U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

                                   (Mark One)

                   [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal years ended.................October 31, 2002, October 31, 2003
                                           and October 31, 2004


                 [_] TRANSITION REPORT UNDER SECTION 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                              (I.R.S. Employer
of incorporation or organization)                          Identification No.)


2415 East Camelback Road, Suite 700, Phoenix, AZ                  85016
(Address of principal executive offices)                        (zip code)

               Registrant's telephone number, including area code:
                                 (602) 508-0112

                 -----------------------------------------------

         Securities registered under Section 12(b) of the Exchange Act:

                                      None.

         Securities registered under Section 12(g) of the Exchange Act:

                    Common Stock, $0.001 par value per share
                    -----------------------------------------

<PAGE>

                                (Title of Class)

Indicate by Check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [_] No |[X].

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K. [_]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [_] No [X].

As of January 6, 2005, the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the closing sales
price of such stock as of such date on the Pink Sheets, was $6,247,922.

As of January 6, 2005, there were 16,052,100 shares of common stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      None

FORWARD-LOOKING STATEMENTS

Certain statements made in this Annual Report on Form 10-K are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995) regarding the plans and objectives of management for future operations.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of Bionutrics, Inc.
(the "Company") to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. The Company's plans and
objectives are based, in part, on assumptions involving the continued expansion
of business. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.


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                                     PART I

Item 1. Business.

Introduction

      Bionutrics, Inc. ("Bionutrics" or the "Company") is a pharmaceutical
company developing and commercializing proprietary and brandable drug and/or
functional nutrition products. The Company's technology development program has
been primarily directed to inflammation and related lipid disorders. Recently,
Bionutrics entered into an agreement with Nostrum Pharmaceuticals, Inc., a
privately owned pharmaceutical development company ("Nostrum"), pursuant to
which the Company obtained certain exclusive worldwide rights to Nostrum's
current and future technology as applied to certain drug candidates. These
products, based on proprietary formulation technology, represent improved
versions of branded pharmaceutical products currently being marketed by other
companies and are not necessarily limited to inflammation or lipid disorders.
Nostrum has a platform of proprietary technologies that the Company believes
will provide it with a specialized delivery foundation for use in its product
formulation. The Company expects its development and commercialization efforts
in the foreseeable future to be based primarily on the Nostrum supplied
technology and/or products.

      The Company's three primary subsidiaries are LipoGenics, Inc.
("LipoGenics"), Bionutrics Health Products, Inc. ("BHP" or "Health Products"),
and InCon Technologies Inc. ("InCon"). LipoGenics serves as the product research
arm of the Company with a focus on the discovery and development of active
compounds for both drugs and functional nutrition. Health Products is the market
research and product positioning company charged to deliver new functional
nutrition products to marketing partners. InCon Processing, LLC ("InCon
Processing") in which the Company has a 50% ownership interest together with
Asia Pacific Investment Holdings Limited, a private company operating out of
Singapore, is a molecular separation company providing the Company with certain
functional nutrition product ingredients. Bionutrics also has three inactive
subsidiaries, Nutrition Technology Corporation, InCon International Ltd., and
Cosmedics, Inc.

      Bionutrics was incorporated in Nevada in 1990. All its subsidiaries are
organized in Delaware except Nutrition Technology Corporation, which is
organized in Nevada, and InCon International Ltd., which is organized in the
British Virgin Islands. References herein to Bionutrics or the Company are to
the parent corporation and its subsidiaries except where otherwise indicated.
The Company maintains its principal offices at 2415 East Camelback Road, Suite
700, Phoenix, Arizona 85016; its telephone number is (602) 508-0112.


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<PAGE>

HISTORICAL

      Bionutrics was founded to pioneer the discovery and development of
biological active compounds having applications as both pharmaceutical and
functional nutrition products. The Company's early efforts targeted the newly
emerging field of functional nutrition - the marriage of drugs and food - with
the view that it affords an early route to commercialization of proprietary
active biologics. The Company's technology development plan was to source these
biologically active compounds from food commodity processing by-product streams,
and develop forms of these compounds as both pharmaceutical and proprietary
functional nutrition products. Initial technology assets developed by the
Company have potential applications in a number of large markets including
cardiovascular disease, diabetes, and a host of auto-immune conditions.

      The Company's efforts over the previous decade have positioned it with
proprietary technology, compounds, processing methods, and products having
application to worldwide markets of potential significance. Initial technology
includes tocotrienol (a new form of vitamin-E) based products.

      Bionutrics' first cardiovascular product was a dietary supplement marketed
under the brand name of evolvE(R), and which contained a tocotrienol based
ingredient, Clearesterol(TM). evolvE(R) was launched in late fiscal 1997 in a
national campaign targeting mass-market retail distribution, and the product was
stocked in more than 42,000 stores, including virtually every drug store chain
in the United States. Unfortunately (and unexpectedly), the Company found itself
in the position of having insufficient capital to continue adequate promotion of
the product on a national level. Unable to promote or support marketing and
sales of evolvE(R), the Company pulled back on evolvE(R) and focused on
developing its proprietary technology and intellectual property through
alliances and marketing partners (versus direct sales to consumers).
Accordingly, evolvE(R) is not presently viewed as a significant part of the
Company's product future.

Industry Overview

Regulated Pharmaceutical Products

      The United States pharmaceutical market in 2003 was reportedly $170
billion in size. Prescriptions written for branded proprietary drugs are about
equal in number to generic drugs, but the value ratio of branded and patented
versus generic is 85/15, that is, revenue generated from branded prescription
drugs is $85 versus $15 for generics. Management believes traditional, brandable
and patented drugs involve high development costs, high regulatory risk and a
prolonged approval process, but due to the fact that their patent protection
restricts competition, these drugs garner high margins in distribution. Generic
drugs, on the other hand, generally have relatively low development costs, low
regulatory risk and a short approval process, but, since generics generally are
subject to intense competition, these drugs typically are sold as low-margin
commodities.


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      Positioned between patented drugs and generics are drugs which are the
subject of so-called "505(b)(2)" applications. Section 505(b)(2) of the Federal
Food, Drug, and Cosmetic Act (the "FDCA") was established by the Hatch-Waxman
Amendments of 1984 to allow sponsors to obtain approval of new drug applications
("NDAs") based upon "full reports of investigations" establishing a drug's
safety and efficacy where such investigations "were not conducted by or for the
505(b)(2) applicant and for which the applicant has not obtained a right of
reference or use from the person by or for whom the investigations were
conducted" (21 U.S.C. 355(b)(2)).

      The FDCA permits the approval of certain products under a modified version
of the original, traditional NDA. The complexity, development costs and approval
processes for these drugs is generally in between that of the full, traditional
NDA and generics. The Company believes that with the 505(b)(2) application
process, novel compositions or uses of known "off-patent" pharmaceutical
entities formulated in novel ways, have a relatively low development cost, low
regulatory risk and a shortened approval process. However, due to the patent
protection and branding available to these new formulations, these drugs can be
marketed as higher-margin products, depending on product differentiation.

Functional Nutrition

      The Company competes within the functional nutrition category of products,
which is made up of functional foods, medical foods and dietary supplements,
including vitamins, minerals and supplements. Each of these sub-categories has a
definition, legal and competitive, which distinguishes it from the others.

      Functional foods began with a National Cancer Institute initiative to find
ways of supplementing foods to enhance their cancer fighting potential. The
functional food category may be defined as conventional foods or foods for
special dietary use that are regulated under the Nutritional Labeling and
Education Act of 1990 (the "NLEA") that have enhanced health benefits. These
products may require FDA pre-approval of a health claim or of a food additive
petition. From a marketing perspective, it may be difficult to distinguish
between certain non-modified products such as vegetables and those that have
been specially prepared to enhance health. However, the majority of new entries
in this category are specially-fortified versions of conventional foods.
Functional foods are one of the fastest growing categories of food products in
the United States. The U.S. alone represents one-third of the global nutrition
market, and functional food sales are projected to exceed $30 billion by the end
of the decade (Global Information, Inc.).

      Products that exemplify the category include stanol fortified margarines
and salad dressings as well as certain fortified bars and meal replacements. As
these products take hold in the mainstream, newer products such as enriched eggs
and fully prepared and packaged foods continue to proliferate. The backbone for
these products is the bioactive ingredients that enable the products to provide
health or functional benefits. The Company believes bioactive ingredients from
soy protein, oat bran and psyllium as macro ingredients, to stanols, isoflavones
and tocotrienols are beginning to fuel growth and product development momentum
in the food industry.


                                       5
<PAGE>

      The medical food category is unique in that it is not regulated under the
NLEA. These products are different from NLEA regulated foods for special dietary
use in that they must meet specific requirements. Products that meet the strict
statutory definition of medical foods, which includes the requirement that such
products be used under the direction and care of a physician, are a small
segment of the functional food group. However, many marketing companies are
adding medical foods to their product lines. In using this special category,
many new dietary ingredients may be conveniently delivered to consumers and more
specific information may be provided on labels to help consumers identify
products that may help them with their specific health concerns. The market for
these products is being driven by the consumers' increasing willingness to
self-medicate. Examples of current medical foods are arginine enriched bars for
heart health and specially formulated bars and other foods for diabetics.

      Dietary supplements are part of the health and natural food market in the
United States. This market is approaching $18 billion in 2004 (Friedman School
of Nutrition and Policy, Tufts University). The expansion of this market is
largely the result of the rapidly growing portion of the population over 40
years old, who are concerned with aging and disease, combined with favorable
shifts in consumer attitude toward natural health care. Recent estimates
indicate that 54% of the U.S. population uses nutritional supplements at least
occasionally in some form. Nutritional awareness and market size are also
growing in other parts of the world. Bionutrics intends to access these global
opportunities for product sales of both dietary supplements and functional
foods, in each case, through strategic partners.

      The growth of sales of dietary supplements has resulted largely from
recent studies indicating a correlation between the regular consumption of
selected vitamins and nutritional supplements and reduced incidences of
conditions such as cancer, heart disease and osteoporosis. Within the dietary
supplement category, antioxidants remain the growth leader. One antioxidant,
vitamin E, has shown particularly strong growth, resulting in estimated retail
sales in excess of $500 million in 1999. Dietary supplements, including both
vitamins and nutritional supplements, are consumed specifically to enhance
bodily structure or functions, such as thinking, athletic performance or
cholesterol maintenance. Under current law a dietary supplement may not claim to
prevent, treat or cure a disease (see "Government Regulation" below), which
restricts the manner in which dietary supplements may be marketed and the claims
that may lawfully be made.

Product Development

      Bionutrics' product development plan through its agreement with Nostrum
initially targets 505(b)(2) candidates not yet identified. The Company believes
it can garner early revenue through development and marketing alliances with
other pharmaceutical companies because these 505(b)(2) products will be
proprietary (patents issued and pending). The Company has not yet entered into
any such alliances and can provide no assurance that the Company will be able to
enter into development and marketing arrangements with other pharmaceutical
companies on acceptable terms, in the future or at all.


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<PAGE>

      The Company also has a series of proprietary functional nutrition products
under development which could provide the Company with a source of revenue prior
to obtaining Food and Drug Administration ("FDA") approval for the 505(b)(2)
products. In addition, the Company owns patented single entity compounds with
multiple anti-inflammatory applications that have potential as ethical drugs via
the NDA approval route. The Company currently anticipates that these
applications will be developed on a longer-term basis, not having the priority,
focus or budget of the 505(b)(2) candidates.

Marketing

      In addition to near-term licensing, the Company intends to build its own
marketing and sales force over the next several years. Because of the high cost
of product entry today, companies with the commitment and capacity to provide
consumer advertising and support with the retail trade will be best positioned
for success. Bionutrics intends to market its products through partnerships with
such companies. This arrangement will allow the Company to invest its resources
in product development and to rely on its partners to meet the advertising,
public relations and other promotional costs for their respective markets.
Amounts spent on research and development by the Company in recent years are as
follows: 2000: $115,400; 2001: $22,116; 2002: $24,345; 2003: $6250; 2004: $250.

Nostrum Pharmaceuticals

      Bionutrics believes that the alliance between the Company and Nostrum,
which is based on the technical foundation provided by Nostrum and product
selection, clinical development, marketing and commercialization by Bionutrics,
provides excellent opportunities for commercial success. Nostrum is a specialty
pharmaceutical company engaged in formulation and development of
orally-administered, branded and generic drugs, which utilize Nostrum's
proprietary drug delivery technologies. Nostrum's technology involves a variety
of methods for producing improved pharmacokinetics, safety, "food effect",
availability, side-effect profile and general friendliness of previously
approved drugs. The Company believes that pharmaceutical companies are
increasingly utilizing controlled-release drug delivery technologies to improve
therapy. The Company believes this will provide it with increasing
opportunities.

      Controlled-release drug delivery technologies are employed by the
pharmaceutical industry generally to provide more consistent and appropriate
drug levels in the bloodstream than are achieved with immediate-release drug
delivery forms. Nostrum, while incorporating controlled-release technologies,
has developed (and is developing) several distinct and complementary proprietary
drug delivery methods intended to create "patient-friendly", product specific
technology extending beyond controlled-release uses. This technology is
protected in an expanding series of patents and patent applications which cover
methods of use and compositions of matter.


                                       7
<PAGE>

      Nostrum's current patents cover Controlled Release Matrix Formulation,
Controlled Release Tablet Formulation, Carrier for Controlled Release matrix,
Controlled Release Coating and a Method for Improved Dissolution. Nostrum has
over 30 drugs under development which employ its proprietary technology. Nostrum
has previously entered into collaborative development agreements with four major
pharmaceutical companies for the development of sixteen generic drugs which
employ Nostrum's proprietary technology.

      Bionutrics issued six million shares of common stock in a private
placement to Nostrum as payment for the technology and products to be made
available under the agreement. There is no additional compensation due to
Nostrum for the technology available to Bionutrics under the agreement. However,
Nostrum has the right, upon written notice to the Company, to terminate the
agreement or any project(s) and product(s) provided thereunder in the event that
any of the following conditions are not satisfied by February 15, 2005: (i) all
notes or other indebtedness of the Company that is convertible into common stock
shall have been paid in full or converted; (ii) the Company shall have no
indebtedness that is secured by its property; (iii) the Company shall have
obtained lock-up agreements from the holders of at least 13,500,000 shares of
common stock agreeing not to sell shares of common stock in the public market
for a period of 18 months (whereby no shares may be sold for the first nine
months and a limited number of shares may be sold for the next nine months); and
(iv) the Company shall have raised gross proceeds of at least $1,000,000 in a
private placement of its equity securities; and the rights granted thereunder
are of no effect until those conditions are satisfied.

      In the event Nostrum terminates the agreement, Nostrum would be required
immediately to return the six million shares of common stock it received and
Bionutrics would have no further rights to the technology or products
thereunder. There is no assurance that any of the 505(b)(2) candidates the
Company receives from Nostrum will successfully complete clinical trials, will
receive FDA approval for distribution, will be successfully marketed or
sub-licensed to a third party or generate revenue for Bionutrics. There is no
assurance the Company will be able to locate or hire the competent staff
necessary to undertake development of the 505(b)(2) candidates, apply for and
receive FDA approval for distribution, or undertake the launch and marketing of
these products to produce revenue. Furthermore, development of the 505(b)(2)
candidates will require the Company to raise substantial capital over the next
several years. There is no assurance that funding will be available. If it is,
it could result in significant future issuance of the Company's stock and a
corresponding dilution of the interests of current stockholders.

Enem of Bombay

      Enem Nostrum Remedies Pvt. Ltd. ("Enem") is an Indian affiliate of Nostrum
located in Bombay, India. The Company believes the research facilities of Enem
are state of the art, staffed with 40 researchers and supplied with technically
advanced analytical and testing equipment. The facility is managed by Dr. Kavita
Inamdar who supervises Enem's day-to-day R&D operations and coordinates with
Nostrum's R&D initiatives in the U.S. Dr. Inamdar has been serving Enem as Vice
President since inception. Dr. Inamdar received her Ph.D. from S.N.D.T.
University, Mumbai, India in 1996.


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<PAGE>

      Nostrum has the right to contract with Enem for research and studies
related to the products discussed above. The Company believes that Enem, through
the Nostrum agreement, provides it, with access to highly qualified personnel
and the research they conduct at a much lower cost than would otherwise be
available. It is not anticipated that the Company will contract directly with
Enem, rather that Enem will contract with Nostrum in connection with the
Company's agreement with Nostrum.

      Bionutrics intends to use Nostrum's formulation technology as a foundation
for the development and commercialization of proprietary drug and functional
nutrition products. Its business model calls for a rapid development of products
and push to market. The early focus will be the development of 505(b)(2) drugs.
The Company believes it may have four 505(b)(2) candidates, which will supply it
with new drug applications for the next several years. While the Company
believes it will have less of an impact on its future revenues, but may provide
more current cash flow, the Company will exploit some of its patented technology
in the development of functional nutrition products by means of marketing
alliances.

      Bionutrics intends to invest its resources primarily in the development of
505(b)(2) drug products. The Company believes the 505(b)(2) applications afford
a unique combination of relatively high return and low risk. With the 505(b)(2)
application process, the Company believes novel compositions or uses of known
"off-patent" pharmaceutical entities novelly formulated, have a relatively low
development cost, low regulatory risk and a shortened approval process, but,
because of new patent protection and branding, these entities are positioned as
higher-margin products.

      The Company can provide no assurances that it will be able successfully to
develop and market any 505(b)(2) products or in otherwise implementing the
business model. If the Company is unable to implement its business model or if
it is unable to obtain sufficient working capital, its business, financial
condition and results of operations could be seriously harmed.

Manufacturing

      Bionutrics' operating strategy for functional nutrition products is to
leverage its core competency of new product development by partnering raw
material and finished goods manufacturing with consumer marketing initiatives.
In particular, the Company desires within its limited program for functional
nutrition products to expand its manufacturing base and take advantage of
value-added commodity by-product processing technology without operational
responsibility or capital risk. To accomplish this, the Company is seeking to
form partnerships with global pharmaceutical and food manufacturing firms which
would assume the logistic, transportation, distribution, regulatory,
environmental, labor, administration and other operational elements associated
with the processing of by-product streams necessary to manufacture these
products.


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<PAGE>

ABF Alliance

      In 1998, Bionutrics and ABF North America Corp. ("ABF"), the U.S.
subsidiary of Associated British Foods Plc, a company headquartered in London,
England, entered into an alliance for the manufacturing of certain rice bran
based food and other functional nutrition products. The intent of the alliance
was for ABF to manufacture the Company's products, when feasible, and in the
process to unburden the Company of related operational and capital issues.

      As part of the 1998 transaction, ACH (formerly AC HUMKO CORP.), a
subsidiary of ABF, acquired for $2 million Bionutrics' rice bran-processing
technology for use in North America. The technology acquisition was part of a
contemporaneous $4 million stock investment in Bionutrics and a subsequent
purchase for approximately $2.5 million of certain oil processing assets from
the plant owned by Bionutrics' subsidiary, Nutrition Technology Corp., in West
Monroe, Louisiana.

      The Company agreed to acquire Clearesterol and other ingredients from ACH,
although its current inventory of evolvE(R) has been sufficient for current
requirements. In addition, the Company also relies on outside sources for
evolvE(R) encapsulation. With the current inventory levels and reduced sales of
evolvE(R), the Company does not anticipate needing encapsulation services in the
foreseeable future. Consequently, the Company does not consider any supplier or
manufacturer as significant to its current operations.

InCon Processing, LLC

      In June 1999, the Company further reduced its manufacturing exposure by
merging its molecular separation operation, InCon Technologies Inc. ("InCon"),
with ACH to create a new joint venture company, InCon Processing, LLC ("InCon
Processing"). InCon transferred substantially all of its assets to the newly
formed company for which it received a payment of $3,000,000 and a 50% interest
in the new company. In October 2000, the Company agreed to issue 60,000 shares
of common stock, valued at $300,000, to ACH as consideration for the release of
certain obligations under the Master Formation Agreement and Members Agreement
related to the formation of this venture and its original financial structure.

      InCon Processing's ability to engineer and design equipment necessary to
convert raw material sources into value-added active compounds and nutritional
products provides Bionutrics with a core competency. This is important because
the nature of active compounds renders them difficult to process, isolate, and
recover. Producers of raw material by-product streams generally do not have this
requisite equipment. Bionutrics believes its compound discovery, clinical
research and product market capabilities in combination with InCon Processing's
technology give the Company competitive and operational advantages to the extent
relevant functional nutrition products are pursued and developed.


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      InCon Processing operates a specialized development and chemical
manufacturing facility located in Batavia, Illinois, approximately 45 miles due
west of Chicago. The 30,000 square foot facility contains uniquely fabricated
molecular distillation and other molecular separation equipment. Molecular
distillation is a manufacturing process where under vacuum, selective molecules
are evaporated and, thereby, removed or concentrated in a precise manner.
Molecular distillation has advantages over other systems, depending on the
material processed, of limiting thermal degradation, greater precision or
enhanced economics. InCon Processing has developed significant skill in applying
molecular distillation technology to engineering and designing molecular
separation equipment. Other methods of molecular separation including dry
fractionation, chromatographic isolation, solvent extraction and membrane
separation are potentially employed in its designed systems.

      InCon Processing provides toll molecular separation services for
independent companies requiring chemical separation services for the
manufacturing of their products. InCon Processing markets its engineering and
design skills independently of the Company's raw materials sourcing and sells
specifically designed equipment to unrelated third parties as part of its oil
processing plant design and construction oversight.

      InCon Processing faces competition for its services from a number of
companies as well as from expanding in-house capabilities of several of its
customers and potential customers. In the first quarter of 2003, Eastman
Chemical, a key customer for several years has ceased contracting with InCon
Processing for such services, resulting in a significant drop in revenue. The
future viability of InCon Processing will depend in part in its ability to
replace and add to this lost revenue. On June 16, 2003, ACH sold its interest in
InCon Processing to Asia Pacific Investment Holdings Limited, a private company
located in Singapore. Asia Pacific and Bionutrics are investigating several
possible future directions and opportunities for InCon Processing to pursue,
both for its business strategy and for new revenue sources. There is no
assurance that InCon Processing will be able to generate adequate revenues in
the near future to permit continued operations as presently structured. InCon
Processing will require additional capital if revenues are not increased, and if
additional capital is not available, InCon Processing may have to curtail or
cease operations.

Key Customers

      Bionutrics has made no effort to market any products in the past several
years. The Company currently has no key customers for any of its products and
its new products are not adequately developed to be ready for marketing or
sales. InCon Processing has nine customers that account for 81% of its toll
processing revenue. Toll processing is approximately 40% of InCon Processing's
total revenue, with the remainder derived from non-recurring equipment
contracts. The toll processing and equipment contracts with those customers and
the products produced as part of the contracts are subject to confidentiality
undertakings agreed to in the applicable contracts.


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<PAGE>

Patents and Trademark

      Bionutrics has developed technology, has received 10 issued U.S. patents
and has several pending U.S. patent applications (with numerous foreign
counterparts) covering novel tocotrienols and tocotrienol-like compounds,
methods for their use, compositions containing those compounds and production
processes in the area of tocotrienols. In addition, the Company acquired one
U.S. patent with four corresponding foreign patent applications claiming methods
for promoting weight and fat loss.

      Bionutrics' first U.S. patent, obtained through its R&D subsidiary
LipoGenics (U.S. patent 5,591,772) was issued in January 1997. This patent,
through composition of matter claims, secures protection for several novel
vitamin-E like compounds discovered by the Company and by means of method and
process claims, protects methods for using and processes for producing those
compounds. The patent may also serve to protect tocotrienol based dietary
supplements similar to Bionutrics' evolvE(R) brand. A second U.S. patent was
issued in October 1998 (U.S. patent 5,821,264) with claims that parallel those
of the January 1997 patent but refer to a broader and more generic class of
compounds.

      The Company has also been successful in obtaining patent protection for
its unique tocotrienol processing technology. In June 1999, Bionutrics received
a U.S. patent directed to specific tocotrienol/tocopherol production processes
(U.S. patent 5,908,940). In March 2001, the Company was awarded a U.S. patent
for tocotrienol-rich fractions produced using its proprietary
tocotrienol/tocopherol production process (U.S. patent 6,204,290).

      Bionutrics continued to enhance its portfolio of patents covering the use
of tocotrienols to treat and prevent a wide range of disorders and conditions.
In July 1999, a broad U.S. patent was issued to the Company for methods to treat
and prevent cancer using tocotrienols (U.S. patent 5,919,818). This patent
contains method claims directed to the known, naturally occurring tocotrienols
(such as a-tocotrienol and a-tocotrienol), as well as Bionutrics' novel
proprietary tocotrienols and other vitamin-E like compounds. The Company was
awarded a similarly broad U.S. patent in May 2001, claiming the use of
tocotrienols to treat inflammatory conditions (U.S. patent 6,239,171). In
November 2000, Bionutrics received another patent (U.S. patent 6,143,770) for a
composition comprising tocotrienol, or a mixture thereof, and nicotinic acid.
This technology has application to cardiovascular health and diabetes and
related disorders. Additional U.S. and foreign patent applications that focus on
other diseases and conditions are pending. Any launch of new products resulting
from this development effort would presumably not occur until the end of 2005,
at the earliest. Continued development of the Company's technology and pursuit
of patents (including previously submitted patent applications) will depend on
the Company's ability to raise adequate capital, without which the Company may
not be able to complete its past patent application efforts or undertake new
applications, and the Company may not be able to defend its issued patents from
challenge or infringement.


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<PAGE>

Competition

      The market for functional nutrition is developing with many companies just
beginning to determine how and if they will compete in this new product segment.
Candidates for mass-market retail competition include virtually all companies
currently engaged in retail mass-market consumer marketing of food and over the
counter ("OTC") products. While these same companies are potential customer
targets for Bionutrics, they also are potential competitors because of their own
product development programs or programs they sponsor. Notably, these companies
include American Home Products, Bayer, Warner-Lambert, Pharmaton Boehringer
Ingleheim, Bristol-Myers Squibb, Novartis and Smith Kline Beecham with OTC and
dietary supplements, and Kraft, Nabisco, Nestle, Danone, Kellogg, General Mills,
Proctor & Gamble and Hunt-Wesson/ConAgra with food. Ingredient manufacturing
companies such as BASF, ADM, Hoffmann LaRoche, Heckle, Cargill, and Eastman
Chemical are all involved in both food and pharmaceutical/pharmaceutical
intermediate processing and sales, and have begun to promote products with
functional food applications. These companies represent some of the largest
companies in the world and most formidable competition for any firm considering
entering the functional nutrition business, including Bionutrics. These firms,
in varying degrees depending upon the significance and value of the technology
they bring, also represent potential strategic partners for firms entering the
field.

      The Company intends to pursue strategic partnerships to develop new
products for the ethical drug and functional food markets because the market is
so highly competitive and requires extensive resources to compete effectively.
No arrangements have yet been entered into and no assurance can be given that
partners can be found or that terms acceptable to the Company can be negotiated.
The Company does not have any products that have been submitted for regulatory
approval. The Company expects to focus in the near term on compounds and devices
that are in the preclinical stage of development.

Government Regulation

      The manufacture and marketing of pharmaceutical products and the Company's
ongoing research and development activities in the United States require the
approval of numerous governmental agencies, including the FDA. The FDA has
established mandatory procedures and safety standards that apply to preclinical
testing and clinical trials, as well as to the manufacture and marketing of
pharmaceutical products. State, local and other authorities also regulate
pharmaceutical manufacturing facilities. In addition, similar approvals from
comparable agencies in most foreign countries in which the Company might seek to
do business must be obtained.

      Marketing approval of a new drug by the FDA may follow one of three
routes. First, and most formidable, is the submission of a traditional or full
New Drug Application ("NDA") under Section 505(b)(1) of the Federal Food, Drug
and Cosmetic Act. Second, where an applicant chooses to rely in part on data
generated or approvals obtained previously by other parties, it can submit a
more limited NDA described in Section 505(b)(2) of the Federal Food, Drug and
Cosmetic Act. Either of these types of applications may also qualify for "Fast
Track" status, granted by the FDA under Section 506 of the federal Food, Drug
and Cosmetic Act. Third, an Abbreviated New Drug Application ("ANDA") is
permitted under Section 505(j) of the Federal Food, Drug and Cosmetic Act for
products which are shown to be pharmaceutically and therapeutically equivalent
to previously-approved drug products. The Company anticipates that all of its
potential drug products in the near term will be subject to Section 505(b)(2) of
the Federal Food, Drug and Cosmetic Act and do not presently plan any products
for submission under Section 505(j).


                                       13
<PAGE>

      Human clinical trials submitted under a traditional or full NDA generally
consist of pharmacokinetic studies, dose ranging studies and adequate and
well-controlled studies designed to demonstrate the safety and efficacy of the
drug. These studies are typically but not necessarily conducted in three phases.
Phase I studies test for safety, dosage tolerance, absorption, metabolism,
distribution and excretion, usually in healthy human subjects. Phase II studies
evaluate effectiveness and safety in patients who have the medical condition
that the drug is intended to treat. Phase III studies include trials that are
designed to accumulate the pivotal safety and efficacy data that are necessary
to satisfy the requirements for an NDA approval.

      Section 505(b)(2) applications are required by the FDA to contain full
reports of investigations of safety and effectiveness. However, in contrast to a
traditional NDA, in which the applicant submits all of the data demonstrating
safety and effectiveness, an application described in Section 505(b)(2) can rely
upon studies conducted by unaffiliated parties on a drug having the same active
agent as the drug intended to be marketed by the applicant even though the
applicant has not obtained a right of reference from the unaffiliated party.
Furthermore, where the active agent has been approved by the FDA under Section
505(b) of the Federal Food, Drug and Cosmetic Act, the Section 505(b)(2)
applicant is permitted to rely on the fact that the active agent has been
determined to be safe and effective. As a consequence, the preclinical and
clinical development programs leading to the submission of an NDA under Section
505(b)(2) may be less expensive to carry out and can be concluded in a shorter
period of time than programs required for a Section 505(b)(1) application.

      While Section 505(b)(2) applicants may rely upon much information
belonging to third parties, such applicants are usually required to conduct some
preclinical and/or clinical trials, to support the application to their product
of the safety and efficacy data generated by third parties on other drug
products and to demonstrate the safety and effectiveness of their products
despite any differences between their products and the prior studied products.
In its review of any NDA submissions, the FDA has broad discretion to require an
applicant to generate additional data related to safety and efficacy, and it is
impossible to predict the number or nature of the studies that may be required
before the FDA will grant approval.


                                       14
<PAGE>

      The submission or approval of an NDA covered by Section 505(b)(2) can be
subject to a number of limitations. For example, depending on the specific
formulations and combinations the Company decides to pursue, it may be required
to certify that certain patents listed with the FDA by the sponsors of related
drug products would not be infringed by the Company's products, and to provide
those sponsors and the patent holders with notice of contention. In the event
that the holders of those patents initiate an action against the Company within
45 days of receipt of notice, alleging that one of the Company's products would
infringe their patents, the approval of that product would be delayed for 30 to
36 months, or until a decision is reached in the litigation that either confirms
that the Company does not infringe the patent or enjoins the marketing of its
product until the relevant patents expire. It is the Company's intention, in
designing its drug products and in choosing the specific product formulations to
pursue, to avoid the need to certify to listed patents under these procedures
or, if necessary, to make certifications only to patents which the Company
believes it clearly does not infringe and which, therefore, would be unlikely to
lead to an infringement claim by the patent holders. However, subsequent
approvals of new, similar drug products or new patent listings for
previously-approved drug products may trigger new non-patent exclusivity periods
potentially applicable to its products or a need to certify to additional or new
patents. These requirements may entail unexpected delays in the approval of the
products, may entail unexpected litigation costs in the event that the Company
decides to challenge newly-listed patents, and/or necessitates that the Company
generate more or different data than it currently anticipates in order to
support an NDA approval. In any event, all data necessary to satisfy the FDA
concerning the safety and effectiveness of the Company's own versions of these
products will have to be gleaned from the scientific literature and/or generated
by or for it. These data are expected to include information establishing the
safety and efficacy of the intended dosages and any other differences between
the dosage form and the conditions for use of the products and the dosage form
and conditions for use of the previously-approved products. In its review of the
Company's NDA submissions, the FDA will have broad discretion to require the
Company to generate additional data and respond to questions regarding these
differences, and it is impossible to predict the number or nature of the studies
that may be required before the FDA will grant approval. No assurance can be
given that NDAs submitted for the Company's products will receive FDA approval
on a timely basis, if at all.

      The submission of an NDA is typically the subject of a user fee, currently
in excess of $500,000, and products covered by approved NDAs are subject to
product fees payable annually to the FDA. Facilities where approved prescription
drug products are manufactured are also subject to annual establishment fees.

      To take a pharmaceutical product from the discovery stage through research
and preclinical development to the point where the Company and its partners can
make the filings necessary (to FDA and governmental agencies outside the U.S.)
to conduct human clinical trials may take several years. Regulatory requirements
for human clinical trials are substantial, depend upon a variety of factors,
vary by country and will further add to the time necessary to determine whether
a product candidate can be approved for human use. The Company does not have any
pharmaceutical products that have commenced this trial process. There can be no
assurance that the Company will be able to demonstrate that any of its future
drug candidates are safe and will be efficacious under these regulatory
procedures.


                                       15
<PAGE>

Dietary Supplements

      The FDA is the most active regulatory authority exercising jurisdiction
over vitamins, minerals and other dietary supplements. It regulates the
Company's products under the Food, Drug and Cosmetic Act ("FDCA") and
regulations promulgated by FDA to implement this statute. In 1976, FDA's ability
to regulate the composition of dietary supplements was restricted in several
material respects by the Proxmire Amendment to the FDCA. Under this amendment,
FDA is precluded from establishing maximum limits on the potency of vitamins,
minerals and other dietary supplements, from limiting the combination or number
of any vitamins, minerals or other food ingredients in dietary supplements and
from classifying a vitamin, mineral or combination of vitamins and minerals as a
drug solely because of its potency. However, the Proxmire Amendment did not
affect FDA's authority to determine that a vitamin, mineral or other dietary
supplement is a new drug on the basis of disease or drug claims made in the
product's labeling. Such a determination would require deletion of such claims,
or the Company's submission and FDA's approval of a new drug application, which
entails costly and time-consuming clinical studies over successive phases.

      In 1990, FDA's authority over dietary supplement labeling was expanded in
several respects by the Nutrition Labeling and Education Act ("NLEA"). This
statute amended the FDCA by establishing a requirement for the nutrition
labeling of most foods including dietary supplements. In addition, the NLEA
prohibits the use of any health claim (as opposed to a statement of nutritional
support; see below) in dietary supplement labeling unless the claim is supported
by significant scientific agreement and is pre-approved by the FDA. Interested
companies may petition the FDA for the approval of health claims. To date, the
FDA has seldom approved health claims for dietary supplements, including in
connection with the use of calcium for prevention of osteoporosis and the use of
folic acid for prevention of neural tube defects and, it is understood,
applications therefor have been few. NLEA also allows nutrient content claims
characterizing the level of a particular nutrient in a dietary supplement (e.g.,
"high in," "low in," "source of") if they are in compliance with definitions
issued by FDA. Significantly, NLEA precludes any state from mandating
nutritional labeling, nutrient content claim or health claim requirements that
differ from those established under NLEA, thereby eliminating the risk that the
Company's products might be subject to inconsistent labeling requirements.

      In October 1994, the FDCA was amended by enactment of the Dietary
Supplement and Health Education Act ("DSHEA"), which introduced a new statutory
framework governing the composition and labeling of dietary supplements. In the
Company's judgment, DSHEA is in some parts favorable to the dietary supplement
industry while imposing additional burdens in other parts. With respect to
composition, DSHEA creates a new class of "dietary supplements," dietary
ingredients consisting of vitamins, minerals, herbs, amino acids and other
dietary substances for human use to supplement the diet, as well as
concentrates, metabolites, extracts or combinations of such dietary ingredients.


                                       16
<PAGE>

      As for labeling, DSHEA permits "statements of nutritional support", also
known as structure/function claims, for dietary supplements without FDA
pre-approval. Such statements may describe how particular dietary ingredients
affect the structure, function or general well-being of the body, or the
mechanism of action by which a dietary ingredient may affect body structure,
function or well-being, but may not state that a dietary supplement will
diagnose, mitigate, treat, cure or prevent a disease. The NLEA does not permit a
claim that could be interpreted as a health claim, i.e. that a dietary
supplement will lower the risk of a disease or correct an existing health
condition. A company making a statement of nutritional support must possess
adequate substantiating scientific evidence for the statement, disclose on the
label that FDA has not reviewed the statement and that the product is not
intended to mitigate, treat, cure or prevent disease, and notify FDA of the
statement within 30 days after its initial use. There can be no assurance that
FDA will, if it makes a demand therefor, accept as adequate in support of the
Company's product structure/function claims substantiating scientific evidence
possessed by the Company. There can be no assurance that FDA will not determine
that a given statement of nutritional support the Company decides to make is a
disease claim rather than an acceptable nutritional support statement relating
to body function or structure. Such a determination would require (a) deletion
of the disease claim, or (b) if it is to be used at all, submission by the
Company and the approval by FDA of an NDA (which would entail costly and
time-consuming clinical studies), or (c) revision from a disease claim to a
health claim, which would, as noted above, require demonstration of significant
scientific agreement and prior FDA approval, or (d) revision to a
structure/function claim. There can be no assurance that FDA will accept as
adequate for a health claim such substantiation as has been amassed by the
Company for nutritional support (structure/function) claims and thus, the
Company may, if a health claim is to be used at all, be required to document or
await significant scientific agreement on the claim's basis.

      DSHEA allows dissemination of "third party literature," such as reprints
of scientific articles that link particular dietary ingredients with health
benefits. Third party literature may be used in connection with the sale of
dietary supplements to consumers under certain conditions. Such a publication
may be distributed if it is not false or misleading, if no particular
manufacturer or brand of dietary supplement is mentioned, if the publication is
presented in such manner so as to offer a balanced view of available scientific
information on the subject matter, if it is physically separated from products
when used in a retail establishment and if it does not have any other
information appended to it. There can no assurance, however, that all pieces of
third party literature that may be disseminated in connection with the Company's
products will be determined by FDA to satisfy each of these requirements, and
any such failure to comply could subject the product involved to regulation as a
new drug.


                                       17
<PAGE>

      On April 29, 1998, FDA proposed regulations to limit statements that may
be placed on product labels and labeling concerning the effect that a dietary
supplement has on the structure or function of the human body. FDA sought to
prohibit as disease claims requiring agency pre-approval all cholesterol
lowering statements such as those that currently appear on the evolvE(R) label
and in labeling. The Company, as did numerous other affected parties and
organizations, wrote to oppose such FDA rules. On January 6, 2000, the FDA
issued its final regulation concerning structure and function claims for dietary
supplements. In the preamble to the regulation, FDA states, with regard to
cholesterol claims for dietary supplements, that the agency has concluded that
an appropriate structure/function claim for maintaining cholesterol would be,
"helps to maintain cholesterol levels that are already within the normal range."
The agency also stated its position that a "lowers cholesterol" claim, however
qualified, is an implied disease claim. As a result, the Company has reviewed
its claims for evolvE(R) to comply with the new regulation.

      In September 1997, FDA published final regulations to implement certain
DSHEA labeling provisions, which became effective in March 1999. These
regulations necessitate material changes in the labeling of all dietary
supplement products, including products sold by the Company. DSHEA also requires
that dietary supplements be prepared, packed and held under conditions that meet
the good manufacturing practice ("GMP") regulations to be promulgated but not
yet proposed by FDA with respect to dietary supplements. Therefore, there can be
no assurance that the Company's manufacturing subsidiary InCon Processing's
production facilities will meet all GMP regulations when issued by FDA with
respect to dietary supplements, and the Company may be required to expend
resources to take appropriate action to ensure compliance with such regulations.

      The US Federal Trade Commission (the "FTC"), which exercises jurisdiction
over the advertising of dietary supplements, has in the past several years
instituted enforcement actions against several dietary supplement companies for
false and misleading advertising of certain products. These enforcement actions
have resulted in consent decrees, agency cease and desist orders, injunctions
and the payment of fines by the companies involved. In addition, FTC has
increased its scrutiny of infomercials and Internet websites. There can be no
assurance that FTC will not question the Company's advertising in the future.
FTC has been very active in enforcing its requirements that companies possess
adequate substantiation in their files for claims in product advertising.

      The Company intends to market certain products pursuant to contracts with
customers which will distribute the products under their own or other
trademarks. In addition to Bionutrics' responsibilities, such customers are
subject to the governmental regulations discussed in this section in connection
with their marketing, distribution and sale of such products, and the Company
will be subject to the regulations in connection with the manufacture of those
products. However, the Company's manufacturing contractors are independent
companies, and their labeling, marketing and distribution of these products are
beyond the Company's control except by contract. Failure of these customers to
comply with applicable laws or regulations could have a material adverse effect
on the Company. Governmental regulations in foreign countries where the Company
or a strategic partner may determine to sell products may prevent or delay entry
into the market or prevent or delay the introduction, or require the
reformulation, of certain of the Company's products. Compliance with such
foreign governmental regulations generally will be the responsibility of the
Company's customers in those countries. Those customers are expected to be
independent companies over which the Company will have no control except by
contract.


                                       18
<PAGE>

      FDA has broad authority to enforce the provisions of the laws and
regulations applicable to dietary supplements, including the power to seize
adulterated or misbranded products or unapproved new drugs, to request their
recall from the market, to enjoin their further manufacture or sale, to
publicize information about a hazardous product, to issue warning letters and to
institute criminal proceedings. The Company may be subject to additional laws or
regulations administered by FDA, FTC or other regulatory authorities, such as
the individual state attorneys general who have authority under individual state
consumer protection acts to impose injunctions within their states and fines.
The Company is unable to predict the nature of future laws, regulations,
interpretations or applications, nor can it predict what effect additional
governmental regulations or administrative orders, when and if promulgated, may
have on its business. They could require the reformulation of certain products
to meet new standards, the recall or discontinuance of certain products not able
to be reformulated, imposition of additional record keeping requirements,
expanded documentation of the properties of certain products, expanded or
different labeling and additional scientific substantiation. Any of or all such
requirements could have a material adverse effect on the Company's results of
operations and financial condition.

Food Additive/New Dietary Ingredient

      If the Company decides to market any new ingredient for use in
conventional foods or for a technical effect (e.g., as a colorant, preservative,
etc.) in dietary supplements, the ingredient may be subject to the FDA food
additive provisions. Such an ingredient must be shown to be generally
recognized, among experts qualified by scientific training and experience to
evaluate its safety, as having been adequately shown through scientific
procedures to be safe under the conditions of its intended use. This is known as
generally recognized as safe or "GRAS" status and can be accomplished by
submitting what is known as a GRAS affirmation to FDA.

      In the alternative, if the ingredient is not generally known among
scientists as set forth above, the Company may submit a food additive petition
to FDA setting forth how the ingredient is to be used and all scientific data
that establishes safety for such use. This can include costly and time consuming
clinical studies over successive phases.

      FDA can accept or reject the Company's GRAS affirmation or food additives
petition. There can be no assurance that FDA will accept as adequate the
scientific data presented with either a GRAS affirmation or as part of a food
additive petition. The Company can seek judicial review if it disagrees with the
FDA determination.


                                       19
<PAGE>

      For dietary ingredients in dietary supplements, under DSHEA, a "new
dietary ingredient" is a dietary ingredient that was not marketed in the United
States before October 15, 1994 and does not include any dietary ingredient
marketed in the United States before that date.

      DSHEA requires notification to be submitted to the FDA at least 75 days
before a company introduces or delivers for introduction into interstate
commerce a dietary supplement that contains a new dietary ingredient that has
not been present in the food supply as an article used for food in a form in
which the food has not been chemically altered. Information that provides the
basis for concluding the ingredient is safe is also required by the statute to
be included in the notification.

      The FDA may not disclose the existence of, or the information contained
in, the new dietary ingredient notification for 90 days after the filing date of
the notification. After the 90th day, all information that is not trade secret
or otherwise confidential commercial information will be placed on public
display.

      Failure of the FDA to respond does not constitute a finding that the new
dietary ingredient (or the dietary supplement containing the new dietary
ingredient) is safe or is not adulterated. FDA has stated that the process is
intended to identify those new dietary ingredients that present a concern. With
respect to dietary supplements that contain a new dietary ingredient, if FDA
determines that there is inadequate information to provide reasonable assurance
that the new dietary ingredient does not present a significant or unreasonable
risk of harm, FDA could initiate civil or criminal proceedings.

      With respect to its mission to promote newly discovered active compounds
for functional nutrition as ingredients in dietary supplements and functional
foods, the Company or its strategic partners will be subject to the foregoing
regulations.

Employees

      Bionutrics currently employs two people. As of October 31, 2002, the
Company employed two people. As of October 31, 2003, the Company employed 2
people. As of October 31, 2004, the Company employed two people. These two
people are Bionutrics' president and CEO and accountant.

RISK FACTORS

      Bionutrics has a limited operating history upon which an investor can
evaluate its potential for future success.

      The Company commenced sales of its first product late in the second
quarter of fiscal 1997. There is limited historical financial information about
the Company upon


                                       20
<PAGE>

which to base an evaluation of the Company's performance or to make a decision
regarding an investment in shares of the Company's common stock. The Company has
generated an accumulated deficit of approximately $40,037,094 through its fiscal
year ended October 31, 2002, $40,796,615 through October 31, 2003, and
$41,920,951 through October 31, 2004. The Company's operations have been limited
to the efforts of securing the recently entered into agreement with Nostrum and
maintaining its books and records. The Company's current business plan is to
focus on its relationship with Nostrum and products developed by Nostrum. At
this time, evolvE(R) and other prior products are not viewed as a significant
part of the Company's business. In the future, sales of products the Company may
introduce may fail to achieve significant levels of market acceptance. The
Company's business will be subject to all the problems, expenses, delays and
risks inherent in the establishment of an early stage business enterprise,
including limited capital, delays in product development, cost overruns due to
price increases in raw products and unforeseen difficulties in manufacturing,
uncertain market acceptance and the absence of an operating history. Therefore,
the Company may never achieve or maintain profitable operations, and the Company
may encounter unforeseen difficulties that may deplete its capital more rapidly
than anticipated.

      The Company will require additional capital, and if additional capital is
not available, the Company may have to curtail or cease operations.

      To become and remain competitive, the Company will be required to make
significant investments in research and development on an ongoing basis. The
Company does not at this time have any committed sources of financing. There can
be no assurance that additional necessary financing will be attainable on terms
acceptable to the Company, in the future or at all. If financing is not
available on satisfactory terms, the Company may be unable to operate at its
present level or develop and expand its business, develop new products or
develop new markets at the rate desired, and its operating results may be
adversely affected. Debt financing increases expenses and must be repaid
regardless of operating results. The availability of equity financing is
uncertain, and successful equity financing would result in additional dilution
to existing stockholders. The losses incurred to date, the uncertainty regarding
the ability to raise additional capital and questions concerning the Company's
ability to generate net income and positive cash flows from operations may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time. The Company's audit opinion, as of and for the three
years ended October 31, 2004, also indicates that there is substantial doubt
about the Company's ability to continue as a going concern.

      The Company's failure to compete effectively may limit its ability to
achieve profitability.

      Competition in the pharmaceutical area is intense, and the Company's
competitors have substantially greater resources than the Company. The Company
may be required to obtain development and/or marketing partners effectively to
enter the drug market.


                                       21
<PAGE>

      InCon Processing's current competition is primarily from specialized local
and regional processing facilities. However, many of its toll processing
customers have the capacity to perform toll processing and molecular separation
in-house. InCon Processing's current customers may discontinue to outsource toll
processing to InCon Processing, or they may choose to utilize a different local
processor instead of InCon Processing. If either of these events occurs, InCon
Processing's revenue would suffer.

      Competition in the health food industry is vigorous with a large number of
businesses present. In addition, many companies are just beginning to determine
how and if they will compete in the developing functional nutrition market .
Candidates for mass-market retail competition include virtually all companies
currently engaged in retail mass-market consumer marketing of food and OTC
products. While these same companies are potential customer targets for
Bionutrics, they also are potential competitors because of their own product
development programs or programs they sponsor. Notably, these companies include
American Home Products, Bayer, Pharmaton Boehringer Ingleheim, Bristol-Myers
Squibb, Novartis, and Smith Kline Beecham with OTC and dietary supplements, and
Kraft, Nabisco, Nestle, Danone, Kellogg, General Mills, Proctor & Gamble and
Hunt-Wesson/ConAgra with food. Ingredient manufacturing companies such as BASF,
ADM, Hoffmann LaRoche, Heckle, Cargill, and Eastman Chemical are all involved in
both food and pharmaceutical/pharmaceutical intermediate processing and sales,
and promote products with functional food applications. These companies
represent some of the largest companies in the world and present formidable
competition for any firm considering entering the functional nutrition business.

      The Company may fail to establish or cultivate strategic partnerships to
expand its business.

      The Company has stated its intent to develop its business model and build
its business initially through strategic partnerships. The principal focus of
these relationships is the funding of product development (and regulatory
approval when necessary), marketing, sales and co-promotion of its
technology/products. Manufacturing is also currently intended to be achieved
through partnerships, either as part of a marketing agreement with other
companies, or by contract with companies exclusive of marketing and sales. The
Company may not be able successfully to form or manage such partnerships, and if
not, the Company's ability to execute its business plan will be at risk.
Further, if these partnerships are formed but are not successful in their
execution, further revenue derived from licensing payments or other such
technology/product payments to the Company may not materialize.

      The Company's ability to market its products is subject to the
intellectual property rights of third parties.

      The potential 505(b)(2) products the Company currently is considering to
develop and market, and those that it may develop and market in the future, may
infringe patent and other rights of third parties. In addition, Bionutrics'
competitors, many of which have substantially greater resources than the Company
and have made significant investments in competing technologies or products, may
seek to apply for and obtain patents that will prevent, limit or interfere with
the Company's ability to make, use and sell products either in the U.S. or
international markets. Intellectual property litigation in the pharmaceutical
industry is common, and the Company expects this to continue.


                                       22
<PAGE>

      If Bionutrics is unable to file for approval under Section 505(b)(2) of
the FDCA or if the Company is required to generate additional data related to
safety and efficacy in order to obtain approval under Section 505(b)(2), it may
be unable to meet its anticipated development and commercialization timelines.

      The Company's current plans for filing NDAs for its product candidates
include efforts to minimize the data the Company will be required to generate in
order to obtain marketing approval for its product candidates and therefore
possibly obtain a shortened review period for the applications. The Company has
not yet discussed or agreed with the FDA as to the nature or extent of any
studies it may be required to conduct in order to achieve approval for any of
its product candidates. The timeline for filing and review of NDAs is based on
the Company's plan to submit NDAs under Section 505(b)(2) of the FDCA, as a
result of which the Company may rely in part on data in the public domain or
elsewhere. The Company has not yet filed an NDA under Section 505(b)(2) for any
product candidates. Depending on the data that may be required by the FDA for
approval, some of the data may be related to products already approved by the
FDA. If the data relied upon is related to products already approved by the FDA
and covered by third-party patents the Company would be required to certify that
it does not infringe the listed patents or that such patents are invalid or
unenforceable. As a result of the certification, the third-party would have 45
days from notification of certification to initiate an action against the
Company. In the event that an action is brought in response to such a
certification, the approval of the Company's NDA could be subject to a stay of
up to 30 months or more while the Company defends against such a suit. Approval
of the Company's potential product candidates under Section 505(b)(2) may
therefore be delayed until patent exclusivity expires or until the Company
successfully challenges the applicability of those patents to its potential
product candidates. Alternatively, the Company may elect to generate sufficient
additional clinical data so that it no longer relies on data which triggers a
potential stay of the approval of its product candidates. Even if no exclusivity
periods apply to the Company's applications under Section 505(b)(2), the FDA has
broad discretion to require the Company to generate additional data on the
safety and efficacy of its product candidates to supplement third-party data on
which the Company may be permitted to rely. In either event, the Company could
be required, before obtaining marketing approval for any of its product
candidates, to conduct substantial new research and development activities
beyond those the Company currently plans to engage in order to obtain approval
of its product candidates. Such additional new research and development
activities would be costly and time consuming.

      The Company may become subject to increased governmental regulation, which
could increase the costs or cause the Company to revise certain product claims.


                                       23
<PAGE>

      The pharmaceutical industry is subject to extensive federal regulation and
oversight by the FDA. For instance, the FDCA, as supplemented by various other
statutes, regulates, among other matters, the approval, labeling, advertising,
promotion, sale and distribution of drugs, including the practice of providing
product samples to physicians. Under this statute, the FDA asserts its authority
to regulate all promotional activities involving prescription drugs.

      Functional nutrition, which includes functional foods, medical foods and
dietary supplements, is a broad field that is being defined in the market place
as well as by regulation. A health claim, in principle, requires regulatory
approval to be used in the promotion and sale of a product. In the case of
medical foods, the FDA has issued regulations that give guidelines to industry.
"Functional foods" is a term of art and does not have a legal definition, per
se. Any and all claims for foods conveying health benefits that go beyond a
limited list of claims allowed by the FDA for the promotion of such benefits
will need to be submitted to the FDA for approval. If the Company elects to seek
FDA approval for claims it believes are justified based on its clinical or other
data and is unable to obtain such approval of health claims for products that it
develops, it may not be able to sell or otherwise promote those products based
on such claims and, accordingly, the marketability and value of such products
may be negatively impacted.

      The Company relies on a limited number of products and customers;
therefore, any reduction in orders for any single product or from any single
customer would harm its business.

      To date the Company's only product is the evolvE(R) dietary supplement,
containing a patented tocotrienol vitamin E ingredient, Clearesterol(TM),
derived from rice bran. The Company is not actively marketing evolvE(R) and,
therefore, expects sales of this product to be minimal in the future and to
contribute limited revenue to its operations. The Company has recently announced
that clinical trials are scheduled soon to commence on four new products. The
period required for the completion of these trials is dependent upon many
factors, some of which are beyond the control to the Company. The clinical
viability of the products and the certainty of success of development are still
unresolved. The Company's dependence on a limited number of products and the
time and expense of development increases risk since a failure to gain market
share or a decline in demand would impact revenue.

      Nine customers accounted for approximately $1,650,000 and 81% percent of
InCon Processing's revenues related to its toll processing and molecular
distillation, and equipments sales accounted for approximately $3,129,000 of its
revenue for the 12 months ended August 31, 2004. InCon Processing's utilization
of facilities has dropped to approximately 35% due to customer cutback or delays
in the scheduling of product tolling. Accordingly, InCon Processing has recently
shown great sensitivity to customer scheduling and is susceptible to potentially
critical cash flow squeezes because of delays or other failures of customers to
use InCon Processing's tolling as scheduled.


                                       24
<PAGE>

      The Company faces product liability risks and may not be able to obtain
adequate insurance to protect it against losses.

      As a marketer of pharmaceutical products and dietary supplements that are
intended to be ingested by consumers, even if sold to the consumer by a third
party company and/or formulated in a third party company's product, the Company
may be subject to various product liability claims, including, among others,
that its products contain contaminants or include inadequate instructions as to
use or inadequate warnings concerning side effects and interactions with other
substances. While no such claims have been made to date, any future product
liability claims and the resulting adverse publicity could harm the Company's
business. If a successful product liability claim or series of claims is brought
against the Company for uninsured liabilities or in excess of insured
liabilities, the Company's assets may not be sufficient to cover such claims and
its business operations could be impaired.

      Because of the specialized nature of the Company's business, the
termination of relationships with its key management and scientific personnel or
its inability to recruit and retain additional personnel could prevent the
Company from developing its technologies and obtaining financing.

      The Company is dependent on its management, particularly Dr. Ronald Lane,
a founder and the chief executive officer, for all its business activities. The
Company is dependent on its ability to attract, retain and motivate additional
qualified personnel. There are no long-term employment or other agreements with
any executive officer except for Mr. Palmer, President and CEO of InCon
Processing. The loss of the services of Dr. Lane or other executive officers and
key employees could have a material adverse effect on the business of the
Company.

      If the suppliers and manufacturers of the Company's ingredients encounter
difficulties, the Company could experience production problems.

      The Company's functional nutrition technology and products are based on
raw products or ingredients that may be naturally derived. Many of the potential
sources for these raw products or ingredients originate or are accessed in the
Third World. Because of political or economic uncertainty associated with Third
World countries, there may be catastrophic events including acts of god that
could affect the reliability or dependability of sources so located. The Company
has identified several potential suppliers of such raw products in various Third
World countries. These potential suppliers, while evidencing current economical
soundness and viable operations, are subject to these same uncertainties. There
is no assurance, therefore, that in the face of catastrophic events in the Third
World, these potential suppliers would be able to meet the product needs of the
Company or of the Company's strategic partners.

      The Company may experience difficulty in entering international markets.


                                       25
<PAGE>

      The creation of strategic partnerships and the marketing and sale of the
Company's functional nutrition technology/products could experience difficulty
entering international markets due to greater regulatory barriers, the necessity
of adapting to new regulatory systems and problems related to entering new
markets with different cultural bases and political systems. Operating in
international markets exposes the Company to certain risks, including, among
other things: (i) changes in or interpretations of foreign regulations that may
limit the Company's ability to sell certain products or repatriate profits to
the United States; (ii) exposure to currency fluctuations; (iii) the potential
imposition of trade or foreign exchange restrictions or increased tariffs; and
(iv) political instability. If the Company expands into international
operations, these and other risks associated with international operations are
likely to be encountered. In addition, there can be no assurance that the
Company will be able to enter into agreements with international marketing
partners and thereby would limit the expansion of its revenue base.

      The Company relies on patents, licenses and intellectual property rights
to protect its proprietary interests.

      The Company's success depends in part on its ability to obtain patents,
licenses and other intellectual property rights covering its products. The
Company's patent rights are held by its subsidiary LipoGenics. There can be no
assurance that the Company's licenses, patents and patent applications are
sufficiently comprehensive to protect the Company's products. The process of
seeking further patent protection can be long and expensive, and there can be no
assurance that the Company will have sufficient capital reserves to cover the
expense of patent prosecution for its application or that all or even any
patents will issue from currently pending or any future patent applications or
that any of the patents when issued will be of sufficient scope or strength to
provide meaningful protection or any commercial advantage to the Company. While
the Company believes the bases on which patent applications were filed
correspond to the patents that have been issued for composition and method of
production and use and are reasonable given the issuance of the latter patents,
there can be no assurance that the patents for which it has applied will be
issued. The Company may be subject to or may be required to initiate
interference proceedings in the U.S. Patent and Trademark Office. Such
proceedings could demand significant financial and management resources. The
Company may receive communications alleging possible infringement of patents or
other intellectual property rights of others. The Company believes that in most
cases it could obtain necessary licenses or other rights on commercially
reasonable terms, but it may be unable to do so. In addition, litigation could
ensue or damages for any past infringements could be assessed. Litigation, which
could result in substantial cost to and diversion of efforts by the Company, may
be necessary to enforce patents or other intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others. The failure to obtain necessary licenses or other rights or litigation
arising out of infringement claims could have a material adverse effect on the
Company.


                                       26
<PAGE>

      The Company's stock is thinly traded and may experience price volatility,
which could affect a stockholder's ability to sell the Company's stock or the
price for which it can be sold.

      There has been and may continue to be, at least for the immediate future,
a limited public market for the common stock of the Company. On July 18, 2001,
the Company's common stock was delisted from quotation on the Nasdaq SmallCap
Market due to non-compliance with certain continuing listing requirements. From
July 19, 2001- February 28, 2003, the Company's common stock was quoted on the
OTC Bulletin Board under the symbol "BNRX.OB." From March 1, 2003, the Company's
common stock has been quoted on the "Pink Sheets" under the symbol "BNRX.PK".

      Rights to acquire shares of the Company's common stock will result in
dilution to other holders of its common stock.

      As of the date hereof, options to acquire a total of 147,000 shares were
outstanding under the Company's 1996 Stock Option Plan. An additional 413,153
shares of common stock are reserved for issuance pursuant to the exercise of
options that may be granted in the future under the Company's 1996 Stock Option
Plan. The Company also has outstanding options and warrants not issued under the
1996 Plan to purchase up to 685,000 shares of common stock, as well as a
convertible promissory note of $49,500; convertible into shares of common stock
at $1.00 per share. During the terms of such options and warrants, the holders
thereof will have the opportunity to profit from an increase in the market price
of the common stock with resulting dilution in the interests of holders of
common stock. The existence of such stock options and warrants could adversely
affect the terms on which the Company can obtain additional financing, and the
holders of the options and warrants can be expected to exercise those options
and warrants at a time when the Company, in all likelihood, would be able to
obtain additional capital by offering shares of its common stock on terms more
favorable to the Company than those provided by the exercise of the options and
warrants.

      The Company also has the authority to issue additional shares of common
stock and shares of one or more series of convertible preferred stock. The
issuance of those shares could result in the dilution of the voting power of
outstanding shares of common stock and could have a dilutive effect on earnings
per share.

      It may be difficult for a third party to gain control of the Company, even
if the acquisition of control would be in the best interests of its
stockholders.

      The Company's Restated Articles of Incorporation and the Nevada General
Corporation Law contain provisions that may have the effect of making more
difficult or delaying attempts by others to obtain control of the Company, even
when those attempts may be in the best interest of stockholders. Nevada law also
imposes conditions on certain business combination transactions with "interested
stockholders" (as defined therein). The Restated Articles provide for a
staggered board, which makes it more difficult for the stockholders to change
the majority of the Company's directors. In addition, the Company's Restated
Articles authorize the Board of Directors, without stockholder approval, to
issue one or more series of preferred stock, which could have voting and
conversion rights that adversely affect the voting power of the holders of its
common stock.


                                       27
<PAGE>

      Forward-looking statements should not be relied on because they are
inherently uncertain.

      Certain statements and information contained in this 10-K regarding
matters that are not historical facts are forward-looking statements, as that
term is defined under applicable securities laws. These include statements
concerning the Company's future, proposed, and anticipated activities; certain
trends with respect to its revenue, operating results, capital resources, and
liquidity, and certain trends with respect to the markets in which the Company
competes or its industry in general. Forward-looking statements, by their very
nature, include risks and uncertainties, many of which are beyond the Company's
control. Accordingly, actual results may differ, perhaps materially, from those
anticipated in or implied by such forward-looking statements.

Item 2. Property.

Facilities and Equipment

      The total rental expense for fiscal 2002, 2003 and 2004 for the Company
and its subsidiaries was $169,104, $7,465, and $23,696, respectively (these
amounts do not include InCon Processing's rental expense for 2002, 2003 and
2004).

      The Company currently leases its principal executive offices consisting of
approximately 220 square feet, in Phoenix, Arizona under a six-month lease
agreement that expires on January 31, 2005, with monthly payments of $2,249.
InCon Processing leases 30,000 square feet in Batavia, Illinois under a 10-year
lease agreement, with monthly payments of $15,408. This lease expires on July
31, 2007.

Item 3. Legal Proceedings.

      The Company is not party to any legal proceedings that management believes
would have a material adverse effect on the business of the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

                                     PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.


                                       28
<PAGE>

      The Company's common stock was quoted on the Nasdaq OTCBB from October 1,
2001- February 28, 2003 and on the "Pink Sheets" from March 1, 2003 to the
present.

                                                       High             Low
                                                       ----             ---
Fiscal Year Ended October 31, 2004

Three months ended January 31, 2004                    0.25             0.01
Three months ended April 30, 2004                      0.45             0.01
Three months ended July 31, 2004                       0.45             0.04
Three months ended October 31, 2004                    1.00             0.15

Fiscal Year Ended October 31, 2003

Three months ended January 31, 2003                    0.85             0.16
Three months ended April 30, 2003                      0.15             0.01
Three months ended July 31, 2003                       0.25             0.01
Three months ended October 31, 2003                    0.25             0.01

Fiscal Year Ended October 31, 2002 (2)

Three months ended January 31, 2002                    3.50             2.30
Three months ended April 30, 2002                      3.30             1.05
Three months ended July 31, 2002                       1.37             0.65
Three months ended October 31, 2002                    0.82             0.36

Fiscal Year Ended October 31, 2001

Three months ended January 31, 2001                    5.94             2.03
Three months ended April 30, 2001                      5.16             1.85
Three months ended July 31, 2001 (1)                   3.60             0.30
Three months ended October 31, 2001                    2.97             0.30

Fiscal Year Ended October 31, 2000

Three months ended January 31, 2000                   15.63             7.50
Three months ended April 30, 2000                     47.50             4.65
Three months ended July 31, 2000                      10.94             5.63
Three months ended October 31, 2000                    8.13             4.06

(1)   Stock delisted from Nasdaq July 18, 2001.

(2)   Stock price information for the year ended October 31, 2002 has been
      derived from www.siliconinvestor.com.


                                       29
<PAGE>

      Such quotations reflect inter-dealer bids, without retail mark-up,
mark-down or commissions, and may not reflect actual transactions.

      As of October 31, 2002, and October 31, 2003 there were 141 holders of
record of the Company's common stock. As of the date hereof, there are 149
holders of record of the Company's common stock.

Dividend Policy

      The Company has not declared or paid any cash dividends on its common
stock and does not intend to declare or pay any cash dividend in the foreseeable
future. The payment of dividends, if any, is within the discretion of the Board
of Directors and will depend on the Company's earnings, if any, its capital
requirements, and financial condition and such other factors as the Board of
Directors may consider.

Recent Sales of Unregistered Securities

      On August 10, 2004, the Company issued and sold 1,000,000 shares of Common
Stock in a private placement to Asia Pacific Investment Holdings Limited, the
current owner of a 50% interest in InCon Processing for an aggregate purchase
price of $1,000,000. Such shares were issued without registration pursuant to
the exemption from registration contained in Section 4(2) of the Securities Act
of 1933, as amended.

      On February 12, 2004, the Company issued the following securities to Asia
Pacific Investment Holdings Limited: (i) 50,000 shares of common stock at a
purchase price of $.01 per share; (ii) a $49,500 convertible promissory note,
convertible into shares of common stock at a conversion price of $1.00 per
share; and (iii) warrants to purchase 50,000 shares of common stock at an
exercise price of $1.00 per share. Such securities were issued without
registration pursuant to the exemption from registration contained in Section
4(2) of the Securities Act of 1933, as amended.

      On August 24, 2004, the Company issued and sold 150,000 shares of common
stock to Karen Harwell, a former employee of the Company, at a purchase price of
$.01 per share. Such shares were issued without registration pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act of
1933, as amended.

      On June 1, 2004, the Company issued for services 3.75 million shares of
common stock to the Company's chief executive officer, Ronald Lane. Such shares
were issued without registration pursuant to the exemption from registration
contained in Section 4(2) of the Securities Act of 1933, as amended.

      On August 18, 2004, and August 23, 2004 the Company issued and sold
250,000 shares of common stock to each of William McCormick and Richard
Feldheim, respectively, members of the Company's board of directors, at a
purchase price of $.01 per share. Such shares were issued without registration
pursuant to the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.


                                       30
<PAGE>

      In June 2004, Bionutrics issued six million shares of common stock in a
private placement to Nostrum as payment for the technology and products to be
made available under its agreement with Nostrum. Such shares were issued without
registration pursuant to the exemption from registration contained in Section
4(2) of the Securities Act of 1933, as amended.

      On September 1, 2004, the Company issued and sold 200,000 shares of common
stock to Asia Pacific Investment Holdings Limited, in exchange for ownership of
certain functional nutrition technology. Such shares were issued without
registration pursuant to the exemption from registration contained in Section
4(2) of the Securities Act of 1933, as amended.

      All purchasers represented that they acquired the securities for their own
accounts. A legend was placed on the stock certificates stating that the
securities have not been registered under the Securities Act and cannot be sold
or otherwise transferred without an effective registration or an exemption
therefrom. All purchasers of the Company's securities are either accredited
investors or employees of the Company.

Item 6. Selected Financial Data.

The following selected financial data should be read in conjunction with the
Company's consolidated finanical statements and the related notes and with the
Company's management's discussion and analysis of financial condition and
results of operations, provided elsewhere herein.

<TABLE>
<CAPTION>
                                                                       YEAR ENDED OCTOBER 31,
                                         ------------------------------------------------------------------------------------
                                             2004              2003              2002              2001              2000
                                         ------------      ------------      ------------      ------------      ------------
<S>                                      <C>               <C>               <C>               <C>              <C>
Gross Revenues                               $98,767           $32,005           $45,265           $95,978          $355,624
Net Revenues                                 $98,767           $31,978           $36,516           $37,630          $134,079
Cost of Sales                                $18,269            $5,829           $14,182           $59,746          $165,042
Gross Profit (Loss)                          $80,498           $26,149           $22,334          ($22,116)         ($30,963)
Operating Expenses                          $866,913          $468,418        $1,246,583        $2,464,974        $2,952,233
Other Income (Expense)                     ($337,921)        ($317,253)        ($612,026)        ($402,095)        ($162,660)
Net Loss                                 ($1,124,336)        ($759,522)      ($1,836,275)      ($2,889,185)      ($3,145,856)
Basic and Diluted Loss Per Share(1)           ($0.14)           ($0.17)           ($0.42)           ($0.64)           ($0.75)
Weighted Average Shares
   Outstanding(1)                          7,840,496         4,352,600         4,352,600         4,540,108         4,189,794
Balance Sheet Data:
Working Capital (Deficit)                ($3,079,327)      ($3,661,647)      ($3,407,218)      ($2,114,842)      ($1,615,238)
Total Assets                              $2,875,306        $2,210,696        $2,714,644        $3,264,070        $4,385,989
Total Liabilities                         $3,779,939        $3,707,993        $3,489,219        $2,281,909        $2,506,430
Stockholders equity (deficit)              ($904,633)      ($1,497,297)        ($774,575)         $982,161        $1,879,559
</TABLE>

1. Adjusted for a one-for-five reverse stock split effected at the close of
business on May 29, 2001. These shares do not include 910,370, 977,370, 713,836,
795,066, 1,198,363 shares of common stock for the years ended October 31, 2004,
2003, 2002, 2001, and respectively, that may be issued upon exercise of
outstanding stock options, warrants, and convertible preferred stock as they are
antidilutive.


Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.

      The following discussion of the Company's financial condition and results
of operations as well as certain statements and information under Item 1
"Business" include 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.

Introduction

      Results of operations for fiscal 2002, 2003 and 2004 reflect Bionutrics'
continuing efforts to reposition the Company as a product development company
and commercialize its technology. Prior to 1997, management's efforts had been
primarily directed toward conducting research and development, applying for
patent approvals, developing manufacturing and distribution arrangements for its
dietary supplement product and obtaining initial capital and financing to fund
these activities.

      Bionutrics (formerly NutraGenics, Inc. until December 26, 1996) completed
a merger with LipoGenics, Inc., a Delaware corporation ("LipoGenics") on October
31, 1996, and LipoGenics became a wholly owned subsidiary of the Company. The
merger with LipoGenics was accounted for in a manner similar to a
pooling-of-interest and as such Bionutrics' accounts reflect the historic
operations of LipoGenics. Bionutrics issued 418,549 shares in connection with
the merger. Pursuant to the merger, Bionutrics obtained ownership of certain
proprietary rights related to dietary supplements previously licensed to it by
LipoGenics and acquired ethical drug (a regulated pharmaceutical), functional
food and other dietary supplement rights owned by LipoGenics.


                                       31
<PAGE>

      On October 31, 1997, Nutrition Technology Corporation ("Nutrition
Technology"), a subsidiary of Bionutrics, completed a forward triangular merger
of a subsidiary of Nutrition Technology with InCon Technologies Inc., a
specialty chemical processing company in Illinois, ("InCon"). InCon became a
wholly owned subsidiary of Nutrition Technology. The merger with InCon was
accounted for as a purchase and Bionutrics issued 280,000 shares in connection
with the merger. In connection with the merger, the edible oil plant sales and
consulting business formerly conducted by an InCon affiliate was transferred to
InCon International Ltd., a wholly-owned subsidiary of Bionutrics, and specialty
vitamin E technology relating to soluble and powder vitamin E owned by another
affiliate was transferred to InCon.

      In 1997, the Company launched its first product evolvE(R), a proprietary,
tocotrienol cardiovascular health promoting dietary supplement, which attained
distribution in 40,000 stores nationwide. In addition, it commenced operations
at a 50,000 square foot rice bran extraction facility in Louisiana. The
Company's business plan at the time provided for the infusion of additional
capital to support the market launch of evolvE(R) and growing the infrastructure
to maintain it. Funding delays prompted the Company in 1998 to revise the
business plan to accommodate financial constraints. Under the revised business
plan, management sought marketing and manufacturing partners for the Company's
products and focused efforts on the core competency of the Company, which is the
creation of new proprietary, biologically active ingredients. Consistent with
this course of action, the Company also decided to seek a partner to take over
its rice bran processing operation on a profit sharing basis.

      To this end, in 1998 the Company entered into a strategic manufacturing
partnership with Associated British Foods, North America/ACH Food Companies,
Inc. ("ABF"), which made a substantial investment in Bionutrics' stock. The
Company's objective was to employ its technology as a platform for 1) ABF to
manufacture value-added micronutrients and nutritional commodities derived
through secondary processing of food processing by-products, and 2) to market
proprietary functional nutrition ingredients based on these micronutrients
through strategic partnerships. Bionutrics' goal was to leverage its core
competency to obtain revenue from both the manufacturing and marketing of these
value-added micronutrients and nutritional commodity product streams.

      Late in 1998, to streamline operations and cut costs, the Company sold its
rice bran extraction operation and related technology to the ABF subsidiary, ACH
(formerly AC HUMKO), for approximately $4,500,000. Bionutrics also reduced its
employee base by one-half as part of a restructuring of the way the Company
marketed its principal product, evolvE(R).


                                       32
<PAGE>

      In 1999, the Company reduced its manufacturing exposure by merging its
molecular separation operation, InCon, with ACH to create a new joint venture
company, InCon Processing. InCon transferred substantially all of its assets to
the new entity for which it received a payment of $3,000,000 and a 50% ownership
interest. The formation of this venture allowed the Company more ably to avail
itself of the research and development capacity of InCon Processing for
specialty processing without being encumbered by capital requirements of the
operation for new facilities.

      Since the Company's early days as a development stage company, through the
current fiscal year, it has received an opinion noting the substantial doubt
about the Company's ability to continue as a going concern from its independent
auditors due to the significant recurring operating losses. However, the Company
is working towards resolving the conditions giving rise to this opinion through
the efforts outlined above.

      During years 2000 and 2001, the Company attempted to maintain a very
modest operation as it attempted to forge product development relationships with
product marketing companies. Little effort was made to grow technology or to use
the Company's limited resources in expanding its products.

      In 2001, the Company announced an agreement with Pharmaceutical Marketing
Brands, Inc. ("PMB"). The agreement called for Bionutrics to sell common stock
directly to PMB or its designees for the purchase of 49% of the outstanding
capital stock of the Company. HealthSTAR Holdings, LLC (an affiliate of PMB),
intended to transfer three strategic relationship agreements it had with
HealthSTAR Communications, Inc. (also affiliated with PMB) to Bionutrics.
HealthSTAR Communications, Inc. was established as a comprehensive
pharmaceutical marketing services company that integrates advertising agency
services, products and services with audience specific, exclusive controlled
media venues to provide pharmaceutical manufacturers with an effective, targeted
and economical way to communicate with physicians, patients, providers and
payors. The intention of the agreement was to couple targeted to-be-acquired
pharmaceutical marketing services companies with the marketing resources offered
by HealthSTAR and the product development of Bionutrics and thereby create a
unique company that integrated R&D with a full-spectrum pharmaceutical marketing
services operation.

      The Company and PMB were unable to close the transaction and in 2002 both
parties agreed to terminate the agreement. Each party waived any claims against
the other party (except for claims with respect to a secured loan which is
outstanding and payable by the Company). Following the termination of this
transaction, the Company further reduced its staff, office space and related
administrative expenses as it pursued other avenues to commercialize its
technology.

      In 2003, the Company conducted several negotiations with marketing
oriented companies for the purpose of exploiting its technology, but these
efforts did not result in any agreements, revenue or related capital infusion.
While the Company continues to sell evolvE(R) as a result of calls from
long-time customers or through orders received over the Internet, with the
Company's limited resources there has been no concerted effort to market the
product, and the revenue generated from sales of evolvE(R) are insignificant to
the operations of the Company. The Company continues to operate by deferring
numerous expenses, including salary payments to its President and Controller.


                                       33
<PAGE>

      In 2004 the Company began the development of four new proprietary,
functional nutrition products that address maintenance of normal blood lipid
ratios. The Company intends to conduct clinical trials to support marketing
claims for these new products and to file patent applications in respect thereof
when and as appropriate.

      In mid-year 2004 the Company began to pursue a relationship with Nostrum
Pharmaceuticals, Inc., wherein the Company acquired technology rights to certain
to-be-named 505(b)(2) drug candidates in exchange for 6,000,000 shares of
Bionutrics common stock. An agreement was executed between the parties on June
16, 2004, memorializing the transaction. As part of that agreement, Bionutrics
was required to raise $1,000,000 for working capital via the sale of common
stock within 120 days of the closing of the agreement. Bionutrics succeeded in
raising the requisite funds by selling 1,000,000 shares of its common stock for
$1,000,000 to Asia Pacific. The cash is being utilized for the purpose of
covering expenses (including administrative expenses) related to conducting the
Company's audits for fiscal years 2002, 2003 and 2004, filing its tax returns
and SEC reports for those years, and undertaking additional actions necessary
for the Company to satisfy its obligations under its agreement with Nostrum.

      Subsequent and unrelated to the Nostrum transaction, InCon made an asset
distribution to its respective owners of certain dietary supplement technology
that Bionutrics had previously contributed. Bionutrics then re-acquired the
other half of the distributed technology from Asia Pacific in exchange for
200,000 shares of its common stock. As part of the Nostrum agreement, Bionutrics
is required to have 1) a loan on its books in the amount of approximately
$1,500,000 and collateralized by 100 percent of the assets of the Company,
converted to common stock at the price of $1.00 per share and 2) secure a
"lock-up" of a total of 13,500,000 shares of its common stock (including
Nostrum's stock) for a period of 18 months. The date for the accomplishing the
conversion and stock lock-up has been extended from October 15, 2004 to February
15, 2005 by agreements with Nostrum . If Bionutrics does not accomplish the
conversion and lock-up, Nostrum has the right to rescind the agreement with
Bionutrics, retain its technology and return Bionutrics' common stock. There is
no assurance that Bionutrics will be able to accomplish the required conversion
and lock-up.

CRITICAL ACCOUNTING POLICIES

      The section herein entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operation" addresses the Company's
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenue and expenses during the reporting
period. On an ongoing basis, management evaluates its estimates and judgment,
including those related to revenue recognition, goodwill, bad debts, income
taxes, and contingent liabilities. Management bases its estimates and judgments
on historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments as to the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions.


                                       34
<PAGE>

      The Securities and Exchange Commission ("SEC") defines "critical
accounting policies" as those that require application of management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods.

      The following discussion of critical accounting policies represents the
Company's attempt to report on those accounting policies which the Company
believes are critical to the Company's consolidated financial statements and
other financial disclosure. It is not intended to be a comprehensive list of all
of the Company's significant accounting policies, which are more fully described
in Note 1 of the Notes to the Consolidated Financial Statements included in this
report.

      Bionutrics has identified the following as critical accounting policies
affecting the Company: Revenue Recognition and Income Taxes.

REVENUE RECOGNITION

      Bionutrics generally recognizes product revenue at the time of shipment to
the customer. Revenues from the sale of consignment inventory are recognized
upon the sale of the inventory by third parties. Revenues from services are
recorded at the time the service is rendered and/or reimbursable expenses are
incurred.

INCOME TAXES

      The Company has a history of losses. These losses generated sizeable
federal net operating loss ("NOL") carryforwards as of October 31, 2004 of
approximately $32.0 million.

      Generally accepted accounting principles require that the Company record a
valuation allowance against the deferred income tax asset associated with these
NOL carryforwards and other deferred tax assets if it is "more likely than not"
that the Company will not be able to utilize them to offset future income taxes.
Due to the Company's history of unprofitable operations, the Company only
recognizes net deferred tax assets in those subsidiaries in which it believes
that it is "more likely than not" that it will be able to utilize them to offset
future income taxes in the future. The Company currently provides for income
taxes only to the extent that it expects to pay cash taxes on current income. At
October 31, 2004, 2003 and 2002, net deferred tax assets were approximately $13
million.


                                       35
<PAGE>

      It is possible, however, that the Company could be profitable in the
future at levels which cause management to conclude that it may realize all or a
portion of the NOL carryforwards and other deferred tax assets. Subsequent
revisions to the estimated net realizable value of the deferred tax assets could
cause the Company's provision for income taxes to vary significantly from
period-to-period.

Results of Operations

Results of Operations for Year Ended October 31, 2004 compared to Year Ended
October 31, 2003.

Revenues, Expenses and Net Loss

      During 2004, the Company maintained a very limited operation. Total
revenues generated during the year ended October 31, 2004 amounted to $99,000,
compared to $32,000 for the year ended October 31, 2003. Bionutrics Health
Products generated $99,000 in revenues for the year ended October 31, 2004,
compared to $32,000 for the year ended October 31, 2003. LipoGenics generated $0
in revenues for the year ended October 31, 2004, compared to $0 for the year
ended October 31, 2003. The Bionutrics Health Products revenues reflect the
sales of its first product, evolvE(R) which is sold directly to consumers via
the Internet. The Company no longer views this product as an integral part of
its future plans, and therefore the decline in revenue is due to the elimination
of advertising and promotional programs. Total expenses for the year ended
October 31, 2004 aggregated $1,223,000, which amounted to a net loss of
$1,124,000. This compares to net loss of $ 760,000 for the year ended October
31, 2003. This increase in net loss is due primarily to the increase in legal
and accounting fees associated with the Company's efforts to achieve compliance
with the periodic reporting requirements of the Exchange Act, as well as a one
time expense of $150,000 for stock based compensation to an officer of the
Company. The net loss per share was $.14 for the year ended October 31, 2004, as
compared to a net loss of $.17 per share for the year ended October 31, 2003.

Results of Operations for Third Quarter Ended July 31, 2004 compared to Third
Quarter Ended July 31, 2003.

Revenues, Expenses and Net Loss

      During third quarter 2004, the Company maintained a very limited
operation. Total revenues generated during the third quarter ended July, 31,
2004 amounted to $0, compared to $ 7,000 for the third quarter ended July 31,
2003. Bionutrics Health Products generated $0 in revenues for the quarter third
quarter ended July 31, 2004, compared to $7,000 for the third quarter ended July
31, 2003. LipoGenics generated $0 in revenues for the third quarter ended July
31, 2004, compared to $0 for the third quarter ended July, 31, 2003. This
reduction in revenue is due primarily to a lack of consumer awareness in the
product evolvE(R). Total expenses for the third quarter ended July 31, 2004
aggregated $407,000, which amounted to a net loss of $407,000. This compares to
net loss of $178,000 for third quarter ended July, 31, 2003. This increase in
net loss is due primarily to a one time expense of $150,000 for stock based
compensation to an officer of the Company and an increase in legal and
accounting fees associated with the Company's efforts to achieve compliance with
the periodic reporting requirements of the Exchange Act. The net loss per share
was $.03 for third quarter ended July, 31, 2004, as compared to a net loss of
$.04 per share for the year third quarter ended July 31, 2003.


                                       36
<PAGE>

Results of Operations for Second Quarter Ended April 30, 2004 compared to Second
Quarter Ended April 30, 2003.

Revenues, Expenses and Net Loss

      During second quarter 2004, the Company maintained a very limited
operation. Total revenues generated during the second quarter ended April, 30,
2004 amounted to $1,000, compared to $7,000 for the second quarter ended April
30, 2003. Bionutrics Health Products generated $1,000 in revenues for the
quarter second quarter ended April, 30, 2004, compared to $7,000 for the second
quarter ended April 30, 2003. LipoGenics generated $0 in revenues for the second
quarter ended April 30, 2004, compared to $0 for the second quarter ended April
30, 2003. This reduction in revenue is due primarily to a lack of consumer
awareness in the product evolvE(R). Total expenses for the second quarter ended
April 30, 2004 aggregated $130,000, which amounted to a net loss of $129,000.
This compares to net income of $23,000 for second quarter ended April 30, 2003.
This change is primarily due to the Company's recognition of other income in
April 2003 of $250,000 for the one time sale of patented technology. The net
loss per share was $.03 for the second quarter ended April 30, 2004, as compared
to a net income of $.01 per share for the year second quarter ended April 30,
2003.

Results of Operations for First Quarter Ended January 31, 2004 compared to First
Quarter Ended January 31, 2003.

Revenues, Expenses and Net Loss

      During first quarter 2004, the Company maintained a very limited
operation. Total revenues generated during the quarter ended January 31, 2004
amounted to $91,000, compared to $9,000 for the quarter ended January 31, 2003.
Bionutrics Health Products generated $91,000 in revenues for the quarter ended
January 31, 2004, compared to $9,000 for the quarter ended January 31, 2003.
LipoGenics generated $0 in revenues for the quarter ended January 31, 2004,
compared to $0 for the quarter ended January 31, 2003. This increase in revenue
is due primarily to $80,000 in product development services provided to a third
party. Total expenses for the quarter ended January 31, 2004 aggregated
$293,000, which amounted to a net loss of $202,000. This compares to net loss of
$193,000 for the quarter ended January 31, 2003. This increase in net loss is
due to the Company's efforts to achieve compliance with periodic reporting of
the Exchange Act. The net loss per share was $.05 for the quarter ended January
31, 2004, as compared to a net loss of $.04 per share for the quarter ended
January 31, 2003.


                                       37
<PAGE>

Results of Operations for year ended October 31, 2003 compared to year ended
October 31, 2002.

Revenues, Expenses and Net Loss

      During the year of 2003, the Company maintained a very limited operation.
Total revenues generated during the year ended October 31, 2003 amounted to
$32,000, compared to $37,000 for the year ended October 31, 2002. Bionutrics
Health Products generated $32,000 in revenues for the year ended October 31,
2003, compared to $37,000 for the year ended October 31, 2002. LipoGenics
generated $0 in revenues for the year ended October 31, 2003, compared to $0 for
the year ended October 31, 2002. This reduction in revenue is due primarily to a
lack of consumer awareness for the product evolvE(R). Total expenses for the
year ended October 31, 2003 aggregated $792,000, which amounted to a net loss of
$760,000. This compares to net loss of $1,836,000 for the year ended October 31,
2002. This decrease in net loss is primarily due to an overall cost containment
program which included the reduction in salaries, rent, legal, accounting, and
investor relations expenses. The Company also recognized other income of
$250,000 during fiscal year 2003 which was attributable to the sale of certain
patented technology. The net loss per share was $.17 for the year ended October
31, 2003, as compared to a net loss of $.42 per share for the year ended October
31, 2002.

Results of Operations for Third Quarter Ended July 31, 2003 compared to Third
Quarter Ended July 31, 2002.

Revenues, Expenses and Net Loss

      During third quarter 2003, the Company maintained a very limited
operation. Total revenues generated during the third quarter ended July, 31,
2003 amounted to $7,000, compared to $8,000 for the third quarter ended July 31,
2002. Bionutrics Health Products generated $7,000 in revenues for the third
quarter ended July 31, 2003, compared to $8,000 for the third quarter ended July
31, 2002. LipoGenics generated $0 in revenues for the third quarter ended July
31, 2003, compared to $0 for the third quarter ended July, 31, 2002. This
reduction in revenue is due primarily to a lack of consumer awareness for the
product evolvE(R). Total expenses for the third quarter ended July 31, 2003
aggregated $186,000, which amounted to a net loss of $179,000. This compares to
net loss of $431,000 for third quarter ended July, 31, 2002. This decrease in
net loss is attributable to an overall cost containment program. The net loss
per share was $.04 for third quarter ended July, 31, 2003, as compared to a net
loss of $.10 per share for the third quarter ended July 31, 2002.

Results of Operations for Second Quarter Ended April 30, 2003 compared to Second
Quarter Ended April 30, 2002.


                                       38
<PAGE>

Revenues, Expenses and Net Loss

      During second quarter 2003, the Company maintained a very limited
operation. Total revenues generated during the second quarter ended April, 30,
2003 amounted to $7,000, compared to $7,000 for the second quarter ended April
30, 2002. Bionutrics Health Products generated $7,000 in revenues for the second
quarter ended April, 30, 2003, compared to $7,000 for the second quarter ended
April 30, 2002. LipoGenics generated $0 in revenues for the second quarter ended
April 30, 2003, compared to $0 for the second quarter ended April 30, 2002.
Total expenses for the second quarter ended April 30, 2003 aggregated $(16,000),
which amounted to a net income of $23,000. This compares to net loss of $575,000
for second quarter ended April 30, 2002. This change is due to the Company's
implementation of a cost containment program which significantly reduced rent,
salaries, legal, accounting, and investor relations services. The Company also
recognized other income of $250,000 during the second quarter ended April 30,
2003, which was attributable to the sale of certain patented technology. The net
income per share was $.01 for the second quarter ended April 30, 2003, as
compared to a net loss of $.13 per share for the second quarter ended April 30,
2002.

Results of Operations for First Quarter Ended January 31, 2003 compared to First
Quarter Ended January 31, 2002.

Revenues, Expenses and Net Loss

      During first quarter 2003, the Company maintained a very limited
operation. Total revenues generated during the quarter ended January 31, 2003
amounted to $9,000, compared to $9,000 for the quarter ended January 31, 2002.
Bionutrics Health Products generated $9,000 in revenues for the quarter ended
January 31, 2003, compared to $9,000 for the quarter ended January 31, 2002.
LipoGenics generated $0 in revenues for the quarter ended January 31, 2003,
compared to $0 for the quarter ended January 31, 2002. Total expenses for the
quarter ended January 31, 2003 aggregated $202,000, which amounted to a net loss
of $193,000. This compares to net loss of $1,013,000 for the quarter ended
January 31, 2002. This change is due to the Company's implementation of a cost
containment program which significantly reduced rent, salaries, legal,
accounting, and investor relations services. The net loss per share was $.04 for
the quarter ended January 31, 2003, as compared to a net loss of $ .23 per share
for the quarter ended January 31, 2002.

Results of Operations for year ended October 31, 2002 compared to year ended
October 31, 2001.

Revenues, Expenses and Net Loss

      During the fiscal year 2002, the Company maintained a very modest
operation as it attempted to forge product development relationships with
product marketing companies. Total revenues generated during the year ended
October 31, 2002 amounted to $37,000, compared to $96,000.00 for the year ended
October 31, 2001. Bionutrics Health Products generated $37,000 in revenues for
the year ended October 31, 2002, compared to $96,000.00 for the year ended
October 31, 2001. LipoGenics generated $0 in revenues for the year ended October
31, 2002, compared to $0 for the year ended October 31, 2001. Bionutrics Health
Products experienced a decline in sales due to the Company's inability to
support advertising efforts of evolvE(R), and therefore does not expect that it
will contribute significant revenue in the future. Total expenses for the year
ended October 31, 2002 aggregated $1,873,000, which amounted to a net loss of
$1,836,000. This compares to net loss of $2,889,000.00 for the year ended
October 31, 2001. This reduction in net loss is primarily due to a cost
containment program. The net loss per share was $.42 for the year ended October
31, 2002, as compared to a net loss of $0.64 per share for the year ended
October 31, 2001.


                                       39
<PAGE>

Results of Operations for year ended October 31, 2001 compared to year ended
October 31, 2000.

Revenues, Expenses and Net Loss

      During the fiscal year 2001, the Company maintained a very modest
operation as it attempted to forge product development relationships with
product marketing companies. Total revenues generated during the year ended
October 31, 2001 amounted to $96,000.00, compared to $356,000.00 for the year
ended October 31, 2000. Bionutrics Health Products generated $96,000.00 in
revenues for the year ended October 31, 2001, compared to $247,000.00 for the
year ended October 31, 2000. LipoGenics generated $0 in revenues for the year
ended October 31, 2001, compared to $109,000.00 for the year ended October 31,
2000. Bionutrics Health Products experienced a decline in sales due to the
Company's inability to support advertising efforts of evolvE(R), and therefore
does not expect that it will contribute significant revenue in the future. Total
expenses for the year ended October 31, 2001 aggregated $2,985,000, which
amounted to a net loss of $2,889,000. This compares to net loss of $3,146,000
for the year ended October 31, 2000. This reduction in net loss is primarily due
to a cost containment program as well as the recording of an allowance of
$263,071 for a long-term receivable recorded during fiscal year 2000. The net
loss per share was $.64 for the year ended October 31, 2001, as compared to a
net loss of $0.75 per share for the year ended October 31, 2000.

Liquidity and Capital Resources

Year Ended October 31, 2004, 2003, and 2002

      To date, the Company's operations have not generated sufficient cash flow
to satisfy the Company's capital needs. The Company has financed its operations
primarily through the private sale of its equity (through the placement of its
common stock and warrants) and debt securities. The Company had a working
capital deficit of approximately $3,079,000 at October 31, 2004 as compared with
$3,662,000 and $3,407,000 at October 31, 2003 and 2002, respectively. Cash and
cash equivalents was $629,000, $3,000, and $28,000, at October 31, 2004, 2003
and 2002, respectively, an increase of $626,000 from 2003 to 2004, and a
decrease of $25,000 from 2002 to 2003.


                                       40
<PAGE>

      Net cash used in operating activities during the years ended October 31,
2004, 2003, and 2002, was $640,000, $324,000, and $745,000, respectively. The
net cash used in operating activities during the year ended October 31, 2004
resulted primarily from the Company's net loss of $1.1 million in 2004, offset
by non-cash expenses including equity in net loss of joint venture of $332,000
and stock based compensation of $157,000. The net cash used in operating
activities during the year ended October 31, 2003 resulted primarily from the
Company's net loss of $760,000 in 2003 and a non-cash gain on sale of assets of
$228,000, offset by a non-cash expense of equity in net loss of joint venture of
$516,000. The net cash used in operating activities during the year ended
October 31, 2002 resulted primarily from the Company's net loss of $1.8 million
in 2002 and a decrease in accrued expenses of $81,000, offset by non-cash
expenses including equity in net loss of joint venture of $434,000 and stock
based compensation of $79,000, and an increase in accounts payable of $617,000.

      Net cash used in investing activities during the years ended October 31,
2004 and 2002, was $13,000 and $0, and net cash provided by investing
activities was $150,000 during the year ended October 31, 2003. The cash
provided in 2003 reflects the proceeds from the sale of assets less patent
acquisition costs.

      Net cash provided by financing activities during the years ended October
31, 2004, 2003, and 2002, was $1,280,000, $150,000, and $672,000, respectively.
The cash provided in 2004, 2003, and 2002 reflects $1,201,000, $0, and $0 from
the proceeds from the placement of common stock and warrants, and $80,000,
$150,000, and $672,000 from the proceeds from the issuance of notes payable,
respectively.

      The Company will require additional equity and/or debt financing for
fiscal 2005 to fund its operations and to satisfy its debt service obligations.
The Company has been exploring and negotiating the securing of additional equity
as well as debt financing. It has received indications of interest but has not
entered into any definitive arrangements. Access to additional capital will
depend substantially on prevailing market conditions and the Company's financial
condition and prospects at that time. Bionutrics auditors have expressed in
their audit report a qualification as to its ability to continue as a going
concern. See Note 2 of the Notes to the Consolidated Financial Statements
regarding the Company's plans to address this concern.

      The Company intends aggressively to pursue the commercialization of
certain products with Nostrum, and it plans on further exploring strategic
alliances and licensing agreements with other pharmaceutical companies to
generate revenues.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

      Bionutrics does not invest in or own any market risk sensitive instruments
entered into for trading purposes or for purposes other than trading purposes.
All loans made to the Company have been for fixed interest rates and
accordingly, the market risk to the Company prior to maturity is minimal.


                                       41
<PAGE>

Item 8. Financial Statements and Supplementary Data.

      Reference is made to the Consolidated Financial Statements for the fiscal
years ended 2004, 2003, and 2002, the Notes thereto and Independent Auditors'
Report thereon commencing at Page F-1 of this Report, which Consolidated
Financial Statements, Notes and Report are included herein by reference.

      Reference is made to the Company's Form 10-K for the fiscal year ended
October 31, 2000, filed with the SEC on or about January 11, 2001, and the
Company's Form 10-K/A for the fiscal year ended October 31, 2001, filed with the
SEC on or about January 18, 2002.

      Reference is made to the Selected Quarterly Financial Data for each of the
quarters ended in fiscal years 2004, 2003, and 2002, in Note 13 to Bionutrics,
Inc. Financial Statements thereon commencing at Page F-1 of this Report, which
are included herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

      On October 29, 2002, the Company received a notice of resignation from
Deloitte & Touche LLP, the Company's independent auditors.The Company filed a
current report on Form 8-K on November 1, 2002 with respect to Deloitte &
Touche's resignation.

      The reports of Deloitte & Touche LLP on the Company's consolidated
financial statements for the two fiscal years preceding such resignation did not
contain an adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles. During the
Company's two most recent fiscal years and the subsequent interim period
preceding the resignation of Deloitte & Touche LLP, there were no disagreements
between the Company and Deloitte & Touche LLP on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which if not resolved to the satisfaction of Deloitte & Touche LLP,
would have caused Deloitte & Touche LLP to make reference to the matter in their
reports.

      On July 26, 2004 the Company engaged Miller, Ellin & Company, LLP ("Miller
Ellin") as its independent auditors for its fiscal years ended October 31, 2002
and October 31, 2003, and on November 11, 2004, the Company extended the
engagement to include the fiscal year ended October 31, 2004. During the
Company's three most recent fiscal years, and any subsequent interim period
prior to engaging Miller Ellin, the Registrant (or someone on its behalf) did
not consult with Miller Ellin regarding (i) either: the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Registrant's
financial statements; or (ii) any matter that was either the subject of a
disagreement as defined in paragraph 304(a)(1)(iv) under Regulation S-K or a
reportable event.


                                       42
<PAGE>

Item 9A. Controls and Procedures.

Evaluation of disclosure controls and procedures.

       The Company's principal executive and financial officer have reviewed and
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934 (the "Exchange Act")), as of a date within ninety days before the filing
of this report. Based on that evaluation, such officer has concluded that the
Company's current disclosure controls and procedures are effective to ensure
that information required to be disclosed by it in reports that we file or
submit under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the Commission's rules and forms.

Changes in internal controls.

       There have not been any significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation. The Company has not yet completed
the assessment of internal controls over financial reporting required by Section
404 of the Sarbanes-Oxley Act; however, management is not currently aware of any
significant deficiencies in internal controls, and therefore no corrective
actions were taken.

Item 9B. Other Information.

None.

                                    Part III

Item 10. Directors and Executive Officers of the Registrant.

      The following table sets forth certain information regarding Bionutrics'
current and certain former directors and executive officers:

Name                               Age      Position
----                               ---      --------

Ronald H. Lane, Ph.D.              59       Chairman of the Board, Chief
                                            Executive  Officer,  President,
                                            Secretary and Treasurer
John R. Palmer                     61       Chief Executive  Officer,  InCon
                                            Processing,  LLC, Chairman and Chief
                                            Executive  Officer,  InCon
                                            Technologies  Inc. and InCon
                                            International Ltd.
Richard M. Feldheim(1)(2)          63       Director
William M. McCormick(2)            63       Director
Nirmal Mulye, Ph.D.(1)             38       Director (Joined July 2004)
Daniel S. Antonelli (3)            51       Director  (Resigned March 2003)
Todd A. Goergen (4)                31       Director  (Resigned February 2002)
Y. Steve Henig, Ph.D (5)           61       Director  (Resigned February 2002)
Milton Okin (6)                    88       Director  (Resigned February 2003)
Frederick B. Rentschler (7)        64       Director  (Resigned February 2003)
Winston A. Salser, Ph.D. (8)       64       Director  (Resigned February 2003)


                                       43
<PAGE>

----------------------
(1)   Member of the Compensation Committee
(2)   Member of the Audit Committee
(3)   Mr. Antonelli served as a director of the Company from September 1998
      until March 2003.
(4)   Mr. Goergen served as a director of the Company from July 2001 until
      February 2002.
(5)   Mr. Henig served as a director of the Company from October 1995 until
      February 2002.
(6)   Mr. Okin served as a director of the Company from October 1995 until
      February 2003.
(7)   Mr. Rentschler served as a director of the Company from October 1995 until
      February 2003.
(8)   Mr. Salser served as a director of the Company from October 1995 until
      February 2003.

      Ronald Howard Lane, Ph.D., has served as Chairman of the Board, Chief
Executive Officer and President of the Company since December 1994 and its
predecessor, NutraGenics (Delaware), since April 1994 and served as Chief
Executive Officer and President of LipoGenics from July 1992 to October 1997.
Dr. Lane is responsible for directing Bionutrics' corporate development and
growth. He received a Ph.D. and post-doctorate NIH fellowship from the
University of Wisconsin (Madison) in Neurophysiology. Dr. Lane spearheaded
development of the technology at LipoGenics. He was employed previously with
Norcap Financial Corporation, The National Western Group, Inc. (an investment
company), and Taylor Pearson Corporation.

      John R. Palmer has served as Chief Executive Officer of InCon Processing,
LLC since June 1999. He has served as Chief Executive Officer of InCon
Technologies, Inc. since October 1997, its Chairman since March 1998, and served
as its President from October 1997 until February 1998. Mr. Palmer was Chief
Executive Officer and an owner of InCon Technologies at the time of the
acquisition. Prior to organizing InCon Technologies in 1990, he was employed at
E.I. DuPont for 22 years in various technical and management jobs. Mr. Palmer
graduated from Cornell University in 1966 with a masters degree in chemical
engineering and marketing.


                                       44
<PAGE>

      Richard M. Feldheim has been a member of the board of directors since
October 1995. He served as a director, Secretary and Chief Financial Officer of
LipoGenics from July 1992 until October 1996. Mr. Feldheim has served as
Chairman and Co-Chief Executive Officer of Abby's, a restaurant chain in Oregon,
since 1991. He was in private practice as a lawyer prior thereto, has previously
been employed with Goldman Sachs & Co.; Donaldson, Lufkin & Jenrette; J. Aron
Company; and Price Waterhouse, and was President of Norcap Financial
Corporation. Mr. Feldheim received a B.S., B.A., a Master's Degree in
Accounting, and a J.D. from the University of Arizona, as well as an LL.M. in
Taxation from New York University. He is a Certified Public Accountant.

      William M. McCormick has been a member of the board of directors since May
1996, and he currently serves as Chairman of the Executive Advisory Board,
Inverness Management, LLC. Mr. McCormick was President and Chief Executive
Officer of PennCorp Financial Group, Inc., a NYSE company, from 1990 to 1995 and
was a director from 1990 until 1997. Prior thereto, Mr. McCormick was employed
by the American Express Company. His titles ranged from Senior Vice President
Finance, Systems & Operations of the American Express International Banking
Corporation to President of American Express' Travel Related Services Company.
Mr. McCormick then spent five years as Chairman and CEO of Fireman's Fund
Insurance. After graduating from Yale, Mr. McCormick spent his early years in
investment banking and management consulting with Donaldson, Lufkin & Jenrette
and McKinsey & Company, Inc., respectively.

      Nirmal Mulye, Ph.D., received a B.S. in Pharmacy from Bombay University
and Ph.D. in Pharmacy from Temple University, Philadelphia. Dr. Mulye is the
founder and President of Nostrum Pharmaceuticals, Inc. of Edison, New Jersey.
Nostrum Pharmaceuticals is a developer of pharmaceutical formulation
technologies and related proprietary products. Previously employed by Forest
Laboratories and AL Pharma, Dr. Mulye is the inventor of numerous patented
technologies owned by Nostrum Pharmaceuticals.

      Daniel S. Antonelli has served as President and Chief Executive Officer of
ACH Food Companies, Inc. (formerly AC Humko Corp.) since August 1995. From 1974
to 1995 he held a number of senior positions in finance, operations and general
management at Kraft, Inc. He received a Bachelor of Business at the University
of Michigan, an MBA from DePaul University Graduate School of Business, and
attended the PMD (General Management) program at Harvard.

      Todd A. Goergen has been a Managing Member of Ropart Investments LLC, a
private investment partnership since 1998. From February 1999 to March 2000, Mr.
Goergen was the Director of Acquisitions and Corporate Development at Blyth
Industries, Inc. From 1994 to January 1999, he was an Associate/Analyst in the
Mergers and Acquisitions Group of Donaldson, Lufkin & Jenrette. Mr. Goergen
received his degree in Economics and Political Science in 1994 from Wake Forest
University.


                                       45
<PAGE>

      Y. Steve Henig, Ph.D. has served as Senior Vice President of Technology
and Innovation for Ocean Spray Cranberries, Inc. since January 1999. He served
as Senior Vice President of Technology and Marketing Services for Hunt-Wesson,
Inc. from 1992 until December 1998. He joined Hunt-Wesson in 1983 as Vice
President of Research and Development. His previous position was Vice President
of Corporate Research & Development and Corporate Engineering for Land O'Lakes,
Inc. in Minneapolis, Minnesota. Prior to that he held positions with Pillsbury
Company and General Foods Corporation. Dr. Henig received his Bachelor of
Science Degree in Chemical Engineering and a Master of Science Degree in Food
and Biotechnology from the Technion-Israel Institute of Technology. He earned
his Ph.D. Degree in Food Science from Rutgers University, New Brunswick, New
Jersey.

      Milton Okin has many years of diet and health food development experience,
having created Weight Watchers low calorie foods that he subsequently sold to
Weight Watchers International. Mr. Okin developed a unique all natural Vitamin C
from acerola berry grown in plantations in Puerto Rico and Florida. The acerola
operation was sold to Booker McConnell Ltd. of England in 1978. Mr. Okin has
owned and operated a chain of health food related retail stores including
outlets in Sears Roebuck and Company, and presently owns a mail order vitamin
and health products business in Hastings, N.Y. Mr. Okin is a biochemist graduate
of New York City College with graduate research at Mount Sinai Hospital in
lipids, cholesterol and vitamins.

      Frederick B. Rentschler is Chairman of the Board of the Salk Institute in
La Jolla, California. He serves on the board of directors and compensation
committee of International Game Technology, a NYSE company. He served as
President and Chief Executive Officer of Beatrice Companies and is a director of
Sibia Neurosciences, Inc., a public company. He served as President and Chief
Executive Officer of Beatrice Companies from 1987 to 1990, having completed a
leveraged buyout of Beatrice Companies in 1986 with the firm of Kohlberg,
Kravis, Roberts & Company. Prior to Beatrice, Mr. Rentschler was employed as
President/Chief Executive Officer of Armour-Dial and subsequently had the same
responsibility at Hunt-Wesson. Following his retirement from Beatrice, he served
as President/Chief Executive Officer of Northwest Airlines. Mr. Rentschler's
current affiliations in addition to the Salk Institute include the Board of
Directors of Scottsdale Healthcare and the Advisory Board of Grocery Outlet Inc.
Mr. Rentschler received his B.A. in Economics and History from Vanderbilt
University and MBA from Harvard Business School. He was awarded a Doctor of Laws
degree from The University of Wyoming in 1999.

      Winston A. Salser, Ph.D. has been a Professor of Molecular Biology at the
University of California, Los Angeles since 1968. Dr. Salser was the founding
President of Amgen, Inc. and formed its Scientific Advisory Board. He received a
B.S. from the University of Chicago in physics, a Ph.D. from the Massachusetts
Institute of Technology in molecular biology, and was a Helen Hay Whitney
Foundation Postdoctoral Fellow.


                                       46
<PAGE>

      The Company's officers and directors are elected annually for a one year
term or until their respective successors are duly elected and qualified or
until their earlier resignation or removal.

      There have been no events under any bankruptcy act, no criminal
proceedings and no judgments, injunctions, orders or decrees material to the
evaluation of the ability and integrity of any director, executive officer,
promoter or control person of the Company during the past five years.

      The Company has established a standing audit committee of its board of
directors. Messrs. Feldheim and McCormick are the members of the audit
committee. Mr. Feldheim has been designated as a financial expert.

      The Company has not yet adopted a code of ethics applicable to its
principal executive officer, principal financial officer, principal accounting
officer or controller. The Company is currently examining its corporate
governance and other policies and procedures that will relate to a larger
enterprise. Following such examination, the Company expects to adopt a code of
ethics applicable to all directors, officers and employees.

COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934

      Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

      Based solely on the Company's review of the copies of the forms received
by it during the fiscal years ended October 31, 2002, October 31, 2003 and
October 31, 2004 and written representations that no other reports were
required, the Company believes that each person who, at any time during such
fiscal year, was a director, officer or beneficial owner of more than 10% of the
Company's common stock complied with all Section 16(a) filing requirements
during such fiscal year, except with respect to the following filings: (i)
Ronald Lane, Form 4 in connection with the issuance of shares of common stock on
June 1, 2004; (ii) William McCormick, Form 4 in connection with the issuance of
shares of common stock on August 18, 2004; (iii) Richard Feldheim, Form 4 in
connection with the issuance of shares of common stock on August 23, 2004; (iv)
and Nirmal Muyle, Form 3 in connection with issuance of shares of common stock
to Nostrum and Dr. Muyle's appointment to the board during June and July, 2004.

Item 11. Executive Compensation.


                                       47
<PAGE>

      The following table sets forth the total compensation received for
services rendered in all capacities to the Company for the fiscal years ended
October 31, 2000, 2001, 2002, 2003 and 2004 by the Company's Chief Executive
Officer, and its three most highly compensated executive officers whose
aggregate cash compensation exceeded $100,000 (together the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE


                      SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                                        Long-Term Compensation
                                                                                        ----------------------

                                     Annual Compensation                                Awards
                                     -------------------                                ------

                                                                                       Restricted   Securities
Name and                                       Salary-        Salary-    Other Annual    Stock      Underlying      All Other
Principal Position                   Year       Paid         Deferred    Compensation   Award(s)     Options       Compensation
------------------                   ----      -------      -----------  ------------   --------    ----------     ------------
                                                 ($)             ($)         ($)          ($)           (#)            ($)
<S>                                  <C>      <C>            <C>         <C>            <C>         <C>            <C>
 Ronald H. Lane, Ph.D.               2004     $163,919      $ 39,028
    Chief Executive Officer and               --------      --------
       President                     2003     $ 93,668      $109,279
                                              --------      --------
                                     2002     $132,696      $ 70,251
                                              --------      --------
                                     2001     $116,221      $ 86,726                                   91,000
                                              --------      --------                                   ------
                                     2000     $202,947                                                    800         $ 2,500(1)
                                              --------                                                 ------         ---------
John R. Palmer
Chief Executive Officer and          2004     $200,000
     President of InCon                       --------
     Technologies Inc.               2003     $200,000                                                                $14,000(1)
                                              --------                                                                ----------
                                     2002     $200,000                                                                $12,000(1)
                                              --------                                                                ----------
                                     2001     $200,000                                                                $10,500(1)
                                              --------                                                                ----------
                                     2000     $200,000                                                                $ 3,942(1)
                                              --------                                                                ---------
</TABLE>


      (1)   Represents contributions to a 401(k) plan.
            ------------------------------------------

Option Grants

      There were no employee options granted in the fiscal years ended October
31, 2002, October 31, 2003, and October 31, 2004.

Option Holdings

      The following table represents certain information respecting the options
held by the Named Executive Officers as of October 31, 2002, October 31, 2003
and October 31, 2004.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES


                                       48
<PAGE>

<TABLE>
<CAPTION>
                                                                            Number of Securities             Value of Unexercised
                                             Shares                        Underlying Unexercised            In-the-Money Options
                                            Acquired                    Options at Fiscal Year-End(#)     at Fiscal Year-End ($)(1)
                                              on             Value      -----------------------------   ----------------------------
Name                         Year          Exercise(#)    Realized($)   Exercisable    Unexercisable    Exercisable    Unexercisable
----                         ----          -----------    -----------   -----------    -------------    -----------    -------------
<S>                          <C>           <C>            <C>           <C>            <C>              <C>            <C>
Ronald H. Lane, Ph.D.        2004             --              --          91,800               0          $    0          $    0
                             2003             --              --          61,800          30,000               0               0
                             2002             --              --          31,800          60,000               0               0

</TABLE>


(1) There are no in-the-money options calculated based on $0.20, which was the
closing sale price of the Common Stock as quoted on the Pink Sheets on October
29, 2004.

Director Compensation

      The Company pays all of its Board members reimbursement for expenses for
each Board meeting attended. There were no options granted to any member of the
Board of Directors during the fiscal years ended October 31, 2002, October 31,
2003, and October 31, 2004.

Employment Agreements

      As of June 25, 1999, the Company entered into an Employment Agreement with
Mr. John R. Palmer that superseded, in its entirety, the 1997 Employment
Agreement previously executed. The new agreement was entered into in connection
with the formation of InCon Processing, and was assumed by that company
effective January 1, 2000. The Employment Agreement expired at the end of
August, 2004.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

      The following tables set forth certain information as of October 31, 2002,
October 31, 2003 and October 31, 2004, regarding (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, (ii) each director, nominee and executive officer of the Company,
and (iii) all officers and directors as a group.


                                       49
<PAGE>

Beneficial Owner as of 10/31/02                  Amount
Name of Beneficial Owner                        Owned (2)    Percent
Directors and Named Executive
Officers(1):
-------------------------------
Ronald H. Lane, Ph.D. (3)                           692,635    15.91%
John R. Palmer (4)                                   62,075     1.43%
Richard M. Feldheim (5)                             157,729     3.62%
Daniel S. Antonelli  (6)                            464,201    10.66%
Y. Steve Henig (7)                                    2,200     0.05%
Todd Goergen (8)                                    174,000     4.00%
William M. McCormick (9)                            238,034     5.47%
Milt Okin (10)                                      229,420     5.27%
Frederick B. Rentschler (11)                         39,419     0.91%
Winston Salser (12)                                 181,606     4.17%

Executive officers and directors
as a group
(4 persons)                                       2,241,319    51.49%

Other 5% Stockholders
AC Humko (13)                                       460,001    10.57%


*Denotes less than a 1% interest in the Company

(1)   Except as indicated, and subject to community property laws when
      applicable, the persons named in the table above have sole voting and
      investment power with respect to all shares of Common Stock shown as
      beneficially owned by them.

(2)   Includes shares of Common Stock issuable to the identified person pursuant
      to stock options or warrants that may be exercised within 60 days after
      October 31, 2003. In calculating the percentage of ownership, such shares
      are deemed to be outstanding for the purpose of computing the percentage
      of shares of Common Stock owned by such person, but are not deemed to be
      outstanding for the purpose of computing the percentage of shares of
      Common Stock owned by any other stockholders.

(3)   Represents shares held of record by R.H. Lane Limited Partnership of which
      Dr. Lane is a general partner. He shares voting power over these shares
      with Richard M. Feldheim, a general partner. Dr. Lane disclaims beneficial
      ownership of 60,000 shares held by such partnership for the benefit of
      other partners and 180,000 shares held by the partnership for the benefit
      of his wife. Includes 61,800 shares of Common Stock issuable upon exercise
      of stock options.

(4)   Includes 56,000 shares held of record by Bali Holdings, LLC, of which Mr.
      Palmer is one of five members.

(5)   Includes 3,966 shares held of record by Abby's, Inc., a corporation
      controlled by Mr. Feldheim, and 151,563 shares held of record by the R. M.
      Feldheim Limited Partnership of which Mr. Feldheim is the general partner.
      Does not include 653,638 shares held by R.H. Lane Limited Partnership for
      the benefit of other partners. He shares voting power over the shares held
      by Abby's, Inc. and R.H. Lane Limited Partnership. Includes 2,200 shares
      of Common Stock issuable upon exercise of stock options.

(6)   Represents 460,001 shares of common stock held by ACH Food Companies, Inc.
      of which Mr. Antonelli disclaims beneficial ownership. Mr. Antonelli is
      the President and CEO of ACH Food Companies, Inc. Includes 4,200 shares of
      common stock issuable upon exercise of stock options.

(7)   Represents 2,200 shares of common stock issuable upon exercise of stock
      options.


                                       50
<PAGE>

(8)   Includes 150,000 shares held by Ropart Investments, LLC, of which Mr.
      Goergen is managing member, and as to which he disclaims beneficial
      ownership except to the extent that his individual interest in such shares
      arises from his interest in such activity. Includes 24,000 shares of
      common stock issuable upon exercise of warrants held by Ropart
      Investments, LLC.

(9)   Includes 120,000 shares issuable upon exercise of warrants. Also includes
      10,000 shares held by Mr. McCormick's wife and 7,000 shares held by Mr.
      McCormick's minor children, of which shares he disclaims beneficial
      ownership. Also includes 42,200 shares of Common Stock issuable upon
      exercise of stock options.

(10)  Includes 2,200 shares of common stock issuable upon exercise of stock
      options and 118,370 shares of common stock issuable upon conversion of the
      Series A Convertible Preferred Stock.

(11)  The shares are held of record by the Frederick B. Rentschler Trust.
      Includes 2,200 shares of common stock issuable upon exercise of stock
      options.

(12)  Includes 22,860 shares held by the Salser Partnerships No. 1, 2, and 3.
      Mr. Salser shares voting power with respect to these shares with other
      family members. Also includes 2,200 shares of common stock issuable upon
      exercise of stock options.

(13)  Includes 460,001 shares of common stock. The address of ACH Food
      Companies, Inc. is 7171 Goodlett Farms Parkway, Memphis, Tennessee 38018.

Beneficial Owner as of 10/31/03                  Amount
Name of Beneficial Owner                        Owned (2)    Percent
Directors and Named Executive Officers(1):
------------------------------------------
Ronald H. Lane, Ph.D.(3)                            722,635   16.60%
John R. Palmer (4)                                   62,075    1.43%
Richard M. Feldheim (5)                             157,729    3.62%
William M. McCormick (6)                            238,034    5.47%

Executive officers and directors as a group
(4 persons)                                       1,180,473     27.12%

Other 5% Stockholders
AC Humko (7)                                        460,001   10.57%

*Denotes less than a 1% interest in the Company

(1)   Except as indicated, and subject to community property laws when
      applicable, the persons named in the table above have sole voting and
      investment power with respect to all shares of Common Stock shown as
      beneficially owned by them.

(2)   Includes shares of Common Stock issuable to the identified person pursuant
      to stock options or warrants that may be exercised within 60 days after
      October 31, 2003. In calculating the percentage of ownership, such shares
      are deemed to be outstanding for the purpose of computing the percentage
      of shares of Common Stock owned by such person, but are not deemed to be
      outstanding for the purpose of computing the percentage of shares of
      Common Stock owned by any other stockholders.


                                       51
<PAGE>

(3)   Represents shares held of record by R.H. Lane Limited Partnership of which
      Dr. Lane is a general partner. He shares voting power over these shares
      with Richard M. Feldheim, a general partner. Dr. Lane disclaims beneficial
      ownership of 60,000 shares held by such partnership for the benefit of
      other partners and 180,000 shares held by the partnership for the benefit
      of his wife. Includes 61,800 shares of Common Stock issuable upon exercise
      of stock options.

(4)   Includes 56,000 shares held of record by Bali Holdings, LLC, of which Mr.
      Palmer is a one of five members.

(5)   Includes 3,966 shares held of record by Abby's, Inc., a corporation
      controlled by Mr. Feldheim, and 151,563 shares held of record by the R. M.
      Feldheim Limited Partnership of which Mr. Feldheim is the general partner.
      Does not include 653,638 shares held by R.H. Lane Limited Partnership for
      the benefit of other partners. He shares voting power over the shares held
      by Abby's, Inc. and R.H. Lane Limited Partnership. Includes 2,200 shares
      of Common Stock issuable upon exercise of stock options.

(6)   Includes 120,000 shares issuable upon exercise of warrants. Also includes
      10,000 shares held by Mr. McCormick's wife and 7,000 shares held by Mr.
      McCormick's minor children, of which shares he disclaims beneficial
      ownership. Also includes 42,200 shares of Common Stock issuable upon
      exercise of stock options.

(7)   Includes 460,001 shares of common stock. The address of ACH Food
      Companies, Inc. is 7171 Goodlett Farms Parkway, Memphis, Tennessee 38018.

Benefical Owner as of 10/31/04                   Amount
Name of Beneficial Owner                        Owned(2)     Percent
Directors and Named Executive
Officers(1):
------------------------------
Ronald H. Lane, Ph.D.(3)                          4,502,635   28.14%
John R. Palmer (4)                                   62,075      *
Richard M. Feldheim (5)                             407,329    2.55%
William M. McCormick (6)                            472,634    2.95%
Nirmal Mulye, Ph.D. (7)                           6,002,000   37.50%

Executive officers and directors
as a group (5 persons)                           11,444,673   71.53%

Other 5% Stockholders
Nalin Rathod (8)                                  1,454,661    9.09%

*Denotes less than a 1% interest in the Company

(1)   Except as indicated, and subject to community property laws when
      applicable, the persons named in the table above have sole voting and
      investment power with respect to all shares of Common Stock shown as
      beneficially owned by them.

(2)   Includes shares of Common Stock issuable to the identified person pursuant
      to stock options or warrants that may be exercised within 60 days after
      October 31, 2004. In calculating the percentage of ownership, such shares
      are deemed to be outstanding for the purpose of computing the percentage
      of shares of Common Stock owned by such person, but are not deemed to be
      outstanding for the purpose of computing the percentage of shares of
      Common Stock owned by any other stockholders.

(3)   Represents shares held of record by R.H. Lane Limited Partnership of which
      Dr. Lane is a general partner. He shares voting power over these shares
      with Richard M. Feldheim, a general partner. Dr. Lane disclaims beneficial
      ownership of 60,000 shares held by such partnership for the benefit of
      other partners and 180,000 shares held by the partnership for the benefit
      of his wife. Includes 91,800 shares of Common Stock issuable upon exercise
      of stock options.

(4)   Includes 56,000 shares held of record by Bali Holdings. Mr. Palmer holds a
      one-fifth ownership interest in the corporation.

(5)   Includes 3,966 shares held of record by Abby's, Inc., a corporation
      controlled by Mr. Feldheim, and 401,563 shares held of record by the R. M.
      Feldheim Limited Partnership of which Mr. Feldheim is the general partner.
      Does not include 3,403,638 shares held by R.H. Lane Limited Partnership
      for the benefit of other partners. He shares voting power over the shares
      held by Abby's, Inc. and R.H. Lane Limited Partnership. Includes 1,800
      shares of Common Stock issuable upon exercise of stock options.

(6)   Includes 120,000 shares issuable upon exercise of warrants. Also includes
      10,000 shares held by Mr. McCormick's wife and 7,000 shares held by Mr.
      McCormick's minor children, of which shares he disclaims beneficial
      ownership. Also includes 41,800 shares of Common Stock issuable upon
      exercise of stock options.

(7)   Includes 6,000,000 shares held of record by Nostrum Pharmaceuticals, Inc,
      a corporation controlled by Dr. Mulye. Also includes 2,000 shares held by
      Dr. Mulye's wife, of which he disclaims beneficial ownership.

(8)   Includes 1,250,000 shares held of record by Asia Pacific Investment
      Holdings Ltd, 30,000 shares held of record by Macropower Development Ltd,
      and 14,286 shares held of record by Technology Resources & Investments
      Ltd, all corporations controlled by Mr. Rathod. Also includes 20,000
      shares held in the street name CEDE & Co., 40,875 share held in the Indian
      Depository Trust, 41,800 shares of common stock issuable upon exercise of
      warrants, as well as a convertible promissory note in the amount of
      $49,500, which is convertible into shares at $1.00 per share.


                                       52
<PAGE>

Item 13. Certain Relationships and Related Transactions.

      On August 10, 2004, the Company issued and sold 1,000,000 shares of Common
Stock in a private placement to Asia Pacific Investment Holdings Limited, the
current owner of a 50% interest in InCon Processing (as described above,
Bionutrics also owns a 50% interest in this company), for an aggregate purchase
price of $1,000,000.

      On June 16, 2004, the Company entered into a Product Development and
License Agreement with Nostrum Pharmaceuticals, Inc. In July, 2004, Nirmal
Mulye, an individual that controls Nostrum, was appointed to the Company's board
of directors.

      The Company issued Nostrum six million shares of common stock in a private
placement as payment for the technology and products to be made available to it
under the agreement with Nostrum. There is no additional compensation due to
Nostrum for the technology available to Bionutrics under the agreement. However,
Nostrum has the right, upon written notice to the Company, to terminate the
agreement or any project(s) and product(s) provided thereunder in the event that
any of the following conditions are not satisfied by February 15, 2005: (i) all
notes or other indebtedness of the Company that is convertible into common stock
shall have been paid in full or converted; (ii) the Company shall have no
indebtedness that is secured by its property; (iii) the Company shall have
obtained lock-up agreements from the holders of at least 13,500,000 shares of
common stock agreeing not to sell shares of common stock in the public market
for a period of 18 months (whereby no shares may be sold for the first nine
months and a limited number of shares may be sold for the next nine months); and
(iv) the Company shall have raised gross proceeds of at least $1,000,000 in a
private placement of its equity securities (as of the date of this filing,
condition (iv) has been satisfied); and the rights granted thereunder are of no
effect until those conditions are satisfied.


                                       53
<PAGE>

      In the event Nostrum terminates the agreement, Nostrum would be required
immediately to return the six million shares of common stock it received and
Bionutrics would have no further rights to the technology or products
thereunder.

Item 14. Principal Accountant Fees and Services.

      The following is a description of the fees paid by the Company to Miller,
Ellin & Co., LLP ("Miller Ellin") during the fiscal years ended October 31,
2004:

      Audit Fees: The Company paid fees of approximately $62,000 to Miller Ellin
in connection with its audit of the Company's financial statements for the
fiscal years ended October 31, 2004, October 31, 2003, and October 31, 2002.

      Financial Information Systems Design and Implementation Fees: The Company
did not engage Miller Ellin during the years ended October 31, 2004, October 31,
2003 and October 31, 2002 to provide advice to the Company regarding financial
information systems design and implementation.

      Other fees: The Company did not pay any fee to Miller Ellin to perform
non-audit services during the years ended October 31, 2004, October 31, 2003 and
October 31, 2002.

                                     Part IV

Item 15. Exhibits and Financial Statement Schedules.

(a) (1) Financial Statements

(a) (2) Index to Exhibits



                                       54
<PAGE>

Exhibit       Description
-------       -----------
3.1           Restated Articles of Incorporation (1)

3.2           Articles of Amendment to the Articles of Incorporation (1)

3.3           Bylaws (1)

4.1           Form of Certificate evidencing shares of common stock (1)

10.1          Employment Agreement between the Registrant and John R. Palmer (3)

10.2          1996 Stock Option Plan, as amended through March 26, 1998 (7)

10.3          Agreement and Plan of Merger by and among InCon Technologies,
              Inc., InCon Holdings, LLC, Bionutrics, Inc. and BNRX, Inc.(2)

10.4          Stock Purchase Agreement dated as of August 14, 1998, between the
              Registrant and AC HUMKO CORP.(4)

10.5          Warrant Agreement dated as of August 14, 1998, between the
              Registrant and AC HUMKO CORP.(4)

10.6          Exclusive  Supply  Agreement dated as of August 14,  1998,
              between AC HUMKO CORP. and Bionutrics Entities (filed in redacted
              format pursuant to a confidential treatment request) (5)

10.7          Warrant Agreement for the purchase of 20,000 shares
              of common stock between the Company and
              William M. McCormick dated August 7, 1998 (7)

10.8          Warrant Agreement for the purchase of 120,000 shares of common
              stock between the Company and William M. McCormick dated
              August 7, 1998 (7)

10.9          Stock Purchase Agreement and Common Stock Purchase Warrants dated
              January 28, 1999 between Ropart Investments, LLC and the
              Company (8)

10.10         Warrant Certificates dated April 27, 1999 issued to Gary J.
              Shemano, Mart Bailey and Michael Jacks for an aggregate of 20,000
              shares of common stock and Warrant Agreement effective April 9,
              1998 between The Shemano Group and the Company (8)

10.11         Master Formation Agreement for InCon Processing, LLC among AC
              HUMKO CORP., InCon Technologies, Inc., InCon International, Inc.,
              Nutrition Technology Corp., and Bionutrics, Inc., dated June 25,
              1999 (filed in redacted format pursuant to a confidential
              treatment request) (9)


                                       55
<PAGE>

10.12         Members Agreement for InCon Processing, LLC, between AC HUMKO
              CORP. and InCon Technologies, Inc., dated June 5, 1999 (filed in
              redacted format pursuant to a confidential treatment request) (9)

10.13         First Amendment to Agreement for Purchase and Sale of Assets (9)

10.14         Common Stock Purchase Agreement dated September 7, 2000 between
              the Company and Justicia Holdings Limited (11)

10.15         Registration Rights Agreement dated September 7, 2000 between the
              Company and Justicia Holdings Limited (11)

10.16         Escrow Agreement dated September 7, 2000 among the Company,
              Justicia Holdings Limited and Epstein, Becker & Green P.C. (11)

10.17         Form of Stock Purchase Warrant pursuant to Common Stock Purchase
              Agreement dated September 7, 2000 (11)

10.18         Common Stock Purchase Agreement dated September 20, 2000 between
              the Company and AMRO International, S.A. (12)

10.19         Registration Rights Agreement dated September 20, 2000 between the
              Company and AMRO International, S.A. (12)

10.20         Escrow Agreement dated September 20, 2000 among the Company, AMRO
              International, S.A. and Epstein, Becker & Green P.C. (12)

10.21         Warrant Agreement for the purchase of 10,000 shares of common
              stock dated September 20, 2000 between the Company and AMRO
              International, S.A. (12)

10.22         Series A Convertible Preferred Stock Acquisition Agreement dated
              October 27, 2000 between the Company and Milton Okin (12)

10.23         Common Stock Acquisition Agreement dated October 28, 2000 between
              the Company and Macropower Development Limited (12)

10.24         First Modification to the Master Formation Agreement for InCon
              Processing, LLC, entered into October 30, 2000 among ACH Food
              Companies, Inc. (formerly AC HUMKO CORP.), InCon Technologies,
              Inc., InCon International, Inc., Nutrition Technology Corp. and
              Bionutrics, Inc. (12)

10.25         First Modification to the Members Agreement for InCon Processing,
              LLC, entered into October 30, 2000 among ACH Food Companies, Inc.
              (formerly AC HUMKO CORP.), InCon Technologies, Inc. and
              Bionutrics, Inc. (12)


                                       56
<PAGE>

10.26         Common Stock Acquisition Agreement dated October 30, 2000 between
              the Company and ACH Food Companies, Inc. (formerly AC HUMKO CORP.)
              (12)

10.27         Warrant Agreement for the purchase of 400,000 shares of common
              stock dated October 30, 2000 between the Company and ACH Food
              Companies, Inc. (formerly AC HUMKO CORP.) (12)

10.28         Common Stock Purchase Agreement dated December 20, 2000 by and
              between the Company and Ropart Investments, LLC (12)

10.29         Warrant Agreement for the purchase of 14,000 shares of common
              stock dated December 20, 2000 between the Company and Ropart
              Investments, LLC (12)

10.30         Stock Purchase Agreement dated August 23, 2001 between
              Pharmaceutical Marketing Brands, Inc. and Bionutrics, Inc. (13)

10.31         Amended and Restated Consolidated Multiple Advance Non-Revolving
              Note, dated October 26, 2001 (14)

10.32         Amended and Restated Loan and Stock Pledge Agreement (14)

10.33         Amended and Restated Security Agreement (14)

10.34         Amendment No. 1 to Stock Purchase Agreement between Pharmaceutical
              Marketing Brands, Inc. and Bionutrics, Inc., effective as of
              August 23, 2001, executed as of October 5, 2001 (14)

10.35         Amendment No. 2 to Stock Purchase Agreement, dated as of October
              31, 2001 (14)

10.36         Amendment No. 3 to Stock Purchase Agreement, dated as of December
              28, 2001 (15)

10.37         Amendment No. 4 to Stock Purchase Agreement, dated as of January
              29, 2002 (16)

10.38         Second Amended and Restated Consolidated Multiple Advance Non-
              Revolving Note, dated April 9, 2002 (17)

10.39         Amendment No. 1 to Amended and Restated Loan and Stock Pledge
              Agreement, dated April 9, 2002 (18)


                                       57
<PAGE>

10.40         Amendment No. 1 to Amended and Restated Security Agreement, dated
              April 9, 2002 (19)

10.41         Third Amended and Restated Consolidated Multiple Advance Non-
              Revolving Note, dated July 10, 2002 (20)

10.42         Amendment No. 2 to Amended and Restated Loan and Stock Pledge
              Agreement, dated July 10, 2002 (21)

10.43         Amendment No. 2 to Amendment No. 1 to Amended and Restated
              Security Agreement, dated July 10, 2002 (22)

10.44         Product Development and License Agreement dated June 16, 2004, by
              and between the Company and Nostrum Pharmaceuticals, Inc. (23)

10.45         Stock Purchase Agreement dated June 16, 2004, by and between the
              Company and Nostrum Pharmaceuticals, Inc. (24)

10.46         Stock Purchase Agreement dated August 2, 2004, by and between the
              Company and Asia Pacific Investment Holdings Limited. (25)

10.47         Fourth Amended and Restated Consolidated Multiple Advance Non-
              Revolving Note, dated January 31, 2003.

10.48         Stock Purchase Agreement dated September 1, 2004, by and between
              the Company and Asia Pacific Investment Holdings Limited. 21
              Subsidiaries of the Company

31.1          Certification of Principal Executive Officer Pursuant to Section
              302 of the Sarbanes-Oxley Act of 2002 and Securities and Exchange
              Commission Release 34-46427

31.2          Certification of Principal Financial Officer Pursuant to Section
              302 of the Sarbanes-Oxley Act of 2002 and Securities and Exchange
              Commission Release 34-46427

32.1          Certification of Principal Executive Officer pursuant to Section
              906 of the Sarbanes-Oxley Act of 2002.

32.2          Certification of Principal Financial Officer pursuant to Section
              906 of the Sarbanes-Oxley Act of 2002.


                                       58
<PAGE>

-----------------------------
(1)   Incorporated by reference to Registrant's Form 10 filed with the
      Commission on or about January 21, 1997.

(2)   Incorporated by reference to Registrant's Form 8-K filed with the
      Commission on or about November 7, 1997, as amended by Registrant's Form
      8-K/A filed with the Commission on or about January 30, 1998.

(3)   Incorporated by reference to Registrant's Form 10-K filed with the
      Commission on or about January 15, 1998, as amended by Registrant's Form
      10-K/A filed with the Commission on or about January 30, 1998.

(4)   Incorporated by reference to Registrant's Form 8-K filed with the
      Commission on or about August 31, 1998.

(5)   Incorporated by reference to Registrant's Form 8-K/A filed with the
      Commission on or about October 13, 1998

(6)   Incorporated by reference to Registrant's Form 8-K filed with the
      Commission on or about October 21, 1998.

(7)   Incorporated by reference to Registrant's Form 10-K filed with the
      Commission on or about January 29, 1999.

(8)   Incorporated by reference to Registrant's Second Quarter Form 10-Q filed
      with the Commission on or about June 10, 1999. . (9) Incorporated by
      reference to Registrant's form 8-K filed with the Commission on or about
      July 12, 1999.

(10)  Incorporated by reference to Registrant's First Quarter Form 10-Q filed
      with the Commission on or about March 15, 2000.

(11)  Incorporated by reference to Registrant's Third Quarter Form 10-Q filed
      with the Commission on or about September 13, 2000.

(12)  Incorporated by reference to Registrant's Form 10-K filed with the
      Commission on or about January 17, 2001.

(13)  Incorporated by reference to Registrant's form 8-K filed with the
      Commission on or about August 23, 2001.

(14)  Incorporated by reference to Registrant's form 8-K filed with the
      Commission on or about November 9, 2001.

(15)  Incorporated by reference to Registrant's Form 10-K filed with the
      Commission on or about January 21, 1997.


                                       59
<PAGE>

(16)  Incorporated by reference to Registrant's Form 10-Q filed with the
      Commission on or about March 15, 2002.

(17)  Incorporated by reference to Registrant's Form 10-Q filed with the
      Commission on or about June 14, 2002.

(18)  Incorporated by reference to Registrant's Form 10-Q filed with the
      Commission on or about June 14, 2002.

(19)  Incorporated by reference to Registrant's Form 10-Q filed with the
      Commission on or about June 14, 2002.

(20)  Incorporated by reference to Registrant's Form 10-Q filed with the
      Commission on or about September 13, 2002.

(21)  Incorporated by reference to Registrant's Form 8-K filed with the
      Commission on or about September 13, 2002.

(22)  Incorporated by reference to Registrant's Form 8-K filed with the
      Commission on or about September 13, 2002.

(23)  Incorporated by reference to Registrant's Form 8-K filed with the
      Commission on or about September 14, 2004.

(24)  Incorporated by reference to Registrant's Form 8-K filed with the
      Commission on or about September 14, 2004.

(25)  Incorporated by reference to Registrant's Form 8-K filed with the
      Commission on or about September 14, 2004.

(b) Financial Statements filed as part of this Report:

      Consolidated Financial Statements and Supplemental Schedules as listed in
      the Index to Consolidated Financial Statements on Page F-1 of this Report.


                                       60

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                   Bionutrics, Inc.

Dated: January 6, 2005             By: /s/  Ronald Howard Lane
                                   Name: Ronald Howard Lane
                                   Title: President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of Registrant and in
the capacities and on the dates indicated.

                               Title                             Date

/s/ Ronald Howard Lane         Chief Executive Officer,          January 6, 2005
Ronald Howard Lane             President, Principal
                               Executive Officer,
                               Principal Financial
                               and Accounting Officer,
                               Chairman of the Board

/s/ Richard M. Feldheim                                          January 6, 2005
Richard M. Feldheim            Director

/s/ William M. McCormick                                         January 6, 2005
William M. McCormick           Director

/s/ Nirmal Mulye                                                 January 6, 2005
Nirmal Mulye                   Director


                                       61

<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE YEARS ENDED OCTOBER 31, 2004, 2003 AND 2002

                                    CONTENTS

                                                                          PAGE

INDEPENDENT AUDITORS' REPORT...............................................2

CONSOLIDATED BALANCE SHEETS................................................3

CONSOLIDATED STATEMENTS OF OPERATIONS......................................4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT................5

CONSOLIDATED STATEMENTS OF CASH FLOWS..................................6 - 7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................8 - 31


                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors, Bionutrics, Inc.

We have audited the accompanying consolidated balance sheets of Bionutrics, Inc.
and Subsidiaries as of October 31, 2004, 2003, and 2002 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the years ended October 31, 2004, 2003 and 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform an audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bionutrics, Inc. and
Subsidiaries as of October 31, 2004, 2003, and 2002 and the results of their
operations and their cash flows for the three years then ended in conformity
with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has experienced significant
losses and negative cash flows which raises substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.

                                              /s/ Miller Ellin and Company, LLP
                                              Certified Public Accountants

New York, New York
December 13, 2004


                                      F-2
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               OCTOBER 31
                                                           --------------------------------------------------
                                                               2004              2003                2002
                                                           ------------       ------------       ------------
<S>                                                        <C>                <C>                <C>
ASSETS
CURRENT ASSETS:
      Cash                                                 $    629,257       $      3,153       $     27,514
      Trade receivables, net of allowance for
        doubtful accounts of $302,968, $302,968, and
        $304,677, respectively                                       --                 --                540
      Inventory                                                  49,321             27,590             33,418
      Prepaid expenses and other current assets                  22,034             15,603             20,529
                                                           ------------       ------------       ------------
          Total current assets                                  700,612             46,346             82,001
                                                           ------------       ------------       ------------

PROPERTY - net                                                    2,916                 --                 --

PATENTS AND LICENSE - net of accumulated amortization
    of $282,520, $252,223, and $232,657, respectively           724,445            384,742            336,808

INVESTMENT IN JOINT VENTURE                                   1,447,333          1,779,608          2,295,835
                                                           ------------       ------------       ------------

                        TOTAL                              $  2,875,306       $  2,210,696       $  2,714,644
                                                           ============       ============       ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
      Accounts payable                                     $  1,575,934       $  1,632,659       $  1,588,948
      Notes payable - shareholders and others                 1,484,000          1,404,500          1,254,500
      Accrued expenses and other current liabilities            720,005            670,834            645,771
                                                           ------------       ------------       ------------
          Total current liabilities                           3,779,939          3,707,993          3,489,219
                                                           ------------       ------------       ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
      Common stock                                               16,002              4,352              4,352
      Preferred stock                                           798,998            798,998            798,998
      Warrants                                                  401,191            448,023            605,258
      Additional paid-in capital                             39,800,127         38,047,945         37,853,911
      Accumulated deficit                                   (41,920,951)       (40,796,615)       (40,037,094)
                                                           ------------       ------------       ------------
          Stockholders' deficit                                (904,633)        (1,497,297)          (774,575)
                                                           ------------       ------------       ------------

                        TOTAL                              $  2,875,306       $  2,210,696       $  2,714,644
                                                           ============       ============       ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-3
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     YEARS ENDED OCTOBER 31,
                                                          -----------------------------------------------
                                                             2004              2003              2002
                                                          -----------       -----------       -----------
<S>                                                       <C>               <C>               <C>
REVENUES, NET                                             $    98,767       $    31,978       $    36,516

COST OF GOODS SOLD                                             18,269             5,829            14,182
                                                          -----------       -----------       -----------

GROSS PROFIT                                                   80,498            26,149            22,334

SELLING, GENERAL AND

      ADMINISTRATIVE EXPENSES                                 866,913           468,418         1,246,583
                                                          -----------       -----------       -----------

OPERATING LOSS                                               (786,415)         (442,269)       (1,224,249)
                                                          -----------       -----------       -----------

OTHER INCOME (EXPENSE)

      Interest expense, net                                    (1,822)          (16,660)         (179,477)
      Gain (loss) on disposition of assets and other
        income (expense)                                       (3,849)          215,634               986
      Equity in loss of joint venture                        (332,250)         (516,227)         (433,535)
                                                          -----------       -----------       -----------
                                                             (337,921)         (317,253)         (612,026)
                                                          -----------       -----------       -----------

NET LOSS BEFORE PROVISION FOR INCOME TAXES                 (1,124,336)         (759,522)       (1,836,275)

PROVISION FOR INCOME TAXES                                         --                --                --
                                                          -----------       -----------       -----------

      NET LOSS                                            $(1,124,336)      $  (759,522)      $(1,836,275)
                                                          ===========       ===========       ===========

      Per share information - basic and diluted:

      Basic and diluted net loss per common share         $     (0.14)      $     (0.17)      $     (0.42)
                                                          ===========       ===========       ===========

      Weighted average number of common shares
        outstanding - basic and diluted                     7,840,496         4,352,600         4,352,600
                                                          ===========       ===========       ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-4
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                   COMMON STOCK                 PREFERRED STOCK                   WARRANTS
                             ---------------------------   ---------------------------   ----------------------------
                               SHARES          AMOUNT         SHARES         AMOUNT         NUMBER         AMOUNT
                             ------------   ------------   ------------   ------------   ------------    ------------
<S>                             <C>         <C>                 <C>       <C>                 <C>        <C>
BALANCES, NOVEMBER 1, 2001      4,352,600   $      4,352        591,850   $    798,998        430,000    $    750,743

Warrants issued                        --             --             --             --         10,000          79,540

Warrants expired                       --             --             --             --        (80,000)       (225,025)

Net loss                               --             --             --             --             --              --
                             ------------   ------------   ------------   ------------   ------------    ------------

BALANCES, OCTOBER 31, 2002      4,352,600          4,352        591,850        798,998        360,000         605,258

Warrants issued                        --             --             --             --        375,000          36,799

Warrants expired                       --             --             --             --        (76,000)       (194,034)

Net loss                               --             --             --             --             --              --
                             ------------   ------------   ------------   ------------   ------------    ------------

BALANCES, OCTOBER 31, 2003      4,352,600          4,352        591,850        798,998        659,000         448,023

Issuance of common stock       11,650,000         11,650             --             --             --              --

Warrants issued                        --             --             --             --         50,000              --

Warrants expired                       --             --             --             --        (24,000)        (46,832)

Net loss                               --             --             --             --             --              --
                             ------------   ------------   ------------   ------------   ------------    ------------

BALANCES, OCTOBER 31, 2004     16,002,600   $     16,002        591,850   $    798,998        685,000    $    401,191
                             ============   ============   ============   ============   ============    ============

<CAPTION>
                              PAID IN       ACCUMULATED     STOCKHOLDERS'
                              CAPITAL         DEFICIT        (DEFICIT)
                             ------------   ------------    ------------
<S>                          <C>            <C>             <C>
BALANCES, NOVEMBER 1, 2001   $ 37,628,886   $(38,200,819)   $    982,160

Warrants issued                        --             --          79,540

Warrants expired                  225,025             --              --

Net loss                               --     (1,836,275)     (1,836,275)
                             ------------   ------------    ------------

BALANCES, OCTOBER 31, 2002     37,853,911    (40,037,094)       (774,575)

Warrants issued                        --             --          36,799

Warrants expired                  194,034             --              --

Net loss                               --       (759,522)       (759,522)
                             ------------   ------------    ------------

BALANCES, OCTOBER 31, 2003     38,047,945    (40,796,615)     (1,497,297)

Issuance of common stock        1,705,350             --       1,717,000

Warrants issued                        --             --              --

Warrants expired                   46,832             --              --

Net loss                               --     (1,124,336)     (1,124,336)
                             ------------   ------------    ------------

BALANCES, OCTOBER 31, 2004   $ 39,800,127   $(41,920,951)   $   (904,633)
                             ============   ============    ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-5
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   YEARS ENDED OCTOBER 31,
                                                       -----------------------------------------------
                                                          2004              2003               2002
                                                       -----------       -----------       -----------
<S>                                                    <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

      Net loss                                         ($1,124,336)      ($  759,522)      ($1,836,275)
      Adjustments to reconcile net loss
      to net cash used in:
      Depreciation and amortization                         30,880            29,585            30,825
      Equity in net loss of joint venture                  332,275           516,227           433,535
      Stock based compensation                             156,500            36,800            79,540
      Gain on sale of assets                                                (227,519)

      Changes in assets and liabilities:
      Decrease in accounts receivables                          --               540             5,900
      (Increase) decrease in inventory                     (21,731)            5,828            11,005
      (Increase) decrease in prepaid expenses and
          other current assets                              (6,431)            4,926            (5,285)
      (Decrease) increase in accounts payable              (56,725)           43,711           616,988
      (Decrease) increase in accrued expenses               49,171            25,063           (81,178)
                                                       -----------       -----------       -----------

NET CASH USED IN OPERATING ACTIVITIES                     (640,397)         (324,361)         (744,946)
                                                       -----------       -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:

      Purchases of property and equipment                   (3,499)               --                --
      Proceeds from sale of assets                              --           250,000                --
      Patent acquisition costs                             (10,000)         (100,000)               --
                                                       -----------       -----------       -----------

NET CASH USED IN INVESTING ACTIVITIES                      (13,499)          150,000                --
                                                       -----------       -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES:

      Proceeds from issuance of notes payable               79,500           150,000           671,500
      Issuance of common stock                           1,200,500                --                --
                                                       -----------       -----------       -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                1,280,000           150,000           671,500
                                                       -----------       -----------       -----------

NET CHANGE IN CASH                                         626,104           (24,361)          (73,445)

CASH AND CASH EQUIVALENTS - BEGINNING                        3,153            27,514           100,959
                                                       -----------       -----------       -----------

CASH AND CASH EQUIVALENTS - ENDING                     $   629,257       $     3,153       $    27,514
                                                       ===========       ===========       ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-6
<PAGE>

                                BIONUTRICS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                YEARS ENDED OCTOBER 31,
                                                        ------------------------------------
                                                          2004          2003          2002
                                                        --------      --------      --------
<S>                                                    <C>           <C>           <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
      Cash paid during the period for:
          Income taxes                                  $     --      $     --      $     --
          Interest                                      $     --      $     --      $     --

      Non-cash investing and financing activities:
      Acquisition of license agreement in exchange
          for 6,000,000 shares of common stock          $360,000      $     --      $     --
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-7
<PAGE>


                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION, AND NATURE OF
BUSINESS

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Bionutrics, Inc.
and its wholly owned subsidiaries, (collectively the "Company"). All significant
inter-company accounts and transactions have been eliminated in consolidation.

The Company consolidates all entities under its control and uses the equity
method to account for companies in which it has significant investment and has
the ability to exercise significant influence over operating or financial
policies.

ORGANIZATION AND NATURE OF BUSINESS

Bionutrics, Inc. ("Bionutrics") was incorporated in Nevada in 1990. The Company
has three primary subsidiaries, LipoGenics, Inc. ("LipoGenics"), Bionutrics
Health Products, Inc. ("BHP" or "Health Products"), and InCon Technologies Inc.
("InCon"). LipoGenics serves as the product research arm of the Company with a
focus on the discovery and development of active compounds for both drugs and
functional nutrition. Health Products is the market research and product
positioning company charged to deliver new functional nutrition products to
marketing partners. InCon was merged into a limited liability company, InCon
Processing, LLC ("InCon Processing") in which the Company has a 50% ownership.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. At October 31, 2004, 2003, and 2002
cash consisted of cash on deposit with banks and the Company had no cash
equivalents.

INVENTORY

The Company's inventory is stated at the lower of cost or market. Cost is
determined using the first in first out method.

PROPERTY AND DEPRECIATION

Property and equipment are stated at cost. Major renewals and improvements are
capitalized and replacements, maintenance and repairs, which do not improve or
extend the lives of the respective assets, are charged to expense when incurred.
When items of property and equipment are retired or otherwise disposed of, the
original cost and related accumulated depreciation to date are removed from the
accounts and any gain or losses upon retirement or sale is recognized in income.


                                      F-8
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND NATURE OF
BUSINESS (cont'd)

The Company's property consists of computer equipment which is depreciated for
financial reporting purposes using the straight-line method over its estimated
useful life of 3 years.

PATENTS

The provisions of SFAS No. 142, Goodwill and Other Intangible Assets, are
applied to patents and trademarks. Costs incurred for the application of patents
are capitalized and amortized on the straight-line method for 17 years, which is
their estimated useful life. These costs are charged to expense if the patent is
unsuccessful. The Company continually reviews patents for impairment. If
conditions exist that indicate that the carrying value is not recoverable an
impairment charge is recognized to reduce the carrying amount to the estimated
fair value of the asset. Patents currently capitalized relate to both the
processes and products associated with the Company's business.

INVESTMENTS

The Company has a 50% interest in InCon Processing, L.L.C. ("InCon Processing").
InCon Processing is engaged in toll processing, molecular separation, and the
design and sale of molecular separation facilities. The Company accounts for its
investment in InCon Processing using the equity method.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-lived Assets, the Company continually evaluates the fair value of
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. No
material impairments were determined to have occurred during the years ended
October 31, 2004, 2003 and 2002.

REVENUE RECOGNITION

The Company generally recognizes product revenue at the time of shipment to the
customer. Revenues from the sale of consignment inventory are recognized upon
the sale of the inventory by third parties. Revenues from services are recorded
at the time the service is rendered and/or reimbursable expenses are incurred.

Bionutrics' current strategy is to partner the manufacturing and marketing of
such new products through licensing arrangements. Revenues for the years ended
October 31, 2004, 2003 and 2002 were derived primarily from two sources:
services and product sales. Revenues from product sales during the years ended
October 31, 2004, 2003 and 2002 were entirely from the sales of evolve(R), the
Company's dietary supplement product.

The Company had no customers that accounted for over 10 percent of revenues in
any of the years ended October 31, 2004, 2003, and 2002.



                                      F-9
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND NATURE OF
BUSINESS (cont'd)

ADVERTISING EXPENSES

The cost of advertising is charged to expense as incurred.

RESEARCH AND DEVELOPMENT

The cost of research and development is charged to expense as incurred.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with the
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS 123)
and SFAS NO. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of SFAS No. 123. The application of SFAS No. 148 had
no material effect.

INCOME TAXES

The Company accounts for income taxes using the liability method. The liability
method measures deferred income taxes by applying enacted statutory rates in
effect at the balance sheet date to the differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements.
Any resulting deferred tax assets or liabilities are adjusted to reflect changes
in tax laws as they occur.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates include the allowance for doubtful
accounts.

CONCENTRATIONS AND CREDIT RISK

Cash

The Company maintains cash balances in banks, which, at times, may exceed the
limits of amounts insured by the Federal Deposit Insurance Corporation (FDIC);
however, because deposits are maintained at high quality financial institutions,
management does not believe that there is a significant risk of loss of
uninsured amounts.

Accounts Receivable

Management performs ongoing credit evaluations and establishes an allowance for
doubtful accounts based on experience and judgments about the collectibility of
its trade accounts receivable. Accounts are written off if significantly past
due and management deems them to be uncollectible after exhaustive collection
efforts.


                                      F-10
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND NATURE OF
BUSINESS (cont'd)

NEW ACCOUNTING PRONOUNCEMENTS

In 2004, 2003, and 2002 the FASB issued the following new statements and
interpretations:

     Statement No. 132 (revised 2003), Employers' Disclosures about Pensions and
            Other Postretirement Benefits--an amendment of FASB Statements No.
            87, 88, and 106.

     Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64,
            Amendment of FASB Statement No. 13, and Technical Corrections

     Statement No. 146, Accounting for Costs Associated with Exit or Disposal
            Activities.

     Statement No. 147, Acquisitions of Certain Financial Institutions--an
            amendment of FASB Statements No. 72 and 144 and FASB Interpretation
            No. 9.

     Statement No. 148, Accounting of Stock-Based Compensation - Transition and
            Disclosure, an amendment of FASB Statement No. 123.

     Statement No. 149, Amendment of Statement No. 133 on Derivative Instruments
            and Hedging Activities.

     Statement No. 150, Accounting for Certain Financial Instruments with
            Characteristic's of Both Liabilities and Equity.

     Statement No. 151, Inventory Costs--an amendment of ARB No. 43, Chapter 4.

     FASB Interpretation ("FIN") No. 45, Guarantor's Accounting and Disclosure
            Requirements for Guarantees, Including Indirect Guarantees of
            Indebtedness of Others--an interpretation of FASB Statements No. 5,
            57, and 107 and rescission of FASB Interpretation No. 34.

     FASB Interpretation 46, Consolidation of Variable Interest Entities--an
            interpretation of ARB No. 51.

     FASBInterpretation 46(R), Consolidation of Variable Interest Entities
         (revised December 2003)--an interpretation of ARB No. 51.

In addition, in 2004, 2003, and 2002 the American Institute of Certified Public
Accountants ("AICPA") issued the following new accounting statements of
position:

     Statement of Position (SOP) 02-2: Accounting for Derivative Instruments and
            Hedging Activities by Not-for-Profit Health Care Organizations, and
            Clarification of the Performance Indicator.

     Statement of Position (SOP) 03-1: Accounting and Reporting by Insurance
            Enterprises for Certain Nontraditional Long-Duration Contracts and
            for Separate Accounts.

     Statement of Position (SOP) 03-3: Accounting for Certain Loans or Debt
            Securities Acquired in a Transfer.


                                      F-11
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND NATURE OF
BUSINESS (cont'd)

     Statement of Position (SOP) 03-4: Reporting Financial Highlights and
            Schedule of Investments by Nonregistered Investment Partnerships -
            An Amendment to the Audit and Accounting Guide "Audits of Investment
            Companies" and AICPA Statement of Position 95-2, "Financial
            Reporting by Nonpublic Investment Partnerships."

     Statement of Position (SOP) 03-5: Financial Highlights of Separate Accounts
            - An Amendment to the Audit and Accounting Guide "Audits of
            Investment Companies."

None of these pronouncements had or are expected to have a material impact on
the Company's financial position and results of operations.

NOTE 2 - BASIS OF PRESENTATION

GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming
the Company will continue to operate as a going concern. Under that assumption,
it is expected that assets will be realized and liabilities will be satisfied in
the normal course of business. However, the Company has experienced significant
operating losses and negative cash flows from operations in each of the three
years ended October 31, 2004, 2003, and 2002. The Company has sustained
cumulative losses of approximately $42 million through October 31, 2004 and has
a working capital deficit of approximately $3.1 million at that date. Management
has adopted a plan of action that it believes will address its current financial
requirements and enable it to achieve a more sound financial condition. The
accompanying consolidated financial statements do not include any adjustments
relating to the recoverability and classification of assets and liabilities as
might be necessary if the Company be unable to continue as a going concern.

MANAGEMENT'S LIQUIDITY AND OPERATING PLANS

Substantial doubts about the Company's ability to continue as a going concern
have been raised because, as shown in the accompanying financial statements, the
Company has experienced recurring losses and negative cash flows from
operations. Management is currently attempting to secure additional financing
through private placements and is also attempting to negotiate long-term
contracts with foreign companies using its patents. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis, to maintain adequate financing,
and ultimately to attain successful operations. However, continuation of the
business is dependent on the Company's ability to achieve profitable operations
and generate sufficient incoming cash flows to meet its current obligations.
Management believes that with the infusion of funds from private placements and
stock issuances, the Company will continue as an ongoing entity at least through
the end of fiscal year 2005. Management is continuing its efforts to obtain
additional funds from such sources.


                                      F-12
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 3 - INVENTORY

As of October 31, 2004, 2003 and 2002, inventory consists of:

                     2004         2003        2002
                    -------      -------      -------
Finished goods      $ 9,321      $27,590      $33,418
Raw materials        40,000           --           --
                    -------      -------      -------
                    $49,321      $27,590      $33,418
                    =======      =======      =======


NOTE 4 - INTANGIBLES

Intangibles consist of patents for pharmaceutical-nutritional chemical compounds
that the Company hopes to develop into effective pharmaceutical products and a
license to market certain pharmaceutical products. The license, which has a
carrying value of $360,000, was acquired during the year ended October 31, 2004
in exchange for 6 million shares of the Company's common stock. Amortization
charged to operations for the years ended October 31, 2004, 2003 and 2002
amounted to $30,297, $24,414, and $24,414, respectively.

NOTE 5 - INVESTMENT IN JOINT VENTURE

The Company accounts for its 50% interest in InCon Processing, under the equity
method of accounting as economic control is shared with the joint venture
partner. The following presents summarized financial information for InCon
Processing, which has a fiscal year that ends on August 31.


                                      F-13
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 5 - INVESTMENT IN JOINT VENTURE (cont'd)

                                             INCON PROCESSING
                                              BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        AUGUST 31,
                                                        ------------------------------------------
ASSETS                                                     2004            2003            2002
                                                        ----------      ----------      ----------
<S>                                                     <C>             <C>             <C>
  CURRENT ASSETS:
    Cash and cash equivalents                           $  114,356      $  184,760      $  165,317
    Accounts receivable                                    768,193         348,910         184,420
    Prepaid expenses and other current assets               73,034          47,840          70,072
                                                        ----------      ----------      ----------
  Total current assets                                     955,583         581,510         419,808
                                                        ----------      ----------      ----------
  PROPERTY AND EQUIPMENT                                 2,249,302       2,699,735       3,816,904
                                                        ----------      ----------      ----------
  GOODWILL                                                 721,428         721,428         721,428
                                                        ----------      ----------      ----------
                                                        $3,926,312      $4,002,673      $4,958,140
                                                        ==========      ==========      ==========

LIABILITIES AND MEMBERS' EQUITY

  CURRENT LIABILITIES:
    Accounts payable                                    $  254,504      $  142,924      $  182,686
    Accrued expenses and other current liabilities         442,918         233,373         141,857
    Customer deposits                                      143,503              --              --
    Deferred revenue                                       108,720              --          41,928
    Estimated loss on contracts                             82,000          67,159              --
                                                        ----------      ----------      ----------
  Total current liabilities                              1,031,645         443,455         366,471
                                                        ----------      ----------      ----------
  COMMITMENTS AND CONTINGENCIES
  MEMBERS' EQUITY                                        2,894,667       3,559,218       4,591,669
                                                        ----------      ----------      ----------

                                                        $3,926,312      $4,002,674      $4,958,140
                                                        ==========      ==========      ==========
</TABLE>


                                      F-14
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 5 - INVESTMENT IN JOINT VENTURE (cont'd)


                                INCON PROCESSING
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                YEAR ENDED AUGUST 31,
                                                  -----------------------------------------------
                                                      2004              2003              2002
                                                  -----------       -----------       -----------
<S>                                               <C>               <C>               <C>
REVENUES:

  Service Revenue                                 $ 2,242,166       $ 2,621,555       $ 2,306,416
  Equipment sales                                   1,817,435           472,517           281,167
                                                  -----------       -----------       -----------
Total revenues                                      4,059,600         3,094,072         2,587,583
                                                  -----------       -----------       -----------
COST OF REVENUES:

  Service Revenue                                     105,490           110,640           166,219
  Equipment sales                                   1,788,432           491,677           177,122
                                                  -----------       -----------       -----------
Total cost of revenues                              1,893,922           602,318           343,341
                                                  -----------       -----------       -----------
GROSS PROFIT                                        2,165,678         2,491,754         2,244,242
                                                  -----------       -----------       -----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES        2,831,007         2,839,431         3,111,634
                                                  -----------       -----------       -----------
LOSS FROM OPERATIONS                                 (665,329)         (347,677)         (867,393)
                                                  -----------       -----------       -----------
OTHER INCOME (EXPENSES):

  Interest income                                         779                60                 0
  Loss on abandonment of assets                             0          (684,834)             (323)
                                                  -----------       -----------       -----------
Total other income (expenses)                             779          (684,774)             (323)
                                                  -----------       -----------       -----------
NET LOSS                                             (664,550)       (1,032,452)         (867,072)
                                                  -----------       -----------       -----------
MEMBERS' EQUITY - BEGINNING                         3,559,217         4,591,670         5,458,741
                                                  -----------       -----------       -----------
MEMBERS' EQUITY - ENDING                          $ 2,894,667       $ 3,559,218       $ 4,591,669
                                                  ===========       ===========       ===========
</TABLE>

NOTE 6 - NOTES PAYABLE - SHAREHOLDERS AND OTHERS

At October 31, 2004, 2003, and 2002, notes payable - shareholders and others
consisted of the following:

<TABLE>
<CAPTION>
                                                               2004            2003            2002
                                                            ----------      ----------      ----------
<S>                                                         <C>             <C>             <C>
Notes payable under consolidated, multiple advance
  non-revolving agreement - shareholders                    $  583,000      $  583,000      $  583,000
Notes payable under consolidated, multiple advance
  non-revolving agreement - others                             671,500         671,500         671,500
Note payable - third party, bearing interest at 12%
  per year, monthly interest only payments, matured on
  December 24, 2003                                            150,000         150,000              --
Other third party notes payable                                 79,500              --              --
                                                            ----------      ----------      ----------
    Total                                                   $1,484,000      $1,404,500      $1,254,500
                                                            ==========      ==========      ==========
</TABLE>


                                      F-15
<PAGE>


                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 6 - NOTES PAYABLE - SHAREHOLDERS AND OTHERS (cont'd)

The Company has borrowings under a consolidated, multiple advance, non-revolving
note agreement with some of its shareholders and certain other parties. The
fourth amended version of this agreement, dated January 31, 2003, is currently
in effect and it replaces earlier versions of the note agreement dated in July
2002, April 2002, October 2001, and June 2001. The original notes and each of
the amendments thereto have an interest cost that is based on a defined original
issue discount, and which results in a fixed interest cost applicable to the
period from the date of origination to the date of full loan satisfaction or
renewal. The fourth amended version of this agreement specifies a total fixed
interest cost of $260,000, which applies to the period since the inception of
the original agreement and results in an effective annual interest rate of
approximately 7% per year since June 2001. Interest expense recorded in the
financial statements reflects a gradually decreasing percentage cost because the
specified additional discounts imposed with each successive renewal have
decreased substantially with each renewal. Total interest expense related to
this agreement was approximately $1,822, $16,660, and $179,477 in 2004, 2003,
and 2002, respectively.

The Company is negotiating to extend the note payable - third party which
matured on December 24, 2003. The outcome of these negotiations cannot be
predicted.

NOTE 7 - STOCKHOLDERS' DEFICIT

COMMON STOCK

The Company has an authorized 45,000,000 shares of common stock, with a par
value of $0.001, which may be issued. The number of shares outstanding, as shown
on the Consolidated Statements of Changes in Stockholders' Deficit, does not
include 240,578 shares that are owned by a subsidiary company which are to be
cancelled. During the three years ending October 31, 2004 and all during the
year ended October 31, 2004, the Company issued 11,650,000 shares for various
reasons, as follows:

SHARES ISSUED     CONSIDERATION
-------------     -------------
  6,000,000       Pharmaceutical license with a carrying value of $360,000.
  1,250,000       $1,200,000 cash from joint venture partner.
  3,750,000       Officers compensation of $150,000.
    650,000       Employee compensation of $6,500.
 ----------
 11,650,000
 ==========

The license acquired with the issuance of 6 million common shares is subject to
cancellation by the licensor if the Company does not satisfy certain conditions
by February 13, 2005, as defined in the license agreement. Management believes
that it is probable that these conditions will be satisfied.

PREFERRED STOCK

The Company has an authorized 5,000,000 shares of Series A Convertible Preferred
Stock, with a par value of $0.001, which may be issued. The 591,850 outstanding
shares were issued prior to November 1, 2001 as consideration for the
cancellation of $798,998 of debt and accrued interest thereon that was owed to a
director. The shares have an annual cumulative dividend of $0.108 per share and
a liquidation value of $1.35 per share, and each share is convertible into
one-fifth of a share of common stock. The preferred shares have a dividend and a
liquidation preference over common shares. No dividend on the preferred shares
outstanding has ever been declared or paid and dividends in arrears amounts to
$255,679 at October 31, 2004.


                                      F-16
<PAGE>


                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 7 - STOCKHOLDERS' DEFICIT (cont'd)

STOCK-BASED COMPENSATION

At October 31, 1996, the Company authorized 380,000 shares of common stock for
issuance under its Nonqualified 1996 Stock Option Plan (the "1996 Plan) to key
personnel, consultants, and independent contractors. Subsequently, 1997, an
additional 190,000 shares of common stock were authorized for issuance under the
1996 Plan, and the total of 570,000 common shares remain as the authorized
number of shares for issuance under the 1996 Plan as of October 31, 2004. Under
the 1996 Plan, incentive stock options are granted to purchase common stock at
100 percent (110% for an optionee who is a 10% stockholder) of the fair market
value of the stock on the date of grant. Stock options have been granted to
purchase common stock at a price determined by the plan administrator and can be
exercisable for a period of up to ten years from the date of grant (five years
for an option granted to a 10% stockholder). All participants are eligible to
receive stock awards and stock appreciation rights, as to be determined by the
Company's Board of Directors. No stock awards or stock appreciation rights have
been granted under the plan.

Non-Employee Stock Based Compensation

A summary of transactions for non-employee stock options and warrants for the
years ended October 31, 2004, 2003 and 2002 is as follows:

<TABLE>
<CAPTION>
                                                                                        WEIGHTED AVERAGE
                                         NUMBER               OPTION              --------------------------
                                           OF                 PRICE               REMAINING         EXERCISE
                                         SHARES               RANGE                  LIFE            PRICE
                                         ------               -----                  ----            -----
<S>                                      <C>              <C>                        <C>             <C>
OPTIONS AND WARRANTS OUTSTANDING,
October 31, 2001                         401,134          $2.00 - $35.00             1.7             $7.89
Warrants issued                           10,000              $1.00                  2.3             $1.00
Warrants canceled                        (80,000)         $5.00 - $10.00              -              $9.38
Options canceled                         (43,334)         $10.00 - $20.00             -              $15.38
                                      -------------

OPTIONS AND WARRANTS OUTSTANDING,

October 31, 2002                         287,800          $1.00 - $35.00             1.3             $5.84
Warrants issued                          375,000              $1.00                  1.3             $1.00
Warrants canceled                        (76,000)         $5.50 - $35.00              -              $10.22
Options canceled                         (60,000)             $10.00                  -              $10.00
                                      -------------

OPTIONS AND WARRANTS OUTSTANDING,

October 31, 2003                         526,800          $1.00 - $20.13             2.8             $1.43
Warrants issued                           50,000              $1.00                  1.3             $1.00
Warrants canceled                        (24,000)             $5.00                   -              $5.00
Options Issued                             9,000          $5.00 - $18.13              1              $10.84
Options canceled                          (5,200)         $10.00 - $20.00             -              $17.69
                                      -------------

OPTIONS AND WARRANTS OUTSTANDING,

October 31, 2004                         556,600          $1.00 - $18.13             0.4             $1.24
                                      =============
</TABLE>


                                      F-17
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 7 - STOCKHOLDERS' DEFICIT (cont'd)

STOCK-BASED COMPENSATION (cont'd)

Non-Employee Stock Based Compensation (cont'd)

<TABLE>
<CAPTION>
                                                        2004             2003              2002
                                                     -----------      -----------      -----------
<S>                                                  <C>               <C>             <C>
Options exercisable, end of year                          11,600            7,800           67,800
                                                     -----------      -----------      -----------
Warrants exercisable, end of year                        545,000          519,000          220,000
                                                     -----------      -----------      -----------

Weighted average fair value of options granted
  during the year                                    $     11.00      $      0.00      $      0.00
                                                     -----------      -----------      -----------
Weighted average fair value of warrants granted
  during the year                                    $      1.00      $      1.00      $      1.00
                                                     -----------      -----------      -----------
</TABLE>


Additional information regarding options and warrants outstanding as of October
31, 2004 is as follows:

<TABLE>
<CAPTION>
                                                                WEIGHTED
                                                   WEIGHTED      AVERAGE                     WEIGHTED
         RANGE OF                                   AVERAGE     REMAINING                     AVERAGE
         EXERCISE                   NUMBER         EXERCISE    CONTRACTUAL                   EXERCISABLE
          PRICES                  OUTSTANDING        PRICE    LIFE (YEARS)    EXERCISABLE       PRICE
          ------                --------------        -----    ------------   -----------       -----
<S>                                    <C>            <C>          <C>            <C>          <C>
        $1.00 - $5.00                  571,000        $1.00        0.41           571,000      $1.00
            18.13                        5,600       $18.13        0.41             5,600     $18.13
                                --------------                                -----------
       $1.00 - $18.13                  576,600        $1.24        0.41           576,600      $1.24
                                ==============                                ===========
</TABLE>


In accordance with the methodology prescribed under SFAS No. 123, Accounting for
Stock-Based Compensation, the Company did not recognize any compensation expense
related to non-employee stock options in 2004, 2003, or 2002. Compensation
expense of $0, $36,800, and $79,540 related to employee stock options was
recognized in 2004, 2003, or 2002, respectively.

The fair value of each employee-nonemployee option and warrant was calculated on
the date of grant using the Black-Scholes model with the following weighted
average assumptions:

               RISK FREE        VOLATILITY         DIVIDEND
                INTEREST           RATE             YIELD
                --------           ----             -----
       2004         2.00%            77%              0
       2003         1.65%           176%              0
       2002         4.25%           246%              0


                                      F-18
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------


NOTE 7 - STOCKHOLDERS' DEFICIT (cont'd)

STOCK-BASED COMPENSATION (cont'd)

Employee Stock Based Compensation

A summary of transactions for employee stock options and warrants for the years
ended October 31, 2004, 2003, and 2002 is as follows:

<TABLE>
<CAPTION>
                                                                                         WEIGHTED AVERAGE
                                          NUMBER                OPTION              --------------------------
                                            OF                  PRICE               REMAINING        EXERCISE
                                          SHARES                RANGE                  LIFE            PRICE
                                      ---------------       --------------          ---------        ---------
OPTIONS AND WARRANTS OUTSTANDING,
<S>                                        <C>              <C>                        <C>            <C>
October 31, 2001                           450,229          $5.00 - $25.00             4.06           $11.39
Options granted                                  -               $ -                    -                -
Options canceled                           (52,229)         $8.75 - $20.00              -             $13.57
                                      ---------------

OPTIONS AND WARRANTS OUTSTANDING,
October 31, 2002                           398,000          $5.00 - $25.00             3.47           $11.11
Options granted                                  -               $ -                    -                -
Options canceled                           (35,800)        $20.00 - $25.00              -             $20.28
                                      ---------------

OPTIONS AND WARRANTS OUTSTANDING,
October 31, 2003                           362,200          $5.00 - $18.13             2.75           $10.20
Options granted                                  -               $ -                    -                -
Options canceled                          (106,800)         $5.00 - $18.13              -              $8.42
                                      ---------------

OPTIONS AND WARRANTS OUTSTANDING,
October 31, 2004                           255,400          $5.00 - $18.13             2.44           $10.70
                                      ===============
</TABLE>

<TABLE>
<CAPTION>
                                                              2004          2003          2002
                                                            -------       -------       -------
<S>                                                         <C>           <C>           <C>
Options exercisable, end of year                            115,400       212,200       167,666
Warrants exercisable, end of year                           120,000       120,000       140,000

Weighted average fair value of options granted
  during the year                                             $ -           $ -           $ -
                                                            -------       -------       -------
Options available for future grant under the 1996
  Plan                                                      415,153
                                                            =======
</TABLE>


                                      F-19
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------


NOTE 7 - STOCKHOLDERS' DEFICIT (cont'd)

STOCK-BASED COMPENSATION (cont'd)

Employee Stock Based Compensation (cont'd)

Additional information regarding options and warrants outstanding as of October
31, 2004 is as follows:

<TABLE>
<CAPTION>
                                                OUTSTANDING                                  EXERCISABLE
                               ----------------------------------------------       --------------------------
                                                                   WEIGHTED
                                                  WEIGHTED          AVERAGE                            WEIGHTED
         RANGE OF                                 AVERAGE          REMAINING                            AVERAGE
         EXERCISE                NUMBER           EXERCISE        CONTRACTUAL                         EXERCISABLE
          PRICES               OUTSTANDING         PRICE         LIFE (YEARS)       EXERCISABLE          PRICE
          ------               -----------         -----         ------------       -----------          -----
<S>                                  <C>             <C>               <C>                <C>              <C>
       $5.00 - $8.75                 133,000         $5.56             1.22               133,000          $5.56
      $16.25 - $18.13                122,400        $16.00                4               122,400         $16.00
                               -------------                                        -------------
      $5.00 - $18.13                 255,400        $10.70             2.44               255,400         $10.70
                               =============                                        =============
</TABLE>

In accordance with the methodology prescribed under SFAS 123, pro forma
compensation cost for the employee stock options for 2004, 2003, and 2002 was
estimated to be $-0-, $-0-, and $-0-, respectively.

LOSS PER COMMON SHARE

Net loss per common share is calculated by dividing net loss by the weighted
average number of shares outstanding during each period presented. Common stock
equivalents, consisting of options and warrants have not been included in the
calculation for any of the three years ended October 31, 2004, 2003, and 2002,
because their effect would be anti-dilutive. The following potentially dilutive
securities were not included in the computation of diluted loss per share:

                2004         2003         2002
              -------      -------      -------
Options       127,000      220,000      235,466
Warrants      665,000      639,000      360,000

The following table sets forth the numerator and denominator in the computation
of basic and diluted per share information:

<TABLE>
<CAPTION>
                                                           2004              2003              2002
                                                       -----------       -----------       -----------
<S>                                                    <C>               <C>               <C>
Numerator for basic and diluted loss per share:
  Net Loss                                             $(1,124,336)      $  (759,522)      $(1,836,275)
                                                       -----------       -----------       -----------
Denominator for basic and diluted loss per share:
  Weighted-average shares outstanding                    7,840,496         4,352,600         4,352,600
                                                       -----------       -----------       -----------
</TABLE>


                                      F-20
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------


NOTE 9 - EMPLOYEE BENEFIT PLANS

The Company has a defined contribution employee plan under Section 401(k) of the
Internal Revenue Code. No employee or Company contributions were made to the
Plan during any of the three years ending October 31, 2004. The Company intends
to discontinue the Plan and distribute its assets to the participants; however,
no formal arrangements have as yet been made to implement that intention.

NOTE 10 - INCOME TAXES

Federal and state income tax expense (benefit) for the years ended October 31,
2004, 2003 and 2002 and a reconciliation of income taxes computed at the United
States federal statutory income tax rate to the provision for income taxes
reflected in the Statements of Operations is presented below:

                                  2004            2003            2002
                                ---------       ---------       ---------
Current:
  Federal                       $(382,274)      $(258,237)      $(624,334)
  State                           (67,460)        (45,571)       (110,177)

Deferred:
  Federal                         112,965         175,516         147,403
  State                            19,935          30,974          26,012

Valuation allowance               316,834          97,318         561,096
                                ---------       ---------       ---------
Provision for Income Taxes      $      --       $      --       $      --
                                =========       =========       =========


Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets
result primarily from net operating loss carry-forwards. The components of the
Company's deferred tax assets and liabilities at October 31, 2004 and 2003 are
as follows:

<TABLE>
<CAPTION>
DEFERRED TAX ASSETS:                  2004               2003               2002
                                  ------------       ------------       ------------
<S>                               <C>                <C>                <C>
Operating loss carryforwards      $ 12,830,529       $ 12,513,695       $ 12,416,377
Stock option compensation              392,098            392,098            392,098
Reserve accounts                       184,844            184,844            184,844
Other                                   84,361             84,361             84,361
                                  ------------       ------------       ------------
Total Deferred Tax Asset            13,491,832         13,174,998         13,077,680
Valuation Allowance                (13,491,832)       (13,174,998)       (13,077,680)
                                  ------------       ------------       ------------

                                  $         --       $         --       $         --
                                  ============       ============       ============
</TABLE>

A full valuation allowance is provided against all deferred tax assets due to
the uncertainty as to their future realization.


                                      F-21
<PAGE>


                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------


NOTE 10 - INCOME TAXES (cont'd)

As of October 31, 2004, the Company has federal net operating loss carry
forwards totaling approximately $32,076,000 available to offset future federal
taxable income. The federal net operating loss carry-forwards expire in varying
amounts through 2024. In addition, the Company has state net operating loss
carry forwards totaling approximately $31,100,000 available to offset future
state taxable income.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases office space on a month-to-month basis. Rent expense for the
years ended October 31, 2004, 2003, and 2002 was $23,696, $7,464, and $169,105,
respectively.

LITIGATION

The Company and a subsidiary have been subject to litigation seeking to recover
amounts due for services of approximately $267,000. The Company disputes these
liabilities and intends to defend itself as well as pursue negotiations for
settlement. The final outcome of these matters cannot be determined.

NOTE 12 - RELATED PARTY TRANSACTIONS

On April 28, 2003, the Company sold three pending patents for $250,000 to its
50% joint venture partner in InCon Processing, who is also a shareholder in the
Company.


                                      F-22
<PAGE>


                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------


NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

BIONUTRICS, INC. AND SUBSIDIARIES
BALANCE SHEETS

<TABLE>
<CAPTION>
                                                        OCTOBER 31,        JULY 31,           APRIL 30,         JANUARY 31,
                                                           2004              2004               2004               2004
                                                      ---------------------------------------------------------------------
<S>                                                   <C>                <C>                <C>                <C>
ASSETS
CURRENT ASSETS:
  Cash                                                $    629,257       $     21,817       $     35,002       $      5,089
  Trade receivables, net                                        --                 --                 --                 --
  Inventory                                                 49,321             64,900             65,419             66,697
  Prepaid expenses and other current assets                 22,034             21,396             10,468             16,509
                                                      ---------------------------------------------------------------------
Total current assets                                       700,612            108,113            110,889             88,295
PROPERTY - net                                               2,916              3,266                 --                 --
PATENTS - net of  accumulated amortization                 724,445            732,019            379,593            377,168
INVESTMENT IN JOINT VENTURE                              1,447,333          1,505,159          1,635,108          1,628,854
                                                      ---------------------------------------------------------------------
TOTAL ASSETS                                          $  2,875,306       $  2,348,557       $  2,125,590       $  2,094,317
                                                      =====================================================================


LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
  Accounts payable                                    $  1,575,934       $  1,630,959       $  1,622,489       $  1,635,221
  Notes payable - shareholders and others                1,484,000          1,509,000          1,466,500          1,417,000
  Accrued expenses and other current liabilities           720,005            732,622            763,991            741,353
                                                      ---------------------------------------------------------------------
Total current liabilities                                3,779,939          3,872,581          3,852,980          3,793,574
                                                      ---------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
  Common stock                                              16,002             14,352              4,602              4,352
  Preferred stock                                          798,998            798,998            798,998            798,998
  Warrants                                                 401,191            401,191            401,191            410,617
  Additional paid in capital                            39,800,127         38,795,277         38,295,027         38,085,351
  Accumulated deficit                                  (41,920,951)       (41,533,842)       (41,127,208)       (40,998,575)
  Subscription receivable                                       --                 --           (100,000)                --
                                                      ---------------------------------------------------------------------
                                                          (904,633)        (1,524,024)        (1,727,390)        (1,699,257)
                                                      ---------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT           $  2,875,306       $  2,348,557       $  2,125,590       $  2,094,317
                                                      =====================================================================
</TABLE>


                                      F-23
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------


NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (cont'd)

BIONUTRICS, INC. AND SUBSIDIARIES
CONSOLDIATED STATEMENTS OF

OPERATIONS

FOR THE PERIODS ENDED

<TABLE>
<CAPTION>
                                                            THREE         NINE           THREE
                                            YEAR           MONTHS        MONTHS          MONTHS
                                            ENDED           ENDED         ENDED          ENDED
                                         OCTOBER 31      OCTOBER 31      JULY 31        JULY 31
                                            2004            2004          2004            2004
                                       ---------------------------------------------------------------
<S>                                        <C>              <C>            <C>           <C>
REVENUES, net                              $98,767          $6,921         $91,846            $458
COST OF GOODS SOLD                          18,269          15,580           2,689             518
                                       ---------------------------------------------------------------
GROSS PROFIT                                80,498          (8,659)         89,157             (60)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES                    866,913         320,319         546,594         271,512
                                       ---------------------------------------------------------------
OPERATING LOSS                            (786,415)       (328,978)       (457,437)       (271,573)
                                       ---------------------------------------------------------------
OTHER INCOME (EXPENSES):
Interest expense - net                      (1,822)           (330)        (14,741)         (5,114)
Other income                                (3,849)             --           9,400              --
Equity in the loss of joint venture       (332,250)        (57,802)       (274,448)       (129,949)
                                       ---------------------------------------------------------------
Total other income (expense)              (337,921)        (58,132)       (279,789)       (135,063)
                                       ---------------------------------------------------------------
NET LOSS                               ($1,124,336)      ($387,110)      ($737,226)      ($406,635)
                                       ===============================================================
Basic and diluted
  net loss per share                        ($0.14)         ($0.02)         ($0.12)         ($0.03)
                                       ===============================================================
Weighted average number of
  common shares outstanding -
  basic and diluted                      7,840,496      15,618,361       6,292,893      12,510,209
                                       ===============================================================

<CAPTION>
                                            SIX             THREE          THREE
                                          MONTHS           MONTHS          MONTHS
                                           ENDED            ENDED          ENDED
                                         APRIL 30,        APRIL 30,     JANUARY 31,
                                           2004             2004            2004
                                       ---------------------------------------------
<S>                                        <C>              <C>          <C>
REVENUES, net                                $91,388            $837         $90,551
COST OF GOODS SOLD                             2,171           1,278             893
                                       ---------------------------------------------
GROSS PROFIT                                  89,217            (441)         89,658
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES                      275,082         129,479         145,603
                                       ---------------------------------------------
OPERATING LOSS                              (185,865)       (129,919)        (55,945)
                                       ---------------------------------------------
OTHER INCOME (EXPENSES):
Interest expense - net                        (9,627)         (4,968)         (4,659)
Other income                                   9,400              --           9,400
Equity in the loss of joint venture         (144,499)          6,255        (150,754)
                                       ---------------------------------------------
Total other income (expense)                (144,726)          1,287        (146,013)
                                       ---------------------------------------------
NET LOSS                                   ($330,591)      ($128,632)      ($201,958)
                                       =============================================
Basic and diluted
  net loss per share                          ($0.07)         ($0.03)         ($0.05)
                                       =============================================
Weighted average number of
  common shares outstanding -
  basic and diluted                        4,417,241       4,482,600       4,352,600
                                       =============================================
</TABLE>


                                      F-24
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------


NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (cont'd)

<TABLE>
<CAPTION>
BIONUTRICS, INC. AND SUBSIDIARIES                          NINE          SIX         THREE
STATEMENTS OF CASH FLOWS                                  MONTHS        MONTHS      MONTHS
                                                           ENDED        ENDED        ENDED
                                                          JULY 31     APRIL 30,   JANUARY 31,
                                                           2004          2004        2004
                                                         ------------------------------------
<S>                                                      <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                 ($737,226)   ($330,591)   ($201,958)
Adjustments to reconcile net loss to net cash used in
 operating activities:
    Depreciation and amortization                           22,955       15,149        7,572
    Equity in loss of joint venture                        274,448      144,499      150,754
    Stock based compensation expense                       150,000           --           --
    Changes in operating assets and liabilities:
     Inventory                                             (37,310)     (37,829)     (39,107)
     Prepaid expenses and other current assets              (5,793)       5,133         (906)
     Accounts payable                                       (1,699)     (10,169)       2,563
     Accrued liabilities and other current liabilities      61,789       93,157       70,518
                                                         ------------------------------------
NET CASH USED IN OPERATING ACTIVITIES                     (272,836)    (120,651)     (10,564)
                                                         ------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of equipment                                    (3,499)          --           --
  Patent acquisition cost                                  (10,000)     (10,000)          --
                                                         ------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                      (13,499)     (10,000)          --
                                                         ------------------------------------
CASH FLOWS FROM FINANACING ACTIVITIES:
  Proceeds from sale of common stock                       200,500      100,500           --
  Proceeds from loans payable                              104,500       62,000       12,500
                                                         ------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                  305,000      162,500       12,500
                                                         ------------------------------------
NET CHANGE IN CASH                                          18,665       31,849        1,936
CASH - BEGINNING OF PERIOD                                   3,153        3,153        3,153
                                                         ------------------------------------
CASH - END OF PERIOD                                       $21,818      $35,002       $5,089
                                                         ====================================
</TABLE>


                                      F-25
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------


NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (cont'd)

BIONUTRICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

FOR THE PERIODS ENDED

<TABLE>
<CAPTION>
                                                             OCTOBER 31,      JULY 31         APRIL 30,           JANUARY 31,
                                                               2003            2003             2003                 2003
                                                           -------------------------------------------------------------------
<S>                                                        <C>               <C>              <C>                <C>
ASSETS
CURRENT ASSETS:
  Cash                                                         $3,153            $19,713           $156,279             $8,864
  Trade receivables, net                                           --                 --                 --                 --
  Inventory                                                    27,590             29,210             30,606             31,780
  Prepaid expenses and other current assets                    15,603              4,702              4,022              4,922
                                                           -------------------------------------------------------------------
Total current assets                                           46,346             68,886            206,045             61,312
PROPERTY AND EQUIPMENT - net
PATENTS - net of  accumulated amortization                    384,742            392,315            399,888            407,464
INVESTMENT IN JOINT VENTURE                                 1,779,608          2,160,994          2,220,848          2,296,096
                                                           -------------------------------------------------------------------
Total Assets                                               $2,210,696         $2,622,195         $2,826,781         $2,764,872
                                                           ===================================================================

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable                                         $1,632,659         $1,628,280         $1,605,286         $1,633,629
  Notes payable - short term                                1,404,500          1,404,500          1,404,500          1,404,500
  Accrued liabilities and other current liabilities           670,834            676,276            725,410            678,553
                                                           -------------------------------------------------------------------
Total current liabilities                                   3,707,993          3,709,056          3,735,196          3,716,682
                                                           -------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
  Common stock                                                  4,352              4,352              4,352              4,352
  Preferred stock                                             798,998            798,998            798,998            798,998
  Warrants                                                    448,023            567,063            567,063            620,672
  Additional paid in capital                               38,047,945         37,928,905         37,928,905         37,853,911
  Deficit                                                 (40,796,615)       (40,386,179)       (40,207,733)       (40,229,743)
                                                           -------------------------------------------------------------------
Stockholders' deficit                                      (1,497,297)        (1,086,861)          (908,415)          (951,810)
                                                           -------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit                $2,210,696         $2,622,195         $2,826,781         $2,764,872
                                                           ===================================================================
</TABLE>


                                      F-26
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (cont'd)

BIONUTRICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           THREE          NINE          THREE
                                           YEAR            MONTHS        MONTHS        MONTHS
                                           ENDED           ENDED          ENDED         ENDED
                                        OCTOBER 31,     OCTOBER 31,     JULY 31,      JULY 31,
                                           2003             2003          2003          2003
                                        ----------------------------------------------------------
<S>                                        <C>             <C>           <C>             <C>
REVENUES, net                              $31,978         $8,819        $23,159         $7,408
COST OF GOODS SOLD                           5,829          1,621          4,208          1,397
                                        ----------------------------------------------------------
GROSS PROFIT                                26,149          7,198         18,951          6,012
                                        ----------------------------------------------------------
SELLING, GENERAL AND                       468,418         36,270        432,148        120,271
  ADMINISTRATIVE EXPENSES
                                        ----------------------------------------------------------
OPERATING LOSS                            (442,269)       (29,072)      (413,197)      (114,259)
                                        ----------------------------------------------------------
OTHER INCOME (EXPENSES):
Interest expense, net                      (16,660)        (4,480)       (28,567)        (4,332)
Equity in the income (loss) of
  joint ventures                          (516,227)      (381,386)      (134,841)       (59,854)
Gain (loss) on sale of assets and
  other income                             215,634          4,500        227,521             --
                                        ----------------------------------------------------------
Total other income (expenses)             (317,253)      (381,366)        64,113        (64,187)
                                        ----------------------------------------------------------
NET LOSS                                 ($759,522)     ($410,438)     ($349,085)     ($178,446)
                                        ==========================================================

Basic and diluted net loss per share        ($0.17)        ($0.09)        ($0.08)        ($0.04)
                                        ==========================================================
Weighted average number of common
shares
  outstanding - basic and diluted        4,352,600      4,352,600      4,352,600      4,352,600
                                        ==========================================================

<CAPTION>

                                             SIX           THREE           THREE
                                            MONTHS        MONTHS          MONTHS
                                            ENDED          ENDED           ENDED
                                          APRIL 30,      APRIL 30,      JANUARY 31,
                                             2003          2003            2003
                                        ------------------------------------------
<S>                                          <C>             <C>            <C>
REVENUES, net                                $15,751         $7,138         $8,613
COST OF GOODS SOLD                             2,812             --          1,638
                                        ------------------------------------------
GROSS PROFIT                                  12,939          7,138          6,975
                                        ------------------------------------------
SELLING, GENERAL AND                         311,878        152,591        159,287
  ADMINISTRATIVE EXPENSES
                                        ------------------------------------------
OPERATING LOSS                              (298,938)      (145,453)      (152,312)
                                        ------------------------------------------
OTHER INCOME (EXPENSES):
Interest expense, net                        (24,235)        (6,115)       (18,120)
Equity in the income (loss) of
  joint ventures                             (74,987)       (75,248)           261
Gain (loss) on sale of assets and
  other income                               227,521        250,000        (22,479)
                                        ------------------------------------------
Total other income (expenses)                128,299        168,638        (40,338)
                                        ------------------------------------------
NET LOSS                                   ($170,639)       $23,185      ($192,650)
                                        ==========================================

Basic and diluted net loss per share          ($0.04)         $0.01         ($0.04)
                                        ==========================================
Weighted average number of common
shares
  outstanding - basic and diluted          4,352,600      4,352,600      4,352,600
                                        ==========================================
</TABLE>


                                      F-27
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (cont'd)

<TABLE>
<CAPTION>
BIONUTRICS, INC. AND SUBSIDIARIES                                NINE           SIX           THREE
STATEMENTS OF CASH FLOWS                                        MONTHS         MONTHS        MONTHS
                                                                 ENDED         ENDED          ENDED
                                                                JULY 31      APRIL 30,     JANUARY 31,
                                                                 2003           2003          2003
                                                             ------------------------------------------
<S>                                                          <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                     ($349,085)      ($170,639)      ($192,650)
Adjustments to reconcile net loss to net cash
  used in operating activities:
    Amortization                                                22,014          14,441           6,866
    Equity in the loss (income) of joint venture               134,841          74,987            (261)
    Stock based compensation expense                            36,799          36,799          15,414
    (Gain) loss on sale of assets                             (227,521)       (227,521)         22,479
    Changes in operating assets and liabilities:
      Trade receivables, net                                       540             540             540
      Inventory                                                  4,208           2,812           1,638
      Prepaid expenses and other current assets                    566           1,369            (139)
      Accounts payable                                          39,332          16,338          44,681
      Accrued liabilities and other current liabilities         30,505          79,639          32,782
                                                             ------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES                         (307,801)       (171,235)        (68,650)
                                                             ------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of assets                                 250,000         250,000              --
  Patent acquisition cost                                     (100,000)       (100,000)       (100,000)
                                                             ------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES            150,000         150,000        (100,000)
                                                             ------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from note payable                                   150,000         150,000         150,000
                                                             ------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                      150,000         150,000         150,000
                                                             ------------------------------------------
NET CHANGE IN CASH                                              (7,801)        128,765         (18,650)
CASH - beginning of period                                      27,514          27,514          27,514
                                                             ------------------------------------------
CASH - end of period                                           $19,713        $156,279          $8,864
                                                             ==========================================
</TABLE>


                                      F-28
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (cont'd)

BIONUTRICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

FOR THE PERIODS ENDED

<TABLE>
<CAPTION>
                                                                 OCTOBER 31,      JULY 31,       APRIL 30,      JANUARY 31,
                                                                    2002            2002            2002           2002
                                                               ---------------------------------------------------------------
<S>                                                             <C>              <C>             <C>             <C>
ASSETS
CURRENT ASSETS:
  Cash                                                                $27,514        $170,841        $15,535         $13,904
  Trade receivables, net                                                  540           1,950          4,234           6,194
  Inventory                                                            33,418          35,200         35,200          39,964
  Prepaid expenses and other current assets                            20,529          24,546         40,002          41,178
                                                               ---------------------------------------------------------------
Total current assets                                                   82,001         232,537         94,971         101,240
PROPERTY AND EQUIPMENT - net                                               --              --             --           1,578
PATENTS - net of  accumulated amortization                            336,808         343,725        351,281         357,556
INVESTMENT IN JOINT VENTURE                                         2,295,835       2,365,151      2,511,769       2,589,555
                                                               ---------------------------------------------------------------

TOTAL ASSETS                                                       $2,714,644      $2,941,413     $2,958,021      $3,049,929
                                                               ===============================================================

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
  Accounts payable                                                 $1,588,948      $1,614,415     $1,449,160      $1,242,031
  Notes payable - shareholders and others                           1,254,500       1,254,500        984,000         804,500
  Accrued liabilities and other current liabilities                   645,571       1,029,861      1,050,984         954,898
                                                               ---------------------------------------------------------------
Total current liabilities                                           3,489,019       3,898,776      3,484,144       3,001,429
                                                               ---------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
  Common stock                                                          4,352           4,352          4,352           4,352
  Preferred stock                                                     798,998         798,998        798,998         798,998
  Warrants                                                            605,258         633,332        633,332         633,332
  Additional paid in capital                                       37,853,911      37,825,837     37,825,837      37,825,837
  Retained earnings                                               (40,037,094)    (40,219,882)   (39,788,642)    (39,214,019)
                                                               ---------------------------------------------------------------

Stockholders' deficit                                                (774,575)       (957,363)      (526,123)         48,500
                                                               ---------------------------------------------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                        $2,714,444      $2,941,413     $2,958,021      $3,049,929
                                                               ===============================================================
</TABLE>


                                      F-29
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------


NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (cont'd)

BIONUTRICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                       THREE        NINE        THREE        SIX         THREE       THREE
                                           YEAR        MONTHS      MONTHS      MONTHS       MONTHS      MONTHS      MONTHS
                                           ENDED       ENDED        ENDED       ENDED       ENDED        ENDED       ENDED
                                        OCTOBER 31, OCTOBER 31,   JULY 31,    JULY 31,    APRIL 30,    APRIL 30,  JANUARY 31,
                                           2002         2002        2002        2002         2002        2002        2002
                                        --------------------------------------------------------------------------------------
<S>                                     <C>          <C>         <C>          <C>         <C>          <C>         <C>
REVENUES, net                              $36,516      $12,793     $23,723      $7,740      $15,983      $6,830      $9,153
COST OF GOODS SOLD                          14,182        2,536      11,646       1,890        9,756       5,138       4,618
                                        --------------------------------------------------------------------------------------
GROSS PROFIT                                22,334       10,257      12,077       5,850        6,227       1,692       4,535
                                        --------------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES                               1,246,583     (266,531)  1,513,114     278,064    1,235,050     462,876     772,174
                                        --------------------------------------------------------------------------------------
OPERATING LOSS                          (1,224,249)     276,788  (1,501,037)   (272,214)  (1,228,823)   (461,184)   (767,639)
                                        --------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES):
Interest expense, net                     (178,491)     (24,683)   (153,808)    (12,408)    (141,400)    (35,653)   (105,747)
Equity in the loss in joint venture       (433,535)     (69,316)   (364,219)   (146,618)    (217,601)    (77,786)   (139,815)
                                        --------------------------------------------------------------------------------------
Total other income (expenses)             (612,026)     (93,999)   (518,027)   (159,026)    (359,001)   (113,439)   (245,562)
                                        --------------------------------------------------------------------------------------
NET LOSS                               ($1,836,275)    $182,789 ($2,019,064)  ($431,240) ($1,587,824)  ($574,623) ($1,013,201)
                                        ======================================================================================

Basic and diluted net loss per share        ($0.42)       $0.04      ($0.46)     ($0.10)      ($0.36)     ($0.13)     ($0.23)
                                        ======================================================================================
Weighted average number of common
shares   outstanding - basic
and dilited                              4,352,600    4,352,600   4,352,600   4,352,600    4,352,600   4,352,600   4,352,600
                                        ======================================================================================
</TABLE>


                                      F-30
<PAGE>

                        BIONUTRICS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        OCTOBER 31, 2004, 2003, AND 2002
                        ---------------------------------

NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (cont'd)

<TABLE>
<CAPTION>
BIONUTRICS, INC. AND SUBSIDIARIES                                    NINE              SIX              THREE
STATEMENTS OF CASH FLOWS                                            MONTHS            MONTHS           MONTHS
                                                                     ENDED            ENDED             ENDED
                                                                    JULY 31         APRIL 30,        JANUARY 31,
                                                                     2002              2002             2002
                                                               -----------------------------------------------------
<S>                                                                 <C>              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                            ($2,019,064)     ($1,587,824)      ($1,013,201)
Adjustments to reconcile net loss to net cash
  used in operating activities:
    Amortization                                                         23,908           16,352             8,499
    Equity in loss of joint venture                                     364,219          217,601           139,815
    Stock based compensation expense                                     79,540           79,540            79,540
    Changes in operating assets and liabilities:
      Trade receivables, net                                              4,490            2,206               246
      Inventory                                                           9,223            9,223             4,459
      Prepaid expenses and other current assets                          (9,302)         (24,758)          (25,934)
      Accounts payable                                                  642,455          477,200           270,071
      Accrued liabilities and other current liabilities                 302,912          324,035           227,949
                                                               -----------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES                                  (601,619)        (486,425)         (308,556)
                                                               -----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from note payable                                            671,500          401,000           221,500
                                                               -----------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                               671,500          401,000           221,500
                                                               -----------------------------------------------------
Net change in cash                                                       69,881          (85,425)          (87,056)
Cash - beginning of period                                              100,960          100,960           100,960
                                                               -----------------------------------------------------
Cash - end of period                                                   $170,841          $15,535           $13,904
                                                               =====================================================
</TABLE>


                                      F-31
<PAGE>


                              INCON PROCESSING, LLC

                              FINANCIAL STATEMENTS

                   YEARS ENDED AUGUST 31, 2004, 2003 AND 2002

                                    CONTENTS

                                                              PAGE
                                                              ----

INDEPENDENT AUDITORS'  REPORT                                   33

BALANCE SHEETS                                                  34

STATEMENTS OF OPERATIONS AND
   CHANGES IN MEMBERS' EQUITY                                   35

STATEMENTS OF CASH FLOWS                                        36

NOTES TO FINANCIAL STATEMENTS                                 37 - 39


                                      F-32
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

TO THE MEMBERS' OF
INCON PROCESSING, LLC
PHOENIX, ARIZONA

We have audited the accompanying balance sheets of InCon Processing, LLC as of
August 31, 2004, 2003 and 2002, and the related statements of operations and
changes in members' equity and cash flows for the years ended August 31, 2004,
2003 and 2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InCon Processing, LLC as of
August 31, 2004, 2003 and 2002, and the results of their operations and their
cash flows for the years ended August 31, 2004, 2003 and 2002, in conformity
with accounting principles generally accepted in the United States of America.

                                                /s/ MILLER, ELLIN & COMPANY, LLP
                                                CERTIFIED PUBLIC ACCOUNTANTS

New York, New York
December 13, 2004


                                      F-33
<PAGE>

                              INCON PROCESSING, LLC

                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                       AUGUST 31,
                                                        ------------------------------------------
                                                          2004             2003            2002
                                                        ----------      ----------      ----------
<S>                                                     <C>             <C>             <C>
CURRENT ASSETS:
    Cash and cash equivalents                           $  114,356      $  184,760      $  165,317
    Accounts receivable                                    768,193         348,910         184,420
    Prepaid expenses and other currrent assets              73,034          47,840          70,072
                                                        ----------      ----------      ----------
               Total current assets                        955,583         581,510         419,809
                                                        ----------      ----------      ----------
PROPERTY AND EQUIPMENT                                   2,249,302       2,699,735       3,816,904
                                                        ----------      ----------      ----------
GOODWILL                                                   721,428         721,428         721,428
                                                        ----------      ----------      ----------
                                                        $3,926,313      $4,002,673      $4,958,141
                                                        ==========      ==========      ==========
         LIABILITIES AND MEMBERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable                                    $  254,504      $  142,922      $  182,686
    Accrued expenses and other current liabilities         442,918         233,373         141,857
    Customer deposits                                      143,503              --              --
    Deferred revenue                                       108,720              --          41,927
    Estimated loss on contract                              82,000          67,159              --
                                                        ----------      ----------      ----------
               Total current liabilities                 1,031,645         443,454         366,470

COMMITMENTS AND CONTINGENCIES

MEMBERS' EQUITY:                                         2,894,668       3,559,219       4,591,671
                                                        ----------      ----------      ----------
                                                        $3,926,313      $4,002,673      $4,958,141
                                                        ==========      ==========      ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-34
<PAGE>

                              INCON PROCESSING, LLC

             STATEMENTS OF OPERATIONS AND CHANGES IN MEMBERS' EQUITY

<TABLE>
<CAPTION>
                                                       YEARS ENDED AUGUST 31,
                                            -----------------------------------------------
                                                2004              2003               2002
                                            -----------       -----------       -----------
<S>                                         <C>               <C>               <C>
REVENUES:
     Service Revenue                        $ 2,242,166       $ 2,621,555       $ 2,306,416
     Equipment sales                          1,817,435           472,517           281,167
                                            -----------       -----------       -----------
         Total revenues                       4,059,601         3,094,072         2,587,583
                                            -----------       -----------       -----------

COST OF REVENUES:
     Service Revenue                            105,490           110,640           166,219
     Equipment sales                          1,788,432           491,676           177,122
                                            -----------       -----------       -----------
         Total cost of revenues               1,893,922           602,316           343,341
                                            -----------       -----------       -----------

GROSS PROFIT                                  2,165,679         2,491,756         2,244,242
                                            -----------       -----------       -----------

SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                  2,831,009         2,839,432         3,111,634
                                            -----------       -----------       -----------

LOSS FROM OPERATIONS                           (665,330)         (347,676)         (867,392)
                                            -----------       -----------       -----------

OTHER INCOME (EXPENSES):
     Interest income                                779                58                --
     Loss on abandonment of assets                   --          (684,834)             (322)
                                            -----------       -----------       -----------
         Total other income (expenses)              779          (684,776)             (322)
                                            -----------       -----------       -----------

NET LOSS                                       (664,551)       (1,032,452)         (867,070)

MEMBERS' EQUITY - beginning                   3,559,219         4,591,671         5,458,741
                                            -----------       -----------       -----------
MEMBERS' EQUITY - ending                    $ 2,894,668       $ 3,559,219       $ 4,591,671
                                            ===========       ===========       ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-35
<PAGE>

                              INCON PROCESSING, LLC

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                YEARS ENDED AUGUST 31,
                                                                     -----------------------------------------------
                                                                        2004              2003              2002
                                                                     -----------       -----------       -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                  <C>               <C>               <C>
      Net loss                                                       $  (664,551)      $(1,032,452)      $  (867,070)
      Adjustments to reconcile net loss to net cash provided by
        (used in) operating activities:
          Depreciation and amortization                                  450,433           432,334           547,427
          Amortization of goodwill                                            --                --            47,568
          Abandonment of equipment                                            --           684,835                --
          Estimated loss on contract                                      14,842            67,159                --
          Changes in assets and liabilities:
             Accounts receivable                                        (419,283)         (164,490)          182,465
             Prepaid expenses and other current assets                   (25,195)           22,232           (28,495)
             Accounts payable                                            111,581           (39,763)           56,272
             Accrued expenses and other current liabilities              209,546            91,516            19,600
             Customer deposits                                           143,503                --                --
             Deferred revenue                                            108,720           (41,928)           41,928
                                                                     -----------       -----------       -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                      (70,404)           19,443              (305)
                                                                     -----------       -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment                                     --                --          (124,594)
                                                                     -----------       -----------       -----------
NET CASH USED IN INVESTING ACTIVITIES                                         --                --          (124,594)
                                                                     -----------       -----------       -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                  (70,404)           19,443          (124,899)
CASH AND CASH EQUIVALENTS  - beginning                                   184,760           165,317           290,216
                                                                     -----------       -----------       -----------
CASH AND CASH EQUIVALENTS  - ending                                  $   114,356       $   184,760       $   165,317
                                                                     ===========       ===========       ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Cash paid during the year for:
        Interest                                                     $        --       $        --       $        --
        Income taxes                                                 $        --       $        --       $        --
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-36
<PAGE>

                              INCON PROCESSING, LLC

                          NOTES TO FINANCIAL STATEMENTS

                         AUGUST 31, 2004, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BUSINESS

     InCon Processing, LLC (the "Company") was created as a 50/50 joint venture
     between InCon Technologies, Inc. ("InCon"), a 100 percent owned subsidiary
     of Bionutrics, Inc. ("Bionutrics"), and ACH Food Companies, Inc. ("ACH,"
     formerly AC HUMKO CORP.) on June 25, 1999. During fiscal 2003, ACH sold its
     50% interest to Asia Pacific Investment Holdings, Ltd.

     The Company took over substantially all of the business previously engaged
     in by InCon relating to toll processing, molecular separation, and the
     design and sale of molecular separation facilities. The Company operates a
     chemical manufacturing facility near Chicago, Illinois. The Company
     provides its toll processing and molecular separation services for
     chemical, food processing, and pharmaceutical companies primarily in the
     United States of America and in Southeast Asia. The Company intends to
     attempt to utilize its expertise to expand its existing business into
     processing micronutrients that would be available for food grade products.

     USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and disclosure of contingent assets and
     liabilities at the date of the financial statements and the reported
     amounts of revenues and expenses during the reporting period. Actual
     results could differ from those estimates.

     CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments purchased with an
     original maturity of three months or less to be cash equivalents.

     PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost. Improvements that extend the
     life or usefulness of an asset are capitalized. Depreciation is computed
     principally on a straight-line method over the estimated useful lives of
     the individual assets. The estimated useful lives of depreciable assets
     are:

         Equipment, furniture and fixtures                  3 - 10 years
         Leasehold improvements                               10 years
         Capitalized software                                  3 years

     Leasehold improvements are amortized over the lesser of the lease life or
     the useful life of the asset. Expenditures of a repair and maintenance
     nature are expensed when incurred.


                                      F-37
<PAGE>

                              INCON PROCESSING, LLC

                          NOTES TO FINANCIAL STATEMENTS

                         AUGUST 31, 2004, 2003 AND 2002


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     GOODWILL

     During fiscal 2002, goodwill was amortized using the straight-line method
     over the 20 year period of expected benefit. In 2003, the Financial
     Accounting Standards Board issued Statement of Financial Accounting
     Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. This
     Statement provides that goodwill and intangible assets with indefinitie
     lives should no longer be amortized, but should be reviewed at least
     annually, for impairment. In accordance with the adoption of SFAS No. 142,
     beginning fiscal 2003, the Company ceased amortizing its existing net
     goodwill of $721,428.

     REVENUE RECOGNITION

     The Company recognizes revenues from services at the time service is
     rendered. Revenues on long-term contracts are recorded on the basis of the
     estimated percentage of completion of individual contracts determined under
     the cost-to-cost method. The percentage deemed to be complete is calculated
     by comparing the costs incurred to date to estimated total costs for each
     contract. Adjustments to this measurement are made when management believes
     that actual costs incurred exceed the expected costs to date. Estimated
     losses on long-term contracts are recognized in the period in which the
     loss becomes apparent.

     INCOME TAXES

     The Company has elected to be treated as a limited liability company for
     federal and state income tax purposes. As such, all taxable income or loss
     of the Company is included in the income tax returns of the respective
     members. Accordingly, no provision has been made for federal or state
     income taxes in the accompanying financial statements.

     NEW ACCOUNTING PRONOUNCEMENTS

     In October 2001, the FASB issued SFAS No. 144, Accounting for the
     Impairment or Disposal of Long-Lived Assets. SFAS No. 144 requires that
     long-lived assets be measured at the lower of carrying amount or fair value
     less cost to sell, whether reported in continuing operations or in
     discontinued operations. The statement is effective for the Company's
     fiscal year beginning September 1, 2002. The implementation of this
     standard is not expected to have a material impact on the Company's
     financial position or results of operations.


                                      F-38
<PAGE>


                              INCON PROCESSING, LLC

                          NOTES TO FINANCIAL STATEMENTS

                         AUGUST 31, 2004, 2003 AND 2002

NOTE 2 - PROPERTY AND EQUIPMENT

     Property and equipment at August 31, consists of the following:

<TABLE>
<CAPTION>
                                                2004            2003           2002
                                             ------------  -------------  -------------
<S>                                          <C>            <C>            <C>
         Equipment, furniture and fixtures   $  4,231,557   $  4,231,557   $  5,405,557
         Leasehold improvements                    51,745         51,745         51,745
                                             ------------   ------------   ------------
                                                4,283,302      4,283,302      5,457,302
         Less: Accumulated depreciation
                     and amortization          (2,034,000)    (1,583,567)    (1,640,398)
                                             ------------   ------------   ------------
                                             $  2,249,302   $  2,699,735   $  3,816,904
                                             ============   ============   ============
</TABLE>

NOTE 3 - COMMITMENTS

     LEASES

     The Company has operating leases for office space that expires July 31,
     2007. Total rental expense was $184,590, $196,508 and $176,905 for the
     years ended August 31, 2004, 2003 and 2002, respectively. Future minimum
     lease payments under noncancelable operating lease at August 31, 2004 are
     as follows:

                    2005                                   $  151,496
                    2006                                      151,496
                    2007                                      138,871
                                                           ----------
                                                           $  441,863
                                                           ==========

NOTE 4 - EMPLOYEE BENEFIT PLAN

     The Company has a defined contribution plan under Section 401(k) of the
     Internal Revenue Code. Each participant may elect to defer up to 15 percent
     of his or her compensation and have such amounts matched by the Company at
     a rate of 50 percent for the first 6 percent contributed. The Company
     recognized expenses under this plan of $22,705, $29,058 and $32,703 during
     the years ended August 31, 2004, 2003 and 2003, respectively.


                                      F-39
<PAGE>


                              INCON PROCESSING, LLC

                          NOTES TO FINANCIAL STATEMENTS

                         AUGUST 31, 2004, 2003 AND 2002

NOTE 5 - ECONOMIC DEPENDENCE

     MAJOR CUSTOMERS

     For the years ended August 31, 2004, 2003 and 2002, customer concentrations
consist of the following:

                                  2004            2003           2002
                               ------------  -------------  -------------
         Customer A                   29.0%          27.3%          31.2%
         Customer B                   14.6%          24.4%          14.4%
         Customer C                   11.8%          10.1%            --
                               ------------  -------------  -------------
                                      55.4%          61.8%          45.6%
                               ============  =============  =============

     As of August 31, 2004, 2003 and 2002, one, four and three customers
     accounted for approximately 53%, 60% and 50% of the Company's accounts
     receivable, respectively.

NOTE 6 - RELATED PARTY TRANSACTIONS

     The Company provided distillation services to an entity in which the
     President of the Company is a shareholder during the years ended August 31,
     2004, 2003 and 2002 and recorded revenues of approximately $133,600,
     $206,700, and $169,060, respectively. During the year ended August 31,
     2004, the Company provided distillation services to one of its members and
     recorded revenues of approximately $6,600.


                                      F-40