<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 JANUARY 31, 1999
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 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 MARCH 9, 1999
- ----- -------------------------------
<S> <C>
COMMON
PAR VALUE $.001 PER SHARE 20,705,732
</TABLE>
1
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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 11
ITEM 6 Exhibits and Reports on Form 8-K 11
SIGNATURE 12
2
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[BIONUTRICS LOGO]
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1999 1998
--------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 226,000 $ 1,704,400
Trade receivables - net of allowance for bad debts of $74,021
and $72,086, respectively 1,915,791 1,992,060
Inventory 520,882 763,654
Prepaids & other current assets 691,709 169,822
------------ ------------
Total Current Assets 3,354,382 4,629,936
------------ ------------
PROPERTY - net of accumulated depreciation of $1,544,970
and $1,345,751, respectively 5,272,569 5,401,259
------------ ------------
OTHER ASSETS:
Goodwill - net of accumulated amortization of $35,250
and $28,200, respectively 528,628 535,678
Patent applications and other related costs - net of accum
amortization of $144,670 and $143,005, respectively 325,721 327,386
------------ ------------
Total Other Assets 854,349 863,064
------------ ------------
TOTAL $ 9,481,300 $ 10,894,259
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 796,798 $ 1,090,845
Accrued liabilities 1,095,920 1,102,070
Current portion of notes payable & capital leases 1,108,367 1,108,090
Other current liabilities 11,500 0
------------ ------------
Total Current Liabilities 3,012,585 3,301,005
------------ ------------
NOTES PAYABLE AND CAPITAL LEASES - Net of
current portion 13,667 17,525
------------ ------------
Total Liabilities 3,026,252 3,318,530
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 20,602 20,352
Additional paid-in capital 31,647,806 31,483,706
Warrants 3,147,093 2,797,136
Accumulated deficit (28,359,250) (26,724,262)
Common stock in treasury, at cost (1,203) (1,203)
------------ ------------
Total Stockholders' Equity 6,455,048 7,575,729
------------ ------------
TOTAL $ 9,481,300 $ 10,894,259
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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[BIONUTRICS LOGO]
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended January 31
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
REVENUE FROM SERVICES $ 691,719 $ 663,585
REVENUE FROM PRODUCT SALES 443,098 1,131,357
------------ ------------
TOTAL GROSS REVENUES 1,134,817 1,794,942
DISCOUNTS AND ALLOWANCES 175,810 92,021
------------ ------------
NET REVENUES 959,007 1,702,921
COST OF REVENUES 887,543 1,899,478
------------ ------------
GROSS (LOSS) PROFIT 71,464 (196,557)
------------ ------------
OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 1,633,899 2,951,421
RESEARCH AND DEVELOPMENT 61,925 196,623
------------ ------------
TOTAL OPERATING EXPENSES 1,695,824 3,148,044
------------ ------------
OPERATING LOSS (1,624,360) (3,344,601)
------------ ------------
OTHER (EXPENSE) INCOME: (10,628) 8,194
------------ ------------
NET LOSS ($ 1,634,988) ($ 3,336,407)
============ ============
BASIC LOSS PER COMMON SHARE ($ 0.08) ($ 0.19)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 20,439,065 17,875,127
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
- 4 -
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[BIONUTRICS LOGO]
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months
Ended January 31
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
-------------------------------
<S> <C> <C>
Net Loss ($1,634,988) ($3,336,407)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization 207,934 314,099
Stock based compensation expense 14,307 35,076
Changes in operating assets and liabilities:
Trade receivables-net 76,269 61,731
Inventory 242,772 56,627
Prepaids and other current assets (521,887) 341,818
Accounts payable (294,047) 768,495
Accrued and other current liabilities 5,349 (424,534)
----------- -----------
Net cash used in operating activities (1,904,291) (2,183,095)
----------- -----------
INVESTING ACTIVITIES-CAPITAL EXPENDITURES (70,528) (312,735)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of stock & warrants 500,000 706,055
Repayments of debt & capital leases (3,581) (4,160)
----------- -----------
Net cash provided by financing activities 496,419 701,895
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,478,400) (1,793,935)
CASH AND CASH EQUIVALENTS, BEG OF PERIOD 1,704,400 2,181,121
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 226,000 $ 387,186
=========== ===========
Supplemental Disclosures of Noncash
Investing and Financing activities:
Acquisition of equipment under capital leases $ 173,808
===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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BIONUTRICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - The accompanying unaudited Condensed Consolidated
Financial Statements of Bionutrics, Inc. ("the Company") 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 three-month period ended January
31, 1999 are not necessarily indicative of the operating
results that may be expected for the entire year ending
October 31, 1999. 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, 1998. The accompanying consolidated financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has
incurred operating losses of $28,359,250 through January 31,
1999 which have been funded through the issuance of stock and
debt. The losses incurred to date, the uncertainty regarding
the ability to raise additional capital and the Company's
inability to generate gross profits and positive cash flows
from operations may indicate that the Company will be unable
to continue as a going concern for a reasonable period of
time.
NOTE B - Basic net loss per share is computed by dividing the net loss
by the weighted average number of common shares 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 $500,000 in capital through the issuance of
common stock in the three month period ended January 31, 1999.
The capital stock was issued at $2.00 per share. In
conjunction with this issuance, 750,000 warrants were issued
with an exercise price of $2.00 per share. The capital stock
was subscribed to in January and subsequently paid in
February.
NOTE D - The Company had a memorandum of understanding to acquire
Lipoprotein Technologies, which has elapsed due to passage of
time. The Company may evaluate opportunities with Lipoprotein
Technologies at a future date.
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NOTE E - In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133
requires that an enterprise recognize all derivatives as
either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The
statement is effective for the Company's fiscal year ending
October 31, 2000. The Company has not yet completed evaluating
the impact of implementing the provisions of SFAS No. 133 as
there are many specifics to the statement that remain unclear
at this time.
7
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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 "ANTICIPATE" 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 January 31, 1999 compared with three months ended January 31,
1998.
RESULT OF OPERATIONS
The results of operations for the first quarter of fiscal 1999 as compared to
1998 primarily reflect Bionutrics, Inc. transitioning the Bionutrics Health
Products, Inc. subsidiary from production and distribution of a single brand,
evolvE(R), toward one of development and production of a variety of products for
third parties.
Consolidated gross revenues for the quarter ended January 31, 1999 were
$1,135,000 versus $1,795,000 for the same quarter in 1998, summarized by
subsidiary as follows (intercompany sales excluded):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
JANUARY 31,
--------------------------
SUBSIDIARY
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
InCon Technologies Inc. $ 716,000 $ 663,000
Bionutrics Health Products Inc. 374,000 922,000
Nutrition Technology Corporation 45,000 210,000
---------- ----------
Total Consolidated Gross Revenues $1,135,000 $1,795,000
========== ==========
</TABLE>
InCon Technologies Inc.'s increase in sales reflects increased toll processing
activity as well as additional sales of equipment.
8
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Bionutrics Health Products Inc. experienced a significant decline in sales due
to curtailment of advertising and support for the brand evolvE(R) as a result of
financial constraints. The Company recognizes that a substantial advertising
program is necessary to achieve growth in the evolvE(R) product line, and that
failure to show positive sales results will have a negative impact on obtaining
and maintaining distribution store accounts. In addition, some accounts have
returned the product due to low volume activity. EvolvE(R) distribution is
maintained by over 36,000 stores including many leading drug and food chains
throughout the United States.
Bionutrics Health Products is repositioning itself as a product development
company and as such is engaged in discussions with several potential marketing
partners involving evolvE(R) and future branded products including dietary
supplements and functional food products. New products will be based on new
technology extending beyond a tocotrienol platform.
Nutrition Technology Corporation discontinued production in its West Monroe,
Louisiana facility in late 1997. The sales reflected for the quarter ended
January 31, 1999 and 1998 reflect the sale of remaining by-products on hand from
production and testing. The company's lease on the West Monroe, Louisiana
facility terminated on February 28, 1999 and no activity was conducted after
that time. After the sale of assets to AC Humko, Nutrition Technology
Corporation is substantially inactive.
Cost of revenues for the three months ended January 31, 1999 was $888,000 versus
$1,900,000 for the same three months in 1998. This reduction in cost of sales is
due to lower sales volume in addition to reduced manufacturing costs from the
winding down of operations at the West Monroe, Louisiana production facility.
With the substantial reduction of production costs the company experienced its
first quarter of profitable gross margin in the three months ended January 31,
1999.
Operating expenses for the three months ended January 31, 1999 of $1,696,000
were $1,452,000 less than that recognized for the same three months in 1998 of
$3,148,000. This 46% reduction is due to significantly reduced advertising,
salaries and cost curtailment programs.
Other expense for the three months ended January 31, 1999 was $11,000 versus
other income of $8,000 for the same period in the prior year. This $19,000
change is primarily due to interest expense for loans outstanding.
Net loss decreased to $1,635,000 or $.08 per share for the three months ended
January 31, 1999 versus $3,336,000, or $.19 per share for the three months ended
January 31, 1998 due primarily to lower operating expenses.
9
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LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the three month period ended
January 31, 1999 was $1,904,000 as compared to $2,183,000 during the same period
in 1998. Although net losses for the three month period ended January 31, 1999
were substantially lower than the same period for the prior year, changes in
operating assets and liabilities essentially offset this variation. This offset
is due to the increase in other assets for the $500,000 stock subscription,
which was subsequently paid in February, and repayment of overdue accounts
payable.
Net cash used in investing activities during the three months ended January 31,
1999 was $71,000 as compared to $313,000 during the same period in 1998. These
investment activities were largely related to capital expenditures in
manufacturing operations. The Company anticipates that additional investment in
manufacturing operations will be required at Incon. In 1998 investing activities
also reflected $125,000 invested in the acquisition of patents.
Net cash provided by financing activities totaled $496,000 for the three-month
period ended January 31, 1999 versus $702,000 for the same period in 1998. This
cash was provided primarily by the sale of common stock for both years.
The Company's current cash resources and expected cash flow from operations will
not be sufficient to fund its operational needs for the next 12 months. The need
for additional capital cannot be predicted at this time except that the Company
will require additional financing in the second quarter of fiscal 1999.
Therefore, the Company continues to seek additional capital through private
equity and asset based 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.
IMPACT OF THE YEAR 2000 ISSUE
The Company is presently assessing its exposure to year 2000 issues. Internally
it has been determined that systems are capable of handling the new millenium.
With regard to key suppliers and strategic partners a letter requesting the
status of year 2000 readiness has been distributed. Although not all recipients
have responded as yet, those that have stated they are prepared or have taken
steps to be prepared. As a complete assessment has not yet been achieved, the
Company's state of readiness, risks and contingency plans are not yet known.
Costs associated with year 2000 readiness have been minimal to date and are
anticipated to be so in the future.
10
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BIONUTRICS, INC.
PART II - OTHER INFORMATION
ITEM 2(C) Changes in Securities:
250,000 shares of common stock issued at $2.00 per
share and 750,000 warrants at $2.00 to an affiliate
of a nominee for director.
The above issuance was made pursuant to section 4 (2)
of the Securities Act of 1933.
ITEM 6 Exhibits and Report on Form 8-K
(a) Exhibits
1. Exhibit 27
(b) Reports on Form 8-K - None
11
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BIONUTRICS, INC.
SIGNATURE
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: March 16, 1999 By:/s/George E. Duck, Jr.
--------------- ----------------------------
Its: Vice President, Finance
----------------------------
Secretary and Treasurer
----------------------------
(Principal Financial Officer)
12
<PAGE> 13
EXHIBIT INDEX
(a) Exhibits
1. Exhibit 27
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-30-1998
<PERIOD-END> JAN-31-1999
<CASH> 226,000
<SECURITIES> 0
<RECEIVABLES> 1,989,812
<ALLOWANCES> 74,021
<INVENTORY> 520,882
<CURRENT-ASSETS> 3,354,382
<PP&E> 5,272,569
<DEPRECIATION> 1,544,970
<TOTAL-ASSETS> 9,481,300
<CURRENT-LIABILITIES> 3,012,585
<BONDS> 0
0
0
<COMMON> 20,602
<OTHER-SE> 6,434,446
<TOTAL-LIABILITY-AND-EQUITY> 9,481,300
<SALES> 443,098
<TOTAL-REVENUES> 1,134,817
<CGS> 887,543
<TOTAL-COSTS> 2,583,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (10,628)
<INCOME-PRETAX> (1,634,988)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,634,988)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
