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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, 2005
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
2415 E. Camelback Rd., Suite 700 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.
CLASS OUTSTANDING AS OF March 14, 2005
Common
Par value $.001 per share 16,252,100
BIONUTRICS, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
Page
Part I. Financial Information
ITEM I. Financial Statements.
(Unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis. 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. 9
ITEM 4. Controls and Procedures. 9
Part II. Other Information
ITEM 1. Legal Proceedings. 10
ITEM 2. Changes in Securities and Use of Proceeds. 10
ITEM 3. Defaults upon Senior Securities. 10
ITEM 4. Submission of Matters to a Vote of Security Holders. 10
ITEM 5. Other Information. 10
ITEM 6. Exhibits and Reports on Form 8-K. 10
SIGNATURES 11
2
BIONUTRICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
January 31, October 31,
2005 2004
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 269,260 $ 629,257
Inventory 48,810 49,321
Prepaid expenses and other current assets 138,182 22,034
----------- -----------
Total Current Assets 456,252 700,612
----------- -----------
PROPERTY - Net of accumulated depreciation of $69,262
and $68,971, respectively 2,624 2,916
----------- -----------
OTHER ASSETS:
Patents - net of accumulated amortization of
$287,569 and $282,520, respectively 706,871 724,445
Investment in InCon Processing, LLC 1,234,671 1,447,333
----------- -----------
Total Other Assets 1,941,542 2,171,778
----------- -----------
TOTAL $ 2,400,418 $ 2,875,306
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 1,708,619 $ 1,575,934
Notes payable - shareholders and others 1,434,500 1,484,000
Other accrued liabilities 627,313 720,005
----------- -----------
Total current liabilities 3,770,432 3,779,939
----------- -----------
STOCKHOLDERS' DEFICIENCY
Common stock - $.001 par value - authorized, 45,000,000 shares;
16,052,100 and 16,002,600 issued and outstanding, respectively 16,052 16,002
Preferred stock - $.001 par value - authorized, 5,000,000 shares;
591,850 and 591,850 issued and outstanding, respectively
(liquidation preference of $798,998) 798,998 798,998
Additional paid-in capital 40,084,275 39,800,127
Warrants 166,493 401,191
Accumulated deficit (42,435,832) (41,920,951)
----------- -----------
Total stockholders' deficiency (1,370,014) (904,633)
----------- -----------
TOTAL $ 2,400,418 $ 2,875,306
=========== ===========
3
BIONUTRICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS
ENDED JANUARY 31,
----------------------------
2005 2004
------------ ------------
REVENUES:
Revenue from services $ -- $ 85,564
Revenue from product sales 2,984 4,987
------------ ------------
Net Revenues 2,984 90,551
COST OF REVENUES 493 893
------------ ------------
Gross profit 2,491 89,658
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 304,710 145,603
------------ ------------
Total operating expenses 304,710 145,603
------------ ------------
OPERATING LOSS (302,219) (55,945)
------------ ------------
OTHER INCOME (EXPENSES):
Equity in the loss of InCon Processing, LLC (212,662) (150,754)
Other income 444 9,400
Interest expense, net (444) (4,659)
------------ ------------
Total other (expenses) income (212,662) (146,013)
NET LOSS $ (514,881) $ (201,958)
============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.03) $ (0.05)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 16,022,508 4,352,600
============ ============
4
BIONUTRICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS
ENDED JANUARY 31,
-----------------------
2005 2004
--------- ---------
OPERATING ACTIVITIES:
Net loss $(514,881) $(201,958)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 7,865 7,572
Equity in the loss of joint venture 212,662 150,754
Changes in operating assets and liabilities:
Inventory 511 (39,107)
Prepaids and other current assets (106,148) (906)
Accounts payable 132,685 2,563
Accrued liabilities (92,691) 70,518
--------- ---------
Net cash used in operating activities (359,997) (10,564)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from debt -- 12,500
--------- ---------
Net cash provided by financing activities -- 12,500
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (359,997) 1,936
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 629,257 3,153
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 269,260 $ 5,089
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING
ACTIVITIES:
Settlement of debt through issuance of common stock $ 49,500 $ --
========= =========
5
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
accounting principles generally accepted in the United States of America
for interim financial information and the instructions to Form 10-Q.
Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United States
of America for complete 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, 2005
are not necessarily indicative of the operating results that may be
expected for the entire year ending October 31, 2005. These unaudited
condensed consolidated 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, 2004. 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 Company has incurred
accumulated operating losses of $42,435,832 through January 31, 2005 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 and diluted 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 diluted
net loss per share calculation, as they are anti-dilutive.
NOTE C - Subsequent or Significant Events - In February 2005, Landmark
Financial Corporation exercised 200,000 warrants at an exercise price of
$1.00 per share of common stock.
NOTE D - Conversion of Debt to Equity - In December 2004, the Company issued
49,500 shares of common stock at $1.00 per share to Asia Pacific
Investment Holdings Limited, pursuant to the terms of the convertible note
entered into on February 12, 2004. The above issuance was made pursuant to
section 4 (2) of the Securities Act of 1933.
6
BIONUTRICS, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operation
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.
Results of Operations
Three months ended January 31, 2005 compared with three months ended January 31,
2004.
Consolidated gross revenues for the quarter ended January 31, 2005 were $3,000
compared to $91,000 for the same quarter in 2004.
Bionutrics Health Products continues to sell its remaining evolvE(R) inventory.
However, in the future, as the Company repositions itself as a product
development company, evolvE(R) will no longer be a significant product for the
Company. The Company has announced plans for clinical trials for the first in a
series of new proprietary dietary supplements developed to address lipid
metabolism and assist in the maintenance of normal cholesterol, which are
planned for later this year. If the Company is successful in this effort, the
development and sale of this dietary supplement would provide revenues while the
Company pursues the longer term 505(b)(2) drug development program with Nostrum
Pharmaceuticals, Inc. ("Nostrum").
Bionutrics and Nostrum announced a product and technology license agreement on
September 8, 2004, in which Nostrum agreed to provide Bionutrics with certain
drug technology in connection with 505(b)(2) drug candidates. Drug applications
referred to as 505(b)(2) drug candidates are drug products that are potentially
"brandable," that may have higher margins than generic drug products but that
would have lower development costs than would completely new chemical entities.
Nostrum, is a New Jersey based pharmaceutical company which specializes in
formulation and delivery drug technology and which has focused its research on
the development of alternative, 505(b)(2) drug products based on existing
chemical formulations. In exchange for the technology and product rights
extended to Bionutrics, Nostrum received shares of Bionutrics' common stock,
making Nostrum the largest shareholder of the Company. Bionutrics has certain
obligations under the license agreement, which if not met would give Nostrum a
right of rescission (which would trigger the return of its Bionutrics' stock).
The date for fulfillment of the obligations has been extended to April 15, 2005.
There is no assurance that Bionutrics will meet the requirements set forth in
the licensing agreement.
7
Cost of revenues for the three months ended January 31, 2005 was $500 compared
to $1,000 for the same three months in 2004. This reduction is primarily due to
lower sales volume of evolvE(R).
Operating expenses for the three months ended January 31, 2005 were $305,000. A
significant portion of these expenditures were for legal and accounting
services, necessary to fulfill the public reporting requirements under the
Securities Exchange Act of 1934 ("Exchange Act") of a public company.
The Company's equity in the loss of its investment in InCon Processing, which is
accounted for using the equity method, for the three months ended January 31,
2005, was $213,000. The Company records its share of InCon Processing's loss for
the quarter as a reduction in its investment.
The net loss of $515,000 or $.03 per share for the three months ended January
31, 2005 was due primarily to decreased revenues and increases in both operating
and other expenses as outlined above. The Company is attempting to reposition
itself as a pharmaceutical drug development company, as discussed above, and the
losses primarily relate to its efforts in developing the new business and
attracting investors.
Liquidity and Capital Resources
To date, the Company's operations have not generated sufficient cash flow to
satisfy the Company's capital needs. The Company has financed its operations
primarily through the private sale of its securities through the private
placement of its common stock, warrants and debt. The Company had a working
capital deficit of approximately $3,314,000 at January 31, 2005 as compared with
$3,079,000 at October 31, 2004. Cash and cash equivalents were $269,000 at
January 31, 2005, as compared with $629,000 at October 31, 2004, a decrease of
$360,000.
Net cash used in operating activities during the three-month period ended
January 31, 2005 was $360,000. This resulted from the Company's net loss of
$515,000, being reduced by the non-cash item attributable to expenses including
equity in loss of InCon Processing of $213,000.
No cash was used in investing activities during the three months ended January
31, 2005.
No cash was provided by financing activities during the three-month period ended
January 31, 2005.
In August, 2004, the Company entered into a stock purchase agreement with Asia
Pacific Investment Holdings, LLC, for the issuance of 1,000,000 million shares
at an aggregate price of $1,000,000. This equity transaction provided working
capital to the Company, permitting it to have audits conducted and filings
prepared and filed under the Exchange Act to bring the Company into compliance
with the Exchange Act's periodic reporting requirements for a public company.
8
The Company will require additional equity and/or debt financing for fiscal year
2005 to fund its operations and satisfy its debt service obligations, as well as
to fund the research and development costs necessary to complete clinical
trials. The Company has been exploring obtaining additional equity as well as
debt financing. It has received indications of interest but has not entered into
any definitive arrangements. Access to additional capital will depend
substantially on prevailing market conditions and the Company's financial
condition and prospects at that time. Bionutrics' auditors have emphasized in
their audit report a question about the ability of the Company to continue as a
going concern.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not invest in or own any market risk sensitive instruments
entered into for trading purposes or for purposes other than trading purposes.
All loans to the Company have been made with fixed interest rates, and,
accordingly, the market risk to the Company prior to the maturity of those
instruments is minimal.
ITEM 4. Controls and Procedures.
The Company's principal executive and financial officers have reviewed and
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rules 13a-14 (c) and 15d-14 (c) under the Securities and Exchange
Act of 1934 (the "Exchange Act")), as of a date within 90 days before the filing
of this report. Based on that evaluation, the officers have concluded that the
Company's current disclosure controls and procedures are effective to ensure
that information required to be disclosed by it in reports that the Company
files or submits under the Exchange Act are recorded, processed, summarized, and
reported within the time periods specified in the Commission's rules and forms.
9
BONUTRICS, INC.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
NONE.
ITEM 2 Changes in Securities and Use of Proceeds.
(c) In December 2004, the Company issued 49,500 shares of
common stock at $1.00 per share to Asia Pacific
Investment Holdings Limited ("Asia Pacific"),
pursuant to the terms of the convertible note entered
into on February 12, 2004.
The issuance to Asia Pacific was made pursuant to section 4 (2) of
the Securities Act of 1933.
ITEM 3. Defaults upon Senior Securities.
NONE.
ITEM 4. Submission of Matters to a Vote of Security Holders.
NONE.
ITEM 5. Other Information.
NONE.
ITEM 6 Exhibits and Report on Form 8-K.
(a) Exhibits - NONE
(b) Reports on Form 8-K - NONE
10
BIONUTRICS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Bionutrics, Inc.
(Registrant)
Dated: March 14, 2005 By: /s/ Ronald H. Lane
------------------
Ronald H. Lane
Its: Chairman of the Board,
Chief Executive Officer and
President
11