end of period                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|Supplemental
      disclosures:                                                                                                                                                                                                                                                     
|Cash paid during
        the period for interest                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|Supplemental
      disclosure of non-cash investing and financing activities:                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                    
|Warrant dividend                                                                                                                                                                                                                                                                    
|Issuance of common
        stock/warrants for services and to reduce liabilities                                                                                                                                                                                                    
|Purchase of equipment                                                                                                                                                                                                                                                               
|Repayment of officer
        stock subscription receivable                                                                                                                                                                                                                          
|Issuance of common
        stock for licensing and technology rights                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                    
|See
      accompanying notes to consolidated financial statements                                                                                                                                                                                                                   



|Paracelsian,
        Inc. and Subsidiary(A Development Stage Company)
        Notes to Consolidated Financial Statements
        September 30, 2001 and 2000(1) Organization,
        Business, And Risk Factors
      (a)	Organization
        and Business
      Paracelsian,
        Inc., (the "Company") is a bio-science and technology company that utilizes
        its proprietary screening technology to identify novel therapeutic compounds
        from herbal and other botanical sources and to define and/or confirm the
        biological mechanisms through which traditional herbs and other botanicals
        provide the therapeutic or functional benefits suggested by their traditional
        use. This technology has been developed by the Company to identify potential
        products that inhibit the biological signals generated by targeted cells
        that result in controlled or uncontrolled growth and division. The Companys
        screening technology evaluates the effects of herbal and other botanical
        products on intracellular signals referred to as "Signal Transduction
        Technology."
      Cell division
        is one of the basic steps in biology necessary for normal growth of tissues
        to support life. The Companys technology enables researchers to
        observe signal transduction and measure the effects of chemicals contained
        in synthetic or natural compounds, and chemicals occurring in nature such
        as herbs and combinations of herbal extracts, on cell division. In the
        course of these observations, the Company can distinguish the effects
        of such chemicals on targeted cells, thereby screening compounds to identify
        those with promising favorable therapeutic effects. This proprietary technology,
        including the components, methods, procedures and know-how employed in
        this screening process, is referred to herein as the "Screening Technology."
      In October
        1994, Pacific Liaisons (Pacific), a partnership engaged in identifying
        and acquiring biologically active drugs, natural products and foods from
        Eastern Asia, merged with a wholly-owned subsidiary of the Company and
        the Company now maintains a large library of natural medicinal extracts.
        These extracts are being processed with the Company's screening technology
        to identify potential candidates for drug or dietary supplement development.
        The Company also has access to the informational database related to the
        medicinal extracts, which contains, among other things, a history of the
        usage of each extract.
      (b)	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.
      (Continued)
      
	  Paracelsian,
        Inc. and Subsidiary(A Development Stage Company)
        Notes to Consolidated Financial Statements
        September 30, 2001 and 2000
      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 $1,617,000 (after cumulative effect of change in accounting
          principal) and $1,847,000 for the years ended September 30, 2001 and
          2000, respectively, and has a working capital deficit of approximately
          $1,318,000 as of September 30, 2001.
        The Companys
          plan is to continue to advance the Ah-IMMUNOASSAY® Kit 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 September 2001, received an approval for a
          grant from the New York State Energy Research and Development Authority
          which will result in joint funding of $360,000.
        On October 1, 2001
          an Applications Research Agreement was signed between Kubota Corporation
          and the Company in the amount of $350,000. This amount is earmarked
          for the upgrading of the Ah-IMMUNOASSAY® Kit and will be paid in
          four installments. The first payment of $175,000 was made on September
          28, 2001 and the second installment of $40,000 was paid on December
          6, 2001. The final two installments will be made in March 2002 ($90,000)
          and September 2002 ($45,000).
        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 $80,000,
          and management fully expects to meet its financial obligations as described
          above.
        The Company has
          a note receivable outstanding, including accrued interest, of approximately
          $400,000, which has been fully reserved at September 30, 2001. The Company
          is continuing its efforts to collect the entire amount of this receivable.
          The Company also has an inventory of Andrographis paniculata that it
          is attempting to sell through its Internet sites. 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 $300,000 (unaudited). As of January 31, 2002, the
          Company has sold $2,686 (unaudited) through the internet.
        In December 2001,
          the Company made an offer to acquire the assets of East West Herbs (USA)
          in exchange for the note receivable owed to the Company. The offer was
          accepted and the parties are in the final stages of negotiating an Asset
          Purchase Agreement. See Notes (3)(a) and (9).
        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.(Continued)
      
      Paracelsian,
          Inc. and Subsidiary(A Development Stage Company)
          Notes to Consolidated Financial Statements
        September 30, 2001 and 2000
(2) Significant Accounting Policies
      (a)	Consolidation
      The consolidated
        financial statements of the Company include the accounts of Paracelsian,
        Inc. and its wholly-owned subsidiary ParaComm, Inc. formerly known as
        Para Acquisition Corp. This subsidiary has had no activity for the years
        ended September 30, 2001 and 2000. All significant intercompany balances
        and transactions have been eliminated in consolidation.
      (b)	Cash
        and Cash Equivalents
      Cash equivalents
        consist of highly liquid investments with an original maturity of three
        months or less. As of September 30, 2001, the Companys cash and
        cash equivalents aggregated $162,946.
      (c)
        Research and Product Engineering
      Company
        sponsored research and product engineering expenditures have been charged
        to expense as incurred. These costs consist primarily of employee salaries
        and direct laboratory costs. The cost of extracts used in research and
        development activities is expensed as consumed.
      (d)
        Net Loss Per Share
      Basic loss
        per common share is based on the weighted average number of common shares
        outstanding. Diluted net loss per common share is based on the weighted
        average number of common shares outstanding and the potentially dilutive
        common shares, which comprise shares issuable upon exercise of stock options,
        stock warrants, stock subscriptions, and conversion of preferred stock.
        Diluted net loss per common share is equal to the basic net loss per common
        share for the years ended September 30, 2001 and 2000 as common equivalent
        shares of 2,205,130 and 1,131,757, respectively would have an antidilutive
        effect.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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|Paracelsian,
        Inc. and Subsidiary(A Development Stage Company)
        Notes to Consolidated Financial Statements
        September 30, 2001 and 2000
      (f)Patents
          and Trademarks
        The Company has
          acquired or applied for certain patent and trademark rights. Costs associated
          with the acquisition and application for these rights have been capitalized
          and are being amortized on the straight-line method over the estimated
          legal lives of the assets of approximately 15 years. Accumulated amortization
          of the patents and trademarks totaled $11,963 at September 30, 2001.
          During 2001, the Company wrote off approximately $160,000 of patents
          and trademarks which were determined to be either no longer enforceable
          or of continuing value.
        (g)Equipment
          and Depreciation
        Equipment is stated
          at cost and is depreciated over the estimated useful lives of the assets
          using the straight-line method. Equipment consists of the following
          at September 30, 2001:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                        | Useful
        Lives |   | 2001   
|--------------------------------------- | -------------------- | - | -------
|                                        |                      |   |        
|Laboratory equipment                    | 10
        Years     | $ | 478,796
|Office furniture
        and equipment  | 10
        Years     |   | 75,713 
|Computer equipment                      | 5
        Years      |   | 138,489
|                                        |                      |   |        
|                                        |                      |   | 692,998
|Less - accumulated
        depreciation |                      |   | 636,080
|                                        |                      |   |        
|                                        |                      | $ | 56,918 
|                                        |                      |   |        



|Depreciation
          expense aggregated $58,141 and $69,711 for the years ended September
          30, 2001 and 2000, respectively.
        (h)Income
          Taxes
        Income
          taxes are accounted for under the asset and liability method. Deferred
          tax assets and liabilities are recognized for the future tax consequences
          attributable to differences between financial statement carrying amounts
          of existing assets and liabilities and their respective tax bases and
          operating loss and tax credit carryforwards. Deferred tax assets and
          liabilities are measured using enacted tax rates expected to apply to
          taxable income in the years in which those temporary differences are
          expected to be recovered or settled. The effect on deferred tax assets
          and liabilities of a change in tax rates is recognized in income in
          the period that includes the enactment date.
        (Continued)
        Paracelsian,
          Inc. and Subsidiary(A Development Stage Company)
          Notes to Consolidated Financial Statements
          September 30, 2001 and 2000
        (i)Use
          of EstimatesThe preparation
          of the consolidated financial statements in conformity with accounting
          principles generally accepted in the United States of America requires
          management to make estimates and assumptions that affect the reported
          amounts of assets and liabilities and the disclosure of contingent assets
          and liabilities at the date of the financial statements. Estimates also
          affect the reported amounts of revenues and expenses during the reporting
          period. Actual results could differ from those estimates.
        (j)
          Recently Adopted Accounting Standard
        In 2001, the
            Company changed its method of accounting for revenue recognition in
            accordance with Staff Accounting Bulletin (SAB) 101, "Revenue
            Recognition in Financial Statements." Under the new accounting
            method, adopted retroactive to October 1, 2000, the Company recognizes
            revenue, relating to up-front licensing fees, systematically over
            the period that the fees are earned. The cumulative effect of the
            change on prior years resulted in a reduction in revenue of $129,223.
            The net loss during the development stage for 2000 based upon retroactive
            application of SAB 101 is as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                              |   | 2000       
|--------------------------------------------------------------------------------------------- | - | -----------
|                                                                                              |   |            
|Net loss during the
        development stage                                                 | $ | (1,847,118)
|Revenue deferred
        pursuant to SAB 101                                                  |   | (129,223)  
|                                                                                              |   |            
|Net
      loss during the development stage assuming
      retroactive application of SAB 101 | $ | (1,976,341)
|                                                                                              |   |            



|(k) Reclassifications
      Certain
        2000 amounts have been reclassified to conform with the 2001 presentation.
        These reclassifications had no effect on net loss or stockholders' deficit
        accumulated during the development stage as previously reported.
      (3) Acquisitions
      (a)	East
        West Herbs, Ltd.
      On April
        9, 1996, the Company signed an option to acquire East West Herbs, Ltd.
        of Kingham, England. East West Herbs, Ltd. marketed and distributed traditional
        Chinese medicines in the United Kingdom and throughout Europe. Under terms
        of the option, the Company had the right to acquire all of the outstanding
        shares of East West Herbs, Ltd. on or before April 6, 1997 for $780,000
        in cash and shares of the Company with a value of approximately $2,400,000
        for a total proposed acquisition price of $3.2 million. Consideration
        for the option was made in the form of an option fee of $20,000 and a
        working capital loan of $340,000. The loan was to be used by East West
        Herbs, Ltd. for inventory purchases, continuing research and development
        including the clinical trials of two herbal products for cancer patients
        and corporate working capital. In 1997 the Company elected not to exercise
        its option.
      (Continued)
      Paracelsian,
        Inc. and Subsidiary(A Development Stage Company)
        Notes to Consolidated Financial Statements
        September 30, 2001 and 2000
      The loan
        originally provided for repayment in eight equal quarterly installments
        of $42,500 plus interest at the LIBOR rate. Since making the first installment
        payment and related accrued interest, East West Herbs, Ltd. has not made
        additional payments and is currently in default on the obligation. The
        parties continued to negotiate the terms of a work-out agreement that
        would provide an extension of time (up to two years) for principal repayment,
        change the interest rate to prime plus 2% and further collateralize the
        repayment obligation. In 1998, management determined that this note was
        impaired. Accordingly, the Company classified the entire obligation as
        non-current and provided a reserve of $148,750 for collectibility. East
        West Herbs, Ltd. and the Company are negotiating for the transfer of the
        assets East West Herbs (USA) to the Company as payment of the loan. As
        of September 30, 2001, the Company had reserved the remaining outstanding
        note receivable and accrued interest receivable balances because the arrangement
        with East West Herbs (USA) was not finalized.
      (b) Pacific
        Liaisons
      During October
        1994, a wholly-owned subsidiary of the Company acquired Pacific Liaisons
        for approximately $1.6 million in common stock. The acquisition has been
        accounted for using the purchase method of accounting for a business combination
        and the accompanying statement of operations includes the results of operations
        of Pacific Liaisons from October 25, 1994. The allocation of the purchase
        price was based on an independent appraisal of certain assets acquired
        which include ACM extracts and a licensing agreement. The approximately
        2,800 TCM extracts could be sold outright or utilized in various research
        and development applications using the Company's screening technology.
        It is the Company's intention to continue to sell/license the extracts
        to established pharmaceutical and biotechnology companies. Effective October
        1, 1995, the Company elected to begin amortizing the cost of the TCM extracts
        on a straight line basis over a five-year period, which represents the
        estimated period over which the extracts will be used in the Company's
        research and development efforts. Amortization expense of the extracts
        aggregated $99 and $155,580 for the years ended September 30, 2001 and
        2000, and is included in research and product engineering expense in the
        accompanying consolidated statements of operations.
      Through
        a licensing agreement with the Institute of Nutrition and Food Hygiene,
        an institute within the Chinese Academy of Preventive Medicine, the Company
        has the exclusive right to acquire up to 10,000 additional extracts. The
        licensing agreement is being amortized over a period of five years commencing
        in October 1994. As of September 30, 2001, the licensing agreement was
        fully amortized.
      (Continued)
      
      Paracelsian,
        Inc. and Subsidiary(A Development Stage Company)
        Notes to Consolidated Financial Statements
        September 30, 2001 and 2000
      (4) Stockholders'
        Equity (Deficit)
      (a) Common
        Stock Offerings
      In January
        1998, the Company sold 3,571,429 shares of common stock for $500,000 to
        BioSignia, Inc. ("BioSignia"). BioSignia also received warrants to purchase
        an additional 2,871,429 shares of common stock at a price of $520,000.
        In August 1998, BioSignia exercised its warrants. BioSignia became the
        major shareholder and has three of its representatives serving on the
        six member Board of Directors. BioSignia is controlled by T. Colin Campbell,
        a director of the Company and Chairman effective, July 2001, and his son,
        T. Nelson Campbell, a former Vice President of the Company and current
        director. The Company used the proceeds for working capital and research
        and development.
      In June
        2000, the Company issued 1,250,000 shares of Common Stock for $500,000
        to BioSignia in exchange for a release of related debt owed to BioSignia
        by the Company. The transactions have been valued based on the negotiated
        estimated fair value of the common stock on June 19, 2000 ($.40 per share),
        the date issued. On that date, the stock traded at a high of $.4688, a
        low of $.375 and closed at $.4688.
        In June 2000,
          the Company sold 1,250,000 shares of common stock for $500,000 to Flow
          Master Fund LP (Flow Master) as part of a private placement transaction.
          The Company also authorized the issue of warrants to purchase an additional
          833,333 shares of common stock at a price of $.60 per share as well
          as warrants to purchase 1,000,000 shares of common stock at a price
          of $1.00 per share. As of December 31, 2000 all 1,833,333 warrants expired.
      (b)	Other
        Transactions
      During the
        years ended September 30, 2001 and 2000, the Company issued 438,539 and
        148,600 shares of common stock, respectively, in exchange for services
        rendered. The transactions have been valued based on the estimated fair
        value of the common stock on the date issued.
      On September
        8, 1993, the Company granted a warrant dividend. The Company distributed
        to each stockholder, excluding one of the Company's founders, one redeemable
        common stock purchase warrant for each share of the Company's common stock
        owned, entitling the holder to purchase an additional share of common
        stock for $3.25 per share. These warrants were scheduled to expire on
        September 7, 2000. On June 19, 2000, the Board of Directors passed a resolution
        to reduce the strike price of the warrant, entitling the holder to purchase
        an additional share of common stock for $.50 per share. As of September
        30, 2000, a total of 66,688 redeemable warrants have been exercised and
        zero remain outstanding, as the remainder of the warrants all expired.
      On October
        12, 1994, the Company granted 375,000 warrants to one of the Company's
        founders, under similar terms as the Common Stock Purchase warrants noted
        above. The warrants were originally valued at $500,000. These warrants
        were originally scheduled to expire on September 7, 1998. The Company
        extended the expiration of the warrants to September 6, 2000. The warrants
        are callable at a redemption price of $.05 per warrant, if the Company's
        common stock trades at $4.75 or higher for 15 consecutive days. As of
        September 30, 2000, all 375,000 warrants have expired.
      Additionally,
        in connection with certain private placement transactions during fiscal
        1996, the Company issued common stock warrants exercisable for an aggregate
        of 1,883,333 shares of common stock at prices ranging from $3.25 to $4.50
        per share and varying other terms and restrictions. As of September 30,
        2001, none of these warrants had been exercised and all had expired.
      
      Paracelsian, Inc. and Subsidiary(A Development Stage Company)
        Notes to Consolidated Financial Statements
        September 30, 2001 and 2000
      During fiscal
        1999, in connection with certain private placement transactions, the Company
        issued common stock Class A warrants exercisable for an aggregate of 350,000
        shares of common stock at $1.00 per share, expiring on June 1, 2000 and
        Class B warrants exercisable for an aggregate of 350,000 shares of common
        stock at $1.20 per share, expiring on June 1, 2001. On June 19, 2000 the
        Board of Directors approved of lowering the exercise price on the Class
        A warrants to $.50 per share and extended the expiration date to September
        7, 2000. As of September 7, 2000 all Class A warrants
        exercisable for an aggregate of 350,000 shares of common stock at $.50
        per share had expired. As of September 30, 2001, those Class B
        warrants exercisable
        for an aggregate of 350,000 shares of common stock at $1.20 per share
        had expired.
      (5) Common Stock
        Options
      In 1991,
        the Company adopted a Stock Option Plan (the Plan). Under the Plan, directors,
        key employees and consultants of the Company are eligible to receive grants
        of options which are intended to qualify as incentive stock options, within
        the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
        (the Code), or which are non-qualified stock options. In addition, non-employee
        directors of the Company may receive grants of options according to a
        formula which upon the adoption of the Plan provided for an initial grant
        of an option to purchase 5,000 shares of common stock and annual grants
        of options to purchase 2,500 shares of common stock for each person who
        is subsequently elected or re-elected and for each year of service thereafter
        as a director. The Plan is administered by a committee (the Committee)
        designated by the Board of Directors of the Company. The exercise price
        per share for the options granted under the plan may not be less than
        the fair value of the Company's common stock on the date of grant. The
        exercise price and the term are fixed by the Committee, subject to the
        terms of the Plan.
      Changes
        in the status of options under the Plan are summarized as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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|                                                      |   | Year
        Ended September 30,
|----------------------------------------------------- | - | --------------------------------
|                                                      |   | 2001                            
|                                                      |   |                                 
|Options outstanding
        at beginning of period    |   | 1,131,757                       
|Granted                                               |   | 1,900,000                       
|Forfeited                                             |   | (826,627)                       
|Exercised                                             |   | -                               
|                                                      |   |                                 
|Outstanding at end
        of period                  |   | 2,205,130                       
|                                                      |   |                                 
|Number
      of options at end of period -            |   |                                 
|Exercisable                                           |   | 712,795                         
|Available for grant                                   |   | -                               
|                                                      |   |                                 
|Average exercise
        price of options outstanding | $ | .30                             
|                                                      |   |                                 
|Average exercise
        price of options granted     | $ | .19                             
|                                                      |   |                                 
|Average
      exercise price of options forfeited     | $ | .82                             
|                                                      |   |                                 
|Average exercise
        price of options exercisable | $ | .46                             



|Paracelsian,
        Inc. and Subsidiary(A Development
        Stage Company)
        Notes to Consolidated Financial Statements
        September 30, 2001 and 2000
      During fiscal
        1996, 15,000 options were granted pursuant to the plan and an additional
        200,000 (for a total of 215,000) were granted to consultants providing
        communications services to the Company. The fair value of these options
        of $107,500 was being amortized over the two year period ended September
        30, 1997 during which time the services were performed.
      On January
        23, 1995, the Company approved a stock purchase by the Company's President
        and then Chief Executive Officer to purchase an aggregate of 705,000 shares
        of the Company's common stock at a price of $.05 and $.56 per common share
        for 245,000 and 460,000 shares of common stock, respectively. In connection
        with this transaction, the Company recognized a one-time, non-cash compensation
        expense of approximately $1,228,000 in the year ended September 30, 1995.
        In conjunction with the purchase of these shares, the Company extended
        a note to the officer for $230,000, due December 31, 1995. Subsequently,
        this note was extended until December 31, 1997. In January 1998, the shares
        of stock were returned to the Company and the note was forgiven.
      On January
        15, 1998, the Company granted to the then Chief Executive Officer, 100,000
        shares of stock and options to acquire 800,000 shares at an exercise price
        of $.22 per share, which represented the estimated fair value of common
        stock at the close of business on January 14, 1998. The options included
        various vesting requirements having to do with the Companys stock
        price and time served. At September 30, 1999, 100,000 options had been
        exercised. Upon the expiration and non-renewal of the Officers contract
        in January 2000, options totaling 700,000 shares expired.
      On January 24,
          2000, the Company granted options to acquire 525,000 shares of common
          stock at an exercise price of $.45 per share, which represented the
          estimated fair value of common stock at the close of business on January
          24, 2000, to the Chief Executive Officer and Chairman. The options included
          various vesting requirements having to do with the Companys stock
          price and time served. On the date that the closing price of the common
          stock of the Company is equal to or greater than $1.50 per share for
          ten consecutive trading days 100,000 Option Shares shall vest. At each
          date that the stock price equals or exceeds $2.00, $2.50 and $3.00 per
          share for ten consecutive trading days, an additional 100,000 shares
          shall vest. As the vesting requirements are contingent upon variable
          terms, whereby the number of shares exercisable are dependent upon the
          future price of the Companys stock, the Company will be required
          to recognize compensation expense in the future for the difference between
          the quoted market price and the exercise price of the shares. As of
          September 30, 2001, no options had been exercised, 93,750 are exercisable
          and the remaining 431,250 expired pursuant to the modification discussed
          below.
        On July 26, 2001
          the Chief Executive Officer and Chairman became Chairman. The Company
          granted options to acquire 200,000 shares of common stock at an exercise
          price of $.19 per share, which represented the average of the closing
          prices of the shares over the five trading days preceding July 26, 2001,
          to the Chairman. The options include vesting requirements having to
          do with time served, over a two year period beginning July 26, 2001.
          As of September 30, 2001, no options had been exercised, 16,666 are
          exercisable and 183,334 are unexercisable. Since these options are considered
          replacement options, they are subject to variable plan accounting.
        On February 1,
          2000, the Company granted options to acquire 150,000 shares of common
          stock at an exercise price of $.45 per share, which represented the
          estimated fair value of common stock at the close of business on February
          1, 2000, to the Chief Financial Officer. The options included vesting
          requirements having to do with time served. As of September 30, 2001,
          no options had been exercised, 50,000 shares are exercisable and the
          remaining 100,000 shares expired pursuant to the modification discussed
          below.
        On July 26, 2001,
          the Company modified the February 1, 2000 option award and granted options
          to acquire 350,000 shares of common stock at an exercise price of $.19
          per share, which represented the average of the closing prices of the
          shares over the five trading days preceding July, 26, 2001, to the Chief
          Financial Officer & Chief Operating Officer. As of September 30,
          2001, no options had been exercised, 66,666 are exercisable and 283,334
          are unexercisable. Due to the modification of the options, the options
          are subject to variable plan accounting.
        On July 27, 2001,
          the Company granted options to acquire 1,000,000 shares of common stock
          at an exercise price of $.194 per share, which represented the average
          of the closing price of the shares over the five trading days preceding
          July 27, 2001, to the President and Chief Executive Officer. The options
          include a vesting requirement having to do with time served, over a
          five year period beginning July 27, 2001. As of September 30, 2001,
          no options had been exercised, 33,333 are exercisable and 966,667 are
          unexercisable.
      Under the
        principles of APB Opinion No. 25, the Company does not recognize compensation
        expense associated with the grant of stock options except as follows:
        500,000 of the 800,000 options granted to the then Chief Executive Officer
        on January 15, 1998 had variable terms whereby the number of shares exercisable
        were dependent on the future price of the Companys stock. Compensation
        expense totaling $78,000 was recognized in 2000 for the difference between
        the quoted market price and the exercise price of the shares.
      SFAS No.
        123, Accounting for Stock-Based Compensation, requires the use
        of option valuation models to provide supplemental information regarding
        options granted after 1995. Pro forma information regarding net loss and
        loss per share shown below was determined as if the Company had accounted
        for its employee stock options and shares sold under its stock purchase
        plan under the fair market value method of that statement.
      In order
        to disclose the pro forma net loss related to options, the fair value
        of the options was estimated at the date of grant using a Black-Scholes
        option pricing model with the following weighted-average assumptions for
        2001 and 2000, respectively: risk-free interest rates of 4.53% and 6.50%;
        dividend yields of 0% and 0%; volatility factors of the expected market
        price of the Companys common stock of 150.2% and 155.1% and expected
        term of the options of 4 years and 2.4 years, respectively.
      (Continued)
      
      Paracelsian,
        Inc. and Subsidiary(A Development Stage Company)
        Notes to Consolidated Financial Statements
        September 30, 2001 and 2000
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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|For purposes of pro
      forma disclosures, the estimated fair value of the options is amortized
      over the options vesting periods. The Companys pro forma information
      is as follows :
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                          |   | September
          30,
|------------------------------------------------------------------------- | - | -----------------------
|                                                                          |   | 2001                   
|                                                                          |   |                        
|Pro forma net loss
          after cumulative effect of accounting change | $ | (1,633,227)            
|Pro forma loss
          per share:                                       |   |                        
|Basic and diluted                                                         |   | (0.07)                 



|(6)
          Income Taxes
        The income
          tax effect of temporary differences that gives rise to the deferred
          tax asset/(liability) as of September 30, 20001 is approximately as
          follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                        |   | 2001       
|--------------------------------------- | - | -----------
|                                        |   |            
|Net operating loss
        carryforward | $ | 7,183,000  
|Patents and trademarks                  |   | (20,000)   
|Asset impairments                       |   | 122,000    
|Accelerated depreciation                |   | 144,000    
|                                        |   |            
|                                        |   | 7,429,000  
|Less
      - valuation allowance        |   | (7,429,000)
|                                        |   |            
|Net deferred tax asset                  | $ | -          
|                                        |   |            



|(Continued)Paracelsian,
        Inc. and Subsidiary(A Development Stage Company)
        Notes to Consolidated Financial Statements
        September 30, 2001 and 2000
      A valuation
        allowance of $ 7,429,000 was recorded at September 30, 2001 to offset
        the related net deferred tax asset due to the uncertainty of realizing
        the related tax benefit.
      At September
        30, 2001, the Company has net operating loss carryforwards for federal
        income tax purposes of approximately $21,128,000 which are available to
        offset future federal taxable income, if any, and expire 2006 through
        2020. For the time period between April 15, 1991 (inception) and September
        30, 2001, an ownership change may have occurred. Management has not determined
        the impact the change of ownership rules will have on the ultimate realizability
        of the tax benefits associated with the net operating loss carryforwards.
      (7) Commitments
        And Contingency
      (a) Lease
        and Rental Commitments
      The Company
        has entered into noncancellable operating leases for executive offices
        and laboratory facilities from an entity owned by Cornell University covering
        approximately 6,000 square feet and expiring in April 2002. Such leases
        provide for automatic renewals for a one year term. Amounts charged to
        expense for the years ended September 30, 2001 and 2000 aggregated approximately
        $84,000 and $87,000, respectively.
      (b) Capital
        Leases
      The Company
        is obligated under a capital lease for equipment that expires in 2002.
        At September 30, 2001 the gross amount of equipment recorded under the
        capital lease is as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Equipment                               | $ | 3,786
|--------------------------------------- | - | -----
|Less accumulated
          depreciation |   | 1,442
|                                        |   |      
|                                        | $ | 2,344
|                                        |   |      



|(Continued)
      Paracelsian,
        Inc. and Subsidiary(A Development Stage Company)
        Notes to Consolidated Financial Statements
        September 30, 2001 and 2000
      Amortization of assets
        held under capital leases is included with depreciation expense. Future
        minimum capital lease payments as of September 30, 2001 are as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2002                                                                       | $ | 1,152  
|-------------------------------------------------------------------------- | - | -------
|2003                                                                       |   | 480    
|                                                                           |   |        
|                                                                           |   | 1,632  
|Less amount representing
          interest (10% per annum)                |   | 116    
|                                                                           |   |        
|Present value of
          net minimum capital lease payments              |   | 1,516  
|Less current installments
          of obligations under capital leases    |   | (1,048)
|                                                                           |   |        
|Obligations under
          capital leases, excluding current installments | $ | 468    
|                                                                           |   |        



|(c)
        Notes Payable
      The Company has
          a note payable related to an insurance policy. The note calls for monthly
          installments of $5,202, bearing interest at 7.42% per annum. The note
          is due in March, 2002 and is unsecured. The balance of the note payable
          at September 30, 2001 was $33,185 and is a current liability.
        In January and
          February 2001 the Company issued three Convertible Promissory Agreements
          in the amounts of $50,000, $30,000 and $10,000 bearing interest at 10%
          to 15% per annum. The Agreements mature in one year from the issuance
          date and each holder may convert the Agreement into shares of Restricted
          Common Stock of the Company at any time up to and including the maturity
          date but not thereafter. The $50,000 Agreement expires on February 15,
          2002. The $30,000 Agreement expired on January 10, 2002 and was extended
          to July 10, 2002 and the $10,000 Agreement expired on January 9, 2002
          and was extended to July 9, 2002.
      A suit filed
        by the Company in April, 1997 against a former officer and director of
        the Company and related counter claims were dismissed by the court pursuant
        to a settlement agreement between the parties in early 1998. Under the
        terms of the settlement, the Company canceled a $56,000 loan made to the
        former officer and further agreed to pay him $26,000 over sixty monthly
        installments, with interest at 8.5% per annum. The balance of the note
        payable at September 30, 2001 was $9,422.
      Future minimum
        payments related to notes payable are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|2002  | $ | 128,992
|----- | - | -------
|2003  |   | 3,615  
|      |   |        
|Total | $ | 132,607





|(d) Advances From Related Party
        During
          fiscal 2001, the Company received advances from BioSignia aggregating
          $118,800. The cumulative advances from BioSignia total $310,677. These
          advances provide for additional working capital (see also footnote 4(a)).
          The advances bear interest at a rate of prime plus 2% and are due at
          the earlier of one year from September 1, 2001 or if the Company obtains
          financing equal to or exceeding one million dollars.
        (e)
          Contingency
        During
          1993, an action was brought against the Company, a Company Vice President
          and a shareholder and former employee of the Company. The complaint
          seeks substantial money damages for alleged misappropriation of proprietary
          information and unfair competition. The parties have exchanged documents
          and conducted the depositions of certain key witnesses. On March 7,
          2001 the Judge signed an order dismissing all of the plaintiff's remaining
          claims against the Company. In December 2001, the plaintiffs filed an
          appeal. The Company intends to be fully responsive to the appeal and
          is confident of the summary judgment motion being upheld.
        (8) Licensing
          Arrangements
        On January
          21, 2000, the Company entered into a 10 year agreement with Kubota Corporation
          (Kubota) of Japan that establishes Kubota as the exclusive marketing
          and distribution agent for Paracelsians Ah-IMMUNOASSAY® Environmental
          Certification program in Japan. The agreement calls for the Company
          to receive $150,000 upon acceptance by Kubota based upon achievement
          of certain milestones related to the acceptance of an evaluation test
          of the Ah-IMMUNOASSAY® product. In addition, under the license agreement,
          Kubota is also obligated to pay the Company a royalty of 5% of net sales
          and, beginning in the fourth year a minimum monthly royalty of $30,000
          is required.
          On June 15, 2000
            the Company delivered an Assessment Plan to Kubota, detailing the
            Ah-IMMUNOASSAY® Kits' functionality. Kubota accepted the Ah-IMMUNOASSAY®
            Kits, in June 2000, and subsequently paid the Company $150,000 which
            is nonrefundable and was recorded as Marketing Rights Revenue in the
            Consolidated Statement of Operations for the year ended September
            30, 2000. Kubota has the right to cancel this agreement with 30 days
            written notice to the Company within the three year period after the
            effective date of the agreement. If Kubota chooses to continue the
            relationship, an additional license fee of $150,000 is due within
            30 days of the third anniversary of the agreement. On July 27, 2001
            Kubota paid the additional License fee of $150,000.
          In accordance
            with SAB 101, the Company is recognizing the entire license fee of
            $300,000 over the 10 year term. Upon adoption of SAB 101, the Company
            recorded a cumulative effect of the accounting change of approximately
            $129,000 (see note 1 (j)).
          On January
              19, 1995 the Company and The Dow Chemical Company (DOW) entered
              into a License Agreement whereby Paracelsian granted to DOW a nonexclusive
              license to evaluate and practice proprietary information and Patent
              Applications and an exclusive option to acquire a worldwide, exclusive
              license, including a right to sublicense thereunder, to practice
              all aspects of proprietary information related to environmental
              bioassay apparatus and testing, except for blood and blood component
              bioassays and bioassays for indoor air and water quality applications
              for homes and office buildings under any claims of patents resulting
              from Patent Rights. DOW paid the Company $250,000 for the nonexclusive
              license granted.
          On November
              2, 1998 Paracelsian and DOW signed a License Revocation Agreement
              that modified the entirety of the License Agreement dated January
              19, 1995. The parties agreed to a termination of any and all license,
              sublicense, or option provisions concerning the proprietary information,
              as provided in the original License Agreement. In consideration
              for DOWs agreement to terminate any and all license, sublicense,
              or option provisions Paracelsian agreed to pay DOW 10% of all sublicense
              of the proprietary information which formed the basis of the License
              Agreement and 10% of any sales of any products derived from the
              proprietary information which were the subject of the License Agreement.
              The maximum total value for any and all such payments shall not
              exceed $250,000. As of September 30, 2001, $58,300 has been accrued
              as payments under this agreement.
            
            On July
                1, 1991 the Company signed an Exclusive License Agreement with
                the Cornell Research Foundation, Inc. (CRF) for the exclusive
                license to make, have made, use or sell Licensed Products throughout
                the world. This Agreement pertains to the manufacture and sales
                of Paracelsians Ah-IMMUNOASSAY® Kits. The Agreement
                stipulates that Paracelsian will pay to CRF a royalty of 3% of
                any sales of the Kits. As of September 30, 2001, $8,490 has been
                accrued as royalty payments. The Agreement also states that the
                Company shall reimburse CRF for any patent costs incurred by CRF
                associated with the Licensed Products. The Company has accrued
                $137,399 for patent expenses.
      (9) Subsequent
              Events
      On December
                12, 2001 the Company made an offer to acquire the assets of East
                West Herbs (USA) in exchange for the note receivable and accrued
                interest owed to the Company (see note 1 (b)). This offer was
                accepted on December 21, 2001. The parties are in the process
                of preparing an Asset Purchase Agreement. The transfer of assets
                is subject to certain conditions, including the approval of the
                manufacturer of the products sold by East West Herbs (USA). The
                agreement is expected to be finalized by February 15, 2002.
        Item 8.	CHANGES
          IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
      None
      PART
          III
        Item9. 	DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
          IN COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
        The Corporation's
          Bylaws provide that the Board shall be divided into three classes, each
          containing as nearly equal a number of directors as possible, each elected
          to staggered three-year terms of office and thereafter directors elected
          to succeed those directors in each class shall be elected for a term
          of office of three years.
        Six individuals
          serve as directors, with two elected to serve a one year term until
          the Annual Meeting of Shareholders in 2002 ("Class I Directors"), two
          elected to serve a two year term until the Annual Meeting of Shareholders
          in 2003 ("Class II Directors"), and two elected to serve a three year
          term until the Annual Meeting of Shareholders in the year 2004 ("Class
          III Directors"), or until their successors are elected and qualified.
        Listed below are
          the names of the Class I Directors, together with their ages at December
          31, 2001, and their principal occupations during the past five years.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Name and Age       |    | Principal Occupation Over Last Five Years                                                                                                                                                                                                                        
|------------------ | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                  
|T. Nelson Campbell | 37 | Chairman, BioSignia,
        Inc. Chapel Hill, North Carolina since 1996; prior to that, Vice President,
        Paracelsian, Inc. from 1995 to 1996; prior to that, President, Pacific
        Liaisons, Ithaca, NY (until its merger into Paracelsian in 1995).
|                   |    |                                                                                                                                                                                                                                                                  
|Hira Gurtoo        | 63 | President, Professional
        Financial Advisers, Inc., Amherst, New York since 1992; Cancer Research
        Scientist, Roswell Park Cancer Institute, Buffalo, New York until February
        1998.                                                         



|Listed
        below are the names of the Class II Directors, together with their ages
        at December 31, 2001, and their principal occupations during the past
        five years.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Name and Age         |    | Principal Occupation
          Over Last Five Years                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-------------------- | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                    
|Lianping He          | 54 | President, Chinese
          Service Center for Scholarly Exchange, Inc. and President, New York
          Service Center for Chinese Study Fellows, Inc. since 1995; prior to
          that, Director, Chinese Education Association for International Exchange,
          Inc. and Vice President, Chinese Service President, for Scholarly Exchange,
          both of Beijing, China since 1993; prior to that, Director, US-China
          Exchange and First Secretary, Chinese Embassy, Washington, D.C.
|                     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Thomas D. Livingston | 49 | President and Co-founder,
          TLC Management Corp. since 1992; Chief Financial Officer, BioSignia,
          Inc. Chapel Hill, North Carolina since 1997.                                                                                                                                                                                                                                                                                                                                                  



|Listed
          below are the names of the Class III Directors, together with their
          ages at December 31, 2001, and their principal occupations during the
          past five years.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|Name and Age          |    | Principal Occupation
        Over Last Five Years                                                                                                                                                                                                                      
|--------------------- | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                     
|Dr. T. Colin Campbell | 67 | Jacob Gould Schurman
        Professor of Nutritional Sciences, Cornell University, Ithaca. NY; Founder
        and Director, Pacific Health Laboratories (NASDAQ Symbol PHLI) since 1995;
        Founder 	and Director, BioSignia, Inc., Chapel Hill, North Carolina.
|                      |    |                                                                                                                                                                                                                                                                        
|NoriYoshi Inoue       | 54 | Consultant; prior
        to that, Deputy General Manager and International Marketing Manager, Kubota
        Corporation, New York, NY since 1997; prior to that, International Business
        Manager and General Manager of Export Department, Tokyo, Japan.      



|Other than Dr. Campbell
        and Mr. Campbell, who are father and son, no proposed director or principal
        officer is related to another director or officer. Other than Dr. Campbell,
        no proposed director is a director of any company with a class of securities
        registered pursuant to Section 12 of the Securities Exchange Act of 1934,
        as amended (the "Exchange Act").
      Reports of Beneficial
        Ownership
      Directors and
        principal officers of the Corporation are required by federal law to file
        reports with the Securities Exchange Commission regarding the amount of
        and changes in their beneficial ownership of the Shares. To the Corporations
        knowledge, all such required reports have been timely filed.
      ITEM 10.	EXECUTIVE
        COMPENSATION
      The cash and cash
        equivalent compensation paid by the Corporation during the fiscal year
        ended September 30, 2001 to its chief executive officer is as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                       | Annual
          Compensation |         |       | Long
          Term Compensation   
|------------------------------------------------------ | ----------------------------- | ------- | ----- | -----------------------------------
|                                                       |                               |         |       |                                    
|                                                       |                               |         |       | Other                              
|                                                       |                               | Salary  | Bonus | Annual	Stock
          Compensation
|Name
          and Position                            | Year                          | ($)     | ($)   | ($)(1)                             
|                                                      
|NoriYoshi
          Inoue 
          President and CEO | 2001                          | 120,000 | -0-   | -0-                                



|The
          following table contains information with respect to stock options to
          purchase shares of the Common Stock held by the chief executive office
          during 2001.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Aggregated Options
        Exercises in 2001 and September 30, 2001, Options Values
|-----------------------------------------------------------------------------------
|                                                                                   
|                                                                                   
|NoriYoshi
        Inoue                                                            



|(1) Value represents
        the difference between the fair market value and the exercise price for
        the unexercised options at September 30, 2001.
      Employment Agreement
      The Corporation
        entered into an employment contract with Dr. T. Colin Campbell (the "Officer")
        to be Chairman of the Board of the Corporation as of July 26, 2001 (the
        "Agreement"). The employment term under the Agreement is for two years.
        The Officer has the option to terminate the Agreement upon sixty days'
        written notice to the Corporation. Under the Agreement, the Officer receives
        an annual cash salary. The Officer's annual compensation pursuant to the
        Agreement for 2001 is $48,000. On July 26, 2002, if the officer has been
        in continuous service with the Company as its Chairman of the Board, then
        a total of 100,000 Option shares of Common Stock shall vest. As of September
        20, 2001, 16,666 had vested. Also, under the Agreement further options
        were also granted to acquire an additional 100,000 shares provided the
        Officer has been in continuous service as of July 26, 2003. Under the
        Agreement, the Officer is entitled to all fringe benefits, which are generally
        provided by the Corporation for its employees.
      The Corporation entered
        into an employment contract with NoriYoshi Inoue (the "CEO")
        to be President and Chief Executive Officer of the Corporation as of July
        27, 2001 (the "Contract"). The initial employment term under
        the Contract is for one year. On each anniversary of the effective date
        of the Contract, the term of the Contract shall automatically be extended
        for an additional one year period beyond the then effective expiration
        date unless written notice form the Corporation or the Officer is received
        45 days prior to the anniversary date advising the other that the Contract
        shall not be further extended. In addition, the Officer has the option
        to terminate the Contract upon sixty days' written notice to the Corporation.
        Under the Contract, the Officer receives an annual cash salary, with annual
        adjustments and discretionary bonuses as determined by the Board. The
        Officer's compensation pursuant to the Agreement is $120,000 per year,
        with such salary increased to $180,000 per year based on the Company reaching
        cash flow milestones and he is eligible for a bonus up to $50,000. On
        July 27, 2002, and for each of the next four years, if the Officer has
        been in continuous service with the Company as its Chief Executive Officer,
        then a total of 200,000 Option shares of Common Stock shall vest per year.
        As of September 20, 2001, 33,333 had vested. Under the agreement, the
        Officer is entitled to all fringe benefits, which are generally provided
        by the Corporation for its employees.
      ITEM 11.	SECURITY
        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      To the Corporation's
        knowledge, as of January 14, 2002 listed below are the only shareholders
        of the Corporation that owned more than five percent of the Shares. The
        following table sets forth certain information as to these shareholders:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Name of Shareholder                                                                               | Shares
        Currently
        Beneficially Owned | Percent
        of SharesBeneficially Owned(2)
|------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------------------------------------
|                                                                                                 
|BioSignia, Inc.
        100 Europa Drive, Suite 599
        Chapel Hill, NC 27514                 | 6,913,565
        (1)                               | 28.89%                                        
|                                                                                                  |                                                     |                                               
|T. Colin Campbell
        100 Europa Drive, Suite 599
        Chapel Hill, NC 27514               | 7,033,126
        (1)                               | 29.39%                                        
|                                                                                                  |                                                     |                                               
|T. Nelson Campbell
        100 Europa Drive, Suite 599
        Chapel Hill, NC 27514              | 7,370,277
        (1)                               | 30.88%                                        
|                                                                                                  |                                                     |                                               
|The Travelers Insurance
        Company
        205 Columbus Boulevard
        Hartford, CT 06183 | 1,390,000                                           | 5.81%                                         



|(1)	Dr. Campbell
        and Mr. Campbell are the principal shareholders of BioSignia and their
        total shares beneficially owned include the Shares owned by BioSignia.
      (2)	The calculation
        of the percentage of class beneficially owned is based on the 23,929,388
        Shares which were issued and outstanding at January 14, 2002.
      The following table
        shows, as of January 14, 2002, the number of Shares owned by each director
        and by all directors and principal officers of the Corporation as a group.
        The address of each of the named individuals below is c/o Paracelsian,
        Inc., 222 Langmuir Laboratories, Cornell Technology Park, Ithaca, New
        York 14850.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Name of Beneficial
          Owner                                               | Shares
          Currently 
          Beneficially Owned(1) | Percent
          of SharesBeneficially Owned(2)
|-------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------
|                                                                                
|T. Colin Campbell                                                                | 7,033,126                                                   | 29.39%                                          
|T. Nelson Campbell                                                               | 7,370,277                                                   | 30.88%                                          
|Hira
        Gurtoo                                                              | 66,130                                                      | *                                               
|Lianping
        He                                                              | 18,759                                                      | *                                               
|NoriYoshi
        Inoue                                                          | 24,666                                                      | *                                               
|Thomas D. Livingston                                                             | 305,295                                                     | 1.28%                                           
|Mac
        Shaibe                                                               | 26,380                                                      | *                                               
|                                                                                 |                                                             |                                                 
|All
        Directors and Principal Officers as a group (7 persons)              | 7,930,942                                                   | 33.14%                                          
|                                                                                 |                                                             |                                                 
|*	Denotes beneficial
          ownership of less than one percent of the Shares.





|(1)	To the Corporation's
          knowledge, each person has sole voting and investment power over the
          Shares shown as beneficially owned by such person, except for the following
          shares which the individual indicates that they share voting and/or
          investment power: Dr. Colin Campbell  7,033,126 Shares; Mr. Nelson
          Campbell  7,370,277 Shares; and directors and principal officers
          as a group  7,930,942 shares. Dr. Campbell and Mr. Campbell are
          the principal shareholders of BioSignia, Inc. and their total shares
          beneficially owned include the Shares owned by BioSignia, Inc.
        (2)	The calculation
          of the percentage of class beneficially owned is based on the 23,929,388
          Shares which were issued and outstanding at January 14, 2002 plus the
          number of Shares capable of being issued to that individual (if any)
          and to directors and principal officers as a group within 60 days of
          the voting record date upon the exercise of stock options held by each
          of them (if any) and by the group, respectively.
        ITEM 12.	CERTAIN
          RELATIONSHIPS AND RELATED TRANSACTIONS
        None.
        ITEM 13.	EXHIBITS
          AND REPORTS ON FORM 8- K
        None.
        SIGNATURES
        In accordance with
          Section 13 or 15(d) of the Exchange Act, the Registrant caused this
          amended report to be signed on its behalf by the undersigned, thereunto
          duly authorized.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|PARACELSIAN,
          INC.                       | Date: | January
          31, 2002
|------------------------------------------------- | ----- | --------------------------
|By:/s/ T. COLIN
          CAMPBELL                |       |                           
|-------------------------------------             |       |                           
|T. Colin Campbell
          Chairman of the Board |       |                           



|In accordance
          with the Exchange Act, this amended report has been signed below by
          the following persons on behalf of the Registrant and in the capacities
          and on the dates indicated.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|/s/ T. COLIN CAMPBELL
          -----------------------------------
          T. Colin Campbell        | Chairman of the
          Board                                                                                    | January 31, 2002
|------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | ----------------
|                                                                                                       |                                                                                                                    |                 
|/s/ NORIYOSHI INOUE
          -----------------------------------
          NoriYoshi Inoue            | Chief Executive
          Officer and Director
          (Principal Executive Officer)                             | January 31, 2002
|                                                                                                       |                                                                                                                    |                 
|/s/ GARY G. CHABOT
          -----------------------------------
          Gary G. Chabot              | Chief Financial
          Officer & Chief Operating Officer
          (Principal Financial and Accounting Officer) | January 31, 2002
|                                                                                                       |                                                                                                                    |                 
|/s/ NELSON CAMPBELL
          ----------------------------------- 
          T. Nelson Campbell        | Director                                                                                                           | January 31, 2002
|                                                                                                       |                                                                                                                    |                 
|/s/ HIRA GURTOO
          -----------------------------------
          Hira Gurtoo                    | Director                                                                                                           | January 31, 2002
|                                                                                                       |                                                                                                                    |                 
|/s/ LIANPING HE
          -----------------------------------
          Lianping He                    | Director                                                                                                           | January 31, 2002
|                                                                                                       |                                                                                                                    |                 
|/s/ THOMAS D. LIVINGSTON
          -----------------------------------
          Thomas D. Livingston. | Director                                                                                                           | January 31, 2002