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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549




FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934


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|For the fiscal year ended October 31, 2001 |  | Commission file number 0-22011

Bionutrics, Inc.

(Exact name of registrant as specified in its charter)


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|Nevada                                                         |  | 86-0760991                          
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|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. employer
identification no.)

2425 E. Camelback Road, Suite 650, Phoenix, Arizona 85016

(Address of principal executive offices) (Zip Code)


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

Securities registered pursuant to Section 12(b) of the Act:

None

(Title of each Class)


Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.001 per share

(Title of class)


Indicate by check mark whether registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (CHECKBOX)  No (BOX)

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 or any
amendment to this Form 10-K. (BOX)

As of January 28, 2002, the aggregate market value of the voting common
stock held by non-affiliates of the registrant, computed by reference to the
closing sales price of such stock as of such date on the OTC Bulletin Board,
was $8,480,311. Shares of common stock held by each officer and director and
by each person who owned 10% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive and may not
apply for other purposes.

As of January 28, 2002, there were 4,352,600 shares of the registrants
common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of registrants definitive Proxy Statement for its 2002 Annual
Meeting of Stockholders are incorporated by reference in Part III hereof.





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|SIGNATURES           |                                                                                                             |  | 36  |   
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|FINANCIAL STATEMENTS |                                                                                                             |  | F-2 |   





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PART I

ITEM 1.  BUSINESS

Introduction

Bionutrics, Inc. (Bionutrics or the Company) is a biopharmaceutical
company founded to discover, develop and apply novel biologically active
compounds from natural sources. The Companys goal is to be a leader in the
newly emerging field of functional nutrition, the marriage of drugs and food,
by providing food ingredients that can prevent and even cure diagnosed
diseases. Bionutrics business model is to source biologically active
compounds from food commodity processing by-product streams and develop these
compounds as proprietary functional nutrition products and/or ethical drug
products, which are regulated pharmaceutical products. The disciplines and
efforts comprising a discovery and development program for functional nutrition
and ethical drugs are fundamentally the same. Products derived from the
Companys research program will be directed initially towards functional
nutrition to generate early revenue and reduce the need for capital while it
pursues the development and regulatory approval of drug candidates.

The Companys building efforts of the previous decade have positioned it
with proprietary technology, compounds, processing methods and products having
application to worldwide markets of potential significance. Bionutrics has
sources of raw material by-products streams available to it in large quantities
and it has developed specific capabilities in engineering and processing
technologies for the separation of these streams into both high-value
biologically active products and bulk food ingredients. This technology
provides the Company the potential advantage of access to proprietary active
ingredients at relatively low cost. Initial products are tocotrienol (a new
form of vitamin E) concentrates derived from rice bran. The Company also has
patent rights to a composition of niacin and dietary fiber that have
application to dietary supplements, medical foods or over-the-counter products.

Bionutrics operating strategy has changed from prior years where it
manufactured and marketed its products to its current strategy, which is to
leverage its core competency of new product development by partnering the
manufacturing and marketing. The Companys goal is to discover, define and
protect its products and technology and to partner manufacturing and marketing.
Bionutrics believes this strategy will allow it to exploit its strengths while
recognizing its resource limitations, and at the same time accessing the
unfolding global opportunity.

The Companys three primary subsidiaries are LipoGenics, Inc.
(LipoGenics), Bionutrics Health Products, Inc. (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 Technologies was merged in
June 1999 into a new limited liability company, InCon Processing, LLC (InCon
Processing) in which the Company has a 50% ownership together with ACH Food
Companies, Inc. (ACH, formerly known as AC HUMKO CORP), a subsidiary of ABF
North America Corp. (ABF). InCon Processing provides engineering and design
for the Bionutrics compound recovery systems and ingredient processing. In
addition, the Company has three inactive subsidiaries, Nutrition Technology
Corporation, InCon International Ltd. and Cosmedics, Inc.

The Company has generated an accumulated deficit of approximately $38.2
million through its fiscal year ended October 31, 2001. Due to financial
constraints the Company has curtailed advertising and support for its initial
product and continues to experience a significant decline in sales. Unless the
Company is successful in obtaining additional capital and developing strategic
partnerships for manufacturing and marketing it will not be able to execute its
business plan.

In connection with a stock purchase agreement entered into with HealthSTAR
Holdings LLC, the Company expects to enter into three strategic relationship
agreements with HealthSTAR Communications, Inc. These agreements are designed
to provide the Company with a foundation to commercialize its technology,
market its products, and expand its business beyond traditional product
research and development functions. The agreements provide for administrative
and professional support, marketing services for the Companies products, and
assistance in identifying acquisition candidates. HealthSTAR Communications,
Inc. will retain a three year right of first refusal with respect to the sale
by Bionutrics of any company Bionutrics may acquire with HealthSTARs
assistance.

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It is also expected that four new persons will join the board of
directors. This transaction has not yet been completed. The initial closing
pursuant to the stock purchase agreement must occur on or before March 1, 2002
or the agreement is subject to termination unless extended by the parties.

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 2425 East Camelback Road, Suite
650, Phoenix; its telephone number is (602) 508-0112.

Industry Overview

Functional Nutrition

The Company competes within the Functional Nutrition category that
includes 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 (NLEA 1990) that have enhanced health benefits. Such product 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. The
market for these products is purported to have surpassed $18 billion last year
in the U.S. Products that exemplify the category are ones such as 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
used to deliver on health or function claims. 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.

The medical food category is unique in that it is separate from NLEA.
These products are different from NLEA regulated foods for special dietary use
in that they must meet certain requirements. Products that meet the strict
statutory definition of medical foods, which include the requirement that such
products be used under the direction and care of a physician, are a small
segment of the group represented as such. 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 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 increased from an estimated $17.3 billion in sales
in 1999 to $17.6 billion in 2000, a growth rate of 2%. 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 consumer attitude shifts toward natural health care. Within the
health and natural food market, dietary supplement sales were $10.8 billion in
2000. 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

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retail sales in excess of $500 million in mass-market sales alone in 1999.
Dietary supplements, including both vitamins and nutritional supplements, are
consumed specifically to enhance bodily structure or functions, such as
thinking or athletic performance or cholesterol maintenance. Under current law
a dietary supplement may not claim to prevent, treat or cure a disease (see
below under Government Regulation), which restricts the manner in which it
may be marketed and the claims that can lawfully be made.

Regulated Pharmaceutical Products

Bionutrics has technology with potential application to cardiovascular
health, cancer, anti-inflammation, anti-oxidation and diabetes. These
applications reflect proprietary claim positions for compositions that may have
use in more than one disease indication. The market for successful and fully
exploited ethical drug or medical device candidates can be measured in the
hundreds of millions of dollars or more. There is significant risk in
development and obtaining regulatory approval for any new candidate with no
assurance of success. It is the Companys intent to define the initial
opportunity with its research for its most promising candidates and if the
results warrant, to partner their full development.

Product Development

The Company intends to continue to develop proprietary compositions
potentially as both ethical drugs and functional nutrition products. The
functional nutrition products will be created and developed as novel medical
food, functional food and dietary supplement formulations for use by specific
target populations. These ingredients and formulations may include tocotrienols
or other compounds that can be marketed with statements of nutritional support
authorized per the 1990 NLEA and 1994 DSHEA legislation (see below under
Government Regulation). The intent of the ingredients development program
will be to generate future proprietary products with a point-of-difference and
wide marketability. Such products would reflect the Companys business model
of focusing on new ingredients that exploit its core competency.

Cardiovascular

Clearesterol: Bionutrics first cardiovascular product was a dietary
supplement marketed under the brand name of
evolvE®, and contained a
tocotrienol based ingredient, Clearesterol. evolvE® was launched in 1997 in a
national campaign targeting mass-market retail distribution. The Company has
no present plans to promote or support the sales of evolvE® and, accordingly,
Clearesterol is not viewed as a significant part of the Companys product
future.

Vitenol E®. The Company has also produced a more concentrated form of rice
bran-derived tocotrienols, Vitenol E®, which it plans to use as an ingredient
in its own novel formulations and to sell to other companies as a value-added
vitamin E complex. Bionutrics is obtaining this material from InCon
Processing.

CARDIO-CIN. The Company acquired the rights to patented technology for
the use of a timed-released composition of niacin and dietary fiber, which has
demonstrated in preliminary on-going research a 22-24% reduction in
LDL-cholesterol, 13-18% increase in HDL-cholesterol and a 21-29% drop in
triglycerides following four weeks of treatment with 1.2 grams of niacin daily.
This particular composition may have application as a medical food to
diabetics and other populations with dyslipidemia. (See Special
Considerations  Reliance on patents, licenses and intellectual property
rights concerning contract dispute.)

Cancer

Bionutrics received a broad patent this past year covering the use of
tocotrienols to treat cancer (see Patents and Trademarks below). Third-party
research published in peer-reviewed journals supports the Companys position
that tocotrienols may be effective in the treatment of certain cancer types.
Bionutrics has also discovered other compounds isolated from natural sources
that preliminarily appear to be effective against certain cancer cell-lines and
intends to extend the current research on those compounds to determine their
potential efficacy and commercial feasibility. Any such commercial application
would be dependent on obtaining the prior approval of the FDA.

Inflammation

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The Company has filed a patent application on compounds that treat
inflammation. These compounds potentially have a wide use with autoimmune and
autoimmune-like diseases and their possible prevention. Bionutrics expects to
continue research on these compounds and may develop products for both the
functional nutrition and ethical drug markets based on the results of the
trials.

Oxidative Stress

Bionutrics has filed a patent application on a novel composition, which
has unique anti-oxidative activity and may be used to reduce oxidative stress.
Oxidative stress is a condition produced within cells promoted by
environmental, enzymatic or dietary oxidizing events that lead to the
overproduction of reactive oxidizing agents that may cause damage to cell
membranes, nuclear structures (including DNA) or other critical cellular
components, or may affect cellular processes or intra/inter-cellular signaling
and, thereby, producing pathological consequences. In many cases this
oxidative stress process can be mitigated with antioxidants. The Company has
also acquired technology that has application as a means of measuring oxidative
stress in both blood and urine (see Patents and Trademarks below). The urine
based assay can be employed as a self-administered take home kit for the
determination of an individuals level of oxidative stress, potential
contribution of a disease state to the oxidative stress and the benefit derived
by the administration of the Companys potential proprietary antioxidant
products.

Diabetes

Diabetes is a disease closely associated with obesity and age. The
Company has acquired certain rights to proprietary technology and is conducting
research on compounds and formulations that may have application to obesity and
the progression of diabetes. The Company may also file future patents on
technology relating to obesity and diabetes and is considering a line of new
products based on this technology.

Marketing

The Company intends to market its ingredients for functional nutrition
worldwide via marketing agreements with strategic partners. Because of the high
cost of product entry today, the companies with the commitment and capacity to
provide consumer advertising and support with the retail trade will be best
positioned for success. Bionutrics has stated its intent to market its
products through partnerships with such companies. This design is intended to
allow the Company to invest its resources in product development and rely on
its partners to address the advertising, public relations and other promotional
costs for their respective markets.

The Company announced the first of its proprietary ingredients for
functional nutrition during the first quarter of 2001. These products are
initially positioned as dietary supplement ingredients and are directed towards
cardiovascular health. As part of the Companys strategy for functional
nutrition product development, antioxidation and blood lipid management will be
targeted and the technology used in these products is covered by one or more of
its patents. Bionutrics will focus on multi-level companies as primary
channels of distribution for its first round of products, with mass-market
retail and Internet distribution channels to follow.

As part of Bionutrics strategy to partner marketing and manufacturing,
the previously launched retail brand, evolvE®, is not being supported with
consumer advertising or product promotion funds. Accordingly, this product has
only a limited presence in the mass market. The Company is principally serving
the evolvE® consumers through its Internet address and 800-phone line. The
Company began sales of its first product, evolvE®, late in the second quarter
of fiscal 1997. In order to obtain distribution through many of the leading
drug and food chains throughout the United States, it was necessary to provide
customers the right to return the product. Credit is granted based upon a
credit report and payment terms generally provide a 2% discount if paid within
30 days.

Manufacturing

Bionutrics operating strategy is to leverage its core competency of new
product development by partnering raw material and finished goods manufacturing
and consumer marketing initiatives. In particular, the Company desires 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 seeks to form partnerships with global
food manufacturing firms who will assume the logistic, transportation,
distribution, regulatory, environmental, labor, administration and other
operational elements associated with processing by-product streams necessary to
manufacture its products.

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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 partner in the manufacturing of Bionutrics 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, which plant was closed on October 1, 1998. As part of the
divestiture, Bionutrics retained the right to participate in rice bran
processing profits by ACH without operational responsibility or capital risk.

Although the Company has agreed to acquire the Clearesterol ingredient
from ACH as well as other ingredients, the current inventory of evolvE® has
been sufficient such that the Company has not needed Clearesterol.
Additionally, the Company also relies on outside sources for evolvE®
encapsulation. With the current inventory levels and reduced sales of evolvE®,
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

In June 1999, the Company further reduced its manufacturing exposure by
merging its molecular separation operation, InCon Technologies, with ACH to
create a new joint venture company, InCon Processing, LLC, a limited liability
company. InCon transferred substantially all of its assets to the newly formed
LLC for which it received a payment of $3,000,000 and a 50% interest in the new
company. As part of this transaction, Bionutrics restructured a profit sharing
provision of the 1998 transaction relating to the calculation of profit and
minimums. In the future, the Company will receive 15% of all EBIT, if any,
(earnings before interest and taxes) derived by ACH from the sale of rice bran
derivative products (verses a graduated percentage of EBITDA [earnings before
interest, taxes, depreciation and amortization]) without an offset against a
floor or minimum earnings deduction (verses a graduated minimum earnings
deducted prior to a percentage participation calculation). 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.

The formation of this venture allowed the Company to more ably avail
itself of the research and development capacity of InCon for specialty
processing without being encumbered by capital requirements of the operation or
for new facilities. As new functional nutrition products are developed within
Bionutrics, and InCon Processing designs and engineers systems necessary for
their processing, the Company will look initially to ACH for manufacturing.
ACH will provide the manufacturing of these products where feasible and when
such manufacturing is taken on by ACH, capital expenditures and operational
responsibilities will also be theirs. It is managements view that the InCon
Processing venture with ACH, in a practical sense, enhances Bionutrics
manufacturing base, broadens the valued partnership between Bionutrics and ABF,
and gives the Company greater strength to deal with its future marketing
partners.

A critical aspect of the core competency of the Company is the ability to
engineer and design equipment necessary to convert raw material sources into
value-added active compounds and nutritional products. 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 and ACHs manufacturing abilities give the
Company competitive and operational advantages.

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

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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, membrane separation and enzymatic fermentation
are potentially employed in its designed systems.

InCon Processing provides toll molecular separation services for Eastman
Chemical and other 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 material
sourcing and sells specifically designed equipment to unrelated third parties
as part of 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. However, the Company believes that InCon
Processings management enjoys an excellent reputation in the field, has
long-standing relationships with its customers and, particularly with the
advantage of its state-of-the-art equipment, believes it is well-positioned to
retain and expand its customer base.

Key Customers

During fiscal year 1999, total gross revenues were $3,690,000, of which
23% were attributable to sales of evolvE® and 67% were from toll processing.
Of the revenues generated at InCon, Eastman Chemical Co. and ADM accounted for
approximately 44% and 22% of those revenues, respectively. During fiscal year
2000, total gross revenues were $356,000, of which 41% were attributable to
sales of evolvE®, 31% were from a grant received from the National Heart, Blood
and Lung Institute and the remaining 28% were related to product development
activities. The product development revenues were received from Mead Johnson
Nutritionals. During fiscal 2001, gross revenues were $96,000, of which 100%
were attributable to the sales of evolvE®.

Patents and Trademarks

As of October 31, 2001, Bionutrics has ten issued U.S. patents and eleven
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. Furthermore, the Company has acquired one U.S. patent with four
corresponding foreign patent applications claiming methods for promoting weight
and fat loss. In addition, the Company has secured exclusive licenses under
eleven additional U.S. patents and two additional pending U.S. patent
applications relating to other therapeutic and diagnostic areas of commercial
interest to the Company.

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 Bionutrics and through method and
process claims, protects methods for using and processes for producing those
compounds. The patent may also serve to protect the Clearesterol ingredient
contained in Bionutrics evolvE® brand dietary supplement. 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 another 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 continues to enhance its portfolio of patents covering the use
tocotrienols to treat and prevent a wide range of disorders and conditions. In
July 1999, a broad U.S. patent was issued to Bionutrics 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 y-tocotrienol), as well as Bionutrics novel

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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, the Company received another patent (U.S. patent 6,143,770) for
a composition comprising tocotrienol, or a mixture thereof, and nicotonic acid.
This technology has application to cardiovascular health and diabetes.
Additional U.S. and foreign patent applications that focus on other diseases
and conditions are pending.

Bionutrics continues to protect its trademarks by seeking registration in
the U.S. and abroad. Bionutrics obtained U.S. trademark protection for the
evolvE® brand name and associated logo in fiscal year 1997 and has obtained
additional registrations in certain foreign countries. In January 1999,
Bionutrics obtained registration of the mark P25 for one of its proprietary
tocotrienols. In September and October 1999, the Company was granted
registration of the marks Vitenol and Vitenol E. In November 1999 and March
2000, the Company obtained registration of two separate marks for Clearesterol
and the related logo. U.S. and foreign trademark applications are currently
pending for other marks that the Company uses or intends to use on its
products.

Bionutrics has also continued its activities directed towards acquiring
additional patents and other intellectual property to augment its holdings. In
late 1995, Bionutrics acquired a U.S. patent from the Wisconsin Alumni Research
Foundation (U.S. patent 4,603,142) covering the use of a-tocotrienol for
lowering cholesterol. This patent serves to protect Bionutrics dietary
supplement, evolvE®, which contains a significant amount of a-tocotrienol. In
1997, Bionutrics acquired a U.S. patent from Dr. Tung-Ching Lee (U.S. patent
5,047,254) covering a process for recovering edible oil from rice bran. This
patent has since been assigned to ABF/ACH as part of a strategic alliance
formed in August 1998. In 1999, Bionutrics licensed the exclusive rights to
certain proprietary technology owned by Eric Kuhrts, Lipoprotein Diagnostics,
Inc., and Hauser-Kuhrts, Inc., located in California (See Special
Considerations  Reliance on patents, licenses and intellectual property
rights). This technology relates to two main areas: (1) niacin/fiber
compositions having cardiovascular applications and (2) oxidative stress
diagnostic test kits to measure the positive effects of dietary antioxidants,
as well as the negative impact of environmental factors (such as smoking) and
disease states. In February 2000, Bionutrics acquired the rights to certain
patents and patent applications owned by John Gustin and Mark F. McCarty
claiming methods for promoting weight and fat loss. Bionutrics intends to
pursue commercializing these technologies independently, as well as possibly
integrating them with Bionutrics existing proprietary technology.

As a part of the August 1998 Bionutrics/ABF agreement, Bionutrics
transferred certain rights in Bionutrics rice bran processing technology to
ACH. Most notably, Bionutrics assigned to ACH its rights in U.S. patent
5,047,254 and in the process claims of future Bionutrics patents in North
America as they pertain to rice bran. In the June 1999 InCon Processing
transaction (see InCon Processing above), Bionutrics wholly owned
subsidiary, InCon, has assigned certain of its current and future intellectual
property rights to InCon Processing relating to processing of natural source
materials. InCon retained, however, all current and future rights relating to
proprietary compounds and compositions of matter having biological activity
and/or utility and products incorporating such compositions of matter.

Competition

The market for functional nutrition is presently developing with many
companies just beginning to determine how and if they will compete in this new
segment. Candidate companies for mass-market retail competition include
virtually all firms 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, 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, to one degree or another,
represent potential strategic partners for firms entering the field depending
upon the significance and value of the technology they bring.

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Because the ethical drug and functional food markets are highly
competitive and require extensive resources to develop new products, the
Company intends to pursue strategic partnerships for this purpose. 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. Its research in the near term is expected to focus on
compounds and devices in the preclinical stage of development.

Government Regulation

Dietary Supplements

The Federal Food and Drug Administration (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 approved health claims for dietary supplements seldomly,
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.

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. Nor can a claim be made
that would be interpreted as a health claim under NLEA, that is, generally a
claim that the 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

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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 a new drug application (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, if the health claim is to be used at all, may 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 so 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.

On December 24, 1996, the Company filed its notification letter for the
evolvE® dietary supplement with FDA with respect to the products statements of
nutritional support. Although DSHEA only requires companies to notify FDA, the
agency has adopted an unofficial policy of responding with a letter, which has
become known as a courtesy letter, when it believes that there may be a
question with respect to any statement of nutritional support. On January 29,
1997, FDA responded with a courtesy letter raising questions concerning one of
Bionutrics statements of nutritional support. In its March 10, 1998,
notification to FDA, the Company announced labeling changes  to add a
statement on the importance to cholesterol-lowering of a low-fat diet and
exercise  in deference to FDAs courtesy letter. At present, the Companys
chief structure/function claims for evolvE® are that it works to help lower
cholesterol when taken as part of an overall program including a low-fat,
low-cholesterol diet and exercise, acts as a powerful antioxidant and promotes
normal circulation.

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® 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 such, the Company has reviewed and, where necessary, is revising its
claims for evolvE® 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 partner ABF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.

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

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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 who 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 such regulations in connection with the manufacture of such
products. However, the Companys manufacturing contractors are independent
companies, and their labeling, marketing and distribution of such 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.

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 such 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 in food additive petition
to FDA setting forth how the ingredient is to be used in food 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 the GRAS affirmation or as part of the
food additive petition. The Company can seek judicial review if it disagrees
with the FDA determination.

For dietary ingredient 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 introduce or deliver for introduction into interstate commerce
a dietary supplement that contains a new dietary ingredient that has

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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 such new dietary ingredient does not present a significant or
unreasonable risk of harm, the 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
regulatory schemes.

Drugs

Products that are intended for use in the diagnosis, cure, mitigation,
treatment or prevention of disease in humans are subject to extensive
governmental regulation. All such products must undergo extensive
characterization, and are subject to regulation for quality assurance,
toxicology and safety. Products containing such agents must undergo thorough
preclinical and clinical evaluations of performance as to safety and efficacy
under approved protocols.

The Company intends to pursue regulatory approval for the pharmaceutical
and related uses of drug products. Such pharmaceutical products will be
subject to the regulatory approval processes for new drugs. 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 necessary filings (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 its proposed drug products are safe and will be efficacious
under these regulatory procedures.

Employees

The Company currently employs 9 people. Of the current employees, two are
involved in marketing and sales at Bionutrics Health Products, five in
corporate and general administration, and two in research and development at
LipoGenics.

Special Considerations

The Company 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. Additional revenue sources have only recently been
acquired or developed. Accordingly, there is limited historical financial
information about the Company upon 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 $38.2 million through its fiscal year ended October 31, 2001.
The Companys operations to date have progressed from research and development
activities to the marketing and sale of its first product evolvE®. All other
products are in the developmental stage. Sales of evolvE® or other 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 a new business
enterprise including limited capital, delays in product development, possible
cost overruns due to price increases in raw

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product and unforeseen difficulties in its manufacturing processes,
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
resources 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 requires additional financing of at least $3,000,000 to support its
general working capital needs as well as to fund the research and development
costs necessary to complete the launch of its recently developed products.
The Company is currently in negotiations to secure this necessary capital
through equity private placements as well as debt financing. The Company does
not at this time have any committed sources of financing, other than the
Justicia equity line of credit, the terms of which currently prohibit the
Company from drawing down any funds. There can be no assurance that additional
financing will be attainable on terms acceptable to the Company, or at all, at
such time as the Companys needs may require. If such 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. Equity financing could result in additional
dilution to existing shareholders. As of October 31, 2001, the Company had
negative working capital of $2,115,000 and total current assets of $167,000.
The losses incurred to date, the uncertainty regarding the ability to raise
additional capital and the Companys inability 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 3 years in the period ended October
31, 2001, also indicates that there is substantial doubt about the Companys
ability to continue as a going concern.

If the Companys business plan assumptions prove to be inaccurate, the business
will suffer.

The Company has formulated its business plans and strategies based on
certain assumptions regarding opportunities in the pharmaceutical market based
on the Companys technology, the depth and nature of edible oil and derivative
products markets, the size of the dietary supplement market, the Companys
anticipated share of these markets and the estimated price and acceptance of
the Companys projected products. If the Companys assumptions regarding these
factors prove to be incorrect, its business will suffer. Any future success
that the Company might enjoy will depend upon many factors including factors
that may be beyond the control of the Company or that cannot be predicted at
this time. Factors beyond the Companys control may include changes in the
pharmaceutical, edible oil (and processing derivatives) and dietary supplement
industry, governmental regulation, increased levels of competition including
the entry of additional competitors and increased success by existing
competitors, changes in general economic conditions, increases in operating
costs including costs of production, supplies, personnel, equipment and reduced
margins caused by competitive pressures and other factors.

The health food industry is intensely competitive, and the Companys
failure to compete effectively may limit its ability to achieve profitability.

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 functional nutrition market
presently developing. Candidate companies for mass-market retail competition
include virtually all firms currently engaged in retail mass-market consumer
marketing of food and over the counter, or 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 present formidable competition for any firm
considering entering the functional nutrition business. Other companies have
recently announced tocotrienol (a new form of vitamin E) supplement products,
including Eastman Chemical

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Company, whose new product is also derived from rice bran oil and claims
antioxidant properties. Many of the competitors have established reputations
for successfully developing and marketing dietary supplement products. Many of
such companies have greater financial, managerial and technical resources than
the Company, which may put it at a competitive disadvantage. Even though the
Company intends to license its dietary supplement to marketing partners and
this would eliminate certain elements of risk, the Company may not be
successful in its licensing efforts or its potential marketing partners may not
be successful in marketing and selling the Companys products. If the Company
is not successful in competing in the dietary supplement market, it may not be
able to achieve profitability.

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

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 customers may discontinue to outsource toll
processing to InCon Processing, or that they may choose to utilize a different
local processor instead of InCon Processing. If either of these events occur,
InCon Processings revenue would suffer.

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 through strategic partnerships. The principal focus of these
relationships is the funding of the marketing, sales and co-promotion of its
technology/products. Manufacturing is also intended to be achieved through
partnerships, either as part of a marketing agreement with given companies, or
by contract with companies exclusive of marketing and sales. The Company may
not be able to successfully 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 has formed an alliance with ABF (Associated British Foods,
Plc) to pursue the exploitation of certain food processing by-product streams.
As part of this alliance, ACH Food Companies, Inc. (ACH, a U.S. division of
ABF) is considering the exploitation of rice bran derivative products. The
rice bran, rice bran oil and other derivative products business is highly
competitive and ACH may not succeed or produce profits, of which the Company is
entitled to 15% EBIT, or ACH may not decide to stay in the business even if
profitable. As of October 31, 2001, the Company has received no revenue from
this alliance.

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

The processing, formulation, packaging, labeling and advertising of the
Companys products are primarily subject to regulation by FDA and FTC. In
addition, individual state attorneys general have authority to enforce
individual state consumer protection acts within their own states. Although
Congress has recently recognized by enacting DSHEA the potential impact of
dietary supplements in promoting the health of U.S. citizens, there are a
number of new provisions not yet subject to judicial interpretation with
respect to FDAs regulation of dietary supplements and the Company cannot
predict the ultimate effect of DSHEA. Further, because of the technical
requirements imposed by DSHEA, the Company believes it may be difficult for any
company manufacturing or marketing dietary supplements to remain in strict
compliance. FDA has recently promulgated regulations effective in March 1999
in part to implement DSHEA. Proposals have also been made to modify or change
the provisions of DSHEA. It is impossible to predict whether those proposed
changes will become law or the full effect that such regulations will have on
the business and operations of the Company. Various aspects of the new
regulations are still being reviewed by the Company. Material changes in the
labeling of all dietary supplement products, including products sold by the
Company, are and will be required. In addition, due to the finalization of the
FDAs structure/function regulations on January 6, 2000, the Company is
modifying cholesterol claims presently being made for the Companys evolvE®
product.

13



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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 is unable to
obtain 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 pharmaceutical industry is subject to extensive federal regulation and
oversight by the FDA. For instance, the Federal Food, Drug and Cosmetic Act,
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.

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® dietary supplement,
containing a patented tocotrienol vitamin E ingredient, Clearesterol, derived
from rice bran. The Company is not actively marketing evolvE® 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 two new
products, however, it is not yet marketing them. The Companys dependence on a
limited number of products increases risk since a failure to gain market share
or a decline in demand could cause revenue to decline.

Two customers accounted for approximately 34 and 30 percent of InCon
Processings revenues related to its core business of toll processing and
molecular distillation for the 12 months ended August 31, 2001. InCons
utilization of facilities has dropped to approximately 35% due to customer
cutback or delays in the scheduling of product tolling. Accordingly, InCon 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 the InCons tolling as scheduled.

The Companys participation in ACHs efforts to market derivative products
is just beginning and ACH may fail to continue to pursue the product and market
development or capture a critical share of the market for such products to
ensure continued marketing and sale of the products. A limited number of
customers or limited commitment by ACH to develop the derivative products could
adversely affect the Companys revenue by decreasing or eliminating sales.

14



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##### 



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

As a marketer of dietary supplements that are 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 and the Company maintains product
liability insurance, 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.

The Company depends on its marketing partners to market its products.

The Company is dependent on its ability to market through marketing
partners its products to large mass merchandise and health food retailers and
to other companies for use in their products. The Company does not anticipate
that long-term contractual relationships will be entered into with any of its
customers. The Company has stated its intent to rely in the future on
strategic partnerships with marketing companies to market and sell its current
and to-be-developed functional nutrition products. The Company may not be
successful in finalizing such strategic partnerships. Even if finalized, the
selected strategic partner(s) may not be successful in marketing and selling
the Companys products.

The Companys business will suffer if its technology is questioned or
refuted.

The Company has invested a decade in research and development to
demonstrate the value of its technology and secure patents and make patent
applications. The Company has chosen to apply for and secure and acquire by
acquisition patent protection of strategic elements of this technology. The
science upon which the technology is based may be refuted or otherwise drawn
into question by further research conducted by the Company or independent
laboratories or its strategic partners. The Companys business would suffer if
such an event were to occur.

If the Company receives unfavorable publicity, its business could be
harmed.

The Company believes the functional nutrition market is affected by
national media attention regarding the consumption of dietary supplements.
Negative publicity concerning future nutritional or other scientific research
could be unfavorable to the functional nutrition market or any particular
product within that market, or be inconsistent with earlier favorable research
or publicity. Future reports of research that are perceived as less favorable
or that question such earlier research could hurt the Companys business.
Because the value of the Company is in part dependent upon consumer
perceptions, negative publicity concerning any adverse effects resulting from
the consumption of the Companys products, products based on the Companys
technology, or any similar products distributed by other companies could also
hurt the Companys business. Such adverse publicity could arise even if the
adverse effects associated with such products resulted from consumers failure
to consume such products as directed. In addition, the Company may not be able
to counter the effects of negative publicity concerning the efficacy of its
products. Some of the Companys technology and products are derived from
natural sources, and there are naturally occurring variations in compositions
of these sources. These naturally occurring variations in a source composition
could affect a products functionality, which may in turn require the Company
to modify its processing methodology or the product formulations. Such changes
or modifications could negatively impact consumer perception and hurt the
Companys business.

15



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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, LLC. 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 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 of 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 also has an agreement to acquire certain proprietary
rice bran derived ingredients from ACH, if and when needed. If ACH encounters
difficulties in obtaining, on commercially reasonable terms, quality rice bran
for use in its manufacturing process and if the Company could not arrange a
timely and cost effective alternative, the Company or its strategic partners
could experience production delays or the inability to fulfill orders on a
timely basis. The purchase of the derivative products from ACH is on a
cost-plus basis, any material increase in projected costs of manufacture could
materially affect the Companys or any strategic marketing partners ability to
compete with any functional food product containing such ingredients. The
Company may also rely on United States or other First World sources for
processing of ingredients from time to time. In the event these or Third World
contract manufacturers cannot meet manufacturing and delivery requirements, the
Company or its strategic partners may suffer interruptions or failure to
deliver. Access to replacement sources could be delayed depending on the cause
of the delay.

The Company may experience difficulty in entering international markets.

The creation of strategic partnerships and the marketing and sale of the
Companys 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 patents and patent applications are sufficiently
comprehensive to protect evolvE®or other Company products intended. The
process of seeking further patent protection can be long and expensive, and
there can be no assurance that all patents will issue from the fifty-five
currently pending or 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
basis on

16



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##### 



which it has made further patent applications correspond to the patents
that have been issued for composition and method of production and use and is
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.

The Company has licensed certain rights relating to patents for
compositions and the use of those compositions to modulate blood lipids. The
Company and licensor have a disagreement on performance requirements of various
elements of the agreements. If the Company is not able to resolve the
disagreement with the licensor or if lengthy litigation results from the
disagreement, in addition to the cost of such litigation, the technology and
any related products may not be available to the Company for commercialization,
now or in the future.

The Companys stock is thinly traded and may experience price volatility,
which could affect your ability to sell our stock or the price for which you
can sell it.

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. The Companys
common stock was quoted on the Nasdaq SmallCap Market under the symbol BNRX
from November 19, 1997 until July 18, 2001. 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. Since July 19,
2001, the Companys common stock has been quoted on the OTC Bulletin Board
under the symbol BNRX.OB. On July 31, 2001, the Company requested that the
Nasdaq Listing and Hearing Review Council review the July 18, 2001 delisting
decision. In October 2001, the Listing Council reviewed the delisting decision
and declined to relist the Company at that time. The Company intends to
reapply to list its securities on the Nasdaq SmallCap Market immediately at
such time that it meets the then applicable Nasdaq listing requirements. There
can be no assurance that the Company will ever meet such criteria, and, even if
it does, there can be no assurance that Nasdaq will decide to relist the
Companys stock, or under what conditions any such relisting may take place.

The stock markets have experienced extreme price and volume fluctuations
during recent periods. The following data illustrates the volatility of the
Companys common stock over the past two fiscal years ended October 31, as
adjusted for a one-for-five reverse stock split effected at the close of
business on May 29, 2001:

|                            |                                                          |  |      |       |     |  |  |      | 
|--------------------------- | -------------------------------------------------------- |  | ---- | ----- | --- |  |  | ---- | 
|                            |                                                          |  | High |       | Low
|                            |                                                          |  |      |       |    
|Year Ended October 31, 2000 |                                                          |  |      |       |     |  |  |     
|                           
|                           
|                           
|                           
|                            | First Quarter                                            |  |      | 15.63 |     |  |  | 7.50 | 
|                           
|                           
|                           
|                           
|                            | Second Quarter                                           |  |      | 47.50 |     |  |  | 4.69 | 
|                           
|                           
|                           
|                           
|                            | Third Quarter                                            |  |      | 10.94 |     |  |  | 5.63 | 
|                           
|                           
|                           
|                           
|                            | Fourth Quarter                                           |  |      | 8.13  |     |  |  | 4.06 | 
|                           
|                           
|                           
|                           
|                            |                                                          |  |      |       |     |  |  |     
|                           
|                           
|                           
|                           
|Year Ended October 31, 2001 |                                                          |  |      |       |     |  |  |     
|                           
|                           
|                           
|                           
|                            | First Quarter                                            |  |      | 5.94  |     |  |  | 2.03 | 
|                           
|                           
|                           
|                           
|                            | Second Quarter                                           |  |      | 5.16  |     |  |  | 1.85 | 
|                           
|                           
|                           
|                           
|                            | Third Quarter (stock delisted from Nasdaq July 18, 2001) |  |      | 3.60  |     |  |  | 0.30 | 
|                           
|                           
|                           
|                           
|                            | Fourth Quarter                                           |  |      | 2.97  |     |  |  | 0.30 | 

17



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These broad market fluctuations and other factors may adversely affect the
market price of the common stock, which could affect both your ability to sell
the Companys stock and the Companys ability to raise necessary capital and
finance possible acquisitions including acquisitions of technology.

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

As of October 31, 2001, options to acquire a total of 379,333 shares were
outstanding under the Companys 1996 Stock Option Plan. An additional 180,820
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 332,030 shares of common stock. 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 such
options and warrants can be expected to exercise such 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 such 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 such 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. See Shares Eligible for Sale.

Sales of large numbers of shares could adversely affect the price of the
Companys common stock.

Of the 4,352,600 shares outstanding as of October 31, 2001, 3,953,723 are
eligible for resale in the public markets. Of these eligible shares, 1,825,390
shares are eligible for resale in the public markets subject to compliance with
the volume and manner of sale rules of Rule 144 under the Securities Act of
1933, as amended, and 2,128,333 are eligible for resale in the public markets
either as unrestricted shares or pursuant to Rule 144(k). In general, under
Rule 144 as currently in effect, any person (or persons whose shares are
aggregated for purposes of Rule 144) who beneficially owns restricted
securities with respect to which at least one year has elapsed since the later
of the date the shares were acquired from the Company, or from an affiliate of
the Company, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
common stock of the Company and the average weekly trading volume in common
stock during the four calendar weeks preceding such sale. Sales under Rule 144
also are subject to certain manner-of-sale provisions and notice requirements
and to the availability of current public information about the Company. A
person who is not an affiliate, who has not been an affiliate within three
months prior to sale and who beneficially owns restricted securities with
respect to which at least two years have elapsed since the later of the date
the shares were acquired from the Company, or from an affiliate of the Company,
is entitled to sell such shares under Rule 144(k) without regard to any of the
volume limitations or other requirements described above. Sales of substantial
amounts of common stock in the public market could adversely affect prevailing
market prices.

The Company has registered for offer and sale up to 570,000 shares of
common stock that are reserved for issuance pursuant to the Companys 1996
Stock Option Plan. Shares issued after the effective date of such registration
statement upon the exercise of stock options generally will be eligible for
sale in the public market, except that affiliates will continue to be subject
to volume limitations and other requirements of Rule 144. The issuance of such
shares could depress the market price of the Companys common stock.

On March 22, 2000, the Company registered for the sale of up to 66,000
shares of common stock issuable upon the exercise of warrants and options held
by certain selling stockholders.

On September 7, 2000, the Company executed a registration rights agreement
under which the Company agreed to file a registration statement with the SEC
for the resale of the shares of its common stock issuable in connection with a
common stock purchase agreement with Justicia Holdings Limited dated September
7, 2000. The agreement permits the Company, in its sole discretion and subject
to certain restrictions, to sell up to an aggregate of 800,000 shares plus
40,000 shares issuable upon exercise of warrants granted in connection with the
common stock purchase agreement. The period during which the Company can make
such sales is two years beginning upon the

18



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effective date of a registration statement for the resale of the shares.
The Company also agreed to include in this registration statement 5,000 shares
of common stock issued in payment of expenses. A registration statement
covering such shares was filed in February 2001 but is not yet effective.

The Companys common stock purchase agreement with Justicia Holdings
Limited would limit the Companys ability to sell its securities for cash at a
discount to the market price pursuant to an equity line type of financing for
24 months from the effective date of the registration statement or 60 days
after the entire 800,000 shares have been purchased. This restriction would
limit the Companys ability to access the capital markets.

On January 31, 2001, the Company registered for resale up to 112,000
shares of common stock and common stock issuable upon the exercise of warrants
held by certain selling stockholders.

The sales of shares under these registration statements could depress the
market price of the Companys common stock.

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. The Nevada
Law also imposes conditions on certain business combination transactions with
interested stockholders (as defined therein). The Restated Articles provides
for a staggered board, which makes it more difficult for the shareholders 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.

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 expressed in or implied by such forward-looking statements. Factors that
could cause actual results to differ materially include those discussed under
Special Considerations.

19



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ITEM 2.   PROPERTIES

Facilities and Equipment

The total rental expense for fiscal 2001 for the Company and its
subsidiaries was $191,000.

The Company currently leases its principal executive offices in Phoenix,
Arizona. The office contains approximately 6,155 square feet. The term of the
lease is for 60 months commencing January 27, 1998 and monthly lease payments
are approximately $13,600.

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 VOTE OF SECURITY HOLDERS

None.

20



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PART II

ITEM 5.  MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Companys common stock was quoted on the Nasdaq SmallCap Market from
November 19, 1997 until July 18, 2001. Since July 19, 2001, the Companys
common stock has been quoted on the OTC Bulletin Board.

|                            |                                                          |  |      |       |     |  |  |      | 
|--------------------------- | -------------------------------------------------------- |  | ---- | ----- | --- |  |  | ---- | 
|                            |                                                          |  | High |       | Low
|                            |                                                          |  |      |       |    
|Year Ended October 31, 1999 |                                                          |  |      |       |     |  |  |     
|                           
|                           
|                           
|                           
|                            | First Quarter                                            |  |      | 10.00 |     |  |  | 6.25 | 
|                           
|                           
|                           
|                           
|                            | Second Quarter                                           |  |      | 11.25 |     |  |  | 5.94 | 
|                           
|                           
|                           
|                           
|                            | Third Quarter                                            |  |      | 20.63 |     |  |  | 3.13 | 
|                           
|                           
|                           
|                           
|                            | Fourth Quarter                                           |  |      | 11.09 |     |  |  | 6.56 | 
|                           
|                           
|                           
|                           
|                            |                                                          |  |      |       |     |  |  |     
|                           
|                           
|                           
|                           
|Year Ended October 31, 2000 |                                                          |  |      |       |     |  |  |     
|                           
|                           
|                           
|                           
|                            | First Quarter                                            |  |      | 15.63 |     |  |  | 7.50 | 
|                           
|                           
|                           
|                           
|                            | Second Quarter                                           |  |      | 47.50 |     |  |  | 4.69 | 
|                           
|                           
|                           
|                           
|                            | Third Quarter                                            |  |      | 10.94 |     |  |  | 5.63 | 
|                           
|                           
|                           
|                           
|                            | Fourth Quarter                                           |  |      | 8.13  |     |  |  | 4.06 | 
|                           
|                           
|                           
|                           
|                            |                                                          |  |      |       |     |  |  |     
|                           
|                           
|                           
|                           
|Year Ended October 31, 2001 |                                                          |  |      |       |     |  |  |     
|                           
|                           
|                           
|                           
|                            | First Quarter                                            |  |      | 5.94  |     |  |  | 2.03 | 
|                           
|                           
|                           
|                           
|                            | Second Quarter                                           |  |      | 5.16  |     |  |  | 1.85 | 
|                           
|                           
|                           
|                           
|                            | Third Quarter (stock delisted from Nasdaq July 18, 2001) |  |      | 3.60  |     |  |  | 0.30 | 
|                           
|                           
|                           
|                           
|                            | Fourth Quarter                                           |  |      | 2.97  |     |  |  | 0.30 | 

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

On October 31, 2001, the closing price of the common stock on the OTC
Bulletin Board was $2.93. As of October 31, 2001, there were 134 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

In October 2001, the Company executed an amended and restated consolidated
multiple advance non-revolving note to borrow up to $700,000 from its
affiliates. The accreted interest is equal to $140,000 if the full $700,000 is
advanced under the loan. The note is payable in full on the earlier of (a)
January 2, 2002, (b) the funding of any loan in cumulative amounts in excess of
one million dollars, or (c) the issuance by the company of any common stock or
preferred stock in cumulative amounts in excess of one million dollars, (d) the
sale of any assets for an amount equal to at least two million dollars. As of
October 31, 2001, the Company has borrowed $583,000 under the note.
Subsequent to year-end, the note has been amended to increase the amount that
can be borrowed under the note to $860,000 and to extend the term to March 1,
2002. As of January 28, 2002 the Company had borrowed $805,000 under the note.
The note is secured by the assets of the Company and is convertible, at the
option of the Lenders, into shares of the Companys common stock at the rate of
$1.00 per share.

21



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The sales and issuances of the securities in the transactions above were
deemed to be exempt from registration under the 1933 Act by virtue of Section
4(2). Appropriate legends have been placed on the documents evidencing the
securities and investment representations were obtained from the purchasers.
All purchasers of securities either received adequate information about the
Company or had access, through employment or other relationships, to such
information and were sophisticated investors. All such securities issued
pursuant to such exemption are restricted securities as defined in Rule
144(a)(3) promulgated under the 1933 Act.

22



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ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the Companys consolidated financial 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. See Item 14, Exhibits,
Financial Schedules and Reports on Form 8-K, for the historical financial
statements of, and other financial information regarding, the Company.

|                                       |  |             |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |             |  
|-------------------------------------- |  | ----------- | ---------- | ---- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | - |  | - | ----------- | -
|                                       |  | Year Ended 
|                                       |  | October 31,
|                                       |  |            
|                                       |  | 2001        |            | 2000 |  | 1999 |            | 1998 |  | 1997
|                                       |  |             |            |      |  |      |            |      |  |     
|Statement of Earnings Data:            |  |             |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |             |  
|                                      
|                                      
|                                      
|                                      
|Gross Revenues                         |  | $           | 95,978     |      |  | $    | 355,624    |      |  | $    | 3,689,747  |   |  | $ | 6,653,904  |   |  | $ | 2,862,843   |  
|                                      
|                                      
|                                      
|                                      
|Net Revenues                           |  |             | 37,630     |      |  |      | 134,079    |      |  |      | 3,131,485  |   |  |   | 6,351,278  |   |  |   | 2,427,119   |  
|                                      
|                                      
|                                      
|                                      
|Cost of Sales                          |  |             | 59,746     |      |  |      | 165,042    |      |  |      | 2,334,839  |   |  |   | 7,259,015  |   |  |   | 5,013,751   |  
|                                      
|                                      
|                                      
|                                      
|Gross Profit (Loss)                    |  |             | (22,116    | )    |  |      | (30,963    | )    |  |      | 796,646    |   |  |   | (907,737   | ) |  |   | (2,586,632  | )
|                                      
|                                      
|                                      
|                                      
|Operating Expenses                     |  |             | 2,464,974  |      |  |      | 2,952,233  |      |  |      | 5,813,116  |   |  |   | 10,794,811 |   |  |   | 10,022,163  |  
|                                      
|                                      
|                                      
|                                      
|Other Income (Expense)                 |  |             | (402,095   | )    |  |      | (162,660   | )    |  |      | (391,193   | ) |  |   | 2,426,291  |   |  |   | 266,929     |  
|                                      
|                                      
|                                      
|                                      
|Net Loss                               |  |             | (2,889,185 | )    |  |      | (3,145,856 | )    |  |      | (5,407,663 | ) |  |   | (9,276,257 | ) |  |   | (12,341,866 | )
|                                      
|                                      
|                                      
|                                      
|Basic and Diluted Loss Per Share(1)    |  |             | (.64       | )    |  |      | (.75       | )    |  |      | (1.31      | ) |  |   | (2.48      | ) |  |   | (3.87       | )
|                                      
|                                      
|                                      
|                                      
|Weighted Average Shares
Outstanding(1) |  |             | 4,540,108  |      |  |      | 4,189,794  |      |  |      | 4,142,931  |   |  |   | 3,743,352  |   |  |   | 3,208,557   |  
|                                      
|                                      
|                                      
|                                      
|Balance Sheet Data:                    |  |             |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |             |  
|                                      
|                                      
|                                      
|                                      
|Working Capital (Deficit)              |  |             | (2,114,842 | )    |  |      | (1,615,238 | )    |  |      | (312,490   | ) |  |   | 651,814    |   |  |   | 560,525     |  
|                                      
|                                      
|                                      
|                                      
|Total Assets                           |  |             | 3,264,070  |      |  |      | 4,385,989  |      |  |      | 5,044,777  |   |  |   | 10,537,524 |   |  |   | 13,831,952  |  
|                                      
|                                      
|                                      
|                                      
|Total Liabilities                      |  |             | 2,281,909  |      |  |      | 2,506,430  |      |  |      | 1,719,212  |   |  |   | 2,995,647  |   |  |   | 4,782,726   |  
|                                      
|                                      
|                                      
|                                      
|Stockholders equity                    |  |             | 982,161    |      |  |      | 1,879,559  |      |  |      | 3,325,565  |   |  |   | 7,541,877  |   |  |   | 9,036,319   |  



---

|(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 795,066, 1,198,363,
1,072,029, 991,596 or 549,916 shares of common stock for the years ended
October 31, 2001, 2000, 1999, 1998 and 1997, respectively, that may be issued
upon exercise of outstanding stock options, warrants and convertible preferred
stock as they are antidilutive.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23



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ITEM 7.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. Factors that might cause such a difference includes, but is not limited
to, those discussed under Business  Special Considerations.

Introduction

Results of operations for fiscal 2001 reflect the current strategy of
Bionutrics, Inc., to continue its efforts to reposition the Company as a
product development company. 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s 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.

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®, 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 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 has sought marketing and manufacturing partners for the
Companys products and has focused efforts on the core competency of the
Company, that 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 is 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 is to leverage its core
competency to obtain revenue from both the manufacturing and marketing of these
value-added micronutrients and nutritional commodity product streams.

24



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##### 



To streamline operations and cut costs, late in 1998 the Company sold its
rice bran extraction operation together with related technology to the ABF
subsidiary, ACH (formerly AC HUMKO), for approximately $4.5 million.
Bionutrics also reduced its employee base by one-half as part of a
restructuring of the way the Company markets its principal product, evolvE®.

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, LLC. InCon transferred substantially all of its
assets to the newly formed LLC for which it received a payment of $3,000,000
and a 50% interest in the new company. The formation of this venture allowed
the Company to more ably avail itself of the research and development capacity
of InCon for specialty processing without being encumbered by capital
requirements of the operation or 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 our ability to continue as a going concern from its independent auditors
due to the significant recurring operating losses. Additionally, at October
31, 2001, 2000 and 1999 the Company had negative working capital. However, the
Company is working towards resolving the conditions giving rise to this opinion
through the efforts outlined above.

The Company has reduced its monthly negative operating cash flow to less
than $150,000 from approximately $1,000,000 during 1998. Despite the reduction
of its monthly negative cash flow, current assets at October 31, 2001 are
$167,000 and accounts payable are $972,000. Management believes the strategy
of partnering manufacturing and marketing to leverage the Companys core
competency of product development is correct at a time when the functional
nutrition market is witnessing such an explosive awakening and growth.
Management also believes that by reducing the Companys labor and
infrastructure costs and focusing on strategic partnerships for revenue
generation, the Company will see significant improvement in its financial
condition in the coming year. If the Company is not successful in its efforts
to secure strategic partnerships to provide the Company with substantial
revenues, management anticipates that operating losses will continue for the
foreseeable future.

25



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##### 



Results of Operations

Year ended October 31, 2001, compared to Year Ended October 31, 2000

Consolidated gross revenues for the 12 months ended October 31, 2001 were
$96,000 versus $356,000 for the same 12 months in 2000, summarized by
subsidiary as follows (intercompany sales excluded):

|                                  |  |      |        |      |  |   |         | 
|--------------------------------- |  | ---- | ------ | ---- |  | - | ------- | 
|Subsidiary                        |  | 2001 |        | 2000
|                                  |  |      |        |     
|Bionutrics Health Products        |  |      | 96,000 |      |  |   | 247,000 | 
|                                 
|                                 
|                                 
|                                 
|LipoGenics                        |  |      | 0      |      |  |   | 109,000 | 
|                                  |  |      |        |      |  |   |         | 
|Total Consolidated Gross Revenues |  | $    | 96,000 |      |  | $ | 356,000 | 
|                                  |  |      |        |      |  |   |         | 

Bionutrics Health Products continues to experience a significant decline
in sales due to curtailment of advertising and support for the brand, evolvE®
because of financial constraints and, therefore, the Company does not expect
evolvE® will contribute significant revenue to its operations in the future.
The Company is repositioning itself as a product development company and as
such is engaged in discussions with several potential marketing partners
concerning new branded ingredients that it is developing, including dietary
supplements and functional food products. Bionutrics Health Products
recognized revenues of $100,000 in the first quarter of fiscal 2000 for
services related to its product development activities. New products will be
based on new technology extending beyond a tocotrienol platform. The Company
has announced that it is launching two new cardiovascular products under the
brand names, Vitenol® E 20/20  For Heart & Health and CARDIO-CINTM  For
Heart and Health. Vitenol E is a rice bran extract and is a more effective
antioxidant that standard vitamin E. CARDIO-CIN is based on Bionutrics
patented niacin and soluble fiber composition. These products are targeted to
the cholesterol dietary supplement market. However, they are not currently
being marketed.

LipoGenics revenues were attributable to a Phase I Small Business
Innovation Research (SBIR) grant from the National Heart, Blood and Lung
Institute. This grant was received during the fourth quarter of fiscal 1999
and was concluded during fiscal 2000. Revenues shown for the year ended
October 31, 2000 relate to this grant.

Cost of revenues for the year ended October 31, 2001, was $60,000 versus
$165,000 for the same period in 2000. This reduction is primarily due to
decreased sales during fiscal 2001 as well as a one-time adjustment to
inventory during fiscal 2000 to reflect market value.

Operating expenses for the year ended October 31, 2001 of $2,465,000 were
$487,000 lower than that recognized for the same period in 2000 of $2,952,000.
This reduction 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 2000.

Other expense for the year ended October 31, 2001 was $402,000 compared to
the prior years expense of $163,000. This increase is primarily due to the
recognition of the Companys 50% equity in the losses of InCon Processing, LLC
for the year ended August 31, 2001.

Net loss decreased to $2,889,000, or $.64 per share for the year ended
October 31, 2001 from $3,146,000, or $.75 per share for the year ended October
31, 2000 due primarily to reduced operating expenses as described above.

26



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##### 



Year ended October 31, 2000, compared to Year Ended October 31, 1999

Consolidated gross revenues for the 12 months ended October 31, 2000 were
$356,000 versus $3,690,000 for the same 12 months in 1999, summarized by
subsidiary as follows (intercompany sales excluded):

|                                  |  |      |         |      |  |   |           | 
|--------------------------------- |  | ---- | ------- | ---- |  | - | --------- | 
|Subsidiary                        |  | 2000 |         | 1999
|                                  |  |      |         |     
|InCon Technologies                |  | $    | 0       |      |  | $ | 2,729,000 | 
|                                 
|                                 
|                                 
|                                 
|Bionutrics Health Products        |  |      | 247,000 |      |  |   | 835,000   | 
|                                 
|                                 
|                                 
|                                 
|Nutrition Technology              |  |      | 0       |      |  |   | 105,000   | 
|                                 
|                                 
|                                 
|                                 
|LipoGenics                        |  |      | 109,000 |      |  |   | 21,000    | 
|                                  |  |      |         |      |  |   |           | 
|Total Consolidated Gross Revenues |  | $    | 356,000 |      |  | $ | 3,690,000 | 
|                                  |  |      |         |      |  |   |           | 

In June 1999, InCon transferred substantially all of its assets to InCon
Processing. Therefore, InCons revenues for the 12 months ended October 31,
2000 are zero as compared to the same period in 1999. As a result of its
investment in InCon Processing, the Company will be entitled to 50% of the
future profits, if any, but it is anticipated that InCon Processing will retain
the cash generated from operations for the foreseeable future to expand and
develop its business.

Bionutrics Health Products revenues reflect the sales of its first
product, evolvE®, as well as revenues related to product development activities
during fiscal year 2000. As of the 12 months ended October 31, 2000, evolvE®
maintained distribution in over 10,000 stores including many leading drug and
food chains throughout the United States. The Company also sells the product
directly to the consumer via the Internet. Nonetheless, sales of evolvE® have
been less than anticipated and declining because the Company was forced to cut
back on budgeted advertising and promotions for the product due to delays in
raising capital during this and prior periods. In addition, some customers
have returned the product due to low volume activity. The provision for
returns account for the year ended October 31, 1999 includes a one-time charge
of $125,000, to increase the allowance account for the possible returns
resulting from the advertising cut back and resulting product expiration. The
Company recognizes that a substantial advertising program is necessary to
achieve growth in the evolvE® product line, and that failure to show positive
sales trends will have a negative impact on obtaining and maintaining
distribution store accounts. The Company is seeking a marketing partner to
provide the resources needed to properly market and promote the evolvE® brand
and other anticipated dietary supplements and functional food products. The
Company is engaged in discussions with several potential marketing partners
involving the present and future brand products.

Nutrition Technology is substantially inactive. Gross revenues reflected
in fiscal 1999 represent remaining byproducts sold out of inventory. In August
of 1998, the Company entered into a contract with ACH which provided: (i) for
the sale of certain rice bran oil and processing assets to ACH; (ii) for the
development of rice bran oil and other derivative products whereby Bionutrics
will receive a perpetual profit sharing interest; and (iii) for a supply
agreement where ACH will provide rice bran-derived ingredients. All elements
of the alliance with ACH were executed on or before October 31, 1998.

LipoGenics revenues were attributable to a Phase I Small Business
Innovation Research (SBIR) grant from the National Heart, Blood and Lung
Institute. This grant was received during the fourth quarter of fiscal 1999
and was concluded during fiscal 2000. Revenues shown for both periods relate
to this grant.

Cost of revenues for the 12 months ended October 31, 2000, was $165,000
versus $2,335,000 for the same 12 months in 1999. This reduction is primarily
due to the new 50/50 joint venture entered into with ACH, which substantially
took over all of the business engaged in by InCon. Due to this transaction
which occurred during fiscal 1999, cost of revenues decreased $2,170,000 for
fiscal 2000 as compared to fiscal 1999.

27



---



##### 



Operating expenses for the 12 months ended October 31, 2000 of $2,952,000
were $2,861,000 lower than that recognized for the same 12 months in 1999 of
$5,813,000. This reduction is primarily due to the 50/50 joint venture entered
into during the third quarter of 1999 with ACH as well as significantly reduced
advertising and salaries expense and a cost containment program.

Other expense for the 12 months ended October 31, 2000 was $163,000
compared to the prior years expense of $391,000. The current year includes
certain non-recurring income items. Both years reflect recognition of the
Companys 50% equity in the losses of InCon Processing LLC.

Net loss decreased to $3,146,000, or $.75 per share for the 12 months
ended October 31, 2000 from $5,408,000, or $1.31 per share for the 12 months
ended October 31, 1999 due primarily to lower cost of revenues and operating
expenses as outlined above.

Liquidity and Capital Resources

Net cash used in operating activities during the year ended October 31,
2001, was $1,691,000 as compared to $1,857,000 during the same period in 2000.
This decrease is due primarily to lower cost of revenues and operating
expenses.

Net cash used in investing activities during the year ended October 31,
2001, was $0 as compared to $3,000 during the same period in 2000.

Net cash provided by financing activities totaled $1,081,000 for the year
ended October 31, 2001, as compared to $1,891,000 for the same period in 2000.
The cash provided was from the sale of common stock and the issuance of short
term notes payable for both years. The cash provided during 2001 reflects
$500,000 from the sale of common stock and $583,000 from short-term notes
payable. The cash provided during 2000 reflects $1,000,000 from the sale of
common stock, $750,000 from short-term notes from a director and $150,000 from
a note payable to an unrelated third party.

In October 2001, the Company executed an amended and restated consolidated
multiple advance non-revolving note to borrow up to $700,000 from its
affiliates. The accreted interest is equal to $140,000 if the full $700,000 is
advanced under the loan. The note is payable in full on the earlier of (a)
January 2, 2002, (b) the funding of any loan in cumulative amounts in excess of
one million dollars, or (c) the issuance by the company of any common stock or
preferred stock in cumulative amounts in excess of one million dollars, (d) the
sale of any assets for an amount equal to at least two million dollars. As of
October 31, 2001, the Company had borrowed $583,000 under the note. Subsequent
to year-end, the note has been amended to increase the amount that can be
borrowed under the note to $860,000 and to extend the term to March 1, 2002.
As of January 28, 2002 the Company had borrowed $805,000 under the note. The
note is secured by the assets of the Company and is convertible, at the option
of the Lenders, into shares of the Companys common stock at the rate of $1.00
per share.

In August, 2001, the Company entered into a stock purchase agreement with
Pharmaceutical Marketing Brands, Inc. (PMB), as nominee, for the purchase of
49% of the Company and options to purchase 5,000,000 shares of common stock at
$1.00 per share, for $5 million. This agreement was amended on October 5,
2001, to assign PMBs rights, as nominee, to its principal HealthSTAR Holding
LLC and to provide for an increase in the investment from $5 million to a
minimum of $6.5 million up to a maximum of $10 million at $1.00 per share of
common stock and for the Company to sell such shares directly to institutional
and or accredited investors subject to a voting agreement among the parties.
The agreement was further amended on October 31, 2001 to essentially extend the
closing date as well as provide for the issuance of 5,227,000 shares of the
Companys common stock at $1.00 per share to HealthSTAR in exchange for a
5-year, interest-bearing promissory note. The amendment also eliminated the
5,000,000 stock options at $1.00 per share. The Company has further agreed, at
initial closing, to enter into certain strategic agreements and purchase
certain assets in the field of pharmaceutical marketing services. On December
28, 2001 the agreement was amended to extend the initial closing date for the
purchase of a minimum number of shares to January 31, 2002 and allow for one or
more subsequent closings until March 31, 2002. On January 29, 2002 the
agreement was amended to extend the initial closing date until March 1, 2002
with subsequent closings on or before May 1, 2002. There can be no assurance
that this stock purchase agreement with HealthSTAR will close.

28



---



##### 



In September 2000, the Company and Justicia Holdings Ltd. entered into a
common stock Purchase Agreement for the future issuance and purchase of shares
of the Companys common stock. The Agreement establishes what is sometimes
termed as an equity line of credit or an equity draw down facility. The
Agreement permits the company, in its discretion, and subject to certain
restrictions, to sell up to an aggregate of 800,000 shares, with the maximum
amount for each sale not to exceed $1,000,000 each month, based on a formula of
weighted average price and total trading volume for a given period. The period
during which the Company can make such sales is two years beginning upon the
effective date of a registration statement for the resale of the shares. The
price is based on the volume weighted average daily price of the Companys
common stock for the 22 trading days following a draw down notice. Drawdowns
are available every 29 trading days. The current stock price and trading
volume severely limit the amount available to the Company at any one drawdown
period. The common stock purchase agreement with Justicia Holdings Ltd limits
the Companys ability to sell its securities for cash at a discount to the
market price pursuant to an equity line type financing for 24 months from the
effective date of the registration statement filed on December 28, 2000 or 60
days after the entire 800,000 shares have been purchased. The Company is not
permitted to drawdown on the equity line until the registration statement filed
on Justicias behalf becomes effective. The Company intends to continue to
pursue such registration statement during fiscal year 2002. There is no
assurance that the registration statement will become effective.

The Company requires additional financing of at least $3,000,000 to
support its general working capital needs such as salaries and administrative
expenses for the next 12 months, as well as to fund the research and
development costs necessary to complete the launch of its recently developed
products. If the Company were in a position to begin phase II trials, it would
require at least an additional $500,000. The Company is currently in
negotiations to secure this necessary capital through equity private placements
as well as debt financing. The Company does not at this time have any
committed sources of financing, other than the Justicia equity line of credit,
the terms of which currently prohibit the Company from drawing down any funds.
There can be no assurance that additional financing will be attainable on terms
acceptable to the Company, or at all, at such time as the Companys needs may
require. Access to additional capital will depend substantially upon
prevailing market conditions, and the Companys financial condition and
prospects at the time. On July 18, 2001, the Companys common stock was
delisted from the Nasdaq SmallCap Market, and the shares are currently quoted
on the OTC Bulletin Board. As a result, activity in the Companys common stock
has declined substantially, which could adversely affect the Companys ability
to raise necessary capital. Such additional financing may not be attainable,
or attainable on terms acceptable to the Company. Access to additional capital
will depend substantially upon prevailing market conditions, and the financial
condition of and prospects for the Company at the time.

The Company has made application for a loan in the amount of $5,000,000 to
a lender that specializes in loans secured by intellectual properties. If the
Company is successful in obtaining this loan, it would receive $5,000,000 cash
(less closing costs and points estimated to total $350,000) and would be
required to place $5,000,000 of debt on its financial statement. The loan is
being negotiated with a 10-11% annual interest cost and a 1% fee for prepayment
during the first 12 months. There is no assurance the Company will succeed in
obtaining this loan or that, if successful in obtaining the loan, that the
terms and conditions will be as described herein.

The loan will be secured by a pod of six patents owned by the Companys
subsidiary, LipoGenics, Inc. If the Company defaults on the loans interest
payments, loan repayment or other material provisions of the loan agreements,
the lender would be entitled to foreclose on the collateral and, in such case,
the Company would lose the patents and all associated rights. The loss of
these patents will likely have a material adverse effect on the Company.

The Companys consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred cumulative operating losses of $38,201,000 through October 31, 2001,
which have been funded through the issuance of stock and debt. The losses
incurred to date, the uncertainty regarding the ability to raise additional
capital and the Companys inability to generate gross profits and positive cash
flows from operations raise substantial doubt about whether the Company will be
able to continue as a going concern for a reasonable period of time.

The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Companys
continuation as a going concern is

29



---



##### 



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.

ITEM 8.   FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

Reference is made to the Consolidated Financial Statements, 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.

PART III

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                 DISCLOSURES

None.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The information required by Item 10 is incorporated by reference to the
information to be contained under the heading Proposal to Elect Directors 
Nominees to be set forth in the Companys definitive Proxy Statement for its
2002 Annual Meetings of Stockholders. The information required by this Item
relating to executive officers of the Company is included in
Business-Executive Officers contained in Item 1 of this Report.

ITEM 11.   EXECUTIVE COMPENSATION

The information required by Item 11 relating to directors of the Company
is incorporated herein by reference to the information to be contained under
the heading Proposal to Elect Directors  Director Compensation and Other
Information to be set forth in the Companys definitive Proxy Statement for
its 2002 Annual Meetings of Stockholders. The information required by this
Item relating to executive officers of the Company is to be included in
Executive Compensation to be set forth in the Companys definitive proxy
statement for its 2002 Annual Meeting of Stockholders.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS and MANAGEMENT

The information required by Item 12 is incorporated by reference to the
information to be contained under the heading Security Ownership of Principal
Stockholders, Directors and Named Executive Officers to be set forth in the
Companys definitive Proxy Statement for its 2002 Annual Meeting of
Stockholders.

30



---



##### 



ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated by reference to the
information to be contained under the heading Certain Relationships and
Related Transactions to be set forth in the Companys definitive Proxy
Statement for its 2002 Annual Meetings of Stockholders.

31



---



##### 



PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

|    |  |           |  |                                                                                                                                                                                                                                                                                  
|--- |  | --------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits: |  |                                                                                                                                                                                                                                                                                  
|   
|    |  | 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      |  | Option granted to Hunt-Wesson, Inc. by LipoGenics, Inc., dated July 1992 (1)                                                                                                                                                                                                     
|   
|   
|   
|   
|    |  | 10.2      |  | Agreement dated October 1995 between the Company and
Milton Okin, Kenneth Okin, Robert Okin and Nicki Closset and
Amendment to Agreement dated October 1995 (1)                                                                                                                  
|   
|   
|   
|   
|    |  | 10.3      |  | Agreement between the Company and C. Everett Koop for
the purchase of 4,000 shares of common stock and the issuance of
36,000 options dated October 1995 (1)                                                                                                                     
|   
|   
|   
|   
|    |  | 10.4      |  | Additional Secured Loan Agreement dated March 1996
between the Company and Milton Okin (1)                                                                                                                                                                                       
|   
|   
|   
|   
|    |  | 10.6      |  | Stock Purchase Agreements dated September 16, 1996
and October 31, 1996 between the Company and Spanswick
Limited(1)                                                                                                                                                             
|   
|   
|   
|   
|    |  | 10.7      |  | 1996 Stock Option Plan, as amended through March 26, 1998 (7)                                                                                                                                                                                                                    
|   
|   
|   
|   
|    |  | 10.8      |  | Form of Stock Purchase Agreement and Subscription
Application entered into between the Company and certain
European investors in January and March 1997 pursuant to
Regulation S (3)                                                                                             
|   
|   
|   
|   
|    |  | 10.9      |  | Form of Stock Purchase Agreement entered into between
the Company and an institutional investor in September 1997 (3)                                                                                                                                                            
|   
|   
|   
|   
|    |  | 10.10     |  | Form of Stock Purchase Agreement and Note between
the Company and two overseas investors in October 1997 (3)                                                                                                                                                                     
|   
|   
|   
|   
|    |  | 10.11     |  | Employment Agreement between the Registrant and John
R. Palmer (3)                                                                                                                                                                                                               
|   
|   
|   
|   
|    |  | 10.13     |  | Agreement and Plan of Merger by and among InCon
Technologies, Inc., InCon Holdings, LLC, Bionutrics, Inc. and
BNRX, Inc.(2)                                                                                                                                                      
|   
|   
|   
|   
|    |  | 10.14     |  | Stock Purchase Agreement dated as of August 14,
1998, between the Registrant and AC HUMKO CORP.(4)                                                                                                                                                                               
|   
|   
|   
|   
|    |  | 10.15     |  | Warrant Agreement dated as of August 14, 1998,
between the Registrant and AC HUMKO CORP.(4)                                                                                                                                                                                      
|   
|   
|   
|   
|    |  | 10.16     |  | Technology 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)                                                                                                      
|   
|   
|   
|   
|    |  | 10.17     |  | 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)                                                                                               
|   
|   
|   
|   
|    |  | 10.19     |  | Form of Asset Purchase Agreement dated as of October
1998 between AC HUMKO CORP. and Bionutrics Entities (6)                                                                                                                                                                     
|   
|   
|   
|   
|    |  | 10.20     |  | Warrant Agreement for the purchase of 20,000 shares
of common stock between the Company and William M. McCormick
dated August 7, 1998 (7)                                                                                                                                        
|   
|   
|   
|   
|    |  | 10.21     |  | Warrant Agreement for the purchase of 120,000 shares
of common stock between the Company and William M. McCormick
dated August 7, 1998 (7)                                                                                                                                       
|   
|   
|   
|   
|    |  | 10.22     |  | Stock Purchase Agreement and Common Stock Purchase
Warrants dated January 28, 1999 between Ropart Investments, LLC
and the Company (8)                                                                                                                                           
|   
|   
|   
|   
|    |  | 10.23     |  | 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)                                 
|   
|   
|   
|   
|    |  | 10.24     |  | 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)

32



---



##### 



| |  |       |  |                                                                                                                                                                                                                                                                                  
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10.25 |  | 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)                                                                                 
|
|
|
|
| |  | 10.26 |  | First Amendment to Agreement for Purchase and Sale
of Assets (9)                                                                                                                                                                                                                 
|
|
|
|
| |  | 10.27 |  | Warrant Agreement for the purchase of 6,000 shares
of common stock between the Company and IK Biotech, Inc. dated
as of March 19, 1998.                                                                                                                                          
|
|
|
|
| |  | 10.28 |  | Warrant Agreement for the purchase of 20,000 shares
of common stock between the Company and Cameron Associates Inc.
dated as of November 23, 1998.                                                                                                                               
|
|
|
|
| |  | 10.29 |  | Promissory note for $500,000 dated December 22, 1999
between Milton Okin and the Company (10)                                                                                                                                                                                    
|
|
|
|
| |  | 10.30 |  | Common Stock Purchase Agreement dated September 7,
2000 between the Company and Justicia Holdings Limited (11)                                                                                                                                                                   
|
|
|
|
| |  | 10.31 |  | Registration Rights Agreement dated September 7,
2000 between the Company and Justicia Holdings Limited (11)                                                                                                                                                                     
|
|
|
|
| |  | 10.32 |  | Escrow Agreement dated September 7, 2000 among the
Company, Justicia Holdings Limited and Epstein, Becker & Green
P.C. (11)                                                                                                                                                      
|
|
|
|
| |  | 10.33 |  | Form of Stock Purchase Warrant pursuant to Common
Stock Purchase Agreement dated September 7, 2000 (11)                                                                                                                                                                          
|
|
|
|
| |  | 10.34 |  | Promissory note for $250,000 dated June 19, 2000
between Milton Okin and the Company                                                                                                                                                                                             
|
|
|
|
| |  | 10.35 |  | Common Stock Purchase Agreement dated September 20,
2000 between the Company and AMRO International, S.A. (12)                                                                                                                                                                   
|
|
|
|
| |  | 10.36 |  | Registration Rights Agreement dated September 20,
2000 between the Company and AMRO International, S.A. (12)                                                                                                                                                                     
|
|
|
|
| |  | 10.37 |  | Escrow Agreement dated September 20, 2000 among the
Company, AMRO International, S.A. and Epstein, Becker & Green
P.C. (12)                                                                                                                                                      
|
|
|
|
| |  | 10.38 |  | 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)                                                                                                                               
|
|
|
|
| |  | 10.39 |  | Common Stock Purchase Agreement dated October 25,
2000 between the Company and Tamarack International Limited (12)                                                                                                                                                               
|
|
|
|
| |  | 10.40 |  | Warrant Agreement for the purchase of 10,000 shares
of common stock dated October 25, 2000 between the Company and
Tamarack International Limited (12)                                                                                                                           
|
|
|
|
| |  | 10.41 |  | Series A Convertible Preferred Stock Acquisition
Agreement dated October 27, 2000 between the Company and Milton
Okin (12)                                                                                                                                                       
|
|
|
|
| |  | 10.42 |  | Common Stock Acquisition Agreement dated October 28,
2000 between the Company and Macropower Development Limited (12)                                                                                                                                                            
|
|
|
|
| |  | 10.43 |  | 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)
|
|
|
|
| |  | 10.44 |  | 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)                                                                
|
|
|
|
| |  | 10.45 |  | Common Stock Acquisition Agreement dated October 30,
2000 between the Company and ACH Food Companies, Inc. (formerly
AC HUMKO CORP.) (12)                                                                                                                                        
|
|
|
|
| |  | 10.46 |  | 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)                                                                                                      
|
|
|
|
| |  | 10.47 |  | Common Stock Purchase Agreement dated December 20,
2000 by and between the Company and Ropart Investments, LLC (12)                                                                                                                                                              
|
|
|
|
| |  | 10.48 |  | Warrant Agreement for the purchase of 14,000 shares
of common stock dated December 20, 2000 between the Company and
Ropart Investments, LLC (12)                                                                                                                                 
|
|
|
|
| |  | 10.49 |  | Stock Purchase Agreement dated August 23, 2001
between Pharmaceutical Marketing Brands, Inc. and Bionutrics,
Inc. (13)                                                                                                                                                           
|
|
|
|
| |  | 10.50 |  | Amended and Restated Consolidated Multiple Advance
Non-Revolving Note, dated October 26, 2001 (14)                                                                                                                                                                               
|
|
|
|
| |  | 10.51 |  | Amended and Restated Loan and Stock Pledge Agreement (14)                                                                                                                                                                                                                        

33



---



##### 



| |  |       |  |                                                                                                                 
| |  | ----- |  | ----------------------------------------------------------------------------------------------------------------
| |  | 10.52 |  | Amended and Restated Security Agreement (14)                                                                    
|
|
|
|
| |  | 10.53 |  | Amendment No. 1 to Stock Purchase Agreement
effective as of August 23, 2001, executed as of October 5, 2001 (14)
|
|
|
|
| |  | 10.54 |  | Amendment No. 2 to Stock Purchase Agreement, dated as of October 31, 2001 (14)                                  
|
|
|
|
| |  | 21    |  | Subsidiaries of the Company                                                                                     
|
|
|
|
| |  | 23.1  |  | Consent of Deloitte & Touche, LLP                                                                               



---

|(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.                                                                                                



|(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.

34



---



##### 





|(c) |  | Reports on Form 8-K:
|--- |  | --------------------



| |                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Form 8-K filed October 5, 2001 regarding an amendment to the stock
purchase agreement dated August 23, 2001 with Pharmaceutical Marketing
Brands, Inc.                                                                                                  
|
| | Form 8-K filed November 9, 2001 regarding amendments no. 1 and no. 2
to the stock purchase agreement dated August 23, 2001 with Pharmaceutical
Marketing Brands, Inc., which assigned its interest effective August 23,
2001 to Healthstar Holdings LLC.



|(d) |  | Financial Statement Schedules:
|--- |  | ------------------------------



| |                                  
| | ---------------------------------
| | Valuation and Qualifying Accounts

35



---



##### 



SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                       |  |                  |  |                                                                         
|---------------------- |  | ---------------- |  | ------------------------------------------------------------------------
|                       |  | BIONUTRICS, INC.
|                      
|                      
|                      
|                      
|                       |  |                  |  |                                                                         
|                      
|                      
|                      
|                      
|Date: January 31, 2002 |  | By               |  | /s/ Ronald H. Lane

Ronald H. Lane
President and Chief Executive
Officer

Pursuant to the requirements of the Securities 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.

|                                                |  |                                                                                            |  |                 
|----------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | ----------------
|Signature                                       |  | Title                                                                                      |  | Date            
|                                                |  |                                                                                            |  |                 
|                                                |  |                                                                                            |  |                 
|                                               
|                                               
|                                               
|                                               
|By /s/ Ronald H. Lane

Ronald H. Lane           |  | Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer) |  | January 31, 2002
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                            |  |                 
|                                               
|                                               
|                                               
|                                               
|By /s/ Karen J. Harwell

Karen J. Harwell       |  | Controller
(Principal Financial and
Accounting Officer)                                    |  | January 31, 2002
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                            |  |                 
|                                               
|                                               
|                                               
|                                               
|By /s/ Daniel Antonelli
Daniel Antonelli        |  | Director                                                                                   |  | January 31, 2002
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                            |  |                 
|                                               
|                                               
|                                               
|                                               
|By /s/ Richard M. Feldheim

Richard M. Feldheim |  | Director                                                                                   |  | January 30, 2002
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                            |  |                 
|                                               
|                                               
|                                               
|                                               
|By /s/ Todd Goergen
Todd Goergen                |  | Director                                                                                   |  | January 31, 2002
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                            |  |                 
|                                               
|                                               
|                                               
|                                               
|By /s/ Steve Henig
Steve Henig                  |  | Director                                                                                   |  | January 30, 2002
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                            |  |                 
|                                               
|                                               
|                                               
|                                               
|By /s/ William McCormick

William M. McCormick  |  | Director                                                                                   |  | January 30, 2002

36



---



##### 



|                                                 |  |          |  |                 
|------------------------------------------------ |  | -------- |  | ----------------
|By /s/ Milton Okin
Milton Okin                   |  | Director |  | January 30, 2002
|                                                
|                                                
|                                                
|                                                
|                                                 |  |          |  |                 
|                                                
|                                                
|                                                
|                                                
|By /s/ Frederick Rentschler
Frederick Rentschler |  | Director |  | January 31, 2002
|                                                
|                                                
|                                                
|                                                
|                                                 |  |          |  |                 
|                                                
|                                                
|                                                
|                                                
|By /s/ Winston A. Salser

Winston A. Salser      |  | Director |  | January 31, 2002

37



---



##### 



Bionutrics, Inc. and Subsidiaries

Consolidated Financial Statements as of
October 31, 2001 and 2000, and for Each of the
Three Years in the Period Ended October 31,
2001, and Independent Auditors Report





---



##### 



INDEPENDENT AUDITORS REPORT

Board of Directors
Bionutrics, Inc.
Phoenix, Arizona

We have audited the consolidated balance sheets of Bionutrics, Inc. and
subsidiaries (the Company) as of October 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders equity, and cash flows for
each of the three years in the period ended October 31, 2001. Our audits also
included the financial statement schedule listed in the Index at Item 8. These
financial statements and financial statement schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at October 31, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended October 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Companys operating losses since
inception, the uncertainty regarding the Companys ability to raise additional
capital, and the Companys inability to generate income and positive cash flows
from operations raise substantial doubt about its ability to continue as a
going concern. Managements plans concerning these matters are also described
in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

Deloitte & Touche LLP

Phoenix, Arizona
January 18, 2002
January 30, 2002 as to Notes 5 and 6

F-1



---



##### 



BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2001 AND 2000




|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |            |           | 
|----------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | -------------------------- | ----------- | ---------- | --------- | --------- | ----------- | ---------- | --------- | 
|ASSETS                                                                                                      |                                                                                                                                                | 2001                                                      |                            | 2000       
|CURRENT ASSETS:                                                                                             |                                                                                                                                                |                                                           |                            |             |            |           |           |            
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Cash and cash equivalents                                                                                                                      |                                                           | $                          | 100,960     |            |           | $         | 711,563     |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Trade receivables  net of allowance for doubtful accounts of $304,677
and $311,310, respectively                                              |                                                           |                            | 6,440       |            |           |           | 16,845      |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Inventory (Note 3)                                                                                                                             |                                                           |                            | 44,423      |            |           |           | 100,401     |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Prepaids and other current assets                                                                                                              |                                                           |                            | 15,244      |            |           |           | 62,383      |           
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           
|                                                                                                            |                                                                                                                                                |                                                           | Total current assets       |             |            | 167,067   |           |             |            | 891,192   | 
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           
|PROPERTY  Net of accumulated depreciation and amortization of $354,886 and
$342,573, respectively (Note 4) |                                                                                                                                                |                                                           | 3,161                      |             |            |           | 15,474    |            
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           
|OTHER ASSETS:                                                                                               |                                                                                                                                                |                                                           |                            |             |            |           |           |            
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Patents  net of accumulated amortization of $204,993 and $177,328, respectively                                                               |                                                           |                            | 364,472     |            |           |           | 392,137     |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Investment in InCon Processing, L.L.C. (Note 10)                                                                                               |                                                           |                            | 2,729,370   |            |           |           | 3,087,186   |           
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           
|                                                                                                            |                                                                                                                                                |                                                           | Total other assets         |             |            | 3,093,842 |           |             |            | 3,479,323 | 
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           
|TOTAL                                                                                                       |                                                                                                                                                | $                                                         | 3,264,070                  |             |            | $         | 4,385,989 |            
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                        |                                                                                                                                                |                                                           |                            |             |            |           |           |            
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|CURRENT LIABILITIES:                                                                                        |                                                                                                                                                |                                                           |                            |             |            |           |           |            
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accounts payable                                                                                                                               |                                                           | $                          | 971,960     |            |           | $         | 664,375     |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accrued salaries and benefits                                                                                                                  |                                                           |                            | 259,537     |            |           |           | 149,183     |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Other accrued liabilities                                                                                                                      |                                                           |                            | 467,412     |            |           |           | 790,594     |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Current portion of notes payable (Note 5)                                                                                                      |                                                           |                            | 583,000     |            |           |           | 902,278     |           
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           
|                                                                                                            |                                                                                                                                                |                                                           | Total current liabilities  |             |            | 2,281,909 |           |             |            | 2,506,430 | 
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           
|COMMITMENTS AND CONTINGENCIES (Notes 1, 6, 8, and 11)                                                       |                                                                                                                                                |                                                           |                            |             |            |           |           |            
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|STOCKHOLDERS EQUITY (Note 6):                                                                              |                                                                                                                                                |                                                           |                            |             |            |           |           |            
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Common stock, $.001 par value  authorized, 45,000,000 shares;
issued, 4,352,600 and 4,294,300 shares, respectively                            |                                                           |                            | 4,352       |            |           |           | 4,294       |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Preferred stock, $.001 par value  authorized, 5,000,000 shares;
591,850 and 0 issued and outstanding, respectively (liquidation preference of |                                                           |                            | 798,998     |            |           |           |             |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            |                                                                                                                                                | $798,998 and $0, respectively)
Additional paid-in capital |                            |             | 37,628,886 |           |           |             | 36,313,498 |          
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Warrants                                                                                                                                       |                                                           |                            | 750,743     |            |           |           | 874,603     |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accumulated deficit                                                                                                                            |                                                           |                            | (38,200,818 | )          |           |           | (35,311,633 | )         
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Common stock in treasury - 240,577 shares at cost                                                                                              |                                                           |                            |             |            |           |           | (1,203      | )         
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           
|                                                                                                            |                                                                                                                                                |                                                           | Total stockholders equity |             |            | 982,161   |           |             |            | 1,879,559 | 
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           
|TOTAL                                                                                                       |                                                                                                                                                | $                                                         | 3,264,070                  |             |            | $         | 4,385,989 |            
|                                                                                                            |                                                                                                                                                |                                                           |                            |             |            |           |           |             |           

See notes to consolidated financial statements.

F-2



---



##### 



BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 2001, 2000, AND 1999




|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |           |          |  
|------------------------------------------------------------------------ | ----------------------------------------------------- | ------------------------ | ---------------------------- | --------- | --------- | -------- | ---------- | --------- | --------- | -------- | ---------- | --------- | --------- | -------- | -
|                                                                         |                                                       |                          |                              |           | 2001      |          | 2000       |           | 1999     
|REVENUES (Note 1):                                                       |                                                       |                          |                              |           |           |          |            |           |           |          |            |          
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Revenue from services                                 |                          |                              |           |           |          | $          | 209,098   |           |          | $          | 2,516,554 |          
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Revenue from product sales                            |                          | $                            | 95,978    |           |          |            | 146,526   |           |          |            | 1,173,193 |          
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|                                                                         |                                                       | Total gross revenues     |                              |           | 95,978    |          |            |           | 355,624   |          |            |           | 3,689,747 |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|DISCOUNTS AND ALLOWANCES                                                 |                                                       |                          | 58,348                       |           |           |          | 221,545    |           |           |          | 558,262    |          
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|NET REVENUES                                                             |                                                       |                          | 37,630                       |           |           |          | 134,079    |           |           |          | 3,131,485  |          
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|COST OF REVENUES                                                         |                                                       |                          | 59,746                       |           |           |          | 165,042    |           |           |          | 2,334,839  |          
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|GROSS (LOSS) PROFIT                                                      |                                                       |                          | (22,116                      | )         |           |          | (30,963    | )         |           |          | 796,646    |          
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|OPERATING EXPENSES:                                                      |                                                       |                          |                              |           |           |          |            |           |           |          |            |          
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Selling, general, and administrative (Note 9)         |                          |                              | 2,396,600 |           |          |            | 2,836,833 |           |          |            | 5,445,046 |          
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Research and development                              |                          |                              | 68,374    |           |          |            | 115,400   |           |          |            | 368,070   |          
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|                                                                         |                                                       | Total operating expenses |                              |           | 2,464,974 |          |            |           | 2,952,233 |          |            |           | 5,813,116 |         
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|OPERATING LOSS                                                           |                                                       |                          | (2,487,090                   | )         |           |          | (2,983,196 | )         |           |          | (5,016,470 | )        
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|OTHER (EXPENSE) INCOME:                                                  |                                                       |                          |                              |           |           |          |            |           |           |          |            |          
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Net interest expense (Notes 5 and 9)                  |                          |                              | (44,279   | )         |          |            | (31,657   | )         |          |            | (25,313   | )        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Other income (expense)                                |                          |                              |           |           |          |            | 211,684   |           |          |            | (30,237   | )        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Equity in losses of InCon Processing, L.L.C
(Note 10) |                          |                              | (357,816  | )         |          |            | (42,687   | )         |          |            | (70,127   | )        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Net loss on disposal of assets (Notes 1 and 2)        |                          |                              |           |           |          |            | (300,000  | )         |          |            | (265,516  | )        
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|                                                                         |                                                       |                          | Other (expense) income  net |           |           | (402,095 | )          |           |           | (162,660 | )          |           |           | (391,193 | )
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|NET LOSS                                                                 |                                                       | $                        | (2,889,185                   | )         |           | $        | (3,145,856 | )         |           | $        | (5,407,663 | )        
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|BASIC AND DILUTED NET LOSS PER
COMMON SHARE                              |                                                       | $                        | (0.64                        | )         |           | $        | (0.75      | )         |           | $        | (1.31      | )        
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          
|SHARES USED IN THE COMPUTATION OF
NET LOSS PER SHARE  Basic and diluted |                                                       |                          | 4,540,108                    |           |           |          | 4,189,794  |           |           |          | 4,142,931  |          
|                                                                         |                                                       |                          |                              |           |           |          |            |           |           |          |            |           |          

See notes to consolidated financial statements.

F-3



---



##### 



BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED OCTOBER 31, 2001, 2000, AND 1999






|                          |                                                                                                                                                      |  |                 |  |              |  |            |  |        |  |           |        |  |   |       |    |  |   |            |         | 
|------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- |  | ------------ |  | ---------- |  | ------ |  | --------- | ------ |  | - | ----- | -- |  | - | ---------- | ------- | 
|                          |                                                                                                                                                      |  |                 |  |              |  |            |  |        |  |           |        |  |   |       |    |  |  
|                          |                                                                                                                                                      |  | Preferred Stock |  | Common Stock |  | Additional
|                          |                                                                                                                                                      |  |                 |  |              |  | Paid-In   
|                          |                                                                                                                                                      |  | Shares          |  | Amount       |  | Shares     |  | Amount |  | Capital  
|                          |                                                                                                                                                      |  |                 |  |              |  |            |  |        |  |          
|BALANCE, NOVEMBER 1, 1998 |                                                                                                                                                      |  |                 |  |              |  |            |  |        |  | 4,071,197 |        |  | $ | 4,071 |    |  | $ | 31,449,987 |        
|                         
|                         
|                         
|                         
|                          | Issuance of common shares and warrants for cash at $10
per share, January 1999                                                                       |  |                 |  |              |  |            |  |        |  |           | 50,000 |  |   |       | 50 |  |   |            | 215,604 | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $6.25 per share,
February 1999                                                                             |  |                 |  |              |  |            |  |        |  |           | 20,000 |  |   |       | 20 |  |   |            | 124,980 | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $6.875 per share,
February 1999                                                                            |  |                 |  |              |  |            |  |        |  |           | 20,000 |  |   |       | 20 |  |   |            | 137,480 | 
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for services at $20 per
share, April 1999                                                                          |  |                 |  |              |  |            |  |        |  |           |        |  |   |       |    |  |   |            |         | 
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for services at $10
per share, August 1999                                                                         |  |                 |  |              |  |            |  |        |  |           |        |  |   |       |    |  |   |            |         | 
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for services at $35
per share, August 1999                                                                         |  |                 |  |              |  |            |  |        |  |           |        |  |   |       |    |  |   |            |         | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares as consideration for rights
granted under an option agreement at $7.10 per share,
October 1999                             |  |                 |  |              |  |            |  |        |  |           | 1,408  |  |   |       | 1  |  |   |            | 9,999   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common stock options as partial consideration
for rights granted under a license and sublicense agreement
at $10 per share, October 1999 |  |                 |  |              |  |            |  |        |  |           |        |  |   |       |    |  |   |            | 51,574  | 
|                         
|                         
|                         
|                         
|                          | Compensation expense from nonemployee stock options
(Note 6)                                                                                         |  |                 |  |              |  |            |  |        |  |           |        |  |   |       |    |  |   |            | 193,773 | 
|                         
|                         
|                         
|                         
|                          | Net loss  year ended October 31, 1999                                                                                                               |  |                 |  |              |  |            |  |        |  |           |        |  |   |       |    |  |   |            |         | 
|                          |                                                                                                                                                      |  |                 |  |              |  |            |  |        |  |           |        |  |   |       |    |  |   |            |        
|BALANCE, OCTOBER 31, 1999 |                                                                                                                                                      |  |                 |  |              |  |            |  |        |  | 4,162,605 |        |  |   | 4,162 |    |  |   | 32,183,397 |        

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                          |                                                                                                                                                      |  |          |         |             |   |           |         |  |   |             |            |  
|------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------- | ----------- | - | --------- | ------- |  | - | ----------- | ---------- | -
|                          |                                                                                                                                                      |  | Warrants |        
|                          |                                                                                                                                                      |  |          |         | Accumulated
|                          |                                                                                                                                                      |  | Shares   |         | Amount      |   | Deficit  
|                          |                                                                                                                                                      |  |          |         |             |   |          
|BALANCE, NOVEMBER 1, 1998 |                                                                                                                                                      |  | 540,000  |         |             | $ | 2,847,136 |         |  | $ | (26,758,114 | )         
|                         
|                         
|                         
|                         
|                          | Issuance of common shares and warrants for cash at $10
per share, January 1999                                                                       |  |          | 100,000 |             |   |           | 284,346 |  |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $6.25 per share,
February 1999                                                                             |  |          |         |             |   |           |         |  |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $6.875 per share,
February 1999                                                                            |  |          |         |             |   |           |         |  |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for services at $20 per
share, April 1999                                                                          |  |          | 20,000  |             |   |           | 11,603  |  |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for services at $10
per share, August 1999                                                                         |  |          | 20,000  |             |   |           | 86,907  |  |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for services at $35
per share, August 1999                                                                         |  |          | 6,000   |             |   |           | 74,994  |  |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares as consideration for rights
granted under an option agreement at $7.10 per share,
October 1999                             |  |          |         |             |   |           |         |  |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock options as partial consideration
for rights granted under a license and sublicense agreement
at $10 per share, October 1999 |  |          |         |             |   |           |         |  |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Compensation expense from nonemployee stock options
(Note 6)                                                                                         |  |          |         |             |   |           |         |  |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Net loss  year ended October 31, 1999                                                                                                               |  |          |         |             |   |           |         |  |   |             | (5,407,663 | )
|                          |                                                                                                                                                      |  |          |         |             |   |           |         |  |   |             |           
|BALANCE, OCTOBER 31, 1999 |                                                                                                                                                      |  | 686,000  |         |             |   | 3,304,986 |         |  |   | (32,165,777 | )         

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                          |                                                                                                                                                      |  |              |   |               |   |        |   |  |   |           |            |  
|------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - | ------------- | - | ------ | - |  | - | --------- | ---------- | -
|                          |                                                                                                                                                      |  | Common Stock |  
|                          |                                                                                                                                                      |  | in Treasury  |   | Total        
|                          |                                                                                                                                                      |  |              |   | Stockholders
|                          |                                                                                                                                                      |  | Shares       |   | Amount        |   | Equity
|                          |                                                                                                                                                      |  |              |   |               |   |       
|BALANCE, NOVEMBER 1, 1998 |                                                                                                                                                      |  | (240,577     | ) |               | $ | (1,203 | ) |  | $ | 7,541,877 |           
|                         
|                         
|                         
|                         
|                          | Issuance of common shares and warrants for cash at $10
per share, January 1999                                                                       |  |              |   |               |   |        |   |  |   |           | 500,000    |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $6.25 per share,
February 1999                                                                             |  |              |   |               |   |        |   |  |   |           | 125,000    |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $6.875 per share,
February 1999                                                                            |  |              |   |               |   |        |   |  |   |           | 137,500    |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for services at $20 per
share, April 1999                                                                          |  |              |   |               |   |        |   |  |   |           | 11,603     |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for services at $10
per share, August 1999                                                                         |  |              |   |               |   |        |   |  |   |           | 86,907     |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for services at $35
per share, August 1999                                                                         |  |              |   |               |   |        |   |  |   |           | 74,994     |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares as consideration for rights
granted under an option agreement at $7.10 per share,
October 1999                             |  |              |   |               |   |        |   |  |   |           | 10,000     |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock options as partial consideration
for rights granted under a license and sublicense agreement
at $10 per share, October 1999 |  |              |   |               |   |        |   |  |   |           | 51,574     |  
|                         
|                         
|                         
|                         
|                          | Compensation expense from nonemployee stock options
(Note 6)                                                                                         |  |              |   |               |   |        |   |  |   |           | 193,773    |  
|                         
|                         
|                         
|                         
|                          | Net loss  year ended October 31, 1999                                                                                                               |  |              |   |               |   |        |   |  |   |           | (5,407,663 | )
|                          |                                                                                                                                                      |  |              |   |               |   |        |   |  |   |           |           
|BALANCE, OCTOBER 31, 1999 |                                                                                                                                                      |  | (240,577     | ) |               |   | (1,203 | ) |  |   | 3,325,565 |           

F-4



---



##### 



(Continued)

BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED OCTOBER 31, 2001, 2000, AND 1999






|                          |                                                                                                                                                          |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |   |            |           |  
|------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------ | ------------ | ------ | ---------- |  |  |  | --------- | ------- |  | - | ----- | --- |  | - | ---------- | --------- | -
|                          |                                                                                                                                                          |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |  
|                          |                                                                                                                                                          |  | Preferred Stock |        | Common Stock |        | Additional
|                          |                                                                                                                                                          |  |                 |        |              |        | Paid-In   
|                          |                                                                                                                                                          |  | Shares          | Amount | Shares       | Amount | Capital   
|                          |                                                                                                                                                          |  |                 |        |              |        |           
|BALANCE, OCTOBER 31, 1999 |                                                                                                                                                          |  |                 |        |              |        |            |  |  |  | 4,162,605 |         |  | $ | 4,162 |     |  | $ | 32,183,397 |          
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for incentive compensation at $10
per share, December 1999                                                                     |  |                 |        |              |        |            |  |  |  |           | 1,481   |  |   |       | 1   |  |   |            | 14,813    |  
|                         
|                         
|                         
|                         
|                          | Expiration of warrants to purchase common shares,
January 2000                                                                                           |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |   |            | 111,800   |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for incentive compensation at
$8.75 per share, March 2000                                                                      |  |                 |        |              |        |            |  |  |  |           | 5,714   |  |   |       | 6   |  |   |            | 49,994    |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $20 per share,
April 2000                                                                                      |  |                 |        |              |        |            |  |  |  |           | 17,500  |  |   |       | 18  |  |   |            | 349,982   |  
|                         
|                         
|                         
|                         
|                          | Expiration of warrants to purchase common shares,
August 2000                                                                                            |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |   |            | 2,797,136 |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for fees and expenses of investor
at $5 per share, September 2000 (Note 1)                                                     |  |                 |        |              |        |            |  |  |  |           | 5,000   |  |   |       | 5   |  |   |            | 24,995    |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants in connection with
equity line, September 2000 (Note 1)                                                                |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |   |            | (95,037   | )
|                         
|                         
|                         
|                         
|                          | Issuance of common shares and warrants for cash at $5
per share, September 2000                                                                          |  |                 |        |              |        |            |  |  |  |           | 100,000 |  |   |       | 100 |  |   |            | 475,897   |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for stock-related expenses,
September 2000                                                                                     |  |                 |        |              |        |            |  |  |  |           | 2,000   |  |   |       | 2   |  |   |            | (2        | )
|                         
|                         
|                         
|                         
|                          | Payment for 100,000 common shares at $5 per share and stock
warrants, October 2000 (Note 1)                                                              |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |   |            | 471,926   |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants to replace expired warrants
at $10 per share, October 2000                                                             |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |   |            | (278,602  | )
|                         
|                         
|                         
|                         
|                          | Amended warrant exercise price for the purchase of 20,000
shares of common stock from $10 to $5 per share as
consideration for a liability, October 2000 |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |   |            |           |  
|                         
|                         
|                         
|                         
|                          | Compensation expense from nonemployee stock options
(Note 6)                                                                                             |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |   |            | 207,199   |  
|                         
|                         
|                         
|                         
|                          | Net loss  year ended October 31, 2000                                                                                                                   |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |   |            |           |  
|                          |                                                                                                                                                          |  |                 |        |              |        |            |  |  |  |           |         |  |   |       |     |  |   |            |          
|BALANCE, OCTOBER 31, 2000 |                                                                                                                                                          |  |                 |        |              |        |            |  |  |  | 4,294,300 |         |  |   | 4,294 |     |  |   | 36,313,498 |          

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                          |                                                                                                                                                          |  |          |          |             |   |           |            |   |   |             |            |  
|------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -------- | ----------- | - | --------- | ---------- | - | - | ----------- | ---------- | -
|                          |                                                                                                                                                          |  | Warrants |         
|                          |                                                                                                                                                          |  |          |          | Accumulated
|                          |                                                                                                                                                          |  | Shares   |          | Amount      |   | Deficit  
|                          |                                                                                                                                                          |  |          |          |             |   |          
|BALANCE, OCTOBER 31, 1999 |                                                                                                                                                          |  | 686,000  |          |             | $ | 3,304,986 |            |   | $ | (32,165,777 | )         
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for incentive compensation at $10
per share, December 1999                                                                     |  |          |          |             |   |           |            |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Expiration of warrants to purchase common shares,
January 2000                                                                                           |  |          | (50,000  | )           |   |           | (111,800   | ) |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for incentive compensation at
$8.75 per share, March 2000                                                                      |  |          |          |             |   |           |            |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $20 per share,
April 2000                                                                                      |  |          |          |             |   |           |            |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Expiration of warrants to purchase common shares,
August 2000                                                                                            |  |          | (400,000 | )           |   |           | (2,797,136 | ) |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for fees and expenses of investor
at $5 per share, September 2000 (Note 1)                                                     |  |          |          |             |   |           |            |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants in connection with
equity line, September 2000 (Note 1)                                                                |  |          | 40,000   |             |   |           | 95,037     |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares and warrants for cash at $5
per share, September 2000                                                                          |  |          | 10,000   |             |   |           | 24,003     |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for stock-related expenses,
September 2000                                                                                     |  |          |          |             |   |           |            |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Payment for 100,000 common shares at $5 per share and stock
warrants, October 2000 (Note 1)                                                              |  |          | 10,000   |             |   |           | 28,074     |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants to replace expired warrants
at $10 per share, October 2000                                                             |  |          | 400,000  |             |   |           | 278,602    |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Amended warrant exercise price for the purchase of 20,000
shares of common stock from $10 to $5 per share as
consideration for a liability, October 2000 |  |          |          |             |   |           | 52,837     |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Compensation expense from nonemployee stock options
(Note 6)                                                                                             |  |          |          |             |   |           |            |   |   |             |            |  
|                         
|                         
|                         
|                         
|                          | Net loss  year ended October 31, 2000                                                                                                                   |  |          |          |             |   |           |            |   |   |             | (3,145,856 | )
|                          |                                                                                                                                                          |  |          |          |             |   |           |            |   |   |             |           
|BALANCE, OCTOBER 31, 2000 |                                                                                                                                                          |  | 696,000  |          |             |   | 874,603   |            |   |   | (35,311,633 | )         

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                          |                                                                                                                                                          |  |              |        |               |   |        |   |  |   |           |            |  
|------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | ------------- | - | ------ | - |  | - | --------- | ---------- | -
|                          |                                                                                                                                                          |  | Common Stock |       
|                          |                                                                                                                                                          |  | in Treasury  |        | Total        
|                          |                                                                                                                                                          |  |              |        | Stockholders
|                          |                                                                                                                                                          |  | Shares       | Amount | Equity       
|                          |                                                                                                                                                          |  |              |        |              
|BALANCE, OCTOBER 31, 1999 |                                                                                                                                                          |  | (240,577     | )      |               | $ | (1,203 | ) |  | $ | 3,325,565 |           
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for incentive compensation at $10
per share, December 1999                                                                     |  |              |        |               |   |        |   |  |   |           | 14,814     |  
|                         
|                         
|                         
|                         
|                          | Expiration of warrants to purchase common shares,
January 2000                                                                                           |  |              |        |               |   |        |   |  |   |           |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for incentive compensation at
$8.75 per share, March 2000                                                                      |  |              |        |               |   |        |   |  |   |           | 50,000     |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $20 per share,
April 2000                                                                                      |  |              |        |               |   |        |   |  |   |           | 350,000    |  
|                         
|                         
|                         
|                         
|                          | Expiration of warrants to purchase common shares,
August 2000                                                                                            |  |              |        |               |   |        |   |  |   |           |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for fees and expenses of investor
at $5 per share, September 2000 (Note 1)                                                     |  |              |        |               |   |        |   |  |   |           | 25,000     |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants in connection with
equity line, September 2000 (Note 1)                                                                |  |              |        |               |   |        |   |  |   |           |            |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares and warrants for cash at $5
per share, September 2000                                                                          |  |              |        |               |   |        |   |  |   |           | 500,000    |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for stock-related expenses,
September 2000                                                                                     |  |              |        |               |   |        |   |  |   |           |            |  
|                         
|                         
|                         
|                         
|                          | Payment for 100,000 common shares at $5 per share and stock
warrants, October 2000 (Note 1)                                                              |  |              |        |               |   |        |   |  |   |           | 500,000    |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants to replace expired warrants
at $10 per share, October 2000                                                             |  |              |        |               |   |        |   |  |   |           |            |  
|                         
|                         
|                         
|                         
|                          | Amended warrant exercise price for the purchase of 20,000
shares of common stock from $10 to $5 per share as
consideration for a liability, October 2000 |  |              |        |               |   |        |   |  |   |           | 52,837     |  
|                         
|                         
|                         
|                         
|                          | Compensation expense from nonemployee stock options
(Note 6)                                                                                             |  |              |        |               |   |        |   |  |   |           | 207,199    |  
|                         
|                         
|                         
|                         
|                          | Net loss  year ended October 31, 2000                                                                                                                   |  |              |        |               |   |        |   |  |   |           | (3,145,856 | )
|                          |                                                                                                                                                          |  |              |        |               |   |        |   |  |   |           |           
|BALANCE, OCTOBER 31, 2000 |                                                                                                                                                          |  | (240,577     | )      |               |   | (1,203 | ) |  |   | 1,879,559 |           

F-5



---



##### 



(Continued)

BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED OCTOBER 31, 2001, 2000, AND 1999






|                                                                                                                        |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |   |            |   | 
|----------------------------------------------------------------------------------------------------------------------- |  |  | --------------- |  | ------------ | - | ---------- |  | ------ |  | --------- | - |  | - | ----- | - |  | - | ---------- | - | 
|                                                                                                                        |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |  
|                                                                                                                        |  |  | Preferred Stock |  | Common Stock |   | Additional
|                                                                                                                        |  |  |                 |  |              |   | Paid-In   
|                                                                                                                        |  |  | Shares          |  | Amount       |   | Shares     |  | Amount |  | Capital  
|                                                                                                                        |  |  |                 |  |              |   |            |  |        |  |          
|BALANCE, OCTOBER 31, 2000                                                                                               |  |  |                 |  |              |   |            |  |        |  | 4,294,300 |   |  | $ | 4,294 |   |  | $ | 36,313,498 |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares at $5 per share,
payment received October 2000                                                |  |  |                 |  |              |   |            |  |        |  | 100,000   |   |  |   | 100   |   |  |   | (100       | )
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares as consideration for the release
to repay a $150,000 bridge loan, December 2000               |  |  |                 |  |              |   |            |  |        |  | 30,000    |   |  |   | 30    |   |  |   | 149,970    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares to ACH as consideration for
the release of certain obligations related to their 50/50
venture |  |  |                 |  |              |   |            |  |        |  | 60,000    |   |  |   | 60    |   |  |   | 299,940    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of 591,850 shares of preferred stock as consideration
for the cancellation of certain promissory notes         |  |  | 591,850         |  |              |   | 798,998    |  |        |  |           |   |  |   |       |   |  |   |            |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares and warrants for cash at $5
per share, pursuant to an equity draw down facility,
January 2001 |  |  |                 |  |              |   |            |  |        |  | 60,000    |   |  |   | 60    |   |  |   | 262,534    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Amended warrant exercise price for the purchase of
20,000 shares of common stock from $20 to $10
per share, March 2001  |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |   |            |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares for services at $3.30 per share,
March 2001                                                   |  |  |                 |  |              |   |            |  |        |  | 6,095     |   |  |   | 6     |   |  |   | 19,986     |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares and warrants for cash at $5 per
share, pursuant to an equity draw down facility, April 2001   |  |  |                 |  |              |   |            |  |        |  | 40,000    |   |  |   | 40    |   |  |   | 190,534    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares for services at $3.85 per share,
May 2001                                                     |  |  |                 |  |              |   |            |  |        |  | 2,782     |   |  |   | 3     |   |  |   | 10,677     |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common stock warrants for services at $2 per
share, August 2001                                             |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |   |            |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common stock warrants for services at $3 per
share, August 2001                                             |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |   |            |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common stock warrants for services at $3.13 per
share, August 2001                                          |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |   |            |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Retire LipoGenics shares held in treasury October 2001                                                                  |  |  |                 |  |              |   |            |  |        |  | (240,577  | ) |  |   | (241  | ) |  |   | (962       | )
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Expiration of warrants to purchase common shares,
October 2001                                                          |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |   | 278,602    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Compensation expense from nonemployee stock options
(Note 6)                                                            |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |   | 104,207    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Net loss  year ended October 31, 2001                                                                                  |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |   |            |  
|                                                                                                                        |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |   |            |  
|BALANCE, OCTOBER 31, 2001                                                                                               |  |  | 591,850         |  |              | $ | 798,998    |  |        |  | 4,352,600 |   |  | $ | 4,352 |   |  | $ | 37,628,886 |  
|                                                                                                                        |  |  |                 |  |              |   |            |  |        |  |           |   |  |   |       |   |  |   |            |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                                        |                                                                          |  |          |   |             |   |          |   |  |   |             |   | 
|----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ |  | -------- | - | ----------- | - | -------- | - |  | - | ----------- | - | 
|                                                                                                                        |                                                                          |  | Warrants |  
|                                                                                                                        |                                                                          |  |          |   | Accumulated
|                                                                                                                        |                                                                          |  | Shares   |   | Amount      |   | Deficit 
|                                                                                                                        |                                                                          |  |          |   |             |   |         
|BALANCE, OCTOBER 31, 2000                                                                                               |                                                                          |  | 696,000  |   |             | $ | 874,603  |   |  | $ | (35,311,633 | )
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                        | Issuance of common shares at $5 per share,
payment received October 2000 |  |          |   |             |   |          |   |  |   |             |   | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares as consideration for the release
to repay a $150,000 bridge loan, December 2000               |                                                                          |  |          |   |             |   |          |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares to ACH as consideration for
the release of certain obligations related to their 50/50
venture |                                                                          |  |          |   |             |   |          |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of 591,850 shares of preferred stock as consideration
for the cancellation of certain promissory notes         |                                                                          |  |          |   |             |   |          |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares and warrants for cash at $5
per share, pursuant to an equity draw down facility,
January 2001 |                                                                          |  | 20,000   |   |             |   | 37,406   |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Amended warrant exercise price for the purchase of
20,000 shares of common stock from $20 to $10
per share, March 2001  |                                                                          |  |          |   |             |   | 12,802   |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares for services at $3.30 per share,
March 2001                                                   |                                                                          |  |          |   |             |   |          |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares and warrants for cash at $5 per
share, pursuant to an equity draw down facility, April 2001   |                                                                          |  | 4,000    |   |             |   | 9,426    |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares for services at $3.85 per share,
May 2001                                                     |                                                                          |  |          |   |             |   |          |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common stock warrants for services at $2 per
share, August 2001                                             |                                                                          |  | 100,000  |   |             |   | 94,703   |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common stock warrants for services at $3 per
share, August 2001                                             |                                                                          |  | 5,000    |   |             |   | 207      |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common stock warrants for services at $3.13 per
share, August 2001                                          |                                                                          |  | 5,000    |   |             |   | 198      |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Retire LipoGenics shares held in treasury October 2001                                                                  |                                                                          |  |          |   |             |   |          |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Expiration of warrants to purchase common shares,
October 2001                                                          |                                                                          |  | (400,000 | ) |             |   | (278,602 | ) |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Compensation expense from nonemployee stock options
(Note 6)                                                            |                                                                          |  |          |   |             |   |          |   |  |   |             |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Net loss  year ended October 31, 2001                                                                                  |                                                                          |  |          |   |             |   |          |   |  |   | (2,889,185  | )
|                                                                                                                        |                                                                          |  |          |   |             |   |          |   |  |   |             |  
|BALANCE, OCTOBER 31, 2001                                                                                               |                                                                          |  | 430,000  |   |             | $ | 750,743  |   |  | $ | (38,200,818 | )
|                                                                                                                        |                                                                          |  |          |   |             |   |          |   |  |   |             |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                                        |  |  |              |   |               |   |        |   |  |   |            |   | 
|----------------------------------------------------------------------------------------------------------------------- |  |  | ------------ | - | ------------- | - | ------ | - |  | - | ---------- | - | 
|                                                                                                                        |  |  | Common Stock |  
|                                                                                                                        |  |  | in Treasury  |   | Total        
|                                                                                                                        |  |  |              |   | Stockholders
|                                                                                                                        |  |  | Shares       |   | Amount        |   | Equity
|                                                                                                                        |  |  |              |   |               |   |       
|BALANCE, OCTOBER 31, 2000                                                                                               |  |  | (240,577     | ) |               | $ | (1,203 | ) |  | $ | 1,879,559  |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares at $5 per share,
payment received October 2000                                                |  |  |              |   |               |   |        |   |  |   |            |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares as consideration for the release
to repay a $150,000 bridge loan, December 2000               |  |  |              |   |               |   |        |   |  |   | 150,000    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares to ACH as consideration for
the release of certain obligations related to their 50/50
venture |  |  |              |   |               |   |        |   |  |   | 300,000    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of 591,850 shares of preferred stock as consideration
for the cancellation of certain promissory notes         |  |  |              |   |               |   |        |   |  |   | 798,998    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares and warrants for cash at $5
per share, pursuant to an equity draw down facility,
January 2001 |  |  |              |   |               |   |        |   |  |   | 300,000    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Amended warrant exercise price for the purchase of
20,000 shares of common stock from $20 to $10
per share, March 2001  |  |  |              |   |               |   |        |   |  |   | 12,802     |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares for services at $3.30 per share,
March 2001                                                   |  |  |              |   |               |   |        |   |  |   | 19,992     |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares and warrants for cash at $5 per
share, pursuant to an equity draw down facility, April 2001   |  |  |              |   |               |   |        |   |  |   | 200,000    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common shares for services at $3.85 per share,
May 2001                                                     |  |  |              |   |               |   |        |   |  |   | 10,680     |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common stock warrants for services at $2 per
share, August 2001                                             |  |  |              |   |               |   |        |   |  |   | 94,703     |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common stock warrants for services at $3 per
share, August 2001                                             |  |  |              |   |               |   |        |   |  |   | 207        |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Issuance of common stock warrants for services at $3.13 per
share, August 2001                                          |  |  |              |   |               |   |        |   |  |   | 198        |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Retire LipoGenics shares held in treasury October 2001                                                                  |  |  | 240,577      |   |               |   | 1,203  |   |  |   |            |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Expiration of warrants to purchase common shares,
October 2001                                                          |  |  |              |   |               |   |        |   |  |   |            |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Compensation expense from nonemployee stock options
(Note 6)                                                            |  |  |              |   |               |   |        |   |  |   | 104,207    |  
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Net loss  year ended October 31, 2001                                                                                  |  |  |              |   |               |   |        |   |  |   | (2,889,185 | )
|                                                                                                                        |  |  |              |   |               |   |        |   |  |   |            |  
|BALANCE, OCTOBER 31, 2001                                                                                               |  |  |              |   |               | $ |        |   |  | $ | 982,161    |  
|                                                                                                                        |  |  |              |   |               |   |        |   |  |   |            |  

See notes to consolidated financial statements.

(Concluded)

F-6



---



##### 



BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2001, 2000, AND 1999




|                                                     |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |            |         |          |            |  
|---------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------- | --------------------------------- | --------------------------------------------------- | ------- | ------- | ---------- | ---------- | ------- | -------- | ---------- | ---------- | ------- | -------- | ---------- | -
|                                                     |                                                                             |                                                               |                                   |                                                     |         | 2001    |            | 2000       |         | 1999    
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net loss                                                                    |                                                               | $                                 | (2,889,185                                          | )       |         | $          | (3,145,856 | )       |          | $          | (5,407,663 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net loss to net cash used in
operating activities: |                                                               |                                   |                                                     |         |         |            |            |         |          |            |            |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Depreciation and amortization                                 |                                   |                                                     | 39,978  |         |            |            | 105,883 |          |            |            | 626,048 |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Loss on sale of assets                                        |                                   |                                                     |         |         |            |            | 300,000 |          |            |            | 265,516 |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Provision for doubtful accounts                               |                                   |                                                     |         |         |            |            | 263,071 |          |            |            | 6,336   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Equity in losses of InCon Processing, L.L.C                   |                                   |                                                     | 357,816 |         |            |            | 42,687  |          |            |            | 70,127  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Stock option compensation expense                             |                                   |                                                     | 104,207 |         |            |            | 207,199 |          |            |            | 193,773 |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Expenses satisfied with issuance of common stock
and warrants |                                   |                                                     | 138,582 |         |            |            | 492,651 |          |            |            | 436,004 |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Changes in operating assets and liabilities:                  |                                   |                                                     |         |         |            |            |         |          |            |            |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                               | Trade receivables                 |                                                     |         | 10,405  |            |            |         | 84,907   |            |            |         | 26,750   |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                               | Inventory                         |                                                     |         | 55,978  |            |            |         | 159,088  |            |            |         | 504,165  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                               | Prepaids and other current assets |                                                     |         | 47,139  |            |            |         | 37,559   |            |            |         | 47,380   |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                               | Accounts payable                  |                                                     |         | 307,585 |            |            |         | 131,362  |            |            |         | (166,437 | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                               | Accrued salaries and benefits     |                                                     |         | 110,354 |            |            |         | (160,169 | )          |            |         | 159,352  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                               | Other accrued liabilities         |                                                     |         | 25,816  |            |            |         | (375,329 | )          |            |         | (86,147  | )         
|                                                     |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |            |        
|                                                     |                                                                             |                                                               |                                   | Net cash used in operating activities               |         |         | (1,691,325 | )          |         |          | (1,856,947 | )          |         |          | (3,324,796 | )
|                                                     |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |            |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                        |                                                               |                                   |                                                     |         |         |            | (3,034     | )       |          |            | (133,950   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Patents and rights to technology acquired                                   |                                                               |                                   |                                                     |         |         |            |            |         |          |            | (15,000    | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from disposal of fixed asset and patents                           |                                                               |                                   |                                                     |         |         |            |            |         |          |            | 3,004,000  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in InCon Processing, L.L.C                                       |                                                               |                                   |                                                     |         |         |            |            |         |          |            | (272,244   | )      
|                                                     |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |            |        
|                                                     |                                                                             |                                                               |                                   | Net cash (used in) provided by investing activities |         |         |            |            |         |          | (3,034     | )          |         |          | 2,582,806  |  
|                                                     |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |            |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from debt                                                          |                                                               |                                   | 583,000                                             |         |         |            | 900,000    |         |          |            | 200,000    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net proceeds from issuance of common stock
and warrants                     |                                                               |                                   | 500,000                                             |         |         |            | 1,000,000  |         |          |            | 500,000    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayments of debt and capital leases                                       |                                                               |                                   | (2,278                                              | )       |         |            | (8,646     | )       |          |            | (982,220   | )      
|                                                     |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |            |        
|                                                     |                                                                             |                                                               |                                   | Net cash provided by (used in) financing activities |         |         | 1,080,722  |            |         |          | 1,891,354  |            |         |          | (282,220   | )
|                                                     |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |            |        
|NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS |                                                                             |                                                               | (610,603                          | )                                                   |         |         | 31,373     |            |         |          | (1,024,210 | )         
|                                                    
|                                                    
|                                                    
|                                                    
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR         |                                                                             |                                                               | 711,563                           |                                                     |         |         | 680,190    |            |         |          | 1,704,400  |           
|                                                     |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |            |        
|CASH AND CASH EQUIVALENTS, END OF YEAR               |                                                                             | $                                                             | 100,960                           |                                                     |         | $       | 711,563    |            |         | $        | 680,190    |           
|                                                     |                                                                             |                                                               |                                   |                                                     |         |         |            |            |         |          |            |            |        

F-7



---



##### 



(Continued)

BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2001, 2000, AND 1999




|                                                                                           |                                                                                           |                                                   |                        |           |      |   |      |         |      |   |        |            |            |            |  
|------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ------------------------------------------------- | ---------------------- | --------- | ---- | - | ---- | ------- | ---- | - | ------ | ---------- | ---------- | ---------- | -
|                                                                                           |                                                                                           |                                                   |                        |           | 2001 |   | 2000 |         | 1999
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION -
Cash paid during the year for interest |                                                                                           |                                                   |                       |           |      | $ | 614  |         |      | $ | 65,344 |           
|                                                                                           |                                                                                           |                                                   |                        |           |      |   |      |         |      |   |        |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:                    |                                                                                           |                                                   |                        |           |      |   |      |         |      |   |        |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Settlement of accrued liabilities and debt through
issuance of common and preferred stock |                                                   | $                      | 1,248,998 |      |   |      |         |      |   |        |            |           
|                                                                                           |                                                                                           |                                                   |                        |           |     
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Liability resulting from joint venture (Note 1)                                           |                                                   |                        |           |      |   | $    | 300,000 |      |   |        |            |           
|                                                                                           |                                                                                           |                                                   |                        |           |      |   |      |         |     
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Contribution of net assets to InCon Processing, L.L.C
by InCon Technologies, Inc.:        |                                                   |                        |           |      |   |      |         |      |   |        |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                                                           | Accounts receivable                               |                        |           |      |   |      |         |      |   |        | $          | (594,151   | )         
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                                                           | Property and equipment                            |                        |           |      |   |      |         |      |   |        |            | (4,861,855 | )         
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                                                           | Goodwill                                          |                        |           |      |   |      |         |      |   |        |            | (872,060   | )         
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                                                           | Accounts payable                                  |                        |           |      |   |      |         |      |   |        |            | 391,396    |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                                                           | Accrued liabilities and other current liabilities |                        |           |      |   |      |         |      |   |        |            | 8,914      |           
|                                                                                           |                                                                                           |                                                   |                        |           |      |   |      |         |      |   |        |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                                                                           |                                                   | Net assets contributed |           |      |   |      |         |      |   |        |            |            | (5,927,756 | )
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Cash received                                                                             |                                                   |                        |           |      |   |      |         |      |   |        | 3,000,000  |           
|                                                                                           |                                                                                           |                                                   |                        |           |      |   |      |         |      |   |        |            |           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Net assets contributed for share of
investment in joint venture                           |                                                   |                        |           |      |   |      |         |      |   | $      | (2,927,756 | )         
|                                                                                           |                                                                                           |                                                   |                        |           |      |   |      |         |      |   |        |            |           

See notes to consolidated financial statements.

F-8



---



##### 



BIONUTRICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2001, 2000, AND 1999



|1. |  | ORGANIZATION AND BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Bionutrics, Inc.- Bionutrics, Inc. (Bionutrics) consists of Bionutrics
and its wholly owned subsidiaries, LipoGenics, Inc., Bionutrics Health
Products, Inc., Nutrition Technologies Corporation, InCon International
Ltd., and InCon Technologies, Inc. (InCon) (collectively referred to as
the Company).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | During 1998 and 1999, Bionutrics operating strategy of manufacturing and
marketing its product was changed, as it sold a substantial amount of its
operating assets. Bionutrics current strategy is to partner the
manufacturing and marketing of such new products through licensing
arrangements. Revenues for the years ended October 31, 2001, 2000, and 1999
are derived primarily from two sources: services and product sales. For
the year ended October 31, 2000, revenues from services were primarily
attributed to product development and grant research activities. For the
year ended October 31, 1999, revenue from services were primarily attributed
to molecular distillation toll processing of materials for a variety of
customers. Revenues from product sales during the years ended October 31,
2001 and 2000 were entirely from the sales of evolvE®, the Companys dietary
supplement product. Revenues from product sales during the year ended
October 31, 1999 were primarily attributed to equipment sales, as well as
the sale of evolvE®.
|  
|   |  | The accompanying consolidated financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
has incurred cumulative operating losses of $38,200,818 through October 31,
2001, which have been funded through the issuance of common stock and debt.
The losses incurred to date, the uncertainty regarding the Companys ability
to raise additional capital, and the Companys inability to generate income
and positive cash flows from operations raise substantial doubt about
whether the Company will be able to continue as a going concern for a
reasonable period of time.                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Since the Companys current cash resources and expected cash flow from
operations will not be sufficient to fund its operational needs for the next
12 months, it continues to seek additional capital through private equity
and debt financing. There can be no assurance that such additional
financing will be attainable, or attainable on terms acceptable to the
Company. Access by the Company to additional capital will depend
substantially upon prevailing market conditions and the financial condition
of and prospects for the Company at the time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F-9



---



##### 





| |  | Management is continuing its efforts to obtain additional funds through the
issuance of common stock in private transactions, and management is also
continuing its efforts to reposition the Company as a product development
company and, as such, is engaged in discussions with several potential
marketing partners involving the present and future branded products,
including dietary supplements and functional food ingredients. The Company
plans to develop, patent, and trademark novel products while its marketing
partners will provide the distribution, marketing, and sales support. New
products are expected to be based on new technology.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 1999, the Company entered into a 50/50 joint venture with ACH Food
Companies, Inc. (ACH, formerly known as AC HUMKO CORP.), wherein InCon
transferred substantially all of its assets to a newly formed limited
liability company, InCon Processing, L.L.C. (InCon Processing), for which
it received a payment of $3,000,000 and a 50 percent interest in the joint
venture. InCon Processing 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.
InCon Processing expects to utilize the InCon expertise to expand its
existing business and to expand its business into processing micronutrients
that would be available for food grade products. On October 30, 2000, the
Company agreed to issue 60,000 shares of its common stock to ACH as
consideration for the release of certain contingent obligations under the
Master Formation Agreement and Members Agreement related to the formation of
InCon Processing. A liability for the future issuance of the shares was
included in accrued liabilities as of October 31, 2000. These shares were
issued on December 14, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | On September 7, 2000, the Company and a private investor entered into a
Common Stock Purchase Agreement (the Agreement) for the future issuance
and purchase of shares of the Companys common stock. The Agreement
establishes what is sometimes termed as an equity line of credit or an
equity draw down facility. The Agreement permits the Company, at its
discretion and subject to certain restrictions, to sell up to an aggregate
of 800,000 shares of its common stock, with the maximum amount for each sale
not to exceed $1,000,000 each month, based on a formula of weighted-average
price and total trading volume for a given period. The period during which
the Company can make such sales is two years beginning upon the effective
date of a registration statement for the resale of the shares. The price is
based on the volume weighted-average daily price of the Companys common
stock for the 22 trading days following a draw down notice. The Company can
establish a threshold price below which it will not sell shares. The price
is discounted by 10 percent, decreasing by .25 percent to 7 percent for each
$12,500,000 that the Companys market capitalization exceeds $60,000,000.
In lieu of a minimum draw down commitment, the Company has issued a
three-year warrant for the purchase of 40,000 shares of common stock at an
exercise price of $7.675 per share, equal to 120 percent of the average
volume weighted-average daily price for the 15 trading days before the date
of issuance of the warrant. In addition, 35 day warrants will be issued in
connection with each draw down for the purchase of a number of shares equal
to 17.5 percent of the draw down amount divided by the weighted average of
the purchase prices during the applicable period. In payment of fees and
expenses of the investor, the Company has issued 5,000 shares of its common
stock to the investor.
|
| |  | The Company is not permitted to draw down funds if the issuance of shares to
the investor pursuant to the draw down facility would result in the investor
owning more than 9.9 percent of the Companys common stock or would require
stockholder approval. The Agreement contains various termination rights for
the investor, including, among others, due to materially adverse changes to
the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company intends to use the proceeds of the offering for general
corporate and working capital purposes. As of October 31, 2001, no sales of
equity have occurred under this equity line of credit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-10



---



##### 





|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America.                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Principles of Consolidation- The consolidated financial statements include
the accounts of Bionutrics and its wholly owned subsidiaries, LipoGenics,
Inc., Bionutrics Health Products, Inc., InCon International Ltd., InCon
Technologies, Inc., and Nutrition Technologies Corporation. All significant
intercompany balances and transactions have been eliminated. The Companys
investment in InCon Processing, a joint venture, is included in the
accompanying consolidated financial statements using the equity method of
accounting.
|  
|   |  | 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 disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.                                         
|  
|   |  | Reverse Stock Split- At the close of business on May 29, 2001, the Company
effected a one-for-five reverse stock split, as approved by a majority vote
of the Companys stockholders. All common stock and per share data included
in these financial statements have been restated to give effect to the
reverse stock split.                                                                                                                                                                                                               
|  
|   |  | 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.                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Inventoryis stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Property and Depreciation- Property is stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the individual assets. The estimated useful lives of depreciable assets
are:                                                                                                                                                                                                                                                                                                               

|                                      |  |            |  | 
|------------------------------------- |  | ---------- |  | 
|                                      |  | Estimated 
|                                      |  | Useful    
|Asset Type                            |  | Life      
|                                      |  |           
|Equipment, furniture, and fixtures    |  | 3-10 years
|                                     
|                                     
|                                     
|                                     
|Leasehold improvements                |  | 10 years  
|                                     
|                                     
|                                     
|                                     
|Capitalized software                  |  | 3 years   
|                                     
|                                     
|                                     
|                                     
|Leased equipment under capital leases |  | 5 years   



| |  | Leasehold improvementsare 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.                                                                                                                                                                                                                                                                   
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Revenue- 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 service is rendered and/or
reimbursable expenses are incurred. Provisions for returns and other
adjustments are provided for in the same period the related revenues are
recorded.

F-11



---



##### 





| |  | The Company had no customers that accounted for over 10 percent of revenues
for the year ended October 31, 2001, one customer that accounted for
approximately 28 percent of total revenues for the year ended October 31,
2000, and two customers that accounted for approximately 33 and 17 percent
of total revenue for the year ended October 31, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Patents- Legal and other costs related to patent applications are expensed
as incurred. Patents that are acquired are amortized using a straight-line
basis over 17 years, commencing at the date patent approval is obtained, or
the remaining life at the time of acquisition. Patents currently
capitalized relate to both the processes and products associated with the
Companys business.                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Income taxesare accounted for under the asset and liability approach, which
can result in recording tax provisions or benefits in periods different from
the periods in which such taxes are paid or benefits realized. Deferred
federal income taxes result principally from certain tax carryforwards that
are recognized for financial reporting purposes in different years than for
income tax reporting purposes. Deferred tax assets were fully offset by a
valuation allowance in 2001, 2000, and 1999.                                                                                                                                                                                                                                                                                                          
|
| |  | Research and Development- The cost of research and development is charged
to expense as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Fair Value of Financial Instruments- The fair values of cash and cash
equivalents, trade receivables, accounts payable, and notes payable
approximate the carrying value due to the short-term nature of these
instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Stock options and warrantsgranted to consultants or independent contractors
have been accounted for in accordance with the fair value method of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. In accordance with Accounting Principles Board
Opinion (APB) No. 25, options and warrants granted to employees of the
Company are recorded as expense, based on the difference, if any, between
the quoted fair market price of the stock, on the date of grant, and the
options or warrants exercise price. As all employee-based options and
warrants were issued at least at fair market value, no compensation cost was
recognized in the Companys consolidated statements of operations for
employee-based options and warrants for 2001, 2000, or 1999.
|
| |  | Loss per Share- Basic earnings per share (EPS) exclude potential dilution
from stock options, warrants, and other securities or contracts to issue
common stock. Diluted EPS takes into account the potential issuance of
these shares in the calculation of EPS. Due to losses from continuing
operations for the years ended October 31, 2001, 2000, and 1999, the
issuance of any additional shares would be antidilutive, and therefore, have
no effect on diluted EPS. There were 969,733, 1,198,363, and 1,072,029
shares considered antidilutive for the years ended October 31, 2001, 2000,
and 1999, respectively.                                                                                                                                                                                            
|
| |  | Impairment- The Company continually evaluates whether events and
circumstances have occurred which indicate that the remaining estimated
useful life of long-lived assets and identifiable intangible assets may
warrant revision or that the remaining balance of these assets may not be
recoverable. When factors indicate that these assets should be evaluated
for possible impairment, the Companys management uses several factors,
including the Companys projection of future operating revenues relating to
these assets and their related impact on cash flows.                                                                                                                                                                                                                                             

F-12



---



##### 





|   |  | No impairment losses were recorded in 2001 or 2000. During 1999, the
Company entered into an agreement with ACH to form a joint venture, wherein
InCon transferred substantially all of its assets to the joint venture, for
which it received a payment of $3,000,000 and a 50 percent interest in the
joint venture. In connection with the transfer of InCons net assets, the
Company recorded an impairment loss with respect to goodwill in the amount
of $265,516. The write-down was the amount by which the Company estimated
that the carrying amount of the asset exceeded the fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | New Accounting Pronouncements- SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, is effective for all fiscal years
beginning after June 15, 2000. SFAS No. 133, as amended by SFAS Nos. 137
and 138, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The statement is effective for the
Companys fiscal year beginning November 1, 2000. SFAS No. 133 did not have
a material impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangibles. SFAS No. 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001, for which the date of
acquisition is July 1, 2001 or later, eliminates the pooling-of-interests
method, and identifies criteria for the establishment of identifiable
intangible assets separate from goodwill resulting from a business
combination. SFAS No. 142 requires companies to cease amortizing goodwill
that existed at June 30, 2001. SFAS No. 142 also establishes a new method
of testing goodwill and other intangibles for impairment on an annual basis
or on an interim basis if an event occurs or circumstances change that would
reduce the fair value of a reporting unit below its carrying value. The
standard is effective for the Companys fiscal year beginning November 1,
2002. The Company has not completed evaluating the impact of implementing
the provisions of SFAS Nos. 141 and 142.
|  
|   |  | 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 standard is effective for the Companys fiscal year
beginning November 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Reclassifications- Certain reclassifications have been made to the 2000 and
1999 financial statements to conform to the 2001 presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|3. |  | INVENTORY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | As of October 31, 2001 and 2000, inventory consists entirely of finished
goods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F-13



---



##### 





|4. |  | PROPERTY                                             
|-- |  | -----------------------------------------------------
|  
|   |  | As of October 31, property consists of the following:

|                                               |  |      |          |      |  |   |          |  
|---------------------------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                                               |  | 2001 |          | 2000
|Equipment, furniture, and fixtures             |  | $    | 262,068  |      |  | $ | 262,068  |  
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  |      | 41,444   |      |  |   | 41,444   |  
|                                              
|                                              
|                                              
|                                              
|Capitalized software                           |  |      | 30,181   |      |  |   | 30,181   |  
|                                              
|                                              
|                                              
|                                              
|Leased equipment under capital lease           |  |      | 24,354   |      |  |   | 24,354   |  
|                                               |  |      |          |      |  |   |          |  
|Property  gross                               |  |      | 358,047  |      |  |   | 358,047  |  
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |      | (354,886 | )    |  |   | (342,573 | )
|                                               |  |      |          |      |  |   |          |  
|Property  net                                 |  | $    | 3,161    |      |  | $ | 15,474   |  
|                                               |  |      |          |      |  |   |          |  



|5. |  | NOTES PAYABLE                                        
|-- |  | -----------------------------------------------------
|  
|   |  | Notes payable consist of the following at October 31:

|                                                                                                                                                            |  |      |          |      |  |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                                                                                                                                                            |  | 2001 |          | 2000
|Note payable to director, bearing interest at 9.5% per annum,
settled through the issuance of preferred stock (Note 6)                                      |  | $    |         |      |  | $ | 750,000  |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Note payable to a third party, fixed interest payment of $50,000,
settled through the issuance of common stock (Note 6)                                     |  |      |          |      |  |   | 150,000  |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Note payable to certain stockholders totaling $433,000 and an
unrelated party totaling $150,000, fixed interest payment of
$140,000, due on January 2, 2002 |  |      | 583,000  |      |  |   |          |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Other notes payable                                                                                                                                         |  |      |          |      |  |   | 2,278    |  
|                                                                                                                                                            |  |      |          |      |  |   |          |  
|Total                                                                                                                                                       |  |      | 583,000  |      |  |   | 902,278  |  
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Less current portion                                                                                                                                        |  |      | (583,000 | )    |  |   | (902,278 | )
|                                                                                                                                                            |  |      |          |      |  |   |          |  
|Long-term notes payable                                                                                                                                     |  | $    |         |      |  | $ |         |  
|                                                                                                                                                            |  |      |          |      |  |   |          |  



|   |  | In October 2001, the Company executed an amended and restated consolidated
multiple advance non-revolving note to borrow up to $700,000 from certain
stockholders and an unrelated party. The amount borrowed on October 31,
2001 was $583,000. The note agreement requires a fixed interest payment of
$140,000, which results in an effective interest rate of 36.5 percent. The
note payable is secured by the assets of the Company. The note was payable
in full on January 2, 2002, and negotiations to restructure the note are
ongoing. The note is convertible, at the option of the lenders, into shares
of the Companys common stock at the rate of $1.00 per share. On January
30, 2002, the note was amended to increase the amount that can be borrowed
to $860,000 and to extend the due date to March 1, 2002.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|6. |  | STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | On September 20, 2000, the Company raised $500,000 in capital through
issuance of common stock at $5.00 per share. In conjunction with this
issuance, warrants to purchase 10,000 shares of common stock were issued
with an exercise price of $5.50. These warrants expire on September 20,
2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-14



---



##### 





| |  | Additionally, in connection with this transaction, the Company issued 2,000
shares of common stock to the investors as payment for their legal fees,
expenses, and related disbursements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On October 25, 2000, the Company raised $500,000 in capital through the sale
of common stock. This common stock was subscribed to at $5.00 per share.
In conjunction with this issuance, warrants to purchase 10,000 shares of
common stock were issued with an exercise price of $5.00. These warrants
expire on October 24, 2002. These shares were issued on November 28, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | On October 30, 2000, the Company issued one-year warrants to purchase
400,000 shares of common stock at $10.00 per share to ACH. These warrants
were issued to effectively extend the exercise period for the original
warrants issued to ACH that expired August 14, 2000, in order to extend the
period during which ACH could obtain an additional equity interest in the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | On October 30, 2000, the Company agreed to issue 60,000 shares of its common
stock to ACH as consideration for the release of certain contingent
obligations under the Master Formation Agreement and Members Agreement
related to the formation of their 50/50 joint venture, InCon Processing.
These shares were issued on December 14, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | On December 6, 2000, the Company issued 591,850 shares of its Series A
Convertible Preferred Stock as consideration for the cancellation of
$798,998 of debt and accrued interest owed under certain promissory notes
dated December 22, 1999 and June 19, 2000 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 to one-fifth share of common
stock. Preferred stockholders have preferences in liquidation and would
receive dividends prior to common stockholders if dividends are declared.
As of October 31, 2001, no dividends have been declared. The shares are
also redeemable by the Company at any time at $1.35 per share.                                                                                                                                                                                                                             
|
| |  | On December 13, 2000, the Company issued 30,000 shares of its common stock
as consideration for the release of its obligation to repay a $150,000 note
payable the Company received during April 2000. Under the agreement, the
Company has the right to repurchase the shares at fair market value, between
$5.00 and $15.00, for three years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Effective December 20, 2000, the Company entered into a common stock
purchase agreement (the Agreement) for the future issuance and purchase of
shares of common stock. The Agreement was with Ropart Investments LLC, of
which Todd A. Goergen, a director of Bionutrics, is also a managing member.
The Agreement established what is sometimes termed as an equity line of
credit or an equity draw down facility. The Agreement permitted the Company
to sell up to an aggregate of 100,000 shares at $5.00 per share, based on a
minimum investment amount of $100,000 and a maximum investment amount of
$500,000. The period during which the Company could make such sales began
December 20, 2000 and terminated December 31, 2001. The Company issued
60,000 and 40,000 shares of common stock at $5.00 per share to Ropart
Investments LLC in January and April 2001, respectively, pursuant to the
equity draw down facility entered into on December 20, 2000.
|
| |  | In lieu of a minimum draw down commitment, the Company issued a three-year
warrant for the purchase of 14,000 shares of common stock at an exercise
price of $5.00 per share. In addition, three-year warrants were issued in
connection with each draw down for the purchase of a number of shares equal
to 10 percent of the shares purchased at such draw down. In connection with
the Agreement, the Company amended the January 28, 1999 warrant agreement
for the purchase of 50,000 shares of its common stock at $10.00 per share.
These options expired in December 2001. In connection with the issuance of
the shares of common stock under this agreement, the Company also issued
warrants to                                                                                                                                                                                                                                                                   

F-15



---



##### 





| |  | purchase 6,000 and 4,000 shares of common stock at an exercise price of
$5.00 per share in January and April 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In August 2001, the Company entered into a stock purchase agreement with
Pharmaceutical Marketing Brands, Inc. (PMB), as nominee, for the purchase of
49% of the Company and options to purchase 5,000,000 shares of common stock
at $1.00 per share for $5,000,000. This agreement was amended on October 5,
2001, to assign PMBs rights, as nominee, to its principal, HealthSTAR
Holding LLC (HealthSTAR), and to provide for an increase in the investment
from $5 million to a minimum of $6.5 million up to a maximum of $10 million
at $1.00 per share of common stock and for the Company to sell such shares
directly to institutional and or accredited investors subject to a voting
agreement among the parties. The agreement was further amended on October
31, 2001 to extend the closing date as well as provide for the issuance of
5,227,000 shares of the Companys common stock at $1.00 per share to
HealthSTAR in exchange for a 5-year, interest-bearing promissory note. The
amendment also eliminated the 5,000,000 stock options at $1.00 per share.
The Company has further agreed, at initial closing, to enter into certain
strategic agreements and purchase certain assets in the field of
pharmaceutical marketing services. On December 28, 2001, the agreement was
amended to extend the initial closing date for the purchase of a minimum
number of shares to January 31, 2002 and allow for one or more subsequent
closings until March 31, 2002. On January 29, 2002, the agreement was
amended to extend the initial closing date until March 1, 2002, with
subsequent closings on or before May 1, 2002. There can be no assurance
that this stock purchase agreement with HealthSTAR will close.
|
| |  | 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. On December 12,
1997, an additional 190,000 shares of common stock were authorized for
issuance under the 1996 Plan, for a total of 570,000 authorized as of
October 31, 1998. The 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
are 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | 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, financial condition, and such
other factors as the Board of Directors may consider.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F-16



---



##### 





| |  | Employee Stock-Based Compensation- A summary of transactions for employee
stock options and warrants for the years ended October 31, 2001, 2000, and
1999 is as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                   |                  |  |         |          |        |   |                  |                |          |  |      |      |  |   |       |       | 
|-------------------------------------------------- | ---------------- |  | ------- | -------- | ------ | - | ---------------- | -------------- | -------- |  | ---- | ---- |  | - | ----- | ----- | 
|                                                   |                  |  | Number  |          | Option |   | Weighted Average
|                                                   |                  |  | of      |          | Price  |   | Remaining        |                | Exercise
|                                                   |                  |  | Shares  |          | Range  |   | Life             |                | Price   
|Options and warrants outstanding,
October 31, 1998 |                  |  | 574,929 |          |        | $ | 6.80 - $25.00    |                |          |  | 4.84 |      |  | $ | 20.40 |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Options granted  |  |         | 12,000   |        |   | $                | 10.00 - $20.00 |          |  |      | 4.4  |  |   | $     | 13.30 | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Options canceled |  |         | (144,900 | )      |   | $                | 20.00 - $25.00 |          |  |      |      |  |   | $     | 20.85 | 
|                                                   |                  |  |         |          |        |   |                  |                |          |  |      |      |  |   |       |      
|Options and warrants outstanding,
October 31, 1999 |                  |  | 442,029 |          |        | $ | 6.80 - $25.00    |                |          |  | 4.33 |      |  | $ | 20.05 |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Options granted  |  |         | 123,000  |        |   | $                | 8.75 - $18.15  |          |  |      | 4.1  |  |   | $     | 9.35  | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Options canceled |  |         | (60,000  | )      |   | $                | 20.00          |          |  |      |      |  |   | $     | 20.00 | 
|                                                   |                  |  |         |          |        |   |                  |                |          |  |      |      |  |   |       |      
|Options and warrants outstanding,
October 31, 2000 |                  |  | 505,029 |          |        | $ | 6.80 - $25.00    |                |          |  | 3.62 |      |  | $ | 17.45 |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Options granted  |  |         | 119,000  |        |   | $                | 5.00           |          |  |      | 4.42 |  |   | $     | 5.00  | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Options canceled |  |         | (173,800 | )      |   | $                | 5.00 - $25.00  |          |  |      |      |  |   | $     | 24.60 | 
|                                                   |                  |  |         |          |        |   |                  |                |          |  |      |      |  |   |       |      
|Options and warrants outstanding,
October 31, 2001 |                  |  | 450,229 |          |        | $ | 5.00 - $25.00    |                |          |  | 4.06 |      |  | $ | 11.39 |      
|                                                   |                  |  |         |          |        |   |                  |                |          |  |      |      |  |   |       |      

|                                                               |  |      |         |      |  |      |         |  |  |   |         | 
|-------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                               |  | 2001 |         | 2000 |  | 1999
|Options exercisable, end of year                               |  |      | 135,563 |      |  |      | 239,429 |  |  |   | 234,763 | 
|                                                               |  |      |         |      |  |      |         |  |  |   |         | 
|Warrants exercisable, end of year                              |  |      | 140,000 |      |  |      | 140,000 |  |  |   | 140,000 | 
|                                                               |  |      |         |      |  |      |         |  |  |   |         | 
|Weighted average fair value of options granted during
the year |  | $    | 1.78    |      |  | $    | 5.95    |  |  | $ | 2.50    | 
|                                                               |  |      |         |      |  |      |         |  |  |   |         | 
|Options available for future grant under the 1996 Plan         |  |      | 180,820 |      |  |      |         |  |  |   |         | 
|                                                               |  |      |         |      |  |      |         |  |  |   |         | 



| |  | Additional information regarding options and warrants outstanding as of
October 31, 2001 is as follows:
| |  | -------------------------------------------------------------------------------------------------------

|                |                |             |         |          |  |              |             |             |         |       |          |             |             |         |          |         |  |   |       |       | 
|--------------- | -------------- | ----------- | ------- | -------- |  | ------------ | ----------- | ----------- | ------- | ----- | -------- | ----------- | ----------- | ------- | -------- | ------- |  | - | ----- | ----- | 
|                |                |             |         |          |  |              | Outstanding |             |         |       |          |             | Exercisable
|                |                |             |         |          |  |              |             |             |         |       |          |             |            
|                |                |             |         |          |  |              |             |             |         |       | Weighted |             |             |         |          |         |  |   |      
|                |                |             |         |          |  |              | Weighted    |             | Average |       |          |             |             |         | Weighted
|Range of        |                |             |         |          |  | Average      |             | Remaining   |         |       |          |             |             | Average
|Exercise        |                | Number      |         | Exercise |  | Contractual  |             |             |         |       |          | Exercisable
|Prices          |                | Outstanding |         | Price    |  | Life (Years) |             | Exercisable |         | Price
|                | $5.00 - $10.00 |             |         | 261,829  |  |              | $           | 6.93        |         |       |          | 3.47        |             |         |          | 87,162  |  |   | $     | 7.99  | 
|               
|               
|               
|               
|$16.25 - $25.00 |                |             | 188,400 |          |  | $            | 17.60       |             |         |       | 4.87     |             |             |         | 188,400  |         |  | $ | 17.60 |      
|                |                |             |         |          |  |              |             |             |         |       |          |             |             |         |          |         |  |   |       |      
|                | $5.00 - $25.00 |             |         | 450,229  |  |              | $           | 11.39       |         |       |          | 4.06        |             |         |          | 275,562 |  |   | $     | 14.56 | 
|                |                |             |         |          |  |              |             |             |         |       |          |             |             |         |          |         |  |   |       |      

F-17



---



##### 





| |  | In accordance with the methodology prescribed under SFAS No. 123, pro forma
compensation cost for the employee stock options for 2001, 2000, and 1999
was estimated to be $275,920, $618,098, and $1,345,661,
respectively.                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Had the Company elected to recognize the above-mentioned compensation cost
in 2001, 2000, and 1999, loss from continuing operations would be
$3,165,105, $3,763,954, and $6,753,324, respectively, and the basic net loss
per share would be $.70, $.90, and $1.63,
respectively.
|
| |  | Nonemployee Stock-Based Compensation A summary of transactions for
nonemployee stock options and warrants for the years ended October 31, 2001,
2000, and 1999 is as follows:                                                                                                   

|                                                           |                   |         |         |          |        |                |                  |                |          |     |     |     |   |       |       |       | 
|---------------------------------------------------------- | ----------------- | ------- | ------- | -------- | ------ | -------------- | ---------------- | -------------- | -------- | --- | --- | --- | - | ----- | ----- | ----- | 
|                                                           |                   |         | Number  |          | Option |                | Weighted Average
|                                                           |                   |         |         |          |        |                |                 
|                                                           |                   |         | of      |          | Price  |                | Remaining        |                | Exercise
|                                                           |                   |         | Shares  |          | Range  |                | Life             |                | Price   
|Options
and warrants outstanding,
October 31, 1998         |                   |         | 416,667 |          |        | $              | 10.00 - $25.00   |                |          |     | 1.9 |     |   | $     | 10.50 |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Warrants issued   |         |         | 196,000  |        |                | $                | 10.00 - $35.00 |          |     |     | 1.0 |   |       | $     | 12.40 | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Warrants canceled |         |         | (50,000  | )      |                | $                | 10.00          |          |     |     |    |   |       | $     | 10.00 | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Options issued    |         |         | 77,334   |        |                | $                | 10.00 - $25.00 |          |     |     | 2.2 |   |       | $     | 16.40 | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Options canceled  |         |         | (10,000  | )      |                | $                | 20.00          |          |     |     |    |   |       | $     | 20.00 | 
|                                                           |                   |         |        
|                                                          
|                                                          
|                                                          
|                                                          
|Options
Options
and warrants outstanding,
October 31, 1999 |                   | 630,001 |         |          | $      | 10.00 - $35.00 |                  |                |          | 1.2 |     |     | $ | 11.85 |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Warrants issued   |         |         | 460,000  |        |                | $                | 5.00 - $10.00  |          |     |     | 1.2 |   |       | $     | 9.60  | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Warrants canceled |         |         | (450,000 | )      |                | $                | 10.00          |          |     |     |     |   |       | $     | 10.00 | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Options issued    |         |         | 60,000   |        |                | $                | 10.00          |          |     |     | 2.4 |   |       | $     | 10.00 | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Options canceled  |         |         | (6,667   | )      |                | $                | 20.00          |          |     |     |     |   |       | $     | 20.00 | 
|                                                           |                   |         |        
|                                                          
|                                                          
|                                                          
|                                                          
|Options
and warrants outstanding,
October 31, 2000         |                   |         | 693,334 |          |        | $              | 5.00 - $35.00    |                |          |     | 1.3 |     |   | $     | 11.15 |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Warrants issued   |         |         | 134,000  |        |                | $                | 2.00 - $5.00   |          |     |     | 2.7 |   |       | $     | 2.62  | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Warrants canceled |         |         | (400,000 | )      |                | $                | 10.00          |          |     |     |     |   |       | $     | 10.00 | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Options issued    |         |         | 7,800    |        |                | $                | 5.00 - $20.00  |          |     |     | 2.9 |   |       | $     | 16.15 | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Options canceled  |         |         | (34,000  | )      |                | $                | 25.00          |          |     |     |     |   |       | $     | 25.00 | 
|                                                           |                   |         |        
|                                                          
|                                                          
|                                                          
|                                                          
|Options
and warrants outstanding,
October 31, 2001         |                   |         | 401,134 |          |        | $              | 2.00 - $35.00    |                |          |     | 1.7 |     |   | $     | 7.89  |      
|

|                                                                |  |      |         |      |  |      |         |  |  |   |         | 
|--------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                                |  | 2001 |         | 2000 |  | 1999
|                                                                |  |      |         |      |  |     
|Options exercisable, end of year                                |  |      | 111,134 |      |  |      | 137,334 |  |  |   | 84,001  | 
|                                                                |  |      |         |      |  |      |         |  |  |   |         | 
|Warrants exercisable, end of year                               |  |      | 290,000 |      |  |      | 556,000 |  |  |   | 546,000 | 
|                                                                |  |      |         |      |  |      |         |  |  |   |         | 
|Weighted average fair value of options
granted during the year  |  | $    | 1.85    |      |  | $    | 4.75    |  |  | $ | 2.45    | 
|                                                                |  |      |         |      |  |      |         |  |  |   |         | 
|Weighted average fair value of warrants
granted during the year |  | $    | 1.15    |      |  | $    | 0.95    |  |  | $ | 2.65    | 
|                                                                |  |      |         |      |  |      |         |  |  |   |         | 

F-18



---



##### 





| |  | Additional information regarding options and warrants outstanding as of
October 31, 2001 is as follows:
| |  | -------------------------------------------------------------------------------------------------------

|                |        |             |         |             |  |              |          |             |         |       |          |             |  |         |          |       |  |   |       |       | 
|--------------- | ------ | ----------- | ------- | ----------- |  | ------------ | -------- | ----------- | ------- | ----- | -------- | ----------- |  | ------- | -------- | ----- |  | - | ----- | ----- | 
|                |        |             |         | Outstanding |  | Exercisable  |          |             |         |      
|                |        |             |         |             |  |              |          |             |         |      
|                |        |             |         |             |  |              |          |             |         |       | Weighted |             |  |         |          |       |  |   |      
|                |        |             |         |             |  |              | Weighted |             | Average |       |          |             |  |         | Weighted
|Range of        |        |             |         |             |  | Average      |          | Remaining   |         |       |          |             |  | Average
|Exercise        |        | Number      |         | Exercise    |  | Contractual  |          |             |         |       |          | Exercisable
|Prices          |        | Outstanding |         | Price       |  | Life (Years) |          | Exercisable |         | Price
|$2.00 - $10.00  |        |             | 346,200 |             |  | $            | 6.30     |             |         |       | 1.8      |             |  |         | 346,200  |       |  | $ | 6.30  |      
|               
|               
|               
|               
|$18.13 - $20.00 |        |             | 48,934  |             |  | $            | 19.94    |             |         |       | 0.8      |             |  |         | 48,934   |       |  | $ | 19.94 |      
|               
|               
|               
|               
|                | $35.00 |             |         | 6,000       |  |              | $        | 35.00       |         |       |          | 2.1         |  |         |          | 6,000 |  |   | $     | 35.00 | 
|                |        |             |         |             |  |              |          |             |         |       |          |             |  |         |          |      
|               
|               
|               
|               
|$2.00 - $35.00  |        |             | 401,134 |             |  | $            | 7.89     |             |         |       | 1.7      |             |  |         | 401,134  |       |  | $ | 7.89  |      
|                |        |             |         |             |  |              |          |             |         |       |          |             |  |         |          |      



| |  | In accordance with the methodology prescribed under SFAS No. 123, the
Company recognized $104,207, $207,199, and $193,773 of compensation expense
to the nonemployee stock options and $138,582, $492,651 and $436,004 of
compensation expense related to the issuance of common stock and warrants in
the 2001, 2000, and 1999 consolidated statements of operations,
respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The fair value of each employee-nonemployee option and warrant was
calculated on the date of grant using the Black-Scholes pricing model with
the following weighted average assumptions:                                                                                                                                                                                           

|     |  |           |      |            |  |        |    |          |  |  |   |  |  |  |   | 
|---- |  | --------- | ---- | ---------- |  | ------ | -- | -------- |  |  | - |  |  |  | - | 
|     |  | Risk Free |      | Volatility |  | Option |    | Dividend
|     |  | Interest  |      | Rate       |  | Lives  |    | Yield   
|2001 |  |           | 5.48 | %          |  |        | 77 | %        |  |  | 4 |  |  |  | 0 | 
|    
|    
|    
|    
|2000 |  |           | 5.63 | %          |  |        | 68 | %        |  |  | 3 |  |  |  | 0 | 
|    
|    
|    
|    
|1999 |  |           | 5.15 | %          |  |        | 71 | %        |  |  | 3 |  |  |  | 0 | 



|7. |  | INCOME TAXES                                                   
|-- |  | ---------------------------------------------------------------
|  
|   |  | Net deferred tax assets consist of the following at October 31:

|                          |                              |   |             |            |      |   |             |            | 
|------------------------- | ---------------------------- | - | ----------- | ---------- | ---- | - | ----------- | ---------- | 
|                          |                              |   | 2001        |            | 2000
|Deferred tax assets:      |                              |   |             |            |      |   |             |           
|                         
|                         
|                         
|                         
|                          | Operating loss carryforwards |   | $           | 11,855,281 |      |   | $           | 10,693,517 | 
|                         
|                         
|                         
|                         
|                          | Stock option compensation    |   |             | 392,098    |      |   |             | 350,415    | 
|                         
|                         
|                         
|                         
|                          | Deferred loss on inventory   |   |             | 47,002     |      |   |             | 106,823    | 
|                         
|                         
|                         
|                         
|                          | Reserve accounts             |   |             | 184,844    |      |   |             | 204,941    | 
|                         
|                         
|                         
|                         
|                          | Other                        |   |             | 37,359     |      |   |             | 16,193     | 
|                          |                              |   |             |            |      |   |             |            | 
|Total deferred tax assets |                              |   | 12,516,584  |            |      |   | 11,371,889  |           
|                         
|                         
|                         
|                         
|Less valuation allowance  |                              |   | (12,516,584 | )          |      |   | (11,371,889 | )         
|                          |                              |   |             |            |      |   |             |            | 
|Total                     |                              | $ |            |            |      | $ |            |           
|                          |                              |   |             |            |      |   |             |            | 



| |  | During the years ended October 31, 2001, 2000, and 1999, the Company
recognized increases in the valuation allowance of $1,144,695, $1,128,250,
and $2,152,706, respectively, against deferred tax assets. The valuation
allowance reduces deferred tax assets to an amount that represents
managements
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-19



---



##### 





| |  | best estimate of the amount of such deferred tax assets that more likely
than not will be realized. Realization of the deferred tax assets is
dependent upon sufficient future taxable income during the period that
temporary differences and carryforwards are expected to be available to
reduce taxable income.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Companys net operating loss carryforwards of approximately $29,638,202
for federal income tax purposes expire in 2011 through 2021.                                                                                                                                                                           
|
| |  | The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the years
ended October 31, 2001, 2000, and 1999 due to the following:                                                                                                 

|                                     |                         |   |         |            |      |   |           |            |   |   |           |            |  
|------------------------------------ | ----------------------- | - | ------- | ---------- | ---- | - | --------- | ---------- | - | - | --------- | ---------- | -
|                                     |                         |   | 2001    |            | 2000 |   | 1999     
|Benefit calculated at statutory rate |                         | $ | 982,323 |            |      | $ | 1,072,219 |            |   | $ | 1,836,775 |           
|                                    
|                                    
|                                    
|                                    
|Increase (decrease) resulting from:  |                         |   |         |            |      |   |           |            |   |   |           |           
|                                    
|                                    
|                                    
|                                    
|                                     | State income taxes, net |   |         | 173,351    |      |   |           | 189,215    |   |   |           | 324,137    |  
|                                    
|                                    
|                                    
|                                    
|                                     | Nondeductible expenses  |   |         | (10,979    | )    |   |           | (133,184   | ) |   |           | (8,206     | )
|                                    
|                                    
|                                    
|                                    
|                                     | Valuation allowance     |   |         | (1,144,695 | )    |   |           | (1,128,250 | ) |   |           | (2,152,706 | )
|                                     |                         |   |         |            |      |   |           |            |   |   |           |           
|Total                                |                         | $ |        |            |      | $ |          |            |   | $ |          |           
|                                     |                         |   |         |            |      |   |           |            |   |   |           |           



|8. |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company has operating leases for office space, vehicles, and equipment,
which expire on various dates through January 31, 2003. Total rental
expense was approximately $191,000, $207,000, and $510,000 for fiscal years
2001, 2000, and 1999, respectively. Future minimum lease payments under
noncancelable operating leases at October 31, 2001 are as follows:

|      |  |   |         | 
|----- |  | - | ------- | 
|2002  |  | $ | 181,825 | 
|     
|     
|     
|     
|2003  |  |   | 45,456  | 
|      |  |   |         | 
|Total |  | $ | 227,281 | 
|      |  |   |         | 



|   |  | In connection with the purchase of InCon in October 1997, the Company
acquired the right to receive a $1,000,000 payment that was contingent upon
the expansion of a plant that the sellers subsidiary had previously sold to
a third party. The Company also assumed a contingent liability of $322,883,
which was payable to the sellers subsidiary in the event that the Company
received the $1,000,000 cash payment from the third party. If the Company
did not receive the $1,000,000 payment, the Company would not be required to
pay the sellers subsidiary for the liability. Because the ultimate
resolution of these contingencies is outside of the control of the Company,
neither amount was included as part of the net assets of InCon that were
purchased by the Company. In November 2001, it was determined that the
expansion of this plant would not occur, and therefore, this contingent
right no longer exists.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|9. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | During the year ended October 31, 1999, various stockholders have provided
consulting and other administrative services to the Company, totaling
$141,000, which was included in selling, general, and administrative
expenses in the accompanying consolidated statements of operations. No
additional services were provided in either 2001 or 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-20



---



##### 





|    |  | Interest paid to stockholders in connection with outstanding notes described
in Note 5 was $63,557 for the year ended October 31, 1999. No interest was
paid to stockholders during 2001 and 2000.                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|10. |  | INVESTMENT IN JOINT VENTURE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | InCon Processing is a limited liability company formed in June 1999, in
which the Company is a 50 percent member, as discussed in Note 1. The
Company accounts for this investment using the equity method. InCon
Processing has a fiscal year-end of August 31. The Companys equity in the
joint ventures operations for the fiscal years ended August 31, 2001 and
2000 and the period from June 25, 1999 (date of inception) through August
31, 1999 is included in the Companys consolidated statement of operations
as if they had the same fiscal year.
|   
|    |  | InCon Processing had two customers that accounted for approximately 34 and
30 percent and 31 and 24 percent of total revenues for the years ended
August 31, 2001 and 2000, respectively. InCon had two customers that
accounted for approximately 46 and 20 percent of total revenues for the
period from June 25, 1999 (date of inception) through August 31, 1999.                                                                                                                                                                                           
|   
|    |  | The following represents summarized financial information of InCon
Processing at August 31, 2001 and 2000, and for the years ended August 21,
2001 and 2000 and for the period from June 25, 1999 (date of inception)
through August 31, 1999:                                                                                                                                                                                                                                                                                                                  

|                                  |                                        |   |                        |       |      |   |       |       |  |   |      |     | 
|--------------------------------- | -------------------------------------- | - | ---------------------- | ----- | ---- | - | ----- | ----- |  | - | ---- | --- | 
|                                  |                                        |   | 2001                   |       | 2000 |   | 1999 
|                                  |                                        |   |                        |       |      |   |      
|                                  |                                        |   | (Dollars in thousands)
|ASSETS:                           |                                        |   |                        |       |      |   |       |       |  |   |      |    
|                                 
|                                 
|                                 
|                                 
|                                  | Cash and cash equivalents              |   | $                      | 290   |      |   | $     | 526   |  |   |      |     | 
|                                 
|                                 
|                                 
|                                 
|                                  | Accounts receivable                    |   |                        | 367   |      |   |       | 678   |  |   |      |     | 
|                                 
|                                 
|                                 
|                                 
|                                  | Prepaids and other current assets      |   |                        | 42    |      |   |       | 124   |  |   |      |     | 
|                                 
|                                 
|                                 
|                                 
|                                  | Property, plant, and equipment  net   |   |                        | 4,239 |      |   |       | 4,400 |  |   |      |     | 
|                                 
|                                 
|                                 
|                                 
|                                  | Goodwill                               |   |                        | 769   |      |   |       | 816   |  |   |      |     | 
|                                  |                                        |   |                        |       |      |   |       |       |  |   |      |     | 
|TOTAL                             |                                        | $ | 5,707                  |       |      | $ | 6,544 |       |  |   |      |    
|                                  |                                        |   |                        |       |      |   |       |       |  |   |      |     | 
|LIABILITIES AND MEMBERS CAPITAL: |                                        |   |                        |       |      |   |       |       |  |   |      |    
|                                 
|                                 
|                                 
|                                 
|                                  | Accounts payable and other liabilities |   | $                      | 248   |      |   | $     | 370   |  |   |      |     | 
|                                 
|                                 
|                                 
|                                 
|                                  | Members capital                       |   |                        | 5,459 |      |   |       | 6,174 |  |   |      |     | 
|                                  |                                        |   |                        |       |      |   |       |       |  |   |      |     | 
|TOTAL                             |                                        | $ | 5,707                  |       |      | $ | 6,544 |       |  |   |      |    
|                                  |                                        |   |                        |       |      |   |       |       |  |   |      |     | 
|OPERATIONS:                       |                                        |   |                        |       |      |   |       |       |  |   |      |    
|                                 
|                                 
|                                 
|                                 
|                                  | Revenues                               |   | $                      | 3,460 |      |   | $     | 5,410 |  |   | $    | 829 | 
|                                 
|                                 
|                                 
|                                 
|                                  | Expenses                               |   |                        | 4,176 |      |   |       | 5,495 |  |   |      | 969 | 
|                                  |                                        |   |                        |       |      |   |       |       |  |   |      |     | 
|NET LOSS                          |                                        | $ | (716                   | )     |      | $ | (85   | )     |  | $ | (140 | )  
|                                  |                                        |   |                        |       |      |   |       |       |  |   |      |     | 



|11. |  | 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 with common stock
of the Company at a rate of 50 percent for the first 6 percent contributed.
The Company recognized expenses under this plan of approximately $15,000,
10,000, and $49,000 during the years ended October 31, 2001, 2000, and 1999,
respectively.

F-21



---



##### 





|12. |  | SELECTED QUARTERLY FINANCIAL DATA (Unaudited)                                       
|--- |  | ------------------------------------------------------------------------------------
|   
|    |  | Consolidated quarterly financial information for 2001, 2000, and 1999 is as
follows:

|                   |  |          |           |               |  |      |         |           |  |   |            |   |  |             |       |  
|------------------ |  | -------- | --------- | ------------- |  | ---- | ------- | --------- |  | - | ---------- | - |  | ----------- | ----- | -
|                   |  |          |           |               |  |      |         |           |  |   |            |   |  | Basic      
|                   |  |          |           |               |  |      |         |           |  |   |            |   |  | and Diluted
|                   |  | Gross    |           | Gross         |  | Net  |         | Loss     
|                   |  | Revenues |           | Profit (Loss) |  | Loss |         | Per Share
|2001
First quarter |  | $        | 23,123    |               |  | $    | 1,893   |           |  | $ | (593,334   | ) |  | $           | (0.13 | )
|                  
|                  
|                  
|                  
|Second quarter     |  |          | 34,213    |               |  |      | (19,143 | )         |  |   | (862,844   | ) |  |             | (0.19 | )
|                  
|                  
|                  
|                  
|Third quarter      |  |          | 25,125    |               |  |      | 4,402   |           |  |   | (672,331   | ) |  |             | (0.15 | )
|                  
|                  
|                  
|                  
|Fourth quarter     |  |          | 13,517    |               |  |      | (9,268  | )         |  |   | (760,676   | ) |  |             | (0.17 | )
|                   |  |          |           |               |  |      |         |           |  |   |            |   |  |             |       |  
|Total              |  | $        | 95,978    |               |  | $    | (22,116 | )         |  | $ | (2,889,185 | ) |  | $           | (0.64 | )
|                   |  |          |           |               |  |      |         |           |  |   |            |   |  |             |       |  
|2000
First quarter |  | $        | 187,536   |               |  | $    | 133,882 |           |  | $ | (439,725   | ) |  | $           | (0.15 | )
|                  
|                  
|                  
|                  
|Second quarter     |  |          | 75,915    |               |  |      | 11,967  |           |  |   | (1,164,411 | ) |  |             | (0.25 | )
|                  
|                  
|                  
|                  
|Third quarter      |  |          | 67,943    |               |  |      | (89,249 | )         |  |   | (548,572   | ) |  |             | (0.15 | )
|                  
|                  
|                  
|                  
|Fourth quarter     |  |          | 24,230    |               |  |      | (87,563 | )         |  |   | (993,148   | ) |  |             | (0.20 | )
|                   |  |          |           |               |  |      |         |           |  |   |            |   |  |             |       |  
|Total              |  | $        | 355,624   |               |  | $    | (30,963 | )         |  | $ | (3,145,856 | ) |  | $           | (0.75 | )
|                   |  |          |           |               |  |      |         |           |  |   |            |   |  |             |       |  
|1999
First quarter |  | $        | 1,134,817 |               |  | $    | 71,464  |           |  | $ | (1,643,451 | ) |  | $           | (0.40 | )
|                  
|                  
|                  
|                  
|Second quarter     |  |          | 1,647,910 |               |  |      | 522,329 |           |  |   | (1,504,202 | ) |  |             | (0.35 | )
|                  
|                  
|                  
|                  
|Third quarter      |  |          | 836,891   |               |  |      | 190,787 |           |  |   | (1,223,483 | ) |  |             | (0.30 | )
|                  
|                  
|                  
|                  
|Fourth quarter     |  |          | 70,129    |               |  |      | 12,066  |           |  |   | (1,036,527 | ) |  |             | (0.26 | )
|                   |  |          |           |               |  |      |         |           |  |   |            |   |  |             |       |  
|Total              |  | $        | 3,689,747 |               |  | $    | 796,646 |           |  | $ | (5,407,663 | ) |  | $           | (1.31 | )
|                   |  |          |           |               |  |      |         |           |  |   |            |   |  |             |       |  

******

F-22



---



##### 



BIONUTRICS, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)




|                                                              |  |            |     |           |  |            |     |         |  |   |     |            |  |   |     | 
|------------------------------------------------------------- |  | ---------- | --- | --------- |  | ---------- | --- | ------- |  | - | --- | ---------- |  | - | --- | 
|                                                              |  | Balance at |     |           |  |            |     |         |  |   |     | Balance at
|                                                              |  | Beginning  |     |           |  |            |     |         |  |   |     | End       
|Description                                                   |  | of Year    |     | Additions |  | Deductions |     | of Year
|Year ended October 31, 1999 -
Allowance for doubtful accounts |  | $          | 72  |           |  | $          | 6   |         |  | $ | (29 | )          |  | $ | 49  | 
|                                                             
|                                                             
|                                                             
|                                                             
|Year ended October 31, 2000 -
Allowance for doubtful accounts |  | $          | 49  |           |  | $          | 263 |         |  | $ | (1  | )          |  | $ | 311 | 
|                                                             
|                                                             
|                                                             
|                                                             
|Year ended October 31, 2001 -
Allowance for doubtful accounts |  | $          | 311 |           |  | $          |    |         |  | $ | (6  | )          |  | $ | 305 | 

It is the Companys policy that certain return claims are posted directly to accounts payable rather
than flowing through the allowance account. However, as all returns are debited to the returns and
allowances expense account, there is no impact to the consolidated statement of operations as a
result of this treatment.

|                                                    |  |   |     |  |  |   |     |  |  |   |      |   |  |   |     | 
|--------------------------------------------------- |  | - | --- |  |  | - | --- |  |  | - | ---- | - |  | - | --- | 
|Year ended October 31, 1999 -
Provision for returns |  | $ | 36  |  |  | $ | 283 |  |  | $ | (58  | ) |  | $ | 261 | 
|                                                   
|                                                   
|                                                   
|                                                   
|Year ended October 31, 2000 -
Provision for returns |  | $ | 261 |  |  | $ | 118 |  |  | $ | (43  | ) |  | $ | 336 | 
|                                                   
|                                                   
|                                                   
|                                                   
|Year ended October 31, 2001 -
Provision for returns |  | $ | 336 |  |  | $ | 68  |  |  | $ | (130 | ) |  | $ | 274 | 

F-23



---



##### 



InCon Processing,
L.L.C.

Financial Statements as of August 31, 2001
and 2000, and for the Years Ended
August 31, 2001 and 2000 and for the Period
from June 25, 1999 (Date of Inception)
through August 31, 1999, and Independent
Auditors Report





---



##### 



INDEPENDENT AUDITORS REPORT

InCon Processing, L.L.C.
Phoenix, Arizona

We have audited the balance sheets of InCon Processing, L.L.C. (the Company)
as of August 31, 2001 and 2000, and the related statements of operations and
changes in members equity and of cash flows for the years ended August 31,
2001 and 2000 and for the period from June 25, 1999 (date of inception) through
August 31, 1999. 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 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, such financial statements present fairly, in all material
respects, the financial position of the Company at August 31, 2001 and 2000,
and the results of its operations and its cash flows for the years ended August
31, 2001 and 2000 and for the period from June 25, 1999 (date of inception)
through August 31, 1999 in conformity with accounting principles generally
accepted in the United States of America.

Deloitte & Touche
Phoenix, Arizona

January 17, 2002

F-24



---



##### 



INCON PROCESSING, L.L.C.

BALANCE SHEETS
AUGUST 31, 2001 AND 2000

---

|                                                               |                                                                                            |                           |           |           |           |   |           |           |           | 
|-------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                               |                                                                                            | 2001                      |           | 2000     
|ASSETS
        CURRENT ASSETS:                                 |                                                                                            |                           |           |           |           |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash and cash equivalents                                                                  |                           | $         | 290,216   |           |   | $         | 525,936   |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Trade receivables  net of allowance for doubtful accounts of $0
and $33,000, respectively |                           |           | 366,885   |           |   |           | 677,505   |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Related party receivables (Note 5)                                                         |                           |           | 6,204     |           |   |           | 87,096    |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Prepaid expenses and other current assets                                                  |                           |           | 35,373    |           |   |           | 37,505    |          
|                                                               |                                                                                            |                           |           |           |           |   |           |          
|                                                               |                                                                                            | Total current assets      |           |           | 698,678   |   |           |           | 1,328,042 | 
|                                                              
|                                                              
|                                                              
|                                                              
|PROPERTY AND EQUIPMENT  Net (Note 3)                          |                                                                                            |                           | 4,239,738 |           |           |   | 4,399,916 |          
|                                                              
|                                                              
|                                                              
|                                                              
|GOODWILL  Net (Note 2)                                        |                                                                                            |                           | 768,996   |           |           |   | 816,564   |          
|                                                               |                                                                                            |                           |           |           |           |   |           |          
|TOTAL                                                          |                                                                                            | $                         | 5,707,412 |           |           | $ | 6,544,522 |          
|                                                               |                                                                                            |                           |           |           |           |   |           |          
|LIABILITIES AND MEMBERS EQUITY
CURRENT LIABILITIES:           |                                                                                            |                           |           |           |           |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts payable                                                                           |                           | $         | 126,414   |           |   | $         | 94,477    |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Related party payables (Note 5)                                                            |                           |           | 19,571    |           |   |           | 10,882    |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued liabilities and other current liabilities                                          |                           |           | 102,686   |           |   |           | 264,790   |          
|                                                               |                                                                                            |                           |           |           |           |   |           |          
|                                                               |                                                                                            | Total current liabilities |           |           | 248,671   |   |           |           | 370,149   | 
|                                                               |                                                                                            |                           |           |           |           |   |           |          
|COMMITMENTS AND CONTINGENCIES (Notes 4 and 6)
MEMBERS EQUITY: |                                                                                            |                           |           |           |           |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Members equity  InCon Technologies, Inc.                                                 |                           |           | 3,200,000 |           |   |           | 3,200,000 |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Members equity  ACH Food Companies, Inc.                                                 |                           |           | 3,200,000 |           |   |           | 3,200,000 |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accumulated deficit                                                                        |                           |           | (941,259  | )         |   |           | (225,627  | )        
|                                                               |                                                                                            |                           |           |           |           |   |           |          
|                                                               |                                                                                            | Total members equity     |           |           | 5,458,741 |   |           |           | 6,174,373 | 
|                                                               |                                                                                            |                           |           |           |           |   |           |          
|TOTAL                                                          |                                                                                            | $                         | 5,707,412 |           |           | $ | 6,544,522 |          
|                                                               |                                                                                            |                           |           |           |           |   |           |          

See notes to financial statements.

F-25



---



##### 



INCON PROCESSING, L.L.C.

STATEMENTS OF OPERATIONS AND CHANGES IN MEMBERS EQUITY
YEARS ENDED AUGUST 31, 2001 AND 2000 AND FOR THE PERIOD
FROM JUNE 25, 1999 (Date of Inception) THROUGH AUGUST 31, 1999

---

|                                                              |                   |                        |           |           |           |      |           |           |           |   |           |         |         | 
|------------------------------------------------------------- | ----------------- | ---------------------- | --------- | --------- | --------- | ---- | --------- | --------- | --------- | - | --------- | ------- | ------- | 
|                                                              |                   |                        |           | 2001      |           | 2000 |           | 1999     
|REVENUES (Note 5):                                            |                   |                        |           |           |           |      |           |           |           |   |           |        
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Services          |                        | $         | 3,227,880 |           |      | $         | 3,924,027 |           |   | $         | 829,525 |        
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Equipment sales   |                        |           | 232,032   |           |      |           | 1,486,402 |           |   |           |         |        
|                                                              |                   |                        |           |           |           |      |           |           |           |   |           |        
|                                                              |                   | Total revenues         |           |           | 3,459,912 |      |           |           | 5,410,429 |   |           |         | 829,525 | 
|                                                              |                   |                        |           |           |           |      |           |           |           |   |           |        
|COST OF REVENUES:                                             |                   |                        |           |           |           |      |           |           |           |   |           |        
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Services (Note 5) |                        |           | 2,556,944 |           |      |           | 2,821,914 |           |   |           | 549,283 |        
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Equipment sales   |                        |           | 132,269   |           |      |           | 893,749   |           |   |           |         |        
|                                                              |                   |                        |           |           |           |      |           |           |           |   |           |        
|                                                              |                   | Total cost of revenues |           |           | 2,689,213 |      |           |           | 3,715,663 |   |           |         | 549,283 | 
|                                                              |                   |                        |           |           |           |      |           |           |           |   |           |        
|GROSS PROFIT                                                  |                   |                        | 770,699   |           |           |      | 1,694,766 |           |           |   | 280,242   |        
|                                                             
|                                                             
|                                                             
|                                                             
|SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES (Notes 5 and 6) |                   |                        | 1,486,331 |           |           |      | 1,780,140 |           |           |   | 420,495   |        
|                                                              |                   |                        |           |           |           |      |           |           |           |   |           |        
|NET LOSS                                                      |                   |                        | (715,632  | )         |           |      | (85,374   | )         |           |   | (140,253  | )      
|                                                             
|                                                             
|                                                             
|                                                             
|CAPITAL CONTRIBUTIONS                                         |                   |                        |           |           |           |      |           |           |           |   | 6,400,000 |        
|                                                             
|                                                             
|                                                             
|                                                             
|MEMBERS EQUITY, BEGINNING OF PERIOD                          |                   |                        | 6,174,373 |           |           |      | 6,259,747 |           |           |   |           |        
|                                                              |                   |                        |           |           |           |      |           |           |           |   |           |        
|MEMBERS EQUITY, END OF PERIOD                                |                   | $                      | 5,458,741 |           |           | $    | 6,174,373 |           |           | $ | 6,259,747 |        
|                                                              |                   |                        |           |           |           |      |           |           |           |   |           |        

See notes to financial statements.

F-26



---



##### 



INCON PROCESSING, L.L.C.

STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 2001 AND 2000 AND FOR THE PERIOD
FROM JUNE 25, 1999 (Date of Inception) THROUGH AUGUST 31, 1999

---

|                                                                                                        |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |          |           |          |           |  
|------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------------------- | --------------------------------------------------- | ------- | -------- | ------- | ------- | ------- | -------- | ------- | -------- | --------- | -------- | --------- | -
|                                                                                                        |                                                                                           |                                                   |                                                   |                                                     |         | 2001     |         | 2000    |         | 1999    
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                   |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |         
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Net loss                                                                                  |                                                   | $                                                 | (715,632                                            | )       |          | $       | (85,374 | )       |          | $       | (140,253 | )        
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        | Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |          |          
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           | Depreciation and amortization                     |                                                   |                                                     | 560,152 |          |         |         | 546,147 |          |         |          | 89,823    |         
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           | Changes in assets and liabilities:                |                                                   |                                                     |         |          |         |         |         |          |         |          |           |         
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           |                                                   | Trade receivables                                 |                                                     |         | 397,716  |         |         |         | (241,969 | )       |          |           | 71,519   |          
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           |                                                   | Prepaid expenses and other current assets         |                                                     |         | (4,072   | )       |         |         | (34,593  | )       |          |           | (2,912   | )        
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           |                                                   | Accounts payable                                  |                                                     |         | 40,626   |         |         |         | (18,017  | )       |          |           | (268,020 | )        
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           |                                                   | Accrued liabilities and other current liabilities |                                                     |         | (162,104 | )       |         |         | 149,108  |         |          |           | 106,768  |          
|                                                                                                        |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |         
|                                                                                                        |                                                                                           |                                                   |                                                   | Net cash provided by (used in) operating activities |         |          | 116,686 |         |         |          | 315,302 |          |           |          | (143,075  | )
|                                                                                                        |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |         
|CASH FLOWS USED IN INVESTING ACTIVITIES -
Capital expenditures                                          |                                                                                           |                                                   | (352,406                                          | )                                                   |         |          | (77,189 | )       |         |          | (41,346 | )       
|                                                                                                        |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |         
|CASH FLOWS FROM FINANCING ACTIVITIES -
Cash contributions by members                                    |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          | 472,244 |         
|                                                                                                        |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |         
|NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS                                                    |                                                                                           |                                                   | (235,720                                          | )                                                   |         |          | 238,113 |         |         |          | 287,823 |         
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD                                                          |                                                                                           |                                                   | 525,936                                           |                                                     |         |          | 287,823 |         |         |          |         |         
|                                                                                                        |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |         
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                |                                                                                           | $                                                 | 290,216                                           |                                                     |         | $        | 525,936 |         |         | $        | 287,823 |         
|                                                                                                        |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |         
|SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES -
Contribution of net assets by InCon Technologies, Inc.: |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |         
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           | Accounts receivable                               |                                                   |                                                     |         |          |         |         |         |          |         | $        | 594,151   |         
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           | Property and equipment                            |                                                   |                                                     |         |          |         |         |         |          |         |          | 4,861,855 |         
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           | Goodwill                                          |                                                   |                                                     |         |          |         |         |         |          |         |          | 872,060   |         
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           | Accounts payable                                  |                                                   |                                                     |         |          |         |         |         |          |         |          | (391,396  | )       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                        |                                                                                           | Accrued liabilities and other current liabilities |                                                   |                                                     |         |          |         |         |         |          |         |          | (8,914    | )       
|                                                                                                        |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |         
|                                                                                                        |                                                                                           |                                                   |                                                   | Net assets contributed                              |         |          |         |         |         |          |         |          |           | $        | 5,927,756 |  
|                                                                                                        |                                                                                           |                                                   |                                                   |                                                     |         |          |         |         |         |          |         |         

See notes to financial statements.

F-27



---



##### 



INCON PROCESSING, L.L.C.

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 2001 AND 2000 AND FOR THE PERIOD
FROM JUNE 25, 1999 (Date of Inception) THROUGH AUGUST 31, 1999

---



|1. |  | ORGANIZATION AND BASIS OF PRESENTATION
|-- |  | --------------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | InCon Processing, L.L.C. (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. InCon transferred
substantially all of its assets, including cash of $72,244 and goodwill of
$872,060, and certain payables at a historical cost of $6 million to the
Company, for which it received a payment of $3,000,000 from ACH for a 50
percent share of the net assets contributed. Both members have a 50 percent
interest in the joint venture and share in its profits and losses equally.
Additionally, ACH and InCon each made cash contributions to the venture of
$200,000.
|
| | 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.                                                                                                   



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America.                                                                                                                                                                                                                                                                                                                                                         
|
| | 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 equipmentare 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-28



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Goodwillis recorded at cost and is being amortized on a straight-line basis
over 20 years. Goodwill is recorded net of accumulated amortization of
$103,064 and $55,496 at August 31, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Revenue- The Company recognizes revenues from services at the time service
is rendered. Revenues on long-term distillation 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | The Company had two customers that accounted for approximately 34 and 30
percent, 31 and 24 percent, and 46 and 20 percent of total revenues for the
years ended August 31, 2001 and 2000 and for the period from June 25, 1999
(date of inception) through August 31, 1999, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | 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- Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, is effective for all fiscal years beginning after June 15, 2000.
SFAS No. 133, as amended, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The Company
adopted the statement on September 1, 2000. SFAS No. 133 did not have a
material impact on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangibles.SFAS No. 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001, for which the date of
acquisition is July 1, 2001 or later, eliminates the pooling-of-interests
method, and identifies criteria for the establishment of identifiable
intangible assets separate from goodwill resulting from a business
combination. SFAS No. 142 requires companies to cease amortizing goodwill
that existed at June 30, 2001. SFAS No. 142 also establishes a new method
of testing goodwill for impairment on an annual basis or on an interim basis
if an event occurs or circumstances change that would reduce the fair value
of a reporting unit below its carrying value. The adoption of SFAS No. 142
resulted in the discontinuation of amortization of the Companys goodwill on
August 31, 2002; however, the Company will be required to test its goodwill
for impairment under the new standard for its fiscal year beginning
September 1, 2002, which could have an adverse effect on the Companys
future results of operations if an impairment occurs. The Company has not
completed evaluating the impact of implementing the provisions of SFAS Nos.
141 and 142.
|
| | 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-29



---



##### 





|3. |  | PROPERTY AND EQUIPMENT
|-- |  | ----------------------



| |                                                                    
| | -------------------------------------------------------------------
| | As of August 31, property and equipment consisted of the following:

|                                               |  |      |            |      |  |   |           |  
|---------------------------------------------- |  | ---- | ---------- | ---- |  | - | --------- | -
|                                               |  | 2001 |            | 2000
|Equipment, furniture, and fixtures             |  | $    | 5,124,111  |      |  | $ | 4,960,485 |  
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  |      | 4,890      |      |  |   | 4,890     |  
|                                              
|                                              
|                                              
|                                              
|Capitalized software                           |  |      | 1,926      |      |  |   | 1,926     |  
|                                              
|                                              
|                                              
|                                              
|Construction in progress                       |  |      | 201,869    |      |  |   | 13,089    |  
|                                               |  |      |            |      |  |   |           |  
|Total                                          |  |      | 5,332,796  |      |  |   | 4,980,390 |  
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |      | (1,093,058 | )    |  |   | (580,474  | )
|                                               |  |      |            |      |  |   |           |  
|Property and equipment  net                   |  | $    | 4,239,738  |      |  | $ | 4,399,916 |  
|                                               |  |      |            |      |  |   |           |  



|4. |  | LEASES
|-- |  | ------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has operating leases for office space and a vehicle that expire
on various dates through July 31, 2007. Total rental expense was $161,096,
$169,006, and $29,200 for the years ended August 31, 2001 and 2000 and for
the period from June 25, 1999 (date of inception) through August 31, 1999,
respectively. Future minimum lease payments under noncancelable operating
leases at August 31, 2001 are as follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2002       |  | $ | 157,573 | 
|          
|          
|          
|          
|2003       |  |   | 151,496 | 
|          
|          
|          
|          
|2004       |  |   | 151,496 | 
|          
|          
|          
|          
|2005       |  |   | 151,496 | 
|          
|          
|          
|          
|2006       |  |   | 151,496 | 
|          
|          
|          
|          
|Thereafter |  |   | 138,871 | 
|           |  |   |         | 
|Total      |  | $ | 902,428 | 
|           |  |   |         | 



|5. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company provided molecular distillation services to ACH during the years
ended August 31, 2001 and 2000. The Company recorded revenues from ACH
totaling $3,880, $271,538, and $0 during the years ended August 31, 2001 and
2000 and during the period from June 25, 1999 (date of inception) through
August 31, 1999, respectively. The Company had receivables outstanding from
ACH of $0 and $87,096 at August 31, 2001 and 2000, respectively. In
addition, beginning in January 2000, ACH extended health insurance coverage
to the Companys employees and their dependents. The Company makes monthly
payments to ACH as reimbursement for the medical coverage provided through
ACHs insurance carrier. The Company recorded expenses for such health
insurance totaling $89,995 and $84,585 during the years ended August 31,
2001 and 2000, respectively. The Company had payables outstanding of
$19,571 and $10,800 to ACH at August 31, 2001 and 2000, respectively.
|
| | Upon formation of the Company, it was agreed that Bionutrics, the parent
company of InCon, would continue to provide administrative services to the
Company until these activities could be transitioned to the Company. These
activities were transitioned to the Company during the year ended August 31,
2000. The Company made biweekly payments to Bionutrics as reimbursement for
its biweekly payroll and payroll-related costs. During the year ended
August 31, 2000 and during the period from June 25,                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-30



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1999 (date of inception)
through August 31, 1999, the Company recorded expenses for these services of
$769,700 and $445,928, respectively, and had a payable to Bionutrics of $82
for these services at August 31, 2000. At August 31, 2001, the Company had
a receivable from Bionutrics of $6,204 as the result of a payment made on
behalf of Bionutrics, which had not been reimbursed as of the balance sheet
date.



|6. |  | 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 $40,400, $41,368, and $9,817 during
the years ended August 31, 2001 and 2000 and for the period from June 25,
1999 (date of inception) through August 31, 1999, respectively.

******

F-31



---



##### 



|            |  |                                                                                                                                                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  | EXHIBIT INDEX                                                                                                                                                                                                                                                                    
|EXHIBIT NO. |  | 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        |  | Option granted to Hunt-Wesson, Inc. by LipoGenics, Inc., dated
July 1992 (1)                                                                                                                                                                                                     
|           
|           
|           
|           
|10.2        |  | Agreement dated October 1995 between the Company and
Milton Okin, Kenneth Okin, Robert Okin and Nicki Closset and
Amendment to Agreement dated October 1995 (1)                                                                                                                  
|           
|           
|           
|           
|10.3        |  | Agreement between the Company and C. Everett Koop for
the purchase of 4,000 shares of common stock and the issuance of
36,000 options dated October 1995 (1)                                                                                                                     
|           
|           
|           
|           
|10.4        |  | Additional Secured Loan Agreement dated March 1996
between the Company and Milton Okin (1)                                                                                                                                                                                       
|           
|           
|           
|           
|10.6        |  | Stock Purchase Agreements dated September 16, 1996 and
October 31, 1996 between the Company and Spanswick Limited(1)                                                                                                                                                             
|           
|           
|           
|           
|10.7        |  | 1996 Stock Option Plan, as amended through March 26,
1998 (7)                                                                                                                                                                                                                    
|           
|           
|           
|           
|10.8        |  | Form of Stock Purchase Agreement and Subscription
Application entered into between the Company and certain European
investors in January and March 1997 pursuant to Regulation S (3)                                                                                             
|           
|           
|           
|           
|10.9        |  | Form of Stock Purchase Agreement entered into between
the Company and an institutional investor in September 1997 (3)                                                                                                                                                            
|           
|           
|           
|           
|10.10       |  | Form of Stock Purchase Agreement and Note between the
Company and two overseas investors in October 1997 (3)                                                                                                                                                                     
|           
|           
|           
|           
|10.11       |  | Employment Agreement between the Registrant and John
R. Palmer (3)                                                                                                                                                                                                               
|           
|           
|           
|           
|10.13       |  | Agreement and Plan of Merger by and among InCon
Technologies, Inc., InCon Holdings, LLC, Bionutrics, Inc. and
BNRX, Inc.(2)                                                                                                                                                      
|           
|           
|           
|           
|10.14       |  | Stock Purchase Agreement dated as of August 14, 1998,
between the Registrant and AC HUMKO CORP.(4)                                                                                                                                                                               
|           
|           
|           
|           
|10.15       |  | Warrant Agreement dated as of August 14, 1998, between
the Registrant and AC HUMKO CORP.(4)                                                                                                                                                                                      
|           
|           
|           
|           
|10.16       |  | Technology 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)                                                                                                     
|           
|           
|           
|           
|10.17       |  | 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)                                                                                               
|           
|           
|           
|           
|10.19       |  | Form of Asset Purchase Agreement dated as of October
1998 between AC HUMKO CORP. and Bionutrics Entities (6)                                                                                                                                                                     
|           
|           
|           
|           
|10.20       |  | Warrant Agreement for the purchase of 20,000 shares of
common stock between the Company and William M. McCormick dated
August 7, 1998 (7)                                                                                                                                        
|           
|           
|           
|           
|10.21       |  | Warrant Agreement for the purchase of 120,000 shares
of common stock between the Company and William M. McCormick
dated August 7, 1998 (7)                                                                                                                                       
|           
|           
|           
|           
|10.22       |  | Stock Purchase Agreement and Common Stock Purchase
Warrants dated January 28, 1999 between Ropart Investments, LLC
and the Company (8)                                                                                                                                           
|           
|           
|           
|           
|10.23       |  | 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)                                 
|           
|           
|           
|           
|10.24       |  | 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)





---



##### 



|      |  |                                                                                                                                                                                                                                                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.25 |  | 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)                                                                                 
|     
|     
|     
|     
|10.26 |  | First Amendment to Agreement for Purchase and Sale of
Assets (9)                                                                                                                                                                                                                 
|     
|     
|     
|     
|10.27 |  | Warrant Agreement for the purchase of 6,000 shares of
common stock between the Company and IK Biotech, Inc. dated as of
March 19, 1998.                                                                                                                                          
|     
|     
|     
|     
|10.28 |  | Warrant Agreement for the purchase of 20,000 shares of
common stock between the Company and Cameron Associates Inc.
dated as of November 23, 1998.                                                                                                                               
|     
|     
|     
|     
|10.29 |  | Promissory note for $500,000 dated December 22, 1999
between Milton Okin and the Company (10)                                                                                                                                                                                    
|     
|     
|     
|     
|10.30 |  | Common Stock Purchase Agreement dated September 7,
2000 between the Company and Justicia Holdings Limited (11)                                                                                                                                                                   
|     
|     
|     
|     
|10.31 |  | Registration Rights Agreement dated September 7, 2000
between the Company and Justicia Holdings Limited (11)                                                                                                                                                                     
|     
|     
|     
|     
|10.32 |  | Escrow Agreement dated September 7, 2000 among the
Company, Justicia Holdings Limited and Epstein, Becker & Green
P.C. (11)                                                                                                                                                      
|     
|     
|     
|     
|10.33 |  | Form of Stock Purchase Warrant pursuant to Common
Stock Purchase Agreement dated September 7, 2000 (11)                                                                                                                                                                          
|     
|     
|     
|     
|10.34 |  | Promissory note for $250,000 dated June 19, 2000
between Milton Okin and the Company                                                                                                                                                                                             
|     
|     
|     
|     
|10.35 |  | Common Stock Purchase Agreement dated September 20,
2000 between the Company and AMRO International, S.A. (12)                                                                                                                                                                   
|     
|     
|     
|     
|10.36 |  | Registration Rights Agreement dated September 20, 2000
between the Company and AMRO International, S.A. (12)                                                                                                                                                                     
|     
|     
|     
|     
|10.37 |  | Escrow Agreement dated September 20, 2000 among the
Company, AMRO International, S.A. and Epstein, Becker & Green
P.C. (12)                                                                                                                                                      
|     
|     
|     
|     
|10.38 |  | 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)                                                                                                                               
|     
|     
|     
|     
|10.39 |  | Common Stock Purchase Agreement dated October 25, 2000
between the Company and Tamarack International Limited (12)                                                                                                                                                               
|     
|     
|     
|     
|10.40 |  | Warrant Agreement for the purchase of 10,000 shares of
common stock dated October 25, 2000 between the Company and
Tamarack International Limited (12)                                                                                                                           
|     
|     
|     
|     
|10.41 |  | Series A Convertible Preferred Stock Acquisition
Agreement dated October 27, 2000 between the Company and Milton
Okin (12)                                                                                                                                                       
|     
|     
|     
|     
|10.42 |  | Common Stock Acquisition Agreement dated October 28,
2000 between the Company and Macropower Development Limited (12)                                                                                                                                                            
|     
|     
|     
|     
|10.43 |  | 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)
|     
|     
|     
|     
|10.44 |  | 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)                                                                
|     
|     
|     
|     
|10.45 |  | Common Stock Acquisition Agreement dated October 30,
2000 between the Company and ACH Food Companies, Inc. (formerly
AC HUMKO CORP.) (12)                                                                                                                                        
|     
|     
|     
|     
|10.46 |  | 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)                                                                                                      
|     
|     
|     
|     
|10.47 |  | Common Stock Purchase Agreement dated December 20,
2000 by and between the Company and Ropart Investments, LLC (12)                                                                                                                                                              
|     
|     
|     
|     
|10.48 |  | Warrant Agreement for the purchase of 14,000 shares of
common stock dated December 20, 2000 between the Company and
Ropart Investments, LLC (12)                                                                                                                                 
|     
|     
|     
|     
|10.49 |  | Stock Purchase Agreement dated August 23, 2001 between
Pharmaceutical Marketing Brands, Inc. and Bionutrics, Inc. (13)                                                                                                                                                           
|     
|     
|     
|     
|10.50 |  | Amended and Restated Consolidated Multiple Advance
Non-Revolving Note, dated October 26, 2001(14)                                                                                                                                                                                
|     
|     
|     
|     
|10.51 |  | Amended and Restated Loan and Stock Pledge Agreement (14)                                                                                                                                                                                                                        





---



##### 



|      |  |                                                                                                                 
|----- |  | ----------------------------------------------------------------------------------------------------------------
|10.52 |  | Amended and Restated Security Agreement (14)                                                                    
|     
|     
|     
|     
|10.53 |  | Amendment No. 1 to Stock Purchase Agreement effective
as of August 23, 2001, executed as of October 5, 2001 (14)
|     
|     
|     
|     
|10.54 |  | Amendment No. 2 to Stock Purchase Agreement, dated as of
October 31, 2001 (14)                                  
|     
|     
|     
|     
|21    |  | Subsidiaries of the Company                                                                                     
|     
|     
|     
|     
|23.1  |  | Consent of Deloitte & Touche, LLP                                                                               



---

|(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.