<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF
1934
For Quarter Ended APRIL 30, 1998
Commission File Number 0-22011
BIONUTRICS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 86-0760991
(State or other jurisdiction of I.R.S. Employer
incorporation of organization) Identification Number
2425 E. CAMELBACK RD., SUITE 650 PHOENIX, ARIZONA 85016
(Address of principal executive offices) (Zip code)
602-508-0112
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, at the latest practical date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AS OF JUNE 15, 1998
- ----- -------------------------------
<S> <C>
COMMON 18,329,381
PAR VALUE $.001 PER SHARE
</TABLE>
<PAGE> 2
BIONUTRICS, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
ITEM I. Condensed Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6
ITEM 2. Management's Discussion and Analysis 8
PART II. OTHER INFORMATION
ITEM 2(c) Changes in Securities 13
ITEM 6 Exhibits and Reports on Form 8-K 13
SIGNATURE 14
2
<PAGE> 3
BIONUTRICS LOGO
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30 OCTOBER 31,
1998 1997
(UNAUDITED) (AUDITED)
--------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 52,049 $ 2,181,121
Trade receivables (net of allowance for bad debts of $36,289 2,440,045 2,334,719
at April 30, 1998)
Inventory 1,142,855 1,407,760
Prepaid expenses & other current assets 236,980 554,052
--------------------------------
Total Current Assets 3,871,929 6,477,652
--------------------------------
PROPERTY, PLANT and EQUIPMENT (net of accumulated 7,256,673 6,698,811
depreciation of $851,498 and $258,357 respectively)
OTHER ASSETS, net of accumulated amortization:
Goodwill 549,778 563,878
Patent applications and other related costs 554,353 441,693
--------------------------------
Total Other Assets 1,104,131 1,005,571
--------------------------------
TOTAL $ 12,232,733 $ 14,182,034
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,729,518 $ 2,769,440
Accrued liabilities 1,474,088 2,033,567
Current portion of notes payable & capital leases 2,215,081 329,301
--------------------------------
Total Current Liabilities 6,418,687 5,132,308
--------------------------------
LONG TERM LIABILITIES
Notes payable & capital leases 141,077 13,407
--------------------------------
Total Liabilities 6,559,764 5,145,715
--------------------------------
STOCKHOLDERS' EQUITY
Common stock 18,326 17,812
Additional paid in capital 30,246,874 26,501,567
Accumulated deficit (24,591,028) (17,481,857)
Common stock in treasury (1,203) (1,203)
--------------------------------
Total Stockholders' Equity 5,672,969 9,036,319
--------------------------------
TOTAL $ 12,232,733 $ 14,182,034
================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-3-
<PAGE> 4
BIONUTRICS LOGO
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended April 30 Ended April 30
------------------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GROSS SALES $ 1,584,660 $ 165,984 $ 3,379,601 $ 165,984
DISCOUNTS AND ALLOWANCES 73,310 20,690 165,331 20,690
------------------------------------------------------------------------
NET SALES 1,511,350 145,294 3,214,270 145,294
COST OF SALES 1,847,237 661,672 3,746,715 661,672
------------------------------------------------------------------------
GROSS LOSS (335,887) (516,378) (532,445) (516,378)
------------------------------------------------------------------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES: 3,411,021 2,038,797 6,559,064 3,346,034
------------------------------------------------------------------------
OTHER (EXPENSE) INCOME: (25,856) 71,173 (17,662) 126,928
------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR
INCOME TAXES (3,772,764) (2,484,002) (7,109,171) (3,735,484)
------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 0 0 0 0
------------------------------------------------------------------------
NET LOSS ($ 3,772,764) ($ 2,484,002) ($ 7,109,171) ($ 3,735,484)
========================================================================
BASIC NET LOSS PER COMMON SHARE ($ 0.21) ($ 0.16) ($ 0.39) ($ 0.24)
========================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 18,322,714 15,927,321 18,098,920 15,574,887
========================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
- 4 -
<PAGE> 5
BIONUTRICS LOGO
Consolidated Statements of Cash Flows
(Unaudited)
____________________________________________________________________________
<TABLE>
<CAPTION>
Six months
Ended April 30
---------------------------
1998 1997
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss ($7,109,171) ($3,735,484)
Adjustments to reconcile net loss to cash used in operations
Depreciation and amortization 619,581 38,225
Expenses incurred in exchange for common stock 63,750 25,000
Expenses incurred for capital raising (94,135) 0
Non-employee stock-based compensation 70,152 428,500
Changes in operating assets and liabilities:
Receivables-net (105,326) (151,106)
Inventory 264,905 (328,881)
Prepaid expenses and other current assets 317,072 (176,546)
Accounts payable and accrued liabilities (599,400) 785,973
-------------------------
Net cash used in operating activities (6,572,572) (3,114,319)
-------------------------
INVESTING ACTIVITIES:
Capital expenditures (1,102,196) (1,090,184)
Investment in joint venture 0 (400,000)
-------------------------
Net cash used in investing activities (1,102,196) (1,490,184)
-------------------------
FINANCING ACTIVITIES:
Net proceeds from issuance of stock 3,706,055 6,983,676
Note issuance 1,852,376 0
Repayment of notes payable & capital lease obligations (12,735) 0
-------------------------
Net cash provided by financing activities 5,545,696 6,983,676
-------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,129,072) 2,379,173
CASH AND CASH EQUIVALENTS, BEG OF PERIOD 2,181,121 5,676,360
-------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 52,049 $8,055,533
=========================
Supplemental Disclosures of Noncash Financing activities:
Capital lease obligations $ 173,808
===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-5-
<PAGE> 6
BIONUTRICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - The accompanying unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to
Form 10-Q. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for
completed financial statements. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and
cash flows for all periods presented have been made. The results of
operations for the six-month period ended April 30, 1998 are not
necessarily indicative of the operating results that may be expected
for the entire year ending October 31, 1998. These financial statements
should be read in conjunction with the Company's financial statements
and accompanying notes thereto as of and for the year ended October 31,
1997.
NOTE B - Basic net loss per share is computed by dividing net loss by the
weighted average number of common shares assumed outstanding during the
presented periods. Options and warrants are excluded from the basic net
loss per share calculation as they are anti-dilutive.
NOTE C - The Company raised $3,706,055 in capital through issuance of common
stock during the six-month period ended April 30, 1998. This capital
stock was issued at $5.00, $7.25 and $8.00 per share. The shares at
$5.00 were issued in connection with the exercise of stock options and
totaled $41,655. The shares issued at $7.25 a share represented
$3,000,000 of the funds raised and were sold to Novartis Nutrition, a
subsidiary of Novartis AG.
NOTE D - On March 23, 1998, the Company borrowed $1.5 million on a short-term
basis, initially repayable on June 23, 1998. The lender has granted an
extention to September 23, 1998. As security for the loan, the Company
issued on March 23 a UCC-1 financing statement on assets of its
subsidiary InCon Technologies and pledged 300,000 shares of company
stock. Interest thereon accrues at 10% and 15% during the extention
period. In connection with the extention the company will issue the
bridge lender five-year warrants at $4.50 covering 25,000 shares.
NOTE E - Subsequent to the three month period ended April 30, 1998 the Company
signed a memorandum of understanding ("MOU") to acquire Lipoprotein
Technologies. The MOU also gives the Company the option to acquire and
license certain technology held by companies affiliated with
Lipoprotein. The transaction is subject to due diligence and mutual
board approval.
6
<PAGE> 7
Lipoprotein is a privately held pharmaceutical development company with
a drug candidate that addresses lowering LDL cholesterol and
triglycerides and raising HDL cholesterol. Lipoprotein presently has an
Investigational New Drug Application filed with the Food and Drug
Administration and anticipates completion of phase III clinical trials
in 1999.
7
<PAGE> 8
BIONUTRICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS INCLUDES CERTAIN FORWARD LOOKING STATEMENTS. WHEN USED IN THIS
REPORT, THE WORDS "EXPECTS," "INTENDS," "PLANS" AND "ANTICIPATES" AND SIMILAR
TERMS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS THAT RELATE TO THE
COMPANY'S FUTURE PERFORMANCE. SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED
HERE. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED UNDER "BUSINESS-SPECIAL CONSIDERATIONS" IN THE COMPANY'S
FORM 10-K/A.
Three months ended April 30, 1998 compared with three months ended April 30,
1997.
RESULTS OF OPERATIONS
The results of operations for the second quarter of fiscal 1998 as compared to
1997 reflect Bionutrics, Inc. maturing into a company with national distribution
of several products and services through three subsidiaries.
Consolidated gross revenues for the quarter ended April 30, 1998 were $1,585,000
versus $166,000 for the same quarter in 1997, summarized by subsidiary as
follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
APRIL 30,
SUBSIDIARY ---------------------------
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
InCon Technologies $1,135,000 *
Bionutrics Health Products 415,000 $ 166,000
Nutrition Technology 35,000 -
---------- ----------
TOTAL CONSOLIDATED GROSS REVENUES $1,585,000 $ 166,000
========== ==========
</TABLE>
* - Acquired October 31, 1997
InCon Technologies gross sales are primarily attributed to molecular
distillation of materials from a variety of customers as well as the sale of
processing equipment. InCon was acquired by Bionutrics on October 31, 1997 and
as such reflects no sales activity for the same quarter prior year.
8
<PAGE> 9
Bionutrics Health Products continued to rollout nationally its first product,
evolvE(TM), during the quarter. The revenues for the prior year reflects the
initial launch of evolvE. As of the end of the second quarter evolvE, offered in
three packages, was distributed by over 40,000 stores including many leading
drug and food chains and mass merchandisers throughout the United States.
Nonetheless, sales of evolvE have been less than anticipated because the Company
was forced to cut back on budgeted advertising and promotion for the product
owing to delays in raising capital during this period. The Company recognizes
that a sustained advertising program is necessary to achieve growth in the
evolvE product line, and that failure to show resulting positive sale results
could have a negative impact on obtaining and maintaining distribution store
accounts. The Company continues to seek additional capital to correct this
situation.
Nutrition Technology's processing was idle during the quarter ended April
30,1998 in preparation for full scale production of edible rice bran oil planned
to commence in the third quarter. Recent equipment purchases and other
expenditures to this end, chiefly in the second quarter, have approximated
$500,000. Gross sales reflected in this period represent byproducts sold out of
inventory. No revenues were reflected for the comparison quarter as production
just commenced and markets for byproducts were not yet established in 1997. The
Company's edible rice bran oil byproduct is expected to have market advantages
over competing oils such as soy, corn, canola and cottonseed owing to its
superior stability, reduced trans fatty acids and rice bran oil's perceived
health benefits.
Cost of sales for the quarter ended April 30, 1998 was $1,847,000 versus
$662,000 for the same quarter in 1997. Cost of sales for the first quarter ended
April 30, 1998 and 1997 resulted in negative margins as the company had not
achieved operating level efficiency primarily due to low volume activity at the
West Monroe production location and start-up costs associated with product
rollout of evolvE. The Company's manufacturing operations in West Monroe,
Louisiana were idle during the second quarter of this year to allow for
installation of new, more efficient processing equipment and to prepare for
commodity production of edible rice bran oil planned to commence in the third
quarter. Curtailment of operations has resulted in cost savings recognized in
the second quarter. The company anticipates margins to improve with the upgraded
equipment and with the commencement of sales of commodity rice bran oil. Cost of
sales for the second quarter of 1998 was negatively impacted by the one-time
adjustment to inventory of $227,000 to reflect market value.
Selling, general and administrative expenses for the quarter ended April 30,
1998 of $3,411,000 were $1,372,000 higher than that recognized for the same
quarter in 1997 of $2,039,000. In addition to costs associated with the InCon
Technologies molecular distillation processing business acquired effective the
first quarter of fiscal 1998, this increase in expenses directly reflects costs
associated with product rollout and infrastructure development. Significant
increases were incurred for salaries, research, advertising and marketing, legal
and consulting fees.
9
<PAGE> 10
Other expense for the quarter ended April 30, 1998 was $26,000 versus other
income of $71,000 for the same quarter for the prior year. The decreased income
is attributable to decreased interest earnings from lower balances of cash and
interest incurred on borrowings.
Net loss increased to $3,773,000, or $0.21 per share for the quarter ended April
30, 1998 from $2,484,000, or $0.16 per share for the quarter ended April 30,
1997 due primarily to increased levels of expenses as outlined above offset in
part by the sales of evolvE and revenues from molecular distillation processing
and production byproducts.
Six months ended April 30, 1998 compared with six months ended April 30, 1997.
RESULTS OF OPERATIONS
Trends and comments as noted for the second quarter apply also to the six month
year-to-date comparisons. Results of operations for the first six months of
fiscal 1998 as compared to 1997 reflect the activities of Bionutrics, Inc. in
transition from a research and development mode to production and sales.
Consolidated gross revenues for the six months ended April 30, 1998 were
$3,380,000 versus $166,000 for the same period in 1997 and is summarized by
subsidiary as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
APRIL 30,
---------------------------
SUBSIDIARIES
--------------------------- 1998 1997
---------- ----------
<S> <C> <C>
InCon Technologies $1,798,000 *
Bionutrics Health Products 1,336,000 $ 166,000
Nutrition Technology 246,000 -
---------- ----------
TOTAL GROSS REVENUES $3,380,000 $ 166,000
========== ==========
</TABLE>
* Acquired October 31, 1997
InCon Technologies gross sales are primarily attributed to molecular
distillation of materials as well as the sale of processing equipment. One
customer is expected to account for approximately 75% of InCon's business for
1998. InCon was acquired by Bionutrics on October 31, 1997 and as such reflects
no sales activity for the first half of the prior year.
10
<PAGE> 11
Bionutrics Health Products continued to rollout nationally its first product,
evolvE(TM), during the six months ended April 30, 1998. The revenues for the
prior year reflects the initial launch of evolvE.
Nutrition Technology's processing revenues were lower during the first half of
1998 because the plant was idle during the quarter ended April 30,1998 in
preparation for full scale production of edible rice bran oil planned to
commence in the third quarter. Gross sales reflected in this period represent
byproducts sold out of inventory.
Cost of sales for the six months ended April 30, 1998 was $3,747,000 versus
$662,000 for the same six-month period in 1997. Cost of sales for the six months
ended April 30, 1998 and 1997 resulted in negative margins as the company had
not achieved operating level efficiency primarily due to low volume activity at
the West Monroe production location, evolvE sales volume and start-up costs
associated with product rollout of evolvE.
Selling, general and administrative expenses for the six months ended April 30,
1998 of $6,559,000 were $3,213,000 higher than that recognized for the same
quarter in 1997 of $3,346,000. In addition to costs associated with molecular
distillation processing business acquired effective the first quarter of 1998,
this increase in expenses directly reflects costs associated with product
rollout and infrastructure development. Significant increases were incurred for
salaries, research, advertising and marketing, legal and consulting fees.
Other expense for the six months ended April 30, 1998 was $18,000 versus other
income of $127,000 for the same six months in the prior year. The decreased
income is attributable to decreased interest earnings from lower balances of
cash and interest incurred on borrowings.
Net loss increased to $7,109,000 or $0.39 per share for the six months ended
April 30, 1998 from $3,735,000 or $0.24 per share for the six months ended April
30, 1997 due primarily to increased levels of expenses as outlined above offset
in part by the sales of evolvE and revenues from molecular distillation
processing and production by products.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the six-month period ended April
30, 1998 was $6,573,000 as compared to $3,114,000 during the same period in
1997. The increase in cash used is primarily due to losses as detailed in
results from operations.
Net cash used in investing activities during the six months ended April 30, 1998
was $1,102,000 as compared to $1,490,000 during the same period in 1997. These
investment activities were largely related to capital expenditures in the
manufacturing operations. The Company anticipates that additional investment in
manufacturing operations will be required. In 1997, investing activities also
reflected $400,000 in a former joint venture with InCon Technologies.
11
<PAGE> 12
Net cash provided by financing activities totaled $5,546,000 for the six-month
period ended April 30, 1998 versus $6,984,000 from the same period in 1997. This
cash was provided primarily by the sale of common stock for both years as well
as short-term debt in the amount of $1,852,000 (including accrued interest) for
the second quarter of 1998.
As previously reported, in October 1997 the Company issued 500,000 shares of
restricted common stock at $8 per share pursuant to stock purchase agreements
with two overseas investors, both of whom are related to an existing
shareholder. Payment of the $4 million purchase price is evidenced by promissory
notes requiring payment no later than August 1, 1998, having been extended by
agreement from May 1, 1998. The share issuance is void under Nevada law if
payment is not received, and for accounting purposes the notes are not booked as
assets, and the shares so issued against promissory notes are not considered
issued and outstanding until the notes are paid. No assurance is given by the
Company that such notes will be paid, or paid on the extended due date.
In connection with the aforementioned stock sale to Novartis, in February 1998
the Company entered into a strategic alliance with Novartis to enable it to
evaluate the Company's technology and rice bran - derived products for potential
application as functional food ingredients The initial evaluation by Novartis is
expected to take until December 1998, following which Novartis is expected to
determine whether to increase its $3 million equity investment in the Company
and pay fees to the Company in connection with entering into a longer-term
research and license agreements. No assurance can be given that results of the
initial evaluation will satisfy Novartis regarding use of the Company's evolvE
product as a functional food ingredient, or that Novartis will determine to
proceed and extend or expand its relationship with the Company.
The proposed Lipoprotein acquisition, which is subject to completion of due
diligence and mutual board approval, would, be accomplished by merger chiefly
with Company stock. Lipoprotein would offer the Company an early opportunity to
have an approved pharmaceutical product for cardiovascular indications, which is
directly in line with its overall strategy. In addition, Lipoprotein's
technology would present an opportunity for the Company to develop its
functional food and expand its dietary supplement business.
The Company's current cash resources and expected cash flow from operations will
not be sufficient to fund its operational needs for the balance of fiscal 1998.
Therefore, the Company continues to seek additional capital though private
equity, bank lines of credit and asset based financing including capital
required to expand the business. The Company has recently entered into an
engagement agreement with a major banking institution to identify substantial
bridge financing preparatory to permanent private equity financing. A director
will loan the Company $1 million to be used for additional working capital
pending such bridge financing. There can be no assurance that such additional
financing will be attainable, or attainable on terms acceptable to the Company.
Access by the company to additional capital will depend substantially upon
prevailing market conditions, and the financial condition of and prospects for
the Company at the time.
12
<PAGE> 13
BIONUTRICS, INC.
PART II - OTHER INFORMATION
ITEM 2(c) Changes in Securities:
413,793 shares of common stock sold to Novartis at
$7.25 a share, pursuant to section 4 (2) of the 1933
Act. 10,000 shares of common stock issued at $6.375
per share for financial advisory services to The
Shemano Group pursuant to section 4 (2) of the 1933
Act.
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports on Form 8-K - none
13
<PAGE> 14
BIONUTRICS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Bionutrics, Inc.
----------------
(Registrant)
Dated: June 15, 1998 By:/s/George E. Duck, Jr.
----------------------
Its: Vice President, Finance
Secretary and Treasurer
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 52,049
<SECURITIES> 0
<RECEIVABLES> 2,476,334
<ALLOWANCES> 36,289
<INVENTORY> 1,142,855
<CURRENT-ASSETS> 3,871,929
<PP&E> 8,108,171
<DEPRECIATION> 851,498
<TOTAL-ASSETS> 12,232,733
<CURRENT-LIABILITIES> 6,418,687
<BONDS> 0
0
0
<COMMON> 18,326
<OTHER-SE> 5,654,643
<TOTAL-LIABILITY-AND-EQUITY> 12,232,733
<SALES> 1,491,572
<TOTAL-REVENUES> 3,214,270
<CGS> 2,610,324
<TOTAL-COSTS> 3,746,715
<OTHER-EXPENSES> 6,559,064
<LOSS-PROVISION> 32,139
<INTEREST-EXPENSE> 32,565
<INCOME-PRETAX> (7,109,171)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,109,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,109,171)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> 0
</TABLE>
