**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**Form 10-Q**

 

**ý****  Quarterly Report Pursuant to Section 13 or 15(d) of theSecurities ExchangeAct of 1934**

 

**Forthe quarterly period ended March 31, 2003**

 

**or**

 

**o****  Transition Report Pursuant to Section 13 or 15(d) of theSecuritiesExchange Act of 1934**

 

**Forthe transition period from                to                **

 

**CommissionFile Number: 0-12177**

 

**BIONOVA HOLDING CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                     |   | **75-2632242**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction  of incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **9255  Customhouse Plaza  San Diego, California**               |   | **92154**                             |
| (Address of  principal executive offices)                        |   | (Zip Code)                            |
|                                                             |   |                                  |
| **(609)  744-8105**                                              |
| (Registrant’s  telephone number, including area code)       |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for the past90 days.

Yes   ý  No   o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined by Rule 12b-2 of theSecurities Exchange Act of 1934, as amended).

Yes   o  No   ý

 

As of May 12, 2003, 22,905,408shares of common stock, par value $0.01 per share, of Bionova HoldingCorporation were outstanding.

 

 

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**PART I - FINANCIAL INFORMATION**

 

**Item 1.  FinancialStatements**

 

**BIONOVA HOLDING CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

**Thousands of U.S. Dollars**

**(except share and per share amounts)**

 
|                                                                                                                                                                                         |   | **March 31,  2003** |   | **December 31,  2002** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|------------------------|--------|
| ASSETS                                                                                                                                                                                       |   |                |   |                   |   |
| Current assets:                                                                                                                                                                              |   |                |   |                   |   |
| Cash and cash equivalents                                                                                                                                                                    |   | $                   | 1,901  |                   | $      | 2,130 |   |
| Accounts receivable, net                                                                                                                                                                     |   | 12,699              |   | 13,644                 |   |
| Advances to growers, net                                                                                                                                                                     |   | 2,880               |   | 3,313                  |   |
| Inventories, net                                                                                                                                                                             |   | 9,066               |   | 11,218                 |   |
| Net assets of discontinued  operations                                                                                                                                                       |   | —              |   | 1,165                  |   |
| Assets held for sale (see  Note 5)                                                                                                                                                           |   | 3,025               |   | 3,025                  |   |
| Other current assets                                                                                                                                                                         |   | 1,842               |   | 1,575                  |   |
| Total current assets                                                                                                                                                                         |   | 31,413              |   | 36,070                 |   |
| Property, plant and  equipment, net                                                                                                                                                          |   | 32,614              |   | 32,852                 |   |
| Patents and trademarks                                                                                                                                                                       |   | 1,173               |   | 1,249                  |   |
| Other assets                                                                                                                                                                                 |   | 12,238              |   | 11,828                 |   |
| Total assets                                                                                                                                                                                 |   | $                   | 77,438 |                   | $      | 80,750 |   |
|                                                                                                                                                                                         |   |                |   |                   |   |
| LIABILITIES, MINORITY  INTEREST, AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                          |   |                |   |                   |   |
| Current liabilities:                                                                                                                                                                         |   |                |   |                   |   |
| Accounts payable and  accrued expenses                                                                                                                                                       |   | $                   | 17,202 |                   | $      | 16,006 |   |
| Accounts due to related  parties                                                                                                                                                             |   | 99,429              |   | 96,857                 |   |
| Short-term bank loans                                                                                                                                                                        |   | 6,785               |   | 9,818                  |   |
| Total current liabilities                                                                                                                                                                    |   | 123,416             |   | 122,681                |   |
| Long-term liabilities with third parties                                                                                                                                                     |   | 2                   |   | —                 |   |
| Total liabilities                                                                                                                                                                            |   | 123,418             |   | 122,681                |   |
| Minority interest                                                                                                                                                                            |   | 392                 |   | 401                    |   |
| Commitments and  contingencies (see Note 8)                                                                                                                                                  |   |                |   |                   |   |
| Stockholders' equity  (deficit):                                                                                                                                                             |   |                |   |                   |   |
| Preferred stock, $0.01 par value, 5,000 shares  authorized, 200 shares issued and outstanding at March 31, 2003 and December  31, 2002, respectively, liquidation value of $10,000 per share |   | —              |   | —                 |   |
| Common stock, $0.01 par  value, 50,000,000 shares authorized, 22,905,408 and 23,588,031 shares issued  and outstanding at March 31, 2003 and December 31, 2002, respectively                 |   | 229                 |   | 229                    |   |
| Additional paid-in capital                                                                                                                                                                   |   | 171,574             |   | 171,574                |   |
| Accumulated deficit                                                                                                                                                                          |   | (217,953            | )      | (213,914               | )      |
| Accumulated other  comprehensive loss                                                                                                                                                        |   | (222                | )      | (221                   | )      |
| Total stockholders' equity  (deficit)                                                                                                                                                        |   | (46,372             | )      | (42,332                | )      |
| Total liabilities, minority  interest, and stockholders' equity (deficit)                                                                                                                    |   | $                   | 77,438 |                   | $      | 80,750 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements

 

2

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**BIONOVA HOLDING CORPORATION**

 

**UNAUDITED CONSOLIDATED STATEMENT OFOPERATIONS****ANDCOMPREHENSIVE INCOME AND LOSS**

**Thousands of U.S. Dollars**

**(except per share amounts)**

 
|                                                                     |   | **Three Months Ended  March 31,** |   |
|--------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                     |   | **2003**                          |   | **2002** |   |
|                                                                     |   |                              |   |   |   |
| Total revenues                                                           |   | $                                 | 28,094 |   | $ | 46,449 |   |
|                                                                     |   |                              |   |   |   |
| Cost of sales                                                            |   | 25,960                            |   | 39,074 |   |
| Selling and administrative expenses                                      |   | 3,212                             |   | 3,924 |   |
| Research and development expenses                                        |   | —                            |   | 829 |   |
| Amortization of goodwill, patents and trademarks                         |   | 90                                |   | 125 |   |
|                                                                     |   | 29,262                            |   | 43,952 |   |
|                                                                     |   |                              |   |   |   |
| Operating profit (loss)                                                  |   | (1,168                            | )      | 2,497 |   |
|                                                                     |   |                              |   |   |   |
| Interest expense                                                         |   | (2,427                            | )      | (2,266 | ) |
| Interest income                                                          |   | 287                               |   | 322 |   |
| Exchange gain (loss), net                                                |   | 9                                 |   | 133 |   |
| Other non-operating income (expense), net                                |   | (648                              | )      | 372 |   |
|                                                                     |   | (2,779                            | )      | (1,439 | ) |
|                                                                     |   |                              |   |   |   |
| Income before income taxes                                               |   | (3,947                            | )      | 1,058 |   |
| Income tax expense                                                       |   | 101                               |   | 193 |   |
|                                                                     |   |                              |   |   |   |
| Income (loss) before minority interest                                   |   | (4,048                            | )      | 865 |   |
| Minority interest in net income of subsidiaries, net                     |   | (9                                | )      | (88 | ) |
|                                                                     |   |                              |   |   |   |
| Net income (loss)                                                        |   | (4,039                            | )      | 777 |   |
|                                                                     |   |                              |   |   |   |
| Other comprehensive income (expense) net of tax:                         |   |                              |   |   |   |
| Foreign currency translation adjustment                                  |   | (1                                | )      | 76 |   |
|                                                                     |   |                              |   |   |   |
| Comprehensive income (loss)                                              |   | $                                 | (4,040 | ) | $ | 853 |   |
|                                                                     |   |                              |   |   |   |
| Basic earnings (loss) per common share                                   |   | $                                 | (0.18  | ) | $ | 0.03 |   |
| Diluted earnings (loss) per common share                                 |   | $                                 | (0.18  | ) | $ | 0.02 |   |
|                                                                     |   |                              |   |   |   |
| Weighted average number of common shares outstanding                     |   | 22,905,408                        |   | 23,480,408 |   |
| Weighted average number of common shares  outstanding, assuming dilution |   | 22,905,408                        |   | 46,636,524 |   |

 

The accompanying notesare an integral part of these unaudited consolidated financial statements.

 

3

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**BIONOVA HOLDING CORPORATION**

**UNAUDITED CONSOLIDATED STATEMENT OFCASH FLOWS**

**Thousands of U.S. Dollars**

 
|                                                                               |   | **Three Months Ended  March 31,** |   |
|------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                               |   | **2003**                          |   | **2002** |   |
|                                                                               |   |                              |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                               |   |                              |   |   |   |
| Net income (loss)                                                                  |   | $                                 | (4,039 | ) | $ | 777 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |   |                              |   |   |   |
| Minority interest                                                                  |   | (9                                | )      | 88 |   |
| Depreciation                                                                       |   | 614                               |   | 917 |   |
| Amortization of patents and trademarks                                             |   | 90                                |   | 125 |   |
| Other non-cash items                                                               |   | —                            |   | 518 |   |
| Other                                                                              |   | (68                               | )      | — |   |
| Net changes (exclusive of subsidiaries acquired or  divested) in:                  |   |                              |   |   |   |
| Accounts receivable and advances to growers, net                                   |   | 1,379                             |   | 3,630 |   |
| Inventories                                                                        |   | 2,152                             |   | (2,147 | ) |
| Other assets                                                                       |   | (674                              | )      | (51 | ) |
| Accounts payable and accrued expenses                                              |   | 1,112                             |   | (464 | ) |
|                                                                               |   |                              |   |   |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                          |   | 557                               |   | 3,393 |   |
|                                                                               |   |                              |   |   |   |
| CASH FLOWS USED IN INVESTING ACTIVITIES                                            |   |                              |   |   |   |
| Purchases of property, plant and equipment                                         |   | (324                              | )      | (523 | ) |
| NET CASH USED IN INVESTING ACTIVITIES                                              |   | (324                              | )      | (523 | ) |
|                                                                               |   |                              |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                               |   |                              |   |   |   |
| Net change in short-term borrowing                                                 |   | (3,033                            | )      | (1,400 | ) |
| Net change in long-term borrowing                                                  |   | —                            |   | (36 | ) |
| Accounts due to related parties                                                    |   | 2,571                             |   | (200 | ) |
|                                                                               |   |                              |   |   |   |
| NET CASH USED IN FINANCING ACTIVITIES                                              |   | (462                              | )      | (1,636 | ) |
|                                                                               |   |                              |   |   |   |
| Net increase (decrease) in cash and cash equivalents                               |   | (229                              | )      | 1,234 |   |
| Cash at beginning of period                                                        |   | 2,130                             |   | 2,463 |   |
| Cash at end of period                                                              |   | $                                 | 1,901  |   | $ | 3,697 |   |

 

The accompanyingnotes are an integral part of these unaudited consolidated financialstatements.

 

4

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**BIONOVA HOLDING CORPORATION**

 

**NOTES TO UNAUDITED CONSOLIDATEDFINANCIAL STATEMENTS**

**March 31, 2003**

 

**Note 1 – Basis of Presentation**

 

For operating andfinancial reporting purposes, Bionova Holding Corporation (together with itssubsidiaries, unless the context requires otherwise, “Bionova Holding” or the“Company”) historically has classified its business into three fundamentalareas:  (1) ***Farming***, which consists principally ofinterests in 100% Company-owned fresh produce production facilities and jointventures or contract growing arrangements with other growers; (2) ***Distribution****,*consisting principally of interests in sales and distribution companies inMexico, the United States, and Canada; and (3) ***Research and Development (or Technology),***consisting of business units focused on the development of fruits andvegetables and intellectual properties associated with these developmentefforts.  On June 30, 2002 theoperations of the Research and Development segment were shut down and theremaining assets as of January 1, 2003, which consist solely of patents andtrademarks with a valuation of $1.2 million, have been merged into the activityof the holding company which will continue to try to license and sell these assetsas opportunities become available.

 

In management’s opinion,the accompanying unaudited consolidated financial statements for BionovaHolding for the three month periods ended March 31, 2003 and 2002 have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial statements and include alladjustments (consisting only of normal recurring accruals) that the Companyconsiders necessary for a fair presentation of its financial position, resultsof operations, and cash flows for such periods.  However, the accompanying unaudited consolidated financialstatements do not contain all of the information and footnotes required bygenerally accepted accounting principles for complete financial statements.  The accompanying unaudited consolidatedfinancial statements should be read in conjunction with the Company’s auditedconsolidated financial statements and notes thereto presented in its 2002 10-Kfor the fiscal year ended December 31, 2002. Footnotes which would substantially duplicate disclosures in theCompany’s audited consolidated financial statements for the fiscal year endedDecember 31, 2002 contained in the 2002 10-K report have been omitted.  The interim consolidated financial informationcontained herein is not necessarily indicative of the results to be expectedfor any other interim period or the full fiscal year ending December 31, 2003.

 

# **GoingConcern**

 

The Company incurred anet loss of $20.4 million for the year ended December 31, 2002. The Companyalso sustained significant operating losses and operating cash flowdeficiencies from 1997 through 2002.  AtMarch 31, 2003 the Company had a negative working capital position of $92.0million.

 

Managementhas been and is continuing to address the Company’s financial condition byselling non-core assets of the fresh produce business, and by selling andlicensing its intellectual property.   The Company also must find a solution to the $99.4 million of debt plusthe interest accruing in 2003 that is due to Savia and its subsidiaries during2003.  There can be no assurance thatthese actions will result in sufficient working capital to significantlyimprove the Company’s current financial position or its results of operationsnor can there be any assurance the Company will be able to meet its obligationsin 2003 nor secure funds to take it beyond the 2003 calendar year.  This raises substantial doubt about the Company’s ability to continue as a goingconcern.

 

The unauditedconsolidated financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

 

5

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**Note 2 – Bank Debt**

 

At March 31, 2003 all ofthe Company’s $6.8 million of bank debt was associated with its fresh producebusiness.

 

In December 2002, BionovaProduce, Inc., Bionova Produce of Texas, Inc. and R.B. Packing of California,Inc., the Company’s major distributors of fresh produce in the United States,signed agreements for a new set of credit facilities with Wells Fargo BusinessCredit, Inc. (“WFBC”) which run through April 2006.  There are three separate, but related loan components associatedwith these credit facilities.  First,Bionova Produce, Inc. was extended a “permanent term loan” of $1.75 million,which will be amortized over 10 years.  Interest ischarged at the Wells Fargo prime rate of interest plus 1.5%, and interest andprincipal amortization payments are made on a monthly basis.  The second component is a “seasonal termloan” of $1.75 million, although only $1.25 million will be extended at thistime.  Interest is charged at the WellsFargo prime rate of interest plus 1.5%, and interest payments are made on amonthly basis.  The outstandingprincipal balance on the seasonal term loan is amortized each year during themonths of January through April, and may then be borrowed again in full on May1.  The third component is a $7 millionrevolving line of credit to support working capital requirements of the freshproduce business.  The revolving line ofcredit must be paid down to a maximum of $1.5 million for a 30 day periodbetween July 1 and September 30 each year. Interest on this revolving line of credit is charged at the Wells Fargoprime rate of interest plus 1.0%.  Allthree components of the credit facilities are collateralized by all of the realand intangible assets of the three U.S. distributing companies and areguaranteed by both Bionova Holding and its parent company, Savia.   The key covenants associated with these creditfacilities are that the three distributing companies as a group must maintain aminimum net worth of $8.75 million, a debt service coverage ratio of at least1.25 to 1, achieve minimum levels of quarterly earnings before taxes to beagreed between the Company and WFBC annually, and the distributing group maynot experience a net loss during any month that exceeds $0.5 million or a netloss for a two month period that exceeds $0.3 million.  Also, there are provisions in the creditagreement that permits WFBC to declare an event of default if Savia fails tocomplete the restructuring of its debt facilities with its banks.  As of the date of these financialstatements, the Company is in compliance with all of the covenants of thesefacilities with the exception of the Savia covenant.  While Savia believes it now has reached a verbal understandingwith its creditors and expects to move ahead with the correspondingdocumentation to solidify an agreement, the restructuring is not yetcomplete.  Bionova Holding recentlyreached an understanding with WFBC whereby WFBC will grant an extension periodfor Savia to complete its restructuring. Since the documentation to grant this extension is in the process ofpreparation, and because the Company has been informed verbally by WFBC that ithas incurred an event of default, the long-term component of the debt has beenclassified as a component of short-term bank loans. At March 31, 2003the principal outstanding in connection with the permanent term loan, theseasonal term loan, and the revolving line of credit was $1.7 million, $0.5million, and $1.7 million, respectively.

 

In addition to these creditfacilities Bionova Produce, Inc. has a five-year loan secured by an airplaneand is guaranteed by Savia.  The loan isfor $0.7 million and is due August 30, 2006. Principal and interest payments of approximately $15,000 are duemonthly.  The interest rate on this debtis 8.25% per annum.  As Bionova Produceis in the process of trying to sell this airplane, this asset has beenclassified as being held for sale and the debt has been reclassified as acomponent of the current portion of long-term debt.  At March 31, 2003 the principal outstanding under thisfive year loan agreement was $0.5 million.

 

On October 3, 2001 ABSA(as the Mexican designee of Bionova Produce, Inc.) entered into an agreementwith Libra Exportaciones, S.A. de C.V. (“Libra”) whereby ABSA assumed a $2.3million mortgage obligation to a Mexican financial institution in conjunctionwith certain pieces of land being transferred to ABSA.  On March 7, 2003,a new agreement was signed by Libra, the Alvarez family (the former owners ofLibra), and ABSA whereby ABSA will transfer certain pieces of land it receivedfrom Libra stemming from the October 3, 2001 agreement to the Mexican financialinstitution in exchange for a release from the $2.3 million mortgageobligation. The transfer of the land and the release of the mortgage obligationwere completed on May 13, 2003.  In thefinancial statements for both the quarter ended March 31, 2003 and the yearended December 31, 2002 the total debt obligation of $2.3 million wasclassified as a component of short-term bank loans.

 

6

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**Note 3 - Net Income or Loss per Common Share**

 

The weighted averagenumber of common shares outstanding during the three month periods ended March31, 2003 and 2002 was 22,905,408and 23,480,408, respectively.  Ona diluted basis, assuming Savia were to convert the 200 shares of preferredstock it currently holds into common, the weighted average number of commonshares outstanding during the three month periods ended March 31, 2003 and 2002would have been 46,061,524 and 46,636,524, respectively.

 

The following table setsforth the potential shares of common stock that are not included in the dilutednet loss per share attributable to common stockholders for the quarter endingMarch 31, 2003 because to do so would be anti-dilutive.

 
|                                     |   | **(Thousands  of Shares)** |   |
|------------------------------------------|--------|----------------------------|--------|
|                                     |   |                       |   |
| Effect  of dilutive securities:          |   |                       |   |
| Convertible  preferred stock outstanding |   | 23,156                     |   |
| Stock  options outstanding               |   | 215                        |   |

 

**Note 4 - Inventories**

 

Inventories werecomprised of the following:

 
|                              |   | **(Thousands  of U.S. Dollars)** |   |
|-----------------------------------|--------|----------------------------------|--------|
|                              |   | **March 31,  2003**              |   | **December  31,  2002** |   |
| Finished  produce                 |   | $                                | 727    |   | $ | 762 |   |
| Growing  crops                    |   | 1,090                            |   | 2,660 |   |
| Advances  to suppliers            |   | 1,311                            |   | 1,732 |   |
| Spare  parts and materials        |   | 958                              |   | 2,340 |   |
| Merchandise  in transit and other |   | 4,980                            |   | 3,724 |   |
|                              |   | $                                | 9,066  |   | $ | 11,218 |   |

 

**Note 5 – Assets Held for Sale**

 

Assets held for sale werecomprised of the following:

** **
|                                              |   | **(Thousands  of U.S. Dollars)** |   |
|---------------------------------------------------|--------|----------------------------------|--------|
|                                              |   | **March 31,  2003**              |   | **December  31,  2002** |   |
| Agricultural  land in Sinaloa, Mexico             |   | $                                | 322    |   | $ | 322 |   |
| Agricultural land in Guerrero, Mexico             |   | 825                              |   | 825 |   |
| Commercial  land in San Diego, California         |   | 580                              |   | 580 |   |
| Commercial  airplane held by Bionova Produce, Inc |   | 1,298                            |   | 1,298 |   |
|                                              |   | $                                | 3,025  |   | $ | 3,025 |   |

 

**Note 6 – Reclassifications**

 

Certain prior yearamounts have been reclassified to conform to the current year presentation

 

7

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**Note 7 - Segment Reporting**

 

The Company historicallyclassified its business into three fundamental areas: **Farming**, which consistsprincipally of interests in Company-owned fresh produce production facilitiesand joint ventures with other growers; **Distribution**, consisting principally ofinterests in sales and distribution companies in Mexico, the United States, andCanada; and **Research and Development**, consisting of business units focusedon the development of fruits and vegetables and intellectual properties associatedwith these development efforts.  On June30, 2002 the operations of the Research and Development segment were shut downand the remaining assets as of January 1, 2003, which consist solely of patentsand trademarks with a valuation of $1.2 million, have been merged into theactivity of the holding company which will continue to try to license and sellthese assets as opportunities become available.

 

Information pertaining tothe operations of these different business segments is set forth below. TheCompany evaluates performance based on several factors.  The most significant financial measure usedto evaluate business performance is business segment operating income.  Inter-segment sales are accounted for atfair value as if the sales were to third parties.  Segment information includes the allocation of corporate overheadto the various segments.

 
|                                  |   | **(Thousands  of U.S. Dollars)** |   |
|---------------------------------------|--------|----------------------------------|--------|
|                                  |   | **Farming**                      |   | **Distribution** |   | **Research  and  Development** |   | **Total of  Reportable  Segments** |   |
|                                  |   |                             |   |   |   |   |   |   |   |
| January  1 – March 31, 2003      |   |                             |   |   |   |   |   |   |   |
| Revenues  from unaffiliated customers |   | $                                | 4,291  |   | $ | 23,803 |   | — |   | $ | 28,094 |   |
| Inter-segment  revenues               |   | 7,445                            |   | — |   | — |   | 7,445 |   |
| Total  revenues                       |   | 11,736                           |   | 23,803 |   | — |   | 35,539 |   |
| Operating  profit (loss)              |   | (927                             | )      | 367 |   | — |   | (560 | ) |
| Depreciation  and amortization        |   | 517                              |   | 97 |   | — |   | 614 |   |
| Identifiable  assets(1)               |   | 61,542                           |   | 27,922 |   | — |   | 89,464 |   |
| Acquisition  of long-lived assets     |   | 12                               |   | 312 |   | — |   | 324 |   |
|                                  |   |                             |   |   |   |   |   |   |   |
| January  1 – March 31, 2002      |   |                             |   |   |   |   |   |   |   |
| Revenues  from unaffiliated customers |   | $                                | 4,463  |   | $ | 41,674 |   | $ | 312 |   | $ | 46,449 |   |
| Inter-segment  revenues               |   | 22,390                           |   | — |   | — |   | 22,390 |   |
| Total  revenues                       |   | 26,853                           |   | 41,674 |   | 312 |   | 68,839 |   |
| Operating  profit (loss)              |   | 1,672                            |   | 1,917 |   | (503 | ) | 3,086 |   |
| Depreciation  and amortization        |   | 772                              |   | 90 |   | 180 |   | 1,042 |   |
| Identifiable  assets(1)               |   | 69,943                           |   | 24,194 |   | 16,033 |   | 110,170 |   |
| Acquisition  of long-lived assets     |   | 495                              |   | 28 |   | — |   | 523 |   |
|                                       |        |                                  |        |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Identifiableassets for segments are defined as total assets less cash in banks, deferredincome taxes and investment in shares.

 

8

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Reconciliation of the segmentsto total consolidated amounts is set forth below:

 
|                                                      |   | **Thousands  of U.S. Dollars** |   |
|-----------------------------------------------------------|--------|--------------------------------|--------|
|                                                      |   | **January 1  – March 31** |   |
|                                                      |   | **2003**                       |   | **2002** |   |
|                                                      |   |                           |   |   |   |
| Revenues                                                  |   |                           |   |   |   |
| Revenues from unaffiliated customers                      |   | $                              | 35,539 |   | $ | 68,839 |   |
| Inter-segment revenues                                    |   | (7,445                         | )      | (22,390 | ) |
| Total revenues                                            |   | $                              | 28,094 |   | $ | 46,449 |   |
|                                                      |   |                           |   |   |   |
| Income before taxes                                       |   |                           |   |   |   |
| Total operating profit (loss) from reportable  segments   |   | $                              | (559   | ) | $ | 3,086 |   |
| Total operating loss from Bionova Holding  Corporation(1) |   | (609                           | )      | (589 | ) |
| Interest, net                                             |   | (2,140                         | )      | (1,944 | ) |
| Exchange  gain (loss), net                                |   | 9                              |   | 133 |   |
| Other  non-operating (expense) income, net                |   | (648                           | )      | 372 |   |
| Consolidated  income (loss) before taxes                  |   | $                              | (3,947 | ) | $ | 1,058 |   |
|                                                      |   |                           |   |   |   |
| Assets                                                    |   |                           |   |   |   |
| Total  segment identifiable assets                        |   | $                              | 90,713 |   | $ | 110,170 |   |
| Unallocated  and corporate assets(2)                      |   | 7,867                          |   | 3,757 |   |
| Eliminations(3)                                           |   | (21,142                        | )      | (18,244 | ) |
| Consolidated  assets                                      |   | $                              | 77,438 |   | $ | 95,683 |   |

 

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***Notes:***

(1)          Certain expenses,such as shareholder litigation, investor relations, and Board and professionalfees have not been allocated to the segments. Management determined that these types of expenses have not beenassociated with, nor did the results of these activities benefit the operatingsegments.

(2)          Includes BionovaHolding’s and segments’ cash in banks, deferred income taxes and othercorporate assets.

(3)          Consistsprincipally of inter-segment intercompany balances.

 

Revenue from external customers by product/servicecategory is set forth below:

 
|                               |   | **(Thousands  of U.S. Dollars)** |   |
|------------------------------------|--------|----------------------------------|--------|
|                               |   | **Farming**                      |   | **Distribution** |   | **Research  and  Development** |   | **Total of  Reportable  Segments** |   |
| January  1 – March 31, 2003   |   |                             |   |   |   |   |   |   |   |
| Core  vegetables(1)                |   | $                                | 1,538  |   | $ | 9,591 |   | $ | — |   | $ | 11,129 |   |
| Fruits  and other fresh produce(2) |   | 2,753                            |   | 14,212 |   | — |   | 16,965 |   |
| Contracted  R&D revenue        |   | —                           |   | — |   | — |   | — |   |
|                               |   |                             |   |   |   |   |   |   |   |
| January  1 – March 31, 2002   |   |                             |   |   |   |   |   |   |   |
| Core  vegetables(1)                |   | $                                | 3,624  |   | $ | 28,584 |   | $ | — |   | $ | 32,208 |   |
| Fruits  and other fresh produce(2) |   | 839                              |   | 13,090 |   | — |   | 13,929 |   |
| Contracted  R&D revenue        |   | —                           |   | — |   | 312 |   | 312 |   |

 

----

***Notes:***

(1)          Corevegetables include tomatoes, vine sweet mini peppers, bell peppers andcucumbers.

(2)          Fruitsand other fresh produce include papayas, mangoes, grapes, melons, watermelonsand others.

 

9

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**Note 8 – Legal Actions and Contingencies**

 

On January 7, 1999, aclass action lawsuit styled *Gordon K. Aaron et al. v. Empresas la Moderna, S.A.de C.V., et al.* was filed in the U.S. federal district court for theNorthern District of California.  OnJanuary 28, 1999, a substantially identical class action lawsuit styled *RobertKaczak v. Empresas la Moderna, S.A. de C.V., et al.* was filed in theU.S. federal district court for the Northern District of California, and thesetwo cases were then consolidated.  Theplaintiffs allege that, prior to the Merger of DNAP with a subsidiary of BionovaHolding on September 26, 1996, they owned shares of DNAP’s PreferredStock.  In connection with the Merger,all of the shares of common stock and Preferred Stock of DNAP were convertedinto the number of shares of common stock of Bionova Holding specified in theMerger Agreement.  The plaintiffs allegethat the Proxy Statement/Prospectus distributed to DNAP’s stockholders inconnection with the merger contained material misrepresentations and omitted tostate material facts.  Both DNAP andBionova Holding, as well as certain former and current directors of DNAP andBionova Holding, have been named as defendants in this matter.  The plaintiffs claim to have been damaged bythe alleged actions of the defendants and therefore the plaintiffs seekunspecified actual damages, reimbursement of their litigation costs andexpenses, and equitable relief, including rescission of the Merger.   The plaintiffs also allege that they wereentitled to receive, and seek specific performance of, special conversionprivileges under the terms of the Certificate of Designation that establishedthe Preferred Stock.  On March 8, 2000,the court dismissed nearly all of the plaintiffs’ claims, and subsequently theplaintiffs filed an amended complaint with respect to some of the dismissedclaims.  On September 19, 2000, thecourt ruled in favor of Bionova Holding and DNAP and dismissed all of theplaintiffs’ claims. The plaintiffs appealed this judgment to the U.S. Court ofAppeals for the Ninth Circuit, which heard arguments on the matter on February12, 2002.  On September 13, 2002, theNinth Circuit affirmed the dismissal of some of the claims, including all ofthe claims against DNAP, and reversed the dismissal of others.  The remaining claims have been remanded tothe trial court for further proceedings. Bionova Holding and DNAP deny any wrongdoing and liability in thismatter and intend to vigorously contest the remaining claims in this lawsuit.

 

DNAP has been named as adefendant in several lawsuits asserting claims against DNAP relating toresearch DNAP performed from 1983 through 1994 for Brown & WilliamsonTobacco Company (“B&W”).  Ingeneral, the cases allege that DNAP engaged in unfair business practices underCalifornia law and/or participated in an alleged conspiracy among cigarettemanufacturers to deceive the public regarding the hazards of smoking.  All of the pending cases are in Californiastate courts.  In December 1999, B&Wagreed to indemnify DNAP against all costs (including costs of defense and ofcosts of any judgment or settlement) incurred by DNAP in connection with thesecases and any similar cases in the future. Therefore, management no longer believes that these cases could have amaterial adverse effect on the Company’s financial condition or results ofoperations.  DNAP denies any wrongdoingor liability in these matters and intends to vigorously contest these lawsuits.

 

On June 16, 2000, alawsuit styled *Santa Cruz Empacadora, S. de R.L. de C.V., v. R.B. Packing ofCalifornia, Inc.*was filed in the United States District Court forthe Southern District of California. R.B. Packing of California, Inc., a subsidiary of Bionova Holding, hadbeen the United States distributor of fresh produce sold by the plaintiff.  The plaintiff alleges that R.B. Packing ofCalifornia, Inc. sold Santa Cruz produce to related companies at below marketprices and thereby engaged in unfair conduct, fraud and breach of statutory andfiduciary duties.  The plaintiff seeksan unspecified amount of compensatory and punitive damages.  R.B. Packing of California, Inc. denies anywrongdoing or liability in this matter and intends to vigorously contest thislawsuit.

 

On October 3, 2001 ABSA (as the Mexican designee ofBionova Produce, Inc.) entered into an agreement with Libra Exportaciones, S.A.de C.V. (“Libra”) whereby (i) ABSA or its designee would acquire all of theshares of Libra with all of its goods, rights, obligations and liens, (ii) ABSAwould pay on behalf of Libra $350,000 to a Mexican financial institution whichholds a lien on certain property held by the Alvarez family (who were theowners of Libra) , (iii) ABSA would receive title to four separate pieces ofland from the Alvarez family and (iv) ABSA would assume a $2.3 million mortgageobligation to a Mexican financial institution in conjunction with certainpieces of land being transferred to ABSA. During 2001, the Company paid and expensed $200,000 of the original$350,000 to be paid to a Mexican financial institution.  On March 7, 2003,a new agreement was signed by Libra, the Alvarez family, and ABSA

 

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whereby  (i) ABSA would make payment of the final$150,000 that was withheld on the original $350,000 that was due to a Mexicanfinancial institution in exchange for a release from the financial institutionwhich holds a lien on certain property held by the Alvarez family, (ii) ABSAwould transfer the pieces of land it received from the Alvarez family stemmingfrom the October 3, 2001 agreement to the Mexican financial institution inexchange for a release from the $2.3 million mortgage obligation, (iii) theAlvarez family would drop its claim against Bionova Produce for failure to makepayment of the $150,000 and (iv) the Alvarez family would provide ABSA anindemnity letter with regards to the stated assets and liabilities ofLibra.  During 2002, the Companyrecognized the land that was transferred to ABSA by the Alvarez family at avalue of $2.3 million, a liability for the mortgage obligation assumed in theamount of $2.3 million and a liability for $150,000 for the final payment dueon the original $350,000 due to a Mexican institution.  While the transfer of the land and therelease of the mortgage obligation were completed on May 13, 2003, thefinancial statements for the quarter ended March 31, 2003 continue to reflectthe land at a value of $2.3 million and debt obligation of $2.3 million, whichwas classified as a component of short-term bank loans.

 

On December 30,1998, Bionova Holding, through its subsidiary, VPP, acquired Monsanto Company’sstrawberry development program.  Theprogram included breeding assets and exclusive rights to certain of Monsanto’sgenetic and gene technology for berry development, and a non-exclusive right tofuture Monsanto berry technology, including strawberries, cranberries,raspberries, blackberries, boysenberries, and blueberries.  In January, 1999, VPP paid Monsanto $5.0million for those assets.  The purchasecontract stipulated that if Monsanto was able to satisfy certain conditions togrant certain additional licenses, VPP would be obligated to make payments ofan additional $7.0 million.  In 2000 VPPpaid Monsanto an additional $3.0 million when Monsanto was able to grant one ofthese licenses.  If Monsanto is able tofulfill the conditions to grant the additional licenses, then VPP would beobligated to make additional payments in an amount as great as $4.0 million inthe future.  The granting of theseadditional licenses is contingent on the conclusion of a lawsuit in whichMonsanto is involved.  The Company doesnot believe this case is likely to be decided for at least two to three years,and it is not possible to predict with any certainty whether Monsanto will winor lose the case.

 

Please see theCompany’s Form 10-K for the year ended December 31, 2002 that was filed onApril 30, 2003 for further discussion on the Company’s pending litigation andcontingencies.

 

**Note 9 –Accounting for stock-based compensation**

** **

The Companyaccounts for its stock-based compensation plans in accordance with SFAS No.123, Accounting for Stock-*Based Compensation*as amended by SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure.”  As permitted under SFAS No. 148, the Companyuses the intrinsic value-based method of Accounting Principles Board (“APB”)Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for itsemployee stock-based compensation plans. Under APB Opinion No. 25, compensation expense is based on the difference,if any, on the date of grant, between the fair value of the Company’s sharesand the exercise price of the option. Compensation cost for stock options, if any, is realized ratably overthe vesting period.

 

The Companyprovides additional proforma disclosures required by SFAS No. 123 as amended bySFAS No. 148, “Accounting for Stock-Based Compensation- Transition andDisclosure — An Amendment of SFAS No. 123”. Had compensation cost for the Company’s stock option plans beendetermined based on the fair market value of the options at the grant dates, asprescribed in SFAS No. 123, the Company’s net income (loss) and net income(loss) per share would have been as follows:

 
|                                                                                                              |   | **Thousands  of U.S. dollars (except per share data)** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                                                                              |   | **Three Months Ended**                                 |   |
|                                                                                                              |   | **March 31, 2003**                                |   | **March 31, 2002** |   |
|                                                                                                              |   |                                                   |   |   |   |
| Net income  (loss) as reported                                                                                    |   | $                                                      | (4,039 | ) | $ | 777 |   |
| Deduct: total  stock-based employee compensation expense determined under fair value based  method for all awards |   | (21                                                    | )      | (21 | ) |
| Net income  (loss) pro forma                                                                                      |   | (4,060                                                 | )      | 756 |   |
| Net income  (loss) per share:                                                                                     |   |                                                   |   |   |   |
| As  reported — basic                                                                                    |   | (0.18                                                  | )      | 0.03 |   |
| Pro forma —  basic                                                                                      |   | (0.18                                                  | )      | 0.03 |   |
| As  reported — diluted                                                                                  |   | (0.18                                                  | )      | 0.02 |   |
| Pro forma —  diluted                                                                                    |   | (0.18                                                  | )      | 0.02 |   |
|                                                                                                                   |        |                                                        |        |  |  |  |  |

 

The fair value of options granted in 1999 was estimated using theBlack-****Scholes**** model with the followingweighted average assumptions: dividend yield of 0%, expected volatility of114%, risk free interest rate of 5.2%, and an expected life of 7 years.

 

**Item 2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**The Company**

 

Bionova HoldingCorporation, a Delaware corporation (together with its subsidiaries, unless thecontext requires otherwise, “Bionova Holding” or the “Company”), was formed inJanuary 1996, and acts as a holding company for (i) Agrobionova, S.A. de C.V.,a corporation organized under the laws of the United Mexican States, of whichthe Company owns 98.6% (“ABSA”),  (ii)International Produce Holding Company, a Delaware corporation, of which theCompany owns 100% (“IPHC”), (iii) DNA Plant Technology Corporation, a Delawarecorporation, of which the Company owns 100% (“DNAP”), and (iv) VPP Corporation,a Delaware corporation, of which the Company owns 100% (“VPP”).  Approximately 79% of the outstanding commonstock of the Company has been indirectly owned by Savia, S.A. de C.V.

 

For operating andfinancial reporting purposes, the Company historically has classified itsbusiness into three fundamental areas: (1) ***Farming***,which consists principally of interests in 100% Company-owned fresh produceproduction facilities and joint ventures or contract growing arrangements withother growers; (2) ***Distribution****,*consisting principally of interests in sales and distribution companies inMexico, the United States, and Canada; and (3) ***Research and Development (or Technology),***consisting of business units focused on the development of fruits andvegetables and intellectual properties associated with these developmentefforts.  On June 30, 2002 theoperations of the Research and Development segment were shut down and the remainingassets as of January 1, 2003, which consist solely of patents and trademarkswith a valuation of $1.2 million, have been merged into the activity of theholding company which will continue to try to license and sell these assets asopportunities become available.

 

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**Results of Operations**

 

**Three Months Ended March 31, 2003 Compared to the ThreeMonths Ended March 31, 2002**

 

Consolidated totalrevenues declined to $28.1 million for the quarter ended March 31, 2003 from$46.4 million in the same quarter of 2002, consolidated gross profit (salesless cost of sales) declined to $2.1 million for the quarter ended March 31,2003 from $7.4 million in the same quarter of 2002, and the Company’sconsolidated operating profit declined to a loss of $1.2 million for thequarter ended March 31, 2003 from a profit of $2.5 million in the same quarterof 2002.

 

FARMING segment revenues,the majority of which are eliminated in consolidation, declined from $26.9million in the first quarter of 2002 to $11.7 million in the first quarter of2003.  Farming segment gross profitdeteriorated from a profit of $2.7 million in the first quarter of 2002 to aloss of $0.4 million in 2003.  Operatingprofit decreased from $1.7 million in the first quarter of 2002 to an operatingloss of $0.9 million in the first quarter of 2003.  These reductions were driven largely by the cash strains theCompany faced in the fourth quarter of 2002 because of a reduction in bankfinancing during the months of October and November.  Due to the lack of cash, the farming segment concentrated a verysignificant proportion of its available resources on the production of theCompany’s patented vine sweet mini pepper. Agrobionova, S.A. de C.V. (“ABSA”),the Company’s farming subsidiary in Mexico, subsequently experienced productionproblems caused by pest infestation which led ABSA to significantly curtail theharvest of this crop.  While theCuliacan production of the vine sweet mini pepper was much better and demand isdeveloping quickly, it was not sufficient to offset the reduction in productionof the other crops that had been sold in the prior year.  Finally, grape tomato prices were extremelylow during the first quarter of 2003, which further impacted ABSA’s sales andmargins.  Administrative expenses in thefarming segment were reduced by $0.1 million from the first quarter of 2002 tothe first quarter of 2003.

 

A relatively similarpattern was felt in the DISTRIBUTION segment of the business in the firstquarter of 2003.  Total revenues andgross profit declined from $41.7 million and $4.2 million, respectively, in thefirst quarter of 2002 to $23.8 million and $2.4 million, respectively, in thefirst quarter of 2003.  In addition tothe reduced availability of product from ABSA, the Company’s U.S. distributingcompanies lacked the financing to fund third party growers, which caused theirsales to decline (even more than the sales of ABSA) from $29.8 million in thefirst quarter of 2002 to $10.3 million in the first quarter of 2003.  The U.S distributing companies’ gross profitfollowed revenues from $2.8 million to $1.0 million in the first quarters of2002 and 2003, respectively.  The U.S.fresh produce distributing companies did offset a part of this gross profitdecline by reducing their selling and administrative expenses by $0.4 millionfrom the first quarter of 2002 to the first quarter of 2003.  Premier Fruits & Vegetables, BBL Inc.,the Company’s majority owned subsidiary in Montreal, Quebec increased itsrevenues and gross profit from $11.9 million and $1.3 million, respectively, inthe first quarter of 2002 to $13.5 million and $1.5 million, respectively, inthe first quarter of 2003.  In buildingits infrastructure for its future growth opportunities, selling andadministrative expenses of this Canadian subsidiary increased from $0.9 millionin the first quarter of 2002 to $1.1 million in the first quarter of 2003.  The combination of the U.S. and Canadiandistributors’ results led to a decline in the operating profit of theDistribution segment from $1.9 million in the first quarter of 2002 to $0.4million in the first quarter of 2003.

 

Asdiscussed previously, the Company closed down its research and developmentoperations in June 2002.  Because ofthis shut down the Company had no revenues or expenses associated with thisformer business segment in the first quarter of 2003 as compared with $0.3million of revenues and an operating loss of $0.5 million in the first quarterof 2002.

 

Corporate administrativeexpenses were unchanged from the first quarter of 2002 to the first quarter of2003 at $0.6 million while interest expense increased from $2.3 million to $2.4million between these two quarters.

 

**Capital Expenditures**

 

During the first quarter of 2003 the Company madecapital investments of $0.3 million. The great majority of the funds were spent by Premier Fruits &Vegetables, BBL Inc. in Montreal, Quebec to

 

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construct additional warehousing facilities and cold rooms to supportits projected growth requirements over the next three to five years.

 

**Liquidity and Capital Resources**

 

For the three monthsended March 31, 2003, the Company generated $0.6 million of cash from operatingactivities.  The most significant itemscontributing to this cash generation was the net loss for the Company of $4.0million, which was more than offset by (i) a $1.4 million reduction in accountsreceivable and a $2.2 million reduction in inventories, both of which areconsistent with the end of the Culiacan harvest (ii) a $1.4 million increase inaccounts payable as Bionova Holding deferred payment on much of its corporateexpense and Premier Fruits & Vegetables, BBL in Canada increased itspayables in conjunction with construction in progress, and (iii) the $0.6million add back of depreciation.

 

For the quarter endedMarch 31, 2003, the Company used $0.3 million in investing activities, all ofwhich was spent on property, plant, and equipment, as discussed above.

 

Net cash used infinancing activities in the first three months of 2002 totaled $0.5million.  Bionova Produce, Inc. paiddown $0.7 million of its seasonal term loan and $2.3 million of its revolvingline of credit, both of which were consistent with the terms of its creditfacilities.  Accounts due to relatedparties increased by $2.6 million, most of which was the continuing deferral ofinterest on the Savia debt.

 

At March 31, 2003 all ofthe Company’s $6.8 million of bank debt was associated with its fresh producebusiness.

 

In December 2002, BionovaProduce, Inc., Bionova Produce of Texas, Inc. and R.B. Packing of California,Inc., the Company’s major distributors of fresh produce in the United States,signed agreements for a new set of credit facilities with Wells Fargo BusinessCredit, Inc. (“WFBC”) which run through April 2006.  There are three separate, but related loan components associatedwith these credit facilities.  First,Bionova Produce, Inc. was extended a “permanent term loan” of $1.75 million,which will be amortized over 10 years.  Interest ischarged at the Wells Fargo prime rate of interest plus 1.5%, and interest andprincipal amortization payments are made on a monthly basis.  The second component is a “seasonal termloan” of $1.75 million, although only $1.25 million will be extended at thistime.  Interest is charged at the WellsFargo prime rate of interest plus 1.5%, and interest payments are made on amonthly basis.  The outstandingprincipal balance on the seasonal term loan is amortized each year during themonths of January through April, and may then be borrowed again in full on May1.  The third component is a $7 millionrevolving line of credit to support working capital requirements of the freshproduce business.  The revolving line ofcredit must be paid down to a maximum of $1.5 million for a 30 day periodbetween July 1 and September 30 each year. Interest on this revolving line of credit is charged at the Wells Fargoprime rate of interest plus 1.0%.  Allthree components of the credit facilities are collateralized by all of the realand intangible assets of the three U.S. distributing companies and areguaranteed by both Bionova Holding and its parent company, Savia.   The key covenants associated with thesecredit facilities are that the three distributing companies as a group mustmaintain a minimum net worth of $8.75 million, a debt service coverage ratio ofat least 1.25 to 1, achieve minimum levels of quarterly earnings before taxesto be agreed between the Company and WFBC annually, and the distributing groupmay not experience a net loss during any month that exceeds $0.5 million or anet loss for a two month period that exceeds $0.3 million.  Also, there are provisions in the creditagreement that permits WFBC to declare an event of default if Savia fails tocomplete the restructuring of its debt facilities with its banks.  As of the date of these financialstatements, the Company is in compliance with all of the covenants of thesefacilities with the exception of the Savia covenant.  While Savia believes it now has reached a verbal understandingwith its creditors and expects to move ahead with the correspondingdocumentation to solidify an agreement, the restructuring is not yetcomplete.  Bionova Holding recently reachedan understanding with WFBC whereby WFBC will grant an extension period forSavia to complete its restructuring. Since the documentation to grant this extension is in the process ofpreparation, and because the Company has been informed verbally by WFBC that ithas incurred an event of default, the long-term component of the debt has beenclassified as a component of short-term bank loans. At March 31, 2003the principal outstanding in connection with the permanent term loan, theseasonal term loan, and the revolving line of credit was $1.7 million, $0.5million, and $1.7 million, respectively.

 

13

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In addition to these credit facilitiesBionova Produce, Inc. has a five-year loan secured by an airplane and isguaranteed by Savia.  The loan is for$0.7 million and is due August 30, 2006. Principal and interest payments of approximately $15,000 are duemonthly.  The interest rate on this debtis 8.25% per annum.  As Bionova Produceis in the process of trying to sell this airplane, this asset has beenclassified as being held for sale and the debt has been reclassified as acomponent of the current portion of long-term debt. At March 31, 2003the principal outstanding under this five year loan agreement was $0.5 million.

 

On October 3, 2001 ABSA(as the Mexican designee of Bionova Produce, Inc.) entered into an agreementwith Libra Exportaciones, S.A. de C.V. (“Libra”) whereby ABSA assumed a $2.3million mortgage obligation to a Mexican financial institution (see Note 20) inconjunction with certain pieces of land being transferred to ABSA.  OnMarch 7, 2003, a new agreement was signed by Libra, the Alvarez family (theformer owners of Libra), and ABSA whereby ABSA will transfer certain pieces ofland it received from Libra stemming from the October 3, 2001 agreement to theMexican financial institution in exchange for a release from the $2.3 millionmortgage obligation. The transfer of the land and the release of the mortgageobligation were completed on May 13, 2003. In the financial statements for both the quarter ended March 31, 2003and the year ended December 31, 2002 the total debt obligation of $2.3 millionwas classified as a component of short-term bank loans.

 

At March 31, 2003 BionovaHolding and its subsidiaries were indebted to Savia and its subsidiaries (otherthan Bionova Holding) in a total amount of $99.4 million.  Of this total $20.2 million was owed by ABSAand is accruing interest at a rate of approximately 9% per annum.  Bionova Holding had debt of $74.1 million toSavia.  The Bionova Holding debtcurrently is accruing interest at a rate of approximately 12.5% per annum.  Other subsidiaries of Bionova Holding hadrelated party accounts due to Savia and its subsidiaries that accounted for thebalance of the $5.1 million.  All of theBionova Holding debt is due to be paid by December 31, 2003.  The other related party accounts due toSavia and its subsidiaries have varying maturities, most of which are due atvarious times in 2003.  At this time,Bionova Holding does not know how this indebtedness will be handled.

 

As a result of theCompany’s operating losses during the past six years and its current financialstructure, there continues to be substantial doubt about the Company’s abilityto continue as a going concern. Management has been and is continuing to address the Company’s financialcondition by selling non-core assets of the fresh produce business, and byselling and licensing its intellectual property.    The Company also must find a solution to the $99.4 million ofdebt plus the interest accruing in 2003 that is due to Savia and itssubsidiaries during 2003.  There can beno assurance that these actions will result in sufficient working capital tosignificantly improve the Company’s current financial position or its resultsof operations nor can there be any assurance the Company will be able to meetits obligations in 2003 nor secure funds to take it beyond the 2003 calendaryear.  This raises substantial doubtabout the Company’s ability to continue as a going concern.

 

The unauditedconsolidated financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

 

**Disclosure Regarding Forward-LookingStatements**

 

This report on Form 10-Q includes ‘‘forward-looking’’statements within the meaning of Section 27A of the Securities Act of 1933, andSection 21E of the Securities Exchange Act of 1934.  All statements, including without limitation statements containedin this “Management’s Discussion and Analysis of Financial Condition andResults of Operations” other than statements of historical facts included inthis Form 10-Q, including statements regarding our financial position, businessstrategy, prospects, plans and objectives of our management for futureoperations, and industry conditions, are forward-looking statements.  Although we believe that the expectationsreflected in these forward-looking statements are reasonable, we can give youno assurance that these expectations will prove to be correct.  In addition to important factors describedelsewhere in this report, the following “Risk Factors,” sometimes haveaffected, and in the future could affect, our actual results and could causethese results during 2003 and beyond, to differ materially from those expressedin any forward-looking statements made by us or on our behalf.  When we use the terms “Bionova,” “we,” “us,”and “our,” these terms refer to the Company and its subsidiaries.

 

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**RISKS RELATING TO OUR FINANCIAL CONDITION**

 

**We maynot have enough cash to maintain our operations during the upcoming months**

 

Our fresh produce business requires cash to harvestcrops that have been planted and to make advances to growers for crops to beplanted in the next season.  Our producebusiness does not have cash reserves, so it depends on continued sales revenuesand bank borrowings to generate the required cash to support these needs.  If sales revenues are below projected levelsduring the second quarter of 2003 (which might be caused by low productionvolumes, lower than forecast customer demand for the Company’s vine sweet minipepper, or low commodity prices), or if the lender to the distributioncompanies does not continue to provide financing, the produce business will nothave sufficient cash to maintain its operations.  In that event, the produce business would be required to curtailor possibly even to suspend its operations and to make other expense reductions.

 

**We may continue to sustain losses and accumulate deficits inthe future**

 

We have sustained losses in every year of ourexistence from 1996 through 2002.  As ofMarch 31, 2003 our accumulated deficit was $218.0 million.  For the year ended December 31, 2002, andthe quarter ended March 31, 2003, we had a net loss of $20.4 million and $4.0million, respectively.  The factors thatcaused these losses, including factors described in this section, may continueto limit our ability to make a profit in the future.

 

**We will need additional financing to achieve our growthobjectives, which could hurt our financial condition**

 

We will need additional capital to meet our growthobjectives and working capital requirements. Our projected cash flows from operations and existing capital resources,including our existing credit lines, may not be sufficient.  Therefore, our ability to pursue theseobjectives may depend on our ability to obtain additional capital, which couldcause us to incur additional debt or issue additional equity securities.  We cannot assure you that additional capitalwill be available on satisfactory terms, if at all, and, as a result, we may berestricted in our pursuit of future growth strategies.

 

**Our leveraged position could cause us to be unable to meetour capital needs, which could hurt our financial condition**

 

At March 31, 2003 we had a working capital deficit of$92.0 million and a stockholders deficit of $46.4 million.  We had $6.8 million of debt with banks and$99.4 million of debt with Savia and Savia’s subsidiaries.  This level of indebtedness may posesubstantial risks to our company and to our stockholders, including thepossibility that we may not generate sufficient cash flow to pay ouroutstanding debts.  Our level ofindebtedness may also adversely affect our ability to incur additionalindebtedness and finance our future operations and capital needs, which maylimit our ability to pursue other business opportunities.

 

**If we do not meet our debt covenants, we may not havesufficient funds to continue operations**

 

Our U.S. distributingcompanies hold bank debt which require that they achieve certain levels offinancial performance and that Savia complete the restructuring of its bankdebt by March 31, 2003.  Any failure tomeet these covenants could result in an event of default and the calling in ofthese loan facilities.  If such an eventwere to occur, it would significantly affect the current and future operationsand financial performance of the Company and possibly even require that we shutdown all operations.  At March 31, 2003Savia had not yet completed its restructuring, though it believes ithas reached a verbal understanding with its creditors and expects to move aheadwith the corresponding documentation to solidify an agreement.  Bionova Holding recently reached anunderstanding with Wells Fargo Business Credit, Inc. whereby the bank hasagreed to grant an extension period for Savia to complete itsrestructuring.  If Savia does notcomplete this restructuring within whatever new time frame is agreed, BionovaHolding could find itself again with an event of default.

 

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**RISKS RELATING TO OUR FARMING AND DISTRIBUTION BUSINESS**

 

**Bad weather and crop disease can affect the amount of producewe can grow, which can decrease our revenues and profitability**

 

Weather conditions greatly affect the amount of freshproduce we bring to market, and, accordingly, the prices we receive for ourproduce.  Storms, frosts, droughts, andparticularly floods, can destroy a crop and less severe weather conditions,such as excess precipitation, cold weather and heat, can kill or damagesignificant portions of a crop.  Cropdisease and pestilence can be unpredictable and can have a devastating effecton our crops, rendering them unsalable and resulting in the loss of all or aportion of the crop for that harvest season. Even when only a portion of our crops are damaged, the profits we couldhave made on the crop will be severely affected because the costs to plant andcultivate the entire crop will have been incurred although we may experiencelow yields or may only be able to sell a portion of our crop.

 

**Labor shortages and union activity can affect our ability tohire workers to harvest and distribute our crops, which can hurt our financialcondition**

 

The production of fresh produce is heavily dependentupon the availability of a large labor force to harvest crops.  The turnover rate among the labor force ishigh due to the strenuous work, long hours, necessary relocation and relativelylow pay.  If it becomes necessary to paymore to attract labor to farm work, our labor costs will increase.

 

The Mexican farm work force retained by ABSA isunionized.  If the union attempts todisrupt production and is successful on a large scale, labor costs will likelyincrease and work stoppages may be encountered, which would be particularlydamaging in our industry where harvesting crops at peak times and getting themto market on a timely basis is critical. The majority of fresh produce is shipped by truck.  In the United States and in Mexico, thetrucking industry is largely unionized and therefore susceptible to labordisturbances.  As a result, deliverydelays caused by labor disturbances in the trucking industry or any otherreason could limit our ability to get fresh produce to market before it spoils.

 

**ABSA’s reliance on leases and production associations couldresult in increased costs, which could adversely affect our financial results**

 

ABSA relies onagricultural land leased from others, production associations with othergrowers, and contract production with third party growers for a large part ofits supply.  The average term of theland leases is two years and we expect to renew most of these land leases asthey expire.  If the other parties tothese leases were to choose not to renew their agreements with ABSA, ABSA wouldbe required to locate alternate sources of supply and/or land or, in somecases, to pay increased rents for land. In addition to increased rental rates, increases in land costs couldresult from increases in water charges, property taxes and relatedexpenses.  Production associations andcontract production with third party growers are generally arranged three tosix months prior to each growing season. The provisions of the contracts with these growers may change from yearto year, which can affect the amount of supply, the prices of the produce, andthe cost and profit sharing arrangements among the parties.  If these other growers choose not to renewtheir contracts, ABSA would be required to locate alternate sources of supply,which may or may not be available.

 

**Legal limitations could affect our ownership of rural land inMexico, which could decrease our supply of produce causing a decrease in ourrevenues and profitability**

 

ABSA owns a substantial amount of rural land inMexico, which it uses to grow fresh fruits and vegetables.  Historically, the ownership of rural land inMexico has been subject to legal limitations and claims by residents of ruralcommunities, which in some cases could lead to the owner being forced tosurrender its land.  ABSA has beeninvolved in land dispute proceedings as part of its ordinary course ofbusiness.  ABSA has never lost any moneyin these land disputes, but if ABSA were ever required to surrender any of itsland, the volume of fresh fruits and vegetables it produces would decline andadversely affect our profitability.

 

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**RISKS RELATING TO OUR INTERNATIONAL OPERATIONS**

 

**Currency fluctuations and inflation can increase the cost ofour products in the United States and abroad, which decreases our revenues andprofitability**

 

While currency exchange rates in Mexico have beenrelatively stable over the past three years, previous history has shown thatthese rates can be highly volatile.  Forexample, in December 1994, the Mexican government announced its intention tofloat the Mexican peso against the United States dollar and, as a result, thepeso devalued over 40% relative to the dollar during that month.  Exchange rate fluctuations impact oursubsidiaries’ businesses.  If the valueof the peso decreases relative to the value of the dollar, then (i) imports ofproduce into Mexico for distribution become more expensive in peso terms and thereforemore difficult to sell in the Mexican market; and (ii) inflation that generallyaccompanies reductions in the value of the peso reduces the purchasing power ofMexican consumers, which reduces the demand for all products including produceand, in particular, imported, branded or other premium-quality produce.  Conversely, if the value of the pesoincreases relative to the value of the dollar, Mexican production costsincrease in dollar terms, which results in lower margins or higher prices withrespect to produce grown in Mexico and sold in the United States and Canada.

 

**Volatile interest rates in Mexico can increase our capitalcosts**

 

Historically, interest rates in Mexico have beenvolatile, particularly in times of economic unrest and uncertainty.  High interest rates restrict theavailability and raise the cost of capital for our Mexican subsidiaries and forgrowers and other Mexican parties with whom we do business, both for borrowingsdenominated in pesos and for borrowings denominated in dollars.  Costs of operations for our Mexicansubsidiaries are higher as a result.

 

**Trade disputes between the United States and Mexico canresult in tariffs, quotas and bans on imports, including our products, whichcan hurt our financial condition**

 

Despite the enactment of the North American Free TradeAgreement, Mexico and the United States from time to time are involved in tradedisputes.  The United States has, onoccasion, imposed tariffs, quotas, and importation bans on products produced inMexico.  U.S. tomato growers havebrought dumping claims against Mexican tomato growers and may do so again.  Because some of our subsidiaries produceproducts in Mexico, which we sell in the United States, such actions, if taken,could adversely affect our business.

 

**GENERAL BUSINESS RISKS**

 

**Savia and Ag-Biotech Capital, LLC have substantial controlover the Company and can affect virtually all decisions made by itsstockholders and directors**

 

Ag-Biotech Capital, LLC beneficially owns 18,076,839shares of our common stock accounting for 78.9% of all outstanding shares.  As a result, Ag-Biotech Capital, LLC has therequisite voting power to significantly affect virtually all decisions made bythe Company and its stockholders, including the power to elect all directorsand to block corporate actions such as an amendment to most provisions of theCompany’s certificate of incorporation. This ownership and management structure will inhibit the taking of anyaction by the Company that is not acceptable to Ag-Biotech Capital, LLC.

 

**We may incur significant liability as a result of stockholderlawsuits**

 

The Company and itssubsidiary, DNA Plant Technology Corporation, have been sued in severallawsuits relating to the 1996 merger transaction (the “Merger”) in which DNAPbecame a subsidiary of the Company.  Inthose lawsuits, the former preferred stockholders of DNAP alleged they shouldhave received much more consideration for their shares in the Merger than theydid.  One of these cases is stillpending.  If the Company is ultimatelyfound to be liable in this case, the value of the potential judgment could befar more than the Company could afford to pay.

 

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**We may not be able to adapt our management informationsystems and controls to keep pace with our future business strategy, whichcould hurt our financial condition**

 

The realization of our business strategy depends on,among other things, our ability to adapt management information systems andcontrols and to hire, train and retain qualified employees to allow theseoperations to be effectively managed. The geographic separation of our subsidiaries’ operations exacerbatesthese issues.

 

**We arenot in compliance with the listing standards of the American Stock Exchange**

 

Our common stock is listed on the American StockExchange.  On September 9, 2002, theAmerican Stock Exchange advised us of its intent to file an application todelist our common stock from the Exchange. We have submitted a plan to the Exchange to come back into compliance byJune 30, 2003, which the Exchange has accepted.  However, our listing is being continually subjected to thisextension and is still under review by the Exchange staff.  Failure to make progress consistent with theplan or to regain compliance with the continued listing standards could resultin the Company being delisted from the Exchange.

 

All subsequent writtenand oral forward-looking statements attributable to the Company or personsacting on its behalf are expressly qualified in their entirety by thecautionary statements disclosed in this section and otherwise in this report.

 

**ITEM 3.  Quantitativeand Qualitative Disclosures about Market Risk**

 

**Interest Rate Risk**

 

The table below providesinformation about the Company’s derivative financial instruments consistingprimarily of debt obligations that are sensitive to changes in interestrates.  For debt obligations, the tablepresents principal cash flows and related weighted average interest rates by expected(contractual) maturity dates.  Notionalamounts are used to calculate the contractual payments to be exchanged underthe contracts.  Weighted averagevariable rates are based on implied forward rates in the yield curve on March31, 2003.  The information is presentedin U.S. dollar equivalents, which is the Company’s reporting currency.  The instrument’s actual cash flows aredenominated in both U.S. dollars and Mexican pesos, and are indicatedaccordingly in the table below.

 
|                                           |   | **2003** |   | **2004** |   | **2005** |   | **2006** |   | **2007** |   | **Total** |   | **Fair  Value** |   |
|------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-----------|--------|-----------------|--------|
| Short-term  debt: ($US equivalent in millions) |   |     |   |     |   |     |   |     |   |     |   |      |   |            |   |
| U.S.  dollar variable rate                     |   | $        | 4.5    |     | — |     | — |     | — |     | — |      | $      | 4.5             |   | $ | 4.5 |   |
| Average  interest rate                         |   | 6        | %      |     |   |     |   |     |   |     |   | 6         | %      | 6               | %      |
| Peso  variable rate (in $US)                   |   | 2.3      |   | —   |   | —   |   | —   |   | —   |   | 2.3       |   | 2.3             |   |
| Long-term  debt:                               |   |     |   |     |   |     |   |     |   |     |   |      |   |            |   |
| U.S.  dollar fixed rate                        |   | —   |   | —   |   | —   |   | —   |   | —   |   | —    |   | —          |   |
| Average  interest rate                         |   |     |   |     |   |     |   |     |   |     |   |      |   |            |   |
| U.S.  dollar variable rate                     |   | —   |   | —   |   | —   |   | —   |   | —   |   | —    |   | —          |   |
|                                                |        |          |        |          |        |          |        |          |        |          |        |           |        |                 |        |  |  |  |

 

The Company tries to usethe most cost-effective means to fund its operating and capital needs.  Fixed or variable debt will be borrowed inboth U.S. dollars and Mexican pesos. The Company borrows Mexican pesos to provide for its working capitalneeds in its Mexican operations.  Tominimize exchange risk associated with the importation of products, the Companywill enter into forward exchange contracts where the functional currency to beused in the transaction is dollars.

 

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**Exchange Rate Risk**

 

At March 31, 2003 the Company did not hold anyfinancial instruments subject to exchange rate risk.

 

The Company is exposed toU.S. dollar-to-Mexican peso currency exchange risk due to revenues and costsdenominated in Mexican pesos associated with its Mexican subsidiary, ABSA.  The Company expects it will continue to beexposed to currency exchange risks in the future.

 

**Commodity Price Risk**

 

The table below providesinformation about the Company’s fresh produce growing crops inventory and fixedprice contracts that are sensitive to changes in commodity prices.  For inventory, the table presents thecarrying amount and fair value at December 31, 2002.  For the fixed price contracts, the table presents the notionalamounts in Boxes, the weighted average contract prices, and the total dollarcontract amount by expected maturity dates, the latest of which occurs withinone year from the reporting date. Contract amounts are used to calculate the contractual payments andquantity of fresh produce to be exchanged under futures contracts.

 

**AtDecember 31, 2002**

 
|                                                        |   | **Carrying  Amount** |   | **Fair  Value** |   |
|-------------------------------------------------------------|--------|----------------------|--------|-----------------|--------|
|                                                        |   |                 |   |            |   |
| On-balance  sheet commodity position:                       |   | $                    | 1.870  |            | $      | 1.870 |   |
| Fresh  produce crops in process inventory ($US in millions) |   |                 |   |            |   |
|                                                        |   |                 |   |            |   |
| Fixed  price contracts:                                     |   |                 |   |            |   |
| Contract  volumes  (456,000 boxes)                     |   |                 |   |            |   |
| Weighted  average unit price                                |   | $                    | 20.21  |            | $      | 20.21 |   |
| Contract  amount ($US in millions)                          |   | $                    | 9.216  |            | $      | 9.216 |   |

 

In order to manage theexposure to commodity price sensitivity associated with fresh produce products,the Company enters into fixed price contracts with certain customers whichguarantee specified volumes for the growing season or the year at a fixedprice.

 

**ITEM 4.   Controls andProcedures**

 

*(a)**       Evaluationof disclosure controls and procedures*

 

Under the supervision andwith the participation of our management, including our principal executiveofficer, we conducted an evaluation of our “disclosure controls and procedures”(as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934) within90 days of the filing date of this report. Based on this evaluation, our chiefexecutive officer and chief financial officer concluded that our disclosurecontrols and procedures need improvement. (See Item 4(b) below.)

 

(b)         *Changes ininternal controls*

 

In connection with thepreparation of the Company’s consolidated financial statements as of and forthe year ended December 31, 2002, and based on a more recent review in thepreparation of the Company’s consolidated financial statements for the quarterended March 31, 2003, management in conjunction with our independentaccountants identified certain deficiencies in the Company’s internal controlprocedures that would be deemed to be a material weakness under standardsestablished by the

 

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American Institute of CertifiedPublic Accountants.  The deficienciesrelate to (i) the Company’s accounting and financial reporting infrastructurefor collecting, analyzing, and consolidating information to prepare theconsolidated financial statements for the Company (ii) issues associated withtimely and consistent reconciliation of the Company’s and its subsidiaries’bank accounts, inventories, and intercompany accounts, (iii) the timely andcomplete revelation of material contracts entered into by subsidiaries of theCompany, and (iv) the impact of  theresignations of certain accounting personnel during the past year on thehistorical knowledge and understanding of accounting and consolidationinformation.  These matters have beendiscussed with our independent accountants and with the Audit Committee of theBoard of Directors of the Company.  Toaddress these weaknesses, the Company plans to (i) develop a new set ofconsolidating systems and procedures for financial statement preparation by theend of the third quarter of 2003, (ii) reinforce the procedures already inplace requiring reconciliation of all accounts and review these reconciliationsin conjunction with its independent accountants during the quarterly reviews ofthe Company’s consolidated financial statements, (iii) hold regular meetingswith officers of subsidiary companies to update and review all contracts beingentered into and reinforce the requirement of the Company to immediately informthe Chief Executive Officer and the Chief Financial Officer of such contracts,and (iv) develop a documented, historical data base for financial informationby December 31, 2003 so the critical accounting and financial information isindependent of the memory of specific individuals developing and preparing suchinformation.

 

**PART II – OTHER INFORMATION**

 

**Item 3.  Defaults Upon Senior Securities**

 

As described in Note 2 to the Company’s financialstatements contained in this report, the Company’s distribution subsidiariesBionova Produce, Inc., Bionova Produce of Texas, Inc. and R.B. Packing ofCalifornia, Inc., are borrowers under several loan agreements with WFBC.  On March 31, 2003, a non-payment defaultoccurred under the Credit and Security Agreement with WFBC dated December 5,2002.  More specifically, the borrowerswere not in compliance with the provisions of that agreement which provide thata “Default” occurs (i) if Savia fails to extend the term of or refinance itsdebt by March 31, 2003 or (ii) if Savia’s debt ever comes due.  The Company and WFBC are currently preparingan amendment to the Credit and Security Agreement under which WFBC would waivethese defaults on the condition that Savia then works out some otherarrangement with its lenders that is acceptable to WFBC .  However, the amendment (and WFBC’s waiver ofthe defaults) will not be effective until its final terms are agreed to by theCompany, Savia, the borrowers and WFBC and all parties sign the amendment.

 

**Item5.  Other Information**

 

**Controlling Stockholder; Conflicts of Interest**

 

Approximately 78.9% ofthe outstanding shares of common stock of the Company are owned of record byAg-Biotech Capital LLC, a wholly-owned subsidiary of Savia.  Therefore, Savia has the power to elect amajority of the Company’s board of directors and to determine the outcome ofany action requiring the approval of the holders of the Company’s common stock.This ownership and management structure will inhibit the taking of any actionby the Company which is not acceptable to the controlling stockholder.

 

Certain of the Company’sdirectors and executive officers are also currently serving as board members orexecutive officers of Savia or companies related to Savia, and it is expectedthat each will continue to do so. Such management interrelationships andintercorporate relationships may lead to possible conflicts of interest.

 

The Company and otherentities that may be deemed to be controlled by or affiliated with Saviasometimes engage in (i) intercorporate transactions such as guarantees,management and expense sharing arrangements, shared fee arrangements, jointventures, partnerships, loans, options, advances of funds on open account andsales, leases and exchanges of assets, including securities issued by bothrelated and unrelated parties and (ii) common investment and acquisitionstrategies, business combinations, reorganizations, recapitalizations,securities repurchases and purchases and sales (and other acquisitions anddispositions) of subsidiaries, divisions or other business units, whichtransactions have involved both related and unrelated parties. The Companycontinuously considers, reviews and evaluates, and understands that Savia andrelated entities consider, review and evaluate, transactions of the typedescribed above. Depending upon the business, tax and other objectives thenrelevant, it is possible that the Company might be a party to one or more ofsuch transactions in the future in addition to those currently in force.  In connection with these activities theCompany might consider issuing additional equity securities or incurringadditional indebtedness.  The Company’sacquisition activities may in the future include participation in theacquisition or restructuring activities conducted by other companies that maybe deemed to be controlled by Savia.

 

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**Item 6. Exhibits and Reports on Form 8-K**

 

(a)  Exhibits

 

3.1                 Certificate of  Incorporation of the Company(filed as an exhibit to the Company’s Registration Statement  on Form  S-4 (No.  333-09975) and incorporated herein byreference).

 

3.2                 Certificate of  Amendment to the Certificateof Incorporation of the Company effective September 26, 1996 (filed as anexhibit to the Company’s quarterly report on Form 10-Q for the quarterly periodended  June 30, 1996 and incorporatedherein by reference).

 

3.3                 Certificate of Amendment to the Certificate ofIncorporation of the Company effective April 28, 1999 (filed as an exhibit tothe Company’s Quarterly report on Form 10-Q for the quarterly period endedMarch 31, 1999 and incorporated herein by reference).

 

3.4                 Bylaws of the Company (filed as an exhibit to theCompany’s annual report on Form 10-K for the year ended December 31, 1998 andincorporated herein by reference).

 

4.1                 Certificate ofDesignations for Series A Convertible Preferred Stock (filed as an exhibit tothe Company’s current report on Form 8-K filed on January 12, 2001 andincorporated herein by reference).

 

(b)  Reports on Form 8-K

 

The Company didnot file any reports on Form 8-K during the first quarter of 2003.

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   | BIONOVA HOLDING  CORPORATION |   |
|--------|------------------------------|--------|
|   |                         |   |
|   |                         |   |
|   | Date:  May 19, 2003     | By:    | /s/ JOSE MANUEL GARCIA |
|   |                         |   | Jose Manuel  Garcia |
|   |                         |   | Chief Executive  Officer |

 

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**CertificationPursuant toRules 13a-14 and 15d-14 under the Securities Exchange Act of 1934**

 

I, Jose Manuel Garica,certify that:

 

1.               Ihave reviewed this quarterly report on Form 10-Q of Bionova HoldingCorporation;

 

2.               Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.               Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.               Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a.                                       designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

b.                                      evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

c.                                       presentedin this quarterly report our conclusions and about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.               Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a.                                       allsignificant deficiencies in the design or operation of internal controls, whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b.                                      anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.               Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 

Date: May 19, 2003

 

 
|   | /s/ JOSE MANUEL GARCIA   |
|--------|--------------------------|
|   | Jose Manuel  Garcia      |
|   | Chief Executive  Officer |

 

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**CertificationPursuant toRules 13a-14 and 15d-14 under the Securities Exchange Act of 1934**

 

I, Arthur H. Finnel,certify that:

 

1.               Ihave reviewed this quarterly report on Form 10-Q of Bionova HoldingCorporation;

 

2.               Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.               Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.               Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a.                                       designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

b.                                      evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

c.                                       presentedin this quarterly report our conclusions and about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.               Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a.                                       allsignificant deficiencies in the design or operation of internal controls, whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b.                                      anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.               Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 

Date: May 19, 2003

 

 
|   | /s/  ARTHUR H. FINNEL |
|--------|----------------------------|
|   | Arthur H. Finnel           |
|   | Chief Financial  Officer   |

 

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CERTIFICATIONPURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002(18 U.S.C. SECTION 1350)

 

In connection with the accompanying Quarterly Reportof Bionova Holding Corporation (the “Company”) on Form 10-Q for the periodended March 31, 2003 (the “Report”), I, Jose Manuel Garcia, Chief ExecutiveOfficer of the Company, hereby certify that to my knowledge:

 

(1)                                  TheReport fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

 

(2)                                  Theinformation contained in the Report fairly presents, in all material respects,the financial condition and results of operations of the Company.

 

 

Dated:  May 19, 2003

 

 
|   | /s/ JOSE MANUEL GARCIA   |
|--------|--------------------------|
|   | Jose Manuel  Garcia      |
|   | Chief Executive  Officer |

 

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CERTIFICATIONPURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002(18 U.S.C. SECTION 1350)

 

In connection with the accompanying Quarterly Reportof Bionova Holding Corporation (the “Company”) on Form 10-Q for the periodended March 31, 2003 (the “Report”), I, Arthur H. Finnel, Chief FinancialOfficer of the Company, hereby certify that to my knowledge:

 

(1)                                  TheReport fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

 

(2)                                  Theinformation contained in the Report fairly presents, in all material respects,the financial condition and results of operations of the Company.

 

 
| Dated:  May 19, 2003 | /S/  ARTHUR H. FINNEL |   |
|---------------------------|----------------------------|--------|
|                      | Arthur  H. Finnel          |   |
|                      | Chief  Financial Officer   |   |

 

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**INDEX TO EXHIBITS**

 

(a)  Exhibits

 

3.1                 Certificate of Incorporation of the Company(filed as an exhibit to the Company’s Registration Statement  on Form  S-4 (No.  333-09975) and incorporated herein byreference).

 

3.2                 Certificate of Amendment to the Certificate ofIncorporation of the Company effective September 26,  1996 (filed  as an exhibitto the Company’s quarterly report on Form 10-Q for the quarterly period endedJune 30, 1996 and incorporated herein by reference).

 

3.3                 Certificate of Amendment to the Certificate ofIncorporation of the Company effective April 28, 1999 (filed as an exhibit tothe Company’s Quarterly report on Form 10-Q for the quarterly period endedMarch 31, 1999 and incorporated herein by reference).

 

3.4                 Bylaws of the Company (filed as an exhibit to theCompany’s annual report on Form 10-K for the year ended December 31, 1998 andincorporated herein by reference)

 

4.1                 Certificate ofDesignations for Series A Convertible Preferred Stock (filed as an exhibit tothe Company’s current report on Form 8-K filed on January 12, 2001 andincorporated herein by reference).

 

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