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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended October 31, 1999

Commission file number 0-22011


[BIONUTRICS INC. LOGO]

(Exact name of registrant as specified in its
charter)


|                                                                                               |  |                                                  
|---------------------------------------------------------------------------------------------- |  | -------------------------------------------------
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Nevada
	(State or other jurisdiction of
	incorporation or organization)                        |  | 86-0760991
	(I.R.S. employer
	identification no.)
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|2425 E. Camelback Road, Suite 650,
	Phoenix, Arizona
	(Address of principal executive offices) |  | 85016
	(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  [X]  No  [
 ]

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.  [X]

As of January 18, 2000, the aggregate market value of the
voting 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 Nasdaq SmallCap Market, was $22,323,964. No other
capital stock is outstanding. 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 18, 2000, there were 20,820,181 shares of the
registrants Common Stock outstanding.

Documents Incorporated by Reference

Portions of registrants definitive Proxy Statement for its
2000 Annual Meeting of Stockholders are incorporated by reference
 in Part III hereof.



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TABLE OF CONTENTS



|           |                                                                                               |  |  |  |  |  |  | 
|---------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I    
|           | Item 1. Business                                                                             
|           | Item 2. Properties                                                                           
|           | Item 3. Legal Proceedings                                                                    
|           | Item 4. Submission of Matters to Vote of Security Holders                                    
|PART II   
|           | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|           | Item 6. Selected Consolidated Financial Data                                                 
|           | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|           | Item 8. Financial Statements and Supplementary Data                                          
|PART III  
|           | Item 10. Directors and Executive Officers of Registrant                                      
|           | Item 11. Executive Compensation                                                              
|           | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|           | Item 13. Certain Relationships and Related Transactions                                      
|PART IV   
|           | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES



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TABLE OF CONTENTS

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|PART I               |          |  | 3                                                                                      | 
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|                     | ITEM 1.  |  | BUSINESS                                                                               |  |  | 3  | 
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|                     | ITEM 2.  |  | PROPERTIES                                                                             |  |  | 20 | 
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|                     | ITEM 3.  |  | LEGAL PROCEEDINGS                                                                      |  |  | 20 | 
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|                     | ITEM 4.  |  | SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                      |  |  | 20 | 
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|PART II              |          |  | 21                                                                                     | 
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|                     | ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
	STOCKHOLDER MATTERS                 |  |  | 21 | 
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|                     | ITEM 6.  |  | SELECTED CONSOLIDATED FINANCIAL DATA                                                   |  |  | 22 | 
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|                     | ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
	AND RESULTS OF OPERATIONS |  |  | 22 | 
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|                     | ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                            |  |  | 27 | 
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|PART III             |          |  | 28                                                                                     | 
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|                     | ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT                                         |  |  | 28 | 
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|                     | ITEM 11. |  | EXECUTIVE COMPENSATION                                                                 |  |  | 28 | 
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|                     | ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                         |  |  | 28 | 
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|                     | ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                         |  |  | 28 | 
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|PART IV              |          |  | 29                                                                                     | 
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|                     | ITEM 14. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 
	 8-K                     |  |  | 29 | 
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|SIGNATURES           |          |  | 31                                                                                     | 
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|FINANCIAL STATEMENTS |          |  | F-1                                                                                    | 

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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. The objective is to address health 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 and/or ethical drug 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 advantage
of access to proprietary active ingredients at relatively low
cost. Initial products are tocotrienol concentrates derived from
rice bran.

Bionutrics operating strategy 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 saw its operation merged into a new
limited liability company, InCon Processing, LLC (InCon
Processing) in which InCon has a 50% ownership together
with AC HUMKO CORP. (AC HUMKO), 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.

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

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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 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 $14.8 billion in sales in 1997 to $16.4 billion in
1998, a growth rate of 10%. 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 billion in 1998. Recent
 estimates indicate that 54% of the U.S. population uses
nutritional supplements at least occasionally in some form. By
2001, retail sales in this category alone are expected to exceed
$12 billion annually. Nutritional awareness and market size are
also growing in other parts of the world. Bionutrics intends to
access these global opportunities for product sales of both
dietary supplements and functional foods, in each case through
strategic partners.

The growth of sales of dietary supplements has resulted largely
from recent studies indicating a correlation between the regular
consumption of selected vitamins and nutritional supplements and
reduced incidences of conditions such as cancer, heart disease
and osteoporosis. Within the dietary supplement category,
antioxidants remain the growth leader. One antioxidant, vitamin
E, has shown particularly strong growth, resulting in estimated
retail sales in excess of $700 million in mass-market sales alone
 in 1998. 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 reduction. 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.

The Company developed its first functional nutrition ingredient,
Clearesterol, a patented all-natural complex for
cardiovascular health extracted from rice bran oil.
Clearesterol belongs to a new class of vitamin E
compounds called tocotrienols. Clearesterolis the active
ingredient in evolvE®, the
Companys first dietary supplement. evolvE® was
launched in 1997 in a national campaign targeting mass-market
retail distribution. The Company succeeded in placing
evolvE® in more than 40,000 retail
outlets coast-to-coast. However, due to capital limitations,
Bionutrics determined the most promising way to leverage its new
product development strength was to launch its future products
through marketing partners as opposed to spending its resources
on national marketing and advertising campaigns.

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Ethical Drugs

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. It also reflects technology that the Company
has acquired the rights to during the past year. 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 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
ingredient, Clearesterol, is a tocotrienol vitamin E
based composition. Vitamin E is the general term used for
eight naturally-occurring, essential fat-soluble nutrients. The
series is composed of four compounds (alpha-, beta-, gamma-,
delta-tocopherol) with a tocopherol structure bearing a saturated
 phytyl C16 side chain and four compounds (alpha-,
beta-, gamma-, delta-tocotrienol) with a tocotrienol structure
having an unsaturated phytyl C16 side chain bearing
three double bonds. All tocols, to varying degrees, are
antioxidants. Tocotrienol vitamin E  as opposed
to the standard tocopherol vitamin E  is a
cornerstone of the Companys proprietary technology and
patent protection.

Tocol antioxidants in blood appear to reduce damage to blood
vessel wall cells caused by oxidizing or free radical
 agents. Research indicates that the Clearesterol
constituents are a far more effective antioxidant than standard
vitamin-E (alpha-tocopherol) and, unlike the antioxidants found
in standard vitamin E or beta-carotene, the
Clearesterol ingredient helps to reduce blood cholesterol
levels. The significance of Clearesterol with respect to
cardiovascular health has been demonstrated in clinical trials
that show tocotrienols may promote normal cardiovascular health
three ways by helping to lower cholesterol levels, providing
cardiovascular antioxidant protection and promoting normal
circulation in some individuals. Clearesterol is an
all-natural complex extracted from rice bran oil through a
patented processing method. The proprietary process involves
stabilization of the rice bran and selective extraction and
concentration of the rice bran oil.

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, which employs
molecular distillation and other separation technologies.

Niacin-Fiber.Bionutrics has acquired the rights to
patented technology for the use of a timed-released composition
of niacin and dietary fiber (see Patents and
Trademarks below), which has demonstrated 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 gms of niacin daily. This particular
composition may have application to diabetics and other
populations with dyslipidemia.

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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. The Company is in the process of evaluating possible
approaches for further research through the use of a multi cancer
 cell-line screening program with the National Cancer Institute.
Bionutrics has also discovered other compounds isolated from
natural sources that appear to be effective against certain
cancer cell-lines and intends to extend its current research on
those compounds to determine their potential efficacy and
commercial feasibility.

Inflammation

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. 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. It
 is a growing concern in the United States. Bionutrics has
proprietary technology with potential application to diabetics.
The Company received a SBIR (Federal Small Business Innovation
Research) grant, titled A Novel Tocotrienol for treating
diabetic Dyslipidemia, which was funded in September of 1999.
 This grant supports research of one of LipoGenics
proprietary tocotrienols, 2-desmethyltocotrienol, to lower blood
lipids in an animal model of diabetes. This SBIR research program
 is being conducted in LipoGenics laboratory located in
Worcester, Massachusetts. The Company intends to consider the
development of products based on this and other proprietary
technology for both functional nutrition and ethical drug
applications with diabetics. The marketing and distribution on
these products, if successfully developed, will be through
strategic partners.

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.

To initiate the process of securing a marketing partner and a
base for the marketing of its products, Bionutrics entered into a
 product evaluation agreement with Novartis Nutrition, a
subsidiary of the Swiss pharmaceutical company Novartis, AG. The
intent of that evaluation was to determine the feasibility of
using Bionutrics proprietary Clearesterol as a
functional food ingredient. Bionutrics and Novartis Nutrition,
which is now part of Novartis Consumer Health and does business
as Novartis Health and Functional Nutrition
(Novartis), have elected not to pursue the initial
course as originally anticipated but are continuing to explore
product and market opportunities. Bionutrics intent is to
supply Novartis with proprietary products

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Beyond Novartis, the Company is in negotiations with additional
multinational marketing companies to partner with Bionutrics in
the development and marketing of its proprietary products. The
areas of interest include cardiovascular health where the Company
 has its historical investment, and cancer, cellular oxidation,
inflammation and diabetes. Market channels include mass-market
retail, multi-level marketing and the Internet.

As part of Bionutrics strategy to partner marketing and
manufacturing, the evolvE® brand is
not being supported with consumer advertising or product
promotion funds. However, the product does still have a presence
in the mass market, primarily retail drug stores. The Company is
also serving consumers through its Internet address and 800-phone
 line. The Company is planning to consider distributors for
evolvE® outside the United States.

Manufacturing

Bionutrics operating strategy is to leverage its core
competency of new product development by partnering manufacturing
 and marketing. The Company, in particular, desires to expand its
 manufacturing base and to take advantage of value-added
commodity by-product processing technology without operational
responsibility or capital risk. To accomplish this, Bionutrics is
 looking 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 the Companys products.

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, AC HUMKO CORP. (AC
HUMKO), 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 AC HUMKO without
operational responsibility or capital risk.

InCon Processing

In June of this past year the Company further reduced its
manufacturing exposure by merging its molecular separation
operation, InCon Technologies, with AC HUMKO 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 (earnings before interest and taxes) derived by AC HUMKO
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).

The formation of this venture will allow 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

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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 AC HUMKO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.
InCon Processing has developed significant skill in applying
molecular distillation technology to engineering and designing
molecular separation equipment. Other methods of 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 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.

Patents and Trademarks

As of December 1999, Bionutrics has five issued
U.S. patents and ten 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, Bionutrics has secured
exclusive licenses under ten additional U.S. patents and
three additional pending U.S. patent applications relating
to various 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) 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. In June 1999, Bionutrics
received another U.S. patent directed to specific
tocotrienol/ tocopherol production processes (U.S. patent
5,908,940).

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

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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 1999, the Company was granted registration of the
mark Vitenol E. U.S. and foreign trademark applications are
currently pending for the Clearesterol trademark and related
logo, as well as other marks that the Company uses or intends to
use on its products.

Bionutrics is actively pursuing additional patent protection for
compositions, processes and methods that lend themselves to new
products being developed by the Company. Bionutrics has been
prosecuting several pending patent applications that claim novel
compositions, as well as novel methods for treating diseases.
These pending patent filings focus on the areas of cardiovascular
 diseases, inflammation, diabetes, cancer, osteoporosis and
benign prostatic hyperplasia. Additional patent filings are
planned in fiscal year 2000 that will focus on other novel
compositions and therapeutic applications for these compositions.

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
alpha-tocotrienol for lowering cholesterol. This patent serves to
 protect Bionutrics dietary supplement, evolvE®, which contains a significant amount of
alpha-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/ AC HUMKO 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. This technology
relates to three main areas: (1) sustained release arginine
formulations and therapeutic applications, (2) niacin/fiber
compositions having cardiovascular applications and
(3) 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. Bionutrics intends to pursue commercializing these
technologies independently, as well as integrating them with
Bionutrics existing proprietary technology. Negotiations
are ongoing for acquisition of rights in several additional
patents relating to technology of interest to the Company.

As a part of the August 1998 Bionutrics/ ABF agreement,
Bionutrics transferred certain rights in Bionutrics rice
bran processing technology to AC HUMKO. Most notably,
Bionutrics assigned to AC HUMKO 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.
 All rights in product claims, product-by-process claims and
method claims that may issue from those patent applications (as
well as all rights outside the U.S., Canada and Mexico) will
continue to belong exclusively to Bionutrics. 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 In-

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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

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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 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.

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.

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, and although no further courtesy letter has
issued there is no assurance that FDA will be or remain satisfied
 with the Companys revised claim.

In September 1997, FDA published final regulations to
implement certain DSHEA labeling provisions, which become
effective in March 1999. These new regulations are being
reviewed by the Company, and will require 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

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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. If the proposals are
finalized in their present form, FDA would prohibit as disease
claims requiring agency pre-approval all cholesterol lowering
statements such as those, which 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. Under its
proposal, FDA would however permit without agency pre-approval a
statement such as helps maintain a healthy cholesterol
level, if the context does not suggest treatment or
prevention of a disease and that the substance merely helps
maintain normal function. The comment period has expired, and it
is not known when final regulations will issue, or their content.

FTC, which exercises jurisdiction over the advertising of dietary
 supplements, has in the past several years instituted
enforcement actions against several dietary supplement companies
for false and misleading advertising of certain products. These
enforcement actions have resulted in consent decrees, agency
cease and desist orders, injunctions and the payment of fines by
the companies involved. In addition, FTC has increased its
scrutiny of infomercials. 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. 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.

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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 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

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Employees

The Company currently employs 10 people, after the transition of
the InCon employees to InCon Processing. Of the current
employees, two are involved in marketing and sales at Bionutrics
Health Products, six in corporate and general administration, and
 two in research and development at LipoGenics.

Executive Officers

The executive officers of Bionutrics are as follows:

|                        |  |     |    |          |  |                                                                                                                                             
|----------------------- |  | --- | -- | -------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|Ronald H. Lane, Ph.D.   |  |     | 55 |          |  | Chairman of the Board, Chief Executive Officer, President,
	Secretary and Treasurer                                                         
|                       
|                       
|                       
|                       
|John Palmer             |  |     | 57 |          |  | Chief Executive Officer, InCon Processing, LLC, Chairman and
	Chief Executive Officer, InCon Technologies Inc. and InCon
	International Ltd.
|                       
|                       
|                       
|                       
|Howard Schneider, Ph.D. |  |     | 61 |          |  | President, LipoGenics, Inc.                                                                                                                 

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

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

Howard Schneider, Ph.D., has served as President of
LipoGenics since November 1997. Before joining LipoGenics,
Dr. Schneider served from 1991 to 1997 as Senior Vice
President, Technology at DynaGen, Inc., a Cambridge,
Massachusetts, firm that develops proprietary therapeutic and
medical device products. Prior experience includes positions as
Senior Vice President, Technology (and partner) at McCann
Healthcare-Bogart Delafield Ferrier, co-founder and President of
Bioassay Systems Research Corporation and research chemist at
Merck Sharp and Dohme. Dr. Schneider has authored over 60
scientific articles and holds several patents relating to
therapeutic uses of natural products. He earned his Ph.D. from
the Department of Pharmacology at Yale University School of
Medicine and served as a National Science Foundation Postdoctoral
 Fellow at Oxford University, Department of Pharmacology.

Scientific Advisor

Dr. Winston A. Salser, a member of the Companys
Board of Directors and a Professor of Molecular Biology at the
University of California, serves as scientific advisor to the
Company.

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Special Considerations

Limited Operating History; Accumulated Deficit. 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 $32.3 million through its
fiscal year ended October 31, 1999. The Companys
operations to date have progressed from research and development
activities to the marketing and sale of its first product
evolvE®. There can be no assurance
that sales of evolvE® or such other
products if any it may introduce will achieve significant levels
of market acceptance. As a result, 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 product and
unforeseen difficulties in its manufacturing processes, uncertain
 market acceptance and the absence of an operating history.
Therefore, there can be no assurance that the Company will be
able to achieve or maintain profitable operations. No assurance
can be given that the Company will not encounter unforeseen
difficulties that may deplete its capital resources more rapidly
than anticipated.

Need for Additional Capital.To become and remain
competitive, the Company will be required to make significant
investments in research and development on an ongoing basis. The
Company from time to time, including in the near term, will be
required to seek additional equity or debt financing to provide
the capital required to maintain or expand the Companys
marketing and production capabilities. This may require the
Company to sell additional common stock or preferred stock or
issue warrants for common stock to obtain the capital. The timing
 and amount of any such capital requirements cannot be predicted
at this time except that the Company will require additional
financing in the second quarter of fiscal 2000. There can be no
assurance that any such financing will be available on acceptable
 terms. 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. The
losses incurred to date, the uncertainty regarding the ability to
 raise additional capital and the Companys inability to
generate gross profits and positive cash flows from operations
may indicate that the Company will be unable to continue as a
going concern for a reasonable period of time.

Market Risks of a New Business. The Company has formulated
 its business plans and strategies based on certain assumptions
regarding opportunities in the ethical drug 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. There can be no assurance that the
Companys assessments regarding these or a variety of other
factors will prove to be correct. 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.

Competition. 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 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,

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Competition in the pharmaceutical area is intense and 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. No
assurance can be given that its customers will continue to
outsource toll processing to InCon Processing, or that they will
continue to utilize InCon Processings facility over that of
 a local processor.

Strategic Partnerships.The Company has stated its intent
to develop its business model and build its business through
strategic partnerships. There is no assurance the Company will 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. If these partnerships do not succeed and therefore
no further capital is provided to the Company from these sources,
 there is no assurance that the Company will be able to identify
other sources of capital sufficient for its needs in the time
required to execute its business plan.

The Company has formed an alliance with Novartis Nutrition to
evaluate its Clearesterol as a functional food ingredient.
Bionutrics and Novartis Nutrition have elected not to pursue the
initial course as anticipated, but are continuing to explore
product and market opportunities. No assurance can be given that
Novartis will determine that any of the potential functional
nutrition products being developed by Bionutrics will meet its
criteria for a food ingredient or, even if it does, that Novartis
 will decide to continue the partnership. Any future funding of
capital by Novartis Nutrition to the Company will depend upon
this ongoing evaluation.

The Company has formed an alliance with ABF to pursue the
exploitation of certain food processing by-product streams. As
part of this alliance AC HUMKO is considering the exploitation of
 rice bran derivative products. The rice bran, rice bran oil and
other derivative products business is highly competitive and no
assurance can be given that AC HUMKO will succeed or produce
profits, of which the Company participates at 15% EBIT, or that
AC HUMKO will determine to stay in the business even if
profitable.

Governmental Regulation. 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 ultimate
effect of DSHEA cannot be predicted. Further, because of the
technical requirements imposed by DSHEA, 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 and proposals have

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e


Reliance on Limited Number of Products and Customers. 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
dependence on one product increases risk since a decline in the
market demand for the Companys product or the products of
other companies that may utilize Clearesterol could have a
significant adverse impact on the Company.

One Fortune 500 company accounted for 44% of InCon Technologies
revenue related to its core business of toll processing and
molecular distillation for the 8 months ended June 30,
1999. The Companys participation in AC HUMKOs efforts
 to market derivative products is just beginning and no assurance
 can be given that AC HUMKO can capture a share of the market for
 such products. A limited number of customers could adversely
affect the Companys operations.

Product Liability Claims.As a marketer of dietary
supplements that are ingested by consumers, 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, there can be no assurance
that product liability claims and the resulting adverse publicity
 will not have a material adverse effect on the Company.

Dependence on Marketing Efforts. 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. There can be no
assurance that the Company will be successful in finalizing such
strategic partnerships, nor if finalized that the selected
strategic partner(s) will successfully market and sell the
Companys products.

Science and Technology. 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. There is no assurance that the science upon which the
 technology is based will not be refuted or otherwise drawn into
question by further research conducted by the Company or
independent laboratories or its strategic partners.

Effect of Unfavorable Publicity.The Company believes the
dietary supplement market is affected by national media attention
 regarding the consumption of dietary supplements. There can be
no assurance that future scientific research or publicity will
not be unfavorable to the dietary supplement market or any
particular product, or inconsistent with earlier favorable
research or publicity. Future reports of research that are
perceived as less favorable or that question such earlier
research could have a material adverse effect on the Company.
Because of the Companys dependence upon consumer
perceptions, adverse publicity associated with adverse effects
resulting from the consumption of the Companys products or
any similar products distributed by other companies could have a
material adverse impact on the Company. 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. Further, because the Companys
products are derived from natural sources, the Company must
contend with variations in composition that may impact a

17



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Dependence on Management. 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. 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.

Dependence on Suppliers and Manufacturers. The Company has
 agreed to acquire the Clearesterol ingredient from AC
HUMKO. If AC HUMKO encounters difficulties in obtaining on
commercially reasonable terms quality rice bran for use in its
manufacturing process, the Company could experience production
delays or the inability to fulfill orders on a timely basis.
Since the Company has agreed to purchase Clearesterol from
AC HUMKO 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
 evolvE® or any other dietary
supplement or functional food containing such ingredient. The
Company also relies on outside sources for evolvE® encapsulation. In the event its contract
manufacturers cannot meet the Companys manufacturing and
delivery requirements, the Company may suffer interruptions of
delivery while it arranges for alternative manufacturing sources.
 Access to replacement sources could be delayed if the Company
must first complete a review of the manufacturers quality
control and capabilities.

Risks Associated with International Markets.The Company
may 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.

Patents, Licenses and Intellectual Property Claims. 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 ten 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 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 no assurance can be
given on this point or that litigation would not ensue or that
damages for any past infringements would not be assessed.
Litigation, which could result in substantial cost to and
diversion of effort 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.

Thin Market; Possible Volatility of Stock Price. 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.
Despite its listing on

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Rights to Acquire Shares; Potential Issuance of Additional
Shares.As of October 31, 1999, options to acquire a
total of 1,720,001 shares were outstanding under the
Companys 1996 Stock Option Plan. An additional 1,116,744
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 3,640,144 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.

Shares Eligible for Sale. Of the 20,812,774 shares
outstanding as of October 31, 1999, 19,252,846 are eligible
for resale in the public markets. Of these eligible shares,
8,846,805 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
10,406,041 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 2,850,000
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.

Statutory and Charter Provisions.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 and also
authorizes 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 the Companys Common Stock.

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##### Table of Contents






Item 2.  Properties

Facilities and Equipment

The total rental expense for fiscal 1999 for the Company and its
subsidiaries was $510,000.

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. The Company subleases approximately
one-third of the office space in Phoenix for which it receives
approximately $4,200 a month. The sublease continues until
February 29, 2000.




Item 3.  Legal Proceedings

The Company is not a party to any legal proceeding.




Item 4.  Submission of Matters to Vote of
Security Holders

None.

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##### Table of Contents






PART II




Item 5.  Market for Registrants Common
 Equity and Related Stockholder Matters

The Company began trading on the Nasdaq SmallCap Market on
November 19, 1997.

|                            |                |      |  |       |  |  |  |       | 
|--------------------------- | -------------- | ---- |  | ----- |  |  |  | ----- | 
|                            |                | High |  | Low  
|                            |                |      |  |      
|Year Ended October 31, 1998 |                |      |  |       |  |  |  |      
|                           
|                           
|                           
|                           
|                            | First Quarter  |      |  | 8.375 |  |  |  | 6.75  | 
|                           
|                           
|                           
|                           
|                            | Second Quarter |      |  | 7.625 |  |  |  | 5.875 | 
|                           
|                           
|                           
|                           
|                            | Third Quarter  |      |  | 6.125 |  |  |  | 1.75  | 
|                           
|                           
|                           
|                           
|                            | Fourth Quarter |      |  | 3     |  |  |  | 1.063 | 
|                           
|                           
|                           
|                           
|Year Ended October 31, 1999 |                |      |  |       |  |  |  |      
|                           
|                           
|                           
|                           
|                            | First Quarter  |      |  | 2.00  |  |  |  | 1.25  | 
|                           
|                           
|                           
|                           
|                            | Second Quarter |      |  | 2.25  |  |  |  | 1.19  | 
|                           
|                           
|                           
|                           
|                            | Third Quarter  |      |  | 4.13  |  |  |  | .66   | 
|                           
|                           
|                           
|                           
|                            | Fourth Quarter |      |  | 2.22  |  |  |  | 1.31  | 

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

On January 18, 2000, the closing price of the Common Stock
on the Nasdaq SmallCap Market was $2.06. As of January 18,
2000, there were 172 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 August 1999, the Company issued 130,000 warrants in
exchange for financial advisory services rendered, or to be
rendered, to the Company. Of these warrants, 100,000 are
exercisable at $2.00 per share and 30,000 are exercisable at
$7.00 per share. All of these warrants expire November 2003.

In October 1999, the Company issued 100,000 options as
partial consideration for rights granted under a license and
sublicense agreement. These options became exercisable at the
grant date, have a 3 year life and are exercisable at $2.00
per share.

Also during October 1999 the Company issued 7,042 shares of
common stock as consideration for rights granted under an option
agreement for certain technology at $1.42 per share.

The sales and issuances of the securities in the transaction
above was 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.

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##### Table of Contents






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.

|                                       |  |                        |            |              |  |      |            |      |  |      |             |   |  |   |            |   |  |   |           |  
|-------------------------------------- |  | ---------------------- | ---------- | ------------ |  | ---- | ---------- | ---- |  | ---- | ----------- | - |  | - | ---------- | - |  | - | --------- | -
|                                       |  |                        |            | Ten-Month   
|                                       |  | Year Ended October 31, |            | Period ended
|                                       |  |                        |            | October 31, 
|                                       |  | 1999                   |            | 1998         |  | 1997 |            | 1996 |  | 1995
|                                       |  |                        |            |              |  |      |            |      |  |     
|Statement of Earnings Data:            |  |                        |            |              |  |      |            |      |  |      |             |   |  |   |            |   |  |   |           |  
|                                      
|                                      
|                                      
|                                      
|Gross Revenues                         |  | $                      | 3,689,747  |              |  | $    | 6,653,904  |      |  | $    | 2,862,843   |   |  | $ | 20,000     |   |  | $ | 50,000    |  
|                                      
|                                      
|                                      
|                                      
|Operating Expenses                     |  |                        | 6,307,426  |              |  |      | 10,760,959 |      |  |      | 10,022,163  |   |  |   | 2,996,880  |   |  |   | 341,900   |  
|                                      
|                                      
|                                      
|                                      
|Other Income (Expense)                 |  |                        | (112,364   | )            |  |      | 2,426,291  |      |  |      | 266,929     |   |  |   | (30,667    | ) |  |   | (39,585   | )
|                                      
|                                      
|                                      
|                                      
|Net Loss                               |  |                        | (5,623,144 | )            |  |      | (9,242,405 | )    |  |      | (12,341,866 | ) |  |   | (3,007,547 | ) |  |   | (331,485  | )
|                                      
|                                      
|                                      
|                                      
|Basic Loss Per Share(1)                |  | $                      | (.27       | )            |  | $    | (.49       | )    |  | $    | (.77        | ) |  | $ | (.26       | ) |  | $ | (.03      | )
|                                      
|                                      
|                                      
|                                      
|Weighted Average Shares Outstanding(1) |  |                        | 20,714,652 |              |  |      | 18,716,757 |      |  |      | 16,042,785  |   |  |   | 11,564,327 |   |  |   | 9,853,970 |  
|                                      
|                                      
|                                      
|                                      
|Balance Sheet Data:                    |  |                        |            |              |  |      |            |      |  |      |             |   |  |   |            |   |  |   |           |  
|                                      
|                                      
|                                      
|                                      
|Working capital                        |  | $                      | 364,627    |              |  | $    | 1,328,931  |      |  | $    | 1,237,642   |   |  | $ | 4,739,882  |   |  | $ | 184,546   |  
|                                      
|                                      
|                                      
|                                      
|Total Assets                           |  |                        | 5,186,031  |              |  |      | 10,894,259 |      |  |      | 14,155,335  |   |  |   | 6,217,348  |   |  |   | 1,099,521 |  
|                                      
|                                      
|                                      
|                                      
|Total Liabilities                      |  |                        | 2,042,095  |              |  |      | 3,318,530  |      |  |      | 5,119,016   |   |  |   | 936,478    |   |  |   | 544,654   |  
|                                      
|                                      
|                                      
|                                      
|Stockholders equity                    |  |                        | 3,143,936  |              |  |      | 7,575,729  |      |  |      | 9,036,319   |   |  |   | 5,280,870  |   |  |   | 554,867   |  




|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These shares do not include 5,360,145, 5,146,311, 2,749,577,
	2,128,144 or 566,955 shares of Common Stock as of
	October 31, 1999, 1998, 1997, 1996 and 1995, respectively,
	that may be issued upon exercise of outstanding stock options and
	 warrants.




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 1999 reflect Bionutrics, Inc.,
having national distribution of e
volvE® and various services through three subsidiaries.
Prior to 1997, managements efforts have 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
2,092,743 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, functional food and
other dietary supplement rights owned by LipoGenics.

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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.
(InCon), and InCon became a wholly owned subsidiary
of Nutrition Technology. The merger with InCon was accounted for
as a purchase and Bionutrics issued 1,400,000 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 June 1999, the Company entered into a new 50/50 venture
with AC HUMKO CORP., wherein InCon transferred substantially all
of its assets to a newly formed limited liability company, InCon
Processing, LLC (InCon Processing) for which it
received a payment of $3,000,000 and a 50% interest in the
venture. InCon Processing took over substantially all of the
business currently engaged in by InCon relating to toll
processing, molecular separation, and the design and sale of
molecular separation facilities. InCon Processing expects to
utilize the InCon expertise to expand its existing business and
to expand its business into processing micronutrients that would
be available for food grade products. In connection with this
transaction, the remaining amount of goodwill recorded at the
date of acquisition of InCon was written off at the date of the
transaction.

Results of Operations

Year ended October 31, 1999, compared
to Year Ended October 31, 1998

Consolidated gross revenues for the 12 months ended
October 31, 1999 were $3,690,000 versus $6,654,000 for the
same 12 months in 1998, summarized by subsidiary as follows
(intercompany sales excluded):

|                                  |  |                         |           |      |  |   |           | 
|--------------------------------- |  | ----------------------- | --------- | ---- |  | - | --------- | 
|                                  |  |                        
|                                  |  | For the 12 Months Ended
|                                  |  |                        
|Subsidiary                        |  | 1999                    |           | 1998
|                                  |  |                         |           |     
|InCon Technologies                |  | $                       | 2,729,000 |      |  | $ | 4,104,000 | 
|                                 
|                                 
|                                 
|                                 
|Bionutrics Health Products        |  |                         | 835,000   |      |  |   | 2,190,000 | 
|                                 
|                                 
|                                 
|                                 
|Nutrition Technology              |  |                         | 105,000   |      |  |   | 360,000   | 
|                                 
|                                 
|                                 
|                                 
|LipoGenics                        |  |                         | 21,000    |      |  |   | 0         | 
|                                  |  |                         |           |      |  |   |           | 
|Total Consolidated Gross Revenues |  | $                       | 3,690,000 |      |  | $ | 6,654,000 | 
|                                  |  |                         |           |      |  |   |           | 

InCon Technologies gross revenues are primarily attributed
to molecular distillation toll processing of materials from a
variety of customers. In June 1999, InCon transferred
substantially all of its assets to InCon Processing. InCon
Processing took over substantially all of the business currently
engaged in by InCon related to toll processing, molecular
separation, and the design and sale of molecular separation
facilities. As a result of its investment in InCon Processing,
the Company will be entitled to 50% of the future profits.
However, it is anticipated that InCon Processing will retain the
cash generated from operations for at least the next
12 months to expand and develop its business. Therefore,
revenues for the 12 months ended 1999 are substantially
reduced compared to the same period 1998.

Bionutrics Health Products revenues reflect the sales of its
first product, evolvE®. As of the
12 months ended October 31, 1999, evolvE®, offered in three packages, was distributed by
 over 25,000 stores including many leading drug and food chains
throughout the United States. 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 accounts have returned the product due to low
volume activity. 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 results 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 e
volvE® brand and other anticipated dietary supplements and
functional food products. The Company is

23



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##### Table of Contents





Nutrition Technology is substantially inactive. Gross revenues
reflected in both periods represent remaining byproducts sold out
 of inventory. In August of 1998, the Company entered into a
contract with AC HUMKO which provided: (i) for the sale of
certain rice bran oil and processing assets to AC HUMKO;
(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 AC HUMKO will provide rice bran-derived Clearesterol
ingredient used in evolvE®. All elements of the alliance
with AC HUMKO were executed on or before October 31, 1998.

LipoGenics revenues are attributable to a Phase I Small
Business Innovation Research (SBIR) grant from the National
Heart, Blood and Lung Institute. As this is the first such grant
received by LipoGenics, there are no revenues shown for the same
12 months of the prior years.

Cost of revenues for the 12 months ended October 31,
1999, was $2,335,000 versus $7,259,000 for the same
12 months in 1998. This reduction is due to lower sales
volume, reduced manufacturing costs from discontinuance of
operations at the West Monroe, Louisiana production facility, as
well as the new 50/ 50 joint venture entered into with AC HUMKO,
which substantially took over all of the business engaged in by
InCon. Due to the aforementioned events, the reduction in
production costs resulted in the Companys first year of
positive gross margin for the 12 months ended
October 31, 1999.

Operating expenses for the 12 months ended October 31,
1999 of $6,307,000 were $4,454,000 lower than that recognized for
 the same 12 months in 1998 of $10,761,000. This reduction
is due to significantly reduced advertising and salaries, cost
containment programs, as well as the 50/ 50 joint venture entered
 into during the third quarter of 1999 with AC HUMKO.

Other expense for the 12 months ended October 31, 1999
was $112,000 compared to the prior years income of
$2,426,000. The prior years income is essentially
attributable to the gain recognized on the sale of processing
assets to AC HUMKO from the West Monroe, Louisiana plant.

Net loss decreased to $5,623,000, or $.27 per share for the
12 months ended October 31, 1999 from $9,242,000, or
$.49 per share for the 12 months ended October 31, 1998
 due primarily to lower cost of revenues and operating expenses
as outlined above.

Year ended October 31, 1998, compared
to Year Ended October 31, 1997

Consolidated gross revenues for the 12 months ended
October 31, 1998 were $6,654,000 versus $2,863,000 for the
same 12 months in 1997, summarized by subsidiary as follows
(inter-company sales excluded):

|                                  |  |                         |           |      |  |   |           | 
|--------------------------------- |  | ----------------------- | --------- | ---- |  | - | --------- | 
|                                  |  |                        
|                                  |  | For the 12 Months Ended
|                                  |  |                        
|Subsidiary                        |  | 1998                    |           | 1997
|                                  |  |                         |           |     
|InCon Technologies                |  | $                       | 4,104,000 |      |  | $ | 0         | 
|                                 
|                                 
|                                 
|                                 
|Bionutrics Health Products        |  |                         | 2,190,000 |      |  |   | 2,092,000 | 
|                                 
|                                 
|                                 
|                                 
|Nutrition Technology              |  |                         | 360,000   |      |  |   | 771,000   | 
|                                  |  |                         |           |      |  |   |           | 
|Total Consolidated Gross Revenues |  | $                       | 6,654,000 |      |  | $ | 2,863,000 | 
|                                  |  |                         |           |      |  |   |           | 

InCon Technologies gross revenues were primarily attributed
 to molecular distillation toll processing of materials from a
variety of customers. InCon was acquired by Bionutrics on
October 31, 1997 and accordingly no revenues are shown for
the same 12 months of the prior year.

Bionutrics Health Products continued to rollout nationally its
first product, evolvE®, during the
12 months ended October 31, 1998. The revenues for the
prior year reflect the initial launch of e
volvE®. As of the 12 months ended October 31,
1998, evolvE®, offered in three
packages, was distributed by over 36,000 stores including many
leading drug and food chains throughout the United States.
Nonetheless, sales of

24



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##### Table of Contents



e e e


Nutrition Technologys processing plant in West Monroe,
Louisiana was idle during the 12 months ended
October 31, 1998 in preparation for full scale production of
 edible rice bran oil. This delay in production was chiefly
attributable to the delay in raising capital. Gross revenues
reflected in this period represent byproducts sold out of
inventory. Revenues reflected for the prior year represent sale
of byproducts from manufacturing operations, which had commenced
during last year for the production of e
volvE®. In August of 1998, the Company entered into a
contract with AC HUMKO which provided: (i) for the sale
 of certain rice bran oil and processing assets to AC HUMKO;
 (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 AC HUMKO will provide rice bran-derived
Clearesterol ingredient used in e
volvE®. All elements of the alliance with AC HUMKO were
 executed on or before year end. After the sale of the assets to
AC HUMKO, Nutrition Technology is substantially inactive.

Cost of revenues for the 12 months ended October 31,
1998 was $7,259,000 versus $5,014,000 for the same 12 months
 in 1997. Cost of revenues for the 12 months ended
October 31, 1998 and 1997 resulted in negative margins as
the Company had not achieved operating level efficiency primarily
 due to low volume activity at the West Monroe production
location and start-up costs associated with product rollout of
evolvE®. As noted above, the
Companys manufacturing operations in West Monroe, Louisiana
 were idle during fiscal 1998 to allow for installation of new,
more efficient processing equipment and prepare for commodity
production of edible rice bran oil, originally planned to
commence in the third quarter of 1998. With the sale of assets to
 AC HUMKO as noted previously, the Company closed the West
Monroe, Louisiana facility. As a result of the alliance with
AC HUMKO, the Company anticipates margins to improve due to
the lower cost of evolvE® product
ingredients.

Operating expenses for the 12 months ended October 31,
1998 of $10,761,000 were $739,000 higher than that recognized for
 the same 12 months in 1997 of $10,022,000. Although
activities associated with InCon Technologies molecular
distillation processing business substantially increased costs,
they were somewhat offset by reduction in promotion and
advertising expenditures for the e
volvE® product due to financial constraints.

Other income for the 12 months ended October 31, 1998
was $2,426,000 versus $267,000 for the same period for the prior
year. The increase was essentially attributable to the
recognition of gain on the sale of assets to AC HUMKO.

Net loss decreased to $9,242,000, or $0.49 per share for the
12 months ended October 31, 1998 from $12,342,000, or
$0.77 per share for the 12 months ended October 31,
1997 due primarily to higher revenues as outlined above.

Liquidity and Capital Resources

Net cash used in operating activities during the 12 month
period ended October 31, 1999, was $3,325,000 as compared to
 $11,514,000 during the same period in 1998. This decrease is due
 primarily to lower cost of revenues and operating expenses.

25



---



##### Table of Contents



Net cash provided from investing activities during the
12 months ended October 31, 1999, was $2,583,000 as
compared to $2,957,000 during the same period in 1998. Of the net
 $2,583,000 provided in 1999, $3,000,000 pertained to the new
50/50 joint venture with AC HUMKO wherein InCon transferred
substantially all of its assets to InCon Processing. The balance
represents the investment in the new joint venture as well as
capital expenditures. Of the net $2,957,000 provided in 1998,
$4,544,000 pertained to the sale of assets to AC HUMKO and
the balance was investment activities related to capital
expenditures, primarily manufacturing operations.

Net cash used in financing activities totaled $282,000 for the
12-month period ended October 31, 1999, versus net cash
provided of $8,081,000 for the same period in 1998. The cash
provided was primarily by the sale of common stock and short term
 loans for both years. The cash provided during 1999 reflects
$500,000 from the sale of common stock and $200,000 from a
short-term loan from a director. The net cash used during 1999
reflects the complete repayment of notes payable to directors of
$982,000. The sale of stock in 1998 is primarily attributable to
Novartis who purchased $3 million in February 1998 and
AC HUMKO who purchased $4 million in August 1998. In
1998, a total of $3,225,000 of short-term debt was issued to two
directors and an institution. In October of 1998, the institution
 was repaid in full and a portion of the debt from one director
was repaid.

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 $32,347,406 through October 31, 1999,
which have been funded through the issuance of stock and debt.
The losses incurred to date, the uncertainty regarding the
ability to raise additional capital and the Companys
inability to generate gross profits and positive cash flows from
operations may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.

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,
maintaining 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 bank lines of
credit. There can be no assurance that such additional financing
will be attainable, or attainable on terms acceptable to the
Company. Access by the Company to additional capital will depend
substantially upon prevailing market conditions, and the
financial condition of and prospects for the Company at the time.
 Management is continuing its efforts to obtain additional funds
and 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
evolvE® and future branded products,
including dietary supplements and functional food ingredients.

Impact of the Year 2000 Issue

Essentially all of the Companys critical systems include
new hardware and packaged software recently purchased from large
vendors who have represented that these systems are already year
2000 compliant. In addition, the Company has engaged an outside
firm to test its systems to independently determine year 2000
readiness.

The Company has completed the assessment of its critical computer
 systems and believes them to be Year 2000 compliant. Although
the Company believes its critical systems are Year 2000
compliant, there can be no assurances that other defects will not
 be discovered in the future. The Company believes that any
failure of the Companys non-critical systems to be Year
2000 compliant will not have a material adverse effect on the
Company.

26



---



##### Table of Contents



With regard to key suppliers and strategic partners a letter
requesting the status of year 2000 readiness has been
distributed. The majority of recipients have responded, but none
have informed the Company of material Year 2000 issues. The
Company is unable to control whether the firms and suppliers it
does business with currently, and in the future, will have
systems which are compliant.

Expenditures to date have not been material and have consisted
primarily of the time of certain company personnel. The Company
does not currently expect that any future costs will be material.




Item 8.  Financial Statements and Supplementary
Data

Reference is made to the Consolidated Financial Statements, the
Notes thereto and Report of Independent Public Accountants
thereon commencing at Page F-1 of this Report, which
Consolidated Financial Statements, Notes and Report are included
herein by reference.

27



---



##### Table of Contents






PART III




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 2000 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 2000 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 2000 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 2000 Annual
Meetings of Stockholders.




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 2000 Annual Meetings of Stockholders.

28



---



##### Table of Contents






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 20,000 shares of Common Stock and the issuance of
	180,000 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 100,000 shares of Common
	Stock between the Company and William M. McCormick dated
	August 7, 1998.(7)                                                                                                          
| | 10.21 |  |  | Warrant Agreement for the purchase of 600,000 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 100,000 shares of Common Stock and Warrant Agreement
	 effective April 9, 1998 between The Shemano Group and the
	Company(8)

29



---



##### Table of Contents



| |       |  |  |                                                                                                                                                                                                                                                                                      
| | ----- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 30,000 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 100,000 shares of Common
	Stock between the Company and Cameron Associates Inc. dated as of
	 November 23, 1998.                                                                                                                               
| | 21    |  |  | Subsidiaries of the Company                                                                                                                                                                                                                                                          
| | 23.1  |  |  | Consent of Deloitte & Touche                                                                                                                                                                                                                                                         
| | 27    |  |  | Financial Data Schedule                                                                                                                                                                                                                                                              




|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                                                                                     

(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.

(c)  Reports on Form 8-K:



| |     
| | ----
| | None

(d)  Financial Statement Schedules:



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

30



---



##### Table of Contents






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 26, 2000

| |     |                   
| | --- | ------------------
| | 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. LANERonald H. Lane             |  | Chairman of the Board,
	Chief Executive Officer and
	President (Principal
	Executive Officer) |  | January 26, 2000
|                                               
|By /s/ KAREN J. HARWELLKaren J. Harwell         |  | Controller
	(Principal Financial and
	Accounting Officer)                                     |  | January 26, 2000
|                                               
|By /s/ DANIEL ANTONELLIDaniel Antonelli         |  | Director                                                                                      |  | January 26, 2000
|                                               
|By /s/ RICHARD M. FELDHEIMRichard M. Feldheim   |  | Director                                                                                      |  | January 26, 2000
|                                               
|By /s/ ROBERT B. GOERGENRobert B. Goergen       |  | Director                                                                                      |  | January 26, 2000
|                                               
|By /s/ STEVE HENIGSteve Henig                   |  | Director                                                                                      |  | January 26, 2000
|                                               
|By C. Everett Koop                              |  | Director                                                                                      |  | January 26, 2000
|                                               
|By /s/ WILLIAM M. MCCORMICKWilliam M. McCormick |  | Director                                                                                      |  | January 26, 2000
|                                               
|By /s/ MILTON OKINMilton Okin                   |  | Director                                                                                      |  | January 26, 2000

31



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##### Table of Contents



|                                                |  |          |  |                 
|----------------------------------------------- |  | -------- |  | ----------------
|Signature                                       |  | Title    |  | Date            
|                                                |  |          |  |                 
|By /s/ FREDERICK RENTSCHLERFrederick Rentschler |  | Director |  | January 26, 2000
|                                               
|By /s/ WINSTON A. SALSERWinston A. Salser       |  | Director |  | January 26, 2000
|                                               
|By Donald A. Winkler                            |  | Director |  | January 26, 2000

32



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

Board of Directors





We have audited the consolidated balance sheets of Bionutrics,
Inc. and subsidiaries (the Company) as of
October 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
October 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 generally accepted
auditing standards. 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, 1999 and 1998, and the results of its
 operations and its cash flows for each of the three years in the
 period ended October 31, 1999, in conformity with generally
 accepted accounting principles.

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 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







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##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

October 31, 1999 and 1998


|                                                                           |                                                                                                                       |                            |           |             |           |   |            |             |           | 
|-------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------- | --------- | ----------- | --------- | - | ---------- | ----------- | --------- | 
|                                                                           |                                                                                                                       | 1999                       |           | 1998       
|                                                                           |                                                                                                                       |                            |           |            
|ASSETS                                                                    
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|CURRENT ASSETS:                                                            |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Cash and cash equivalents                                                                                             |                            | $         | 680,190     |           |   | $          | 1,704,400   |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Trade receivables  net of allowance for bad debts of
	$48,925 and $72,086, respectively                              |                            |           | 1,364,823   |           |   |            | 1,992,060   |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Inventory (Note 3)                                                                                                    |                            |           | 259,489     |           |   |            | 763,654     |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Prepaids and other current assets                                                                                     |                            |           | 99,942      |           |   |            | 169,822     |          
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                           |                                                                                                                       | Total current assets       |           |             | 2,404,444 |   |            |             | 4,629,936 | 
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|PROPERTY  Net (Notes 4 and 8)                                             |                                                                                                                       |                            | 90,659    |             |           |   | 5,401,259  |            
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|OTHER ASSETS:                                                              |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Goodwill  net of accumulated amortization of $28,200
	at October 31, 1998 (Note 1)                                   |                            |           |             |           |   |            | 535,678     |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Patent applications and other related costs  net of
	accumulated amortization of $149,664 and $143,005, respectively |                            |           | 419,801     |           |   |            | 327,386     |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Investment in InCon Processing, L.L.C. (Notes 1 and 11)                                                               |                            |           | 2,271,127   |           |   |            |             |          
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                           |                                                                                                                       | Total other assets         |           |             | 2,690,928 |   |            |             | 863,064   | 
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|TOTAL                                                                      |                                                                                                                       | $                          | 5,186,031 |             |           | $ | 10,894,259 |            
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|LIABILITIES AND STOCKHOLDERS EQUITY                                      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|CURRENT LIABILITIES:                                                       |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Accounts payable                                                                                                      |                            | $         | 533,013     |           |   | $          | 1,090,845   |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Accrued liabilities                                                                                                   |                            |           | 1,175,275   |           |   |            | 1,102,070   |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Current portion of notes payable and capital leases (Notes 5 and
	8)                                                  |                            |           | 331,529     |           |   |            | 1,108,090   |          
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                           |                                                                                                                       | Total current liabilities  |           |             | 2,039,817 |   |            |             | 3,301,005 | 
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|NOTES PAYABLE AND CAPITAL LEASES  Net of current
	portion (Notes 5 and 8) |                                                                                                                       |                            | 2,278     |             |           |   | 17,525     |            
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                           |                                                                                                                       | Total liabilities          |           |             | 2,042,095 |   |            |             | 3,318,530 | 
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|COMMITMENTS AND CONTINGENCIES
	(Notes 1, 6 and 8)                          |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|STOCKHOLDERS EQUITY (Note 6):                                             |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Common stock, $.001 par value  authorized, 45,000,000
	shares                                                        |                            |           | 20,809      |           |   |            | 20,352      |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Preferred stock, $.001 par value  authorized,
	5,000,000 shares; no issued and outstanding shares                    |                            |           |             |           |   |            |             |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Additional paid-in capital                                                                                            |                            |           | 32,216,750  |           |   |            | 31,483,706  |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Warrants                                                                                                              |                            |           | 3,254,986   |           |   |            | 2,797,136   |          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Accumulated deficit                                                                                                   |                            |           | (32,347,406 | )         |   |            | (26,724,262 | )        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Common stock in treasury, at cost                                                                                     |                            |           | (1,203      | )         |   |            | (1,203      | )        
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|                                                                           |                                                                                                                       | Total stockholders equity |           |             | 3,143,936 |   |            |             | 7,575,729 | 
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            
|TOTAL                                                                      |                                                                                                                       | $                          | 5,186,031 |             |           | $ | 10,894,259 |            
|                                                                           |                                                                                                                       |                            |           |             |           |   |            |            

See notes to consolidated financial statements.

F-2



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##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended October 31, 1999, 1998 and 1997


|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |            |            | 
|---------------------------------------------------- | ------------------------------------------------ | ---------------------------- | ---------- | --------- | --------- | ---- | ----------- | ---------- | ---------- | - | ----------- | ---------- | ---------- | 
|                                                     |                                                  | 1999                         |            | 1998      |           | 1997
|                                                     |                                                  |                              |            |           |           |     
|REVENUES (Note 2):                                   |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Revenue from services                            |                              | $          | 2,516,554 |           |      | $           | 3,999,408  |            |   |             |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Revenue from product sales                       |                              |            | 1,173,193 |           |      |             | 2,654,496  |            |   | $           | 2,862,843  |           
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|                                                     |                                                  | Total gross revenues         |            |           | 3,689,747 |      |             |            | 6,653,904  |   |             |            | 2,862,843  | 
|                                                    
|                                                    
|                                                    
|                                                    
|DISCOUNTS AND ALLOWANCES                             |                                                  |                              | 558,262    |           |           |      | 302,626     |            |            |   | 435,724     |           
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|                                                     | Net revenues                                     |                              |            | 3,131,485 |           |      |             | 6,351,278  |            |   |             | 2,427,119  |           
|                                                    
|                                                    
|                                                    
|                                                    
|COST OF REVENUES                                     |                                                  |                              | 2,334,839  |           |           |      | 7,259,015   |            |            |   | 5,013,751   |           
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|                                                     | Gross profit (loss)                              |                              |            | 796,646   |           |      |             | (907,737   | )          |   |             | (2,586,632 | )         
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|OPERATING EXPENSES:                                  |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Selling, general and administrative (Note 9)     |                              |            | 5,939,356 |           |      |             | 10,328,653 |            |   |             | 9,763,224  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Research and development                         |                              |            | 368,070   |           |      |             | 432,306    |            |   |             | 258,939    |           
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|                                                     |                                                  | Total operating expenses     |            |           | 6,307,426 |      |             |            | 10,760,959 |   |             |            | 10,022,163 | 
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|OPERATING LOSS                                       |                                                  |                              | (5,510,780 | )         |           |      | (11,668,696 | )          |            |   | (12,608,795 | )         
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|OTHER (EXPENSE) INCOME:                              |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net interest (expense) income (Notes 5, 8 and 9) |                              |            | (25,313   | )         |      |             | (127,225   | )          |   |             | 267,166    |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other expense                                    |                              |            | (30,237   | )         |      |             |            |            |   |             |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net loss on investment in joint venture          |                              |            | (56,814   | )         |      |             |            |            |   |             |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net gain (loss) on disposal of assets            |                              |            |           |           |      |             | 2,553,516  |            |   |             | (237       | )         
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|                                                     |                                                  | Total other (expense) income |            |           | (112,364  | )    |             |            | 2,426,291  |   |             |            | 266,929    | 
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|NET LOSS                                             |                                                  | $                            | (5,623,144 | )         |           | $    | (9,242,405  | )          |            | $ | (12,341,866 | )         
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |                                                  |                              | 20,714,652 |           |           |      | 18,716,757  |            |            |   | 16,042,785  |           
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           
|BASIC NET LOSS PER COMMON SHARE                      |                                                  | $                            | (0.27      | )         |           | $    | (0.49       | )          |            | $ | (0.77       | )         
|                                                     |                                                  |                              |            |           |           |      |             |            |            |   |             |           

See notes to consolidated financial statements.

F-3



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##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years Ended October 31, 1999, 1998 and 1997


|                          |                                                                                                            |              |            |            |  |          |        |             |  |              |            |           |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|------------------------- | ---------------------------------------------------------------------------------------------------------- | ------------ | ---------- | ---------- |  | -------- | ------ | ----------- |  | ------------ | ---------- | --------- | - | ------ | --------- | --------- |  |  | --------- | --------- |  | - | ----------- | ----------- | - |  | ---------- | - |  | - | ------ | - | 
|                          |                                                                                                            |              |            |            |  |          |        |             |  |              |            |           |   |       
|                          |                                                                                                            |              |            |            |  |          |        |             |  | Common Stock
|                          |                                                                                                            | Common Stock |            | Additional |  | Warrants |        |             |  | in Treasury 
|                          |                                                                                                            |              |            | Paid-In    |  |          |        | Accumulated |  |             
|                          |                                                                                                            | Shares       |            | Amount     |  | Capital  |        | Shares      |  | Amount       |            | Deficit   |   | Shares |           | Amount   
|                          |                                                                                                            |              |            |            |  |          |        |             |  |              |            |           |   |        |           |          
|BALANCE, NOVEMBER 1, 1996 |                                                                                                            |              | 15,067,979 |            |  | $        | 15,068 |             |  | $            | 10,406,996 |           |   |        |           |           |  |  |           |           |  | $ | (5,139,991  | )           |   |  | (1,202,886 | ) |  | $ | (1,203 | )
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $1 per share,
	December 1996                                     |              |            | 25,000     |  |          |        | 25          |  |              |            | 24,975    |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $5 per share,
	January 1997                                          |              |            | 63,818     |  |          |        | 64          |  |              |            | 319,026   |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $7 per share,
	November 1996  June 1997                             |              |            | 1,073,480  |  |          |        | 1,073       |  |              |            | 7,085,980 |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $7 per share,
	June 1997                                         |              |            | 21,428     |  |          |        | 20          |  |              |            | 149,975   |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $8 per share,
	September 1997  October 1997                         |              |            | 162,500    |  |          |        | 162         |  |              |            | 1,299,838 |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Stock-based compensation expense, November 1996 
	October 1997 (Note 7)                                   |              |            |            |  |          |        |             |  |              |            | 253,808   |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Cash paid for stock-related expenses                                                                       |              |            |            |  |          |        |             |  |              |            | (37,631   | ) |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for purchase of InCon Technologies,
	Inc., October 1997 (Note 1)                 |              |            | 1,400,000  |  |          |        | 1,400       |  |              |            | 6,998,600 |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Net loss  year ended October 31, 1997                                                                     |              |            |            |  |          |        |             |  |              |            |           |   |        |           |           |  |  |           |           |  |   |             | (12,341,866 | ) |  |            |   |  |   |        |   | 
|                          |                                                                                                            |              |            |            |  |          |        |             |  |              |            |           |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |  
|BALANCE, OCTOBER 31, 1997 |                                                                                                            |              | 17,814,205 |            |  |          | 17,812 |             |  |              | 26,501,567 |           |   |        |           |           |  |  |           |           |  |   | (17,481,857 | )           |   |  | (1,202,886 | ) |  |   | (1,203 | )
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $5 per share (converted
	rate) under option agreement, December 1997 |              |            | 8,333      |  |          |        | 8           |  |              |            | 41,647    |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $8 per share,
	December 1997                                         |              |            | 83,050     |  |          |        | 82          |  |              |            | 664,318   |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $7.25 per share,
	February 1998                                      |              |            | 413,793    |  |          |        | 414         |  |              |            | 2,999,586 |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Cash paid for stock related expenses                                                                       |              |            |            |  |          |        |             |  |              |            | (284,135  | ) |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $6.375 per share,
	April  1998                                   |              |            | 10,000     |  |          |        | 10          |  |              |            | 63,740    |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for incentive compensation at $6.75 per
	 share, June 1998                       |              |            | 4,922      |  |          |        | 5           |  |              |            | 33,218    |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for cash                                                                 |              |            |            |  |          |        |             |  |              |            | 50,000    |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $2 per share,
	August 1998                                           |              |            | 2,000,000  |  |          |        | 2,000       |  |              |            | 1,200,864 |   |        |           | 2,000,000 |  |  | $         | 2,797,136 |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for incentive compensation at $1.75 per
	 share, October 1998                    |              |            | 21,429     |  |          |        | 21          |  |              |            | 37,479    |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Stock-based compensation expense, November 1997 
	October 1998 (Note 7)                                   |              |            |            |  |          |        |             |  |              |            | 175,422   |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |   | 
|                         
|                         
|                         
|                         
|                          | Net loss  year ended October 31, 1998                                                                     |              |            |            |  |          |        |             |  |              |            |           |   |        |           |           |  |  |           |           |  |   |             | (9,242,405  | ) |  |            |   |  |   |        |   | 
|                          |                                                                                                            |              |            |            |  |          |        |             |  |              |            |           |   |        |           |           |  |  |           |           |  |   |             |             |   |  |            |   |  |   |        |  
|BALANCE, OCTOBER 31, 1998 |                                                                                                            |              | 20,355,732 |            |  |          | 20,352 |             |  |              | 31,483,706 |           |   |        | 2,000,000 |           |  |  | 2,797,136 |           |  |   | (26,724,262 | )           |   |  | (1,202,886 | ) |  |   | (1,203 | )

[Additional columns below]

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

|                          |                                                                                                            |               |           |             |  
|------------------------- | ---------------------------------------------------------------------------------------------------------- | ------------- | --------- | ----------- | -
|                          |                                                                                                            | Total        
|                          |                                                                                                            | Stockholders
|                          |                                                                                                            | Equity       
|                          |                                                                                                            |              
|BALANCE, NOVEMBER 1, 1996 |                                                                                                            | $             | 5,280,870 |            
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $1 per share,
	December 1996                                     |               |           | 25,000      |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $5 per share,
	January 1997                                          |               |           | 319,090     |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $7 per share,
	November 1996  June 1997                             |               |           | 7,087,053   |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $7 per share,
	June 1997                                         |               |           | 149,995     |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $8 per share,
	September 1997  October 1997                         |               |           | 1,300,000   |  
|                         
|                         
|                         
|                         
|                          | Stock-based compensation expense, November 1996 
	October 1997 (Note 7)                                   |               |           | 253,808     |  
|                         
|                         
|                         
|                         
|                          | Cash paid for stock-related expenses                                                                       |               |           | (37,631     | )
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for purchase of InCon Technologies,
	Inc., October 1997 (Note 1)                 |               |           | 7,000,000   |  
|                         
|                         
|                         
|                         
|                          | Net loss  year ended October 31, 1997                                                                     |               |           | (12,341,866 | )
|                          |                                                                                                            |               |           |            
|BALANCE, OCTOBER 31, 1997 |                                                                                                            |               | 9,036,319 |            
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $5 per share (converted
	rate) under option agreement, December 1997 |               |           | 41,655      |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $8 per share,
	December 1997                                         |               |           | 664,400     |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $7.25 per share,
	February 1998                                      |               |           | 3,000,000   |  
|                         
|                         
|                         
|                         
|                          | Cash paid for stock related expenses                                                                       |               |           | (284,135    | )
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for services at $6.375 per share,
	April  1998                                   |               |           | 63,750      |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for incentive compensation at $6.75 per
	 share, June 1998                       |               |           | 33,223      |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock warrants for cash                                                                 |               |           | 50,000      |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for cash at $2 per share,
	August 1998                                           |               |           | 4,000,000   |  
|                         
|                         
|                         
|                         
|                          | Issuance of common shares for incentive compensation at $1.75 per
	 share, October 1998                    |               |           | 37,500      |  
|                         
|                         
|                         
|                         
|                          | Stock-based compensation expense, November 1997 
	October 1998 (Note 7)                                   |               |           | 175,422     |  
|                         
|                         
|                         
|                         
|                          | Net loss  year ended October 31, 1998                                                                     |               |           | (9,242,405  | )
|                          |                                                                                                            |               |           |            
|BALANCE, OCTOBER 31, 1998 |                                                                                                            |               | 7,575,729 |            

F-4



---



##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY  (Continued)

|                                                                  |                                                                                                                                                        |              |            |            |  |          |        |             |  |              |            |         |  |        |           |         |  |   |           |        |  |   |             |            |   |  |            |   |  |   |        |   | 
|----------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------ | ---------- | ---------- |  | -------- | ------ | ----------- |  | ------------ | ---------- | ------- |  | ------ | --------- | ------- |  | - | --------- | ------ |  | - | ----------- | ---------- | - |  | ---------- | - |  | - | ------ | - | 
|                                                                  |                                                                                                                                                        |              |            |            |  |          |        |             |  |              |            |         |  |       
|                                                                  |                                                                                                                                                        |              |            |            |  |          |        |             |  | Common Stock
|                                                                  |                                                                                                                                                        | Common Stock |            | Additional |  | Warrants |        |             |  | in Treasury 
|                                                                  |                                                                                                                                                        |              |            | Paid-In    |  |          |        | Accumulated |  |             
|                                                                  |                                                                                                                                                        | Shares       |            | Amount     |  | Capital  |        | Shares      |  | Amount       |            | Deficit |  | Shares |           | Amount 
|                                                                  |                                                                                                                                                        |              |            |            |  |          |        |             |  |              |            |         |  |        |           |        
|Issuance of common shares for cash at $2 per share,
	January 1999 |                                                                                                                                                        |              | 250,000    |            |  |          | 250    |             |  |              | 215,404    |         |  |        | 500,000   |         |  |   | 284,346   |        |  |   |             |            |   |  |            |   |  |   |        |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common shares for services at $1.25 per share,
	February  1999                                                                             |              |            | 100,000    |  |          |        | 100         |  |              |            | 124,900 |  |        |           |         |  |   |           |        |  |   |             |            |   |  |            |   |  |   |        |   | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common shares for services at $1.375 per share,
	February  1999                                                                            |              |            | 100,000    |  |          |        | 100         |  |              |            | 137,400 |  |        |           |         |  |   |           |        |  |   |             |            |   |  |            |   |  |   |        |   | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common stock warrants for services at $4 per share,
	April 1999                                                                            |              |            |            |  |          |        |             |  |              |            |         |  |        |           | 100,000 |  |   |           | 11,603 |  |   |             |            |   |  |            |   |  |   |        |   | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common stock warrants for services at $2 per share,
	August 1999                                                                           |              |            |            |  |          |        |             |  |              |            |         |  |        |           | 100,000 |  |   |           | 86,907 |  |   |             |            |   |  |            |   |  |   |        |   | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common stock warrants for services at $7 per share,
	August 1999                                                                           |              |            |            |  |          |        |             |  |              |            |         |  |        |           | 30,000  |  |   |           | 74,994 |  |   |             |            |   |  |            |   |  |   |        |   | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common shares as consideration for rights granted
	under an Option agreement at $1.42 per share, October 1999                              |              |            | 7,042      |  |          |        | 7           |  |              |            | 9,993   |  |        |           |         |  |   |           |        |  |   |             |            |   |  |            |   |  |   |        |   | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common stock options as partial consideration for
	rights granted under a license and sublicense agreement at $2 per
	 share, October 1999 |              |            |            |  |          |        |             |  |              |            | 51,574  |  |        |           |         |  |   |           |        |  |   |             |            |   |  |            |   |  |   |        |   | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Stock-based compensation expense, November 1998 
	October 1999 (Note 6)                                                                               |              |            |            |  |          |        |             |  |              |            | 193,773 |  |        |           |         |  |   |           |        |  |   |             |            |   |  |            |   |  |   |        |   | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net loss  year ended October 31, 1999                                                                                                                 |              |            |            |  |          |        |             |  |              |            |         |  |        |           |         |  |   |           |        |  |   |             | (5,623,144 | ) |  |            |   |  |   |        |   | 
|                                                                  |                                                                                                                                                        |              |            |            |  |          |        |             |  |              |            |         |  |        |           |         |  |   |           |        |  |   |             |            |   |  |            |   |  |   |        |  
|BALANCE, OCTOBER 31, 1999                                         |                                                                                                                                                        |              | 20,812,774 |            |  | $        | 20,809 |             |  | $            | 32,216,750 |         |  |        | 2,730,000 |         |  | $ | 3,254,986 |        |  | $ | (32,347,406 | )          |   |  | (1,202,886 | ) |  | $ | (1,203 | )
|                                                                  |                                                                                                                                                        |              |            |            |  |          |        |             |  |              |            |         |  |        |           |         |  |   |           |        |  |   |             |            |   |  |            |   |  |   |        |  

[Additional columns below]

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

|                                                                  |                                                                                                                                                        |               |           |            |  
|----------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------- | --------- | ---------- | -
|                                                                  |                                                                                                                                                        | Total        
|                                                                  |                                                                                                                                                        | Stockholders
|                                                                  |                                                                                                                                                        | Equity       
|                                                                  |                                                                                                                                                        |              
|Issuance of common shares for cash at $2 per share,
	January 1999 |                                                                                                                                                        |               | 500,000   |           
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common shares for services at $1.25 per share,
	February  1999                                                                             |               |           | 125,000    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common shares for services at $1.375 per share,
	February  1999                                                                            |               |           | 137,500    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common stock warrants for services at $4 per share,
	April 1999                                                                            |               |           | 11,603     |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common stock warrants for services at $2 per share,
	August 1999                                                                           |               |           | 86,907     |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common stock warrants for services at $7 per share,
	August 1999                                                                           |               |           | 74,994     |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common shares as consideration for rights granted
	under an Option agreement at $1.42 per share, October 1999                              |               |           | 10,000     |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Issuance of common stock options as partial consideration for
	rights granted under a license and sublicense agreement at $2 per
	 share, October 1999 |               |           | 51,574     |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Stock-based compensation expense, November 1998 
	October 1999 (Note 6)                                                                               |               |           | 193,773    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net loss  year ended October 31, 1999                                                                                                                 |               |           | (5,623,144 | )
|                                                                  |                                                                                                                                                        |               |           |           
|BALANCE, OCTOBER 31, 1999                                         |                                                                                                                                                        | $             | 3,143,936 |           
|                                                                  |                                                                                                                                                        |               |           |           

See notes to consolidated financial statements.

F-5



---



##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY  (Continued)

BIONUTRICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended October 31, 1999, 1998 and 1997


|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |             |            |            |             |  
|------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | --------------------------------- | ------------------------------------- | --------- | -------- | ---------- | ---------- | ---------- | ---------- | ----------- | ----------- | ---------- | ---------- | ----------- | -
|                                                                                            |                                                                                                                                                                                              | 1999                                                          |                                   | 1998                                  |           | 1997    
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Net loss                                                                                                                                                                                     |                                                               | $                                 | (5,623,144                            | )         |          | $          | (9,242,405 | )          |            | $           | (12,341,866 | )         
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Adjustments to reconcile net loss to net cash used in operating
	activities:                                                                                                                 |                                                               |                                   |                                       |           |          |            |            |            |            |             |             |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              | Depreciation and amortization                                 |                                   |                                       | 1,120,358 |          |            |            | 1,318,360  |            |             |             | 248,944    |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              | (Gain) loss on disposal of assets                             |                                   |                                       |           |          |            |            | (2,553,516 | )          |             |             | 237        |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              | Loss on investment in joint venture                           |                                   |                                       | 56,814    |          |            |            |            |            |             |             |            |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              | Stock based compensation expense                              |                                   |                                       | 193,773   |          |            |            | 175,422    |            |             |             | 253,808    |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              | Expenses satisfied with issuance of common stock and warrants |                                   |                                       | 436,004   |          |            |            | 134,473    |            |             |             | 174,995    |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              | Changes in operating assets and liabilities:                  |                                   |                                       |           |          |            |            |            |            |             |             |            |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              |                                                               | Trade receivables  net           |                                       |           | 33,086   |            |            |            | 315,960    |             |             |            | (571,655   | )          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              |                                                               | Inventory                         |                                       |           | 504,165  |            |            |            | 536,404    |             |             |            | (1,223,414 | )          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              |                                                               | Prepaids and other current assets |                                       |           | 47,380   |            |            |            | 384,230    |             |             |            | (446,035   | )          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              |                                                               | Accounts payable                  |                                       |           | (166,437 | )          |            |            | (1,678,595 | )           |             |            | 1,807,602  |            
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                                                                                                                                                                              |                                                               | Accrued liabilities               |                                       |           | 73,205   |            |            |            | (904,798   | )           |             |            | 1,394,485  |            
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   | Net cash used in operating activities |           |          | (3,324,796 | )          |            |            | (11,514,465 | )           |            |            | (10,702,899 | )
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Capital expenditures                                                                                                                                                                         |                                                               |                                   | (133,950                              | )         |          |            | (1,462,129 | )          |            |             | (1,510,550  | )         
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Net decrease in notes receivable                                                                                                                                                             |                                                               |                                   |                                       |           |          |            |            |            |            |             | 16,665      |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Patents and rights to technology acquired                                                                                                                                                    |                                                               |                                   | (15,000                               | )         |          |            | (125,000   | )          |            |             |             |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Proceeds from disposal of fixed assets and patents                                                                                                                                           |                                                               |                                   | 3,004,000                             |           |          |            | 4,543,855  |            |            |             | 5,706       |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Investment in joint venture                                                                                                                                                                  |                                                               |                                   | (272,244                              | )         |          |            |            |            |            |             | (403,739    | )         
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Cash received from acquisition of InCon Technologies, Inc.                                                                                                                                   |                                                               |                                   |                                       |           |          |            |            |            |            |             | 431,067     |           
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|                                                                                            |                                                                                                                                                                                              | Net cash provided by (used in) investing activities           |                                   |                                       | 2,582,806 |          |            |            | 2,956,726  |            |             |             | (1,460,851 | )         
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Proceeds from debt                                                                                                                                                                           |                                                               |                                   | 200,000                               |           |          |            | 3,225,000  |            |            |             |             |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Proceeds from issuance of stock and warrants                                                                                                                                                 |                                                               |                                   | 500,000                               |           |          |            | 7,756,055  |            |            |             | 8,706,142   |           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Expenses for capital raising                                                                                                                                                                 |                                                               |                                   |                                       |           |          |            | (284,135   | )          |            |             | (37,631     | )         
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Repayments of debt and capital leases                                                                                                                                                        |                                                               |                                   | (982,220                              | )         |          |            | (2,615,902 | )          |            |             |             |           
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|                                                                                            |                                                                                                                                                                                              | Net cash (used in) provided by financing activities           |                                   |                                       | (282,220  | )        |            |            | 8,081,018  |            |             |             | 8,668,511  |           
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                   |                                                                                                                                                                                              |                                                               | (1,024,210                        | )                                     |           |          | (476,721   | )          |            |            | (3,495,239  | )          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                                |                                                                                                                                                                                              |                                                               | 1,704,400                         |                                       |           |          | 2,181,121  |            |            |            | 5,676,360   |            
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|CASH AND CASH EQUIVALENTS, END OF YEAR                                                      |                                                                                                                                                                                              | $                                                             | 680,190                           |                                       |           | $        | 1,704,400  |            |            | $          | 2,181,121   |            
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION 
	Cash paid during the year for interest |                                                                                                                                                                                              | $                                                             | 65,344                            |                                       |           | $        | 149,253    |            |            | $          |             |            
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
	ACTIVITIES:                    |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Acquisition of equipment under capital leases                                                                                                                                                |                                                               |                                   |                                       |           |          | $          | 173,808    |            |            |             |             |           
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|                                                                                            | Issuance of 1,400,000 shares of common stock in connection with
	the acquisition of InCon Technologies, Inc.                                                                                 |                                                               |                                   |                                       |           |          |            |            |            |            | $           | 7,000,000   |           
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|                                                                                            | Assumption of liabilities in connection with the acquisition of
	InCon Technologies, Inc.                                                                                                    |                                                               |                                   |                                       |           |          |            |            |            |            | $           | 1,606,849   |           
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            
|                                                                                            | Fair value of receivables ($2,006,288), inventory ($184,346),
	fixed assets ($5,361,850) and other assets ($59,420) received in
	connection with the acquisition of InCon Technologies, Inc. |                                                               |                                   |                                       |           |          |            |            |            |            | $           | 7,611,904   |           
|                                                                                            |                                                                                                                                                                                              |                                                               |                                   |                                       |           |          |            |            |            |            |             |            

See notes to consolidated financial statements.

F-6



---



##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended October 31, 1999, 1998 and 1997


1.  Organization and Basis of Presentation

Bionutrics, Inc.  Subsequent to
October 31, 1996, NutraGenics, Inc.
(NutraGenics) changed its name to Bionutrics, Inc.
(Bionutrics). Bionutrics consists of its wholly-owned
 subsidiaries, LipoGenics, Inc. (LipoGenics),
Bionutrics Health Products, Inc. (BHP), Nutrition
Technologies Corporation (Nutrition Technologies),
InCon International Ltd. (IIN) and InCon
Technologies, Inc. (InCon) (collectively referred to
as the Company).

During the year ended October 31, 1997, the Company
completed its development activities and commenced its planned
principal operations. The planned principal operations are the
development, manufacturing, marketing and selling of dietary
supplements using proprietary technology (the
Technology). Revenues for the years ended
October 31, 1999 and 1998 are derived primarily from two
sources: services and product sales. Revenues from services are
primarily attributed to molecular distillation toll processing of
 materials from a variety of customers. Revenues from product
sales are primarily attributed to the sale of evolvE®, the Companys dietary supplement
product. For the year ended October 31, 1997, all revenues
were generated from product sales as the acquisition of InCon
occurred on October 31, 1997.

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 $32,347,406 through October 31, 1999,
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 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 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,
maintaining 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
operation needs for the next 12 months, it continues to seek
 additional capital through private equity and bank lines of
credit. There can be no assurance that such additional financing
will be attainable, or attainable on terms acceptable to the
Company. Access by the Company to additional capital will depend
substantially upon prevailing market conditions and the financial
 condition of and prospects for the Company at the time.

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 evolvE® 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 extending beyond a tocotrienol platform.

On October 31, 1997, the Company merged with InCon. InCon
provides molecular distillation and toll processing services for
Nutrition Technologies and other food and industrial companies.
The merger involved the issuance of 1.4 million shares of
the Companys restricted common stock, with a fair value of
$7 million on the date of the merger, in exchange for all of
 the issued and outstanding stock of InCon, as well as all rights
 and interests pursuant to a purchase agreement between Rye
Investments, Ltd., a British Virgin Island limited liability
corporation (Rye) which shared common owners with
InCon, and a customer of Rye. The merger

F-7



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##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

was accounted for using the purchase method of accounting.
Accordingly, the assets acquired and liabilities assumed have
been recorded at their fair value as of October 31, 1997.
Goodwill of $563,878 was recorded as a result of the merger and
is being amortized over 20 years.

In June 1999, the Company entered into a new 50/50 joint
venture with AC HUMKO CORP. (AC HUMKO), 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 currently 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.
In connection with this transaction, the remaining amount of
goodwill recorded at the date of acquisition of InCon was written
 off.

2.  Summary of Significant Accounting Policies

Principles of Consolidation  The
consolidated financial statements include the accounts of
Bionutrics and its wholly-owned subsidiaries, LipoGenics, Inc.,
Bionutrics Health Products, Inc., InCon Technologies, Inc. and
Nutrition Technology Corp. All significant intercompany balances
and transactions have been eliminated.

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

Cash and Cash Equivalents  The Company
considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash and 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:

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

Leasehold improvements and leased equipment are amortized over
the lessor 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 had two customers
which accounted for approximately 67 percent and 52 percent
of total revenues for the years ended October 31, 1999 and
1998, respectively.

Patents  Legal and other costs related
to patent applications are capitalized as incurred and 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 and unamortized relate
 to both the processes and products associated with the
Companys business.

F-8



---



##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Income taxes are 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. Any deferred tax assets
were fully offset by a valuation allowance in 1999, 1998 and
1997.

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, trade and notes receivable, accounts
payable, accrued liabilities and notes payable approximate the
carrying value due to the short-term nature of these instruments.

Stock options and warrants granted 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
granted to employees of the Company are recorded as expense,
based on the difference, if any, between the fair market value of
 the stock, on the date of grant and the options exercise
price. No compensation cost was recognized in the Companys
consolidated statements of operations for employee-based options
and warrants for 1999, 1998 or 1997.

Loss per Share  Basic EPS excludes
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, 1999, 1998 and 1997, the Company
 has concluded that issuance of any additional shares would be
antidilutive and, therefore, a dual presentation is not required.

New Accounting Pronouncement  In
June 1998, the FASB issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS
No. 133 requires that an enterprise recognize certain
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
The statement is effective for the Companys fiscal year
ending October 31, 2000. The Company has not yet completed
evaluating the impact of implementing the provisions of SFAS
No. 133.

Reclassifications  Certain
reclassifications have been made to the 1997 and 1998 financial
statements to conform to the 1999 presentation.

3.  Inventory

As of October 31, inventory consisted of the following:

|                |  |      |         |      |  |   |         | 
|--------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                |  | 1999 |         | 1998
|                |  |      |         |     
|Raw materials   |  |      |         |      |  | $ | 219,569 | 
|               
|               
|               
|               
|Work in process |  | $    | 107,733 |      |  |   | 201,600 | 
|               
|               
|               
|               
|Finished goods  |  |      | 151,756 |      |  |   | 342,485 | 
|                |  |      |         |      |  |   |         | 
|Total           |  | $    | 259,489 |      |  | $ | 763,654 | 
|                |  |      |         |      |  |   |         | 

F-9



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##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

4.  Property and Equipment

As of October 31, the components of property and equipment
consisted of the following:

|                                               |  |      |          |      |  |   |            |  
|---------------------------------------------- |  | ---- | -------- | ---- |  | - | ---------- | -
|                                               |  | 1999 |          | 1998
|                                               |  |      |          |     
|Equipment, furniture and fixtures              |  | $    | 259,034  |      |  | $ | 5,774,147  |  
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  |      | 41,444   |      |  |   | 540,122    |  
|                                              
|                                              
|                                              
|                                              
|Capitalized software                           |  |      | 30,181   |      |  |   | 33,332     |  
|                                              
|                                              
|                                              
|                                              
|Leased equipment under capital lease (Note 8)  |  |      | 24,354   |      |  |   | 24,354     |  
|                                              
|                                              
|                                              
|                                              
|Construction in progress                       |  |      |          |      |  |   | 375,055    |  
|                                               |  |      |          |      |  |   |            |  
|Property and equipment  gross                 |  |      | 355,013  |      |  |   | 6,747,010  |  
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |      | (264,354 | )    |  |   | (1,345,751 | )
|                                               |  |      |          |      |  |   |            |  
|Property and equipment  net                   |  | $    | 90,659   |      |  | $ | 5,401,259  |  
|                                               |  |      |          |      |  |   |            |  

5.  Notes Payable

At October 31, 1999, the Company had $322,883 outstanding as
 notes payable. This note is due to Rye, a related party through
stock ownership. The note is interest free and payable upon
demand. At October 31, 1998, the Company had $1,106,767
outstanding as notes payable. These notes payable were composed
of $770,476 to Directors, $322,883 to Rye and $13,408 for
equipment financing. The notes to Directors bore interest at
9.50 percent per annum and were payable upon demand and paid
 off during 1999. The equipment note bore interest at
5.90 percent, was due in August 2000, and required
monthly payments of $617.99.

6.  Stockholders Equity

In August 1998, AC HUMKO acquired 2,000,000 shares of
the Companys common stock for $2.00 per share.
AC HUMKO also acquired Bionutrics rice bran processing
 technology for $2,000,000. The technology transfer gives
AC HUMKO the exclusive right to use and practice
Bionutrics proprietary rice bran processing technology in
North America, with Bionutrics retaining the right to use and
practice the technology worldwide, other than in North America.
Bionutrics acquired a perpetual profit sharing interest in
AC HUMKOs rice bran business. Additionally, Bionutrics
 has agreed to purchase from AC  HUMKO its output of rice
bran oil distillate at a fixed price for 24 months.

In February 1998, Novartis Nutrition acquired exclusive
worldwide rights to evaluate the Companys
Clearesterol complex for potential application as a
functional food ingredient. The evaluation right was acquired as
part of a $3,000,000 stock investment in Bionutrics.

At October 31, 1996, the Company authorized 1,900,000 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 950,000 shares of common stock were
authorized for issuance under the 1996 Plan, for a total of
2,850,000 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,

F-10



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##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

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.

Employee Stock-Based Compensation  A
summary of transactions for employee stock options and warrants
for the years ended October 31, 1999, 1998 and 1997 is as
follows:

|                                                       |                  |        |           |          |   |                  |               |               |  |  |      |  |  |   |      |  | 
|------------------------------------------------------ | ---------------- | ------ | --------- | -------- | - | ---------------- | ------------- | ------------- |  |  | ---- |  |  | - | ---- |  | 
|                                                       |                  |        |           |          |   |                 
|                                                       |                  |        |           |          |   | Weighted Average
|                                                       |                  | Number |           | Option   |   |                 
|                                                       |                  | of     |           | Price    |   | Remaining        |               | Exercise     
|                                                       |                  | Shares |           | Range    |   | Life             |               | Price        
|                                                       |                  |        |           |          |   |                  |               |              
|Options outstanding at October 31, 1996                |                  |        | 1,453,144 |          |   |                  | $1.36  $5.00 |               |  |  | 3.6  |  |  | $ | 4.29 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Options granted  |        |           | 573,100  |   |                  |               | $7.36  $9.13 |  |  |      |  |  |   |      |  | 
|                                                       |                  |        |           |          |   |                  |               |               |  |  |      |  |  |   |      | 
|Options outstanding at October 31, 1997                |                  |        | 2,026,244 |          |   |                  | $1.36  $9.13 |               |  |  | 3.9  |  |  | $ | 5.59 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Options granted  |        |           | 382,000  |   |                  |               | $4.00  $5.00 |  |  |      |  |  |   |      |  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Warrants granted |        |           | 700,000  |   |                  |               | $3.25  $4.00 |  |  |      |  |  |   |      |  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Options canceled |        |           | (233,600 | ) |                  |               | $5.00         |  |  |      |  |  |   |      |  | 
|                                                       |                  |        |           |          |   |                  |               |               |  |  |      |  |  |   |      | 
|Options and warrants outstanding at October 31, 1998   |                  |        | 2,874,644 |          |   |                  | $1.36  $5.00 |               |  |  | 4.84 |  |  | $ | 4.08 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Options granted  |        |           | 60,000   |   |                  |               | $2.00  $4.00 |  |  |      |  |  |   |      |  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Options canceled |        |           | (724,500 | ) |                  |               | $4.00  $5.00 |  |  |      |  |  |   |      |  | 
|                                                       |                  |        |           |          |   |                  |               |               |  |  |      |  |  |   |      | 
|Options and warrants outstanding at October 31, 1999   |                  |        | 2,210,144 |          |   |                  | $1.36  $5.00 |               |  |  | 4.33 |  |  | $ | 4.01 | 
|                                                       |                  |        |           |          |   |                  |               |               |  |  |      |  |  |   |      | 
|Options available for future grant under the 1996 Plan |                  |        | 1,116,744 |          |   |                  |               |               |  |  |      |  |  |   |      | 
|                                                       |                  |        |           |          |   |                  |               |               |  |  |      |  |  |   |      | 

On September 17, 1998, the compensation committee of the
Board of Directors reduced the exercise price for options held by
 employees who were not Directors to $4.00. None of the other
terms were modified.

Nonemployee Stock-Based Compensation  A
summary of transactions for nonemployee stock options and
warrants for the years ended October 31, 1999, 1998 and 1997
 is as follows:

|                                                               |                      |        |           |           |   |                  |               |               |  |  |     |     |  |   |      |      | 
|-------------------------------------------------------------- | -------------------- | ------ | --------- | --------- | - | ---------------- | ------------- | ------------- |  |  | --- | --- |  | - | ---- | ---- | 
|                                                               |                      |        |           |           |   |                 
|                                                               |                      |        |           |           |   | Weighted Average
|                                                               |                      | Number |           | Option    |   |                 
|                                                               |                      | of     |           | Price     |   | Remaining        |               | Exercise     
|                                                               |                      | Shares |           | Range     |   | Life             |               | Price        
|                                                               |                      |        |           |           |   |                  |               |              
|Options and warrants outstanding at October 31, 1996 and
	1997 |                      |        | 658,333   |           |   |                  | $2.50  $5.00 |               |  |  | 8.0 |     |  | $ | 3.40 |     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Warrants issued      |        |           | 2,000,000 |   |                  |               | $2.00         |  |  |     | 1.8 |  |   | $    | 2.00 | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Warrants canceled    |        |           | (600,000  | ) |                  |               | $2.50  $4.00 |  |  |     |    |  |   | $    | 3.25 | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Options issued       |        |           | 33,334    |   |                  |               | $4.00         |  |  |     | 1.7 |  |   | $    | 4.00 | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Options exercised    |        |           | (8,333    | ) |                  |               | $5.00         |  |  |     |    |  |   | $    | 5.00 | 
|                                                               |                      |        |           |           |   |                  |               |               |  |  |     |     |  |   |      |     
|Options and warrants outstanding at October 31, 1998           |                      |        | 2,083,334 |           |   |                  | $2.00  $5.00 |               |  |  | 1.9 |     |  | $ | 2.10 |     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Warrants issued      |        |           | 980,000   |   |                  |               | $2.00  7.00  |  |  |     | 1.0 |  |   | $    | 2.48 | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Warrants canceled    |        |           | (250,000  | ) |                  |               | $2.00         |  |  |     |    |  |   | $    | 2.00 | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Options issued       |        |           | 386,667   |   |                  |               | $2.00  $5.00 |  |  |     | 2.2 |  |   | $    | 3.28 | 
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Options canceled     |        |           | (50,000   | ) |                  |               | $4.00         |  |  |     |    |  |   | $    | 4.00 | 
|                                                               |                      |        |           |           |   |                  |               |               |  |  |     |     |  |   |      |     
|Options and warrants outstanding at October 31, 1999           |                      |        | 3,150,001 |           |   |                  | $2.00  7.00  |               |  |  | 1.2 |     |  | $ | 2.37 |     
|                                                               |                      |        |           |           |   |                  |               |               |  |  |     |     |  |   |      |     
|As of October 31, 1999:                                        |                      |        |           |           |   |                  |               |               |  |  |     |     |  |   |      |     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Exercisable options  |        |           | 420,001   |   |                  |               |               |  |  |     |     |  |   | $    | 3.93 | 
|                                                               |                      |        |           |           |   |                  |               |               |  |  |     |     |  |   |      |     
|                                                               | Exercisable warrants |        |           | 2,730,000 |   |                  |               |               |  |  |     |     |  |   | $    | 2.13 | 
|                                                               |                      |        |           |           |   |                  |               |               |  |  |     |     |  |   |      |     

F-11



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##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

In accordance with the methodology prescribed under SFAS
No. 123, pro forma compensation cost for the employee stock
options for 1999, 1998 and 1997 was estimated to be $1,345,661,
$3,807,706 and $1,641,517, respectively.

Had the Company elected to recognize the above-mentioned
compensation cost in 1999, 1998 and 1997, loss from continuing
operations would be $6,968,805, $13,050,111 and $13,983,383,
respectively, and the basic net loss per share would be $.34,
$.70 and $.87, respectively.

In accordance with the methodology prescribed under SFAS
No. 123, the Company recognized $193,773, $175,422 and
$253,808 of compensation expense to the nonemployee stock options
 in the 1999, 1998 and 1997 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   
|     |  |           |      |            |  |        |     |         
|1999 |  |           | 5.15 | %          |  |        | 71  | %        |  |  | 3 |  |  |  | 0 | 
|    
|    
|    
|    
|1998 |  |           | 4.83 | %          |  |        | 117 | %        |  |  | 3 |  |  |  | 0 | 
|    
|    
|    
|    
|1997 |  |           | 6.18 | %          |  |        | 99  | %        |  |  | 3 |  |  |  | 0 | 

7.  Income Taxes

At October 31, 1999, the Company has net operating loss
carryforwards for federal income tax purposes of approximately
$27,212,000 which expire on various dates through 2019.

At October 31, 1999 and 1998, deferred tax assets of
approximately $10,839,000 and $10,258,000, respectively, relating
 to such potential tax benefits were fully offset by a valuation
allowance.

8.  Leases

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 $510,000, $794,000
and $242,000 for fiscal years 1999, 1998 and 1997, respectively.
Future minimum lease payments under noncancelable operating
leases at October 31, 1999 are as follows:

|      |  |   |         | 
|----- |  | - | ------- | 
|     
|     
|     
|     
|2000  |  | $ | 163,785 | 
|     
|     
|     
|     
|2001  |  |   | 169,263 | 
|     
|     
|     
|     
|2002  |  |   | 172,340 | 
|     
|     
|     
|     
|2003  |  |   | 43,085  | 
|      |  |   |         | 
|Total |  | $ | 548,473 | 
|      |  |   |         | 

The Company leases a copier under a noncancelable capital lease.
The future minimum lease payments under this noncancelable
capital lease at October 31, 1999 are as follows:

|                                                         |  |   |        | 
|-------------------------------------------------------- |  | - | ------ | 
|                                                        
|                                                        
|                                                        
|                                                        
|2000                                                     |  | $ | 9,260  | 
|                                                        
|                                                        
|                                                        
|                                                        
|2001                                                     |  |   | 2,315  | 
|                                                         |  |   |        | 
|Total future minimum lease payments                      |  |   | 11,575 | 
|                                                        
|                                                        
|                                                        
|                                                        
|Less amount representing interest at 8.75% per annum     |  |   | 651    | 
|                                                         |  |   |        | 
|Present value of net minimum lease payments              |  |   | 10,924 | 
|                                                        
|                                                        
|                                                        
|                                                        
|Less present value of current net minimum lease payments |  |   | 8,646  | 
|                                                         |  |   |        | 
|Present value of long-term net minimum lease payments    |  | $ | 2,278  | 
|                                                         |  |   |        | 

F-12



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##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

9.  Related Party

Various stockholders have provided consulting and other
administrative services to the Company. Expense for the years
ended October 31, 1999, 1998 and 1997 was approximately
$141,000, $510,000 and $358,000, respectively, and is included in
 selling, general and administrative expenses in the accompanying
 consolidated statements of operations.

Interest paid to stockholders in connection with outstanding
notes described in Note 6 was approximately $63,557 and
$45,475 for the years ended October 31, 1999 and 1998,
respectively. No interest was paid to stockholders during 1997.

10.  Acquisition of Incon Technologies, Inc.
(Unaudited)

The pro forma information presented below includes InCons
operations for the year ended October 31, 1997 and is
presented as if the InCon acquisition had been made at the
beginning of the period presented. The unaudited pro forma
consolidated financial information is not necessarily indicative
of the results of operations that actually would have occurred
had the merger occurred on that date or the future results of the
 combined operations.

|                   |  |              |             |  
|------------------ |  | ------------ | ----------- | -
|                   |  | Pro Forma   
|                   |  | Consolidated
|                   |  |             
|Net revenues       |  | $            | 6,551,135   |  
|                   |  |              |             |  
|Net loss           |  | $            | (11,204,344 | )
|                   |  |              |             |  
|Net loss per share |  | $            | (0.70       | )
|                   |  |              |             |  

11.  Investment in Joint Venture

InCon Processing is a limited liability company formed in
July 1999, in which the Company is a 50 percent member,
 as noted in Note 1. The Company accounts for this
investment using the equity method.

The following represents summarized financial information of
InCon Processing at October 31, 1999 and for the four months
 then ended since inception:

|                                              |  |   |       |  
|--------------------------------------------- |  | - | ----- | -
|(dollars in thousands)                        |  |  
|                                             
|                                             
|                                             
|                                             
|Assets                                        |  |   |       |  
|                                             
|                                             
|                                             
|                                             
|Cash and cash equivalents                     |  | $ | 436   |  
|                                             
|                                             
|                                             
|                                             
|Accounts receivable                           |  |   | 491   |  
|                                             
|                                             
|                                             
|                                             
|Property, plant and equipment and other  net |  |   | 4,750 |  
|                                              |  |   |       |  
|Total                                         |  | $ | 5,677 |  
|                                              |  |   |       |  
|Liabilities and Members Capital              |  |   |       |  
|                                             
|                                             
|                                             
|                                             
|Accounts payable and other liabilities        |  | $ | 263   |  
|                                             
|                                             
|                                             
|                                             
|Members capital                              |  |   | 5,414 |  
|                                              |  |   |       |  
|Total                                         |  | $ | 5,677 |  
|                                              |  |   |       |  
|Operations                                    |  |   |       |  
|                                             
|                                             
|                                             
|                                             
|Revenues                                      |  | $ | 1,675 |  
|                                             
|                                             
|                                             
|                                             
|Expenses                                      |  |   | 1,788 |  
|                                              |  |   |       |  
|Net loss                                      |  | $ | (113  | )
|                                              |  |   |       |  

12.  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

F-13



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##### Table of Contents



BIONUTRICS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

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 $49,000 and $130,000
during the years ended October 31, 1999 and 1998,
respectively.

13.  Selected Quarterly Financial Data (Unaudited)

Consolidated quarterly financial information for 1999 and 1998 is
 as follows:

|               |  |          |           |               |  |          |          |           |  |   |            |   |  |   |       |  
|-------------- |  | -------- | --------- | ------------- |  | -------- | -------- | --------- |  | - | ---------- | - |  | - | ----- | -
|               |  |          |           |               |  |          |          | Basic Net
|               |  |          |           |               |  | Net      |          | Earnings 
|               |  | Gross    |           | Gross         |  | Earnings |          | (Loss)   
|               |  | Revenues |           | Profit (Loss) |  | (Loss)   |          | Per Share
|               |  |          |           |               |  |          |          |          
|1999           |  |          |           |               |  |          |          |           |  |   |            |   |  |   |       |  
|              
|              
|              
|              
|First quarter  |  | $        | 1,134,817 |               |  | $        | 71,464   |           |  | $ | (1,634,988 | ) |  | $ | (0.08 | )
|              
|              
|              
|              
|Second quarter |  |          | 1,647,910 |               |  |          | 522,329  |           |  |   | (1,495,739 | ) |  |   | (0.07 | )
|              
|              
|              
|              
|Third quarter  |  |          | 836,891   |               |  |          | 190,787  |           |  |   | (1,467,222 | ) |  |   | (0.07 | )
|              
|              
|              
|              
|Fourth quarter |  |          | 70,129    |               |  |          | 12,066   |           |  |   | (1,025,195 | ) |  |   | (0.05 | )
|               |  |          |           |               |  |          |          |           |  |   |            |   |  |   |       |  
|Total          |  | $        | 3,689,747 |               |  | $        | 796,646  |           |  | $ | (5,623,144 | ) |  | $ | (0.27 | )
|               |  |          |           |               |  |          |          |           |  |   |            |   |  |   |       |  
|1998           |  |          |           |               |  |          |          |           |  |   |            |   |  |   |       |  
|              
|              
|              
|              
|First quarter  |  | $        | 1,794,942 |               |  | $        | (196,557 | )         |  | $ | (3,336,407 | ) |  | $ | (0.19 | )
|              
|              
|              
|              
|Second quarter |  |          | 1,584,660 |               |  |          | (335,887 | )         |  |   | (3,772,764 | ) |  |   | (0.21 | )
|              
|              
|              
|              
|Third quarter  |  |          | 1,767,295 |               |  |          | (269,677 | )         |  |   | (2,651,686 | ) |  |   | (0.14 | )
|              
|              
|              
|              
|Fourth quarter |  |          | 1,507,007 |               |  |          | (105,616 | )         |  |   | 518,452    |   |  |   | 0.05  |  
|               |  |          |           |               |  |          |          |           |  |   |            |   |  |   |       |  
|Total          |  | $        | 6,653,904 |               |  | $        | (907,737 | )         |  | $ | (9,242,405 | ) |  | $ | (0.49 | )
|               |  |          |           |               |  |          |          |           |  |   |            |   |  |   |       |  

*  *  *  *  *  *

F-14



---



##### Table of Contents



BIONUTRICS, INC.

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)


|                            |                                 |                   |   |                  |  |            |   |             |  |  |   |     |   |  |   |    | 
|--------------------------- | ------------------------------- | ----------------- | - | ---------------- |  | ---------- | - | ----------- |  |  | - | --- | - |  | - | -- | 
|                            |                                 |                   |   | Additions        |  |            |   |            
|                            |                                 | Balance at        |   | Charged to Costs |  |            |   | Balance at 
|Description                 |                                 | Beginning of Year |   | and Expenses     |  | Deductions |   | End of Year
|                            |                                 |                   |   |                  |  |            |   |            
|Year ended October 31, 1997 |                                 |                   |   |                  |  |            |   |             |  |  |   |     |   |  |   |   
|                           
|                           
|                           
|                           
|                            | Allowance for doubtful accounts |                   | $ | 0                |  |            | $ | 26          |  |  | $ | (3  | ) |  | $ | 23 | 
|Year ended October 31, 1998 |                                 |                   |   |                  |  |            |   |             |  |  |   |     |   |  |   |   
|                           
|                           
|                           
|                           
|                            | Allowance for doubtful accounts |                   | $ | 23               |  |            | $ | 49          |  |  | $ | 0   |   |  | $ | 72 | 
|Year ended October 31, 1999 |                                 |                   |   |                  |  |            |   |             |  |  |   |     |   |  |   |   
|                           
|                           
|                           
|                           
|                            | Allowance for doubtful accounts |                   | $ | 72               |  |            | $ | 5           |  |  | $ | (28 | ) |  | $ | 49 | 

F-15



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##### Table of Contents



[BIONUTRICS INC. LOGO]

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





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##### Table of Contents



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 20,000 shares of Common Stock and the issuance of
	180,000 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 100,000 shares of Common
	Stock between the Company and William M. McCormick dated
	August 7, 1998.(7)                                                                                                          
|        | 10.21 |             |  | Warrant Agreement for the purchase of 600,000 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 100,000 shares of Common Stock and Warrant Agreement
	 effective April 9, 1998 between The Shemano Group and the
	Company(8)



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##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                                      
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 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 30,000 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 100,000 shares of Common
	Stock between the Company and Cameron Associates Inc. dated as of
	 November 23, 1998.                                                                                                                               
|        | 21    |             |  | Subsidiaries of the Company                                                                                                                                                                                                                                                          
|        | 23.1  |             |  | Consent of Deloitte & Touche                                                                                                                                                                                                                                                         
|        | 27    |             |  | Financial Data Schedule                                                                                                                                                                                                                                                              




|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.