BIONOVA HOLDING CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

/ / 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 of incorporation) (I.R.S. Employer Identification No.)

6701 SAN PABLO AVENUE
OAKLAND, CALIFORNIA 94608
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 547-2395

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 / / No /X/

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes /X/ No / /

Aggregate market value of Common Stock held by non-affiliates as of
March 25, 2002: $2,215,463

Number of shares of Common Stock outstanding as of March 25, 2002:
23,480,408

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TABLE OF CONTENTS

TRANSWITCH-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK OF DNAP OR ITS
SUBSIDIARIES. MASTER'S TOUCH-REGISTERED TRADEMARK- AND PREMIER
SELECCION-REGISTERED TRADEMARK- ARE REGISTERED TRADEMARKS OF AN AFFILIATE OF
BIONOVA HOLDING.

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PART I

ITEM 1. BUSINESS

OVERVIEW

Bionova 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 98.6% ("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"). 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%. On December 28, 2000, Bionova Holding
increased its ownership interest in ABSA to 98.6% by completing the
capitalization of amounts that had previously been advanced to ABSA. 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.

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 also owns 98.0% of Siembra Cultivo y
Cosecha del Noroeste, S.A. de C.V., a corporation organized under the laws of
the United Mexican States ("Siembra"), which provides labor and administrative
services to ABSA. ABSA also owns 98.0% of Comercializadora Premier, S.A. de
C.V., a corporation organized under the laws of the United Mexican States
("Premier Mexico"), which provides administrative services to the Company. In
November, 2001, ABSA sold its 50.01% interest in Interfruver de Mexico, S.A. de
C.V., a corporation organized under the laws of the United Mexican States
("Interfruver"), to the Bon Family. Interfruver 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 and
VPP are agribusiness biotechnology companies focused on the development and
application of genetic engineering and transformation technologies in plants.

Approximately 77.0% of the outstanding Common Stock of the Company is
indirectly owned by Savia, S.A. de C.V. ("Savia"). In addition, Savia indirectly
owns 200 shares of Series A Convertible Preferred Stock, which, if converted,
would result in Savia owning 88.4% of the outstanding Common Stock of the
Company. The owner of record of all of these shares of common and preferred
stock is Ag-Biotech Capital, LLC, a wholly-owned subsidiary of Savia. Savia is a
Mexican corporation which acts as a holding company for several companies,
including Seminis, Inc., the leading manufacturer of fruit and vegetable seeds
in the world.

The corporate headquarters of the Company are located at 6701 San Pablo
Avenue, Oakland, California 94608, and the telephone number is (510) 547-2395.

2001 YEAR-END FINANCIAL POSITION

Bionova Holding's balance sheet at December 31, 2001 reflected that the
Company was in a position of technical insolvency, as its current assets of
$49.3 million fell far short of its current liabilities of $117.9 million. The
Company's fresh produce subsidiaries owed $10.1 million to banks,

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most of which is on a revolving line of credit and guaranteed by Savia. Bionova
Holding and its subsidiaries were indebted to Savia and its subsidiaries (other
than Bionova Holding) in a total amount of $89.3 million. Of this total
$19.1 million was owed by ABSA and is accruing interest at a rate of
approximately 9% per annum. Bionova Holding had debt of $62.9 million to Savia,
which consisted of the $48 million of advances made in April 2000, $7.5 million
of advances made to Bionova Holding by Savia in 2001 under a cash support
agreement, and $7.4 million of interest that has accrued on this debt. The
Bionova Holding debt currently is accruing interest at a rate of approximately
12.25% per annum. Other subsidiaries of Bionova Holding had related party
accounts due to Savia and its subsidiaries that accounted for the balance of the
$7.3 million. All of the Bionova Holding debt originally was due to be paid by
March 23, 2002, but was extended by agreement between Bionova Holding and Savia
until December 31, 2002. The other related party accounts due to Savia and its
subsidiaries have varying maturities, but all are due in 2002. At this time,
Bionova Holding does not know how this indebtedness will be handled.

BACKGROUND AND STATUS OF DECEMBER 2000 PURCHASE AND CASH SUPPORT AGREEMENTS WITH
SAVIA

One vehicle which might still be available to reduce the Company's
significant debt with Savia is the December 28, 2000 Purchase Agreement between
the Company and Savia ("Purchase Agreement"). This agreement, to which Savia's
subsidiary Ag-Biotech Capital, LLC is also a party, contains four major
components. First, Bionova Holding would sell its fresh produce farming and
distribution business (including all of the debt and liabilities of the fresh
produce business) to Savia for $48 million. In acquiring the fresh produce
business Savia would purchase 100% of the shares held by Bionova Holding in ABSA
and IPHC. The purchase price for the fresh produce business was to be paid by
the application of $48 million of advances previously made by Savia to Bionova
Holding. As of September 30, 2001, both Bionova Holding and Savia had the option
to terminate the Purchase Agreement, but neither party has yet elected to take
this action.

Second, on December 29, 2000 Bionova Holding issued 200 shares of
convertible preferred stock to Bionova International for $63.7 million, which
was paid through the application of all of the remaining outstanding advances
previously made by Savia to Bionova Holding (other than the $48 million which
would be applied to the sale of the fresh produce business). The 200 shares of
preferred stock, all of which Bionova International has transferred to
Ag-Biotech Capital, LLC, are convertible into 23,156,116 shares of common stock
(a conversion ratio based on $2.75 per share) at any time after adoption and
filing by the Company of a charter amendment increasing the authorized number of
shares of Common Stock to at least 70,000,000. The Company will not receive any
additional consideration upon the conversion of the preferred stock.

Third, Savia committed to enter into sublicense agreements whereby it or its
affiliates would license to Bionova Holding certain technology rights that are
important for Bionova Holding to move forward in its business. Bionova Holding
will be able to utilize these rights for research purposes without cost. Upon
commercialization of products utilizing these technology rights the Company will
be obligated to pay royalties to Savia and/or the owner of the technology. These
licenses were granted during 2001. Fourth, the Purchase Agreement provides that
in lieu of the rights offering previously contemplated by the 1998 Stock
Purchase Agreement between Bionova International and Bionova Holding, Bionova
Holding will issue to each of its stockholders rights to purchase two shares of
Bionova Holding common stock for each share they own as of the date the
registration statement relating to the rights offering is declared effective or
such other record date as may be set by Bionova Holding's Board of Directors.
The exercise price for the rights will be $2.50 per share. The rights will
expire 60 days after issuance or at such other time as Savia and Bionova
Holding's Special Committee of Independent Directors may agree. Ag-Biotech
Capital, LLC has agreed to surrender all of the rights it receives to Bionova
Holding without exercising them. The Purchase Agreement does not specify a
deadline for effecting the rights offering. Due to the current and historical
market prices, management

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has deferred the rights offering until other strategic decisions regarding the
technology business and the fresh produce business have been made.

Bionova Holding and Savia also entered into a Cash Support Agreement for
2001. This agreement provided that, during 2001, Savia would advance funds to
Bionova Holding as requested to finance Bionova Holding's technology business.
During 2001, Savia advanced $7.5 million under this Agreement. These advances
are to be applied to the purchase by Savia (i.e., exchanged for) of additional
common shares if and when the sale of the fresh produce business is closed. The
purchase price to be paid by Savia for the additional shares under the Cash
Support Agreement will be $2.50 per share, subject to certain adjustments if the
market price exceeds $2.50. If the sale of the fresh produce business is
completed pursuant to the Purchase Agreement, and the preferred stock is
converted to common stock as described above, then the capitalization of the
amounts advanced under the Cash Support Agreement will increase Savia's
beneficial interest in Bionova Holding to 89.1%.

If the transactions to sell the fresh produce business to Savia and the
conversion of the advances under the cash support agreement were completed, the
Company would be able to eliminate all of its bank debt and its entire debt to
Savia and Savia's subsidiaries. When this strategy was originally designed in
December, 2000, the Company believed it would have a good opportunity to raise
new capital and/or secure new research contracts to support the Company's
technology business from January 1, 2002 forward upon the termination of Savia's
cash support. However, the Company was not able to raise new financing or secure
new contracts for its technology business in 2001, in part due to market
conditions and in part due to the perceived uncertainty about the Company
emanating from the appellate court ruling in favor of the Grace Brothers in
January 2001 and the judgment granted in favor of the Grace Brothers in an
amount of $6.4 million in August 2001. The Company, with the financial
assistance of Savia, finally settled the Grace Brothers litigation in
December 2001. As the Company entered 2002, Savia informed management of Bionova
Holding that it could not make any additional cash resources available.
Therefore, Bionova Holding chose to delay execution of the Purchase Agreement,
as the only available cash resources for the Company were from the sale of
certain technology assets and funds that could be generated by the fresh produce
business.

For accounting purposes Bionova Holding treated the fresh produce business
(i) as discontinued operations on its statement of operations for the years
ended December 31, 2000, 1999, and 1998, (ii) as net assets of discontinued
operations on its balance sheet for the year ended December 31, 2000, and
(iii) as discontinued operations and net assets of discontinued operations in
its financial statements filed for the quarters ended March 31, June 30, and
September 30, 2001. Since the Company did not proceed to complete the sale of
the fresh produce business in 2000 and has no current plans to do so, the
results of operations of the fresh produce business have been reclassified from
discontinued operations to continuing operations for these prior periods and the
net assets from discontinued operations in the December 31, 2000 balance sheet
were reclassified to their respective balance sheet accounts.

NEAR-TERM BUSINESS AND FINANCIAL OUTLOOK

Company management and its Board of Directors have been and are continuing
to explore their options in 2002 and beyond. The Company is pursuing
aggressively a variety of alternatives for its technology business, including
new research contracts, partnerships, third party financing, and the sale of
assets. Completing one or more such transactions is essential to the technology
business's business plan and its ability to continue as a going concern.

Cash resources emanating from Bionova Holding's fresh produce business are
dependent on the outcome of the Culiacan harvest season in May 2002. To date,
production and revenues, and hence cash generation, have run well below
projections due to weather conditions that delayed the harvest and low prices
for its product during the months of February and March. The Company remains

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hopeful that it will make up the deficiency during the next three months. If the
Company does not meet its cash projections for the harvest season, in all
likelihood Bionova Holding will have to cut back and/or terminate some business
operations.

There can be no assurance that these actions will result in sufficient
working capital to significantly improve the Company's current financial
position or its results of operations. The Company also must find a solution to
the $89.3 million of debt plus the interest which is accruing that is due to
Savia and its subsidiaries during 2002. While the Company is actively seeking to
develop alternative sources of funding, there can be no assurance the Company
will be able to meet its obligations in 2002 nor secure funds to take it beyond
the 2002 calendar year. Additional financing may not be available to the Company
on favorable terms, if at all. If the Company is unable to obtain financing, or
to obtain it on acceptable terms, Bionova Holding may be unable to execute its
business plan.

Financial information relating to each of the Company's industry segments is
set forth in Note 20 to the Company's financial statements contained in this
report. Financial information relating to foreign and domestic operations and
export sales also is set forth in Note 20 to the Company's consolidated
financial statements.

BACKGROUND

For operating and financial reporting purposes, the Company historically has
classified its business into three fundamental areas: (1) FARMING, which
consists principally of interests in Company-owned fresh produce production
facilities and joint ventures or contract growing arrangements with other
growers; (2) DISTRIBUTION, consisting principally of interests in sales and
distribution companies in Mexico, the United States and Canada; and
(3) RESEARCH AND DEVELOPMENT (OR TECHNOLOGY), consisting of business units
focused on the development of fruits and vegetables and/or intellectual
properties associated with these development efforts. The Farming and
Distribution segments collectively are referred to as the Fresh Produce
Business.

FARMING

ABSA is a leading grower of fresh produce in Mexico, primarily tomatoes and
peppers, and, to a lesser extent, cucumbers, grapes and other fruits and
vegetables. Most of ABSA's farming operations are located in the Mexican states
of Sinaloa, Sonora and Baja California. Advanced technology is used to ensure
consistent quality and yields, including special hybrid varieties, integrated
pest management control, and computerized drip irrigation. ABSA's produce is
distributed in the United States, Mexico and Canada under the "Master's Touch"
and "Premier Seleccion" brands as well as other labels, depending on produce
grades.

ABSA's supply derives from (i) produce grown on land owned or leased by
ABSA, (ii) produce grown by producers with whom ABSA enters into a financing and
distribution contract and (iii) produce grown by producers with whom ABSA enters
into both a production association agreement and a distribution contract. When
ABSA enters into a financing and distribution contract only, it agrees to
provide the grower limited financial assistance for harvesting and/or packing in
exchange for exclusive distribution rights. When ABSA enters into a production
association agreement, ABSA finances up to 50% of the production cost in a
co-production contract with the grower. ABSA provides technical support and
agrees to handle the packing and distribution. Net proceeds are shared according
to the terms of the association agreement after ABSA recoups its investment.
Historically, ABSA had financed up to 100% of the production cost in a joint
venture contract with the grower. ABSA discontinued this practice entirely in
2001.

In 2001, approximately 60% of ABSA's supply came from land owned or leased
by ABSA. ABSA owns approximately 3,193 acres in Sinaloa, Sonora and Baja
California Sur, and ABSA leases

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approximately 502 acres in Baja California Sur. During 2001, 40% of production
supplied by ABSA was sourced through production associations with growers and
through distribution contracts.

In 2001, approximately 64% of ABSA's sales were tomatoes, 21% were peppers,
6% were cucumbers, 6% were grapes and the remaining 3% were mixed vegetables. In
2000 and 1999, respectively, ABSA's sales were allocated approximately as
follows: tomatoes--60% and 68%, peppers--19% and 13%, cucumbers--5% and 4%, and
grapes, melons and mixed vegetables (including eggplant and squash)--16% and
15%.

In 2001, 2000, and 1999, the Farming segment suffered operating losses of
$13.4 million, $12.7 million, and $16.8 million, respectively. Of the
$13.4 million operating loss in this segment of the business in 2001,
$8.6 million was attributable to the write off of all of the goodwill previously
on the balance sheet of ABSA.

DISTRIBUTION

The Company's marketing and distribution activities are carried out by both
national and regional distributors. The Company's national distributors in the
United States are Bionova Produce, Inc., R.B. Packing of California, Inc. and
Bionova Produce of Texas, Inc., each of which is a wholly-owned subsidiary of
IPHC, and are referred to collectively as "Bionova Produce." Interfruver, which
until November of 2001 had been majority owned by ABSA until ABSA's entire
interest was sold to the minority owners of Interfruver, had served as the
Company's distributor in Mexico. As a condition of the contract of sale,
Interfruver has agreed to continue distributing produce supplied by ABSA. The
Company's regional distributors are Premier Fruits and Vegetables BBL Inc. in
Montreal, Quebec ("Premier") and Premier Fruits and Vegetables (USA), Inc. in
Philadelphia, Pennsylvania. As described below, the Company sold its interest in
another regional distributor, Tanimura Distributing, Inc. ("TDI"), on
February 19, 2001.

NATIONAL DISTRIBUTORS

Bionova Produce, Inc., Bionova Produce of Texas, Inc. and R.B. Packing of
California, Inc. collectively had revenues of $73.6 million in 2001. The
majority of these sales were made by Bionova Produce, Inc., which is located in
Nogales, Arizona, a major point of entry for Mexican produce into the United
States. Approximately 58% of the produce distributed by Bionova Produce, Inc. is
provided by ABSA (including produce grown by ABSA and produce grown by growers
with whom ABSA enters into production association contracts). No single customer
accounted for more than 10% of Bionova Produce, Inc.'s sales in 2001. In 2001,
Bionova Produce, Inc.'s sales were 55% to supermarkets, 24% to wholesalers and
21% to brokers. Its main selling season is December through May.

R.B. Packing of California, Inc. is located in San Diego, California and the
majority of the produce it distributes is grown in California and the Mexican
states of Baja California Norte and Baja California Sur. In 2001, its sales were
28% to supermarkets, 37% to wholesalers, and 35% to brokers. Its main selling
season is July through November. Bionova Produce of Texas, Inc. is a distributor
located in McAllen, Texas that distributes produce grown in Mexico and currently
is concentrating on the importation and distribution of papaya, melons and
hothouse tomatoes.

Interfruver is one of Mexico's largest fresh produce distributors. Based in
Guadalajara, Interfruver distributes produce from ABSA and other Mexican
producers. Interfruver also imports produce from the United States and other
countries. Approximately 74% of its sales is to wholesalers and other
intermediaries and 26% is to supermarkets. Interfruver's sales totaled
$78.1 million in the period from January to October, 2001. On November 1, 2001
ABSA sold its entire 50.01% interest in Interfruver to members of the Bon Family
who previously had owned the remaining 49.99%.

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REGIONAL DISTRIBUTORS

Premier Fruits & Vegetables, BBL Inc. is an 80%-owned subsidiary of IPHC.
Premier distributes produce throughout eastern Canada, and its sales were
approximately 54% to supermarkets, 20% to independent retailers, and 26% to
wholesalers in 2001. Sales in 2001 were approximately U.S. $43.2 million.

Premier Fruits and Vegetables (USA), Inc., an 80%-owned subsidiary of IPHC,
was formed in February, 2000 to market tomatoes and other vegetables, including
the Company's branded line of cherry tomatoes and peppers, in the eastern United
States. Premier Fruits and Vegetables (USA), Inc. sources its products through
and operates under the direction of Premier in Canada.

TDI, a distributing company based in Los Angeles, was a 75%-owned subsidiary
of IPHC from 1995 through 2000. On February 19, 2001, IPHC sold its entire
interest in TDI back to TDI in exchange for a note obligating TDI to pay IPHC
$1.2 million, plus interest at 10.5% per annum, over a three year period. As a
result of the transaction, Mr. Tanimura became the sole stockholder of TDI.

In 2001 the Distribution segment (including national and regional
distributors) experienced an operating loss of $5.9 million. Significantly
impacting the operating loss in 2001 was a $5.7 million charge for the
impairment of all of the goodwill in this segment of the business along with
losses recorded on the sales of Tanimura and Interfruver of $0.4 million and
$5.0 million, respectively. In 2000 and 1999 this segment experienced operating
losses of $2.1 million and $1.7 million, respectively.

RESEARCH AND DEVELOPMENT

The Company's research and development activities are carried out by DNAP, a
wholly owned subsidiary acquired in September 1996 as a result of the Merger.
The mission of DNAP is to develop and commercialize genetic crop protection
solutions for specialty crops, including the major vegetables, strawberry,
grape, banana, and pineapple. DNAP uses model plants and applies genomics tools,
such as micro-arrays for transcript profiling, to accelerate the development
cycle.

In 2001 the Company spent approximately $2.2 million and $1.9 million on
Company and customer-sponsored research and development activities,
respectively. The total of $4.1 million represents a significant reduction from
the combined Company-funded and customer-funded research activities of
$6.2 million in 2000. This decrease is attributable to a reduction in DNAP staff
by approximately two-thirds that occurred in the second quarter of 2001. This
step was taken to conserve cash resources and focus the technology group on its
most promising technology opportunities. In conjunction with this workforce
reduction some customer-sponsored research was reduced accordingly. The Company
discontinued work to develop an herbicide-resistant strawberry variety until
additional crop protection traits of relevance to strawberry are developed.

The Company terminated a number of projects focused on quality trait
improvements in vegetables and is now focusing its technology program on disease
and nematode resistance traits. This strategy capitalizes on DNAP's strengths in
plant transformation, gene expression and product development. Alliances are
being used to source functional genomics tools and intellectual property for the
development of crop protection traits to be applied to vegetable and fruit
crops. The Company is actively pursuing out-licensing opportunities for
technologies that are no longer deemed to be fundamental to this new strategy.
The Company also intends to license newly developed crop protection technologies
to cotton, soybean and other seed companies.

DNAP currently has a staff of 30 employees, including 16 scientists, with
extensive experience in the creation of commercial transgenic plants,
intellectual property protection, and regulatory approval processes. The
scientific group has transformed strawberry, banana, grape, tomato, pepper and
other crops on a commercial scale. As a result, the Company offers existing and
new potential partners a

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broad capability to develop traits, and to commercialize the resulting products,
in a wide array of vegetable and fruit crops.

In 2001 the Research and Development segment experienced an operating loss
of $23.4 million. Significantly impacting the operating loss in 2001 were a
$7.6 million charge for the impairment of all of the goodwill in this segment of
the business, a $7.7 million charge for the impairment of patents and trademarks
of DNAP, and a $3.4 million charge for the loss on the sale of VPP's strawberry
breeding assets. The Company is pursuing aggressively a variety of alternatives
for its technology business, including new research contracts, partnerships,
third party financing, and the sale of assets. Completing one or more such
transactions is essential to the technology business's business plan, which is
described below, and its ability to continue as a going concern.

TECHNOLOGY BACKGROUND

The advent of plant genomics has opened a new era for developing products
for the seed and starter-plant businesses. For most traits of interest, the
introduction, or altered expression, of single genes is not sufficient to create
commercially useful improvements in plant performance. Rather, it is necessary
to understand and gain control of plant pathways and genetic networks that
condition specific plant traits. This can be done through altered expression of
one or more transcription factors ("TFs") that control large numbers of plant
genes (biological modules or pathways) to generate improved plant performance.

DNAP's technology position includes commercial rights to TFs that improve
disease resistance, and to a unique collection of ARABIDOPSIS THALIANA lines
altered for expression of TFs, both sourced through a relationship with Mendel
Biotechnology. DNAP has developed a high capacity transformation methodology,
subject of a pending patent application, which is being applied to the
identification of genes that prevent plant damage caused by certain diseases
(e.g., those caused by fungal pathogens such as SCLEROTINIA and BOTRYTIS). A
method for controlled cellular lethality, developed by DNAP, has been applied to
traits such as nematode resistance. Fungal resistance (broad-spectrum, BOTRYTIS
and PHYTOPHTHORA) and root knot nematode resistance traits are in the
development pipeline. DNAP has developed and has rights to important enabling
technologies, including Transwitch-Registered Trademark- for control of gene
expression, spectinomycin resistance and chlorsulfuron resistance. DNAP also has
broad rights to a range of enabling technologies owned by Monsanto
(transformation, marker genes, and promoters) for application in fruits and
vegetables.

Overall, the Company is well positioned to develop and commercialize plant
products in a range of specialty crops. The Company's strategy is to develop its
own crop protection traits and to in-license genes and technologies for other
important traits in strategic crops. The value of crop protection traits is
significant. Annual crop losses associated with fungal disease and nematodes in
targeted crops exceed $4.5 billion on a worldwide basis; sales of pesticidal
products applied to these crops account for in excess of $3 billion on a
worldwide basis. The Company is committed to crop protection strategies that are
favorable in terms of regulatory requirements, allowing it to develop products
in relatively small acreage, but high value crops such as fruits and vegetables.

CROP PROTECTION STRATEGY AND DEVELOPMENT STATUS

DNAP is committed to providing cost effective genetic solutions for crop
protection that enhance the plant's ability to resist pathogen or pest attack,
and that are favorable with respect to regulatory approval. One fundamental
premise of our strategy is that since most plants are naturally genetically
resistant to most pathogens and pests, we need only broaden the plant's own
responses to disease and pest attack in order to create new value in seed and
starter plants.

Plants normally achieve resistance through pathogen or pest detection that
is linked to a coordinated innate immune response (under the control of TFs).
The corollary is that disease often

9

results from the plant's failure to detect a pathogen, and hence its failure to
activate its innate immune response. A key element of our transgenic strategy is
to link mechanisms for detecting pathogen presence (i.e., through isolation of
pathogen-regulated promoters) with induction of TF expression to activate the
innate immune response when it otherwise would not be activated. The fundamental
elements of this strategy have been validated. Importantly, enhanced innate
immunity does not lead to the expression of any new resistance function in a
plant, only the improved regulation of the plant's normal systems.

Specific progress includes: (i) identification of several candidate TFs that
control fungal disease resistance pathways and whose over-expression provides
improved disease resistance (e.g., for resistance to BOTRYTIS, PHYTOPHTHORA, and
FUSARIUM); (ii) identification of candidate TFs that deliver relatively
broad-spectrum resistance to fungal diseases; and (iii) identification of
candidate promoters induced specifically by target pathogens, which is the
subject of a pending patent application. DNAP is generating promoter-TF
constructs to deliver pathogen-triggered expression of defense responses
targeted to important pathogens and pests in select target crops. Additionally,
DNAP is in position to screen for TFs that control resistance pathways for other
fungal pathogens, such as mildews or VERTICILLIUM, and nematode pests, such as
MELOIDOGYNE. Primary trait validation for pathogen and pest resistance is being
performed in ARABIDOPSIS to reduce the development cycle, after which the best
constructs will be validated in commercial crops (e.g., tomato).

Other crop protection strategies under development include identification of
genes to prevent plant cell death symptoms caused by certain pathogens
(inhibitors of programmed cell death) and the disruption of required feeding
sites for establishment of root knot nematode infection. Notice of allowance has
been received for DNAP's method for controlled cellular lethality, which DNAP is
applying to nematode resistance. Primary proof of principle has been achieved
with feeding site disruption, which will be evaluated in additional crops in the
near term.

INTELLECTUAL PROPERTY

Savia and Bionova Holding entered into agreements with Mendel Biotechnology,
as part of a package of agreements, that strengthened the Company's access to
Mendel-developed intellectual property with transcription factor genes. In
addition, Savia executed an agreement with DNAP providing it rights, under a
Savia agreement with Mendel, to conduct assays to identify transcription factors
that confer biotic stress resistances (e.g., disease and nematode resistance).
Overall, these agreements have substantially solidified the Company's access to
intellectual property and biomaterials for the development of specialty crop
traits.

REGULATORY STRATEGY

Regulatory costs associated with crop protection can create barriers to
entry into specific markets. Costs associated with registering chemical
pesticides represent such a barrier especially for low acreage crops. High costs
associated with regulatory approvals of transgenic plants expressing
chemical/protein actives present a similar barrier to innovation for many
relatively small acreage, high-value fruit and vegetable crops. However, the
crop protection traits we have under development do not rely on the expression
of toxins active against pathogens or pests derived from non-plant sources. The
enhanced innate immunity strategy improves the plant's own ability to resist
attack. Thus, the regulatory burden for product development is expected to be
reduced significantly in comparison with products such as, for example, Cry
protein-expressing plants. This reduced regulatory burden, along with the broad
applicability of crop protection technologies, leads to a new financial model
that allows us to target specialty crops as well as larger acreage crops. The
implementation of transgenic strategies that have a diminished regulatory burden
has emerged as an important element of our business strategy.

10

CROP PROTECTION MARKETS

Crops in which pathogen and pest resistance is economically important
include (i) a range of vegetable crops (such as tomato, lettuce, cucurbits,
pepper), (ii) plantation crops (such as banana), (iii) fruit crops (such as
strawberry, grape, citrus, apple), and (iv) some large acreage crops such as
cotton, soybean and wheat. We have selected as primary targets pathogens and
pests that cause economically significant damage in multiple crops, such as
PHYTOPHTHORA spp., BOTRYTIS, FUSARIUM spp., VERTICILLIUM spp. and SCLEROTINIA
spp., root knot nematode (MELOIDOGYNE spp.), cyst nematode (GLOBODERA and
HETERODERA spp.), and dagger and lesion nematodes. Transcription factors
controlling resistance can be studied in ARABIDOPSIS by developing suitable
assays, some of which have already been developed by the Company. Additional
assays for important pathogens and pests can be established in order to develop
products of special interest to our customers. With its functional genomic
resources, DNAP is positioned to collaborate with partners interested in a wide
range of crop protection problems.

ECONOMIC MODEL

The value of our technology derives from the potential to produce high value
seed or starter plants that result in reduced cost for the farmer and increased
yields. Current nematode-related crop yield losses for our target crops are in
excess of $2.5 billion annually. Fungal disease has a major impact on certain
vegetable and fruit crops, as well as on wheat and rice, resulting in losses in
excess of $2 billion annually. At the present time there are few effective
pesticides available to control nematodes. Fungicides are partially effective in
selected applications and represent a $3 billion market in chemical sales.

In cases where plant breeding has resulted in better plant solutions (e.g.,
with the vegetable crops), seeds for plants with improved disease resistance
have been sold at prices two or three times the price of conventional seeds.
Plant breeding for better disease resistant plants has added at least
$300 million per year of value to the vegetable seed business. This demonstrates
the willingness of the farmer to pay a premium for effective solutions to
disease and pest problems.

DNAP's intention is to focus on the application and implementation of
genomic discoveries in commercial agriculture. Significant investments have
already been made to develop the internal technology base and to access
technologies from Mendel and Monsanto. The potential value of the technology
represented in traits DNAP intends to bring to the marketplace is large in
relationship to the additional cost required to arrive at effective solutions.
Since the selected crop protection strategies are favorable in terms of
obtaining regulatory approvals and the Company has expertise to enable product
development and deregulation, our cost structure is low enough to allow entry
into markets (especially for vegetable and fruit crops) which cannot be
approached economically with current resistance strategies.

GOVERNMENT REGULATION

Regulation by federal, state and local government authorities in the United
States and foreign countries will be a significant factor in the future
production and marketing of plants and plant products containing the Company's
biotechnology-derived trait technologies. The process of obtaining government
approvals can be costly and time consuming, and there can be no assurance that
necessary approvals will be granted to the Company or its customers in a timely
manner, if at all. The extent of government regulation of biotechnology that
might arise from future legislative or administrative actions and the potential
consequences to the Company or its customers are not known and cannot be
predicted with certainty.

The U.S. federal government has implemented a coordinated policy for
regulating biotechnology research and products in the United States. The USDA
has jurisdiction over specific research and pre-commercial activities involving
biotechnology-derived plants, in particular the growing and interstate

11

shipment of biotechnology-derived plants and plant products. The FDA has
jurisdiction over plant products that are used for human or animal food. The EPA
has jurisdiction over large-scale field testing and commercial use of plants
that are bio-engineered to resist pests and diseases, as well as administering
various federal environmental quality statutes. Failure to comply with
applicable regulatory requirements could result in enforcement action, including
withdrawal of marketing approval, seizure or recall of product, injunction or
criminal prosecution.

PROPRIETARY PROTECTION

The Company uses trade secret protection for certain of IPHC's distribution
companies which market produce under the Master's Touch and Premier Seleccion
brand names. ABSA and Bionova Produce, Inc. have registered the Master's Touch
name as a trademark in Mexico and the United States, respectively. Bionova
Mexico has registered the Master's Touch name as a trademark in the Benelux
countries, the European Community, Canada, Hong Kong, Indonesia, South Korea,
Japan, Sweden and the United Kingdom. Savia has registered the Premier Seleccion
name in Mexico and has licensed rights to such name on a royalty-free basis to
various of IPHC's subsidiaries.

COMPETITION

Though the fresh produce industry in general, and the tomato industry in
particular, are characterized by numerous competitors and low barriers to entry
at the production level, Bionova Holding believes that a small group of
participants distributes a substantial portion of the tomatoes sold in the
United States. In the United States, the Company competes directly with the
larger tomato and pepper growers in Florida during the winter, and in California
in the summer and fall. Both the Mexican and the U.S. tomato industries are
characterized by numerous competitors. Major Florida growers include Six L's,
DiMare, Pacific Tomatoes Growers and NTGargiulo. The major growers in California
include DiMare, NTGargiulo, Live Oak, Pacific Tomatoes Growers, Ocean Side,
Giumarra Brothers, and Central Tomato.

Both large and small biotechnology companies are investing in genomics
research to discover genes needed for crop improvement (e.g., Monsanto,
Syngenta, Mendel, Paradigm). However, no other company has DNAP's combination of
commercial rights and expertise for the business of transgenic variety
improvement in fruit and vegetable crops. There is also significant research
activity dedicated to plant disease resistance in academic laboratories. Many
companies have considerably greater financial, technical, and marketing
resources than Bionova Holding. Competition may intensify as technological
developments occur at a rapid rate in the agricultural biotechnology industry.

EMPLOYEES

The Company and its subsidiaries have a total of 3,077 employees.

ABSA has no employees. Siembra provides labor and administrative services to
ABSA pursuant to a contractual agreement, and ABSA pays a fee to Siembra based
on Siembra's costs incurred in connection with providing such services. The
number of persons providing such services through Siembra to ABSA ranges from a
minimum of 1,123 to a maximum during the harvesting season (January-April) of
approximately 4,232. The 67 employees of Siembra that are full-time are not
unionized. All of the other Siembra employees are temporary workers, and they
are represented by a labor union. No other employees in Bionova Holding are
represented by a union.

The labor union contracts for the temporary employees are reviewed on an
annual basis. Both the union and ABSA may terminate the contract at any time
upon 60 days notice to the other party.

12

CONTROLLING STOCKHOLDER; CONFLICTS OF INTEREST

Approximately 77.0% of the outstanding shares of common stock of the Company
are owned of record by Ag-Biotech Capital, LLC, an indirect, wholly-owned
subsidiary of Savia. 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
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 2. PROPERTIES

ABSA owns approximately 3,193 acres of agricultural land in Sinaloa, Sonora,
and Baja California Sur. ABSA leases approximately 502 acres of land in Baja
California Sur. ABSA currently is trying to sell 919 acres of the land it owns
in Sinaloa as this land is no longer considered important to the ongoing
operations of its business. Some of ABSA's land is the subject of a legal
dispute. See "Legal Proceedings."

Bionova Produce, Inc. owns warehouse and office space in Nogales, Arizona.
The other subsidiaries of IPHC lease office and warehouse space.

DNAP leases 33,000 square feet of laboratory and office space and 7,000
square feet of greenhouse space in Oakland, California. DNAP also owns 12,700
square feet of greenhouse and warehouse space, including farm land for field
trials, in Brentwood, California. DNAP currently is in the process of trying to
sell the Brentwood land and facilities to a third party purchaser and expects to
complete a sale during the second quarter of 2002. DNAP does not anticipate
requiring any additional space to execute its new strategy.

ITEM 3. LEGAL PROCEEDINGS

On January 21, 1997, a class action lawsuit styled GORDON K. AARON ET AL. V.
EMPRESAS LA MODERNA, S.A. DE C.V., ET AL. was filed in the U.S. federal district
court for the Northern District of California. The plaintiffs allege that, prior
to the merger (the "Merger") of DNAP with a subsidiary of Bionova

13

Holding on September 26, 1996, they owned shares of DNAP's $2.25 Convertible,
Exchangeable Preferred Stock ("Preferred Stock"). In connection with the Merger,
all of the shares of common stock and Preferred Stock of DNAP were converted
into the number of shares of common stock of Bionova Holding specified in the
Merger Agreement. The plaintiffs allege that they were denied certain rights
they allegedly had under the terms of the Preferred Stock and that certain
individuals (the "Individual Defendants"), each of whom was a director of DNAP
prior to the Merger and in some cases later served as a director of Bionova
Holding, breached fiduciary duties of loyalty, candor and care allegedly owed to
DNAP and its stockholders. The plaintiffs claim to have been damaged by the
alleged actions of the defendants and therefore the plaintiffs seek unspecified
actual and punitive damages as well as reimbursement of their litigation costs
and expenses. On August 27, 1997, the court granted motions to dismiss all of
the claims pending against all of the defendants, except the claims of breach of
the fiduciary duty of loyalty against the Individual Defendants. On January 14,
1999, the court reinstated the plaintiffs' claims that the preferred
stockholders were denied their contractual right to vote on the Merger, and then
on March 9, 2000, the court granted summary judgment in favor of the defendants
on the voting rights claims. On December 21, 2000, the court granted summary
judgment in favor of the defendants on all remaining claims. The plaintiffs have
appealed this judgment to the U.S. Court of Appeals for the Ninth Circuit, which
heard arguments on the matter on February 12, 2002. Bionova Holding and DNAP
deny any wrongdoing or liability in this matter and intend to vigorously contest
this lawsuit.

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 Bionova Holding. In the Merger, shares of DNAP's
Preferred Stock were converted into the right to receive shares of common stock
of Bionova Holding. The plaintiff alleged that it owned shares of 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. The plaintiff also added allegations that Bionova Holding
tortiously interfered with the Certificate of Designations and that Bionova
Holding was unjustly enriched by DNAP's alleged breach of the Certificate of
Designations. On August 10, 2001, the court ruled in favor of the plaintiff and
against DNAP in the amount of $6.4 million. On December 14, 2001, the plaintiff
agreed to a settlement wherein it assigned all of its claims against Bionova
Holding, DNAP and their affiliates to Savia. As part of the settlement, the
plaintiff assigned to Savia its right to convert its DNAP Preferred Stock into
107,622 shares of the Company's common stock. On March 21, 2002, Savia entered
into a settlement agreement with the Company and DNAP pursuant to which Savia
released all of the claims against the Company and DNAP in this matter and
agreed to dismiss the litigation with prejudice. Savia also agreed to surrender
to the Company the right to convert the DNAP Preferred Stock that had been owned
by the plaintiff into shares of Company common stock.

On January 7, 1999, a class action lawsuit styled GORDON K. AARON ET AL. V.
EMPRESAS LA MODERNA, S.A. DE C.V., ET AL. was filed in the U.S. federal district
court for the Northern District of California. On January 28, 1999, a
substantially identical class action lawsuit styled ROBERT KACZAK V. EMPRESAS LA
MODERNA, S.A. DE C.V., ET AL. was filed in the U.S. federal district court for
the Northern District of California, and these two cases were then consolidated.
The plaintiffs allege that, prior to the Merger of DNAP with a subsidiary of
Bionova Holding on September 26, 1996, they owned shares of DNAP's Preferred
Stock. In connection with the Merger, all of the shares of common stock and
Preferred Stock of DNAP were converted into the number of shares of common stock
of Bionova Holding specified in the Merger Agreement. The plaintiffs allege that
the Proxy Statement/Prospectus distributed to DNAP's stockholders in connection
with the merger contained material misrepresentations and omitted to state
material facts. Both DNAP and Bionova Holding, as well as certain former and
current directors of DNAP and Bionova Holding, have been named as defendants in
this matter. The plaintiffs claim to have been damaged by the alleged actions of
the defendants and therefore the plaintiffs seek

14

unspecified actual damages, reimbursement of their litigation costs and
expenses, and equitable relief, including rescission of the Merger. The
plaintiffs also allege that they were entitled to receive, and seek specific
performance of, special conversion privileges under the terms of the Certificate
of Designation that established the Preferred Stock. On March 8, 2000, the court
dismissed nearly all of the plaintiffs' claims, and subsequently the plaintiffs
filed an amended complaint with respect to some of the dismissed claims. On
September 19, 2000, the court ruled in favor of Bionova Holding and DNAP and
dismissed all of the plaintiffs' claims. The plaintiffs have appealed this
judgment to the U.S. Court of Appeals for the Ninth Circuit, which heard
arguments on the matter on February 12, 2002. Bionova Holding and DNAP deny any
wrongdoing and liability in this matter and intend to vigorously contest this
lawsuit.

DNAP has been named as a defendant in several lawsuits asserting claims
against DNAP relating to research DNAP performed from 1983 through 1994 for
Brown & Williamson Tobacco Company ("B&W"). In general, the cases allege that
DNAP engaged in unfair business practices under California law and/or
participated in an alleged conspiracy among cigarette manufacturers to deceive
the public regarding the hazards of smoking. All of the pending cases are in
California state courts. In December 1999, B&W agreed to indemnify DNAP against
all costs (including costs of defense and of costs of any judgment or
settlement) incurred by DNAP in connection with these cases and any similar
cases in the future. Therefore, management no longer believes that these cases
could have a material adverse effect on the Company's financial condition or
results of operations. DNAP denies any wrongdoing or liability in these matters
and intends to vigorously contest these lawsuits.

ABSA owns fifty-one hectares (approximately 126 acres) of rural land in the
State of Sinaloa, Mexico, which had been the subject of a judicial proceeding
pending in Mexico initiated by a group of campesinos. The petitioners requested
that ownership of the land be transferred to them based on the fact that, at
some time prior to ABSA's ownership of the land, the land was not cultivated for
more than two consecutive years without good reason. 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. On
September 15, 2000, a new judgment was entered in ABSA's favor, and the
petitioners then filed a challenge to that ruling. In July, 2001, the court
ruled against the appellants and in favor of ABSA, such that this case has now
been concluded in favor of ABSA.

ABSA owns one hundred hectares (approximately 247 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 petitioners asserted
that a previous owner of the subject land, Miguel Angel Suarez, owned rural land
in excess of the maximum that was then allowed by law and that therefore the
land rightfully belonged to them. On September 25, 1996, the court upheld the
petition and ordered the land turned over to the petitioners. The court also
ruled that the transfer of the property to Olga Elena Batiz Esquer on June 2,
1990 was null and void, which would mean that the transfer of the land by
Ms. Batiz to ABSA in 1993 was ineffective. On October 23, 1996, Ms. Batiz, who
was a party to the trial court proceeding, filed a challenge to the judicial
determination based on alleged violations of her constitutional rights and
procedural and substantive errors in the trial court proceedings. If ABSA is
ultimately required to transfer the subject land, which constitutes
approximately 7.7% of the total agricultural land owned by ABSA. Mexican law
gives ABSA limited indemnification rights against the State of Sinaloa and
Ms. Batiz.

On June 16, 2000, a lawsuit styled SANTA CRUZ EMPACADORA, S. DE R.L. DE
C.V., V. R.B. PACKING OF CALIFORNIA, INC. was filed in the United States
District Court for the Southern District of California. R.B. Packing of
California, Inc., a subsidiary of Bionova Holding, was the United States
distributor of fresh produce sold by the plaintiff. The plaintiff alleges that
R.B. Packing of California, Inc. sold Santa Cruz produce to related companies at
below market prices and thereby engaged in unfair conduct, fraud and breach of
statutory and fiduciary duties. The plaintiff seeks an unspecified amount of

15

compensatory and punitive damages. R.B. Packing of California, Inc. denies any
wrongdoing or liability in this matter and intends to vigorously contest this
lawsuit.

In 2000, ABSA filed a lawsuit against Santa Cruz Empacadora, S. de R.L. de
C.V., in the Civil Court for the First Judicial District of the State of Nuevo
Leon, Mexico. In this proceeding ABSA is seeking to enforce an agreement dated
December 31, 1999 in which Santa Cruz Empacadora expressly acknowledged its debt
to ABSA and granted a security interest in land and equipment to ABSA to secure
the debt. ABSA is seeking to recover $10.1 million in principal and interest and
to compel Santa Cruz to comply with the terms of the Agreement.

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

Not applicable.

16

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock currently is quoted on the American Stock
Exchange under the symbol "BVA."

Public trading of the Company's Common Stock commenced on September 27,
1996, the date after the Company acquired DNAP and from that date through
November 3, 1999 was listed on the Nasdaq National Market. Prior to that date,
there was no public market for the Common Stock. On November 4, 1999 Bionova
Holding Corporation's common stock began trading on the American Stock Exchange.

The following table sets forth the high and low trading prices per share for
the Common Stock as reported on the American Stock Exchange for the periods
indicated.

On March 25, 2002 the last reported sale price of the Common Stock on the
American Stock Exchange was $0.41 per share. As of March 13, 2002 there were
1,506 shareholders of record of the Common Stock.

The Company has never paid cash dividends. Management intends to retain any
future earnings for payment of outstanding indebtedness and for the operation
and expansion of the Company's business and does not anticipate paying any cash
dividends in the foreseeable future.

17

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below for each of the
years in the five year period ended December 31, 2001, are derived from the
consolidated financial statements of Bionova Holding. The consolidated balance
sheets as of December 31, 2001 and 2000, and the consolidated statements of
operations for the three years in the period ended December 31, 2001, are
included elsewhere in this Form 10-K, and the selected consolidated financial
information set forth below should be read in conjunction with such financial
statements and related notes.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the selected
consolidated financial information of Bionova Holding and the consolidated
financial statements and related notes of Bionova Holding included elsewhere in
this Form 10-K.

OVERVIEW

For operating and financial reporting purposes, the Company historically has
classified its business into three fundamental areas: (1) FARMING, which
consists principally of interests in Company-owned fresh produce production
facilities and joint ventures or contract growing arrangements with other
growers; (2) DISTRIBUTION, consisting principally of interests in sales and
distribution companies in Mexico, the United States and Canada; and
(3) RESEARCH AND DEVELOPMENT (OR TECHNOLOGY), consisting of business units
focused on the development of fruits and vegetables and/or intellectual
properties associated with these development efforts. The Farming and
Distribution segments are collectively referred to as the Fresh Produce
Business.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting and Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations," and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets."
SFAS 141 requires that all business combinations initiated after June 30, 2001
be accounted for under the purchase method. Use of the pooling-of-interests
method is no longer permitted. SFAS 142 requires that goodwill no longer be
amortized to earnings, but instead be reviewed for impairment upon initial
adoption of the Statement and on an annual basis going forward. The
amortization provisions of FAS 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, Bionova Holding is required to adopt FAS 142
effective January 1, 2002. We believe that adoption of these standards will have
no impact on our financial statements.

In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS No. 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal periods. This
Statement supersedes FASB Statement No. 121 and APB 30, however, this Statement
retains the requirement of Opinion 30 to report discontinued operations
separately from continuing operations and extends that reporting to a component
of an entity that either has been disposed of (by sale, by abandonment, or in a
distribution to owners) or is classified as held for sale. This Statement
addresses financial accounting and reporting for the impairment of certain
long-lived assets and for long-lived assets to be disposed of. Management does
not expect the adoption of SFAS No. 144 to have a material impact on the
Company's financial position and results of operations.

IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS

In December 2001, in connection with its ongoing review of business
operations, the Company conducted a strategic and financial examination of its
business segments. This examination triggered an impairment review of certain
long-lived assets, including goodwill, patents and trademarks. The Company
calculated the present value of expected cash flows of its fresh produce and
technology businesses to determine the fair value of those assets. Accordingly,
the Company recorded charges of $21.9 million and $8.0 million for the
impairment of its goodwill and patents and trademarks, respectively, related to
the fresh produce and technology businesses. The Company's technology assets
became impaired because of (i) the decision to terminate VPP's breeding program
and dispose of the related assets and (ii) the change in DNAP's technology
strategy from a focus on quality trait

19

improvements and the commercialization of fruits and vegetables using these
traits to a technology program focused on disease and nematode resistance traits
with value deriving from the sale or licensing of these traits. The Company's
fresh produce assets were determined to have become impaired based on the future
outlook for cash flows of the fresh produce business taking into account its
failure to generate a positive annual cash flow in each of the past six years
and an analysis of the reasons underlying this performance failure. The various
components of these impairment charges are broken out by business segment in the
discussion which follows.

Because the Company has no goodwill remaining on its balance sheet and the
reduction in the book value of the patents and trademarks of DNAP and VPP, the
Company's amortization expense in future years will decline to $0.2 million per
year as compared with the $3.1 million expense recorded in 2001.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Consolidated total revenues declined to $207.6 million for the year ended
December 31, 2001 from $226.3 million in 2000, consolidated gross profit (sales
less cost of sales) increased from $13.2 million in 2000 to $23.3 million in
2001, and the Company's consolidated operating loss increased from
$26.1 million in 2000 to $46.2 million in 2001.

FARMING segment revenues, the majority of which are eliminated in
consolidation, for the year ended December 31, 2001 were $57.5 million as
compared with $41.4 million during 2000. Farming segment gross profit improved
from a loss of $3.1 million in 2000 to a profit of $0.4 million in 2001. The
operating loss in this segment increased from $12.7 million in 2000 to
$13.4 million in 2001. Improved weather and significantly better market pricing
were the most important factors in the improved production and sales from
Culiacan during the first quarter of 2001 as compared with the same quarter in
2000. Production volumes in this region increased by 18% and sales improved by
36%, or $8.5 million. In conjunction with the Company's strategy to better
manage its risk of production, ABSA significantly curtailed its own production
of "commodity" products in favor of establishing production contracts with third
party growers who then shipped their product to be packaged by ABSA and
distributed by the Company's distribution operations. ABSA's production on its
own land is now concentrated on higher value products (e.g., mini-sweet peppers
and full flavor tomatoes) for which the Company holds proprietary rights or has
some other form of competitive advantage in production. Other significant
components of the overall improvement in ABSA's sales were the addition of 494
acres of production from Obregon, which accounted for $2.8 million in
incremental sales between 2000 and 2001, and incremental grape sales of
$2.6 million, which had been down significantly in 2000 due to an onslaught of
Chilean grapes exported to the U.S. markets during that year.

The improvement in gross margin stemmed directly from the improved sales.
Still, the gross margin at 0.7% of sales in 2001 was far less than the Company
has been forecasting it would achieve from this segment of the business. The
Company expects gross margins to improve if it is able to continue to increase
its sales of the higher value products for which it obtains better prices and
margins, and on which it is now concentrating an ever-increasing proportion of
its resources.

The increase in ABSA's operating loss from 2000 to 2001 was a consequence of
the $8.6 million write off of goodwill taken at year-end 2001. This goodwill
emanated from Bionova Mexico's purchase of 50.004% of ABSA in 1993 (which was
contributed to Bionova Holding in 1996) and increased when Bionova Holding,
together with Savia, bought out all of the remaining minority interests in ABSA
that had been held by the Batiz family in 1997.

Revenues of the DISTRIBUTION segment declined from $222.6 million for the
year ended December 31, 2000 to $198.1 million for the year ended December 31,
2001. Distribution segment gross

20

profit increased 52% from $12.4 million in 2000 to $18.8 million in 2001, while
the operating loss for this segment increased from $2.1 million in 2000 to
$5.9 million in 2001. The revenue decline was a consequence of the sale of
Taminura Distributing Inc. in February 2001 which had sales of $30.4 million in
2000 (none were recorded for TDI in 2001 due to the provisions of the contract
of sale) and Interfruver, in November 2001, which sold $22.2 million more on
behalf of the Company in 2000 as compared with the January through October
period of 2001. These declines were offset in part by $19.6 million in higher
revenues of the U.S. and Canadian distribution companies in 2001 as compared
with 2000, which was attributable to 13% higher average prices for the Company's
fresh produce products in these markets in 2001. The increase in the operating
loss from 2000 to 2001 was directly attributable to the $5.7 million charge
recorded to write off all of the goodwill in this segment of the business and
$5.4 million of losses incurred on the sale of the TDI and Interfruver
businesses in 2001. These charges were offset in part by a significantly reduced
level of write offs of grower financed production, higher volumes, and the
better pricing environment in 2001 as compared with 2000.

RESEARCH AND DEVELOPMENT revenues declined from $3.5 million for the year
ended December 31, 2000 to $3.1 million for the year ended December 31, 2001,
and the operating loss in this segment increased from $7.1 million in 2000 to
$23.4 million in 2001. The decline in revenues was attributable to a lower level
of activity performed with Seminis. Seminis contract revenues on a monthly basis
were reduced by 45% in conjunction with the staff reductions undertaken during
the second quarter of 2001 to conserve cash resources and refocus the technology
group on more promising long-term technology opportunities. Research work on
behalf of Seminis was charged at direct costs of scientists working on the
projects plus an allocation of overhead, and accordingly, generated very little
profit for DNAP. This 45% reduction in the revenues arising from the Seminis
contract is expected to continue through 2002, such that the revenues for the
full year 2002 will be lower than 2001. The staffing reductions resulted in a
positive $1.2 million impact on the bottom line, as the $0.4 million
restructuring expenses generated a $1.6 million savings in compensation-related
costs in 2001 as compared with 2000. The higher operating loss in 2001 as
compared with 2000 was a consequence of the write offs of goodwill and patents
and trademarks in 2001. The write off of goodwill amounted to $7.6 million at
DNAP. Losses on the sale of strawberry assets associated with the
discontinuation of VPP's breeding business totaled $3.4 million, and impairment
losses of the patents and trademarks of DNAP resulted in a write off of
$8.0 million.

Consolidated selling and administrative expenses decreased from
$29.0 million in 2000 to $23.3 million in 2001 due to significant staffing
reductions in both the fresh produce and research and development segments
undertaken over this two year period.

The non-cash charge for amortization of goodwill, patents and trademarks
decreased by $0.3 million in 2001 as compared with 2000 due to the
re-classification of the Company's strawberry breeding assets as assets held for
sale in the third quarter of 2001 and their subsequent sale prior to year-end.

Interest expense declined from $17.5 million in 2000 to $9.8 million in 2001
due to the lower average level of debt outstanding in 2001 as compared with
2000. The lower level of debt came about due to the capitalization of
$63.7 million of the Company's debt completed on December 28, 2000. Interest
income increased by $0.2 million from 2000 to 2001 due primarily to a higher
level of cash advances to growers in 2001 as compared with 2000.

Due to a decline in the current monetary assets (which excludes inventories)
and an increase in non-monetary assets of the Company's foreign subsidiaries in
2001, the Company experienced a net foreign exchange loss of $0.5 million in
2001 as compared with a net foreign exchange gain of $0.4 million in 2000.
Current monetary assets are translated at year-end exchange rates while non-
monetary assets are translated at historical rates. While both the Mexican peso
and Canadian dollar

21

strengthened in 2001, the decline in monetary assets and the increase in
non-monetary assets more than offset the improvement in the exchange rates of
these foreign currencies.

For 2001, the share of profits in subsidiaries allocable to minority
interests was $0.5 million as compared with $1.5 million that was the share of
losses in subsidiaries allocable to minority interests in 2000. These
allocations of losses for the years of 2001 and 2000, respectively, were
consistent with the minority positions held across the operating subsidiaries of
the Company.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

Consolidated total revenues declined to $226.3 million for the year ended
December 31, 2000 from $242.4 million in 1999, consolidated gross profit (sales
less cost of sales) increased from $10.1 million in 1999 to $13.2 million in
2000, and the Company's consolidated operating loss decreased from
$27.1 million in 1999 to $26.1 million in 2000.

FARMING segment revenues, the majority of which are eliminated in
consolidation, declined from $59.0 million in 1999 to $41.4 million in 2000 due
to (i) the very heavy production of tomatoes from Florida and grapes from Chile,
which kept prices very low throughout the first six months of 2000, (ii) the
curtailment of production volumes during certain weeks in the first half of the
year due to the low prices, and (iii) the termination in March 2000 of ABSA's
joint venture arrangement with Santa Cruz Empacadora, S. de R.L. de C.V., a
grower based in Baja California Sur, which led to a substantial reduction in
production volume in the second half of 2000. The operating loss of the Farming
segment declined from $16.8 million in 1999 to $12.7 million in 2000. This
reduction in the operating loss was due to the termination of ABSA's joint
ventures, which experienced large losses in 1999.

Revenues of the DISTRIBUTION segment decreased from $236.1 million in 1999
to $222.6 million in 2000. This decline was largely a consequence of the volume
reduction stemming from the termination of the Santa Cruz joint venture, which
most severely affected the U.S. distribution companies. Premier Fruits and
Vegetables in Canada (+6%) and Interfruver in Mexico (+10%) were able to
continue their strong performances in 2000 versus 1999 because of the greater
variety of products they sell as compared with the Company's U.S. distribution
subsidiaries. The operating loss of the Distribution segment increased from
$1.7 million in 1999 to $2.1 million in 2000 and was concentrated in the
Company's largest shipping and distributing subsidiaries--Bionova Produce, Inc.
in Nogales, Arizona and Interfruver in Mexico. The primary factors that
contributed to the larger operating loss of Bionova Produce, Inc. were (i) a
$16.9 million sales decrease emanating from a reduction in grape volumes and
prices which impacted commissions earned and (ii) a $3.1 million write off of
growers and accounts receivables (as compared with a $2.0 million write off in
1999) in conjunction with the termination of a contract with a Mexican grower of
mangoes, papaya, and other fruit products on which the Company had lost money
over the past two years. Interfruver's operating profit declined by
$0.8 million from 1999 to 2000 due largely to higher selling and administrative
expenses incurred for consulting and other services.

Revenues of the RESEARCH AND DEVELOPMENT segment declined from $5.5 million
in 1999 to $3.5 million in 2000. The most significant factor accounting for this
decline in revenues was a "catchup" payment made by Savia to DNAP in 1999. Under
the long-term founded research agreement between Savia and DNAP (which was
terminated on December 29, 2000), Savia was obligated to fund DNAP at least
$9.0 million in research payments over each three year period, the first of
which ended on September 30, 1999. To meet this obligation Savia paid DNAP
$1.5 million in 1999. The decline in revenues translated directly to lower gross
profit generation in this segment of the business. Research expenses decreased
by $0.2 million due primarily to a reduction in supervisory personnel. The lower
gross profit, offset in part by the lower research expenses, led to an operating
loss in the Research and Development Segment of $7.1 million in 2000, as
compared with an operating loss of $5.7 million in 1999.

22

Consolidated selling and administrative expenses increased from
$27.4 million in 1999 to $29.0 million in 2000. This increase was due to higher
professional fees and severance payments associated with the re-structuring of
the Company's fresh produce operations, higher legal expenses associated with
shareholder litigation cases, and a special charge incurred by Interfruver for
outside services and consulting advice in connection with its expansion strategy
and operations during the first six months of 2000, offset in part by the
benefits of the re-structuring during the second half of the year.

Interest expense increased from $16.0 million in 1999 to $17.5 million in
2000 due to a higher overall level of debt outstanding and the amortization of
the debt issuance costs upon the retirement in April 2000 of the Company's
Senior Guaranteed Floating Rate Notes issued on March 22, 1999.

Interest income increased from $1.8 million in 1999 to $2.1 million in 2000
due to a higher level of grower receivables that came about from a shift in
ABSA's strategy to reduce its own farming activity and utilize third party
growers to provide an increasing proportion of ABSA's supply.

An extraordinary charge of $1.9 million was recorded in the second quarter
of 2000 to recognize the remaining balance of up front fees paid for the
Floating Rate Note facility that was retired in April 2000. An extraordinary
gain of $9.9 million was recognized at year-end 2000 due to the reversal of
accrued interest that was accounted for as a capital contribution in conjunction
with the agreements that were signed on December 28, 2000.

For 2000, the share of losses allocable to minority interests was
$1.5 million as compared with minority interest losses of $2.7 million in 1999.
These allocations of losses for the years of 2000 and 1999, respectively, were
consistent with the minority positions held across the operating subsidiaries of
the Company.

Income tax expense declined from $1.0 million in 1999 to $0.6 million in
2000. This decline was due primarily to a reduction in the income of Interfruver
from 1999 to 2000.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth selected items from our statements of
operations for each of the four quarters ended December 31, 2001 and each of the
four quarters ended December 31, 2000. This data has been derived from unaudited
financial statements that, in the opinion of our management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such information when read in conjunction with our audited
financial statements and notes thereto appearing elsewhere in this Form 10-K.
The operating results for any quarter are not necessarily indicative of results
for any future period.

CAPITAL EXPENDITURES

During 2001, the Company made capital investments of $5.4 million in
property, plant and equipment, of which $3.6 million was spent in the FARMING
segment of the Company's business, $1.7 million in the DISTRIBUTION segment, and
$0.1 million in RESEARCH AND DEVELOPMENT. Major investment projects in 2001
included the reconstruction of a packing shed in

23

Culiacan which had been damaged by fire, the acquisition and installation of a
fully automatic tomato sorting and packing line, and the purchase of 200
hectares of farm land in Guerrero, Mexico. The Company currently projects
capital spending of $1 million in 2002, which is focused on the construction of
hothouses used for the growing of tomatoes in the state of Baja California Sur
in Mexico.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 2001, the Company used $3.5 million of cash
in operating activities. The great majority of this cash usage in operations was
associated with the losses sustained by the Company ($56.6 million), offset to a
large extent by non-cash items ($45.9 million). The positive cash flow impact of
changes in accounts receivable and advances to growers of $0.6 million was due
to stronger collection efforts. Inventories increased by $0.4 million reflecting
the investment in the Farming segment for the new harvesting season, primarily
materials for packing. Other assets increased by $1.5 million due to various
prepayments of insurance, leases and rents.

For the year ended December 31, 2001, the Company used $4.8 million in
investing activities, which included the $5.4 million spent on property, plant,
and equipment, as discussed above, and $0.7 million received in 2001, net of
cash acquired, on the sales of VPP's strawberry assets, Tanimura
Distributing, Inc., and Interfruver.

Net cash provided by financing activities in 2001 totaled $7.2 million. Net
borrowings from U.S. banks increased by $5.1 million which was used to fund
grower advances, other operational needs and capital investments of the fresh
produce business. In 2001 ABSA retired all of its short-term debt facilities
with Mexican banks, which totaled $15.0 million at January 1, 2001. Savia
provided all of the funds towards the retirement of these debt facilities.
(Savia provided an additional $5.0 million for the retirement of Mexican bank
debt in December 2000.) Savia also provided funds to support the Company's
technology business and the payment of corporate overhead under a cash support
agreement, which is discussed below. In total, Savia provided Bionova Holding
and its subsidiaries with $17.1 million of cash in 2001.

On December 28, 2000 Bionova Holding entered into two agreements with Savia,
which were intended to substantially change the business and financial structure
of the Company. The Purchase Agreement ("Purchase Agreement"), to which Savia's
subsidiary Ag-Biotech Capital, LLC is also a party, provided that Bionova
Holding would sell its fresh produce farming and distribution business
(including all of the debt and liabilities of the fresh produce business) to
Savia for $48 million. In acquiring the fresh produce business Savia would
purchase 100% of the shares held by Bionova Holding in ABSA and IPHC. The
purchase price for the fresh produce business was to be paid by the application
of $48 million of advances previously made by Savia to Bionova Holding.

As a component of the Purchase Agreement, on December 29, 2000 Bionova
Holding issued 200 shares of convertible preferred stock to Bionova
International for $63.7 million, which was paid through the application of all
of the remaining outstanding advances previously made by Savia to Bionova
Holding (other than the $48 million which was to be applied to the sale of the
fresh produce business). The 200 shares of preferred stock, all of which Bionova
International has transferred to Ag-Biotech Capital, LLC, are convertible into
23,156,116 shares of common stock (a conversion ratio based on $2.75 per share)
at any time after adoption and filing by the Company of a charter amendment
increasing the authorized number of shares of Common Stock to at least
70,000,000. The Company will not receive any additional consideration upon the
conversion of the preferred stock.

Bionova Holding and Savia also entered into a Cash Support Agreement for
2001. This agreement provided that, during 2001, Savia would advance funds to
Bionova Holding as requested to finance Bionova Holding's technology business.
During 2001, Savia advanced $7.5 million under this Agreement. These advances
are to be applied to the purchase by Savia (i.e., exchanged for) of additional
common shares if and when the sale of the fresh produce business is closed. The
purchase

24

price to be paid by Savia for the additional shares under the Cash Support
Agreement will be $2.50 per share, subject to certain adjustments if the market
price exceeds $2.50. If the sale of the fresh produce business is completed
pursuant to the Purchase Agreement, and the preferred stock is converted to
common stock as described above, then the capitalization of the amounts advanced
under the Cash Support Agreement will increase Savia's beneficial interest in
Bionova Holding to 89.1%. As of January 1, 2002, it is not expected that Savia
will make any further advances to the Company.

By completing these transactions the Company expected to eliminate
$111.7 million of advances due to Savia in March 2002, an obligation the Company
believed it probably would not be able to meet. In addition, the Company was to
be freed of all debt obligations associated with the fresh produce business.
When the sale of the fresh produce business was completed, and in conjunction
with the Cash Support Agreement, the Company would have no outstanding related
party advances or third party debt. The Company expected to spend its entire
energies in 2001 in refining its technology strategy and raise a first round of
new financing to fund its technology business through a period of time to
demonstrate the efficacy of its strategy.

Efforts during 2001 to raise new financing and complete contracts with new
research partners failed to result in any commitments, in part due to market
conditions and in part due to the perceived uncertainty about the Company
arising from the appellate court ruling in favor of the Grace Brothers in
January 2001 and the judgment granted in favor of the Grace Brothers in an
amount of $6.4 million in August 2001. While the Company, with the financial
assistance of Savia, finally settled the Grace Brothers litigation in
December 2001, the Company then had to confront the implications of the
termination of Savia's cash support as of December 31, 2001 and the increasing
magnitude of Bionova Holding's indebtedness to Savia. Also, as a consequence of
the significant financial losses sustained in 2001, Bionova Holding's
stockholders' equity had become a deficit of $21.8 million at December 31, 2001.

Company management and its Board of Directors have been and are continuing
to explore their options in 2002 and beyond. Among the options being considered
is the possible cancellation of the sale of the fresh produce business to Savia.
With the re-structuring of the business operations undertaken in 2000-2001, on a
pro-forma basis, the fresh produce business generated its first operating
profit, albeit only $0.4 million, for the first time since 1995. The pro-forma
basis excludes the charge for the impairment of the goodwill of the fresh
produce business and the losses recorded on the divestitures of Interfruver and
TDI. However, after interest and taxes, the fresh produce business still
experienced a net loss for the year. Projections of this business segment for
2002 reflect a continuing improvement in operating profit, but this improvement
remains a function of effective execution of its strategy along with favorable
weather and economic industry conditions that are outside of its control.

As a consequence of indefinitely postponing the sale of the fresh produce
business, this segment of the business no longer will be treated as discontinued
operations and the advances by Savia have now been re-characterized as
short-term debt. Bionova Holding's balance sheet at December 31, 2001 reflected
that the Company was in a position of technical insolvency, as its current
assets of $49.3 million fell far short of its current liabilities of
$117.9 million. Bank debt and debt to Savia and Savia's subsidiaries constituted
$98.8 million of the current liabilities.

All of the Company's $10.1 million of bank debt ($9.5 million of which was
current) is associated with Bionova Produce, Inc. There are three primary
components to this debt. Bionova Produce, Inc. had a $6 million revolving line
of credit, the principal of which is due in full on September 30, 2002. Interest
is charged at the U.S. prime rate of interest (4.5% at December 31, 2001), and
interest payments are made on a monthly basis. The line is secured by a pledge
of Bionova Produce, Inc.'s accounts receivable, inventory and general
intangibles and is guaranteed by Savia. The key covenants associated with this
line of credit are that Bionova Produce, Inc. must maintain a minimum net worth
of $7.5 million, a current ratio of at least 1.1 to 1, and a year-end leverage
ratio (debt to tangible net

25

worth) of no more than 2.0 to 1. All other debt of Bionova Produce, Inc. to
Savia is subordinated to the bank, additional borrowings in excess of
$0.5 million require bank approval, and Bionova Produce, Inc. may not loan or
advance money to Savia or Seminis. The second component of the debt is a
five-year loan secured by real property and is guaranteed by Savia. The loan is
for $0.7 million and is due August 30, 2006. Principal and interest payments of
approximately $15,000 are due monthly. The interest rate on this debt is 8.25%
per annum. The third component of the bank debt is a term loan in an amount of
$2.5 million which is due on June 30, 2002. Interest is charged at the U.S.
prime rate of interest plus 1% and is to be paid on a monthly basis. This term
loan is secured by real estate in Nogales, Arizona and San Diego, California and
is guaranteed by Savia. The loan is subject to the same net worth and other
financial covenants as the revolving line of credit. In conjunction with Savia's
loan guarantees, Savia has taken liens on certain of ABSA's assets as security
for this debt.

At December 31, 2001 Bionova Holding and its subsidiaries were indebted to
Savia and its subsidiaries (other than Bionova Holding) in a total amount of
$89.3 million. Of this total $19.1 million was owed by ABSA and is accruing
interest at a rate of approximately 9% per annum. Bionova Holding had debt of
$62.9 million to Savia, which consisted of the $48 million of advances made in
April 2000, $7.5 million of advances made to Bionova Holding by Savia in 2001
under a cash support agreement, and $7.4 million of interest that had accrued on
this debt. The Bionova Holding debt currently is accruing interest at a rate of
approximately 12.25% per annum. Other subsidiaries of Bionova Holding had
related party accounts due to Savia and its subsidiaries that accounted for the
balance of the $7.3 million. All of the Bionova Holding debt originally was due
to be paid by March 23, 2002, but was extended by agreement between Bionova
Holding and Savia until December 31, 2002. The other related party accounts due
to Savia and its subsidiaries have varying maturities, and all are due at
various times during 2002. At this time, Bionova Holding does not know how this
indebtedness will be handled.

In addition to the Board of Director's decision to postpone the sale of the
Company's fresh produce business, the other significant action being undertaken
by the Company is the aggressive pursuit of a variety of alternatives for its
technology business, including new research contracts, partnerships, third party
financing, and the sale of assets. Cash resources emanating from Bionova
Holding's fresh produce business during the first half of 2002 are highly
dependent on the outcome of the Culiacan harvest season, which will end in
May 2002. To date, production and revenues, and hence cash generation, have run
well below projections due to weather conditions that delayed the harvest and
low prices for its product during the months of February and March. The Company
remains hopeful that it will make up the deficiency during the months of April
and May. If the Company does not meet its cash projections for the harvest
season, in all likelihood Bionova Holding will have to cut back and/or terminate
some business operations.

There can be no assurance that these actions will result in sufficient
working capital to significantly improve the Company's current financial
position or its results of operations. The Company also must find a solution to
the $89.3 million of debt plus the interest which is accruing that is due to
Savia and its subsidiaries during 2002. While the Company is actively seeking to
develop alternative sources of funding, there can be no assurance the Company
will be able to meet its obligations in 2002 nor secure funds to take it beyond
the 2002 calendar year. Additional financing may not be available to the Company
on favorable terms, if at all. If the Company is unable to obtain financing, or
to obtain it on acceptable terms, Bionova Holding may be unable to execute its
business plan.

As a result of the Company's current financial position caused by its
operating losses during the prior years and its financial projections for this
year and beyond, there is substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

26

IMPACTS OF THE RETENTION OF THE FRESH PRODUCE BUSINESS

In December 2000 Bionova Holding agreed to sell its fresh produce business
to Savia. The Company subsequently treated this business segment (i) as
discontinued operations on its statement of operations for the years ended
December 31, 2000, 1999, and 1998, (ii) as net assets of discontinued operations
on its balance sheet for the year ended December 31, 2000, and (iii) as
discontinued operations and net assets of discontinued operations in its
financial statements filed for the quarters ended March 31, June 30, and
September 30, 2001. For reasons identified in previous sections of this 10-K,
the Company did not proceed to complete the sale in 2001 and has no current
plans to do so. Therefore, the results of operations of the fresh produce
business have been reclassified from discontinued operations to continuing
operations for these prior periods and the net assets from discontinued
operations in the December 31, 2000 balance sheet were reclassified to their
respective balance sheet accounts. Note 4 to the consolidated financial
statements included in Item 8 of this Form 10-K provides the accounting for
total segment assets, liabilities, revenues, and operating losses for each of
the years the fresh produce business was reported as discontinued operations.
For accounting purposes, the pending sale of the fresh produce business was
accounted for as a transaction between entities under common control. No gain or
loss was recognized on the transaction as any differences between cash received
and assets transferred to the parent would have been treated as capital
contributions or distributions.

The fresh produce business has had highly material effects on the results of
operations for each of the three years ended December 31, 2001, 2000, and 1999.
Revenues from this business segment were $204.4 million, $222.8 million, and
$236.8 million in 2001, 2000, and 1999, respectively. These revenues represented
98.5%, 98.5%, and 97.7% of total Bionova Holding revenues for each of these
three years, respectively. The operating losses associated with the fresh
produce business in 2001, 2000, and 1999, respectively, were $19.4 million,
$14.8 million, and $18.5 million, as compared with total Company operating
losses for each of these three years of $55.5 million, $41.2 million, and
$40.4 million, respectively. Capital spending by the Company in 2001 was
dominated by the fresh produce business. The fresh produce business accounted
for $5.3 million out of the total of $5.4 million in capital expenditures made
in 2001.

A primary consideration in the decision to retain the fresh produce business
is its potential to generate positive cash flows. As this business segment has
not achieved a positive annual net cash flow in the six years it has been a part
of Bionova Holding, there is considerable risk as to whether it will be able to
generate consistently positive cash flows to support the Company's cash needs in
the future. Furthermore, in retaining the fresh produce business and failing to
execute against the Purchase Agreement, the Company failed to relieve itself of
the $89.3 million of indebtedness that Bionova Holding and its subsidiaries are
obligated to Savia and its subsidiaries along with the $10.1 million of bank
debt held by the Company's fresh produce subsidiaries.

CRITICAL ACCOUNTING POLICIES

Bionova Holding's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to revenues and costs
of revenues, receivables, inventories, and intangible assets. The Company bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The Company believes
the

27

following critical accounting policies affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements. (See
Note 2 of the Notes of Consolidated Financial Statements)

REVENUES, COST OF SALES, AND INVENTORIES

Revenue from product development activities is recognized during the period
the Company performs the development efforts in accordance with the terms of the
agreements and activities undertaken. The revenue is recognized as earned over
the term of the agreement, in accordance with the performance effort. Revenue
that is related to future performance under such agreements is deferred and
recognized as revenue when earned. Revenue from fresh produce sales is
recognized when the product is shipped, net of an allowance for estimated
returns. Cost is determined by using the first-in, first-out method for finished
produce. Cost of growing crops includes direct material and labor and an
allocation of indirect costs and are accumulated until the time of the harvest,
subject to lower of cost or market adjustments. The recognition of cost of sales
for the delivered products is done based upon estimates of the total cost of the
crop for the growing season divided by the number of units that are expected to
be harvested, packed, and sold. Under this approach, we compare costs incurred
to date plus estimated costs to complete and deliver the entire crop with the
total net revenue expected to be generated from the crop. Estimates of the net
revenues from the crop require projections of production yields from the field
and the packaging lines, quality grades of the product to be delivered, and
market prices during the months that constitute the crop harvest season. Each
month, the Company re-estimates the cost of sales per unit of product sold based
on any revisions to the estimated total cost of the crop and the units of output
expected. If the total cost of sales for the crop season is expected to be
greater than the total revenues to be generated, taking into account the units
of production still remaining to be harvested, the entire estimated loss is
charged to operations in the period the loss first becomes known. Such changes
to these estimates have on certain occasions been material to our quarterly
results of operations during the three year period ended December 31, 2001.
Inventories are stated at the lower of cost or market. Our reserve for excess or
obsolete inventory is primarily based upon forecasted demand for our products
and any change to the reserve arising from forecast revisions is reflected in
cost of sales in the period the revision is made.

The complexity of the estimation process and all issues related to the
assumptions, risks and uncertainties inherent with the application of the units
of output method of accounting affect the amounts reported in our financial
statements. A number of internal and external factors affect our revenue, cost
of sales estimates and inventory reserves, including weather conditions,
competitive production from different growing areas, labor availability and
costs, and customer demand for our products. If our business conditions were
different, or if we used different assumptions in the application of this and
other accounting policies, it is likely that materially different amounts would
be reported in our financial statements.

ADVANCES TO GROWERS

Advances to growers are made for supplies, seed, and other growing and
harvesting costs. The advances are interest bearing and non-interest bearing and
repaid from amounts withheld from sales proceeds due to growers. All of the
growers' produce is sold by the Company's distribution subsidiaries. As sales
are made and collections from customers are generated, the Company's
distribution subsidiaries deduct their commissions, and the amount of money
advanced to the grower on a per unit basis before any monies from the sale and
collection process are passed along to the grower. If the Company determines
that the harvest of the grower will not generate sufficient output and revenues
to pay back any advances that have been made to the grower, a review is then
undertaken to determine the likelihood that the grower will be able to pay back
these advances, plus any interest owed on the advances. If the Company
determines that the grower may not be able to pay the advances back to the

28

Company, a reserve is recorded in an amount that is determined to be at risk on
the collection of the grower advance. In 1999 and 2000 the Company recorded
significant allowances for doubtful accounts of grower receivables and
re-classified one grower receivable to a long-term asset on which it is trying
to collect through a lawsuit it initiated in 2000. The Company did not write off
any grower receivables in 2001.

IMPAIRMENT OF LONG-LIVED ASSETS

Each year management determines whether any long-lived have been impaired
based on the criteria established in Statement of Financial Accounting Standards
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be disposed of." The carrying amount of a long-lived asset
is considered impaired when the estimated undiscounted cash flow from the asset
is less than its carrying amount. In that event, the Company records a loss
equal to the amount by which the carrying amount exceeds projected discounted
future net cash flow arising from the asset. Changes in the Company's projected
cash flows as well as differences in the discount rate used in the calculation
could have a material effect on the financial statements. As stated previously,
due to changes in business strategy and the current financial condition of the
Company, it was determined at year-end 2001 that all of the goodwill in both the
fresh produce and technology businesses was impaired along with certain
technology patents.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10-K 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-K, 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
2002 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 every year of our existence from 1996 through
2001. As of December 31, 2001 our accumulated deficit was $193.5 million. For
the year ended December 31, 2001, we had a net loss of $56.6 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 WILL NEED ADDITIONAL FINANCING TO ACHIEVE OUR GROWTH AND TECHNOLOGY
OBJECTIVES, WHICH COULD HURT OUR FINANCIAL CONDITION

We will need additional capital to meet our growth objectives, working
capital requirements, and to fund the purchase and development of new
technologies. Our projected cash flows from operations and existing capital
resources, including our existing credit lines, may not be sufficient.
Therefore, our ability to pursue these objectives 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 technology strategies.

29

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

At December 31, 2001 we had a working capital deficit of $68.6 million and a
stockholders deficit of $21.8 million. We had $10.1 million of debt with banks
and $89.3 million of debt with Savia and Savia's subsidiaries. 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,