UNIMARK GROUP INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

MARK (ONE)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2002

or

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________

Commission file number 0-26096

THE UNIMARK GROUP, INC.
(Exact name of registrant as specified in its charter)

TEXAS 75-2436543
(State of incorporation or organization) I.R.S. Employer Identification No.)

UNIMARK HOUSE
124 MCMAKIN ROAD
BARTONVILLE, TEXAS 76226
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (817) 491-2992

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---

As of August 16, 2001, the number of shares outstanding of each class
of common stock was:

Common Stock, $0.01 par value: 21,044,828 shares

INDEX

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

THE UNIMARK GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)

See accompanying notes.

3

THE UNIMARK GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

See accompanying notes.

4

THE UNIMARK GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying notes.

5

THE UNIMARK GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Description of Business: Our company, The UniMark Group, Inc., a Texas
corporation, is a vertically integrated citrus and tropical fruit growing and
processing company with substantially all of its operations in Mexico. We have,
for operating and financial reporting purposes, historically classified our
business into two distinct business segments: packaged fruit and juice and oil.

Within the packaged fruit segment, we focus on niche citrus and tropical
fruit products including chilled, frozen and canned cut fruits and other
specialty food ingredients. The packaged fruit segment processes and packages
our products at three plants in Mexico. Our Mexican plants are located in key
fruit growing regions. We also utilize independent food brokers to sell our food
service and industrial products in the United States. Sales to our Japanese
consumers are facilitated through Japanese trading companies.

Due to the continued unfavorable and volatile worldwide market prices of
frozen concentrate orange juice ("FCOJ") that has existed over the past several
years and negative long-term prospects for the FCOJ market, in early 2002, our
board of directors decided to pursue strategic alternatives available to our
juice division, suspended the juice division's FCOJ operations and offered the
juice divisions long-term assets for sale. Based on our intentions to sell these
assets, we reclassified our juice division's long-lived assets as "Property held
for sale" in our December 31, 2001 and March 31, 2002 condensed consolidated
balance sheets. During the 2002 quarter, we leased our Victoria juice processing
plant to the largest FCOJ producer in Mexico, under a lease that expired May 31,
2002.

Subsequent to May 15, 2002, we determined that our efforts and prospects to
divest our juice division's long-term assets on acceptable terms are unlikely to
result in a successful transaction. As such, we are engaging in active
discussions with an unaffiliated third party to lease these plants. In this
regard, our board of directors adopted a resolution authorizing management to
further pursue the strategic alternative of leasing these juice division assets
to maximize long-term shareholder value. Based on our decision to lease/operate
these facilities, we have reclassified these assets to long-term property, plant
and equipment in our condensed consolidated balance sheet at June 30, 2002 at
the fair market value of such assets at the time the decision was taken by
management to lease/operate these plants, which approximated their book value at
December 31, 2001.

Although we have discontinued our FCOJ line of business, we are continuing
our agricultural development strategy within our juice and oil segment. Pursuant
to a long-term Supply Contract with The Coca-Cola Export Corporation
("Coca-Cola"), an affiliate of The Coca-Cola Company, which was amended during
2001, we acquired, developed and planted approximately 6,400 acres of Italian
lemon groves (the "Lemon Project"). The planting program began in November 1996
and harvesting of the first crops commenced in late 2000. Based on recent
agricultural conditions in Mexico, commercial production may begin with the 2003
or 2004 harvests.

We conduct substantially all of our operations through our wholly owned
operating subsidiaries. In Mexico, our subsidiaries include: Industrias
Citricolas de Montemorelos, S.A. de C.V. ("ICMOSA"), Grupo Industrial Santa
Engracia, S.A. de C.V. ("GISE") and AgroMark, S.A. de C.V. ("AgroMark"). In the
United States our subsidiary is UniMark Foods, Inc. ("UniMark Foods").

Going Concern Considerations: The accompanying condensed consolidated
financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. We have sustained net losses in the last five
fiscal years and in the first six months of 2002. As of June 30, 2002, our
accumulated deficit was $45.4 million and we are

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unable to repay one of our Mexican subsidiaries loans under an expired loan
agreement. Also, our efforts to raise capital through the divestiture of our
juice division's assets have been unsuccessful. Our cash requirements for 2002
and beyond will depend upon the level of sales and gross margins, expenditures
for capital equipment and improvements, investments in agricultural projects,
the timing of inventory purchases and necessary reductions of debt. Projected
working capital requirements for 2002 are significantly greater than current
levels of available financing. We have, in recent years, relied upon sales of
our common stock to our principal shareholder and bank financing to finance our
working capital and certain of our capital expenditures. Our inability to obtain
sufficient debt or equity capital for these projects and commitments and for
working capital requirements could have a material adverse effect on us and our
projects including the realization of the amounts capitalized, deferred costs
and deposits related to these projects and commitments. These matters raise
substantial doubt about our ability to continue as a going concern.

The condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of assets or the
amounts and classification of liabilities that might be necessary should we be
unable to continue as a going concern. Our continuation as a going concern is
dependent on our ability to obtain additional financing for our working capital
requirements and in generating sufficient cash flows to operate our business.

Interim Financial Statements: The condensed consolidated financial
statements at June 30, 2002, and for the three and six month periods then ended
are unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
period. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial Condition and
Results of Operations, contained in our Annual Report on Form 10-K for the year
ended December 31, 2001 filed with the Securities and Exchange Commission. The
results of operations for the three and six month periods ended June 30, 2002
are not necessarily indicative of future financial results.

Year End Balance Sheet: The condensed consolidated balance sheet at December
31, 2001 has been derived from the audited consolidated financial statements at
that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.

Risk Factors: Our operations are subject to risk factors that could impact
our business. These factors include risks relating to our financial condition,
our Mexican operations, general business risks and risks relating to our common
stock. Risks relating to our financial condition include the fact that we are
dependent upon a limited number of customers, particularly Del Monte Foods ("Del
Monte"); we may continue to sustain losses and accumulated deficits in the
future; we are experiencing liquidity problems and may have indications of
"going concern" conditions; we are subject to risks associated in implementation
of our business strategy; additional financing may be required to achieve our
growth and to perform our contractual obligations; we may be forced to seek
protection under applicable provisions of the federal bankruptcy code if
Rabobank Nederland or one of our Mexican banks exercise their legal rights and
remedies. Risks relating to our Mexican operations include the fact that we are
subject to the risk of fluctuating foreign currency exchange rates and
inflation; we are dependent upon fruit growing conditions, access to water and
availability and price of fresh fruit; labor shortages and union activity can
affect our ability to hire and we are dependent on the Mexican labor market; we
are subject to volatile interest rates in Mexico which could increase our
capital costs; trade disputes between the United States and Mexico can result in
tariffs, quotas and bans on imports, including our products, which could impair
our financial condition; we are subject to governmental laws that relate to
ownership of rural lands in Mexico; and we are subject to statutory employee
profit sharing in Mexico. General business risks include the fact that we may be
subject to product liability and product recall; we are subject to governmental
and environmental regulations; we are dependent upon our management team; we
have a seasonal business; we face strong competition; and we have a shareholder
that has substantial control over our company and can affect virtually all
decisions made by our shareholders and directors. Risks related to our common
stock include

7

the delisting in March 2001 from the Nasdaq National market may reduce the
liquidity and marketability of our common stock and may depress the market price
of our common stock; "penny stock" regulations may impose restrictions on
marketability of our common stock; our common stock price has been and may
continue to be highly volatile; and we have never paid a dividend. For a
discussion of additional factors that may affect actual results, investors
should refer to our filings with the Securities and Exchange Commission and
those factors listed under "Risk Factors" starting on page 22 of this Form 10-Q.

Recently Issued Accounting Pronouncements:

Goodwill: We adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets", effective January 1, 2002. SFAS
No. 142 requires that an intangible asset that is acquired shall be initially
recognized and measured based on its fair value. This SFAS also provides that
goodwill should not be amortized, but shall be tested for impairment annually or
more frequently if circumstance indicates potential impairment, through a
comparison of fair value to its carrying amount. As of January 1, 2002, we
ceased amortization of goodwill. Transitional impairment tests of our goodwill
did not require an adjustment as of January 1, 2002. Goodwill amortization for
the three and six months ended June 30, 2001 was $20,400 and $40,800
respectively, and was immaterial on a per basic and diluted share. As of
December 31, 2001 and June 30, 2002, goodwill is net of accumulated amortization
of $422,000.

Impairment of Long-Lived Assets: We adopted SFAS No. 144, "Accounting for
the Impairment of Long-Lived Assets", effective January 1, 2002. SFAS No. 144
addresses the financial accounting and reporting for the impairment or disposal
of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the
accounting and reporting provisions of APB No. 30, "Reporting the Results of
Operations" for a disposal of a segment of a business. The adoption of SFAS No.
144 did not have an impact on our consolidated financial position or results of
operations.

New Accounting Pronouncements:

In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations", which establishes
the accounting standards for the recognition and measurement of obligations
associated with the retirement of tangible long-lived assets. Under SFAS No.
143, the costs of retiring an asset will be recorded as a liability when the
retirement obligation arises, and will be amortized over the life of the asset.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The
adoption of SFAS No. 143 is not expected to have a material impact on our
consolidated results of operations and financial position.

In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Statements
No. 4, 44 and 64, Amendment of SFAS Statement No. 13, and Technical
Corrections". This pronouncement, among other things, requires certain gains and
losses on the extinguishment of debt previously treated as extraordinary items
to be classified as income or loss from continuing operations. SFAS No. 145 is
effective fiscal years and financial statements issued on or after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a material impact on our
consolidated results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities". This pronouncement addresses the financial accounting and reporting
costs associated with an exit activity (including restructuring) or with a
disposal of long-lived assets. SFAS No. 146 requires an entity to record a
liability for costs associated with an exit or disposal activity when that
liability is incurred and can be measured at fair value, and to subsequently
adjust the recorded liability for changes in estimated cash flows. SFAS No. 146
is effective for exit or disposal activities initiated after December 31, 2002.
We are currently evaluating the potential impact, if any, that the
implementation will have on our consolidated results of operations and financial
position.

Reclassifications: Certain prior period items have been reclassified to
conform to the current period presentation in the accompanying condensed
consolidated financial statements.

8

NOTE 2 - LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2002, we owed $1.5 million to Cooperative Centrale
Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") under a loan agreement
with our Mexican subsidiary, GISE, which expired on January 2, 2002. Since
January 1, 1999, we have reduced, through payments, the principal portion of our
debt to Rabobank Nederland by $9.0 million, plus interest. To date, Rabobank
Nederland has not agreed to extend or restructure its loan and has not pursued
legal remedies under the security and guarantee agreements. Although we are
currently negotiating repayment schedules with Rabobank Nederland, if Rabobank
Nederland were to exercise all of its rights and remedies, under the security
and guarantee agreements, such action could have a significant adverse effect
upon our consolidated financial condition and prospects and could significantly
impact our ability to implement our business strategy, including our ability to
operate the Lemon Project and our ability to continue as a going concern. In
such event, we may be forced to seek protection under applicable provisions of
the federal bankruptcy code. As of June 30, 2002, we were not current in our
interest payments to Rabobank Nederland.

In early July 2002, our Mexican subsidiary, ICMOSA, entered into a
restructured loan agreement with Grupo Financiero Banorte ("Banorte"), that
amortizes the outstanding principal balance at June 30, 2002 of $3.1 million
over a period of five and one-half years. The loan repayment schedule requires
quarterly payments of principal and interest (Libor plus 3.75%) through December
31, 2007, with $250,000 due over the next twelve months. At March 31, 2002, the
total outstanding debt to Banorte had been classified in current portion of
long-term debt. In our June 30, 2002 condensed consolidated balance sheet we
have reclassified $2.9 million to long-term debt. We are current in our
scheduled interest payments to Banorte.

As of June 30, 2002, our Mexican subsidiary, ICMOSA, owed $3.5 million under
a secured pre-export financing loan agreement with Banco Nacional de Comercio
Exterior, S.N.C. ("Bancomext"). The outstanding balance consisted of six
separate notes that became due in various amounts and dates between July 9, 2002
to August 6, 2002. These notes have not been renewed by Bancomext. As of June
30, 2002, accrued interest on these notes of approximately $30,000, is still
outstanding. Bancomext has not pursued its legal remedies under the loan
agreement and we are currently working on repayment schedules that would
restructure the loan repayments over a period of up to six years. No assurances,
however, can be given that we will be successful in restructuring this loan.

On February 21, 2000, we entered into a $5.1 million (48 million Mexican
pesos) nine-year term financing agreement (the "FOCIR Agreement") with Fondo de
Capitalizacion e Inversion del Sector Rural ('FOCIR"), a public Trust of the
Mexican Federal Government that invests in agricultural projects with long-term
viability. Under the terms of the FOCIR Agreement, FOCIR will provide up to $5.1
million to fund additional Lemon Project costs, which will include land
preparation, planting, equipment, irrigation systems and grove maintenance. This
financing represents the purchase of an equity interest in GISE of approximately
17.6%. Amounts advanced under the FOCIR Agreement are classified outside equity
due to mandatory redemption provisions. As of June 30, 2002, total advances
under the FOCIR Agreement were $4.9 million (47,033,971 Mexican pesos).

The terms of the FOCIR Agreement provide for the calculation and accrual of
annual accretion using one of two alternative methods. The first method
determines accretion by multiplying the year's Mexican inflation index rate plus
4.2% by the FOCIR balance. The second method determines annual accretion by
multiplying GISE's shareholders equity, using Mexican generally accepted
accounting principles, at the end of the year by a factor of 1.036 and then
multiplying by the FOCIR equity interest percent. The calculation that results
in the greater amount will be the annual accretion amount. Accretion accumulates
annually over the nine-year period of the FOCIR Agreement and is paid only upon
expiration or early termination of the FOCIR Agreement. During the term of the
FOCIR Agreement, we have the option to prepay the loan at any time. As of June
30, 2002 accretion accrued under the FOCIR Agreement amounted to approximately
$730,000 and the weighted average accretion rate for all advances was
approximately 5.5%. The FOCIR Agreement also contains, among other things,
certain provisions relating to GISE's future financial performance, the
establishment of an irrevocable trust guaranteeing the FOCIR loan, which
includes

9

transferring to the trust GISE common shares that represent 33.4% of GISE's
outstanding shares and the governance of GISE.

Our juice processing division has a long-term lemon processing contract with
an affiliate of The Coca-Cola Company that expires in 2007. Under the terms of
this contract, we are obligated to process annually between 12,000 and 300,000
metric tons of lemons for Coca-Cola. As we presently do not have sufficient
production capacity for future years processing, we anticipate that performing
the terms of this contract will require substantial capital expenditures. In
connection with exploring various strategic alternatives for our juice
processing division's assets, we are exploring restructuring our lemon
processing contract with Coca-Cola. Our failure to obtain capital to expand our
production capacity or the failure to restructure our lemon processing agreement
could have a material adverse effect on our business, prospects, our Lemon
Project and our financial condition.

In recent years, we have relied upon bank financing, principally short term,
to finance our working capital and certain of our capital expenditure needs.
Presently, we are in active discussions with several financial institutions to
replace existing working capital facilities and to establish a working capital
debt facility for the Lemon Project. Our failure to obtain additional financing
beyond current levels to meet our working capital and capital expenditure
requirements could have a material adverse effect on us and our ability to
continue as a going concern.

In prior years, our juice division had to invest significant working
capital to build up its inventory during each processing season to sell in the
future at market prices. As a result of our decision not to produce during the
2001/2002 juice processing season, we expect to use less working capital.

NOTE 3 - SALE OF COMMON STOCK AND INCREASE IN AUTHORIZED SHARES

On June 25, 2001, we completed a rights offering wherein existing
shareholders purchased an additional 7,106,502 shares of common stock at a price
of $0.73 per share, with gross proceeds to us of approximately $5.2 million. Our
largest shareholder, M & M Nominee, LLC, purchased 6,849,315 shares in the
offering, increasing their ownership to 13,149,274 shares, or 62.5% of our
outstanding common stock. As a result of the rights offering, our outstanding
shares of common stock has increased to 21,044,828.

At our annual meeting held in June 2001, shareholders approved an amendment
to our Articles of Incorporation that increased the authorized number of shares
of our common stock from 20,000,000 shares to 40,000,000 shares.

NOTE 4 - RELATED PARTY TRANSACTIONS

Effective September 1, 2000, we entered into an agreement with Promecap,
S.C. for the services of Emilio Castillo Olea to be our President and Chief
Executive Officer at the annual rate of $150,000. Mr. Castillo is also a
Director of Promecap, S.C.

On February 15, 2001, we borrowed $1.8 million under the terms of an
unsecured, 12% promissory note from our largest shareholder. This note was
repaid in June 2001, including accrued interest of approximately $78,000, from
the proceeds of the rights offering.

NOTE 5 - LEMON PROJECT

In April 1998, GISE and Coca-Cola, entered into a twenty-year Supply
Contract, with a ten-year renewal option, for the production of Italian lemons.
This new Supply Contract replaced the original contract entered into in October
1996. Pursuant to the terms of the Supply Contract, GISE was required to plant
and grow 3,500 hectares (approximately 8,650 acres) of Italian lemons within the
following three years for sale to Coca-Cola at pre-determined prices. The Supply
Contract required Coca-Cola to provide, free of charge, up to 875,000 lemon tree
seedlings, enough to plant approximately 2,800 hectares. In

10

addition, the Supply Contract requires Coca-Cola to purchase all the production
from the project. As a result of several amendments to the Supply Contract
during 2001, the project has been reduced to approximately 2,572 hectares
(approximately 6,353 acres), which represents all the land currently planted,
and reduced the seedlings to 765,000, enough to plant approximately 2,448
hectares (6,047 acres), which have been delivered to the project by Coca-Cola.
During 2001, we sold our two smaller lemon groves, Laborcitas (240 acres) and
Paraiso (339 acres). These groves were more mature but geographically situated
apart from the remaining groves. The status of the Lemon Project as of June 30,
2002, adjusted to reflect the Supply Contract amendments and the groves sold, is
as follows:

The planting program began in November 1996 with the first harvests in late
2000. Peak harvesting of our lemon crop generally occurs in our fourth quarter.
Following is a summary of the first two years harvests, net of divestitures:

We had stock options outstanding of 268,000 and 132,500 at June 30, 2001 and
June 30, 2002, respectively, that were not included in their respective periods
per share calculations because their effect would have been anti-dilutive.

NOTE 8 - INVENTORIES

Inventories consist of the following:

NOTE 10 - DELISTING FROM THE NASDAQ NATIONAL MARKET

On March 14, 2001, we received a Nasdaq Staff Determination indicating that
we had failed to present a definitive plan which would enable us to evidence
compliance satisfying all requirements for continued listing on Nasdaq's
National Market System ("NMS") within a reasonable period of time and to sustain
compliance with those requirements over the long term. The continued listing
requirements that we were unable to sustain were the minimum bid of $1.00 per
share for over thirty consecutive trading days and the minimum market value of
public float of $5.0 million. As such, our common stock was delisted from the
Nasdaq's NMS effective at the opening of business on March 15, 2001. Our common
stock now trades on the Over-the-Counter Electronic Bulletin Board under the
symbol "UNMG.OB".

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NOTE 10 - SEGMENT INFORMATION

We have two reportable segments: packaged fruit and juice and oil.

The following are reconciliations of reportable segment profit or loss to
our consolidated totals.

NOTE 11 - COMMITMENTS AND LITIGATION

Effective January 1, 1995, we entered into a five-year operating agreement
with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to operate a
freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant to the
terms of the operating agreement, we were obligated to pay IHMSA an operating
fee sufficient to cover the interest payments on IHMSA's $3.4 million of
outstanding debt. During the term of the operating agreement, we have the option
to buy the IHMSA facility.

During the third quarter of 2001, we successfully negotiated revisions to
the operating agreement with IHMSA's management, extending the agreement's
expiration date to January 1, 2021, and reduced the purchase option price from
$4.5 to $3.5 million. The revised purchase option also includes the assumption
of approximately $1.2 million of IHMSA's debt. During 1997, we elected to
advance $1.7 million to IHMSA to retire certain of its outstanding debt and
during the fourth quarter of 2001 we advanced IHMSA an additional $636,000, both
of which will be applied to the purchase price.

In December 2001, we exercised our purchase option and expect to finalize
formal closing documents and take title to the facility by December 31, 2002.
All amounts previously paid to IHMSA, along with the assumption of the $1.2
million of debt comprise the final purchase price. At December 31, 2001 and June

13

30, 2002, all amounts advanced to IHMSA, of $2.3 and $2.1 million, respectively,
are included in "Deposit on plant facility" in the condensed consolidated
balance sheets at December 31, 2001 and June 30, 2002.

Our juice processing division has a long-term lemon processing contract with
an affiliate of The Coca-Cola Company that expires in 2007. Under the terms of
this contract, we are obligated to process annually between 12,000 and 300,000
metric tons of Italian lemons for Coca-Cola. As we presently do not have
sufficient production capacity for future years processing, we anticipate that
performing the terms of this contract will require substantial capital
expenditures. In connection with exploring various strategic alternatives for
our juice processing division's assets, we are exploring restructuring our lemon
processing contract with Coca-Cola. Our failure to obtain capital to expand our
production capacity or the failure to restructure our lemon processing agreement
could have a material adverse effect on our business, prospects, our Lemon
Project and our financial condition.

We are subject to legal actions arising in the ordinary course of business.
Our management does not believe that the outcome of any such legal action would
have a material adverse effect on our consolidated financial position, results
of operation or cash flows.

PART I. - ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The discussion in this Quarterly Report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties. The actual
results could differ significantly from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" as well as those discussed elsewhere in this report.
Statements contained in this report that are not historical facts are
forward-looking statements that are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. A number of important factors
could cause the actual results for 2002 and beyond to differ materially from
those expressed in any forward-looking statements made by us, or on our behalf.
These factors include risks relating to our financial condition, our Mexican
operations, general business risks and risks relating to our common stock. For a
discussion of these factors that may affect actual results, investors should
refer to our filings with the Securities and Exchange Commission and those
factors listed under "Risk Factors" starting on page 22 of this Form 10-Q.

CONVERSION TO U.S. GAAP

We conduct substantially all of our operations through our wholly owned
operating subsidiaries. ICMOSA is a Mexican corporation with its headquarters
located in Montemorelos, Nuevo Leon, Mexico, whose principal activities consist
of operating citrus processing plants and various citrus groves throughout
Mexico. GISE is a Mexican corporation with its headquarters located in Cd.
Victoria, Tamaulipas, Mexico, whose principal activities are the operation of
two citrus juice and oil processing plants, as well as managing the Lemon
Project. ICMOSA and GISE maintain their accounting records in Mexican pesos and
in accordance with Mexican generally accepted accounting principles and are
subject to Mexican income tax laws. Our Mexican subsidiaries financial
statements have been converted to United States generally accepted accounting
principles ("U.S. GAAP") and U.S. dollars.

Unless otherwise indicated, all dollar amounts included herein are set forth
in U.S. dollars. The functional currency of UniMark and its subsidiaries is the
U.S. dollar.

14

RESULTS OF OPERATIONS

The following table sets forth certain condensed consolidated financial
data, expressed as a percentage of net sales for the periods indicated:

Three Months Ended June 30, 2002 and 2001

Net sales consist of packaged fruit and citrus juice and oil. Packaged fruit
sales increased $1.3 million from $6.1 million in 2001 to $7.4 million in 2002,
or 21.3%. This sales increase was primarily caused by increases in our retail
sales of $900,000 from $4.4 million in 2001 to $5.3 million in 2002, or 20.5%,
and an increase in our Japan sales of $200,000 from $1.2 million in 2001 to $1.4
million in 2002, or 16.7%. Retail sales consist primarily of sales to Del Monte,
which includes both retail and wholesale club products. The increase in retail
sales was primarily due to the timing of our production schedule for our citrus
products. Typically, given the availability of fresh citrus, during our first
and fourth quarters, we produce and ship a substantial amount of our annual
citrus products. During the first six months of 2002, we extended the citrus
processing season compared with prior years and reduced some of the seasonality
in our production scheduling by procuring citrus from other growing regions in
Mexico. The increase in our Japan sales during the second quarter of 2002 was
caused by timing differences in shipments compared to the prior year quarter.

Citrus juice and oil sales decreased $1.4 million from $1.7 million in 2001
to $257,000 in 2002, or 82.3%. Due to the continued unfavorable and volatile
worldwide market prices for FCOJ that has existed over the past several years
and negative long-term prospects for the FCOJ market, in early 2002, our board
of directors decided to pursue strategic alternatives available for our juice
division, suspended the juice division's FCOJ operations and offered the juice
divisions long-term assets for sale. Based on our intentions to sell these
assets, we reclassified our juice division's long-lived assets as "Property held
for sale" in our December 31, 2001 and March 31, 2002 condensed consolidated
balance sheets. During the 2002 quarter we leased our Victoria juice processing
plant to the largest FCOJ producer in Mexico, under a lease that expired at May
31, 2002. Subsequent to May 15, 2002, we determined that our efforts and
prospects to divest our juice division's long-term assets on acceptable terms
are unlikely to result in a successful transaction. As such, we are engaging in
active discussions with an unaffiliated third party to lease these plants. In
this regard, our board of directors adopted a resolution authorizing management
to further pursue the strategic alternative of leasing these juice division
assets to maximize long-term shareholder value. Based on our decision to lease
and operate these facilities, we have reclassified these

15

assets to long-term property, plant and equipment in our condensed consolidated
balance sheet at June 30, 2002.

As a result of the foregoing, net sales decreased slightly from $7.9 million
in 2001 to $7.6 million in 2002, or 3.8% due to increased sales in our packaged
fruit segment which were offset by reduced sales in our juice and oil segment.

Gross profit, as a percentage, for our packaged fruit segment improved from
a loss of 5.0% in 2001 to a loss of 3.5% in 2002. Gross margin improvement in
the period was achieved through aggressive cost cutting, favorable fruit
purchasing and improved plant efficiencies over the 2001 quarter, but was
negatively impacted in the 2002 quarter by an inventory write-down of $520,000
associated with our pineapple growing operations, which reduced gross margin by
7.1%, as a result of competitive conditions in one of our pineapple varieties.

Citrus juice and oil gross profit decreased from 9.3% in 2001 to a negative
62.5% in 2002. This decrease was primarily due to unabsorbed plant costs related
to our decision not to produce during the 2001/2002 processing season and costs
associated with selling our remaining inventory.

Gross loss overall increased as a percent of net sales from a loss of 1.9%
in 2001 to a loss of 5.5% in 2002 due to the factors discussed above.

Selling, general and administrative expenses ("SG&A") decreased from $1.3
million in 2001 to $1.0 million in 2002, or 23.1%. This improvement was
primarily due to reduced SG&A expenses at both our packaged fruit and juice and
oil segments and those associated with being a publicly-held company.

Interest expense decreased $128,000, from $225,000 in 2001 to $97,000 in
2002, or 56.9%. This interest expense decrease was due to a $3.6 million
reduction in our total outstanding debt from $17.2 million at June 30, 2001 to
$13.6 million at June 30, 2002, reduced interest rates and the capitalization of
interest costs associated with our Lemon Project.

Other income increased by $50,000 in 2002 as compared to 2001 and consists
primarily of short-term rental income from a lease associated with one of our
juice division plants.

Foreign currency translation gain increased from $205,000 in 2001 to
$444,000 iin 2002, resulted primarily from the conversion of our foreign
subsidiaries financial statements from Mexican pesos to U.S. GAAP in U.S
dollars. Foreign currency translation gains increased during the current quarter
due mainly to the weakening of the exchange rate between the Mexican peso and
the U.S. dollar.

Income tax expense increased by $332,000 from $289,000 in 2001 to $621,000
in 2002, and was primarily due to an increase in our valuation allowances
associated with financial and tax reporting timing differences in Mexico, which
is required in accordance with U.S. GAAP.

Extraordinary gain on forgiveness of debt of $2.9 million, net of expenses,
in the 2001 quarter represents the agreement reached in June 2001, with a
Mexican bank on the settlement of approximately $4.7 million of outstanding
principal and accrued interest for $1.8 million. See Note 6 to the condensed
consolidated financial statements for a further discussion of this gain.

As a result of the foregoing, we reported net income of $1.1 million in 2001
as compared to a net loss of $1.7 million in 2002.

Six Months Ended June 30, 2002 and 2001

Net sales consist of packaged fruit and citrus juice and oil. Packaged fruit
sales decreased $1.1 million from $15.2 million in 2001 to $14.1 million in
2002, or 7.2%. This sales decrease was primarily caused by decreases in our
retail sales of $300,000 from $9.6 million in 2001 to $9.3 million in 2002, or
3.1%, a decrease in our foodservice and industrial sales of $300,000 from $1.3
million in 2001 to $1.0 million in

16

2002, or 23.1% and a decrease in our Japan sales of $400,000 from $4.3 million
in 2001 to $3.9 million in 2002, or 9.3%. Retail sales consist primarily of
sales to Del Monte, which includes both retail and wholesale club products. This
slight decrease in retail sales was attributable to the timing of our production
schedule for our citrus products. Typically, given the availability of fresh
citrus, during our first and fourth quarters, we produce and ship a substantial
amount of our annual citrus products. During the first six months of 2002, we
extended the citrus processing season beyond prior years and reduced some of the
seasonality in our production scheduling by procuring citrus from other growing
regions in Mexico. Foodservice and industrial sales were impacted by our focus
on higher margin customers, which resulted in lost revenues. The decrease in our
Japan sales during the 2002 period was caused by timing differences in shipments
compared to the prior year period.

Citrus juice and oil sales decreased $2.4 million from $3.0 million in 2001
to $615,000 in 2002, or 80.0%. Due to the continued unfavorable and volatile
worldwide market prices for FCOJ that has existed over the past several years
and negative long-term prospects for the FCOJ market, in early 2002, our board
of directors decided to pursue strategic alternatives available for our juice
division, suspended the juice division's FCOJ operations and offered the juice
divisions long-term assets for sale. Based on our intentions to sell these
assets, we reclassified our juice division's long-lived assets as "Property held
for sale" in our December 31, 2001 and March 31, 2002 condensed consolidated
balance sheets. During the 2002 quarter we leased our Victoria juice processing
plant to the largest FCOJ producer in Mexico, under a lease that expired at May
31, 2002. Subsequent to May 15, 2002, we determined that our efforts and
prospects to divest our juice division's long-term assets on acceptable terms
are unlikely to result in a successful transaction. As such, we are engaging in
active discussions with an unaffiliated third party to lease these plants. In
this regard, our board of directors adopted a resolution authorizing management
to further pursue the strategic alternative of leasing these juice division
assets to maximize long-term shareholder value. Based on our decision to lease
and operate these facilities, we have reclassified these assets to long-term
property, plant and equipment in our condensed consolidated balance sheet at
June 30, 2002.

As a result of the foregoing, net sales decreased $3.4 million from $18.2
million in 2001 to $14.8 million in 2002, or 18.7% due to sales decreases in
both our packaged fruit and juice and oil segments.

Gross profit, as a percentage, for our packaged fruit segment improved from
2.3% in 2001 to 4.1% in 2002. Gross margin improvement in the period was
achieved through aggressive cost cutting, favorable fruit purchasing and
improved plant efficiencies over the 2001 period, but was negatively impacted in
the 2002 period by an inventory write-down of $ 520,000 associated with our
pineapple growing operations, which reduced gross margin by 3.7%, as a result of
competitive conditions in one of our pineapple varieties.

Citrus juice and oil gross profit decreased from 8.8% in 2001 to a loss of
54.6% in 2002. This significant decrease was primarily due to unabsorbed plant
costs related to our decision not to produce during the 2001/2002 processing
season and costs associated with selling our remaining inventory.

Gross profit overall decreased as a percent of net sales from 3.4% in 2001
to 1.6% in 2002 due to the factors discussed above.

Selling, general and administrative expenses ("SG&A") decreased $625,000
from $2.7 million in 2001 to $2.0 million in 2002, or 23.2%. This improvement
was primarily due to reduced SG&A expenses at both our packaged fruit and juice
and oil segments and those associated with being a publicly-held company.

Interest expense decreased $453,000, from $652,000 in 2001 to $199,000 in
2002, or 69.5%. This decrease in interest expense was due to a $3.6 million
reduction in our total outstanding debt from $17.2 million at June 30, 2001 to
$13.6 million at June 30, 2002, reduced interest rates and the capitalization of
interest costs associated with our Lemon Project.

17

Other income increased by $135,000 in 2002 as compared to 2001 and consists
primarily of short-term rental income from a lease associated with one of our
juice division plants and a value added tax refund received in the 2002 period.

Foreign currency translation gain (loss), which increased from a net loss of
$366,000 in 2001 to a net gain of $408,000 in 2002, results primarily from the
conversion of our foreign subsidiaries financial statements from Mexican pesos
to U.S. GAAP in U.S dollars. Foreign currency translation gains increased during
the current quarter due mainly to the weakening of the exchange rate between the
Mexican peso and the U.S. dollar.

Income tax expense increased by $570,000 from $47,000 in 2001 to $617,000 in
2002, and was primarily due to an increase in our valuation allowances
associated with financial and tax reporting timing differences in Mexico, which
is required in accordance with U.S. GAAP.

Extraordinary gain on forgiveness of debt of $2.9 million, net of expenses,
in the 2001 period represents the agreement reached in June 2001, with a Mexican
bank on the settlement of approximately $4.7 million of outstanding principal
and accrued interest for $1.8 million. See Note 6 to the condensed consolidated
financial statements for a further discussion of this gain.

As a result of the foregoing, we reported a net loss of $190,000 in 2001 as
compared to a net loss of $2.0 million in 2002.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2002, our cash and cash equivalents totaled $1.5 million, an
increase of $402,000 from year-end 2001. During 2002, our operating activities
generated cash of $2.2 million primarily from reductions in our year-end 2001
receivables and inventories of $1.4 and $2.2 million, respectively, and
depreciation expense of $830,000, offset by our net loss of $2.0 million. In
addition, in June 2002 we received approximately $580,000 as a cash advance
under our lemon processing contract.

As of June 30, 2002, we owed $1.5 million to Cooperative Centrale
Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") under a loan agreement
with our Mexican subsidiary, GISE, which expired on January 2, 2002. Since
January 1, 1999, we have reduced, through payments, the principal portion of our
debt to Rabobank Nederland by $9.0 million, plus interest. To date, Rabobank
Nederland has not agreed to extend or restructure its loan and has not pursued
legal remedies under the security and guarantee agreements. Although we are
currently negotiating repayment schedules with Rabobank Nederland, if Rabobank
Nederland were to exercise all of its rights and remedies, under the security
and guarantee agreements, such action could have a significant adverse effect
upon our consolidated financial condition and prospects and could significantly
impact our ability to implement our business strategy, including our ability to
operate the Lemon Project and our ability to continue as a going concern. In
such event, we may be forced to seek protection under applicable provisions of
the federal bankruptcy code. As of June 30, 2002, we were not current in our
interest payments to Rabobank Nederland.

In early July 2002, our Mexican subsidiary, ICMOSA, entered into a
restructured loan agreement with Grupo Financiero Banorte ("Banorte"), that
amortizes the outstanding principal balance at June 30, 2002 of $3.1 million
over a period of five and one-half years. The loan repayment schedule requires
quarterly payments of principal and interest (Libor plus 3.75%) through December
31, 2007, with $250,000 due over the next twelve months. At March 31, 2002, the
total outstanding debt to Banorte had been classified in current portion of
long-term debt. In our June 30, 2002 condensed consolidated balance sheet we
have reclassified $2.9 million to long-term debt. We are current in our
scheduled interest payments to Banorte.

As of June 30, 2002, our Mexican subsidiary, ICMOSA, owed $3.5 million under
a secured pre-export financing loan agreement with Banco Nacional de Comercio
Exterior, S.N.C. ("Bancomext"). The outstanding balance consisted of six
separate notes that became due in various amounts and dates between July 9, 2002
to August 6, 2002. These notes have not been renewed by Bancomext. As of June
30, 2002,

18

accrued interest on these notes of approximately $30,000, is still outstanding.
Bancomext has not pursued its legal remedies under the loan agreement and we are
currently working on repayment schedules that would restructure the loan
repayments over a period of up to six years. No assurances, however, can be
given that we will be successful in restructuring this loan.

On February 21, 2000, we entered into a $5.1 million (48 million Mexican
pesos) nine-year term financing agreement (the "FOCIR Agreement") with Fondo de
Capitalizacion e Inversion del Sector Rural ('FOCIR"), a public Trust of the
Mexican Federal Government that invests in agricultural projects with long-term
viability. Under the terms of the FOCIR Agreement, FOCIR will provide up to $5.1
million to fund additional Lemon Project costs, which will include land
preparation, planting, equipment, irrigation systems and grove maintenance. This
financing represents the purchase of an equity interest in GISE of approximately
17.6%. Amounts advanced under the FOCIR Agreement are classified outside equity
due to mandatory redemption provisions. As of June 30, 2002, total advances
under the FOCIR Agreement were $4.9 million (47,033,971 Mexican pesos).

The terms of the FOCIR Agreement provide for the calculation and accrual of
annual accretion using one of two alternative methods. The first method
determines accretion by multiplying the year's Mexican inflation index rate plus
4.2% by the FOCIR balance. The second method determines annual accretion by
multiplying GISE's shareholders equity, using Mexican generally accepted
accounting principles, at the end of the year by a factor of 1.036 and then
multiplying by the FOCIR equity interest percent. The calculation that results
in the greater amount will be the annual accretion amount. Accretion accumulates
annually over the nine-year period of the FOCIR Agreement and is paid only upon
expiration or early termination of the FOCIR Agreement. During the term of the
FOCIR Agreement, we have the option to prepay the loan at any time. As of June
30, 2002 accretion accrued under the FOCIR Agreement amounted to approximately
$730,000 and the weighted average accretion rate for all advances was
approximately 5.5%. The FOCIR Agreement also contains, among other things,
certain provisions relating to GISE's future financial performance, the
establishment of an irrevocable trust guaranteeing the FOCIR loan, which
includes transferring to the trust GISE common shares that represent 33.4% of
GISE's outstanding shares and the governance of GISE.

Our juice processing division has a long-term lemon processing contract with
an affiliate of The Coca-Cola Company that expires in 2007. Under the terms of
this contract, we are obligated to process annually between 12,000 and 300,000
metric tons of lemons for Coca-Cola. As we presently do not have sufficient
production capacity for future years processing, we anticipate that performing
the terms of this contract will require substantial capital expenditures. In
connection with exploring various strategic alternatives for our juice
processing division's assets, we are exploring restructuring our lemon
processing contract with Coca-Cola. Our failure to obtain capital to expand our
production capacity or the failure to restructure our lemon processing agreement
could have a material adverse effect on our business, prospects, our Lemon
Project and our financial condition.

In recent years, we have relied upon bank financing, principally short term,
to finance our working capital and certain of our capital expenditure needs.
Presently, we are in active discussions with several financial institutions to
replace existing working capital facilities and to establish a working capital
debt facility for the Lemon Project. Our failure to obtain additional financing
beyond current levels to meet our working capital and capital expenditure
requirements could have a material adverse effect on us and our ability to
continue as a going concern.

In prior years, our juice division had to invest significant working capital
to build up its inventory during each processing season to sell in the future at
market prices. As a result of the juice division's decision not to produce
during the 2001/2002 processing season, we expect to use less working capital.

Our 2001 audited consolidated financial statements, which is included in our
Form 10-K for the fiscal year ended December 31, 2001, includes a report from
our independent auditors with a "going concern" explanatory paragraph (see Note
2 to our 2001 consolidated financial statements) which discusses certain
conditions that could impact our ability to continue operations under the
current business conditions given

19

our recurring losses, negative cash flows and substantial difficulties in
meeting our obligations. We cannot be sure that our cash and cash equivalents on
hand and our cash availability will be sufficient to meet our anticipated
working capital needs and capital expenditures. We began to address our "going
concern" issue and the underlying liquidity problem through the Del Monte
transaction during 2000 and a fundamental change in our business strategy. We
also decided to discontinue the juice division of our juice and oil segment and
pursue all strategic alternatives available to maximize asset value. Our efforts
so raise capital through the divestiture of our juice division's assets have
been unsuccessful. To finance our current working capital requirements and our
current and future expenditures, we will need to issue additional equity
securities and or incur additional debt. We may not be able to obtain additional
required capital on satisfactory terms, if at all.

In April 1998, GISE and Coca-Cola, an affiliate of The Coca-Cola Company,
entered into a twenty-year Supply Contract, with a ten-year renewal option, for
the production of Italian lemons. This new Supply Contract replaced the original
contract entered into in October 1996. Pursuant to the terms of the Supply
Contract, GISE was required to plant and grow 3,500 hectares (approximately
8,650 acres) of Italian lemons within the following three years for sale to
Coca-Cola at pre-determined prices. The Supply Contract required Coca-Cola to
provide, free of charge, up to 875,000 lemon tree seedlings, enough to plant
approximately 2,800 hectares. In addition, the Supply Contract requires
Coca-Cola to purchase all the production from the project. As a result of
amendments to the Supply Contract during 2001, the Lemon Project has been
reduced to approximately 2,572 hectares (approximately 6,353 acres), which
represents all the land currently planted, and reduced the seedlings to 765,000
(enough to plant approximately 2,448 hectares (6,047 acres), which have been
delivered to the project by Coca-Cola. As a result of the amendments to the
Supply Contract, substantially all of the development costs have been incurred.
During 2001, we sold our two smaller lemon groves, Laborcitas (240 acres) and
Paraiso (339 acres). Although these were mature groves, they were geographically
situated apart from the remaining groves. The status of the Lemon Project as of
June 30, 2002, adjusted to reflect the Supply Contract amendments and the groves
sold, is as follows:

Until the groves reach commercial production, all revenues from the harvest
are offset against the Lemon Project costs, which have been capitalized. Based
on recent agricultural conditions in Mexico, commercial production may begin
with the 2003 or 2004 harvests. Once commercial production begins, deferred
orchard costs will be amortized based on the year's yield to total estimated
yield for the remaining years of the Supply Contract.

Our juice processing division has a long-term lemon processing contract with
an affiliate of The Coca-Cola Company that expires in 2007. Under the terms of
this contract, we are obligated to process annually

20

between 12,000 and 300,000 metric tons of Italian lemons for Coca-Cola. As we
presently do not have sufficient production capacity for future years
processing, we anticipate that performing the terms of this contract will
require substantial capital expenditures. In connection with exploring various
strategic alternatives for our juice processing division's assets, we are
exploring restructuring our lemon processing contract with Coca-Cola. Our
failure to obtain capital to expand our production capacity or the failure to
restructure our lemon processing agreement could have a material adverse effect
on our business, prospects, our lemon project and our financial condition.

Our cash requirements for the remainder of 2002 and beyond will depend
primarily upon the level of our sales and gross margins, expenditures for
capital equipment and improvements, investments in agricultural projects, the
timing of inventory purchases, increased acceptance of recently introduced
products and necessary reductions of debt. Presently, we are in discussions with
other financial institutions regarding further extending or replacing our
existing debt facilities. Although no assurances can be given, we believe we
will be able to obtain such debt facilities on acceptable terms. The failure to
obtain such debt facilities could have a material adverse effect on results of
operations and financial condition.

NEW ACCOUNTING PRONOUNCEMENTS

In August 2001, the FASB issued SFAS No.143, "Accounting for Asset
Retirement Obligations" which establishes the accounting standards for the
recognition and measurement of obligations associated with the retirement of
tangible long-lived assets. Under SFAS No. 143, the costs of retiring an asset
will be recorded as a liability when the retirement obligation arises, and will
be amortized over the life of the asset. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The adoption of SFAS No. 143 is not
expected to have a material impact on our consolidated results of operations and
financial position.

In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Statements
No. 4, 44 and 64, Amendment of SFAS Statement No. 13, and Technical
Corrections". This pronouncement, among other things, requires certain gains and
losses on the extinguishment of debt previously treated as extraordinary items
to be classified as income or loss from continuing operations. SFAS No. 145 is
effective fiscal years and financial statements issued on or after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a material impact on our
consolidated results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities". This pronouncement addresses the financial accounting and reporting
costs associated with an exit activity (including restructuring) or with a
disposal of long-lived assets. SFAS No. 146 requires an entity to record a
liability for costs associated with an exit or disposal activity when that
liability is incurred and can be measured at fair value, and to subsequently
adjust the recorded liability for changes in estimated cash flows. SFAS No. 146
is effective for exit or disposal activities initiated after December 31, 2002.
We are currently evaluating the potential impact, if any, that the
implementation will have on our consolidated results of operations and financial
position.

21

RISK FACTORS

If any of the following risks actually occur, our business, financial
condition or operating results could be materially adversely affected. In such
case, the trading price of our underlying common stock could decline and you may
lose part or all of your investment. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. As a result, we cannot predict every risk factor, nor can
we assess the impact of all of the risk factors on our businesses or to the
extent to which any factor, or combination of factors, may impact our financial
condition and results of operation. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations, and perhaps our ability to continue as a going concern.

RISKS RELATING TO OUR FINANCIAL CONDITION

WE ARE EXPERIENCING LIQUIDITY PROBLEMS AND MAY HAVE INDICATIONS OF "GOING
CONCERN" CONDITIONS.

Our 2001 audited consolidated financial statements, which are included in
our Form 10-K for the fiscal year ended December 31, 2001, includes a report
from our independent auditors with a "going concern" explanatory paragraph (see
Note 2 to our 2001 consolidated financial statements), which discuss certain
conditions that could impact our ability to continue operations under the
current business conditions given our recurring losses, negative cash flows and
substantial difficulties in meeting our obligations. We cannot be sure that our
cash and cash equivalents on hand and our cash availability will be sufficient
to meet our anticipated working capital needs and capital expenditures.

We began to address the "going concern" issue and the underlying liquidity
problem through the Del Monte transaction, the rights offering, the
discontinuance of our juice division in our juice and oil business segment and a
fundamental change in our business strategy. Our efforts to raise capital
through the divestiture of our juice division's assets have been unsuccessful.
To finance current and future expenditures, we will need to issue additional
equity securities and/or incur additional debt. We may not be able to obtain
additional required capital on satisfactory terms, if at all.

WE MAY BE FORCED TO SEEK PROTECTION UNDER APPLICABLE PROVISIONS OF THE FEDERAL
BANKRUPTCY CODE IF RABOBANK NEDERLAND OR ONE OF OUR MEXICAN BANKS EXERCISE THEIR
LEGAL RIGHTS AND REMEDIES.

As of June 30, 2002, we owed $1.5 million to Cooperative Centrale
Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland") under a loan agreement
with our Mexican subsidiary, GISE, which expired on January 2, 2002. Since
January 1, 1999, we have reduced, through payments, the principal portion of our
debt to Rabobank Nederland by $9.0 million, plus interest. To date, Rabobank
Nederland has not agreed to extend or restructure its loan and has not pursued
legal remedies under the security and guarantee agreements. Although we are
currently negotiating repayment schedules with Rabobank Nederland, if Rabobank
Nederland were to exercise all of its rights and remedies, under the security
and guarantee agreements, such action could have a significant adverse effect
upon our consolidated financial condition and prospects and could significantly
impact our ability to implement our business strategy, including our ability to
operate the Lemon Project and our ability to continue as a going concern. In
such event, we may be forced to seek protection under applicable provisions of
the federal bankruptcy code. We are not current in our scheduled interest
payments to Rabobank Nederland. As of June 30, 2002, we were not current in our
interest payments to Rabobank Nederland.

As of June 30, 2002, our Mexican subsidiary, ICMOSA, owed $3.5 million under
a secured pre-export financing loan agreement with Banco Nacional de Comercio
Exterior, S.N.C. ("Bancomext"). The outstanding balance consisted of six
separate notes which became due in various amounts and dates between July 9,
2002 to August 6, 2002. These notes have not been renewed by Bancomext. As of
June 30, 2002, accrued interest on these notes of approximately $30,000, is
still outstanding. Bancomext has not pursued its legal remedies under the loan
agreement and we are currently working on repayment schedules

22

that would restructure the loan repayments over a period of up to six years. No
assurances, however, can be given that we will be successful in restructuring
this loan.

WE MAY CONTINUE TO SUSTAIN LOSSES AND ACCUMULATED DEFICITS IN THE FUTURE.

We have sustained net losses in the last five fiscal years and in the first
six months of 2002. As of June 30, 2002 our accumulated deficit was $45.4
million. Our ability to achieve profitability in the future will depend on many
factors, including our ability to produce and market commercially acceptable
products into foreign countries while reducing operating costs. Because we were
not profitable in the last five years and during the first six months of 2002,
there can be no assurance that we will achieve a profitable level of operations
in fiscal 2002 or, if profitability is achieved that it can be sustained.

WE ARE DEPENDENT UPON A LIMITED NUMBER OF CUSTOMERS.

We have a limited number of customers. As a result of the sale of our
Sunfresh(R) brand to Del Monte during 2000 and the entering into a long-term
supply agreement to supply a minimum quantity of chilled and canned citrus
products for distribution by Del Monte under the Sunfresh(R) brand into the
United States retail and wholesale club markets, sales to them represented 46.4%
of our 2001 net sales and 59.2 % for the six months ended June 30, 2002. In
addition, we expect that more than half of our foreseeable future net sales will
be dependent on Del Monte. We believe that our future success depends upon the
future operating results of Del Monte with respect to the Sunfresh(R) brand and
their ability to broaden the customer base of the Sunfresh(R) brand products.
Although the long-term supply agreement requires Del Monte to purchase minimum
quantities of product, there can be no assurances that Del Monte will not
reduce, delay or eliminate purchases from us, which could have a material
adverse effect on our results of operations and financial condition. In
addition, Del Monte has significant leverage and could attempt to change the
terms, including pricing and volume, upon which Del Monte and we do business,
thereby adversely affecting our consolidated results of operations and financial
condition.

WE ARE SUBJECT TO RISKS ASSOCIATED IN IMPLEMENTATION OF OUR BUSINESS STRATEGY.

We are subject to our ability to implement our business strategy and improve
our operating results, which will depend in part on our ability to realize
significant cost savings associated with our supply agreement with Del Monte
through operating efficiencies, achieve additional sales penetration for
products sold into foreign markets and develop new products and customers in our
packaged fruit segment. No assurance can be given that we will be able to
achieve such goals or that, in implementing cost saving measures, it will not
impair our ability to respond rapidly or efficiently to changes in the
competitive environment. In such circumstances, our consolidated results of
operations and financial condition could be materially adversely affected.

ADDITIONAL FINANCING MAY BE REQUIRED TO ACHIEVE OUR GROWTH.

If we do not achieve or maintain significant revenues or profitability or
have not accurately predicted our cash needs, or if we decide to change our
business plans, we may need to raise additional funds in the future. There can
be no assurance that we will be able to raise additional funds on favorable
terms or at all, or that such funds, if raised, will be sufficient to permit us
to manufacture and distribute our products. If we raise additional funds by
issuing equity securities, shareholders may experience dilution in their
ownership interest. If we raise additional funds by issuing debt securities, we
may incur significant interest expense and become subject to covenants that
could limit our ability to operate and fund our business. Further, we may be
forced to sell certain of our assets, which may be sold at a loss. If additional
funds are not available when required, we may be unable to effectively realize
our current plans.

ADDITIONAL FINANCING MAY BE REQUIRED TO PERFORM OUR CONTRACTUAL OBLIGATIONS.

Our juice processing division has a long-term lemon processing contract with
an affiliate of the Coca-Cola Company that expires in 2007. Under the terms of
this contract, we are obligated to process annually

23

between 12,000 and 300,000 metric tons of Italian lemons for Coca-Cola. As we
presently do not have sufficient production capacity for future years
processing, we anticipate that performing the terms of this contract will
require substantial capital expenditures. In connection with exploring various
strategic alternatives for our juice processing division's assets, we are
exploring restructuring our lemon processing contract with Coca-Cola. Our
failure to obtain capital to expand our production capacity or the failure to
restructure our lemon processing agreement could have a material adverse effect
on our business, prospects, our lemon project and our consolidated financial
condition.

RISKS RELATING TO OUR MEXICAN OPERATIONS

WE ARE SUBJECT TO THE RISK OF FLUCTUATING FOREIGN CURRENCY EXCHANGE RATES AND
INFLATION.

We are subject to market risk associated with adverse changes in foreign
currency exchange rates and inflation in our operations in Mexico. Our
consolidated results of operations are affected by changes in the valuation of
the Mexican peso to the extent that our Mexican subsidiaries have peso
denominated net monetary assets or net monetary liabilities. In periods where
the peso has been devalued in relation to the U.S. dollar, a gain will be
recognized to the extent there are peso denominated net monetary liabilities
while a loss will be recognized to the extent there are peso denominated net
monetary assets. In periods where the peso has gained value, the converse would
be recognized. Our consolidated results of operations are also subject to
fluctuations in the value of the peso as they affect the translation to U.S.
dollars of Mexican subsidiaries net deferred tax assets or net deferred tax
liabilities. Since these assets and liabilities are peso denominated, a falling
peso results in a translation loss to the extent there are net deferred tax
assets or a translation gain to the extent there are net deferred tax
liabilities. Pricing associated with the long-term supply agreement entered into
with Del Monte is in U.S. dollars. Our exposure to foreign currency exchange
rate risk is difficult to estimate due to factors such as balance sheets
accounts, and the existing economic uncertainty and future economic conditions
in the international marketplace.

Significant fluctuations in the exchange rate of the Mexican peso compared
to the U.S. dollar, as well as the Mexican inflation rate, could significantly
impact our ability to fulfill our contractual obligations under the Del Monte
supply agreement in a profitable manner, which could result in a material
adverse effect upon our consolidated results of operations and financial
conditions.

WE ARE DEPENDENT UPON FRUIT GROWING CONDITIONS, ACCESS TO WATER AND AVAILABILITY
AND PRICE OF FRESH FRUIT.

We grow grapefruit and pineapples used in our packaged fruit operations and
grow Italian lemons pursuant to the terms of a long-term supply contract with an
affiliate of Coca-Cola. Severe weather conditions, lack of water and natural
disasters, such as floods, droughts, frosts, earthquakes or pestilence, may
affect the supply of one or more of our products and could significantly impact
the development of the Lemon Project. A substantial amount of our growing
operations are irrigated and a lack of water has not had a material adverse
effect on our growing operations for many years. There can be no assurances that
future weather conditions and lack of irrigation water will not have a material
adverse effect on results of operations and financial conditions. In addition,
we also source a substantial amount of our raw materials from third-party
suppliers throughout various growing regions in Mexico and Texas. A crop
reduction or failure in any of these fruit growing regions resulting from
factors such as weather, pestilence, disease or other natural disasters, could
increase the cost of our raw materials or otherwise adversely affect our
operations. Competitors may be affected differently depending upon their ability
to obtain adequate supplies from sources in other geographic areas. If we are
unable to pass along the increased raw material costs, our consolidated
financial condition and results of operations could be materially adversely
affected.

24

LABOR SHORTAGES AND UNION ACTIVITY COULD AFFECT OUR ABILITY TO HIRE AND WE ARE
DEPENDENT ON THE MEXICAN LABOR MARKET.

We are heavily dependent upon the availability of a large labor force to
produce our products. The turnover rate among the labor force is high. If it
becomes necessary to pay more to attract labor, our labor costs will increase.

The Mexican agricultural work force, whether seasonal or permanent, are
generally affiliated with labor unions which are generally affiliated with a
national confederation. If the unions attempt to disrupt production and are
successful on a large scale, labor costs will likely increase and work stoppages
may be encountered, which could be particularly damaging in our industry where
the harvesting season for citrus crops occur at peak times and getting the fruit
processed and packed on a timely basis is critical.

WE ARE SUBJECT TO STATUTORY EMPLOYEE PROFIT SHARING IN MEXICO.

All Mexican companies, including ours, are required to pay their employees,
in addition to their agreed compensation benefits, profit sharing in an
aggregate amount equal to 10% of taxable income, as adjusted to eliminate most
of the effects of Mexican inflation, calculated for employee profit sharing
purposes, of the individual corporation employing such employees. As a result of
losses for income tax purposes at our Mexican subsidiaries over the past several
years, we have not had to pay any profit sharing. Statutory employee profit
sharing expense, when paid, is reflected in our cost of goods sold and selling,
general and administrative expenses, depending upon the function of the
employees to whom profit sharing payments are made. Our net losses on a
consolidated basis as shown in the condensed consolidated financial statements
are not a meaningful indication of taxable income of our subsidiaries for profit
sharing purposes or of the amount of employee profit sharing.

WE ARE SUBJECT TO VOLATILE INTEREST RATES IN MEXICO, WHICH COULD INCREASE OUR
CAPITAL COSTS.

We are subject to volatile interest rates in Mexico. Historically, interest
rates in Mexico have been volatile, particularly in times of economic unrest and
uncertainty. High interest rates restrict the availability and raise the cost of
capital for our Mexican subsidiaries and for growers and other Mexican parties
with whom we do business, both for borrowings denominated in pesos and for
borrowings denominated in dollars. As a result, costs of operations for our
Mexican subsidiaries could be higher.

TRADE DISPUTES BETWEEN THE UNITED STATES, MEXICO AND EUROPE COULD RESULT IN
TARIFFS, QUOTAS AND BANS ON IMPORTS, INCLUDING OUR PRODUCTS, WHICH COULD IMPAIR
OUR FINANCIAL CONDITION.

We are subject to trade agreements between Mexico, the United States and
Europe. Despite the enactment of the North American Free Trade Agreement, Mexico
and the United States from time to time are involved in trade disputes. The
United States has, on occasion, imposed tariffs, quotas, and importation
limitations on products produced in Mexico. Because all of our products are
currently produced by our subsidiaries in Mexico, which we sell in the United
States and Europe, such actions, if taken, could adversely affect our business.

WE ARE SUBJECT TO GOVERNMENTAL LAWS THAT RELATE TO OWNERSHIP OF RURAL LANDS IN
MEXICO.

We own or lease, on a long-term basis, approximately 7,000 acres of rural
land in Mexico, which is used for production of the Lemon Project. Historically,
the ownership of rural land in Mexico has been subject to governmental
regulations, which in some cases could lead to the owner being unable to sell
his land to companies putting together significant land concentrations. Although
we have not experienced any major legal disputes in obtaining the land for the
Lemon Project, there can be no assurance that we will be able to obtain large
blocks of land for future growing projects without incurring government
resistance.

25

GENERAL BUSINESS RISKS

WE MAY BE SUBJECT TO PRODUCT LIABILITY AND PRODUCT RECALL.

We produce a consumer product that is subject to product recall. The
testing, marketing, distribution and sale of food and beverage products entail
an inherent risk of product liability and product recall. There can be no
assurance that product liability claims will not be asserted against us or that
we will not be obligated to recall our products. Although we maintain product
liability insurance coverage in the amount of $11,000,000 per occurrence, there
can be no assurance that this level of coverage is adequate. A product recall or
a partially or completely uninsured judgment against us could have a material
adverse effect on our consolidated results of operations and financial
condition.

WE ARE SUBJECT TO GOVERNMENTAL AND ENVIRONMENTAL REGULATIONS.

We are subject to numerous domestic and foreign governmental and
environmental laws and regulations as a result of our agricultural, food and
juice processing activities.

The Food and Drug Administration ("FDA"), the United States Department of
Agriculture ("USDA"), the Environmental Protection Agency, and other federal and
state regulatory agencies in the United States extensively regulate our
activities in the United States. The manufacturing, processing, packing,
storage, distribution and labeling of food and juice products are subject to
extensive regulations enforced by, among others, the FDA and to inspection by
the USDA and other federal, state, local agencies. Applicable statutes and
regulations governing food products include "standards of identity" for the
content of specific types of foods, nutritional labeling and serving size
requirements and under "Good Manufacturing Practices" with respect to production
processes. We believe that our products satisfy, and any new products will
satisfy, all applicable regulations and that all of the ingredients used in our
products are "Generally Recognized as Safe" by the FDA for the intended purposes
for which they will be used. Failure to comply with applicable laws and
regulations could subject us to civil remedies, including fines, injunctions,
recalls or seizures, as well as potential criminal sanctions, which could have a
material adverse effect on our consolidated results of operations and financial
condition.

The Secretaria de Agricultura, Ganaderia, Desarrollo Rural, Pesca y
Alimentacion (SAGARPA), the Secretaria de Medio Ambiente y Recursos Naturales
(SEMARNAT), the Secretaria de Salud (SS), and other federal and state regulatory
agencies in Mexico extensively regulate our Mexican operations. Many of these
laws and regulations are becoming increasingly stringent and compliance with
them is becoming increasingly expensive. On a daily basis, we test our products
in our internal laboratories and, periodically, submit samples of our products
to independent laboratories for analysis. Failure to comply with applicable laws
and regulations could subject us to civil remedies, including fines,
injunctions, recalls or seizures, as well as potential criminal sanctions, which
could have a material adverse effect on results of operations and financial
condition. Although we believe that our facilities are currently in compliance
with all applicable environmental laws, failure to comply with any such laws
could have a material adverse effect on our consolidated results of operations
and financial condition.

WE ARE DEPENDENT UPON OUR MANAGEMENT TEAM.

We rely on the business, technical expertise and experience of our senior
management and certain other key employees. The loss of the services of any of
these individuals could have a material adverse effect on results of operations
and financial condition. We believe that our future success is also dependent
upon our ability to continue to attract and retain qualified personnel in all
areas of our business. No senior members of our Mexican operations are bound by
non-compete agreements, and if such members were to depart and subsequently
compete with us, such competition could have a material adverse effect on our
consolidated results of operations and financial condition.

26

WE HAVE A SEASONAL BUSINESS.

We are a seasonal business and, as with any agribusiness, demand for our
citrus and tropical fruit products is strongest during the fall, winter and
spring when many seasonal fresh products are not readily available for sale in
supermarkets in North America. In addition, a substantial portion of our exports
to Japan are processed and shipped during the first and fourth quarters of each
year. Management believes our quarterly consolidated net sales will continue to
be impacted by this pattern of seasonality.

WE FACE STRONG COMPETITION.

We operate in a highly competitive market. The food industry, including the
markets in which we compete, is highly competitive with respect to price and
quality, including taste, texture, healthfulness and nutritional value. We face
direct competition from citrus processors with respect to our existing product
lines and face potential competition from numerous, well established competitors
possessing substantially greater financial, marketing, personnel and other
resources than we do. In recent years, numerous companies have introduced
products positioned to capitalize on growing consumer preference for fresh fruit
products. It can be expected that we will be subject to increasing competition
from companies whose products or marketing strategies address these consumer
preferences.

WE HAVE A SHAREHOLDER THAT HAS SUBSTANTIAL CONTROL OVER OUR COMPANY AND CAN
AFFECT VIRTUALLY ALL DECISIONS MADE BY OUR SHAREHOLDERS AND DIRECTORS.

M & M Nominee LLC ("M & M Nominee") now owns 13,149,274 shares of our common
stock accounting for 62.5% of all issued and outstanding shares. As a result, M
& M Nominee has the requisite voting power to significantly affect virtually all
decisions made by our company and its shareholders, including the power to elect
all directors and to block corporate actions such as amendments to most
provisions of our articles of incorporation. This ownership and management
structure could inhibit the taking of any action by our company that is not
acceptable to M & M Nominee.

RISKS RELATING TO OUR COMMON STOCK

THE DELISTING IN MARCH 2001 FROM THE NASDAQ NATIONAL MARKET MAY REDUCE THE
LIQUIDITY AND MARKETABILITY OF OUR COMMON STOCK AND MAY DEPRESS THE MARKET PRICE
OF OUR COMMON STOCK.

On March 15, 2001, Nasdaq delisted our common stock from The Nasdaq National
Market and moved our common stock to the Over-the-Counter Electronic Bulletin
Board ("OTC Bulletin Board") under the symbol "UNMG.OB". Although our securities
are included on the OTC Bulletin Board, there can be no assurance that a regular
trading market for the securities will be sustained in the future. The OTC
Bulletin Board is an unorganized, inter-dealer, over-the-counter market which
provides significantly less liquidity than The Nasdaq Stock Market, and quotes
for stocks included on the OTC Bulletin Board are not listed in the financial
sections of newspapers as are those for The Nasdaq Stock Market. Therefore,
prices for securities traded solely on the OTC Bulletin Board may be difficult
to obtain. The reduced liquidity of our common stock and the reduced public
access to quotations for our common stock could depress the market price of our
common stock.

"PENNY STOCK" REGULATIONS MAY IMPOSE RESTRICTIONS ON MARKETABILITY OF OUR COMMON
STOCK.

The Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that is not traded on a
national securities exchange or Nasdaq and that has a market price of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. Since our securities that are currently included on the OTC
Bulletin Board are trading at less than $5.00 per share at any time, our common
stock may become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors. Accredited investors generally
include investors that have assets in

27

excess of $1,000,000 or an individual annual income exceeding $200,000, or,
together with the investor's spouse, a joint income of $300,000. For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require, among other things, the delivery, prior to the transaction, of a
risk disclosure document mandated by the SEC relating to the penny stock market
and the risks associated therewith. The broker-dealer must also disclose the
commission payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the penny stock
rules may restrict the ability of broker-dealers to sell our securities and may
affect the ability of stockholders to sell our securities in the secondary
market.

OUR COMMON STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE HIGHLY VOLATILE.

The price of our common stock has been particularly volatile and will likely
continue to fluctuate in the future. Announcements of chronological innovations,
regulatory matters or new commercial products by us or our competitors,
developments or disputes concerning patent or proprietary rights, publicity
regarding actual or potential product results relating to products under
development by us or our competitors, regulatory developments in both the United
States and foreign countries, public concern as to the safety of pharmaceutical
or dietary supplement products, and economic and other external factors, as well
as period-to-period fluctuations in financial results, may have a significant
impact on the market price of our common stock. In addition, from time to time,
the stock market experiences significant price and volume fluctuations that may
be unrelated to the operating performance of particular companies or industries.
The market price of our common stock, like the stock prices of many publicly
traded smaller companies, has been and may continue to be highly volatile.

WE HAVE NEVER PAID A DIVIDEND.

We have never paid cash dividends on our common stock or any other
securities. We anticipate that we will retain any future earnings for use in the
expansion and operation of our business, and do not anticipate paying cash
dividends in the foreseeable future.

28

PART I. - ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

We are exposed to market risk from changes in our outstanding bank debt and
interest rates. The following table presents principal cash flows and related
weighted-average interest rates by expected maturity dates for our debt
obligations.

INTEREST RATE SENSITIVITY
Principal Amount by Expected Maturity
Average Interest Rate
(In thousands, except interest rates)

At June 30, 2002, U.S. dollar denominated long-term debt amounted to $3.2
million as compared to Mexican peso denominated long-term debt of $5.4 million.

29

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Our company is subject to legal actions arising in the ordinary course of
business. Management does not believe that the outcome of any such legal action
would have a material adverse effect on our consolidated financial position or
results of operations.

ITEM 2. SALE OF UNREGISTERED SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources" and "- Risk Factors - Risks
Relating to Our Financial Condition - We may be forced to seek protection under
applicable provisions of the federal bankruptcy code if Rabobank Nederland or
one of our Mexican banks exercise their legal rights and remedies", for a
discussion of our noncompliance with our loan agreements with Bancomext and
Rabobank Nederland.

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits:

EXHIBIT NO. 99

99(a) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99(b) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

B. Reports on Form 8-K:

None

30

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

THE UNIMARK GROUP, INC.
-----------------------
Registrant

Date: August 19, 2002 /s/ Emilio Castillo Olea
----------------- ------------------------------------------
Emilio Castillo Olea, President
(Principal Executive Officer)

Date: August 19, 2002 /s/ David E. Ziegler
---------------- ------------------------------------------
David E. Ziegler, Chief Financial Officer
(Principal Accounting Officer)

31

INDEX TO EXHIBITS