BIONOVA HOLDING CORP, 10-Q, 1999-08-16

BIONOVA HOLDING CORP
10-Q, 1999-08-16
AGRICULTURAL SERVICES

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<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 June 30, 1999

|_| 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)

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 August 10, 1999, 23,588,031 shares of common stock, par value $0.01
per share, of Bionova Holding Corporation were outstanding.

<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIONOVA HOLDING CORPORATION

CONSOLIDATED BALANCE SHEET
THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 11,546 $ 15,405
Accounts receivable .................................................... 29,138 28,220
Advances to growers, net ............................................... 15,990 12,186
Inventories ............................................................ 10,720 16,478
Other current assets ................................................... 2,163 1,763
-------- --------
Total current assets .............................................. 69,557 74,052
-------- --------
Property, plant and equipment, net ..................................... 39 668 38,611
Patents and trademarks, net ............................................ 16,170 17,025
Goodwill, net .......................................................... 28,817 29,539
Deferred income taxes .................................................. 4,231 4,174
Other assets ........................................................... 24,194 4,285
-------- --------
Total assets ...................................................... $182,637 $167,686
-------- --------
-------- --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans .................................................. $ 14,055 $ 79,751
Current portion of long-term debt ...................................... 1,509 1,558
Accounts payable and accrued expenses .................................. 22,500 26,075
Accounts due to related parties ........................................ 5,172 7,396
Deferred income taxes .................................................. 5,315 5,315
-------- --------
Total current liabilities ......................................... 48,551 120,095
Long-term debt ......................................................... 103,273 4,225
-------- --------
Total liabilities ................................................. 151,824 124,320
-------- --------
Minority interest ...................................................... 1,908 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 .................................................... (79,058) (65,845)
Accumulated other comprehensive income (loss) .......................... (191) (192)
-------- --------
Total stockholders' equity ............................................. 28,905 42,117
-------- --------
Total liabilities and stockholders' equity ............................. $182,637 $167,686
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>

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 Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues ....................................... $ 70,362 $ 77,020 $ 128,710 $ 147,503
----------- ----------- ----------- -----------

Cost of sales ........................................ 65,275 71,954 118,867 133,897
Selling and administrative expenses .................. 7,436 6,836 13,492 12,006
Research and development expenses .................... 1,721 1,430 3,228 2,801
Amortization of goodwill, patents and trademarks ..... 810 732 1,614 1,464
----------- ----------- ----------- -----------
75,242 80,952 137,201 150,168
----------- ----------- ----------- -----------

Operating income (loss) .............................. (4,880) (3,932) (8,491) (2,665)
----------- ----------- ----------- -----------

Interest expense ..................................... (4,543) (1,838) (6,835) (3,588)
Interest income ...................................... 1,046 316 1,748 505
Exchange gain (loss), net ............................ (187) (1,150) (50) (964)
Other non-operating income ........................... (1) 23 (1) 23
----------- ----------- ----------- -----------
(3,685) (2,649) (5,138) (4,024)
----------- ----------- ----------- -----------

Income (loss) before income tax ...................... (8,565) (6,581) (13,629) (6,689)

Income tax benefit (expense) ......................... 2 89 (167) (190)
----------- ----------- ----------- -----------

Net income (loss) before minority interest ........... (8,563) (6,492) (13,796) (6,879)

Minority interest in net loss (income) of subsidiaries 267 1,152 583 839
----------- ----------- ----------- -----------

Net income (loss) .................................... $ ( 8,296) $ (5,340) $ (13,213) $ (6,040)

Other comprehensive income (expense) net of tax:
Foreign currency translation adjustments ......... 3 25 (1) 23
----------- ----------- ----------- -----------

Comprehensive income (loss) .......................... $ ( 8,293) $ (5,315) $ (13,214) $ (6,017)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Net income (loss) per share - basic and diluted ...... $ (0.35) $ (0.29) $ (0.56) $ (0.33)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding .......................................... 23,588,031 18,370,640 23,588,031 18,370,640
</TABLE>

The accompanying notes are an integral part of these financial statements.
<PAGE>

BIONOVA HOLDING CORPORATION

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ...................................................... $(13,213) $(6,040)
Items not affecting cash:
Minority interest .................................................... (582) (839)
Depreciation ......................................................... 2,398 1,815
Amortization of goodwill, patents and trademarks ..................... 1,614 1,464
Deferred income taxes ................................................ 57 24
Gain from sale of property, plant and equipment ...................... 6 --
Net changes (exclusive of subsidiaries acquired or divested) in:
Accounts receivable and advances to growers, net ..................... (4,710) (8,329)
Inventories .......................................................... 5,758 9,709
Accounts payable and accrued expenses ................................ (3,575) (2,757)
Other assets ......................................................... (6,345) (189)
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ............................................................. (18,592) (5,142)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment ............................. (3,660) (1,943)
Proceeds from divestiture of Van Namen, net of cash divested ........... 637
Payment for purchase of companies ...................................... (37) (476)
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES ............................................................. (3,697) (1,782)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings .................................... (65,745) (17,477)
Net change in long-term borrowings ..................................... 99,048 (112)
Accounts due to related parties ........................................ (2,224) 25,264
Restricted cash ........................................................ (12,649) --
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES ............................................................. 18,430 7,675
------- -------
Net increase (decrease) in cash and cash equivalents ................... (3,859) 751
Cash at beginning of year .............................................. 15,405 6,600
------- -------
Cash at end of period .................................................. $11,546 $ 7,351
------- -------
------- -------
</TABLE>

The accompanying notes are an integral part of these financial statements.
<PAGE>

BIONOVA HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 and six month periods
ended June 30, 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 and six month periods ended June 30, 1999 and 1998 was 23,588,031 and
18,370,640, respectively.

NOTE 4 - INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------- -----------
<S> <C> <C>
Finished produce .................... 2,042 2,756
Growing crops ....................... 1,367 8,020
Advances to suppliers ............... 352 299
Spare parts and materials ........... 2 756 3,977
Merchandise in transit and other .... 4,239 1,566
------- -------
10,756 16,618
Allowance for slow moving
inventories ....................... (36) (140)
------- -------
10,720 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

<PAGE>

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-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. 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>
JANUARY 1 - JUNE 30, 1999
Revenues from unaffiliated
customers ........................ 386 125,430 2,894 128,710
Inter-segment revenues ............. 31,732 31,732
-------- -------- ------- --------
Total revenues ..................... 32,118 125,430 2,894 160,442
-------- -------- ------- --------
-------- -------- ------- --------
Operating income (loss) ............ (6,526) 685 (2,650) (8,491)
Depreciation and amortization ...... 2,351 487 1,174 4,012
Identifiable assets at June 30 (1).. 71,181 63,989 42,322 177,492
Acquisition of long-lived assets ... 2,647 861 152 3,660

JANUARY 1 - JUNE 30, 1998
Revenues from unaffiliated
customers ........................ 414 144,107 2,982 147,503
Intersegment transfers ............. 34,983 42 189 35,214
-------- -------- ------- --------
Total revenues ..................... 35,397 144,149 3,171 182,717
-------- -------- ------- --------
-------- -------- ------- --------
Operating income (loss) ............ (4,093) 2,969 (1,541) (2,665)
Depreciation and amortization ...... 1,771 633 875 3,279
Identifiable assets at June 30 (1).. 65,446 49,121 35,391 149,958
Acquisition of long-lived assets ... 1,605 719 95 2,419
</TABLE>
<PAGE>

NOTES:

1. IDENTIFIABLE ASSETS for segments are defined as total assets less cash in
banks, deferred income taxes and investment in shares.

Reconciliation of the segments to total consolidated amounts is set
forth below:
<TABLE>
<CAPTION>
($000'S)
JANUARY 1 - JUNE 30
1999 1998
-------- --------
<S> <C> <C>
REVENUES
Total segment revenues ............................... 160,442 182,717
Eliminations of inter-segment revenues ............... 31,732 35,214
-------- --------
Consolidated revenues ................................ 128,710 147,503
-------- --------
-------- --------
INCOME BEFORE TAXES
Total operating income (loss) from reportable segments (8,491) (2,665)
Interest, net ........................................ (5,088) (3,060)
Exchange gain (loss) ................................. (50) (964)
-------- --------
Consolidated income (loss) before taxes .................. (13,629) (6,689)
-------- --------
-------- --------
ASSETS
Total segment identifiable assets .................... 177,492 149,958
Unallocated and corporate assets (1) ................ 15,958 10,797
Eliminations (2) .................................... (10,813) (24,919)
-------- --------
Consolidated assets .................................. 182,637 135,836
-------- --------
-------- --------
</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>
JANUARY 1 - JUNE 30, 1999
Core vegetables (1).................. 59,893 59,893
Fruits and other fresh produce (2)... 386 65,537 65,923
Contracted R&D revenue............... 2,657 2,657
Licensed technology and royalties.... 237 237

JANUARY 1 - JUNE 30, 1998
Core vegetables (1).................. 93,612 93,612
Fruits and other fresh produce (2)... 414 50,495 50,909
Contracted R&D revenue............... 1,882 1,882
Licensed technology and royalties.... 1,100 1,100
</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.
<PAGE>

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 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"). 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.

The Company classifies its business into three fundamental business
segments. The FARMING segment consists principally of ABSA's interests in
100% Company-owned fresh produce production facilities and joint ventures
with other growers. The DISTRIBUTION segment consists of Interfruver de
Mexico, S.A. de C.V. ("Interfruver"), which engages in the business of
marketing and distributing fresh produce in Mexico and IPHC, which owns total
or majority interests in sales and distribution companies in the United
States and Canada. The RESEARCH AND DEVELOPMENT segment consists of DNAP and
VPP, two companies which are focused on the development and application of
genetic engineering and transformation technologies to fruits and vegetables
and the intellectual properties associated with these development efforts.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1998

Consolidated total revenues declined by 9% from $77.0 million in the
second quarter of 1998 to $70.4 million in the second quarter of 1999.
Despite the decline in total revenues, consolidated gross profit (revenues
less cost of sales) was $5.1 million for both the second quarter of 1998 and
1999. The Company's consolidated operating loss increased from $3.9 million
in the second quarter of 1998 to $4.9 million in the second quarter of 1999.

FARMING segment revenues, the majority of which are eliminated in
consolidation, were $11.3 million in the second quarter of 1999 as compared
with $9.8 million in the same quarter of 1998. This $1.5 million increase was
attributable to higher pricing for tomatoes and grapes produced in ABSA's
Baja California and Hermosillo operations. The unusually cold weather
conditions during this winter in Mexico continued to affect the financial
results of the Farming segment. While the great majority of the impact of
these conditions on ABSA occurred during the first quarter, a small amount of
production carried over into the second quarter. The quality of this product
was poor and had to be sold at very low prices. ABSA also incurred
additional, but normal costs associated with field cleanup and preparation
towards the 1999-2000 winter growing season and losses at two joint ventures
that ABSA is in the process of terminating. These losses in ABSA's Culiacan,
Sinaloa operations offset some strong improvements in its Baja California and
Hermosillo operations during the second quarter. Overall, the loss at the
gross profit line and the operating losses of the Farming segment in the
second quarter were reduced from $2.8 million and $4.5 million, respectively,
in 1998 to $2.2 million and $3.9 million, respectively, in 1999.

Revenues of the DISTRIBUTION segment declined from $75.1 million in
the second quarter of 1998 to $69.3 million in the second quarter of 1999.
Despite lower production volumes from the Company's farming operations, all
of the distribution companies posted solid gains other than Tanimura
Distributing, Inc. in Los Angeles and FreshWorld Farms in Eddystone,
Pennsylvania. These gains were achieved through strong efforts to develop new
grower relationships and source product from outside of the Company's farming
operations. Premier Fruits and Vegetables, Inc. in Montreal, Quebec and
Bionova Produce, Inc. of Arizona turned in particularly strong sales
performance with year-on-year gains in the quarter of 30% and 19%,
respectively. Tanimura Distributing's sales declined by $1.5 million due to
low

<PAGE>

prices and extremely strong competition in the Los Angeles market area. The
sales decline of $10.2 million at FreshWorld Farms from the second quarter of
1998 to the second quarter of 1999 was entirely attributable to the
discontinuation of a Florida grower, which generated very little income for
the company. FreshWorld Farms began a restructuring effort at the end of the
first quarter of this year and has shown good sales improvements and operated
at a break even profit level in May and June. Gross profit of the
Distribution segment was $6.1 million in the second quarters of both 1998 and
1999. Gross profit as a percent of sales increased from 8.0% in the second
quarter of 1998 to 8.3% in the second quarter of 1999, offsetting the lower
overall sales. Operating profit for the Distribution segment declined
marginally, from $1.0 million in the second quarter of 1998 to $0.9 million
in the second quarter of 1999, due to the addition of new sales and marketing
staff recruited to support sales expansion programs.

Revenues for the RESEARCH AND DEVELOPMENT segment declined from $2.0
million in the second quarter of 1998 to $1.0 million in the second quarter
of 1999 due to lower contract revenues and licensing fees. This decline in
revenues translated directly to lower gross profit generation in this segment
of the business. Research expenses were $0.3 million higher and amortization
of patents and trademarks increased by $0.1 million in the second quarter of
1999 as compared with the same quarter of 1998 due to the scale up of the
Company's strawberry program following the acquisition of Monsanto's
strawberry assets in December 1998. This combination of factors caused the
Research and Development segment to experience an operating loss of $1.9
million in the second quarter of 1999, which was $1.4 million higher than the
same quarter a year ago.

Interest expense increased to $4.5 million in the second quarter of
1999 from $1.8 million in the same quarter of 1998. This $2.7 million
increase was due to a higher overall level of debt outstanding and the higher
interest rates and amortization of the long-term debt issuance costs
associated with the Senior Guaranteed Floating Rate Notes issued on March
22nd of this year.

Interest income increased $0.7 million for the second quarter of
1999 as compared to the same quarter of 1998. This increase was due primarily
to higher grower receivables and interest rates being charged on this grower
financing in both the Farming and Distribution segments.

In the second quarter of 1999 the Company experienced a foreign
exchange loss of $0.2 million as compared to a foreign exchange loss of $1.2
million in the same period of 1998. While not impacting 1999 results
significantly because the Mexican peso has strengthened from its closing
exchange rate on December 31, 1998, a major change that could affect
comparisons year-on-year in the future is that as of January 1, 1999, Mexico
ceased to be considered a highly inflationary economy. Interfruver, whose
functional currency is the peso, will now account for foreign exchange
impacts on non-monetary balance sheet accounts as changes to the cumulative
translation account under shareholders equity rather than as foreign exchange
gains and losses on the consolidated statement of operations.

During the second quarter of 1999, the share of losses allocable to
minority interests was $0.3 million as compared to $1.1 million in the same
quarter of 1998. The 1999 and 1998 allocation of losses are consistent with
the minority positions held across the operating subsidiaries of the Company.

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998

Consolidated total revenues, gross profit (revenues less cost of
sales), and the Company's consolidated operating loss were $128.7, $9.8
million, and $8.5 million, respectively, in the first six months of 1999 as
compared with $147.5 million, $13.6 million, and $2.7 million for the same
period in 1998

FARMING segment revenues, the majority of which are eliminated in
consolidation, for the six months ended June 30, 1999 were $32.1 million as
compared with $35.0 million during the same period in 1998. Sales volumes
declined by 21%, which was a direct consequence of low production stemming
from the unusually cold weather conditions that prevailed in the state of
Sinaloa, Mexico from December 1998 through April 1999. Weighted average
prices were slightly higher during the first six months of 1999, offsetting
to some extent the impact of the low sales volumes. Farming segment gross
profit declined by $2.1 million and the operating loss increased from $4.1
million to $6.5 million for the first six months of

<PAGE>

1998 to the same period in 1999. The decline in gross margin stemmed from the
poor production output for 1999, which increased average unit production
costs. ABSA's administrative expenses experienced a slight increase for the
first six months of 1999 as compared with the same period in 1998 due to
higher salary and wage costs, which were consistent with the rate of
inflation in Mexico during the past year. The Company continues to believe it
can achieve 10-15% operating margins in its wholly-owned operations in
Sinaloa, Hermosillo, and Baja California Sur and in its joint venture growing
operations in Baja California Norte in the future with a return of more
normal weather conditions. However, the Company has determined that a better
pricing environment and/or a significant lowering of costs will be required
to achieve these same margins in its Culiacan, Sinaloa growing operations.

DISTRIBUTION segment revenues declined from $144.1 million for the
six months ended June 30, 1998 to $125.4 million for same period of 1999.
This decrease in revenues of $18.7 million was due to the low volumes and
quality of products produced in Culiacan resulting from the cold weather
conditions and the discontinuation of a FreshWorld Farms Florida grower,
which generated very little income for the company. Revenues in the Company's
other U.S., Canadian, and Mexican distribution operations increased by $5.6
million for the first six months of 1999 as compared with the same period in
1998. These gains were achieved through strong efforts to develop new grower
relationships and source product from outside of the Company's farming
operations. Gross profit (sales less cost of sales) of the Distribution
segment declined by $1.4 million for the first six months of 1999 as compared
with the same period in 1998 due to the lower sales and a significant
increase in transportation costs to the West Coast of the United States as
compared with last year. Operating income of the Distribution segment for the
six months ended June 30, 1999 declined by $2.3 million from the same period
in 1998 due to the lower gross margin and an increase in administrative
expenses associated with the addition of new sales and marketing staff
recruited for the sales expansion programs and upgrades to the Company's
management information systems. While the 1999 results to date only reflected
a 0.5% operating margin on sales, the Company believes it can achieve at
least a 2.5-3.0% operating margin in this segment of the business in the year
2000 by increasing volumes and thereby leveraging its existing
infrastructure, and by making its FreshWorld Farms operation profitable.

Revenues and gross profit for the RESEARCH AND DEVELOPMENT segment
decreased marginally ($0.3 million) for the first six months of 1999 as
compared with the same period in 1998 due to lower royalties. Research and
development expenses increased from $2.8 million for the first six months of
1998 to $3.2 million in the same period in 1999. These higher expenses were a
direct consequence of the scale up of the Company's strawberry program
following the acquisition of Monsanto's strawberry assets in December 1998.
This combination of factors plus an increased amortization expense and
overhead allocation caused the Research and Development segment to experience
an operating loss of $2.6 million for the first six months of 1999, as
compared with an operating loss of $1.6 million for the same period in 1998.

Interest expense for the six months ended June 30, 1999 was $6.8
million as compared with $3.6 million in the same period of 1998. This $3.2
million increase was due to a higher overall level of debt outstanding, the
higher interest rates and amortization of the long-term debt issuance costs
associated with the Senior Guaranteed Floating Rate Notes issued on March
22nd of this year, and the recognition of the remaining balance of up front
fees that had not previously been amortized on the Company's $30 million
one-year credit facility with the Bank of Montreal that was retired on in
March of this year.

Interest income increased $1.2 million for the first six months of
1999 from the same period of 1998. This increase was due primarily to higher
grower receivables and interest rates being charged on this grower financing
in both the Farming and Distribution segments.

In the first six months of 1999 the Company experienced a foreign
exchange loss of $0.1 million as compared to a foreign exchange loss of $1.0
million in 1998. While not impacting 1999 results significantly because the
Mexican peso has strengthened from its closing exchange rate on December 31,
1998, a major change that could affect comparisons year-on-year in the future
is that as of January 1, 1999, Mexico ceased to be considered a highly
inflationary economy. Interfruver, whose functional currency is the peso,
will now account for foreign exchange impacts on non-monetary balance sheet
accounts as

<PAGE>

changes to the cumulative translation account under shareholders equity
rather than as foreign exchange gains and losses on the consolidated
statement of operations.

During the first six months of 1999, the share of losses allocable
to minority interests was $0.6 million as compared to $0.8 million in the
same period of 1998. The 1999 and 1998 allocation of losses are consistent
with the minority positions held across the operating subsidiaries of the
Company.

CAPITAL EXPENDITURES

During the first six months of 1999, the Company made capital
investments of $3.7 million in property, plant and equipment. The majority of
the funds were spent by the Farming segment ($2.6 million) to complete the
new packaging facility in Culiacan, Mexico and to improve housing facilities
for 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 six months ended June 30, 1999, the Company used $ 18.6
million of cash in operating activities. Cash used in the results of
operations amounted to $9.7 million (i.e., net income, minority interest,
depreciation, and amortization). Working capital requirements increased by
$8.9 million during the first half of 1999. Accounts receivable and advances
to growers used $4.7 million of cash in the first half of 1999, as $3.8
million of financing was provided to joint ventures with growers and customer
receivables increased by $0.9 million. Inventories declined by $5.8 million
and accounts payable and accrued expenses decreased by $3.6 million, both of
which were consistent with the end of the Culiacan, Baja California and
Hermosillo growing seasons. The $6.3 million cash requirement for other
assets reflected a payment to one of the Company's joint farming ventures
towards the acquisition of new packaging and other 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 six months
of 1999 was $18.4 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 $65.7 million of short-term bank debt and
$2.2 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, $12.6
million was on deposit on June 30, 1999 in trust as an interest reserve
account representing one year's worth of interest on the debt.

Due to the losses incurred during the first and second quarters of
1999, the Company's liquidity position has deteriorated. Company management
has determined that further capitalization is required to provide the
necessary resources to carry forward its business plan, to address the
Company's high level of debt, and to bring the Company into compliance with
the Nasdaq's listing requirements. Company management is developing and
analyzing alternative approaches to address these problems and currently
expects to agree on a definitive approach with its Board of Directors by the
end of the third quarter.

YEAR 2000 ("Y2K") UPDATE

BACKGROUND

The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable year. If
the Company's computer programs with date-sensitive functions are not Year
2000 compliant, they may recognize a date using "00" as the Year 1900 rather
than the Year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
<PAGE>

THE PROJECT

The Company's Y2K project includes both information technology
("IT") and non-IT systems and has been divided into four principal sections.
These sections are (1) hardware, (2) software, (3) non-IT systems, and (4)
third parties (suppliers, customers, and other). Sections 1, 2, and 3 have,
or will go through seven phases, as follows: (i) an inventory of all items
relevant to Y2K, (ii) assignment of priorities regarding each of these items
for the Company's activities in the Y2K, (iii) determination of the Company's
current Y2K capability and compliance with regard to each of these items,
(iv) preliminary testing of Y2K capability, (v) maintenance and or
replacement of items that fail to meet Y2K requirements, (vi) validation that
maintenance and replacement changes meet Y2K requirements, and (vii) design
of contingency plans

Bionova Holding and all of its subsidiaries have completed all of
the sections of this project with the exceptions of ABSA, Bionova Produce,
Inc. of Arizona and Texas, and R.B. Packing of California, Inc. ABSA still is
in the process of updating several of its operating systems to be Y2K
compliant and expects to complete this activity by October 31, 1999. Bionova
Produce and R.B. Packing, Inc. have identified a "patch" that would enable
their basic accounting and operational systems to be Y2K compliant. However,
these two companies recently have completed an evaluation and are in the
process of determining if they should install an entirely new set of
operating and accounting systems. If approved, the new system these companies
are proposing to install already is Y2K compliant. A decision on whether to
proceed forward with this new system will be made by August 15. In either
case these two companies expect to install the necessary software by October
31 and be Y2K compliant at that time.

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 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. When we use the terms "Bionova," "we," "us," and "our,"
these terms refer to the Company and its subsidiaries.

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. As of June 30, 1999
our accumulated deficit was $79.1 million. For the quarter ended June 30,
1999, we had a net loss of $8.3 million. 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

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,

<PAGE>

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.

OUR LEVERAGED POSITION COULD CAUSE US TO BE UNABLE TO MEET OUR CAPITAL NEEDS,
WHICH COULD HURT OUR FINANCIAL CONDITION.

At June 30, 1999 we had $118.8 million of indebtedness and
stockholders equity of $28.9 million. This level of indebtedness may pose
substantial risks to our company and to our stockholders, including the
possibility that we may not generate sufficient cash flow to pay our
outstanding debts. Our level of indebtedness may also adversely affect our
ability to incur additional indebtedness and finance our future operations
and capital needs, and may limit our ability to pursue other business
opportunities.

RISKS RELATING TO OUR FARMING AND DISTRIBUTION BUSINESS

BAD WEATHER AND CROP DISEASE CAN AFFECT THE AMOUNT OF PRODUCE WE CAN GROW,
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. 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 AND DISTRIBUTE 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. If it becomes necessary to pay more to
attract labor to farm work, our labor costs will increase.

The Mexican farm work force retained by ABSA 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 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.

ABSA'S RELIANCE ON LEASES AND PRODUCTION ASSOCIATIONS COULD RESULT IN
INCREASED COSTS, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS

ABSA relies on agricultural land leased from others and production
associations with other growers for a large part of its supply. The average
term of these land leases is two years and we expect to renew 100% of these
land leases as they expire. If the other parties to these leases and other
arrangements were to choose not to renew their agreements with ABSA, ABSA
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.

<PAGE>

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, 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 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.

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 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

ABSA 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

<PAGE>

surrender its land. ABSA has been, and continues to be, involved in land
dispute proceedings as part of its ordinary course of business. If ABSA is
required to surrender any of its land, the volume of fresh fruits and
vegetables it produces would decline and adversely affect our profitability.
There are currently pending in Mexico two lawsuits challenging the ownership
rights of ABSA to rural land it owns in Mexico. If both of these lawsuits
were decided against ABSA, ABSA could lose a total of 30% of all the rural
land it owns in Mexico.

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. Since January 1995, the value of the peso has decreased approximately
90%. These exchange rate fluctuations impact our subsidiaries' business. If
the value of the peso decreases relative to the value of the dollar, then:

1 imports of produce into Mexico for distribution by our Mexican
subsidiary become more expensive in peso terms and therefore more
difficult to sell in the Mexican market; and
2. 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

Despite 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. U.S. tomato growers have
brought dumping claims against Mexican tomato growers and may do so again.
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

IF THE NASDAQ WERE TO DELIST OUR COMMON STOCK, THE MARKET FOR, AND THE VALUE
OF, THE COMMON STOCK COULD BE ADVERSELY AFFECTED.

To maintain the listing of our common stock on the Nasdaq National
Market, we must continue to meet the Nasdaq National Market's listing
requirements. One of the requirements that applies to us requires us to
maintain net tangible assets in excess of $4 million. Net tangible assets is
the amount of our assets, excluding goodwill, less the amount of our
liabilities. At June 30, 1999, our net tangible assets were $0.1 million. If
we cannot bring the Company back into compliance with the requirements for
continued listing on the Nasdaq National Market, we may apply for listing on
the Nasdaq Small-Cap Market. If we are not listed on the Nasdaq Small-Cap
Market, our stock will trade in the over-the-counter market, which

<PAGE>

may limit the liquidity of an investment in our stock. The over-the-counter
market is considered volatile because securities traded in that market are
subject to substantial and sudden price increases and decreases and, at
times, price information for our securities may not be available. In
addition, when there is a limited number of market makers, there is a risk
that the dealer or group of dealers who are making a market for our
securities may control the market in the security and set prices that are not
based on competitive forces. This would cause the available offered price to
be substantially below the quoted bid price.

BIONOVA INTERNATIONAL, INC. 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. This ownership and management structure will inhibit the
taking of any action by Bionova which is not acceptable to Bionova
International.

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. In 1996, we acquired DNA Plant Technology and its
subsidiaries. In 1997, we created VPP Corporation to acquire most of the
assets of United Agricorp, Inc. In 1998, we acquired full ownership of ABSA
and International Produce Holding Company, and their subsidiaries. As a
result of these acquisitions, 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.

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 October 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.

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.

<PAGE>

<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 variable 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 June 30, 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 June 30, 1999. At June 30, 1999 approximately 3% of the
Company's long-term debt was fixed rate debt and 97% 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.... $ 13.5 $ 13.5 $ 13.5
- ------------------------------------------------------------------------------------------------------------------------------
Average interest rate...... 10%
- ------------------------------------------------------------------------------------------------------------------------------
Peso variable rate (in $US).. 0.5 0.5 0.5
- ------------------------------------------------------------------------------------------------------------------------------
Average interest rate...... 25%
- ------------------------------------------------------------------------------------------------------------------------------

The table below provides information about the Company's financial
instruments by functional currency that is 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,

<PAGE>

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......... 25%
- ------------------------------------------------------------------------------------------------------------------------------
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.

<PAGE>

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.

<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 in the Company's annual report on Form 10-K
for the year ended December 31, 1998, on August 29, 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 Superior Court
of the State of California, County of Alameda. This claim arose out of the
merger on September 26, 1996 of DNAP with a wholly-owned subsidiary of the
Company. The plaintiff alleged that it owned shares of DNAP's Preferred Stock
and that DNAP breached its contractual obligations to the plaintiff by, among
other things, not providing special conversion privileges to the preferred
stockholders. On February 17, 1999, the Court granted DNAP Holding's and
DNAP's Motion for Summary Judgment and dismissed all of the plaintiff's
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.

As previously reported in the Company's annual report on Form 10-K
for the year ended December 31, 1998, in a complaint filed on March 31, 1998,
in the Superior Court of the State of California, County of San Mateo, U.A.
Local No. 467 Health and Welfare Trust Fund sued numerous defendants
including DNAP and various manufacturers and distributors of tobacco
products. Since March 31, 1998, DNAP has been named as a defendant in
twenty-three additional cases brought on behalf of union trust funds and
benefit trusts in the California state courts. DNAP's involvement in these
cases arises from allegations regarding research it performed from 1983
through 1994 for a major tobacco

<PAGE>

company, from whom DNAP is seeking indemnification. In each of these cases,
the plaintiff alleges that the defendants engaged in unfair business and
advertising practices; committed fraud and deceit, conspiracy to commit
fraud, and aiding and abetting fraud; made negligent misrepresentations; and
violated California's anti-trust laws. All of the claims against DNAP have
been dismissed except for the claims of unfair business practices, for which
the plaintiffs are seeking restitution and injunctive relief. If the
plaintiffs reassert fraud claims against DNAP, they are likely to seek
additional economic damages. The court has approved the consolidation of
these cases with a class action styled ENGINEERS LOCAL 12 HEALTH & WELFARE
TRUST V. AMERICAN TOBACCO CO., INC., ET AL. pending in the same court. DNAP
denies any wrongdoing or liability in this matter and intends to vigorously
contest this lawsuit.

As previously reported in the Company's annual report on Form 10-K for
the year ended December 31, 1998, on October 30, 1998, a class action lawsuit
styled PECHANGA BAND OF LUISENO MISSION INDIANS ET AL. V. PHILIP MORRIS, INC.,
ET AL. was filed in the Superior Court of the State of California, County of San
Diego. The Plaintiffs sued numerous defendants including DNAP and various
manufacturers and distributors of tobacco products. The plaintiff's allegations
are substantially identical to the claims made in the above-described cases
brought on behalf of union trust funds and benefit trusts. Proceedings in this
case are no longer stayed, and DNAP intends to file its answer by August 18,
1999. DNAP denies any wrongdoing or liability in this matter and intends to
vigorously contest this lawsuit.

As previously reported in the Company's quarterly report on Form
10-Q for the quarter ended March 31, 1999, 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. DNAP was
voluntarily dismissed from this case on June 28, 1999, pursuant to a
stipulation by all defendants to toll the statute of limitations for one year.

On May 12, 1999, a lawsuit styled DAVID TAYLOR, ET AL. V. LORILLARD,
INC., ET AL. was filed in the Superior Court of California, County of Alameda
against various defendants, including DNAP and several manufacturers of
cigarettes. A similar complaint in a lawsuit styled MARY FRANCES
JEFFERSON-JACKSON ET AL. V. LORILLARD, INC., ET AL. was filed on June 7, 1999
in the Superior Court of California, County of Contra Costa. In both cases,
in addition to other claims brought against the cigarette manufacturers only,
the plaintiffs allege 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 plaintiffs
are 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 these lawsuits.

As previously reported in the Company's annual report on Form 10-K
for the year ended December 31, 1998, ABSA owns seventy-five hectares
(approximately 185 acres) of rural land in the State of Sinaloa, Mexico,
which is the subject of a judicial proceeding pending in Mexico initiated by
a group of campesinos. The court previously upheld the petition and ordered
the land transferred to the petitioners, and ABSA filed a challenge to that
ruling. On May 14, 1999, the appellate court agreed with ABSA and ordered
that a new judgment be entered in ABSA's favor.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The information required by this item is contained in the Company's
quarterly report of Form 10-Q for the quarter ended March 31, 1999.

ITEM 5. OTHER INFORMATION

RIGHTS OFFERING

<PAGE>

As previously announced, the Company is in the process of
implementing a rights offering in which the Company will distribute to each
record holder of its common stock three rights (each, a "Right") for every
four shares of common stock held by such record holder. Each Right will
entitled the holder to purchase one share of common stock at an exercise
price of $5.75 per share and will expire on May 31, 2000. In light of
management's efforts to develop a means of further capitalizing the Company,
management has determined to defer implementation of the rights offering
until after a restructuring proposal is approved.

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.

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 (filed as an exhibit to the Company's
Quarterly report on Form 10-Q for the quarterly period ended March 31,

<PAGE>

1999 and incorporated herein by reference)

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.

<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.

<TABLE>
<S> <C>
BIONOVA HOLDING CORPORATION

Date: August 13, 1999 By: /s/ ARTHUR H. FINNEL
-------------------------------------
Arthur H. Finnel,
Executive Vice President,
Treasurer and Chief Financial Officer
</TABLE>

<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).

3.4* Bylaws of the Company

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.

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS AT AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,546
<SECURITIES> 0
<RECEIVABLES> 47,814
<ALLOWANCES> 2,686
<INVENTORY> 10,720
<CURRENT-ASSETS> 69,557
<PP&E> 53,749
<DEPRECIATION> 14,081
<TOTAL-ASSETS> 182,637
<CURRENT-LIABILITIES> 48,551
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 28,669
<TOTAL-LIABILITY-AND-EQUITY> 182,637
<SALES> 128,710
<TOTAL-REVENUES> 128,710
<CGS> 118,867
<TOTAL-COSTS> 137,201
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,835
<INCOME-PRETAX> (13,629)
<INCOME-TAX> 167
<INCOME-CONTINUING> (13,796)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,213)
<EPS-BASIC> (0.56)
<EPS-DILUTED> (0.56)

</TABLE>