**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-Q**

 

**ý****                                ****QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934**

 

**For the quarterly period endedSeptember 30, 2003**

 

**or**

 

**o****                                ****TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934**

 

**For the transition periodfrom         to         **

 

**Commission File Number: 0-12177**

 

**BIONOVAHOLDING CORPORATION**

(Exact name of registrant 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, Suite I  San Diego, California**     |   | **92154**                            |
| (Address of principal executive offices)                        |   | (Zip Code)                           |
|                                                            |
| **(609) 744-8105**                                              |
| (Registrant’s telephone number, including area code)       |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.

Yes  ý    No  o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of1934, as amended).

Yes  o    No  ý

 

As ofNovember 28, 2003, 23,012,753 shares of common stock, par value$0.01 per share, of Bionova Holding Corporation were outstanding.

 

 

----

 

**PART I -FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**BIONOVAHOLDING CORPORATIONCONSOLIDATED BALANCE SHEETS**

**Thousandsof U.S. Dollars**

**(exceptshare and per share amounts)**

 
|                                                                                                                                                                                                    |   | **September 30,  2003** |   | **December 31,  2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|-----------------------------|--------|
| ASSETS:                                                                                                                                                                                                 |   |                         |   |                        |   |
| Current assets:                                                                                                                                                                                         |   |                         |   |                        |   |
| Cash and cash equivalents                                                                                                                                                                               |   | $                            | 5,482  |                        | $      | 2,130 |   |
| Accounts receivable, net                                                                                                                                                                                |   | 14,501                       |   | 13,644                      |   |
| Advances to growers, net                                                                                                                                                                                |   | 2,963                        |   | 3,313                       |   |
| Net assets of discontinued  operations                                                                                                                                                                  |   | —                       |   | 1,165                       |   |
| Inventories, net                                                                                                                                                                                        |   | 9,710                        |   | 11,218                      |   |
| Assets held for sale (see  Note 5)                                                                                                                                                                      |   | 1,147                        |   | 1,727                       |   |
| Other current assets                                                                                                                                                                                    |   | 1,364                        |   | 1,575                       |   |
| Total current assets                                                                                                                                                                                    |   | 35,167                       |   | 34,772                      |   |
| Property, plant and  equipment, net                                                                                                                                                                     |   | 30,737                       |   | 34,150                      |   |
| Patents and trademarks                                                                                                                                                                                  |   | 1,021                        |   | —                      |   |
| Other assets                                                                                                                                                                                            |   | 10,678                       |   | 11,828                      |   |
| Total assets                                                                                                                                                                                            |   | $                            | 77,603 |                        | $      | 80,750 |   |
|                                                                                                                                                                                                    |   |                         |   |                        |   |
| LIABILITIES, MINORITY  INTEREST, AND STOCKHOLDERS’EQUITY (DEFICIT)                                                                                                                                 |   |                         |   |                        |   |
| Current liabilities:                                                                                                                                                                                    |   |                         |   |                        |   |
| Accounts payable and  accrued expenses                                                                                                                                                                  |   | $                            | 19,452 |                        | $      | 16,006 |   |
| Accounts due to related  parties                                                                                                                                                                        |   | 101,480                      |   | 96,857                      |   |
| Short-term bank loans                                                                                                                                                                                   |   | 1,928                        |   | 9,818                       |   |
| Total current liabilities                                                                                                                                                                               |   | 122,860                      |   | 122,681                     |   |
| Long-term liabilities with  third parties                                                                                                                                                               |   | 974                          |   | —                      |   |
| Total liabilities                                                                                                                                                                                       |   | 123,834                      |   | 122,681                     |   |
| Minority interest                                                                                                                                                                                       |   | 589                          |   | 401                         |   |
| Commitments and  contingencies (see Note 8 and Note 13)                                                                                                                                                 |   |                         |   |                        |   |
| Stockholders’ equity  (deficit):                                                                                                                                                                   |   |                         |   |                        |   |
| Preferred stock, $0.01 par  value, 5,000 shares authorized, 200 shares issued and outstanding at both  September 30, 2003 and December 31, 2002, liquidation value of  $10,000 per share |   | —                       |   | —                      |   |
| Common stock, $0.01 par  value, 50,000,000 shares authorized, 23,012,753 shares outstanding at  September 30, 2003 and December 31, 2002                                                      |   | 230                          |   | 230                         |   |
| Additional paid-in capital                                                                                                                                                                              |   | 171,573                      |   | 171,573                     |   |
| Accumulated deficit                                                                                                                                                                                     |   | (218,495                     | )      | (213,914                    | )      |
| Accumulated other  comprehensive loss                                                                                                                                                                   |   | (128                         | )      | (221                        | )      |
| Total stockholders’ deficit                                                                                                                                                                        |   | (46,820                      | )      | (42,332                     | )      |
| Total liabilities, minority  interest, and stockholders’ deficit.                                                                                                                                  |   | $                            | 77,603 |                        | $      | 80,750 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements

 

2

----

 

**BIONOVAHOLDING CORPORATION**

 

**UNAUDITEDCONSOLIDATED STATEMENT OF OPERATIONSAND COMPREHENSIVE INCOME AND LOSS**

**Thousandsof U.S. Dollars**

**(exceptshare and per share amounts)**

 
|                                                               |   | **Three Months Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|--------------------------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|--------|
|                                                               |   | **2003**                                   |   | **2002**                                  |   | **2003** |   | **2002** |   |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Total revenues                                                     |   | $                                          | 19,489 |                                      | $      | 17,697 |   | $ | 75,883 |   | $ | 106,031 |   |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Cost of sales                                                      |   | 18,581                                     |   | 18,205                                    |   | 69,490 |   | 100,240 |   |
| Selling and administrative expenses                                |   | 4,056                                      |   | 3,777                                     |   | 10,451 |   | 11,510 |   |
| Amortization of patents and trademarks                             |   | 76                                         |   | —                                    |   | 228 |   | — |   |
|                                                               |   | 22,713                                     |   | 21,982                                    |   | 80,169 |   | 111,750 |   |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Operating loss                                                     |   | (3,224                                     | )      | (4,285                                    | )      | (4,286 | ) | (5,719 | ) |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Interest expense                                                   |   | (2,303                                     | )      | (2,314                                    | )      | (7,050 | ) | (7,007 | ) |
| Interest income                                                    |   | (88                                        | )      | 382                                       |   | 889 |   | 1,003 |   |
| Exchange gain (loss), net                                          |   | 705                                        |   | (1,097                                    | )      | 705 |   | (756 | ) |
| Gain on sale of land                                               |   | 548                                        |   | —                                    |   | 548 |   | — |   |
| Other non-operating income, net                                    |   | 1,115                                      |   | 211                                       |   | 6,232 |   | 275 |   |
|                                                               |   | (23                                        | )      | (2,818                                    | )      | 1,324 |   | (6,485 | ) |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Loss from  continuing operations before discontinued operations    |   | (3,247                                     | )      | (7,103                                    | )      | (2,962 | ) | (12,204 | ) |
| Discontinued  operations (see Note 11):                            |   |                                       |   |                                      |   |   |   |   |   |
| Loss from  operations of research and development business segment |   | —                                     |   | (1,185                                    | )      | — |   | (2,083 | ) |
| Loss before income taxes                                           |   | (3,247                                     | )      | (8,288                                    | )      | (2,962 | ) | (14,287 | ) |
| Income tax expense (benefit)                                       |   | 98                                         |   | (57                                       | )      | 1,431 |   | 624 |   |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Loss before minority interest                                      |   | (3,345                                     | )      | (8,231                                    | )      | (4,393 | ) | (14,911 | ) |
| Minority interest in net loss (profit) of  subsidiaries, net       |   | (142                                       | )      | 35                                        |   | (188 | ) | (120 | ) |
| Net loss                                                           |   | (3,487                                     | )      | (8,196                                    | )      | (4,581 | ) | (15,031 | ) |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Other comprehensive income (expense) net of tax:                   |   |                                       |   |                                      |   |   |   |   |   |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Foreign currency translation adjustment                            |   | (404                                       | )      | (28                                       | )      | 92 |   | (32 | ) |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Comprehensive loss                                                 |   | $                                          | (3,891 | )                                         | $      | (8,224 | ) | $ | (4,489 | ) | $ | (15,063 | ) |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Basic and diluted loss per common share                            |   | $                                          | (0.15  | )                                         | $      | (0.35 | ) | $ | (0.20 | ) | $ | (0.64 | ) |
|                                                               |   |                                       |   |                                      |   |   |   |   |   |
| Weighted average number of common shares outstanding               |   | 23,012,753                                 |   | 23,587,753                                |   | 23,012,753 |   | 23,587,753 |   |

 

Theaccompanying notes are an integral part of these unaudited consolidatedfinancial statements.

 

3

----

 

**BIONOVAHOLDING CORPORATION**

**UNAUDITEDCONSOLIDATED STATEMENT OF CASH FLOWS**

**Thousandsof U.S. Dollars**

 
|                                                                                  |   | **Nine Months Ended  September 30,** |   |
|---------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                  |   | **2003**                                  |   | **2002** |   |
|                                                                                  |   |                                      |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                  |   |                                      |   |   |   |
| Net loss                                                                              |   | $                                         | (4,581 | ) | $ | (15,031 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities:      |   |                                      |   |   |   |
| Minority interest                                                                     |   | 188                                       |   | 120 |   |
| Depreciation                                                                          |   | 2,123                                     |   | 2,126 |   |
| Amortization and write off of patents and trademarks                                  |   | 228                                       |   | — |   |
| Write-off of property, plant, and equipment                                           |   | 72                                        |   | — |   |
| Gain on sale of property, plant, and equipment                                        |   | (548                                      | )      | (247 | ) |
| Other                                                                                 |   | 21                                        |   | (32 | ) |
| Net changes (exclusive of subsidiaries acquired or  divested) in:                     |   |                                      |   |   |   |
| Accounts receivable and advances to growers, net                                      |   | (507                                      | )      | 13,625 |   |
| Inventories                                                                           |   | 1,508                                     |   | 2,859 |   |
| Net assets of discontinued operations                                                 |   | (84                                       | )      | 1,783 |   |
| Other assets                                                                          |   | 1,361                                     |   | (472 | ) |
| Accounts payable and accrued expenses                                                 |   | 3,446                                     |   | (2,384 | ) |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                             |   | 3,227                                     |   | 2,347 |   |
|                                                                                  |   |                                      |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                  |   |                                      |   |   |   |
| Purchases of property, plant and equipment                                            |   | (1,012                                    | )      | (1,564 | ) |
| Proceeds from sale property, plant, and equipment                                     |   | 1,130                                     |   | 412 |   |
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                   |   | 118                                       |   | (1,152 | ) |
|                                                                                  |   |                                      |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                  |   |                                      |   |   |   |
| Net change in short-term borrowing                                                    |   | (5,590                                    | )      | (7,973 | ) |
| Net change in long-term borrowing                                                     |   | 974                                       |   | (79 | ) |
| Accounts due to related parties                                                       |   | 4,623                                     |   | 6,010 |   |
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                   |   | 7                                         |   | (2,042 | ) |
|                                                                                  |   |                                      |   |   |   |
| Net increase (decrease) in cash and cash equivalents                                  |   | 3,352                                     |   | (847 | ) |
| Cash at beginning of period                                                           |   | 2,130                                     |   | 2,177 |   |
| Cash at end of period                                                                 |   | $                                         | 5,482  |   | $ | 1,330 |   |
|                                                                                  |   |                                      |   |   |   |
| SUPPLEMENT DISCLOSURE OF NON-CASH INVESTING AND  FINANCING ACTIVITIES:                |   |                                      |   |   |   |
| Transfer of land to a Mexican financial institution  to satisfy a mortgage obligation |   | $                                         | 2,300  |   | — |   |
| Release of a mortgage obligation from a Mexican  financial institution                |   | (2,300                                    | )      | — |   |

 

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

 

4

----

 

**BIONOVAHOLDING CORPORATION**

 

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2003**

 

**Note 1 – Basis of Presentation**

 

Foroperating and financial reporting purposes, Bionova Holding Corporation(together with its subsidiaries, unless the context requires otherwise,“Bionova Holding” or the “Company”) historically has classified its businessinto 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 ofinterests in sales and distribution companies in Mexico, the United States, andCanada; and (3) **Research and Development (or Technology)*,*** consisting ofbusiness units focused on the development of fruits and vegetables andintellectual properties associated with these development efforts.  On June 30, 2002 the operations of theResearch and Development segment were shut down and the remaining assets as ofJanuary 1, 2003, which consist solely of patents and trademarks with avaluation of $1.2 million, have been merged into the activity of the holdingcompany which will continue to try to license and sell these assets as opportunitiesbecome available.

 

Inmanagement’s opinion, the accompanying unaudited consolidated financialstatements for Bionova Holding for the three and nine month periods endedSeptember 30, 2003 and 2002 have been prepared in accordance withaccounting principles generally accepted in the United States of America forinterim financial statements and include all adjustments (consisting only ofnormal recurring adjustments) that the Company considers necessary for a fairpresentation of its financial position, results of operations, and cash flowsfor such periods.  However, theaccompanying unaudited consolidated financial statements do not contain all ofthe information and footnotes required by generally accepted accountingprinciples for complete financial statements. The accompanying unaudited consolidated financial statements should beread in conjunction with the Company’s audited consolidated financialstatements and notes thereto presented in its 2002 10-K for the fiscal yearended December 31, 2002.  Footnoteswhich would substantially duplicate disclosures in the Company’s auditedconsolidated financial statements for the fiscal year ended December 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.

 

# **Going Concern**

 

TheCompany incurred a net loss of $20.4 million for the year ended December 31,2002. The Company also sustained significant operating losses and operatingcash flow deficiencies from 1997 through 2002. At September 30, 2003 the Company had a negative working capitalposition of $87.7 million and a net loss of $4.6 million for the nine monthperiod ended September 30, 2003.

 

Management has been and is continuing to address theCompany’s financial condition by selling non-core assets of the fresh producebusiness, and by selling and licensing its intellectual property.  The Company also must find a solution to the$101.5 million of debt plus the interest accruing in 2003 that is due to Saviaand its subsidiaries during 2003.  Therecan be no assurance that these actions will result in sufficient workingcapital to significantly improve the Company’s current financial position orits results of operations nor can there be any assurance the Company will beable to meet its obligations in 2003 nor secure funds to take it beyond the2003 calendar year.  This raises substantial doubt about the Company’s ability tocontinue as a going concern.

 

Theunaudited consolidated financial statements do not include any adjustments thatmight result from the outcome of this uncertainty.

 

5

----

 

**Note 2 – Bank Debt**

 

AtSeptember 30, 2003 all of the Company’s $2.9 million of bank debt wasassociated with its fresh produce business.

 

InDecember 2002, Bionova Produce, Inc., Bionova Produce of Texas, Inc. andR.B. Packing of California, Inc., the Company’s major distributors of freshproduce in the United States, signed agreements for a new set of creditfacilities with Wells Fargo Business Credit, Inc. (“WFBC”) which run throughApril 2006.  There are threeseparate, but related loan components associated with these creditfacilities.  First, Bionova Produce,Inc. was extended a “permanent term loan” of $1.75 million, which will beamortized over 10 years.  Interest ischarged at the Wells Fargo prime rate of interest plus 1.5% (5.5% atSeptember 30, 2003), and interest and principal amortization payments aremade on a monthly basis.  The secondcomponent is a “seasonal term loan” with a maximum availability of $1.75million.  Interest is charged at theWells Fargo prime rate of interest plus 1.5% (5.5% at September 30, 2003),and interest payments are made on a monthly basis.  The outstanding principal balance on the seasonal term loan isamortized each year during the months of January through April, and maythen be borrowed again in full on May 1. The third component is a $7 million revolving line of credit to supportworking capital requirements of the fresh produce business.  The revolving line of credit must be paiddown to a maximum of $1.5 million for a 30 day period between July 1 andSeptember 30 each year.  Intereston this revolving line of credit is charged at the Wells Fargo prime rate ofinterest plus 1.0% (5.0% at September 30, 2003).  All three components of the credit facilities are collateralizedby all of the real and intangible assets of the three U.S. distributingcompanies and are guaranteed by both Bionova Holding and its parent company,Savia.  The key covenants associatedwith these credit facilities are that the three distributing companies as agroup must maintain a minimum net worth of $8.75 million, a debt servicecoverage ratio of at least 1.25 to 1, achieve minimum levels of quarterlyearnings before taxes to be agreed between the Company and WFBC annually, andthe distributing group may not experience a net loss during any month that exceeds$0.5 million or a net loss for a two month period that exceeds $0.3million.  As of the date of thesefinancial statements, the Company is in compliance with all of the covenants ofthe credit facilities.  AtSeptember 30, 2003 the principal outstanding in connection with thepermanent term loan, the seasonal term loan, and the revolving line of creditwas $0.8 million, $1.0 million, and $0.6 million, respectively.

 

In addition to thesecredit facilities Bionova Produce, Inc. has a five-year loan secured by anairplane and is guaranteed by Savia. The loan is for $0.7 million and is due August 30, 2006.  Principal and interest payments ofapproximately $15,000 are due monthly. The interest rate on this debt is 8.25% per annum.  At September 30, 2003 theprincipal outstanding under this five year loan agreement was $0.5 million.

 

OnOctober 3, 2001 ABSA (as the Mexican designee of Bionova Produce, Inc.)entered into an agreement with Libra Exportaciones, S.A. de C.V. (“Libra”)whereby ABSA assumed a $2.3 million mortgage obligation to a Mexican financialinstitution in conjunction with certain pieces of land being transferred toABSA.  On March 7, 2003, a new agreement was signed by Libra, theAlvarez family (the former owners of Libra), and ABSA whereby ABSA wouldtransfer certain pieces of land it received from Libra stemming from theOctober 3, 2001 agreement to the Mexican financial institution in exchangefor a release from the $2.3 million mortgage obligation.  The transfer of the land and the release ofthe mortgage obligation were completed on May 13, 2003.  In the financial statements for the yearended December 31, 2002 the total debt obligation of $2.3 million wasclassified as a component of short-term bank loans.

 

**Note 3 - Net Income or Loss perCommon Share**

 

Theweighted average number of common shares outstanding during the three and ninemonth periods ended September 30, 2003 and 2002 was 23,012,753 and 23,587,753,respectively.  On a diluted basis,assuming Savia were to convert the 200 shares of preferred stock it currentlyholds into common, the weighted average number of common shares outstandingduring the three and nine month periods ended September 30, 2003 and 2002would have been 46,168,869 and 46,743,869, respectively.

 

6

----

 

Thefollowing table sets forth the potential shares of common stock that are notincluded in the diluted net loss per share attributable to common stockholdersfor the quarters ending September 30, 2003 and 2002 because to do so wouldbe anti-dilutive.

 
|                                    |   | **(Thousands of Shares)**                             |   |
|-----------------------------------------|--------|-------------------------------------------------------|--------|
|                                    |   | **Three and  Nine  Months Ended  September 30, 2003** |   | **Three and  Nine  Months Ended  September 30, 2002** |   |
|                                    |   |                                                  |   |   |   |
| Effect of dilutive securities:          |   |                                                  |   |   |   |
| Convertible preferred stock outstanding |   | 23,156                                                |   | 23,156 |   |
| Stock options outstanding               |   | 28                                                    |   | 215 |   |

 

**Note 4 - Inventories**

 

Inventorieswere comprised of the following:

 
|                             |   | **(Thousands of U.S. Dollars)** |   |
|----------------------------------|--------|---------------------------------|--------|
|                             |   | **September 30,  2003**         |   | **December 31,  2002** |   |
| Finished produce                 |   | $                               | 130    |   | $ | 762 |   |
| Growing crops                    |   | 2,844                           |   | 2,660 |   |
| Advances to suppliers            |   | 2,393                           |   | 1,732 |   |
| Spare parts and materials        |   | 2,466                           |   | 2,340 |   |
| Merchandise in transit and other |   | 1,877                           |   | 3,724 |   |
|                             |   | $                               | 9,710  |   | $ | 11,218 |   |

 

Agrobionova,S.A. de C.V.**(“**ABSA”), the Company’s Mexican farming subsidiary, advancesmoney to suppliers towards the purchase of materials, and these amounts arereflected as Advances to Suppliers.  Dueto ABSA’s financial condition, it has a large number of accounts payable tosuppliers that are seriously past due. Certain suppliers have required that ABSA pay amounts over and above thepurchase prices for the materials they are providing to ABSA to pay down aportion of the overdue payables.

 

**Note 5 – Assets Held for Sale**

 

Assetsheld for sale were comprised of the following:

 
|                                     |   | **(Thousands of U.S. Dollars)** |   |
|------------------------------------------|--------|---------------------------------|--------|
|                                     |   | **September 30,  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 |   |
|                                     |   | $                               | 1,147  |   | $ | 1,727 |   |

 

OnAugust 29, 2003 R.B. Packing of California (“RBP”) sold its commercial land inSan Diego, California for $1.1 million (net of commissions of $0.1 million).The Company recorded a gain on the sale of $0.5 million and used $0.8 millionof the proceeds to pay down a portion of the outstanding principal along with aprepayment penalty on the Wells Fargo permanent term loan.

 

 

7

----

 

**Note 6 – Reclassifications**

 

Certain prior year amounts have beenreclassified to conform to the current year presentation.  Further, the unaudited consolidatedfinancial statements for Bionova Holding presented for the three and nine monthperiods ended September 30, 2002 were prepared in accordance with FASB 144 toreflect the effects of the discontinued operations of the research anddevelopment business and the continuing operations of the Company’s freshproduce farming and distribution business.

 

**Note 7 - Segment Reporting**

 

TheCompany historically classified its business into three fundamental areas: **Farming**,which consists principally of interests in Company-owned fresh produceproduction facilities and joint ventures with other growers; **Distribution**,consisting principally of interests in sales and distribution companies inMexico, the United States, and Canada; and **Research and Development**, consisting ofbusiness units focused on the development of fruits and vegetables andintellectual properties associated with these development efforts.  On June 30, 2002 the operations of theResearch and Development segment were shut down and the remaining assets as ofJanuary 1, 2003, which consisted solely of patents and trademarks with avaluation of $1.2 million, were merged into the activity of the holding companywhich is continuing to try to license and sell these assets as opportunitiesbecome available.

 

Informationpertaining to the operations of these different business segments is set forthbelow. The Company 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 – September 30, 2003 |   |                            |   |   |   |   |   |   |   |
| Revenues from unaffiliated customers          |   | $                               | 3,707  |   | $ | 72,176 |   | — |   | $ | 75,883 |   |
| Inter-segment revenues                        |   | 15,130                          |   | — |   | — |   | 15,130 |   |
| Total revenues                                |   | 18,837                          |   | 72,176 |   | — |   | 91,013 |   |
| Operating profit (loss)                       |   | (3,776                          | )      | 1,132 |   | — |   | (2,644 | ) |
| Depreciation and amortization                 |   | 1,760                           |   | 363 |   | — |   | 2,123 |   |
| Identifiable assets (1)                       |   | 52,815                          |   | 33,502 |   | — |   | 86,317 |   |
| Acquisition of long-lived assets              |   | 16                              |   | 996 |   | — |   | 1,012 |   |
|                                          |   |                            |   |   |   |   |   |   |   |
| January 1 – September 30, 2002 |   |                            |   |   |   |   |   |   |   |
| Revenues from unaffiliated customers          |   | $                               | 11,147 |   | $ | 94,884 |   | $ | 1,920 |   | $ | 107,951 |   |
| Inter-segment revenues                        |   | 35,161                          |   | — |   | — |   | 35,161 |   |
| Total revenues                                |   | 46,308                          |   | 94,884 |   | 1,920 |   | 143,112 |   |
| Operating profit (loss)                       |   | (5,619                          | )      | 1,524 |   | (1,972 | ) | (6,067 | ) |
| Depreciation and amortization                 |   | 1,852                           |   | 270 |   | 374 |   | 2,496 |   |
| Identifiable assets (1)                       |   | 63,975                          |   | 24,217 |   | 1,542 |   | 89,734 |   |
| Acquisition of long-lived assets              |   | 1,447                           |   | 117 |   | — |   | 1,564 |   |
|                                               |        |                                 |        |  |  |  |  |  |  |  |  |  |  |

 

----

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

 

8

----

 

Reconciliationof the segments to total consolidated amounts is set forth below:

 
|                                                       |   | **Thousands of U.S. Dollars**               |   |
|------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                       |   | **January 1 – September 30** |   |
|                                                       |   | **2003**                                    |   | **2002** |   |
|                                                       |   |                                        |   |   |   |
| Revenues                                                   |   |                                        |   |   |   |
| Revenues from unaffiliated  customers                      |   | $                                           | 91,013 |   | $ | 143,112 |   |
| Inter-segment revenues                                     |   | (15,130                                     | )      | (35,161 | ) |
| Revenues from discontinued  operations                     |   | —                                      |   | (1,920 | ) |
| Total revenues                                             |   | $                                           | 75,883 |   | $ | 106,031 |   |
|                                                       |   |                                        |   |   |   |
| Income before taxes                                        |   |                                        |   |   |   |
| Total operating loss from reportable segments              |   | $                                           | (2,644 | ) | $ | (6,067 | ) |
| Total operating loss from Bionova Holding  Corporation (1) |   | (1,642                                      | )      | (1,624 | ) |
| Interest, net                                              |   | (6,161                                      | )      | (6,004 | ) |
| Exchange gain (loss), net                                  |   | 705                                         |   | (756 | ) |
| Gain on sale of land                                       |   | 548                                         |   | — |   |
| Other non-operating (expense) income, net                  |   | 6,232                                       |   | 164 |   |
| Consolidated loss before taxes                             |   | $                                           | (2,962 | ) | $ | (14,287 | ) |
|                                                       |   |                                        |   |   |   |
| Assets                                                     |   |                                        |   |   |   |
| Total segment identifiable assets                          |   | $                                           | 86,317 |   | $ | 89,734 |   |
| Unallocated and corporate assets (2)                       |   | 6,503                                       |   | 1,556 |   |
| Eliminations (3)                                           |   | (15,217                                     | )      | (14,495 | ) |
| Consolidated assets                                        |   | $                                           | 77,603 |   | $ | 76,795 |   |

 

----

***Notes:***

**(*1*)*****                                ***Certainexpenses, such as shareholder litigation, investor relations, and Board andprofessional fees have not been allocated to the segments.  Management determined that these types ofexpenses have not been associated with, nor did the results of these activitiesbenefit the operating segments.

**(*2*)*****                                ***IncludesBionova Holding’s and segments’ cash in banks, deferred income taxes and othercorporate assets.

**(*3*)*****                                ***Consistsprincipally of inter-segment intercompany balances.

 

Revenuefrom external customers by product/service category is set forth below:

 
|                                          |   | **(Thousands of U.S. Dollars)** |   |
|-----------------------------------------------|--------|---------------------------------|--------|
|                                          |   | **Farming**                     |   | **Distribution** |   | **Research  and  Development** |   | **Total of  Reportable  Segments** |   |
| January 1 – September 30, 2003 |   |                            |   |   |   |   |   |   |   |
| Core vegetables (1)                           |   | $                               | 2,573  |   | $ | 27,214 |   | $ | — |   | $ | 29,787 |   |
| Fruits and other fresh produce (2)            |   | 1,134                           |   | 44,962 |   | — |   | 46,096 |   |
|                                          |   |                            |   |   |   |   |   |   |   |
| January 1 – September 30, 2002 |   |                            |   |   |   |   |   |   |   |
| Core vegetables (1)                           |   | $                               | 7,827  |   | $ | 47,682 |   | $ | — |   | $ | 55,509 |   |
| Fruits and other fresh produce (2)            |   | 3,320                           |   | 47,202 |   | — |   | 50,522 |   |
| Contracted R&D revenue                    |   | —                          |   | — |   | 521 |   | 521 |   |
| Licensed technology and royalties             |   | —                          |   | — |   | 1,399 |   | 1,399 |   |

 

----

***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

----

 

**Note 8 – Legal Actions andContingencies**

 

OnJanuary 7, 1999, a class action lawsuit styled *Gordon K. Aaron et al. v. Empresas laModerna, S.A. de C.V., et al.* was filed in the U.S. federal districtcourt for the Northern District of California. On January 28, 1999, a substantially identical class action lawsuitstyled *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 ofBionova Holding on September 26, 1996, they owned shares of DNAP’sPreferred Stock.  In connection with theMerger, all of the shares of common stock and Preferred Stock of DNAP wereconverted into the number of shares of common stock of Bionova Holdingspecified in the Merger Agreement.  Theplaintiffs allege that the Proxy Statement/Prospectus distributed to DNAP’sstockholders in connection with the merger contained materialmisrepresentations and omitted to state material facts.  Both DNAP and Bionova Holding, as well ascertain former and current directors of DNAP and Bionova Holding, have beennamed as defendants in this matter.  Theplaintiffs claim to have been damaged by the alleged actions of the defendantsand therefore the plaintiffs seek unspecified actual damages, reimbursement oftheir litigation costs and expenses, and equitable relief, including rescissionof the Merger.  The plaintiffs also allegethat they were entitled to receive, and seek specific performance of, specialconversion privileges under the terms of the Certificate of Designation thatestablished the Preferred Stock.  OnMarch 8, 2000, the court dismissed nearly all of the plaintiffs’ claims,and subsequently the plaintiffs filed an amended complaint with respect to someof the dismissed claims.  OnSeptember 19, 2000, the court ruled in favor of Bionova Holding and DNAPand dismissed all of the plaintiffs’ claims. The plaintiffs appealed thisjudgment to the U.S. Court of Appeals for the Ninth Circuit, which heardarguments on the matter on February 12, 2002.  On September 13, 2002, the Ninth Circuit affirmed thedismissal of some of the claims, including all of the claims against DNAP, andreversed the dismissal of others.  Theremaining claims were remanded to the trial court for further proceedings.  The named plaintiffs have reached anagreement to settle the case, and the court approved the settlement at ahearing on November 19, 2003.  Thecost of the settlement to Bionova Holding is $0.050 million, and the plaintiffsare to receive additional funds from several insurance companies involved inthis matter.  Bionova Holding and DNAPdeny any wrongdoing and liability in this matter.

 

DNAPhas been named as a defendant in several lawsuits asserting claims against DNAPrelating to research DNAP performed from 1983 through 1994 for Brown &Williamson Tobacco Company (“B&W”). In general, the cases allege that DNAP engaged in unfair businesspractices under California law and/or participated in an alleged conspiracyamong cigarette manufacturers to deceive the public regarding the hazards ofsmoking.  All of the pending cases arein California state courts.  InDecember 1999, B&W agreed to indemnify DNAP against all costs (includingcosts of defense and of costs of any judgment or settlement) incurred by DNAPin connection with these cases and any similar cases in the future.  Therefore, management no longer believesthat these cases could have a material adverse effect on the Company’sfinancial condition or results of operations. DNAP denies any wrongdoing or liability in these matters and intends tovigorously contest these lawsuits.

 

OnJune 16, 2000, a lawsuit styled *Santa Cruz Empacadora, S. de R.L. de C.V., v. R.B. Packingof California, Inc.*was filed in the United States District Courtfor the 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.

 

OnDecember 30, 1998, Bionova Holding, through its subsidiary, VPP, acquiredMonsanto Company’s strawberry development program.  The program included breeding assets and exclusive rights tocertain of Monsanto’s genetic and gene technology for berry development, and anon-exclusive right to

 

10

----

 

future Monsanto berrytechnology, including strawberries, cranberries, raspberries, blackberries,boysenberries, and blueberries.  InJanuary, 1999, VPP paid Monsanto $5.0 million for those assets.  The purchase contract stipulated that ifMonsanto was able to satisfy certain conditions to grant certain additionallicenses, VPP would be obligated to make payments of an additional $7.0million.  In 2000 VPP paid Monsanto anadditional $3.0 million when Monsanto was able to grant one of theselicenses.  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.

 

Pleasesee the Company’s Form 10-K for the year ended December 31, 2002 that wasfiled on April 30, 2003 for further discussion on the Company’s pendinglitigation and contingencies.

 

**Note 9 – Accounting for stock-basedcompensation**

 

TheCompany accounts for its stock-based compensation plans in accordance with SFASNo. 123, *Accounting for Stock-BasedCompensation* as amended by SFAS No. 148, “Accounting for Stock-BasedCompensation Transition and Disclosure.” As permitted under SFAS No. 148, the Company uses the intrinsicvalue-based method of Accounting Principles Board (“APB”) Opinion No. 25,“Accounting for Stock Issued to Employees,” to account for its employeestock-based compensation plans.  UnderAPB Opinion No. 25, compensation expense is based on the difference, if any, onthe date of grant, between the fair value of the Company’s shares and theexercise price of the option. Compensation cost for stock options, if any, is realized ratably overthe vesting period.

 

TheCompany provides additional proforma disclosures required by SFAS No. 123 asamended by SFAS No. 148, “Accounting for Stock-Based Compensation- Transitionand Disclosure – 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**                                |   | **Nine  Months Ended** |   |
|                                                                                                             |   | **Sept. 30,  2003**                                    |   | **Sept. 30,  2002** |   | **Sept. 30,  2003** |   | **Sept. 30,  2002** |   |
|                                                                                                             |   |                                                   |   |   |   |   |   |   |   |
| Net loss as reported                                                                                             |   | (3,487                                                 | )      | (8,196 | ) | (4,581 | ) | (15,031 | ) |
| Deduct: total stock-based employee compensation  expense determined under fair value based method for all awards |   | —                                                 |   | 39 |   | (28 | ) | (4 | ) |
| Net loss pro forma                                                                                               |   | (3,487                                                 | )      | (8,157 | ) | (4,609 | ) | (15,035 | ) |
| Net loss per share:                                                                                              |   |                                                   |   |   |   |   |   |   |   |
| As reported — basic                                                                                    |   | (0.15                                                  | )      | (0.35 | ) | (0.20 | ) | (0.64 | ) |
| Pro forma — basic                                                                                      |   | (0.15                                                  | )      | (0.35 | ) | (0.20 | ) | (0.64 | ) |
| As reported — diluted                                                                                  |   | (0.15                                                  | )      | (0.35 | ) | (0.20 | ) | (0.64 | ) |
| Pro forma — diluted                                                                                    |   | (0.15                                                  | )      | (0.35 | ) | (0.20 | ) | (0.64 | ) |

 

Thefair value of options granted in 1999 was estimated using the Black-Scholes model with the followingweighted average assumptions:  dividendyield of 0%, expected volatility of 114%, risk free interest rate of 5.2%, andan expected life of 7 years.  No optionswere granted in 2002 or 2003.  For thethree month period ended September 30, 2003, there was no stock-basedemployee compensation under the fair value method as all of the outstandingstock options were fully vested as of June 30, 2003.

 

11

----

 

**Note 10 – Sale of Mexican Subsidiary**

 

OnJune 13, 2003 Bionova Holding and Agromod, S.A de C.V., a minority ownerof ABSA, entered into an agreement to sell all of the shares of TechnologiaAplicada en Procesos, S. de R.L. de C.V. (“TAP”), a Mexican subsidiary of Bionova Holding to Promo-Tow, S. de R.L. de C.V. (“PROMOTOW”),a Mexican company.  The shares of thisnew company had value to PROMOTOW because of certain financial benefitsPROMOTOW felt it could derive from ownership of TAP.  Bionova Holding received $5.5 million in cash on June 13 andan additional $0.6 million in September 2003.  The Company recorded $5.5 million as Other Income in the secondquarter of 2003 along with estimated tax expense associated with thistransaction of $0.8 million and transaction fees of $0.3 million.  The Company recorded $0.6 million as OtherIncome in the third quarter of 2003.  Inaddition, the transaction fees associated with completing the transaction wereadjusted downward by $0.1 million to their actual amounts during the thirdquarter of 2003.  The accounting forthis transaction is shown below.

** **
|                                                         |   | **(U.S. Dollars)** |      |
|--------------------------------------------------------------|--------|--------------------|-----------|
|                                                         |   |               |      |
| Gross proceeds from sale of Mexican subsidiary               |   | $                  | 6,077,000 |   |
| Transaction fees                                             |   | 145,000            |      |
| Net proceeds (Other Income) from sale of Mexican  subsidiary |   | 5,932,000          |      |
| Net book assets of Mexican subsidiary                        |   | 11,000             |      |
| Gain on sale                                                 |   | $                  | 5,921,000 |   |

 

**Note 11 - DiscontinuedOperations:  Closing of Research andDevelopment Operations**

 

On May 13, 2002Bionova Holding announced it had begun closing down its research anddevelopment operations, including all of the activities carried out through itswholly owned DNAP and VPP subsidiary companies.   The focus of DNAP’s research during the past year had been theproduction of transgenic plants which provide improved disease resistance forfruit and vegetable crops.  Concernsabout public acceptance of transgenic products in these markets made producersreluctant to invest in the development of transgenic fruits andvegetables.  Further, the agriculturalindustry has suffered from low prices for its products over the past few years,leading growers, food companies and other providers to delay new research anddevelopment investment.  Despite anintensive search, these factors made it difficult for DNAP to develop newcustomers; and, with the absence of a customer base, DNAP was not able toobtain venture capital or other financing sufficient to continueoperations.  Accordingly, the researchand development operations were closed down during May and June, including theOakland facility, and all personnel were laid off.  DNAP shifted its focus to the licensing and sale of its intellectualproperty.  The shutdown of operationswas completed on June 30, 2002.

 

In conjunctionwith the closing of the Company’s research and development operations, DNAP andSeminis Vegetable Seeds agreed to terminate their long-term funded research agreement,which was entered into in January 1997. Seminis made a cash payment as part of the termination agreement, andDNAP acquired certain technology rights which bring value to its technologylicensing and sale activities.

 

                In October 2001, the FASB issued Statement ofFinancial Accounting Standards No. 144 (“SFAS No. 144”), “Accounting for theImpairment or Disposal of Long-Lived Assets,” which is effective for fiscalyears beginning after December 15, 2001 and interim periods within those fiscalperiods.  This Statement supersedes FASBStatement No. 121 and APB 30, however, this Statement retains the requirementof Opinion 30 to report discontinued operations separately from continuingoperations and extends that reporting to a component of an entity that eitherhas been disposed of (by sale, by abandonment, or in a distribution to owners)or is classified as held for sale.

 

Revenues and losses of the Company’s research anddevelopment operations for the quarter and nine months ended September 30, 2002(in thousands of dollars) were as follows:

 
|                                    |   | **Quarter  Ended  September 30, 2002** |   | **Nine  Months  Ended September 30, 2002** |   |
|-----------------------------------------|--------|----------------------------------------|--------|--------------------------------------------|--------|
| Revenues.                               |   | $                                      | 0      |                                       | $      | 1,920 |   |
| Loss before  provision for income taxes |   | (1,185                                 | )      | (2,083                                     | )      |
| Income tax  expense                     |   | —                                 |   | —                                     |   |
| Net loss                                |   | (1,185                                 | )      | (2,083                                     | )      |
|                                         |        |                                        |        |                                            |        |  |  |

** **

**Summary data relating to the assets and liabilities of theCompany’s research and development operations (in thousands of dollars) atSeptember 30, 2002 is shown below.**

** **
|                                    |   |   |   |
|-----------------------------------------|--------|--------|--------|
| Current assets                          |   | $      | 0      |   |
| Total assets                            |   | 1,626  |   |
| Current  liabilities                    |   | 84     |   |
| Total  liabilities                      |   | 84     |   |
| Net assets of  Research and Development |   | 1,542  |   |
|                                         |        |        |        |  |

 

On January 1, 2003 the remaining assets of theResearch and Development segment, which consist solely of patents andtrademarks with a valuation of $1.2 million, were merged into the activity ofthe holding company, which is continuing to try to license and sell theseassets as opportunities become available. Accordingly, the Company ceased the accounting for the Research andDevelopment segment as discontinued operations as of January 1, 2003.

 

**Note 12 - Recent AccountingPronouncements**

 

InJanuary 2003, the Financial Accounting Standards Board ( FASB ) issuedFASB Interpretation No. 46 ( FIN 46 ),  Consolidation of Variable InterestEntities, an Interpretation of ARB No. 51.  FIN 46 requires certainvariable interest entities to be consolidated by the primary beneficiary of theentity if the equity investors in the entity do not have the characteristics ofa controlling financial interest or do not have sufficient equity at risk forthe entity to finance its activities without additional subordinated financialsupport from other parties. FIN 46 is effective immediately for all newvariable interest entities created or acquired after January 31, 2003.  For variable interest entities created oracquired prior to February 1, 2003, the provisions of FIN 46 must beapplied for the first interim or annual period ending after December 31, 2003.  The adoption of FIN 46 is not expected tohave a material impact on the Company’s financial position, results ofoperations or cash flows.

 

InMay 2003, the FASB issued Statement of Financial Accounting Standards No.150 (SFAS 150), Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.  SFAS 150 establishesstandards for the classification and measurement of financial instruments withcharacteristics of both liabilities and equity. It requires companies toclassify a financial instrument that is within its scope as a liability (or anasset in some circumstances). SFAS 150 is effective beginning third quarter offiscal 2003. The adoption of SFAS 150 did not have a material impact on thethird quarter consolidated financial statements of the Company.

 

**Note 13 - Commitments**

 

As ofSeptember 30, 2003, the Company has agreements whereby it indemnifies itsofficers and directors for certain events or occurrences while the officer ordirector is serving at the company’s request in such capacity.  The term of the indemnification period shallcontinue until and terminate upon the latter of: (a) 10 years after the datethat the officer or director has ceased to serve the Company as officer ordirector; or (b) one year after the final, non-appealable termination of anylegal proceeding.  The maximum potentialamount of future payments the Company could be required to make under theseindemnification agreements cannot be reasonably measured and estimated andaccordingly, the Company has no liabilities recorded for these agreements as ofSeptember 30, 2003.

 

**Note14 - Subsequent Event: Sale of Mexican Subsidiary**

 

Duringthis first week of December 2003, the Company’s Mexican farming subsidiary,Agrobionova, S.A. de C.V.‚ sold a subsidiary company which generated $0.8million in cash proceeds, after expenses. The Company expects to use this cash to pay overhead and other businessexpenses over the next few months.

 

12

----

 

**Item 2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations**

 

**The Company**

 

BionovaHolding Corporation, a Delaware corporation (together with its subsidiaries,unless the context requires otherwise, “Bionova Holding” or the “Company”), wasformed in January 1996, and acts as a holding company for (i) Agrobionova,S.A. de C.V., a corporation organized under the laws of the United MexicanStates, of which the Company owns 98.6% (“ABSA”),  (ii) International Produce Holding Company, a Delawarecorporation, of which the Company owns 100% (“IPHC”), (iii) DNA PlantTechnology Corporation, a Delaware corporation, of which the Company owns 100%(“DNAP”), and (iv) VPP Corporation, a Delaware corporation, of which theCompany owns 100% (“VPP”). Approximately 79% of the outstanding common stock of the Company isindirectly owned by Savia, S.A. de C.V.

 

TheCompany historically classified its business into three fundamental areas: **Farming**,which consists principally of interests in Company-owned fresh produceproduction facilities and joint ventures with other growers; **Distribution**,consisting principally of interests in sales and distribution companies inMexico, the United States, and Canada; and **Research and Development**, consisting ofbusiness units focused on the development of fruits and vegetables andintellectual properties associated with these development efforts.  On June 30, 2002 the operations of theResearch and Development segment were shut down and the remaining assets as ofJanuary 1, 2003, which consisted solely of patents and trademarks with avaluation of $1.2 million, were merged into the activity of the holding companywhich is continuing to try to license and sell these assets as opportunitiesbecome available.

 

**Results of Operations**

 

**Three Months Ended September 30,2003 Compared to the Three Months Ended September 30, 2002**

 

Consolidatedtotal revenues increased from $17.7 million for the quarter endedSeptember 30, 2002 to $19.5 million in the same quarter of 2003,consolidated gross profit (sales less cost of sales) increased from a loss of$0.5 million for the quarter ended September 30, 2002 to a profit of $0.9million in the same quarter of 2003, and the Company’s consolidated operatingloss declined from a loss of $4.3 million for the quarter endedSeptember 30, 2002 to $3.2 million in the same quarter of 2003.

 

FARMINGsegment revenues, the majority of which are eliminated in consolidation,increased from $3.3 million in the third quarter of 2002 to $4.8 million in thethird quarter of 2003.  The higher salesvolumes were largely due to improved yields from the grape harvest inHermosillo.  Because of the muchimproved yields stemming from better weather conditions and higher averageprices, both for the grapes and the Company’s vine sweet minipeppers, theoperating loss in the third quarter of 2003 was $2.4 million as compared with aloss of $5.3 million in the same quarter of 2002.

 

DISTRIBUTIONsegment revenues increased from $16.1 million in the third quarter of 2002 to$18.3 million in the same quarter of 2003. This increase was consistent with the higher production of the Farmingsegment.  Distribution segment operatingprofit improved from $0.2 million in the third quarter of 2002 to $1.1 millionin the same quarter of 2003.  Thisimprovement was driven by improved operating margins in the U.S. distributioncompanies which recovered from a poor third quarter in 2002.

 

The loss from the discontinued operations of theresearch and development segment for the third quarter of 2002 was $1.2million.  While the the shut down of theCompany’s research and development operations was completed in June 2002, theCompany recognized certain costs in the third quarter of 2002 carrying overfrom the shut down and to license and sell some of its technology patents.

 

TheCompany experienced a foreign exchange gain of $0.7 million in the thirdquarter of 2003 as compared with a foreign exchange loss of $1.1 million in thethird quarter of 2003.  This change wasdriven entirely by Bionova Holding’s Mexican farming subsidiary, ABSA.  As ABSA has consistently had a net monetaryliability, the loss in 2002 was a consequence of a strengthening Mexican pesoas compared with a significantly weaker peso in the third quarter of 2003.

 

Duringthe third quarter of 2003 R.B. Packing of California (“RBP”) sold itscommercial land in San Diego, California for $1.1 million (net of commissionsof $0.1 million).  The Company recordeda gain on the sale of $0.5 million and used $0.8 million of the proceeds to paydown a portion of the outstanding principal along with a prepayment penalty onthe Wells Fargo permanent term loan.

 

Theincrease in other non-operating income from $0.2 million in the third quarterof 2002 to $1.1 million in the third quarter of 2003 was driven by atransaction completed at the end of the second quarter

 

13

----

 

in which the Company solda Mexican subsidiary.  During the thirdquarter of 2003 the Company received a second and final payment in the amountof $0.6 million associated with this sale, and the expenses associated withcompleting the transaction were adjusted downward by $0.1 million.  All of the expenses associated with thistransaction originally were recorded in the second quarter of 2003.  This transaction is described in greaterdetail in the Liquidity and Capital Resources section below.

 

**Nine Months Ended September 30,2003 Compared to the Nine Months Ended September 30, 2002**

 

Consolidatedtotal revenues declined to $75.9 million for the nine months endedSeptember 30, 2003 from $106.0 million in the same period of 2002, consolidatedgross profit (sales less cost of sales) increased from $5.7 million for thenine months ended September 30, 2002 to $6.4 million in the same period of2003, and the Company’s consolidated operating loss declined from $5.7 millionfor the nine months ended September 30, 2002 to $4.3 million in the samenine month period of 2003.

 

FARMINGsegment revenues, the majority of which are eliminated in consolidation,declined from $46.3 million in the first nine months of 2002 to $18.8 millionin the same nine month period of 2003. This reduction was driven largely by the cash strains the Company facedin the fourth quarter of 2002 because of a reduction in bank financing duringthe 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 and significantly curtailedproduction of tomatoes, peppers, and other commodity vegetables in Culiacan andTodos Santos during the first nine months of 2003.  Despite the volumes reductions, the operating loss in the Farmingsegment decreased from $5.6 million in the first nine months of 2002 to $3.8million in the same nine month period of 2003. This improvement was driven by the 2002 results of the grape harvest inHermosillo and the tomato harvest which, due to poor weather conditions, verylow yields and prices were obtained for these harvests.

 

DISTRIBUTIONsegment revenues declined from $94.9 million in the first nine months of 2002to $72.2 million in the same nine month period of 2003.  This decline was consistent with thecurtailed production of the Farming segment, and U.S. sales were furtherimpacted by a reduction in supply of third party grape growers in the secondquarter of 2003.  Premier Fruits &Vegetables, BBL Inc., the Company’s Canadian distribution subsidiary, continuedto show strong sales gains with a 16.8% increase for the first nine months of2003 as compared with the same nine month period of 2002.  Operating profit of the Distribution segmentfor the first nine months of 2003 declined by $0.4 million as compared with thesame nine month period of 2002. The decline in gross margins of the U.S.distribution companies of $0.9 million was offset by a $1.0 million improvementin the gross margin of Canada.  Sellingand administrative expenses increased by $0.5 million for the first nine monthsof 2003 as compared with the same nine month period of 2002, which was dueentirely to increased staffing and other expenses in Canada to support thegrowth and capital expansion projects undertaken by this subsidiary.

 

The Company closed down its research and developmentoperations in June 2002.  Becauseof this shut down the Company had no revenues or expenses associated with thisformer business segment in the first nine months of 2003 as compared with $1.9million of revenues and an operating loss of $2.0 million in the same ninemonth period of 2002.

 

Corporateadministrative expenses declined from $1.6 million for the first nine months of2002 to $1.4 million for the same nine month period of 2003 due to a reductionin legal expenses.

 

During the third quarter of 2003 R.B. Packing ofCalifornia (“RBP”) sold its commercial land in San Diego, California for$1.1 million (net of commissions of $0.1 million).  The Company recorded a gain on the sale of$0.5 million and used $0.8 million of the proceeds to pay down aportion of the outstanding principal along with a prepayment penalty on theWells Fargo permanent term loan.

 

Theimprovement in other non-operating income from $0.2 million for the first ninemonths of 2002 to $6.2 million for the same nine month period of 2003 wasdriven by a transaction completed at the end of the second quarter in which theCompany sold a Mexican subsidiary and received $5.9 million in net proceedsthat was reported in Other Operating Income of Bionova Holding.  This transaction is described in

 

14

----

 

greater detail in theLiquidity and Capital Resources section below.  Bionova Holding also licensed certain technology during the firstnine months of 2003 and netted $0.2 million from these licenses.

 

Taxexpense increased from $0.6 million in the first nine months of 2002 to $1.4million in the first nine months of 2003. This increase was an outgrowth of the taxes due in Mexico and the UnitedStates from the sale of the Mexican subsidiary at the end of the secondquarter.

 

**Capital Expenditures**

 

Duringthe first nine months of 2003 the Company made capital investments of $1.0million.  The great majority of thefunds were spent by Premier Fruits & Vegetables, BBL Inc. in Montreal,Quebec to construct additional warehousing facilities and cold rooms to supportits projected growth requirements over the next three to five years.

 

**Liquidity and Capital Resources**

 

Forthe nine months ended September 30, 2003, the Company generated $3.2million of cash from operating activities (which includes the $5.9 million gainon the sale of a Mexican subsidiary). The most significant items contributing to this were the net loss of$4.6 million offset by the depreciation of $2.1 million, a reduction ininventories of $1.5 million, and an increase in accounts payable of $3.4million.  The reduction in inventorieswas consistent with the smaller production that typically occurs at the end ofthe summer growing season.  The increasein accounts payable was largely a function of two factors – the gearing up byABSA for the Todos Santos growing season and (ii) a reclassification ofpayables to Seminis in an amount of $2.1 million from related party payables toaccounts payable due to the recently completed sale of this company by Savia.

 

Forthe nine months ended September 30, 2003, the Company generated $0.1million from investing activities.  Thesale of land in San Diego generated $1.1 million in net proceeds.  As discussed above, the Company spent $1.0million on plant and equipment, almost all of which was invested by PremierFruits & Vegetables, BBL Inc. in Canada.

 

Netcash from financing activities for the nine months ended September 30,2003 netted to almost zero.  Short-termand long-term bank borrowings with Wells Fargo Business Credit, Inc. (“WFBC”)declined by $4.6 million in total as (i) R.B. Packing paid off $0.8 million ofthe permanent term loan when it sold the land in San Diego, (ii) the seasonalterm loan was reduced by $0.3 million, and (iii) the revolving line of creditwas reduced by $3.5 million, which was consistent with the lower level of receivablesagainst which the U.S. distribution companies are permitted to borrow.  Accounts due to related parties increased by$4.6 million as interest continued to accrue on the Company’s debt to Savia,offset by the reclassification of the Seminis related party payable to accountspayable and the payment of certain accounts due to other Savia subsidiaries.

 

AtSeptember 30, 2003 all of the Company’s $2.9 million of bank debt wasassociated with its fresh produce business. In December 2002, Bionova Produce, Inc., Bionova Produce of Texas,Inc. and R.B. Packing of California, Inc., the Company’s major distributors offresh produce in the United States, signed agreements for a new set of creditfacilities with WFBC which run through April 2006.  There are three separate, but related loancomponents associated with 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 is charged atthe Wells Fargo prime rate of interest plus 1.5% (5.5% at September 30,2003), and interest and principal amortization payments are made on a monthlybasis.  The second component is a“seasonal term loan” with a maximum availability of $1.75 million.  Interest is charged at the Wells Fargo primerate of interest plus 1.5% (5.5% at September 30, 2003), and interestpayments are made on a monthly basis. The outstanding principal balance on the seasonal term loan is amortizedeach year during the months of January through April, and may then beborrowed again in full on May 1. The third component is a $7 million revolving line of credit to supportworking capital requirements of the fresh produce business.  The revolving line of credit must be paiddown to a maximum of $1.5 million for a 30 day period between July 1 andSeptember 30 each year.

 

15

----

 

Interest on this revolving line of credit ischarged at the Wells Fargo prime rate of interest plus 1.0% (5.0% atSeptember 30, 2003).  All threecomponents of the credit facilities are collateralized by all of the real andintangible assets of the three U.S. distributing companies and are guaranteedby 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.  As of the date of these financialstatements, the Company is in compliance with all of the covenants of thecredit facilities.  However, theCompany anticipates that it will not achieve compliance with one or more of thefourth quarter financial covenants and recently has begun negotiating revisionsto the loan agreement with the bank.  AtSeptember 30, 2003 the principal outstanding in connection with thepermanent term loan, the seasonal term loan, and the revolving line of creditwas $0.8 million, $1.0 million, and $0.6 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.  AtSeptember 30, 2003 the principal outstanding under this five year loanagreement was $0.5 million.

 

OnOctober 3, 2001 ABSA (as the Mexican designee of Bionova Produce, Inc.)entered into an agreement with Libra Exportaciones, S.A. de C.V. (“Libra”)whereby ABSA assumed a $2.3 million mortgage obligation to a Mexican financialinstitution in conjunction with certain pieces of land being transferred toABSA.  On March 7, 2003, a new agreement was signed by Libra, theAlvarez family (the former owners of Libra), and ABSA whereby ABSA wouldtransfer certain pieces of land it received from Libra stemming from theOctober 3, 2001 agreement to the Mexican financial institution in exchangefor a release from the $2.3 million mortgage obligation.  The transfer of the land and the release ofthe mortgage obligation were completed on May 13, 2003.  In the financial statements for the yearended December 31, 2002 the total debt obligation of $2.3 million wasclassified as a component of short-term bank loans.

 

AtSeptember 30, 2003 Bionova Holding and its subsidiaries were indebted toSavia and its subsidiaries (other than Bionova Holding) in a total amount of$101.5 million.  Of this total $21.0million was owed by ABSA and is accruing interest at a rate of approximately 9%per annum.  Bionova Holding had debtincluding accrued interest of $78.1 million to Savia.  The Bionova Holding debt currently is accruing interest at a rateof approximately 12.5% per annum.  Othersubsidiaries of Bionova Holding had related party accounts due to Savia and itssubsidiaries that accounted for the balance of the $2.4 million.  All of the Bionova Holding debt is due to bepaid by December 31, 2003.  Theother related party accounts due to Savia and its subsidiaries have varyingmaturities, most of which are due at various times in 2003.  In addition to ABSA’s significant debt toSavia, ABSA also had $8.4 million of payables outstanding to vendors at September 30,2003, many of which are significantly past due.  At this time, Bionova Holding does not know how this indebtednesswill be handled.

 

OnJune 13, 2003 Bionova Holding and Agromod, S.A de C.V., a minority ownerof ABSA, entered into an agreement to sell all of the shares of TechnologiaAplicada en Procesos, S. de R.L. de C.V. (“TAP”), a Mexican subsidiary of Bionova Holding to Promo-Tow, S. de R.L. de C.V. (“PROMOTOW”),a Mexican company.  The shares of thisnew company had value to PROMOTOW because of certain financial benefitsPROMOTOW felt it could derive from ownership of TAP.  Bionova Holding received $5.5 million in cash on June 13 andan additional $0.6 million in September 2003.  The Company recorded $5.5 million as Other Income in the secondquarter of 2003 along with estimated tax expense associated with thistransaction of $0.8 million and transaction fees of $0.3 million.  The Company recorded the additional $0.6million received as Other Income in the third quarter of 2003.  In addition, the transaction fees associatedwith completing this transaction were adjusted downward by $0.1 million totheir actual amounts during the third quarter of 2003.

 

The resulting cash fromthis transaction has provided a temporary respite to permit the Company to paydown some of its long overdue payables and continue operations, albeit on asignificantly reduced level as compared with past years.  Management has recognized that it still doesnot have the cash reserves to enable it to take significant risk in theforeseeable future in its own agricultural activities or the funding

 

16

----

 

of third party growers.  Consequently, the Company’s Mexican farming subsidiary, ABSA, hasentered into a partnership arrangement with a large Mexican grower to enable itto plant and harvest production during the Todos Santos growing season fromAugust through December of 2003. The final contract for this partnership agreement is expected to besigned shortly.  The most significantterms call for each partner to recover its cash and non-cash investments first,and then the partners will share at a rate of 50/50 for any profit generatedfrom the sale of tomatoes and 55/45 (55 being ABSA) on the sale of the vinesweet mini peppers being grown in Todos Santos.  While the company expects the produce grown through thepartnership to be distributed by the Company’s distribution companies, undercertain circumstances up to 50% of the production may be distributed byothers.  If a substantial portion of theproduction is diverted to other companies, Bionova Holding’s U.S. distributioncompanies will experience decreased volume, revenues and profits, and mayencounter difficulties achieving compliance with bank covenants.  At this time the Company does not plan togrow, nor fund any third party growers in Culiacan, which would typicallyharvest in late December 2003 through April 2004, other than its vinesweet mini-pepper product.  Theconsequence of this reduced production will be a lower level of sales in theUnited States in the first quarter of 2004 as compared with 2003.

 

OnOctober 15, 2003, the Company was informed of the intention of theAmerican Stock Exchange (“AMEX” or the “Exchange”) to proceed to file anapplication with the Securities and Exchange Commission to strike the Company’scommon stock from listing and registration on the Exchange.  The Exchange Staff stated this action wasbeing taken because the Company is not in compliance with three of thestandards for continued listing, as follows: (1) the Company’s stockholders’ equity is less than $2 million and ithas sustained losses from continuing operations and/or net losses in two of itsthree most recent fiscal years; (2) the Company’s stockholders’ equity is lessthan $4 million and it has sustained losses from continuing operations and/ornet losses in three of its four most recent fiscal years; and (3) the Companyhas sustained losses which are so substantial in relation with its overalloperations or its existing financial resources, or its financial condition hasbecome so impaired that it appears questionable, in the opinion of theExchange, as to whether it will be able to continue operations and/or meets itsobligations as they mature.

 

BionovaHolding appealed the determination of the Staff and submitted a letter to theGeneral Counsel for Listing Qualifications to support the Company’s positionfor continued listing on the Exchange. Following the hearing on November 24, 2003, Bionova Holding learnedthat the panel hearing this appeal rejected the Company’s appeal and has begunthe process of delisting Bionova Holding’s common stock.  The Company’s stock has been suspended fromtrading on the AMEX during the delisting process, and the Company shares arenow trading on the pink sheets under the symbol BVAH.PK.

 

As a result of the Company’s operating losses during thepast six years and its current financial structure, there continues to besubstantial doubt about the Company’s ability to continue as a goingconcern.  Management has been and iscontinuing to address the Company’s financial condition by selling non-coreassets of the fresh produce business, and by selling and licensing itsintellectual property.  BionovaHolding completed a license of its Transwitch technology during the secondquarter, sold its TAP subsidiary in Mexico and received proceeds on this saleduring the second and third quarters, and sold land in California during thethird quarter.  During this first weekof December 2003, the Company’s Mexican farming subsidiary, Agrobionova, S.A.de C.V. sold a subsidiary company which generated $0.8 million in cashproceeds, after expenses.  The Companyexpects to use this cash to pay overhead and other business expenses over thenext few months.  The Company also mustfind a solution to the $101.5 million of debt plus the interest accruing in2003 that is due to Savia and its subsidiaries during 2003.  There can be no assurance that these actionswill result in sufficient working capital to significantly improve theCompany’s current financial position or its results of operations nor can therebe any assurance the Company will be able to meet its obligations in 2003 norsecure funds to take it beyond the 2003 calendar year.  This raises substantial doubt about the Company’s ability to continue as a goingconcern.

 

Theunaudited consolidated financial statements do not include any adjustments thatmight result from the outcome of this uncertainty.

 

**Disclosure Regarding Forward-LookingStatements**

 

Thisreport on Form 10-Q includes ‘‘forward-looking’’ statements within the meaningof Section 27A of the Securities Act of 1933, and Section 21E of theSecurities Exchange Act of 1934.  Allstatements, including without limitation statements contained in this “Management’sDiscussion and

 

17

----

 

Analysis of FinancialCondition and Results of Operations” other than statements of historical factsincluded in this Form 10-Q, including statements regarding our financialposition, business strategy, prospects, plans and objectives of our managementfor future operations, and industry conditions, are forward-lookingstatements.  Although we believe thatthe expectations reflected in these forward-looking statements are reasonable,we can give you no assurance that these expectations will prove to becorrect.  In addition to importantfactors described elsewhere in this report, the following “Risk Factors,”sometimes have affected, and in the future could affect, our actual results andcould cause these results during 2003 and beyond, to differ materially fromthose expressed in any forward-looking statements made by us or on ourbehalf.  When we use the terms“Bionova,” “we,” “us,” and “our,” these terms refer to the Company and itssubsidiaries.

 

**RISKS RELATING TO OUR FINANCIALCONDITION**

 

**Wemay not have enough cash to maintain our operations during the upcoming months**

 

Ourfresh produce business requires cash to harvest crops that have been plantedand to make advances to growers for crops to be planted in the next season.  Our produce business does not have cashreserves, so it depends on continued sales revenues and bank borrowings togenerate the required cash to support these needs.  If sales revenues are below projected levels during the secondhalf of 2003 (which might be caused by low production volumes, lower thanforecast customer demand for the Company’s vine sweet mini pepper, or lowcommodity prices), or if the lender to the distribution companies does notcontinue to provide financing, the produce business will not have sufficientcash to maintain its operations.  Inthat event, the produce business would be required to curtail or possibly evento suspend its operations and to make other expense reductions.

 

**We may continue to sustain losses andaccumulate deficits in the future**

 

Wehave sustained losses in every year of our existence from 1996 through2002.  As of September 30, 2003 ouraccumulated deficit was $218.5 million. For the year ended December 31, 2002 and the nine months endedSeptember 30, 2003, we had a net loss of $20.4 million and $4.6 million,respectively.  The factors that causedthese losses, including factors described in this section, may continue tolimit our ability to make a profit in the future.

 

**We will need additional financing toachieve our growth objectives, which could hurt our financial condition**

 

Wewill need additional capital to meet our growth objectives and working capitalrequirements.  Our projected cash flowsfrom operations and existing capital resources, including our existing creditlines, may not be sufficient. Therefore, our ability to pursue these objectives may depend on ourability to obtain additional capital, which could cause us to incur additionaldebt or issue additional equity securities. We cannot assure you that additional capital will be available onsatisfactory terms, if at all, and, as a result, we may be restricted in ourpursuit of future growth strategies.

 

**Our leveraged position could cause usto be unable to meet our capital needs, which could hurt our financialcondition**

 

AtSeptember 30, 2003 we had a working capital deficit of $87.7 million and astockholders deficit of $46.8 million. We had $2.9 million of debt with banks and $101.5 million of debt withSavia and Savia’s subsidiaries.  This levelof indebtedness may pose substantial risks to our company and to ourstockholders, including the possibility that we may not generate sufficientcash flow to pay our outstanding debts. Our level of indebtedness may also adversely affect our ability to incuradditional indebtedness and finance our future operations and capital needs,which may limit our ability to pursue other business opportunities.

 

18

----

 

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

 

OurU.S. distributing companies hold bank debt which require that they achievecertain levels of financial performance. Any failure to meet these covenants could result in an event of defaultand the calling in of these loan facilities. If such an event were to occur, it would significantly affect thecurrent and future operations and financial performance of the Company andpossibly even require that we shut down all operations.

 

**RISKS RELATING TO OUR FARMING ANDDISTRIBUTION BUSINESS**

 

**Bad weather and crop disease canaffect the amount of produce we can grow, which can decrease our revenues andprofitability**

 

Weatherconditions greatly affect the amount of fresh produce we bring to market, and,accordingly, the prices we receive for our produce.  Storms, frosts, droughts, and particularly floods, can destroy acrop and less severe weather conditions, such as excess precipitation, coldweather and heat, can kill or damage significant portions of a crop.  Crop disease and pestilence can beunpredictable and can have a devastating effect on our crops, rendering themunsalable and resulting in the loss of all or a portion of the crop for thatharvest season.  Even when only a portionof our crops are damaged, the profits we could have made on the crop will beseverely affected because the costs to plant and cultivate the entire crop willhave been incurred although we may experience low yields or may only be able tosell a portion of our crop.

 

**Labor shortages and union activitycan affect our ability to hire workers to harvest and distribute our crops,which can hurt our financial condition**

 

Theproduction of fresh produce is heavily dependent upon the availability of alarge labor force to harvest crops.  Theturnover rate among the labor force is high due to the strenuous work, longhours, necessary relocation and relatively low pay.  If it becomes necessary to pay more to attract labor to farmwork, our labor costs will increase.

 

TheMexican farm work force retained by ABSA is unionized.  If the union attempts to disrupt productionand is successful on a large scale, labor costs will likely increase and workstoppages may be encountered, which would be particularly damaging in ourindustry where harvesting crops at peak times and getting them to market on atimely basis is critical.  The majorityof fresh produce is shipped by truck. In the United States and in Mexico, the trucking industry is largelyunionized and therefore susceptible to labor disturbances.  As a result, delivery delays caused by labordisturbances in the trucking industry or any other reason could limit ourability to get fresh produce to market before it spoils.

 

**ABSA’s partnership with one largeMexican grower could adversely affect the Company’s sales and profit**

 

ABSArecently entered into a partnership arrangement with a large Mexican grower toenable it to plant and harvest production during the Todos Santos growingseason from August through December of 2003.  While the company expects the produce grownthrough the partnership to be distributed by the Company’s distributioncompanies, one of the terms of the partnership contract provides that undercertain circumstances up to 50% of the production may be distributed bycompanies other than Bionova Holding’s subsidiaries.  If a substantial portion of the production is diverted to othercompanies, Bionova Holding’s U.S. distribution companies will experiencedecreased volume, revenues and profits, and may encounter difficultiesachieving compliance with bank covenants.

 

**ABSA’s reliance on leases andproduction associations could result in increased costs, which could adverselyaffect our financial results**

 

ABSArelies on agricultural land leased from others and contract production withthird party growers for a large part of its supply.  The average term of the land leases is two years and we expect torenew most of these land leases as they expire.  If the other parties to these leases were to choose not to renewtheir agreements with ABSA, ABSA would be required to locate alternate sourcesof supply and/or land or, in some cases, to pay increased rents for land.  In addition to increased rental rates,increases in

 

19

----

 

land costs could resultfrom increases in water charges, property taxes and related expenses.  Contract production with third party growersare generally arranged three to six months prior to each growing season.  The provisions of the contracts with thesegrowers may change from year to year, which can affect the amount of supply,the prices of the produce, and the cost and profit sharing arrangements amongthe parties.  If these other growerschoose not to renew their contracts, ABSA would be required to locate alternatesources of supply, which may or may not be available.

 

**Legal limitations could affect ourownership of rural land in Mexico, which could decrease our supply of producecausing a decrease in our revenues and profitability**

 

ABSAowns a substantial amount of rural land in Mexico, which it uses to grow freshfruits and vegetables.  Historically,the ownership of rural land in Mexico has been subject to legal limitations andclaims by residents of rural communities, which in some cases could lead to theowner being forced to surrender its land. ABSA has been involved in land dispute proceedings as part of itsordinary course of business.  ABSA hasnever lost any money in these land disputes, but if ABSA were ever required tosurrender any of its land, the volume of fresh fruits and vegetables itproduces would decline and adversely affect our profitability.

 

**RISKS RELATING TO OUR INTERNATIONALOPERATIONS**

 

**Currency fluctuations and inflationcan increase the cost of our products in the United States and abroad, whichdecreases our revenues and profitability**

 

Whilecurrency exchange rates in Mexico have been relatively stable over the pastthree years, previous history has shown that these rates can be highlyvolatile.  For example, inDecember 1994, the Mexican government announced its intention to float theMexican peso against the United States dollar and, as a result, the pesodevalued 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 andtherefore more difficult to sell in the Mexican market; and (ii) inflation thatgenerally accompanies reductions in the value of the peso reduces thepurchasing power of Mexican consumers, which reduces the demand for allproducts including produce and, in particular, imported, branded or otherpremium-quality produce.  Conversely,if the value of the peso increases relative to the value of the dollar, Mexicanproduction costs increase in dollar terms, which results in lower margins orhigher prices with respect to produce grown in Mexico and sold in the UnitedStates and Canada.

 

**Volatile interest rates in Mexico canincrease our capital costs**

 

Historically,interest rates in Mexico have been volatile, particularly in times of economicunrest and uncertainty.  High interestrates restrict the availability and raise the cost of capital for our Mexicansubsidiaries and for growers and other Mexican parties with whom we dobusiness, both for borrowings denominated in pesos and for borrowingsdenominated in dollars.  Costs ofoperations for our Mexican subsidiaries are higher as a result.

 

**Trade disputes between the UnitedStates and Mexico can result in tariffs, quotas and bans on imports, includingour products, which can hurt our financial condition**

 

Despitethe enactment of the North American Free Trade Agreement, Mexico and the UnitedStates from time to time are involved in trade disputes.  The United States has, on occasion, imposedtariffs, quotas, and importation bans on products produced in Mexico.  U.S. tomato growers have brought dumpingclaims 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.

 

20

----

 

**GENERAL BUSINESS RISKS**

 

**Savia and Ag-Biotech Capital, LLC havesubstantial control over the Company and can affect virtually all decisionsmade by its stockholders and directors**

 

Ag-BiotechCapital, LLC beneficially owns 18,076,839 shares of our common stock accountingfor 78.5% of all outstanding shares.  Asa result, Ag-Biotech Capital, LLC has the requisite voting power tosignificantly affect virtually all decisions made by the Company and itsstockholders, including the power to elect all directors and to block corporateactions such as an amendment to most provisions of the Company’s certificate ofincorporation.  This ownership andmanagement structure will inhibit the taking of any action by the Company thatis not acceptable to Ag-Biotech Capital, LLC.

 

**We may not be able to adapt ourmanagement information systems and controls to keep pace with our futurebusiness strategy, which could hurt our financial condition**

 

Therealization of our business strategy depends on, among other things, ourability to adapt management information systems and controls and to hire, trainand retain qualified employees to allow these operations to be effectivelymanaged.  The geographic separation ofour subsidiaries’ operations exacerbates these issues.

 

Allsubsequent written and oral forward-looking statements attributable to theCompany or persons acting on its behalf are expressly qualified in theirentirety by the cautionary statements disclosed in this section andotherwise in this report.

 

**ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk**

 

**Interest Rate Risk**

 

Thetable below provides information about the Company’s derivative financialinstruments consisting primarily of debt obligations that are sensitive tochanges in interest rates.  For debtobligations, the table presents principal cash flows and related weightedaverage interest rates by expected (contractual) maturity dates.  Notional amounts are used to calculate thecontractual payments to be exchanged under the contracts.  Weighted average variable rates are based onimplied forward rates in the yield curve on September 30, 2003.  The information is presented in U.S. dollarequivalents, 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** |   | **2008 -  2012** |   | **Total** |   | **Fair  Value** |   |
|----------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|------------------|--------|-----------|--------|-----------------|--------|
| Short-term debt:                             |   |     |   |     |   |     |   |     |   |     |   |             |   |      |   |            |   |
| ($US equivalent  in millions)                |   |     |   |     |   |     |   |     |   |     |   |             |   |      |   |            |   |
| U.S. dollar variable rate                    |   | $        | 1.6    |     | — |     | — |     | — |     | — |             | — |      | $      | 1.6             |   | $ | 1.6 |   |
| Average interest rate                        |   | 5.5      | %      |     |   |     |   |     |   |     |   |             |   | 5.5       | %      | 5.5             | %      |
| Peso variable rate (in $US)                  |   | —   |   | —   |   | —   |   | —   |   | —   |   | —           |   | —    |   | —          |   |
| Long-term debt:                              |   |     |   |     |   |     |   |     |   |     |   |             |   |      |   |            |   |
| U.S. dollar fixed rate                       |   | 0.1      |   | 0.1      |   | 0.2      |   | 0.1      |   | —   |   | —           |   | 0.5       |   | 0.5             |   |
| Average interest rate                        |   | 8        | %      | 8        | %      | 8        | %      | 8        | %      |     |   |             |   | 8         | %      | 8               | %      |
| U.S. dollar variable rate  (Prime plus 1.5%) |   | 0.1      |   | 0.1      |   | 0.1      |   | 0.1      |   | 0.1      |   | 0.3              |   | 0.8       |   | 0.8             |   |
|                                              |        |          |        |          |        |          |        |          |        |          |        |                  |        |           |        |                 |        |  |  |  |

 

TheCompany tries to use the most cost-effective means to fund its operating andcapital needs.  Fixed or variable debtwill be borrowed in both U.S. dollars and Mexican pesos.  The Company borrows Mexican pesos to providefor its working capital needs in its Mexican operations.  To minimize exchange risk associated withthe importation of products, the Company will enter into forward exchange contractswhere the functional currency to be used in the transaction is dollars.

 

21

----

 

**Exchange Rate Risk**

 

AtSeptember 30, 2003 the Company did not hold any financial instrumentssubject to exchange rate risk.

 

TheCompany is exposed to U.S. dollar-to-Mexican peso currency exchange risk due torevenues and costs denominated in Mexican pesos associated with its Mexicansubsidiary, ABSA.  The Company expectsit will continue to be exposed to currency exchange risks in the future.

 

**Commodity Price Risk**

 

Thetable below provides information about the Company’s fresh produce growingcrops inventory and fixed price contracts that are sensitive to changes incommodity prices.  For inventory, thetable presents the carrying amount and fair value at December 31,2002.  For the fixed price contracts,the table presents the notional amounts in Boxes, the weighted average contractprices, and the total dollar contract amount by expected maturity dates, thelatest of which occurs within one year from the reporting date.  Contract amounts are used to calculate thecontractual payments and quantity of fresh produce to be exchanged underfutures contracts.

 

22

----

 

**AtDecember 31, 2002**

 
|                                                        |   | **Carrying  Amount** |   | **Fair  Value** |   |
|-------------------------------------------------------------|--------|----------------------|--------|-----------------|--------|
|                                                        |   |                 |   |            |   |
| On-balance sheet commodity position:                        |   |                 |   |            |   |
| Fresh produce crops in process inventory ($US in  millions) |   | $                    | 1.870  |            | $      | 1.870 |   |
|                                                        |   |                 |   |            |   |
|                                                        |   |                 |   |            |   |
| 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 |   |

 

Inorder to manage the exposure to commodity price sensitivity associated withfresh produce products, the Company enters into fixed price contracts with certaincustomers which guarantee specified volumes for the growing season or the yearat a fixed price.

 

**Item 4.   Controls and Procedures**

 

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

 

Underthe supervision and with the participation of our management, including ourchief executive officer and chief financial officer, we conducted an evaluationof our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934) as of the end of the periodcovered by this report. Based on this evaluation, our chief executive officerand chief financial officer concluded that our disclosure controls andprocedures need improvement. (See Item 4(b) below.)

 

(b)  *Changes in internal controls*

 

Inconnection with the preparation of the Company’s consolidated financialstatements as of and for the year ended December 31, 2002, and based on amore recent review in the preparation of the Company’s consolidated financialstatements for the quarter ended September 30, 2003, management inconjunction with our independent accountants identified certain deficiencies inthe Company’s internal control procedures over financial reporting that wouldbe deemed to be a material weakness under standards established by the AmericanInstitute of Certified Public Accountants. The deficiencies relate to (i) the Company’s accounting and financialreporting infrastructure for collecting, analyzing, and consolidatinginformation to prepare the consolidated financial statements for the Company(ii) issues associated with timely and consistent reconciliation of theCompany’s and its subsidiaries’ bank accounts, inventories, and intercompanyaccounts, (iii) the timely and complete revelation of material contractsentered into by subsidiaries of the Company, 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 has (i) made certain changes to theconsolidating systems and procedures for financial statement preparation andthe timely and consistent reconciliation of bank accounts, inventories, andintercompany accounts during 2003, (ii) added another accounting manager inMexico to support this activity, and (iii) improved the communication such thatmaterial contracts are now being reported in a timely manner.  Despite these changes, serious weaknessesare still being encountered, and the Company’s controller in Mexico and itsTodos Santos farming operations recently resigned.  Efforts will continue to improve the consolidating systems and proceduresfor financial statement preparation over the next several months.  The Company also will focus on recruitingthe appropriate personnel to overcome the deficiencies created by the recentresignations.

 

23

----

 

**PART II – OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

OnJanuary 7, 1999, a class action lawsuit styled *Gordon K. Aaron et al. v. Empresas laModerna, S.A. de C.V., et al.* was filed in the U.S. federal districtcourt for the Northern District of California. On January 28, 1999, a substantially identical class action lawsuitstyled *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 ofBionova Holding on September 26, 1996, they owned shares of DNAP’sPreferred Stock.  In connection with theMerger, all of the shares of common stock and Preferred Stock of DNAP wereconverted into the number of shares of common stock of Bionova Holdingspecified in the Merger Agreement.  Theplaintiffs allege that the Proxy Statement/Prospectus distributed to DNAP’s stockholdersin connection with the merger contained material misrepresentations and omittedto state 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, andsubsequently the plaintiffs filed an amended complaint with respect to some ofthe dismissed claims.  OnSeptember 19, 2000, the court ruled in favor of Bionova Holding and DNAPand dismissed all of the plaintiffs’ claims. The plaintiffs appealed thisjudgment to the U.S. Court of Appeals for the Ninth Circuit, which heardarguments on the matter on February 12, 2002.  On September 13, 2002, the Ninth Circuit affirmed thedismissal of some of the claims, including all of the claims against DNAP, andreversed the dismissal of others.  Theremaining claims were remanded to the trial court for further proceedings.  The named plaintiffs have reached anagreement to settle the case, and the court approved the settlement at ahearing on November 19, 2003. Bionova Holding and DNAP deny any wrongdoing and liability in thismatter.

 

**Item 5.  Other Information**

 

**Resignations and Elections ofDirectors and Officers**

 

OnNovember 12, 2003 Mr. Alejandro Sanchez Mujica resigned his position as adirector of Bionova Holding.  At theCompany’s Board of Directors meeting on November 13, 2003, Mr. Jose ManuelGarcia, Chief Executive Officer of the Company, was elected to serve as adirector of the Company and also elected to be Chairman of the Board of Directors.  Mr. Fidel Hoyos, President of the Company’sfresh produce business, was elected to serve as Chief Operating Officer ofBionova Holding.

 

**Listing on the American StockExchange**

 

OnOctober 15, 2003, the Company was informed of the intention of the AmericanStock Exchange (“AMEX” or the “Exchange”) to proceed to file an applicationwith the Securities and Exchange Commission to strike the Company’s commonstock from listing and registration on the Exchange.  The Exchange Staff stated this action was being taken because theCompany is not in compliance with three of the standards for continued listing,as follows:  (1) the Company’sstockholders’ equity is less than $2 million and it has sustained losses fromcontinuing operations and/or net losses in two of its three most recent fiscalyears; (2) the Company’s stockholders’ equity is less than $4 million and ithas sustained losses from continuing operations and/or net losses in three ofits four most recent fiscal years; and (3) the Company has sustained losseswhich are so substantial in relation with its overall operations or itsexisting financial resources, or its financial condition has become so impairedthat it appears questionable, in the opinion of the Exchange, as to whether itwill be able to continue operations and/or meets its obligations as theymature.

 

BionovaHolding appealed the determination of the Staff and submitted a letter to theGeneral Counsel for Listing Qualifications to support the Company’s positionfor continued listing on the

 

24

----

 

Exchange.  On November 24, 2003, Bionova Holdinglearned that the panel hearing this appeal rejected the Company’s appeal andbegan the process of delisting Bionova Holding’s common stock.  The Company’s shares are now trading on thepink sheets under the symbol BVAH.PK since the AMEX halted trading of BionovaHolding’s stock within days after the panel hearing.

 

**Controlling Stockholder; Conflicts ofInterest**

 

Approximately78.5% of the outstanding shares of common stock of the Company are owned ofrecord by Ag-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.

 

Certainof the Company’s directors and executive officers are also currently serving asboard members or executive officers of Savia or companies related to Savia, andit is expected that each will continue to do so. Such managementinterrelationships and intercorporate relationships may lead to possibleconflicts of interest.

 

TheCompany and other entities that may be deemed to be controlled by or affiliatedwith Savia sometimes engage in (i) intercorporate transactions such asguarantees, management and expense sharing arrangements, shared fee arrangements,joint ventures, partnerships, loans, options, advances of funds on open accountand sales, 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.

 

**Item 6. Exhibits and Reports on Form8-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 by reference). |
|               |   |   |
| 3.2                |   | Certificate of Amendment to the Certificate of Incorporation of the  Company effective September 26, 1996 (filed as an exhibit to the  Company’s quarterly report on Form 10-Q for the quarterly period ended  June 30, 1996 and incorporated herein by reference). |
|               |   |   |
| 3.3                |   | Certificate of Amendment to the Certificate of Incorporation of the  Company effective April 28, 1999 (filed as an exhibit to the Company’s  Quarterly report on Form 10-Q for the  quarterly period ended March 31,  1999 and incorporated herein by reference). |
|               |   |   |
| 3.4                |   | Bylaws of the Company (filed as an exhibit to the Company’s annual  report on Form 10-K for the year ended December 31, 1998 and  incorporated herein by reference). |

 

25

----

 
| 4.1    |   | Certificate of  Designations for Series A Convertible Preferred Stock (filed as an exhibit to  the Company’s current report on Form 8-K filed on January 12, 2001 and  incorporated herein by reference).                                                                                                                                                                                                |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1   |   | Form of  Indemnification Agreement between the Company and its directors and officers  (filed as an exhibit to the Company’s current report on Form 8-K dated  September 5, 2003 and incorporated herein by reference).                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2   |   | Transfer  Agreement of Equity Participations dated June 13, 2003 among the  Company, Agromod, S.A. de C.V., Agrobionova, S.A. de C.V., Tecnología  Aplicada en Procesos, S. de R.L. de C.V., Grupo Metalsa, S.A. de C.V., and  Promo-Tow, S. de R.L. de C.V. (filed as an exhibit to the Company’s  current report on Form 8-K dated September 5, 2003 and incorporated  herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3   |   | Credit and  Security Agreement among Bionova Produce, Inc., R.B. Packing of California,  Inc., Bionova Produce of Texas, Inc. (collectively, jointly and severally the  Borrower), and Wells Fargo Credit, Inc. dated December 5, 2002 (filed as  an exhibit to the Company’s current report on Form 8-K dated  September 5, 2003 and incorporated herein by reference).                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4   |   | First Amendment to Credit and Security Agreement dated June 13,  2003  (filed as an exhibit to  the Company’s current report on Form 8-K dated September 5, 2003 and  incorporated herein by reference).                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.1   |   | Certification of  Jose Manuel Garcia pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e)                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.2   |   | Certification of  Arthur H. Finnel pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e)                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 32.1   |   | Certification of  Jose Manuel Garcia pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 32.2   |   | Certification of  Arthur H. Finnel pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                                                                                                                                |

 

(b)  Reports on Form 8-K

 

OnSeptember 5, 2003, the Company filed a Current Report on Form 8-K datedSeptember 5, 2003, reporting “Other Events and Regulation FD Disclosure,”including information regarding the Company’s bank loans, sale of a subsidiary,cash situation, and entering into indemnification agreements with directors andofficers.

 

Thecompany filed no other reports on Form 8-K during the three month period endedSeptember 30, 2003.

 

26

----

 

**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 by reference).                                                                                                                                                                                                                          |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.2    |   | Certificate of Amendment to the Certificate of Incorporation of the  Company effective September 26, 1996 (filed as an exhibit to the  Company’s quarterly report on Form 10-Q for the  quarterly period  ended  June 30, 1996 and incorporated herein by reference).                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.3    |   | Certificate of Amendment to the Certificate of Incorporation of the  Company effective April 28, 1999 (filed as an exhibit to the Company’s  Quarterly report on Form 10-Q for the  quarterly period ended March 31,  1999 and incorporated herein by reference).                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.4    |   | Bylaws of the Company (filed as an exhibit to the Company’s annual  report on Form 10-K for the year ended December 31, 1998 and  incorporated herein by reference)                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.1    |   | Certificate of  Designations for Series A Convertible Preferred Stock (filed as an exhibit to  the Company’s current report on Form 8-K filed on January 12, 2001 and  incorporated herein by reference).                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1   |   | Form of  Indemnification Agreement between the Company and its directors and officers  (filed as an exhibit to the Company’s current report on Form 8-K dated  September 5, 2003 and incorporated herein by reference).                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2   |   | Transfer  Agreement of Equity Participations dated June 13, 2003 among the  Company, Agromod, S.A. de C.V., Agrobionova, S.A. de C.V., Tecnología  Aplicada en Procesos, S. de R.L. de C.V., Grupo Metalsa, S.A. de C.V., and  Promo-Tow, S. de R.L. de C.V. (filed as an exhibit to the Company’s  current report on Form 8-K dated September 5, 2003 and incorporated  herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3   |   | Credit and  Security Agreement among Bionova Produce, Inc., R.B. Packing of California,  Inc., Bionova Produce of Texas, Inc. (collectively, jointly and severally the  Borrower), and Wells Fargo Credit, Inc. dated December 5, 2002 (filed as  an exhibit to the Company’s current report on Form 8-K dated  September 5, 2003 and incorporated herein by reference).                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4   |   | First Amendment to Credit and Security Agreement dated June 13,  2003  (filed as an exhibit to  the Company’s current report on Form 8-K dated September 5, 2003 and  incorporated herein by reference).                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.1   |   | Certification of  Jose Manuel Garcia pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e)                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.2   |   | Certification of  Arthur H. Finnel pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e)                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 32.1   |   | Certification of  Jose Manuel Garcia pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 32.2   |   | Certification of  Arthur H. Finnel pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                                                                                                                                |

 

27

----

 

**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:  December 2, 2003 |   | By:  /s/ ARTHUR H. FINNEL |   |
|   |                              | Arthur H. Finnel |   |
|   |                              | Chief Financial Officer |   |

 

28

----