<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the quarterly
period ended March 31, 1999
or
/_/ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period
from ________ to _________
Commission File Number: 0-12177
BIONOVA HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2632242
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6701 San Pablo Avenue
Oakland, California 94608
(Address of principal executive offices) (Zip Code)
(510) 547-2395
(Registrant's telephone number, including area code)
DNAP Holding Corporation
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of May 10, 1999, 23,588,031 shares of common stock, par value $0.01 per
share, of Bionova Holding Corporation were outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIONOVA HOLDING CORPORATION
CONSOLIDATED BALANCE SHEET
THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 34,991 $ 15,405
Accounts receivable ................................................ 26,991 28,220
Advances to growers ................................................ 15,815 12,186
Inventories ........................................................ 10,864 16,478
Other current assets ............................................... 2,257 1,763
-------------- -------------
Total current assets .......................................... 90,918 74,052
-------------- -------------
Property, plant and equipment, net ................................. 40 086 38,611
Patents and trademarks, net ........................................ 16,623 17,025
Goodwill, net ...................................................... 29,110 29,539
Deferred income taxes .............................................. 4,231 4,174
Other assets ....................................................... 20,080 4,285
-------------- -------------
Total assets .................................................. $ 201,048 $ 167,686
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans .............................................. $ 26,318 $ 79,751
Current portion of long-term debt .................................. 1,509 1,558
Accounts payable and accrued expenses .............................. 20,204 26,075
Accounts due to related parties .................................... 4,850 7,396
Deferred income taxes .............................................. 5,315 5,315
-------------- -------------
Total current liabilities ..................................... 58,196 120,095
Long-term debt ..................................................... 104,210 4,225
-------------- -------------
Total liabilities ............................................. 162,406 124,320
-------------- -------------
Minority interest .................................................. 1,446 1,249
-------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized, no shares
issued and outstanding ........................................... -- --
Common stock, $.01 par value, 25,000,000 shares authorized,
23,588,031 shares issued and outstanding ......................... 236 236
Additional paid-in capital ......................................... 107,918 107,918
Accumulated deficit ................................................ (70,762) (65,845)
Accumulated other comprehensive income (loss) ...................... (196) (192)
-------------- -------------
Total stockholders' equity ......................................... 37,196 42,117
-------------- -------------
Total liabilities and stockholders' equity ......................... $ 201,048 $ 167,686
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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BIONOVA HOLDING CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE INCOME AND LOSS
THOUSANDS OF U.S. DOLLARS
(EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Total revenues .............................................. $ 58,348 $ 70,483
------------------ ------------------
Cost of sales ............................................... 53,592 61,943
Selling and administrative expenses ......................... 6,056 5,170
Research and development expenses ........................... 1,507 1,371
Amortization of goodwill, patents and trademarks ............ 804 732
------------------ ------------------
61,959 69,216
------------------ ------------------
Operating income (loss) ..................................... (3,611) 1,267
------------------ ------------------
Interest expense ............................................ (2,292) (1,750)
Interest income ............................................. 702 189
Exchange gain (loss), net ................................... 137 186
------------------ ------------------
(1,453) (1,375)
------------------ ------------------
Income (loss) before income tax ............................. (5,064) (108)
Income tax benefit (expense) ................................ (169) (279)
------------------ ------------------
Net income (loss) before minority interest .................. (5,233) (387)
Minority interest in net loss (income) of subsidiaries...... 316 (313)
------------------ ------------------
Net income (loss) ........................................... (4,917) (700)
Other comprehensive income (expense) net of tax:
Foreign currency translation adjustments ................ (4) (2)
------------------ ------------------
Comprehensive income (loss) ................................. $ (4,921) $ (702)
------------------ ------------------
------------------ ------------------
Net income (loss) per share - basic and diluted ............. $ (0.21) $ (0.04)
------------------ ------------------
------------------ ------------------
Weighted average number of common shares outstanding ........ 23,588,031 18,370,640
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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<PAGE>
BIONOVA HOLDING CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ........................................... $ (4,917) $ (700)
Items not affecting cash:
Minority interest ......................................... (316) 313
Depreciation .............................................. 961 858
Amortization of goodwill, patents and trademarks .......... 804 732
Deferred income taxes ..................................... -- 24
Gain from sale of property, plant and equipment ........... 1 --
Net changes (exclusive of subsidiaries acquired or divested) in:
Accounts receivable and advances to growers, net .......... (1,904) (3,077)
Inventories ............................................... 5,614 4,682
Accounts payable and accrued expenses ..................... (5,870) (2,488)
Other assets .............................................. ( 733) (224)
------------------ ------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES .................................................. (6,360) 120
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment .................. (2,573) (1,318)
Proceeds from divestiture of Van Namen, net of cash divested -- 637
------------------ ------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES .................................................. (2,573) (681)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings ......................... (53,482) (3,857)
Net change in long-term borrowings .......................... 99,985 (34)
Debt issuance costs ......................................... (3,000) --
Accounts due to related parties ............................. (2,546) 3,494
Restricted cash ............................................. (12,438) --
------------------ ------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES .................................................. 28,519 (397)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents ........ 19,586 (958)
Cash at beginning of year ................................... 15,405 6,600
------------------ ------------------
Cash at end of period ....................................... $ 34,991 $ 5,642
------------------ ------------------
------------------ ------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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<PAGE>
BIONOVA HOLDING CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - BASIS OF PRESENTATION
Bionova Holding Corporation (together with its subsidiaries,
"Bionova Holding" or the "Company"), changed its name on April 28, 1999 from
DNAP Holding Corporation. The Company is a subsidiary of Bionova, S.A. de
C.V., a Mexican corporation ("Bionova Mexico"), and acts as a holding company
for (i) Agrobionova, S.A. de C.V., of which the Company owns 80% ("ABSA"),
(ii) International Produce Holding Company, of which the Company owns 100%
("IPHC"), (iii) DNA Plant Technology Corporation, of which the Company owns
100% ("DNAP"), and (iv) VPP Corporation, of which the Company owns 100%
("VPP").
NOTE 2 - GENERAL
In management's opinion, the accompanying unaudited consolidated
financial statements for Bionova Holding for the three months ended March 31,
1999 and 1998 have been prepared in accordance with generally accepted
accounting principles for interim financial statements and include all
adjustments (consisting only of normal recurring accruals) that the Company
considers necessary for a fair presentation of its financial position,
results of operations, and cash flows for such periods. However, the
accompanying financial statements do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. All such financial statements are unaudited except the
December 31, 1998 balance sheet. This report and the accompanying unaudited
and audited financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto presented in its
1998 Annual Report for the fiscal year ended December 31, 1998. Footnotes
which would substantially duplicate disclosures in the Company's audited
financial statements for the fiscal year ended December 31, 1998 contained in
the 1998 Annual Report have been omitted. The interim financial information
contained herein is not necessarily indicative of the results to be expected
for any other interim period or the full fiscal year ending December 31, 1999.
NOTE 3 - NET LOSS PER COMMON SHARE
The weighted average number of common shares outstanding during
the three months ended March 31, 1999 and 1998 was 23,588,031 and 18,370,640,
respectively.
NOTE 4 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- --------
<S> <C> <C>
Finished produce ................................................... $ 3,104 $ 2,756
Growing crops ...................................................... 3,213 8,020
Advances to suppliers .............................................. 601 299
Spare parts and materials .......................................... 3,313 3,977
Merchandise in transit and other ................................... 1,121 1,566
-------- --------
11,352 16,618
Allowance for slow moving inventories .............................. (488) (140)
-------- --------
$ 10,864 $16,478
-------- --------
-------- --------
</TABLE>
NOTE 5 - FINANCING
On March 22, 1999, the Company issued $100 million of Senior
Guaranteed Floating Rate Notes due 2002. The key provisions of this credit
arrangement consist of (i) a payment of the entire principal amount on the
third anniversary following closing, (ii) prepayments at the option of the
Company with no penalties, (iii) an interest rate of LIBOR plus 7%, (iv) up
front fees of $3 million to the lead banks which arranged the financing, and
(v) requirements that the Company must keep one year's worth of interest in
an interest bearing reserve account and that all existing short-
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<PAGE>
term financing must be paid off with the proceeds of this loan. The contract
also provides that the Company is permitted to obtain up to $30 million in
new financing for working capital purposes. This credit facility is fully
guaranteed by SaVIA, S.A. de C.V. ("SaVIA", formerly known as Empresas La
Moderna, S.A. de C.V.). Certain restrictions were placed on the Company with
respect to capital investments, acquisitions, and use of proceeds from asset
sales. While there are no financial covenants in the contract insofar as
Bionova Holding is concerned, SaVIA and some of its affiliates are obligated
to meet certain covenants.
NOTE 6 - RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 7 - SEGMENT REPORTING
Effective December 31, 1998, the Company adopted FAS 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company classifies its business into three fundamental areas: FARMING, which
consists principally of interests in 100% Company-owned fresh produce
production facilities and joint ventures with other growers; DISTRIBUTION,
consisting principally of interests in sales and distribution companies in
Mexico, the United States, and Canada; and RESEARCH AND DEVELOPMENT,
consisting of business units focused on the development of fruits and
vegetables and intellectual properties associated with these development
efforts.
Information pertaining to the operations of these different business
segments is set forth below. The Company evaluates performance based on
several factors. The most significant financial measure used to evaluate
business performance is business segment operating income. Inter-segment
sales are accounted for at fair value as if the sales were to third parties.
Segment information includes the allocation of corporate overhead to the
various segments, as looked at from the point of view of the segment
presidents, and all acquired goodwill has been pushed down to the companies
and segments that have made the acquisitions.
<TABLE>
<CAPTION>
($000'S)
Total of
Research and Reportable
Farming Distribution Development Segments
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
JAN. 1 - MARCH 31, 1999
Revenues from unaffiliated customers........... $ 329 $ 56,175 $ 1,844 $ 58,348
Inter-segment revenues......................... 20,527 -- -- 20,527
------------- ------------- -------------- --------------
Total revenues................................. 20,856 56,175 1,844 78,875
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Operating income (loss)........................ (2,596) (257) (758) (3,611)
Depreciation and amortization.................. 942 339 484 1,765
Identifiable assets at March 31 (1)............ 76,070 56,456 50,377 182,903
Acquisition of long-lived assets............... 2,106 439 28 2,573
JAN. 1 - MARCH 31, 1998
Revenues from unaffiliated customers........... $ 230 $ 69,038 $ 1,215 $ 70,483
Intersegment transfers......................... 25,276 -- -- 25,276
------------- ------------- -------------- --------------
Total revenues................................. 25,506 69,038 1,215 95,759
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Operating income (loss)........................ 455 1,842 (1,030) 1,267
Depreciation and amortization.................. 834 317 439 1,590
Identifiable assets at March 31 (1)............ 67,216 47,698 34,938 149,852
Acquisition of long-lived assets............... 1,156 162 -- 1,318
</TABLE>
NOTES:
1. IDENTIFIABLE ASSETS for segments are defined as total assets less cash in
banks, deferred income taxes and investment in shares.
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<PAGE>
Reconciliation of the segments to total consolidated amounts is
set forth below:
<TABLE>
<CAPTION>
($000'S)
JAN. 1 - MARCH 31
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
Total segment revenues ........................................... $ 78,875 $ 95,759
Eliminations of inter-segment revenues ........................... (20,527) (25,276)
--------- --------
Consolidated revenues ............................................ 58,348 $ 70,483
--------- --------
--------- --------
INCOME BEFORE TAXES
Total operating income (loss) from reportable segments ........... $ (3,611) $ 1,267
Interest, net .................................................... (1,590) (1,561)
Exchange gain (loss) ............................................. 137 186
--------- --------
Consolidated income (loss) before taxes .............................. $ (5,064) $ (108)
--------- --------
--------- --------
ASSETS
Total segment identifiable assets ................................ $ 182,903 $149,852
Unallocated and corporate assets (1) ............................ 59,136 9,666
Eliminations (2) ................................................ (40,991) (24,992)
--------- --------
Consolidated assets .............................................. $ 201,048 $134,526
--------- --------
--------- --------
</TABLE>
NOTES:
1. Includes Bionova Holding's and segments' cash in banks, deferred income taxes
and other corporate assets.
2. Consists principally of inter-segment intercompany balances.
Revenue from external customers by product / service category is set
forth below:
<TABLE>
<CAPTION>
($000'S)
Total of
Research and Reportable
Farming Distribution Development Segments
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
JAN. 1 - MARCH 31, 1999
Core vegetables (1) .............................. $34,019 $34,019
Fruits and other fresh produce (2) ............... $ 329 22,156 22,485
Contracted R&D revenue ........................... $ 1,631 1,631
Licensed technology and royalties ................ 213 213
JAN. 1 - MARCH 31, 1998
Core vegetables (1) .............................. $48,495 $48,495
Fruits and other fresh produce (2) ............... $ 230 20,543 20,773
Contracted R&D revenue ........................... $ 710 710
Licensed technology and royalties ................ 505 505
</TABLE>
NOTES:
1. Core vegetables include tomatoes, bell peppers and cucumbers.
2. Fruits and other fresh produce include papayas, mangoes, grapes, melons,
watermelons and others.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE COMPANY
Bionova Holding Corporation (formerly known as DNAP Holding
Corporation), a Delaware corporation (together with its subsidiaries, unless
the context requires otherwise, "Bionova Holding" or the "Company"), was
formed 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 Mexican
States, of which the Company owns 80% ("ABSA"), (ii) International Produce
Holding Company, a Delaware corporation, of which the Company owns 100%
("IPHC"), (iii) DNA Plant Technology
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<PAGE>
Corporation, a Delaware corporation, of which the Company owns 100% ("DNAP"),
and (iv) VPP Corporation, a Delaware corporation, of which the Company owns
100% ("VPP"). The Company acquired majority interests in ABSA and IPHC on
July 1, 1996, by means of a capital contribution from Bionova S.A. de C.V.
("Bionova Mexico"), and on October 7, 1997, acquired all of the minority
interests in IPHC and increased its ownership interest in ABSA to 80%. DNAP
became a wholly-owned subsidiary of the Company on September 26, 1996, as a
result of the merger (the "Merger") of Bionova Acquisition, Inc., a Delaware
corporation that was a wholly-owned subsidiary of the Company, with and into
DNAP. VPP was formed as a wholly-owned subsidiary of the Company on August
18, 1997. As of October 6, 1998, approximately 76.6% of the outstanding
common stock of the Company is indirectly owned by SaVIA, S.A. de C.V.
("SaVIA", formerly known as Empresas La Moderna, S.A. de C.V.).
ABSA engages in the business of growing fresh fruits and vegetables,
primarily tomatoes and peppers, in Mexico and exporting fresh produce to the
United States and other markets. ABSA owns a 50.01% interest in Interfruver
de Mexico, S.A. de C.V., a corporation organized under the laws of the United
Mexican States ("Interfruver"), which engages in the business of marketing
and distributing fresh produce in Mexico, including fruits and vegetables
produced by ABSA. IPHC is a holding company whose subsidiaries are in the
business of marketing and distributing fresh produce primarily in the United
States and Canada, including fruits and vegetables produced by ABSA. DNAP is
an agribusiness biotechnology company focused on the development and
application of genetic engineering and transformation technologies in plants
and, together with its subsidiaries (including FreshWorld Farms, Inc.), the
development and marketing of premium, differentiated, fresh and processed,
branded fruits and vegetables. VPP is an agribusiness biotechnology company
focused on the development and application of genetic engineering and
transformation technologies in vegetatively propagated plants.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1998
Revenues decreased by 17% from $70.5 million in the first quarter of 1998 to
$58.3 million in the first quarter of 1999. This significant decline in sales
was the direct consequence of low production volumes stemming from the
unusually cold weather conditions that persisted in the state of Sinaloa,
Mexico from December 1998 through April 1999. The sales of all of the
distribution companies were down significantly, other than Interfruver in
Mexico and Premier Fruits and Vegetables in Canada. Both of these companies
posted 4% gains over prior year as they have a more diversified line of
products than do the U.S. companies and therefore source more of their
production outside of Bionova Holding's agricultural operations. Revenues of
the U.S. distribution companies declined by $13.7 million. DNAP's revenues
increased by $0.6 million due to higher contract revenues.
Gross profit (sales less cost of sales) declined from a profit of $8.5
million in the first quarter of 1998 to $4.8 million in the same quarter of
1999. Farming gross profit declined from $1.6 million in the first quarter of
1998 to a negative gross profit of $1.1 million in the first quarter of 1999.
The negative gross profit in the first quarter of 1999 stemmed from the very
poor production output of 2.9 million boxes, as compared with 3.7 million
boxes in the first quarter of 1998, a 23% decline. Also, because some of the
production did not meet U.S. quality requirements, a higher percentage of
product was shipped into the Mexican market than is normal. Mexican product
prices were significantly lower than prices in the United States and Canada.
The gross profit of the distribution companies, which declined by 26% from
$5.5 million in the first quarter of 1998 to $4.1 million in the first
quarter of 1999 followed directly from the lower sales volumes. An additional
factor that affected the gross profit of certain of the distribution
companies was the need to purchase product on the spot market at high prices
to satisfy customer commitments they had made in anticipation of being
sourced with product from Mexico that was not forthcoming. DNAP's gross
profit increased by $0.6 million due to the increase in contract revenues.
Selling and administrative expenses increased from $5.2 million in
the first quarter of 1998 to $6.1 million in the first quarter of 1999. This
$0.9 million increase was due to the annual salary and wage increases at ABSA
for Mexican inflation during the past year, the addition of new staff in the
sales and distribution segment of the business in anticipation of growing the
business during 1999, and increased expense to improve the Company's
management information systems.
Research and development expenses increased from $1.4 million in the
first quarter of 1998 to $1.5 million in the first quarter of 1999. This
increase was attributable to the start up of activities during the first
quarter of 1999 in VPP
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<PAGE>
Corporation, Bionova Holding's subsidiary that is working on the development
of the strawberry program following the acquisition of Monsanto Company's
strawberry assets.
The non-cash charge for amortization of goodwill, patents and
trademarks increased from $0.7 million in the first quarter of 1998 to $0.8
million in the first quarter of 1999 due to the amortization of intangible
assets associated with the Monsanto Company's strawberry assets acquired in
December 1998.
Interest expense increased from $1.8 million in the first quarter of
1998 to $2.3 million in the first quarter of 1999. This $0.5 million increase
was due primarily to the recognition of the remaining balance of up front
fees that had not been previously amortized on the Company's $30 million
one-year term credit facility with Bank of Montreal. This facility was paid
off in its entirety on March 22, 1999 with the funding of the $100 million
long-term financing facility.
Interest income increased from $0.2 million in the first quarter of
1998 to $0.7 million in the first quarter of 1999. This $0.5 million increase
was due to a higher level of advances to growers that earn interest for the
Company.
During the first quarter of 1999, the share of losses allocable to
minority interests was $0.3 million as compared with a minority interest
profit of $0.3 million for the same quarter in 1998. The 1999 and 1998
allocations of losses and gains are consistent with the minority positions
held across the operating subsidiaries of the Company.
CAPITAL EXPENDITURES
During the first three months of 1999, the Company made capital
investments of $2.6 million in property, plant and equipment. The majority of
the funds were spent on completing the new packaging facility in Culiacan,
Mexico and the initial investment for improvements in housing facilities for
the field workers in Culiacan. Some new investments also were made to
increase capacity in the Company's distribution operations.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1999, the Company used $6.4
million of cash in operating activities. Cash used in the results of
operations amounted to $3.5 million (i.e., net income, minority interest,
depreciation, and amortization). Working capital requirements increased by
$2.9 million during the first quarter of 1999. Accounts receivable and
advances to growers used $1.9 million of cash in the first quarter of 1999 as
$3.6 million of financing was provided to joint ventures with growers while
customer receivables declined by $1.7 million. Inventories declined by $5.6
million and accounts payable and accrued expenses decreased by $5.9 million,
both of which were consistent with the end of the Culiacan growing season.
The $0.7 million cash requirement for other assets reflected a payment to one
of the Company's joint farming ventures towards the acquisition of new
packaging equipment in 1999 and the collection of a collateral receipt for
the import of Chilean product into Mexico.
Cash generated from financing activities during the first quarter of
1999 was $28.5 million. Bionova Holding issued $100 million of Senior
Guaranteed Floating Rate Notes due 2002. Part of the proceeds from this
long-term debt was used to pay down $53.5 million of short-term bank debt and
$2.5 million of accounts due to related parties. Up front fees of $3.0
million were paid to the lead banks which arranged this long-term financing.
As one of the conditions of the agreement for the floating rate notes, $12.4
million was deposited in trust as an interest reserve account representing
one year's worth of interest on the debt.
YEAR 2000 ("Y2K") UPDATE
The Company has nothing new to report since what was reported in its
1998 10-K filed on March 29, 1999. It is still expected all of the work
required to prepare the Company for Year 2000 will be completed by July 31,
1999.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking" statements within
the meaning of Section 27A of the Securities Act of 1933, and Section 21E of
the Securities Exchange Act of 1934. All statements, including without
limitation statements contained in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" other than statements of
historical facts included in this Form 10-Q, including statements regarding
our financial position, business strategy, prospects, plans and objectives of
our management for future operations, and
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<PAGE>
industry conditions, are forward-looking statements. Although we believe that
the expectations reflected in these forward-looking statements are
reasonable, we can give you no assurance that these expectations will prove
to be correct. In addition to important factors described elsewhere in this
report, the following "Risk Factors," sometimes have affected, and in the
future could affect, our actual results and could cause these results during
1999, and beyond, to differ materially from those expressed in any
forward-looking statements made by us or on our behalf.
RISKS RELATING TO OUR FARMING AND DISTRIBUTION BUSINESS
FLUCTUATIONS IN SUPPLY AND DEMAND MAY CAUSE PRICE FLUCTUATIONS RESULTING IN
OUR INABILITY TO COVER OUR COSTS
The fresh produce business is particularly sensitive to fluctuations in
supply and demand. When the supply of produce in the market exceeds the
demand for these products, the market price for fresh produce may be driven
down significantly, in some instances below the cost of harvesting and
packing. In such situations it may be uneconomical for us to harvest a crop,
resulting in a total loss of the costs incurred in growing the crop. Even
when market prices are sufficient to allow us to recover our direct
harvesting and packing costs, prices may not be high enough to allow us to
recover our costs associated with growing our products and/or overhead and
other indirect costs. In addition, oversupply can affect the prices we obtain
for our produce. Oversupply can result from, among other reasons, an increase
in the number of growers, an increase in the acreage allocated by growers to
a particular crop, unusually favorable growing conditions or increased supply
from foreign competitors (which could be caused by a variety of economic and
climatic factors in our competitors' home countries).
LIMITED BARRIERS OF ENTRY INTO THE FARMING AND PRODUCE DISTRIBUTION INDUSTRY
CAN RESULT IN OVERSUPPLY OF OUR PRODUCTS WHICH DECREASES OUR PROFITABILITY
The relatively low capital requirements for farming and produce
distribution permit relatively easy entrance into the fresh produce business,
which in turn can result in oversupply.
BAD WEATHER CAN AFFECT THE AMOUNT OF PRODUCE WE CAN SELL, WHICH CAN DECREASE
OUR REVENUES AND PROFITABILITY
Weather conditions 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 a crop and less severe
weather conditions, such as excess precipitation, cold weather and heat, can
kill or damage significant portions of a crop. Conversely, unusually
favorable weather conditions can result in oversupply that drives down the
prices realized by producers, including Agrobionova.
CROP DISEASE CAN AFFECT THE AMOUNT OF PRODUCE WE CAN SELL WHICH CAN DECREASE
OUR REVENUES AND PROFITABILITY
Crop disease and pestilence can be unpredictable and can have a
devastating effect on our crops, rendering them unsalable and resulting in
the loss of all or a portion of the crop for that harvest season. Even when
only a portion of our crops are damaged, the profits we could have made on
the crop will be severely affected because the costs to plant and cultivate
the entire crop will have been incurred although we may experience low yields
or may only be able to sell a portion of our crop.
LABOR SHORTAGES AND UNION ACTIVITY CAN AFFECT OUR ABILITY TO HIRE WORKERS TO
HARVEST OUR CROPS WHICH CAN HURT OUR FINANCIAL CONDITION
The production of fresh produce is heavily dependent upon the
availability of a large labor force to harvest crops. The turnover rate among
the labor force is high due to the strenuous work, long hours, necessary
relocation and relatively low pay. To the extent it becomes necessary to pay
more to attract labor to farm work, our labor costs can be expected to
increase.
The Mexican farm work force retained by Agrobionova is unionized. If
the union attempts to disrupt production and is successful on a large scale,
labor costs will likely increase and work stoppages may be encountered, which
would be particularly damaging in our industry where harvesting crops at peak
times and getting them to market on a timely basis is critical. The majority
of fresh produce is shipped by truck. In the United States and in Mexico, the
trucking
-10-
<PAGE>
industry is largely unionized and therefore susceptible to labor
disturbances. As a result, delivery delays caused by labor disturbances in
the trucking industry or any other reason could limit our ability to get
fresh produce to market before it spoils.
AGROBIONOVA'S RELIANCE ON LEASES AND PRODUCTION ASSOCIATIONS COULD RESULT
IN INCREASED COSTS WHICH COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS
Agrobionova relies on agricultural land leased from others and
production associations with other growers for a large part of its supply. If
the other parties to these leases and other arrangements were to choose not
to renew their agreements with Agrobionova, Agrobionova would be required to
locate alternate sources of supply and/or land or, in some cases, to pay
increased rents for land. In addition to increased rental rates, increases in
land costs could result from increases in water charges, property taxes and
related expenses.
OUR DEPENDENCE ON ONE SUPPLIER EXPOSES US TO RISKS IF OUR RELATIONSHIP WITH
THAT SUPPLIER IS NOT MAINTAINED
One grower in Baja California, Santa Cruz Empacadora, S. de R.L. de
C.V., accounted in 1998 for approximately 12% of our consolidated sales.
Agrobionova has recently entered into a five-year production association
agreement with this grower that extends through 2003.
OUR PARTICIPATION IN AN INDUSTRY WITH NUMEROUS COMPETITORS CAN DECREASE OUR
SALES AND THEREFORE OUR PROFITABILITY
The fresh produce industry in general, and the tomato industry in
particular, is characterized by a large number of competitors at both the
production and distribution levels. We are one of many companies engaged in
research and product development activities based on agricultural
biotechnology. Our competitors include specialized biotechnology firms, as
well as major pharmaceutical, food and chemical companies, many of which have
substantial financial, technical and marketing resources.
RISKS RELATING TO OUR SCIENTIFIC RESEARCH AND DEVELOPMENT BUSINESS
GOVERNMENT REGULATION CAN CAUSE DELAYS AND INCREASED COSTS WHICH DECREASE OUR
REVENUES AND PROFITABILITY
Our subsidiaries' activities in the United States are extensively
regulated by the Food and Drug Administration, the United States Department
of Agriculture, the Environmental Protection Agency, and other federal and
state regulatory agencies in the United States. Similarly, our subsidiaries'
activities in Mexico are extensively regulated by the Secretaria de
Agricultura, Ganaderia y Desarrollo Rural, the Secretaria de Salud, and other
federal and state regulatory agencies in Mexico. Also, certain of our
products may require regulatory approval or notification in the United States
or in other countries in which they are tested, used or sold. The regulatory
process may delay research, development, production, or marketing and require
more costly and time-consuming procedures, and there can be no assurance that
requisite regulatory approvals or registration of certain of our current or
future genetically engineered products will be granted on a timely basis.
IF THE PRODUCTS WE DEVELOP AND MARKET ARE NOT COMMERCIAL SUCCESSES, WE WILL
NOT RECOUP OUR DEVELOPMENT AND PRODUCTION COSTS WHICH WILL HURT OUR FINANCIAL
CONDITION
We are currently in the early stages of marketing several of our new
products, and there can be no assurance that any of these products will be
successful or will produce significant revenues or profits. In addition, a
number of our product development projects are in the early stages, and these
projects may not be successful. The success of these and future products
depends on many variables, including the ability to produce and make
available to the market consistent, premium quality fruits and vegetables on
a year-round basis, consumers' willingness to pay higher prices for premium
quality fruits and vegetables, and retailers' willingness to carry such
fruits and vegetables.
-11-
<PAGE>
IF THE PUBLIC IS UNWILLING TO ACCEPT GENETICALLY ENGINEERED PRODUCTS WE WILL
NOT RECOUP OUR DEVELOPMENT AND PRODUCTION COSTS WHICH WILL HURT OUR FINANCIAL
CONDITION
Our second generation products are being developed through the use of
genetic engineering. The commercial success of these products will depend in
part on public acceptance of the cultivation and consumption of genetically
engineered products. We cannot assure you that these products will gain
sufficient public acceptance to be profitable, even if these products obtain
the required regulatory approvals.
WE MAY NOT BE SUCCESSFUL IN OBTAINING PATENTS, PROTECTING OUR TRADE SECRETS
AND CONDUCTING OUR BUSINESS WITHOUT INFRINGING ON THE RIGHTS OF OTHERS, WHICH
COULD ADVERSELY AFFECT OUR BUSINESS
Our success depends, in part, on our ability to obtain and enforce
patents, maintain trade secret protection, and conduct our business without
infringing the proprietary rights of others. If others develop competing
technologies and market competing products, our sales could be adversely
affected. If we are not able to maintain our trade secrets or to enforce our
patents, our competitive position could be adversely affected. In addition,
we license technology from third parties. If we cannot maintain these
licenses, or if we cannot obtain licenses to other useful technology on
commercially reasonable terms, our research efforts could be adversely
affected.
RISKS RELATING TO OUR FINANCIAL CONDITION
WE MAY CONTINUE TO SUSTAIN LOSSES AND ACCUMULATE DEFICITS IN THE FUTURE
We have sustained losses in 1996, 1997 and 1998. The factors that
caused these losses, including factors described in this section, may
continue to limit our ability to make a profit in the future.
WE MAY NEED ADDITIONAL FINANCING TO EXECUTE OUR ACQUISITION STRATEGY, WHICH
COULD HURT OUR GROWTH AND FINANCIAL CONDITION
The re-capitalization program that was initiated in 1998 and continues
through May 31, 2000 with the rights being issued to all shareholders was
intended to allow us to repay certain of our outstanding debt and raise
additional working capital. Even after the completion of the
re-capitalization program we may need additional capital to meet our working
capital requirements. Our projected cash flows from operations and existing
capital resources, including our existing credit lines, may not be sufficient
to allow us to pursue proposed business strategies to acquire additional
producers, distributors, marketers and additional rights to technologies.
Therefore, our ability to pursue these acquisitions may depend on our ability
to obtain additional capital, which could cause us to incur additional debt
or issue additional equity securities. We cannot assure you that additional
capital will be available on satisfactory terms, if at all, and, as a result,
we may be restricted in our pursuit of future growth and acquisition
strategies.
WE MAY NOT BE ABLE TO ADAPT OUR MANAGEMENT INFORMATION SYSTEMS AND CONTROLS
TO KEEP PACE WITH OUR RAPID GROWTH, WHICH COULD HURT OUR FINANCIAL CONDITION
Our business has undergone rapid growth through acquisition of
complementary businesses. As a result of this rapid growth, significant
strains have been placed on the management, operations and financial
resources of our subsidiaries. The realization of our business strategy
depends on, among other things, our ability to adapt management information
systems and controls and to hire, train and retain qualified employees to
allow these operations to be effectively managed. The geographic separation
of our subsidiaries' operations exacerbates these issues.
RISKS RELATING TO OUR INTERNATIONAL OPERATIONS
LEGAL LIMITATIONS COULD AFFECT OUR OWNERSHIP OF RURAL LAND IN MEXICO, WHICH
COULD DECREASE OUR SUPPLY OF PRODUCE CAUSING A DECREASE IN OUR REVENUES AND
PROFITABILITY
Agrobionova owns a substantial amount of rural land in Mexico which
it uses to grow fresh fruits and vegetables. Historically, the ownership of
rural land in Mexico has been subject to legal limitations and claims by
residents of rural communities, which in some cases could lead to the owner
being forced to surrender its land. Though Agrobionova is
-12-
<PAGE>
in compliance with all applicable legal limitations, Agrobionova has been,
and continues to be, involved in land dispute proceedings as part of its
ordinary course of business. Agrobionova has not lost any land as a result
of these proceedings. If Agrobionova is required to surrender any of its
land, the volume of fresh fruits and Agrobionova vegetables it produces would
decline and adversely affect our profitability.
CURRENCY FLUCTUATIONS AND INFLATION CAN INCREASE THE COST OF OUR PRODUCTS IN
THE UNITED STATES AND ABROAD WHICH DECREASES OUR REVENUES AND PROFITABILITY
The currency exchange rates in Mexico have historically been volatile.
For example, in December 1994, the Mexican government announced its intention
to float the Mexican peso against the United States dollar and, as a result,
the peso devalued over 40% relative to the dollar during that month. These
exchange rate fluctuations impact our subsidiaries' business. If the value of
the peso decreases relative to the value of the dollar, then (a) imports of
produce into Mexico for distribution by our subsidiaries become more
expensive in peso terms and therefore more difficult to sell in the Mexican
market and (b) inflation that generally accompanies reductions in the value
of the peso reduces the purchasing power of Mexican consumers, which reduces
the demand for all products including produce and, in particular, imported,
branded or other premium-quality produce. Conversely, if the value of the
peso increases relative to the value of the dollar, Mexican production costs
increase in dollar terms, which results in lower margins or higher prices
with respect to produce grown in Mexico and sold in the United States and
Canada.
VOLATILE INTEREST RATES IN MEXICO CAN INCREASE OUR CAPITAL COSTS
Historically, interest rates in Mexico have been volatile, particularly
in times of economic unrest and uncertainty. High interest rates restrict the
availability and raise the cost of capital for our Mexican subsidiaries and
for growers and other Mexican parties with whom we do business, both for
borrowings denominated in pesos and for borrowings denominated in dollars.
Costs of operations for our Mexican subsidiaries are higher as a result.
TRADE DISPUTES BETWEEN THE UNITED STATES AND MEXICO CAN RESULT IN TARIFFS,
QUOTAS AND BANS ON IMPORTS, INCLUDING OUR PRODUCTS, WHICH CAN HURT OUR
FINANCIAL CONDITION
Notwithstanding the enactment of the North American Free Trade
Agreement, Mexico and the United States from time to time are involved in
trade disputes. The United States has, on occasion, imposed tariffs, quotas,
and importation bans on products produced in Mexico. Because some of our
subsidiaries produce products in Mexico which we sell in the United States,
such actions, if taken, could adversely affect our business.
GENERAL BUSINESS RISKS
OUR OPERATIONS MAY BE SIGNIFICANTLY AFFECTED BY THE YEAR 2000 PROBLEM
The Year 2000 problem refers to errors that may occur as a result of
computers using two digits rather than four digits to define the applicable
year. Software and hardware may recognize a date using "00" as the year 1900,
rather than the year 2000. The failure to identify and/or properly correct a
Year 2000 problem could result in an interruption in, or a failure of certain
normal business activities or operations. Such failures could materially and
adversely affect our ability to process transactions, send invoices, or
engage in other normal business activities. However, our Year 2000 project is
expected to be completed by July 31, 1999. With the completion of this
project as scheduled, we believe that the possibility of significant
interruptions of normal business activities and operations will be reduced.
BIONOVA INTERNATIONAL HAS SUBSTANTIAL CONTROL OVER OUR COMPANY AND CAN AFFECT
VIRTUALLY ALL DECISIONS MADE BY OUR STOCKHOLDERS
Bionova International beneficially owns 18,076,839 shares of our common
stock accounting for 76.6% of all issued and outstanding shares. As a result,
Bionova International has the requisite voting power to significantly affect
virtually all decisions made by Bionova and our stockholders, including the
power to elect all of our directors and to block corporate actions such as an
amendment to most provisions of our certificate of incorporation.
-13-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The table below provides information about the Company's derivative
financial instruments and consisting primarily of debt obligations that are
sensitive to changes in interest rates. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected (contractual) maturity dates. Notional amounts are used to calculate
the contractual payments to be exchanged under the contracts. Weighted
average variable rates are based on implied forward rates in the yield curve
on December 31, 1998. The information is presented in U.S. dollar
equivalents, which is the Company's reporting currency. The instrument's
actual cash flows are denominated in both U.S. dollars and Mexican pesos, and
as of December 31, 1998 are indicated accordingly in the tables below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXPECTED MATURITY DATE
- ----------------------------------------------------------------------------------------------------------------------------------
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term debt:
($US Equivalent in millions)
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. dollar variable rate .... $ 79.3 $ 79.3 $ 79.3
- ----------------------------------------------------------------------------------------------------------------------------------
Average interest rate....... 12%
- ----------------------------------------------------------------------------------------------------------------------------------
Peso fixed rate (in $US) ..... 0.5 0.5 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
Average interest rate....... 29%
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt:
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. dollar fixed rate........ $ 1.3 $ 3.7 $ 5.0 $ 5.0
- ----------------------------------------------------------------------------------------------------------------------------------
Average interest rate....... 10% 10%
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. dollar variable rate..... $ 0.2 $ 0.2 $ 0.3 $ 0.7 $ 0.7
- ----------------------------------------------------------------------------------------------------------------------------------
Average interest rate....... 12% 12% 12%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company tries to use the most cost-effective means to fund its
operating and capital needs. Fixed or variable debt will be borrowed in both
U.S. Dollars and Mexican pesos. The Company borrows Mexican pesos to provide for
its working capital needs in its Mexican operations. To minimize exchange risk
associated with the importation of products, the Company will enter into forward
exchange contracts where the functional currency to be used in the transaction
is dollars. At December 31, 1998 approximately 87% of the Company's long-term
debt was fixed rate debt and 13% was variable rate debt. All of the fixed rate
long-term debt is denominated in U.S. dollars. All of the variable rate debt is
denominated in U.S. dollars.
The Company completed a transaction on March 22, 1999 to refinance its
short-term variable rate debt, as discussed in Note 5 to the Financial
Statements for the quarter ended March 31, 1999. As a consequence, there was a
significant restructuring of the Company's financing between short-term and
long-term debt. The following table depicts the impact of this debt
restructuring as of March 31, 1999. At March 31, 1999 approximately 5% of the
Company's long-term debt was fixed rate debt and 95% was variable rate debt.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXPECTED MATURITY DATE
- ----------------------------------------------------------------------------------------------------------------------------------
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term debt:
($US Equivalent in millions)
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. dollar variable rate.... $ 25.8 $ 25.8 $ 25.8
- ----------------------------------------------------------------------------------------------------------------------------------
Average interest rate....... 12%
- ----------------------------------------------------------------------------------------------------------------------------------
Peso fixed rate (in $US).... 0.5 0.5 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
Average interest rate....... 27%
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt:
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. dollar fixed rate........ $ 1.3 $ 3.7 $ 5.0 $ 5.0
- ----------------------------------------------------------------------------------------------------------------------------------
Average interest rate....... 10% 10%
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. dollar variable rate..... $ 0.2 $ 0.2 $ 0.3 $100.0 $100.7 $100.7
- ----------------------------------------------------------------------------------------------------------------------------------
Average interest rate....... 12% 12% 12% 12%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
EXCHANGE RATE RISK
The table below provides information about the Company's financial
instruments by functional currency that are subject to exchange risk. This
information is presented in U.S. dollar equivalents. The table summarizes
information on instruments that are sensitive to foreign currency exchange
rates, including peso-denominated debt obligations. For debt obligations, the
table presents principal cash flows and related weighted average interest rates
by expected maturity dates as of December 31, 1998.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXPECTED MATURITY DATE
- ----------------------------------------------------------------------------------------------------------------------------------
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
On-Balance sheet
Financial Investments
($US Equivalent in millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Peso short-term debt:
- ----------------------------------------------------------------------------------------------------------------------------------
Variable rate (in $US) ..... $ 0.5 $ 0.5 $ 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
Average interest rate....... 29%
- ----------------------------------------------------------------------------------------------------------------------------------
Expected maturity or
transaction date.......... Dec. 31
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company had no firmly committed forward sales contracts in Mexican
pesos as of December 31, 1998.
The Company is exposed to U.S. dollar-to-Mexican peso currency exchange
risk due to revenues and costs denominated in Mexican pesos associated with its
Mexican subsidiaries, ABSA and Interfruver. The Company expects it will continue
to be exposed to currency exchange risks in the near future.
The Company's subsidiary, Interfruver, from time to time enters into
foreign exchange forward contracts to manage its exposure to fluctuations in
foreign currency denominated payables. These contracts generally mature within
three months. As of December 31, 1998, the Company did not have any foreign
exchange forward contracts outstanding. Company management believes that these
financial instruments do not subject the Company to material risk due to foreign
exchange movements because gains or losses on these contracts will offset gains
or losses on the assets, liabilities, and transactions being hedged.
COMMODITY PRICE RISK
The table below provides information about the Company's fresh produce
growing crops inventory and fixed price contracts that are sensitive to changes
in commodity prices. For inventory, the table presents the carrying amount and
fair value at December 31, 1998. For the fixed price contracts, the table
presents the notional amounts in Boxes, the weighted average contract prices,
and the total dollar contract amount by expected maturity dates, the latest of
which occurs within one year from the reporting date. Contract amounts are used
to calculate the contractual payments and quantity of fresh produce to be
exchanged under futures contracts.
-15-
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1998
---------------------------------------------------------------------------------------------------------
Carrying Fair
Amount Value
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
On-balance sheet commodity position:
Fresh produce crops in process inventory ($US in millions).... $ 8.0 $ 8.0
---------------------------------------------------------------------------------------------------------
Fixed price contracts:
Contract volumes (1,349,100 boxes)
Weighted average unit price (per 1,349,100 boxes)............. $ 7.62 $ 7.62
Contract amount ($US in millions)............................. $ 10.2 $ 10.2
---------------------------------------------------------------------------------------------------------
</TABLE>
In order to manage the exposure to commodity price sensitivity
associated with fresh produce products, the Company enters into fixed price
contracts with certain customers which guarantee specified volumes for the
growing season or the year at a fixed price. The Company believes that its
efforts to assure a high level of product quality along with efforts to develop
and market differentiated, added value products also reduce to some extent its
exposure to commodity price sensitivity.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, on August 13, 1997, a lawsuit styled GRACE
BROTHERS, LTD. V. DNAP HOLDING CORPORATION, DNA PLANT TECHNOLOGY CORPORATION AND
DOES 1 THROUGH 20, INCLUSIVE was filed in the United States District Court for
the Northern District of California. This claim arose out of the private
placement of common stock and warrants made by DNAP in August of 1995. The
plaintiff alleged that DNAP failed to disclose material non-public information
relating to DNAP's efforts to enter into a strategic relationship with a third
party in violation of federal and state securities laws and the terms of the
contract relating to the private placement. On November 17, 1997, the plaintiff
dismissed the Company from the lawsuit. Subsequently, the court dismissed the
plaintiff's claim for federal securities fraud and, in February 1999, the court
dismissed all of the remaining claims. The plaintiff has filed an appeal to the
dismissal of this case. DNAP denies any wrongdoing or liability in this matter
and intends to vigorously contest this lawsuit.
On May 5, 1999, a Second Amended Complaint in a lawsuit styled BRENDA
KEITH REIN V. PHILIP MORRIS ET AL. was filed in the Superior Court of
California, County of Alameda against various defendants, including DNAP and
several manufacturers of cigarettes. In addition to other claims brought against
the cigarette manufacturers only, the plaintiff alleges that DNAP engaged in
deceit and fraudulent concealment and participated in an alleged conspiracy
among the named cigarette manufacturers to deceive the public regarding the
hazards of smoking. DNAP's involvement in these suits arises from allegations
regarding research it performed for a major tobacco company from 1983 through
1994. The plaintiff is seeking monetary damages and recovery of lost wages and
medical expenses. DNAP denies any wrongdoing or liability in this matter and
intends to vigorously contest this lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on April 28,
1999. At the meeting, the stockholders (i) elected nine directors of the
Company, (ii) adopted an amendment to the Company's Certificate of Incorporation
increasing the number of authorized shares of common stock to 50,000,000, and
(iii) adopted an amendment to the Certificate of Incorporation of the Company
changing the Company's name to Bionova Holding Corporation. The amendments to
the Certificate of Incorporation became effective on April 28, 1999.
-16-
<PAGE>
The results of the voting on each matter were as follows:
Election of Directors
<TABLE>
<CAPTION>
Number of Number of
Shares Voted For Shares Withheld
<S> <C> <C>
Evelyn Berezin 22,242,727 154,649
Dr. Peter Davis 22,243,049 154,327
Carlos Herrera 22,244,074 153,302
Bernardo Jimenez 22,243,417 153,959
Dr. Gerald D. Laubach 22,243,488 153,888
Eugenio Najera 22,243,350 154,026
Alejandro Perez 22,243,919 153,457
Dr. Eli Shlifer 22,242,236 155,140
Dr. Christopher R. Somerville 22,242,946 154,430
</TABLE>
Proposal to amend the Certificate of Incorporation of the Company to
increase the number of authorized shares of common stock to 50,000,000:
<TABLE>
<S> <C>
Number of Shares Voted For 22,121,746
Number of Shares Voted Against: 171,117
Number of Shares Abstaining: 104,513
</TABLE>
Proposal to amend the Certificate of Incorporation of the Company to
change the name of the Company to Bionova Holding Corporation:
<TABLE>
<S> <C>
Number of Shares Voted For: 22,215,655
Number of Shares Voted Against: 77,381
Number of Shares Abstaining: 104,340
</TABLE>
ITEM 5. OTHER INFORMATION
LONG-TERM BANK FINANCING
On March 22, 1999 Bionova Holding issued $100 million of Senior
Guaranteed Floating Rate Notes due 2002. Proceeds of the offering were used to
refinance Bionova Holding's $85 million of consolidated short-term debt.
Other key provisions of this new credit arrangement include (i) payment
of the entire principal balance due on March 31, 2002, (ii) an interest rate of
LIBOR plus 7%, (iii) prepayments at the option of the Company with no penalties,
and (iv) a requirement that the Company must keep one year's worth of interest
in an interest bearing reserve. The contract also provides that the Company is
permitted to obtain up to $30 million in new financing for working capital
purposes. The credit facility has been fully guaranteed by Bionova Holding's
parent company, SaVIA.
CONTROLLING STOCKHOLDER; CONFLICTS OF INTEREST
Approximately 76.6% of the outstanding shares of common stock of the
Company are owned of record by Bionova International, Inc., an indirect,
wholly-owned subsidiary of SaVIA. Therefore SaVIA has the power to elect a
majority of the Company's board of directors and to determine the outcome of
any action requiring the approval of the holders of the Company's common
stock. This ownership and management structure will inhibit the taking of any
action by the Company which is not acceptable to the controlling stockholder.
-17-
<PAGE>
Certain of the Company's directors and executive officers are also
currently serving as board members or executive officers of SaVIA or companies
related to SaVIA, and it is expected that each will continue to do so. Such
management interrelationships and intercorporate relationships may lead to
possible conflicts of interest.
The Company and other entities that may be deemed to be controlled
by or affiliated with SaVIA sometimes engage in (i) intercorporate
transactions such as guarantees, management and expense sharing arrangements,
shared fee arrangements, joint ventures, partnerships, loans, options,
advances of funds on open account and sales, leases and exchanges of assets,
including securities issued by both related and unrelated parties and (ii)
common investment and acquisition strategies, business combinations,
reorganizations, recapitalizations, securities repurchases and purchases and
sales (and other acquisitions and dispositions) of subsidiaries, divisions or
other business units, which transactions have involved both related and
unrelated parties. The Company continuously considers, reviews and evaluates,
and understands that SaVIA and related entities consider, review and
evaluate, transactions of the type described above. Depending upon the
business, tax and other objectives then relevant, it is possible that the
Company might be a party to one or more of such transactions in the future in
addition to those currently in force, such as the Long Term Funded Research
Agreement dated January 1, 1997 between Seminis Vegetable Seeds, Inc., an
indirect subsidiary of SaVIA, and DNAP. In connection with these activities
the Company might consider issuing additional equity securities or incurring
additional indebtedness. The Company's acquisition activities may in the
future include participation in the acquisition or restructuring activities
conducted by other companies that may be deemed to be controlled by SaVIA.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
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
3.4* Bylaws of the Company
4.1* Note Acquisition Agreement dated as of March 22, 1999 among SaVIA,
S.A. de C.V., the Company, the Holders referred to therein, Morgan
Guaranty Trust Company of New York, as Administrative Agent and
Documentation Agent, Bankers Trust Company, as Paying Agent and
Registrar, and Citibank,
N.A., as Collateral Agent.
27.1 Financial Data Schedule
</TABLE>
- -----------------
* 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.
(b) Reports on Form 8-K
None.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIONOVA HOLDING CORPORATION
Date: May 11, 1999 By: /s/ ARTHUR H. FINNEL
----------------------------
Arthur H. Finnel,
Executive Vice President,
Treasurer and Chief Financial Officer
-19-
<PAGE>
INDEX TO EXHIBITS
(a) Exhibits
<TABLE>
<S> <C>
3.3 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).
3.4 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
3.4* Bylaws of the Company
4.1* Note Acquisition Agreement dated as of March 22, 1999 among SaVIA,
S.A. de C.V., the Company, the Holders referred to therein, Morgan
Guaranty Trust Company of New York, as Administrative Agent and
Documentation Agent, Bankers Trust Company, as Paying Agent and
Registrar, and Citibank,
N.A., as Collateral Agent.
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* 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.
-20-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DNAP HOLDING CORPORATION
DNAP Holding Corporation (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"DGCL"), hereby certifies as follows:
FIRST: That the Board of Directors of the Corporation, at a meeting held
on February 25, 1999, adopted resolutions proposing and declaring advisable
the amendments to the Certificate of Incorporation of the Corporation set
forth in ARTICLES FOURTH and FIFTH below, and calling for the submission of
said amendments to the stockholders of the Corporation for their
consideration.
SECOND: That the stockholders of the Corporation, at a meeting held on
April 28, 1999, approved and adopted these amendments.
THIRD: That these amendments were duly adopted in accordance with the
applicable provisions of Section 242 of the DGCL.
FOURTH: That ARTICLE I of the Certificate of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
"The name of the Corporation is Bionova Holding Corporation."
FIFTH: That ARTICLE IV, Section 1, of the Certificate of Incorporation
of the Corporation is hereby amended to read in its entirety as follows:
"Section 1. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is Fifty Million Five
Thousand (50,005,000) shares, consisting of (1) Fifty Million (50,000,000)
shares of Common Stock, par value One Cent ($.01) per share ("Common
Stock"), and (2) Five Thousand (5,000) shares of Preferred Stock, par
value One Cent ($.01) per share ("Preferred Stock")."
SIXTH: That these amendments to the Certificate of Incorporation of the
Corporation shall be effective at 11:59 p.m., Eastern Time on the date upon
which this Certificate of Amendment is filed with the Secretary of State of
the State of Delaware. IN WITNESS WHEREOF, this Certificate has been signed
on behalf of the Corporation on this 28th day of April, 1999.
DNAP HOLDING CORPORATION
By: /s/ ARTHUR H. FINNEL
------------------------------------
Arthur H. Finnel
Executive Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS AT AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999
INCLUDED IN THE COMPANY'S FORM 10-Q QUARTERLY REPORT FOR SUCH PERIOD AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 34,991
<SECURITIES> 0
<RECEIVABLES> 45,754
<ALLOWANCES> 2,948
<INVENTORY> 10,864
<CURRENT-ASSETS> 90,918
<PP&E> 53,053
<DEPRECIATION> 12,967
<TOTAL-ASSETS> 201,048
<CURRENT-LIABILITIES> 58,196
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 36,960
<TOTAL-LIABILITY-AND-EQUITY> 201,048
<SALES> 58,348
<TOTAL-REVENUES> 58,348
<CGS> 53,592
<TOTAL-COSTS> 61,959
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,292
<INCOME-PRETAX> (5,064)
<INCOME-TAX> 169
<INCOME-CONTINUING> (5,233)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,917)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
