##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

(XBOX)   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended       July 31, 2001

(BOX)   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
incorporation of organization) |  | I.R.S. Employer
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 14, 2001
|                                 |  |                                     
|Common
Par value $.001 per share |  | 4,593,169                           





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TABLE OF CONTENTS



|                             |                                      |                                                      |  |  |  |  |  | 
|---------------------------- | ------------------------------------ | ---------------------------------------------------- |  |  |  |  |  | 
|                             |                                      | Condensed Consolidated Balance Sheets               
|                             |                                      | Condensed Consolidated Statement of Operations      
|                             |                                      | Condensed Consolidated Statements of Cash Flows     
|                             |                                      | Notes to Condensed Consolidated Financial Statements
|                             | Managements Discussion and Analysis
|PART II   OTHER INFORMATION
|                             | ITEM 2(c)                           
|                             | ITEM 4                              
|                             | ITEM 6                              
|SIGNATURES                  
|EXHIBIT INDEX               
|EX-10.50                    
|EX-10.51                    



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##### Table of Contents



BIONUTRICS, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q

|                              |           |                                                          |  |      |    | 
|----------------------------- | --------- | -------------------------------------------------------- |  | ---- | -- | 
|                              |           |                                                          |  | Page
|                              |           |                                                          |  |     
|Part I. Financial Information |           |                                                          |  |     
|                             
|                             
|                             
|                             
|                              | 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                     |  |      | 9  | 
|                             
|                             
|                             
|                             
|Part II. Other Information    |           |                                                          |  |     
|                             
|                             
|                             
|                             
|                              | ITEM 2(c) | Changes in Securities                                    |  |      | 14 | 
|                             
|                             
|                             
|                             
|                              | ITEM 5.   | Other Events                                             |  |      | 14 | 
|                             
|                             
|                             
|                             
|                              | ITEM 6.   | Exhibits and Reports on Form 8-K                         |  |      | 14 | 
|                             
|                             
|                             
|                             
|                              | SIGNATURE |                                                          |  | 15   |   

2



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##### Table of Contents






Bionutrics, Inc.
Condensed Consolidated Balance Sheets

|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |             |           | 
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | -------------------------- | --------- | ----------- | --------- | ----------- | --------- | ----------- | --------- | 
|                                                                                  |                                                                                                                             |                            |           | July 31,    |           | October 31,
|                                                                                  |                                                                                                                             |                            |           | 2001        |           | 2000       
|                                                                                  |                                                                                                                             |                            |           |             |           |            
|                                                                                  |                                                                                                                             |                            |           | (Unaudited) |           |             |           |            
|ASSETS                                                                            |                                                                                                                             |                            |           |             |           |             |           |            
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|CURRENT ASSETS:                                                                   |                                                                                                                             |                            |           |             |           |             |           |            
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Cash and cash equivalents                                                                                                   |                            | $         | 10,915      |           |             | $         | 711,563     |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Trade receivables  net of allowance for bad debts of $41,606
and $48,239, respectively                                     |                            |           | 12,337      |           |             |           | 16,845      |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Inventory                                                                                                                   |                            |           | 47,793      |           |             |           | 100,401     |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Prepaids and other current assets                                                                                           |                            |           | 34,145      |           |             |           | 62,383      |          
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|                                                                                  |                                                                                                                             | Total Current Assets       |           |             | 105,190   |             |           |             | 891,192   | 
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|PROPERTY  net of accumulated depreciation of $353,304
and $342,573, respectively |                                                                                                                             |                            | 4,744     |             |           |             | 15,474    |            
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|LONG-TERM RECEIVABLES                                                             |                                                                                                                             |                            | 263,071   |             |           |             | 263,071   |            
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|OTHER ASSETS:                                                                     |                                                                                                                             |                            |           |             |           |             |           |            
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Patent applications and other related costs  net of accumulated
amortization of $198,077 and $177,328, respectively        |                            |           | 371,388     |           |             |           | 392,137     |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Investment in InCon Processing, LLC                                                                                         |                            |           | 2,243,808   |           |             |           | 2,544,494   |          
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|                                                                                  |                                                                                                                             | Total Other Assets         |           |             | 2,615,196 |             |           |             | 2,936,631 | 
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|TOTAL                                                                             |                                                                                                                             | $                          | 2,988,201 |             |           | $           | 4,106,368 |            
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                              |                                                                                                                             |                            |           |             |           |             |           |            
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|CURRENT LIABILITIES:                                                              |                                                                                                                             |                            |           |             |           |             |           |            
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Accounts payable                                                                                                            |                            | $         | 884,699     |           |             | $         | 664,375     |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Accrued liabilities                                                                                                         |                            |           | 684,047     |           |             |           | 590,779     |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Notes Payable and Capital leases                                                                                            |                            |           | 148,000     |           |             |           | 2,278       |          
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|                                                                                  |                                                                                                                             | Total Current Liabilities  |           |             | 1,716,746 |             |           |             | 1,257,432 | 
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|STOCKHOLDERS EQUITY                                                              |                                                                                                                             |                            |           |             |           |             |           |            
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Common stock- $.001 par value  authorized, 45,000,000 shares;
4,593,169 and 4,294,252 issued and outstanding, respectively |                            |           | 4,593       |           |             |           | 4,294       |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Preferred stock- $.001 par value  authorized 5,000,000 shares;
591,850 and 0 issued and outstanding, respectively          |                            |           | 798,998     |           |             |           | 0           |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Additional paid-in capital                                                                                                  |                            |           | 37,314,345  |           |             |           | 37,562,496  |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Receivable collectible in cash or common stock                                                                              |                            |           | (677,117    | )         |             |           | (677,117    | )        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Warrants                                                                                                                    |                            |           | 934,237     |           |             |           | 874,603     |          
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Accumulated deficit                                                                                                         |                            |           | (37,102,398 | )         |             |           | (34,914,137 | )        
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Common stock in treasury, at cost                                                                                           |                            |           | (1,203      | )         |             |           | (1,203      | )        
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|                                                                                  |                                                                                                                             | Total Stockholders Equity |           |             | 1,271,455 |             |           |             | 2,848,936 | 
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            
|TOTAL                                                                             |                                                                                                                             | $                          | 2,988,201 |             |           | $           | 4,106,368 |            
|                                                                                  |                                                                                                                             |                            |           |             |           |             |           |            

See Notes to Condensed Consolidated Financial Statements

3



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##### Table of Contents






Bionutrics, Inc.
Condensed Consolidated Statement of Operations
(Unaudited)

|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |           |        |            |   | 
|---------------------------------------------------- | ----------------------------------- | ------------ | ------------------------ | ------- | ----- | ------------- | --------- | ------------- | ------- | -------- | ---------- | --------- | ------- | ---------- | ---------- | --------- | ------ | ---------- | - | 
|                                                     |                                     |              |                          |         |       | Three Months  |           | Nine Months  
|                                                     |                                     |              |                          |         |       | Ended July 31 |           | Ended July 31
|                                                     |                                     |              |                          |         |       |               |           |              
|                                                     |                                     |              |                          |         |       | 2001          |           | 2000          |         | 2001     |            | 2000     
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |          
|REVENUES:                                            |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Revenue from services               |              | $                        | 0       |       |               | $         | 46,374        |         |          | $          | 0         |         |            | $          | 209,098   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Revenue from product sales          |              |                          | 25,125  |       |               |           | 21,569        |         |          |            | 82,461    |         |            |            | 122,296   |       
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|                                                     |                                     |              | Total gross revenues     |         |       | 25,125        |           |               |         | 67,943   |            |           |         | 82,461     |            |           |        | 331,394    |  
|                                                    
|                                                    
|                                                    
|                                                    
|DISCOUNTS AND ALLOWANCES                             |                                     |              | 12,237                   |         |       |               | 36,748    |               |         |          | 38,932     |           |         |            | 116,669    |          
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|                                                     |                                     |              | Net revenues             |         |       | 12,888        |           |               |         | 31,195   |            |           |         | 43,529     |            |           |        | 214,725    |  
|                                                    
|                                                    
|                                                    
|                                                    
|COST OF REVENUES                                     |                                     |              | 8,486                    |         |       |               | 120,443   |               |         |          | 56,376     |           |         |            | 158,125    |          
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|                                                     |                                     | Gross profit |                          |         | 4,402 |               |           |               | (89,248 | )        |            |           | (12,847 | )          |            |           | 56,600 |           
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|OPERATING EXPENSES:                                  |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Selling, general and administrative |              |                          | 538,785 |       |               |           | 527,421       |         |          |            | 1,819,562 |         |            |            | 2,055,336 |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Research and development            |              |                          | 12,350  |       |               |           | 32,403        |         |          |            | 57,875    |         |            |            | 115,108   |       
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|                                                     |                                     |              | Total operating expenses |         |       | 551,135       |           |               |         | 559,824  |            |           |         | 1,877,437  |            |           |        | 2,170,444  |  
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|                                                     |                                     |              | Operating loss           |         |       | (546,733      | )         |               |         | (649,072 | )          |           |         | (1,890,284 | )          |           |        | (2,113,844 | )
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|OTHER INCOME (EXPENSE):                              |                                     |              | (142,359                 | )       |       |               | 14,864    |               |         |          | (297,977   | )         |         |            | (438       | )        
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|NET LOSS                                             |                                     | $            | (689,092                 | )       |       | $             | (634,208  | )             |         | $        | (2,188,261 | )         |         | $          | (2,114,282 | )        
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|Weighted average number of common
shares outstanding |                                     |              | 4,592,836                |         |       |               | 4,173,679 |               |         |          | 4,522,019  |           |         |            | 4,168,611  |          
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          
|Basic net loss per common share                      |                                     | $            | (0.15                    | )       |       | $             | (0.15     | )             |         | $        | (0.48      | )         |         | $          | (0.51      | )        
|                                                     |                                     |              |                          |         |       |               |           |               |         |          |            |           |         |            |            |          

See Notes to Condensed Consolidated Financial Statements

4



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##### Table of Contents






Bionutrics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

|                                                                       |                                                  |                                                     |            |               |            |      |            |         |            |  
|---------------------------------------------------------------------- | ------------------------------------------------ | --------------------------------------------------- | ---------- | ------------- | ---------- | ---- | ---------- | ------- | ---------- | -
|                                                                       |                                                  |                                                     |            | Nine
months  
|                                                                       |                                                  |                                                     |            | Ended
July 31
|                                                                       |                                                  |                                                     |            |              
|                                                                       |                                                  |                                                     |            | 2001          |            | 2000
|                                                                       |                                                  |                                                     |            |               |            |     
|OPERATING ACTIVITIES:                                                  |                                                  |                                                     |            |               |            |      |            |        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Net Loss                                                               |                                                  | $                                                   | (2,188,261 | )             |            | $    | (2,114,282 | )      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Adjustments to reconcile net loss to cash used in operations:          |                                                  |                                                     |            |               |            |      |            |        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Depreciation and amortization                    |                                                     |            | 31,479        |            |      |            | 90,236  |           
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Loss (Gain) on investment in joint venture       |                                                     |            | 300,686       |            |      |            | (14,602 | )         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Stock-based compensation expense                 |                                                     |            | 67,306        |            |      |            | 0       |           
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Expenses satisfied with issuance of common stock |                                                     |            | 43,474        |            |      |            | 414,814 |           
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Changes in operating assets and liabilities:                           |                                                  |                                                     |            |               |            |      |            |        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Trade receivables-net                            |                                                     |            | 4,508         |            |      |            | (50,370 | )         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Inventory                                        |                                                     |            | 52,608        |            |      |            | 152,411 |           
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Prepaids and other current assets                |                                                     |            | 28,238        |            |      |            | (328    | )         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Accounts payable                                 |                                                     |            | 220,324       |            |      |            | 28,421  |           
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Accrued liabilities                              |                                                     |            | 93,268        |            |      |            | 53,001  |           
|                                                                       |                                                  |                                                     |            |               |            |      |            |        
|                                                                       |                                                  | Net cash used in operating activities               |            |               | (1,346,370 | )    |            |         | (1,440,699 | )
|                                                                       |                                                  |                                                     |            |               |            |      |            |        
|INVESTING ACTIVITIES:                                                  |                                                  |                                                     |            |               |            |      |            |        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Capital expenditures                                                   |                                                  |                                                     | 0          |               |            |      | (3,035     | )      
|                                                                       |                                                  |                                                     |            |               |            |      |            |        
|                                                                       |                                                  | Net cash used in investing activities               |            |               | 0          |      |            |         | (3,035     | )
|                                                                       |                                                  |                                                     |            |               |            |      |            |        
|FINANCING ACTIVITIES:                                                  |                                                  |                                                     |            |               |            |      |            |        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Proceeds from issuance of stock and warrants                           |                                                  |                                                     | 500,000    |               |            |      | 0          |        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Proceeds from debt                                                     |                                                  |                                                     | 148,000    |               |            |      | 900,000    |        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Repayments of debt & capital leases                                    |                                                  |                                                     | (2,278     | )             |            |      | (6,413     | )      
|                                                                       |                                                  |                                                     |            |               |            |      |            |        
|                                                                       |                                                  | Net cash provided by (used in) financing activities |            |               | 645,722    |      |            |         | 893,587    |  
|                                                                       |                                                  |                                                     |            |               |            |      |            |        
|NET DECREASE IN CASH AND CASH EQUIVALENTS                              |                                                  |                                                     | (700,648   | )             |            |      | (550,147   | )      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|CASH AND CASH EQUIVALENTS, BEG OF PERIOD                               |                                                  |                                                     | 711,563    |               |            |      | 680,190    |        
|                                                                       |                                                  |                                                     |            |               |            |      |            |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD                               |                                                  | $                                                   | 10,915     |               |            | $    | 130,043    |        
|                                                                       |                                                  |                                                     |            |               |            |      |            |        
|Supplemental Disclosure of Noncash Investing and
Financing activities: |                                                  |                                                     |            |               |            |      |            |        
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Contribution of assets to L.L.C                  |                                                     |            |               |            |      | $          | 399,815 |           
|                                                                       |                                                  |                                                     |            |               |            |      |            |        

See Notes to Condensed Consolidated Financial Statements

5



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##### Table of Contents






BIONUTRICS, INC.
Notes to Condensed Consolidated Financial Statements(Unaudited)

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note A - |  | The accompanying unaudited Condensed Consolidated Financial Statements 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 nine-month period ended July 31, 2001 are not necessarily
indicative of the operating results that may be expected for the entire year ending
October 31, 2001. 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, 2000. 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 since inception through July 31, 2001 of $37,102,398, 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 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.
Management is continuing their efforts to reposition the Company as a product
development company and as such is engaged in discussions with several potential
marketing partners concerning new branded ingredients that the Company is developing,
including dietary supplements and functional food products.
|        
|        
|        
|        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        
|        
|        
|        
|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 - |  | In June 2001, the Company executed a multiple advance non-revolving note to borrow up
to $500,000 from affiliates of the Company. The accreted interest is equal to $100,000
if the full $500,000 is advanced under the loan. The note is payable in full on the
earlier of (i) January 1, 2002, (ii) the funding of any loan in cumulative amounts in
excess of two million dollars, (iii) the issuance by the Company of any common stock or
preferred stock in cumulative amounts in excess of one million dollars. The Company
has borrowed $148,000 under this note as of July 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        
|        
|        
|        
|         |  | This note is secured by 100 shares of common stock of InCon Technologies, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        
|        
|        
|        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        
|        
|        
|        
|NOTE D - |  | 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. Subsequent to the issuance of SFAS 133, the FASB has
received many requests to clarify certain issues causing difficulties in
implementation. In June 2000, the FASB issued SFAS No. 138, which responds to those
requests by amending certain provisions of SFAS 133. The statements were adopted for
the Companys fiscal year beginning November 1, 2000. SFAS 133, as amended by SFAS
138, did not have an impact on the Companys consolidated financial statements.
|        
|        
|        
|        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        
|        
|        
|        
|         |  | In June 2001, the Financial Accounting Standards Board issued SFAS
No. 141, Business Combinations (effective July 1, 2001) and SFAS
No. 142, Goodwill and Other Intangible Assets (effective for
Bionutrics on November 1, 2001). SFAS No. 141 prohibits
pooling-of-interests accounting for acquisitions. SFAS No. 142
specifies that goodwill and some intangible assets will no longer
be amortized but instead will be subject to periodic impairment
testing. We are in the process of evaluating the financial
statement impact of adoption of SFAS No. 142.                                                                                                                                                                                                    
|        
|        
|        
|        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        
|        
|        
|        
|Note E - |  | At the close of business on May 29, 2001, the Company effected a
one-for-five reverse stock split, as approved by a majority vote
of the Companys stockholders. All common stock and per share
data have been restated to give effect to the reverse stock
split.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        
|        
|        
|        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        
|        
|        
|        
|Note F - |  | On July 18, 2001 the Company received notice from Nasdaq that its
securities would be delisted from the Nasdaq SmallCap Market
effective July 19, 2001. The Company has requested that the
Nasdaq Listing and Hearing council review the July 18, 2001
decision. The Listing Council will likely issue its decision
after its meeting in October. Currently, the Companys shares
are traded on the OTC Bulletin Board.                                                                                                                                                                                                                                                                                                                                                   
|        
|        
|        
|        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        
|        
|        
|        
|Note G - |  | Subsequent to the period ended July 31, 2001, the Company and
Pharmaceutical Marketing Brands, Inc. (PMB) executed a private
placement stock purchase agreement for the purchase of 49% of the
Companys issued and outstanding shares of capital stock, on a
fully diluted basis, for $5,000,000. The agreement contemplates
a close date on or before October 15, 2001. The Board of
Directors of the Company will be reconstituted such that a
majority of the Board of Directors as of the closing date will be
designees of PMB.                                                                                                                                                                                                                                   

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|
| |  | In connection with this agreement, PMB was granted 5,000,000
common stock options exercisable at $1.00 per share. These
options have a term of ten years, are transferable, and fully vest
on October 15, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
|
|
|
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
|
|
|
| |  | The issuance of the shares and the options is subject to
shareholder approval, the Companys receipt of a fairness opinion,
and other closing contingencies as set forth in the stock purchase
agreement, including, but not limited to the re-listing of
Bionutrics stock as well as satisfactory due diligence by PMB.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
|
|
|
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
|
|
|
| |  | The Company also executed a promissory note with PMB to borrow up
to $400,000, advances to be made at PMBs discretion. The
interest is equal to the greater of (i) 20% per annum computed on
the basis of the actual number of days elapsed and a year of 365
days, or (ii) 20% of the principal amount borrowed, compounded
annually. The note is payable in full on the earlier of (i) March
7, 2002, (ii) the purchase of the Companys stock by PMB pursuant
to the aforementioned private placement stock purchase agreement,
(iii) the receipt of any debt or equity financing in an amount of
at least $1,000,000, (iv) the consummation of any corporate
transaction including the sale of any assets. This note is
secured by the assets of the Company.

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##### Table of Contents






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.

Results of Operations

Three months ended July 31, 2001 compared with three months ended July 31, 2000.

Consolidated gross revenues for the quarter ended July 31, 2001 were $25,000
versus $68,000 for the same quarter in 2000, summarized by subsidiary as
follows:

|                                  |  |                       |        |      |  |   |        | 
|--------------------------------- |  | --------------------- | ------ | ---- |  | - | ------ | 
|                                  |  | For the Quarter Ended
|Subsidiary                        |  | July 31,             
|                                  |  |                      
|                                  |  | 2001                  |        | 2000
|                                  |  |                       |        |     
|Bionutrics Health Products        |  |                       | 25,000 |      |  |   | 22,000 | 
|                                 
|                                 
|                                 
|                                 
|LipoGenics                        |  |                       | 0      |      |  |   | 46,000 | 
|                                  |  |                       |        |      |  |   |        | 
|Total Consolidated Gross Revenues |  | $                     | 25,000 |      |  | $ | 68,000 | 
|                                  |  |                       |        |      |  |   |        | 

Bionutrics Health Products continues to sell through its remaining evolvE®
inventory. The Company does not expect evolvE will contribute significant
revenue to its operations in the future.

The Company is repositioning itself as a product development company and as
such is engaged in discussions with several potential marketing partners
involving evolvE® and future branded products including dietary supplements and
functional food products. New products will be based on new technology
extending beyond a tocotrienol platform. The Company has announced that it is
launching two new cardiovascular products under the brand names, Vitenol E®
20/20  For Heart & Health and CARDIO-CIN  For

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Heart and Health. Vitenol E is a rice bran extract and is a more effective
antioxidant than standard vitamin E. CARDIO-CIN is based on Bionutricss
patented niacin and soluble fiber composition. These products are targeted to
the cholesterol dietary supplement market.

LipoGenics revenues for the three months ended July 31, 2001 are zero compared
to the same three months in 2000 of $46,000. The revenues reported in 2000
were attributable to a Phase I Small Business Innovation Research (SBIR) grant
from the National Heart, Blood and Lung Institute. As this grant was completed
during fiscal year 2000, there are no revenues shown for the same period in
2001.

Cost of revenues for the three months ended July 31, 2001 was $8,000 versus
$120,000 for the same quarter in 2000. This reduction is primarily due to a
one-time adjustment to inventory of $108,000 recorded in the third quarter of
2000 to reflect market value.

Operating expenses for the three months ended July 31, 2001 were $551,000
versus $560,000 for the same period in 2000.

Other expense for the three months ended July 31, 2001 was $142,000 versus a
net income of $15,000 for the same quarter in 2000. This $157,000 decrease is
primarily due to the Companys recognition of its share of InCon Processings
net loss for the 3 months ended July 31, 2001. The Company uses the equity
method to account for its investment in InCon Processing. Consequently, the
Company records its share of InCon Processings loss for the quarter as a
decrease in its investment.

Results of Operations for InCon Processing for the 3 months ended July 31, 2001
compared with the three months ended July 31, 2000 are as follows:

|         |                   |   |                |          |                |   |           |        | 
|-------- | ----------------- | - | -------------- | -------- | -------------- | - | --------- | ------ | 
|         |                   |   | 3
months ended |          | 3
months ended
|         |                   |   | July
31, 2001  |          | July
31, 2000 
|         |                   |   |                |          |               
|Revenues |                   | $ | 647,000        |          |                | $ | 1,488,000 |       
|        
|        
|        
|        
|Costs    |                   |   | 917,000        |          |                |   | 1,434,000 |       
|         |                   |   |                |          |                |   |           |       
|         | Net (Loss) Income |   | $              | (270,000 | )              |   | $         | 54,000 | 
|         |                   |   |                |          |                |   |           |       

Net loss was $689,000 or $.15 per share for the three months ended July 31,
2001 compared to $634,000 or $.15 per share for the same period in 2000.

10



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##### Table of Contents



Nine months ended July 31, 2001 compared with nine months ended July 31, 2000.

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, 2001 were
$82,000
versus $331,000 for the same period in 2000 and is summarized by subsidiary as
follows:

|                           |  |                           |        |      |  |   |         | 
|-------------------------- |  | ------------------------- | ------ | ---- |  | - | ------- | 
|                           |  | For the Nine months Ended
|Subsidiaries               |  | July 31,                 
|                           |  |                          
|                           |  | 2001                      |        | 2000
|                           |  |                           |        |     
|Bionutrics Health Products |  |                           | 82,000 |      |  |   | 222,000 | 
|                          
|                          
|                          
|                          
|LipoGenics                 |  |                           | 0      |      |  |   | 109,000 | 
|                           |  |                           |        |      |  |   |         | 
|Total Gross Revenues       |  | $                         | 82,000 |      |  | $ | 331,000 | 
|                           |  |                           |        |      |  |   |         | 

Bionutrics Health Products Inc. continues to sell through its remaining evolvE®
inventory. The Company is repositioning itself as a product development
company. Revenues for the nine months ended July 31, 2000 include $100,000 for
services related to its development activities.

LipoGenics revenues for the nine months ended July 31, 2001 are zero compared
to the same nine months in 2000 of $109,000. The revenues reported in 2000
were attributable to a Phase I Small Business Innovation Research (SBIR) grant
from the National Heart, Blood and Lung Institute. As this grant was completed
during fiscal year 2000, there are no revenues shown for the same period in
2001.

Cost of revenues for the nine months ended July 31, 2001 was $56,000 versus
$158,000 for the same period in 2000. This decrease is primarily attributable
to a one-time adjustment to inventory of $108,000 recorded in the third quarter
of 2000 to reflect market value.

Operating expenses for the nine months ended July 31, 2001 of $1,877,000 were
$293,000 less than that recognized for the same period in 2000 of $2,170,000.
Operating expenses for the nine months ended July 31, 2000 included a $350,000
expense related to the issuance of common stock as consideration for consulting
services performed for the Company.

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Other expense for the nine months ended July 31, 2001 was $298,000 versus $400
for the same period in 2000. This increase is primarily due to the Companys
recognition of its share of InCon Processings net loss for the nine months
ended July 31, 2001.

Results of Operations for InCon Processing for the 9 months ended July 31, 2001
and 2000 are as follows:

|         |                   |   |                |          |                |   |           |        | 
|-------- | ----------------- | - | -------------- | -------- | -------------- | - | --------- | ------ | 
|         |                   |   | 9
months ended |          | 9
months ended
|         |                   |   | July
31, 2001  |          | July
31, 2000 
|         |                   |   |                |          |               
|Revenues |                   | $ | 2,380,000      |          |                | $ | 4,203,000 |       
|        
|        
|        
|        
|Costs    |                   |   | 2,981,000      |          |                |   | 4,173,000 |       
|         |                   |   |                |          |                |   |           |       
|         | Net (Loss) Income |   | $              | (601,000 | )              |   | $         | 29,000 | 
|         |                   |   |                |          |                |   |           |       

Net loss was $2,188,000 or $.48 per share for the nine months ended July 31,
2001 compared to $2,114,000 or $.51 per share for the same period in 2000.

Liquidity and Capital Resources

Net cash used in operating activities during the nine-month period ended July
31, 2001 was $1,346,000 as compared to $1,441,000 during the same period in
2000.

There was no investing activity for the nine months ended July 31, 2001 as
compared to net cash used of $3,000 during the same period in 2000.

Net cash provided by financing activities totaled $646,000 for the nine-month
period ended July 31, 2001 versus net cash provided of $894,000 for the same
period in 2000. This cash was provided by loans for both years as well as the
issuance of stock and warrants for fiscal year 2001.

The Company requires additional financing of at least $3,000,000 to support its
general working capital needs such as salaries and administrative expenses for
the next 12 months as well as to fund the research and development costs
necessary to complete the launch of its recently developed products. The
Company has executed a private placement stock purchase agreement with
Pharmaceutical Marketing Brands, Inc., (PMB) for the purchase of 49% of the
Companys issued and outstanding shares of capital stock, on a fully diluted
basis, for $5,000,000. In connection with this agreement, PMB was granted
5,000,000 common stock options exercisable at $1.00 per share. These options
have a term of ten years, are transferable, and fully vest on October 15, 2001.
The agreement contemplates a close date on or before October 15, 2001 and is
subject to shareholder approval, the Companys receipt of a fairness opinion,
and other closing contingencies as set forth in the stock purchase agreement.
The Company is also seeking additional capital through debt financing. There
can be no assurance that such additional

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##### Table of Contents



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. On July 18, 2001 the Company received notice from
Nasdaq that its securities would be delisted from the Nasdaq SmallCap Market
effective July 19, 2001. The Company has requested that the Nasdaq Listing and
Hearing Review Council review the July 18, 2001 decision. The Listing Council
will likely issue its decision after its meeting in October. Currently, the
Companys shares are traded on the OTC Bulletin Board.

Management is continuing its efforts to reposition the Company as a product
development company and, as such, is engaged in discussions with several
potential marketing partners involving evolvE® and future branded products,
including dietary supplements and functional food ingredients.

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##### Table of Contents



BIONUTRICS, INC.




PART II   OTHER INFORMATION










|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--------- |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ITEM 2(c) |  |     |  | Changes in Securities:                                                                                                                                                                                                                                                                                                                                                                                                                             
|         
|         
|         
|         
|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|          |  |     |  | In May 2001, issued 2,782 shares of common stock at $3.85
per share to Steve Friedman for consulting services.                                                                                                                                                                                                                                                                                                                                     
|         
|         
|         
|         
|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|          |  |     |  | The above issuance was made pursuant to Section 4(2) of the
Securities Act of 1933.                                                                                                                                                                                                                                                                                                                                                                
|         
|         
|         
|         
|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|ITEM 4    |  |     |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                                                                
|         
|         
|         
|         
|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|          |  |     |  | All share data presented in this Item 4 are presented on a
pre-split basis.                                                                                                                                                                                                                                                                                                                                                                        
|         
|         
|         
|         
|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|          |  |     |  | On May 21, 2001 the Company filed a Notice of Solicitation
of Written Consents to its shareholders of record as of May
18, 2001. The notice sought consent to effect a
one-for-five reverse stock split. The Company received
consent from a majority of the 22,951,727 common and
591,850 preferred shares outstanding as of May 18, 2001.
Consequently, the Company implemented the reverse stock
split at the close of business on May 29, 2001.
|         
|         
|         
|         
|ITEM 6    |  |     |  | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                   
|         
|         
|         
|         
|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|          |  | (a) |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         
|         
|         
|         
|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|          |  |     |  | Exhibit 10.50        Multiple Advance Non-Revolving Note                                                                                                                                                                                                                                                                                                                                                                                           
|         
|         
|         
|         
|          |  |     |  | Exhibit 10.51        Loan and Stock Pledge Agreement                                                                                                                                                                                                                                                                                                                                                                                               
|         
|         
|         
|         
|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|          |  | (b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                
|         
|         
|         
|         
|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|          |  |     |  | Form 8-K filed July 20, 2001 regarding the Companys
delisting from the Nasdaq SmallCap Market.                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|          |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         
|         
|         
|         
|          |  |     |  | Form 8-K filed August 28, 2001 regarding the Stock Purchase
Agreement between Pharmaceutical Marketing Brands, Inc. and
Bionutrics, Inc.                                                                                                                                                                                                                                                                                                           

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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 14, 2001 |  |                                   | 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                      

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EXHIBIT INDEX

|               |  |                                    
|-------------- |  | -----------------------------------
|Exhibit Number |  | Description of Exhibit             
|               |  |                                    
|Exhibit 10.50  |  | Multiple Advance Non-Revolving Note
|              
|              
|              
|              
|Exhibit 10.51  |  | Loan and Stock Pledge Agreement    

16