<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____TO____
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.
CLASS OUTSTANDING AS OF SEPTEMBER 7, 1999
- ----- -----------------------------------
COMMON 20,805,732
PAR VALUE $.001 PER SHARE
<PAGE> 2
BIONUTRICS, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
ITEM I. Condensed Consolidated Financial Statements (Unaudited):
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
2
<PAGE> 3
Bionutrics, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
1999 1998
-----------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,268,751 $1,704,400
Trade receivables - net of allowance for bad debts of $48,463
and $72,086, respectively 1,362,855 1,992,060
Inventory 274,940 763,654
Prepaids and other current assets 202,622 169,822
-----------------------------------------------------
Total Current Assets 3,109,168 4,629,936
-----------------------------------------------------
PROPERTY - net of accumulated depreciation of $239,535
and $1,345,751, respectively 115,478 5,401,259
-----------------------------------------------------
OTHER ASSETS:
Goodwill - net of accumulated amortization of $28,200 0 535,678
Patent applications and other related costs - net of accumulated
amortization of $148,000 and $143,005, respectively 322,391 327,386
Investment in InCon Processing, L.L.C. 2,327,941 0
-----------------------------------------------------
Total Other Assets 2,650,332 863,064
-----------------------------------------------------
TOTAL $5,874,978 $10,894,259
=====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $539,896 $1,090,845
Accrued liabilities 1,204,425 1,102,070
Current portion of notes payable and capital leases 331,342 1,108,090
-----------------------------------------------------
Total Current Liabilities 2,075,663 3,301,005
-----------------------------------------------------
NOTES PAYABLE AND CAPITAL LEASES - Net of
current portion 4,511 17,525
-----------------------------------------------------
Total Liabilities 2,080,174 3,318,530
-----------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 20,802 20,352
Additional paid-in capital 32,004,331 31,483,706
Warrants 3,093,085 2,797,136
Accumulated deficit (31,322,211) (26,724,262)
Common stock in treasury, at cost (1,203) (1,203)
-----------------------------------------------------
Total Stockholders' Equity 3,794,804 7,575,729
-----------------------------------------------------
TOTAL $5,874,978 $10,894,259
=====================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-3-
<PAGE> 4
Bionutrics, Inc.
Condensed Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended July 31 Ended July 31
--------------------------------------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Revenue from services $700,706 $1,114,818 $2,495,340 $2,837,517
Revenue from product sales 136,185 652,477 1,124,279 2,309,379
--------------------------------------------------------------------------------------------
Total gross revenues 836,891 1,767,295 3,619,619 5,146,896
DISCOUNTS AND ALLOWANCES 111,697 115,740 516,036 281,071
--------------------------------------------------------------------------------------------
Net revenues 725,194 1,651,555 3,103,583 4,865,825
COST OF REVENUES 534,407 1,921,232 2,319,001 5,667,947
--------------------------------------------------------------------------------------------
Gross operating profit (loss) 190,787 (269,677) 784,582 (802,122)
--------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling, general and administrative 1,543,938 2,220,279 5,016,908 8,512,782
Research and development 110,775 97,975 298,981 364,537
--------------------------------------------------------------------------------------------
Total operating expenses 1,654,713 2,318,254 5,315,889 8,877,319
--------------------------------------------------------------------------------------------
Operating loss (1,463,926) (2,587,931) (4,531,307) (9,679,441)
--------------------------------------------------------------------------------------------
OTHER EXPENSE: (3,296) (63,755) (66,642) (81,417)
--------------------------------------------------------------------------------------------
NET LOSS ($1,467,222) ($2,651,686) ($4,597,949) ($9,760,858)
============================================================================================
Basic net loss per common share ($0.07) ($0.14) ($0.22) ($0.54)
============================================================================================
Weighted average number of common
shares outstanding 20,805,732 18,329,381 20,805,732 18,175,741
===========================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
- 4 -
<PAGE> 5
Bionutrics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months
Ended July 31
------------------------------------------
OPERATING ACTIVITIES: 1999 1998
------------------------------------------
<S> <C> <C>
Net Loss ($4,597,949) ($9,760,858)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization 1,093,873 898,354
Expenses incurred in exchange for common stock 274,103 63,750
Stock-based compensation expense 42,921 105,228
Changes in operating assets and liabilities:
Trade receivables-net 35,054 (274,433)
Inventory 488,714 473,466
Prepaids and other current assets (32,800) 414,109
Accounts payable (159,553) 1,257,440
Accrued and other current liabilities 102,355 (33,380)
------------------------------------------
Net cash used in operating activities (2,753,282) (6,856,324)
------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures (133,275) (1,547,405)
Investment in InCon Processing, L.L.C. (272,244) 0
Proceeds from disposal of assets 3,004,000 0
------------------------------------------
Net cash provided by (used in) investing activities 2,598,481 (1,547,405)
------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of stock and warrants 500,000 3,531,920
Notes payable issuance 200,000 3,225,000
Repayments of notes payable and capital leases (980,848) (22,385)
------------------------------------------
Net cash (used in) provided by financing activities (280,848) 6,734,535
------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (435,649) (1,669,194)
CASH AND CASH EQUIVALENTS, BEG OF PERIOD 1,704,400 2,181,121
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,268,751 $511,927
==========================================
Supplemental Disclosures of Noncash Investing and
Financing activities:
Contribution of assets to L.L.C. $399,815
================
Property acquired under capital leases $173,808
==========================
See Notes to Condensed Consolidated Financial Statements
</TABLE>
-5-
<PAGE> 6
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
nine-month period ended July 31, 1999 are not necessarily indicative
of the operating results that may be expected for the entire year
ending October 31, 1999. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. 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 condensed 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 losses incurred to
date, the uncertainty regarding the ability to raise additional
capital and the Company's inability to generate 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 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 $500,000 in capital through issuance of common
stock during the nine-month period ended July 31, 1999. This 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. Of these warrants, 250,000 expired June 30, 1999, 250,000
expire December 30, 1999 and 250,000 expire December 30, 2000.
6
<PAGE> 7
NOTE D - The Company borrowed $200,000 on a short-term basis from a
director. The loan is a demand loan and bears interest at the rate of
9.5% annually. All loans from directors were repaid during the 3rd
quarter 1999.
NOTE E - In June 1999, the Company entered into a new 50/50 joint venture
with AC HUMKO CORP., wherein InCon Technologies, Inc. (InCon)
transferred substantially all of its assets to a newly formed Limited
Liability Company (InCon Processing, L.L.C.), for which it received a
payment of $3,000,000 and a 50% interest in the joint venture. InCon
Processing, L.L.C. took over substantially all of the business
currently engaged in by InCon relating to toll processing, molecular
separation, and the design and sale of molecular separation
facilities. InCon Processing, L.L.C. expects to utilize the InCon
expertise to expand its existing business and to expand its business
into processing micronutrients that would be available for food grade
products. In connection with this transaction, the remaining amount of
goodwill recorded at the date of acquisition of InCon was written off
at the date of the transaction.
NOTE F - 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
<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.
Three months ended July 31, 1999 compared with three months ended July 31, 1998.
RESULTS OF OPERATIONS
Consolidated gross revenues for the quarter ended July 31, 1999 were $837,000
versus $1,767,000 for the same quarter in 1998, summarized by subsidiary as
follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
SUBSIDIARY JULY 31,
- ----------------- ------------------------
1999 1998
----- -----
<S> <C> <C>
InCon Technologies $701,000 $1,115,000
Bionutrics Health Products 136,000 600,000
Nutrition Technology 0 52,000
---------- -----------
TOTAL CONSOLIDATED GROSS REVENUES $837,000 $1,767,000
========== ==========
</TABLE>
Bionutrics Health Products Inc. continues to experience a significant decline in
sales due to curtailment of advertising and support for the brand evolvE(R). The
Company recognizes that a substantial advertising and public relations program
is necessary to maintain significant sales of the evolvE(R) product line.
EvolvE(R) distribution is maintained by over 32,000 stores including many
leading drug and food chains throughout the United States. Failure to show
positive sales results could have a significant negative impact on the
maintenance of these accounts. Some stores have returned product due to low
sales volume.
8
<PAGE> 9
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 ingredients. Bionutrics Health Products will
develop, patent and trademark novel products while its marketing partners will
provide the distribution, marketing and sales support. New products will be
based on new technology extending beyond a tocotrienol platform.
InCon Technologies Inc.'s (InCon) decrease in revenues is attributable to the
new 50/50 joint venture entered into during the third quarter with AC HUMKO
CORP., wherein InCon transferred substantially all of its assets to a newly
formed Limited Liability Company (InCon Processing, L.L.C.). InCon Processing,
L.L.C. took over substantially all of the business currently engaged in by InCon
relating to toll processing, molecular separation, and the design and sale of
molecular separation facilities. As a result of its investment in the L.L.C.,
the Company will be entitled to 50% of the future profits. However, it is
anticipated that the L.L.C. will retain the cash generated from operations for
at least the next 12 months to expand and develop its business.
Nutrition Technology Corporation discontinued production in its West Monroe,
Louisiana facility in late 1997. Therefore, no sales are reflected for the
quarter ended July 31, 1999. Sales for the quarter ended July 31, 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 CORP., Nutrition Technology Corporation is substantially inactive.
Cost of revenues for the quarter ended July 31, 1999 was $534,000 versus
$1,921,000 for the same quarter in 1998. This reduction in cost of revenues is
due to lower sales volume in addition to reduced manufacturing costs from the
discontinuance of operations at the West Monroe, Louisiana production facility.
With the substantial reduction of production costs, the Company experienced its
third consecutive quarter of positive gross margin in the three months ended
July 31, 1999.
Operating expenses for the quarter ended July 31, 1999 of $1,655,000 were
$663,000 less than that recognized for the same quarter in 1998 of $2,318,000.
This 29% reduction is due to significantly reduced advertising and salaries, as
well as cost containment programs.
Other expense for the quarter ended July 31, 1999 was $3,000 versus $64,000 for
the same quarter in 1998. This $61,000 decrease is primarily due to lower
interest expense incurred for notes payable outstanding.
Net loss decreased to $1,467,000 or $.07 per share for the quarter ended July
31, 1999 from $2,652,000 or $0.14 per share for the quarter ended July 31, 1998
due primarily to lower cost of revenues.
9
<PAGE> 10
Nine months ended July 31, 1999 compared with nine months ended July 31, 1998.
RESULTS OF OPERATIONS
Trends and comments as noted for the third quarter apply also to the nine month
year-to-date comparisons.
Consolidated gross revenues for the nine months ended July 31, 1999 were
$3,620,000 versus $5,147,000 for the same period in 1998 and are summarized by
subsidiary as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SUBSIDIARIES JULY 31,
- -------------------------
---------------------------
1999 1998
------------- ----------
<S> <C> <C>
InCon Technologies $2,729,000 $2,913,000
Bionutrics Health Products 786,000 1,937,000
Nutrition Technology 105,000 297,000
------------- ----------
TOTAL GROSS REVENUES $3,620,000 $5,147,000
============= ==========
</TABLE>
Bionutrics Health Products Inc. experienced a significant decline in sales due
to curtailment of advertising and support for the brand evolvE(R).
InCon Technologies decrease in sales is attributable to the new 50/50 joint
venture entered into during the third quarter of fiscal 1999 with AC HUMKO
CORP., wherein InCon Technologies transferred substantially all of its assets to
a newly formed Limited Liability Company.
Nutrition Technology Corporation discontinued production in its West Monroe,
Louisiana facility in late 1997. The sales reflected for the nine months ended
July 31, 1999 and 1998 reflect the sale of remaining by-products on hand from
production and testing.
10
<PAGE> 11
Cost of revenues for the nine months ended July 31, 1999 was $2,319,000 versus
$5,668,000 for the same period in 1998. This reduction in cost of revenues is
due to lower sales volume in addition to reduced manufacturing costs from the
discontinuance of operations at the West Monroe, Louisiana production facility.
Operating expenses for the nine months ended July 31, 1999 of $5,316,000 were
$3,561,000 less than that recognized for the same period in 1998 of $8,877,000.
This 40% reduction is due to significantly reduced advertising and salaries, as
well as cost containment programs.
Other expense for the nine months ended July 31, 1999 was $67,000 versus $81,000
for the same period in 1998. This $14,000 decrease is primarily due to lower
interest expense incurred for notes payable outstanding.
Net loss decreased to $4,598,000 or $.22 per share for the nine months ended
July 31, 1999 from $9,761,000 or $0.54 per share for the same period in 1998 due
primarily to lower cost of revenues and operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the nine-month period ended July
31, 1999 was $2,753,000 as compared to $6,856,000 during the same period in
1998. This decrease is due primarily to lower cost of revenues and operating
expenses.
Net cash provided by investing activities during the nine months ended July 31,
1999 was $2,598,000 as compared to a use of $1,547,000 during the same period in
1998. The net cash provided during the nine months ended July 31, 1999 was
largely due to the new 50/50 joint venture with AC HUMKO CORP. wherein InCon
Technologies, Inc. transferred substantially all of its assets to a newly formed
Limited Liability Company (InCon Processing, L.L.C.). Net cash used in investing
activities during the nine months ended July 31, 1998 were largely related to
capital expenditures in the manufacturing operations and the acquisition of a
patent.
Net cash used in financing activities totaled $280,000 for the nine-month period
ended July 31, 1999 versus net cash provided of $6,735,000 from the same period
in 1998. Cash provided by financing activities was primarily from the sale of
common stock and short term loans for both years. The net cash used during the
nine months ended July 31, 1999 reflects the repayment of notes payable to
directors.
11
<PAGE> 12
In June 1999, the Company entered into a new 50/50 joint venture with AC HUMKO
CORP. The Company received $3,000,000 and a 50% interest in the joint venture
for the transfer of substantially all of InCon Technologies assets. InCon
Processing, L.L.C. took over substantially all of the business currently engaged
in by InCon relating to toll processing, molecular separation, and the design
and sale of molecular separation facilities.
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.
Therefore, the Company continues to seek additional capital though private
equity and bank lines of credit. 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.
YEAR 2000 READINESS
The Company has completed the assessment of its critical computer systems and
believes them to be Year 2000 compliant. Although the Company believes its
critical systems are Year 2000 compliant, there can be no assurances that other
defects will not be discovered in the future. The Company believes that any
failure of the Company's non-critical systems to be Year 2000 compliant will not
have a material adverse effect on the Company. With regard to key suppliers and
strategic partners a letter requesting the status of year 2000 readiness has
been distributed. The majority of recipients have responded that they are
addressing Year 2000 issues in a prudent fashion. Others have not responded, but
none have informed the Company of material Year 2000 issues. The Company is
unable to control whether the firms and suppliers it does business with
currently, and in the future, will have systems which are compliant.
Expenditures to date have not been material and have consisted primarily of the
time of certain company personnel. The Company does not currently expect that
future costs of completing the assessment will be material.
12
<PAGE> 13
BIONUTRICS, INC.
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed June 25, 1999 regarding a new 50/50 joint
venture with AC HUMKO CORP.
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: September 7, 1999 By:/s/Ronald H. Lane
Its: Chairman of the Board,
Chief Executive Officer and
President
By:/s/Karen J. Harwell
Its: Controller and Chief
Accounting Officer
14
<PAGE> 15
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-1-1998
<PERIOD-END> JUL-31-1999
<CASH> 1,268,751
<SECURITIES> 0
<RECEIVABLES> 1,411,318
<ALLOWANCES> 48,463
<INVENTORY> 274,940
<CURRENT-ASSETS> 3,109,168
<PP&E> 115,478
<DEPRECIATION> 239,535
<TOTAL-ASSETS> 5,874,978
<CURRENT-LIABILITIES> 2,075,663
<BONDS> 0
0
0
<COMMON> 20,802
<OTHER-SE> 3,774,002
<TOTAL-LIABILITY-AND-EQUITY> 5,874,978
<SALES> 136,185
<TOTAL-REVENUES> 836,891
<CGS> 534,407
<TOTAL-COSTS> 2,189,120
<OTHER-EXPENSES> (3,296)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,467,222)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,467,222)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
