UNIMARK GROUP INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

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.
UNIMARK HOUSE
124 MCMAKIN ROAD
BARTONVILLE, TEXAS 76226

REGISTRANT'S TELEPHONE NUMBER: (817) 491-2992

STATE OF INCORPORATION IRS EMPLOYER IDENTIFICATION NO.
TEXAS 75-2436543

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 [ ]

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN EXCHANGE ACT RULE 12b-2). YES [ ] NO [X]

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

COMMON STOCK, $0.01 PAR VALUE: 21,044,828 SHARES, AS OF DECEMBER 4, 2003.

INDEX

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PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED 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
MARCH 31, 2003

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Description of Business: The UniMark Group, Inc., a Texas corporation,
("we," "us," "our" and the "company") is a citrus and tropical fruit growing and
processing company with substantially all of its operations in Mexico. The
UniMark Group, Inc. was organized in 1992 to combine the packaged fruit
operations of a Mexican citrus and tropical fruit processor, which commenced
operations in 1974, with UniMark Foods, a company that marketed and distributed
products in the United States. We conduct substantially all of our operations
through our wholly-owned operating subsidiaries. In Mexico, our operating
subsidiaries include: Industrias Citricolas de Montemorelos, S.A. de C.V.
("ICMOSA") and Grupo Industrial Santa Engracia, S.A. de C.V. ("GISE"). In the
United States, our subsidiary is UniMark Foods, Inc. ("UniMark Foods").

Historically, we have, for operating and financial reporting purposes,
classified our business into two distinct business segments: packaged fruit and
juice and oil. Upon the divestiture of our juice and oil division's remaining
assets, our business segments for operating and financial reporting purposes
will consist of two distinct business segments: packaged fruit and agricultural
operations.

Within our packaged fruit business 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 business segment processes
and packages our products at three processing plants in Mexico. Our Mexican
plants are located in major fruit growing regions. We utilize independent food
brokers to sell our foodservice and industrial products in the United States.
Sales to our Japanese customers are facilitated through Japanese trading
companies.

On August 31, 2000, we sold to Del Monte Foods Company ("Del Monte") all of
our interests in our worldwide rights to the Sunfresh(R), Fruits of Four
Seasons(R) and Flavor Fresh(TM) brands, our McAllen, Texas distribution
facility, including certain inventory associated with our retail and wholesale
club business and other property and equipment. Separately, we entered into a
5-year supply agreement with Del Monte under which we have been contracted to
produce chilled and canned citrus products for Del Monte's retail and wholesale
club markets. Under the terms of the agreement, Del Monte has agreed to purchase
minimum quantities of our citrus products at agreed upon prices for sale in the
United States. We retained the rights to our foodservice, industrial and
Japanese business. Also, we were granted by Del Monte a 5-year license for the
rights to the Sunfresh(R), Fruits of Four Seasons(R) and Flavor Fresh(TM) brands
for specific areas, including Europe, Asia, the Pacific Rim and Mexico.

Due to the continued unfavorable and volatile worldwide market prices of
frozen concentrate orange juice ("FCOJ") that existed over the past several
years and negative long-term prospects for the FCOJ market, we explored various
strategic alternatives for our juice and oil business segment.

In March 2003, we received formal offers from The Coca-Cola Export
Corporation, Mexico Branch ("Coca-Cola") to purchase our Victoria juice and oil
plant and rescind certain contract rights for the growing and processing of
Italian lemons for aggregate cash payments by Coca-Cola of $16.0 million. In
April 2003, we consummated the portion of the transaction with Coca-Cola
pertaining to the rescission of all contract rights and obligations for the
growing and processing of Italian lemons for an aggregate cash payment of $12.5
million, plus value added taxes. In this regard, we retained the approximately
7,100 acres of lemon groves, which included all the land, irrigation systems and
related agricultural equipment. As part of the sale agreement we are
contractually restricted from industrially processing our lemons and are limited
in marketing our lemons solely as fresh fruit until July 30, 2007. The proceeds
from the rescission of the contract rights will be offset against our deferred
orchard costs during the second quarter of 2003.

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Through November 30, 2003, approximately $3.8 million of the proceeds from
the Coca-Cola transaction have been used to pay past due accounts payable,
current operating expenses of our lemon groves, operating expenses of our juice
and oil processing plants prior to sale, severance payments to former plant and
administrative employees of the juice division, corporate expense charges, repay
the Cooperative Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank Nederland")
loan of $1.5 million, repay the Banco Nacional de Mexico, S.A., ("Banamex")
loans of $558,000 and repayment of bridge loans to our largest shareholder, M&M
Nominee, LLC ("M&M Nominee") of $368,000. The remaining cash of approximately
$6.3 million is anticipated to be used to pay operating expenses of the lemon
groves and provide working capital for our continuing operations. Cash
disbursements for purposes other than those associated with GISE's juice
division and agricultural operations are subject to the 9-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 and would require
their prior approval for disbursement.

In June 2003, we sold our Poza Rica juice plant to an unaffiliated third
party for $1.0 million, plus value added taxes of $120,000. Through October 15,
2003, total cash payments received amounted to $365,000 with the remaining
balance payable in five remaining installments under a promissory note. The
remaining payments, which aggregate $200,000 in 2003 and $590,000 in 2004, are
secured by personal guarantees of the purchaser's shareholders and a related
company and a pledge agreement.

Effective November 17, 2003, we closed the sale of our Victoria juice and
oil plant, for a cash payment of $3.5 million.

With the completion of this sale of our Victoria juice and oil plant and
related processing equipment, our juice and oil business segment consists
exclusively of our Italian lemon groves. Given the increased costs associated
with being a public company, the lack of liquidity for our common stock, the
liquidity problems at ICMOSA (see discussion in Note 2 - "Recent Developments
Impacting Liquidity and Capital Resources") and the operational challenges
facing the company, our Board of Directors, to maximize shareholder value, has
authorized us to explore all available "strategic alternatives," including the
sale of all or a part of the company, its productive assets and strategic
partnering relationships for the growing, distribution and marketing of fresh
lemons.

Interim Financial Statements: The condensed consolidated financial
statements at March 31, 2003, and for the three month periods ended March 31,
2002 and 2003, 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, 2002 filed with the Securities and Exchange Commission. The
results of operations for the three months ended March 31, 2003 are not
necessarily indicative of future financial results.

Year End Balance Sheet: The condensed consolidated balance sheet at
December 31, 2002 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 our common stock. Risks
relating to our financial condition include the fact that we are experiencing
significant liquidity problems at one of our Mexican subsidiaries; we may be
forced to seek protection under applicable provisions of the federal bankruptcy
code one of our Mexican banks exercises their legal rights and remedies; that we
may continue to sustain losses and accumulated deficits in the future; that we
are dependent upon a limited number of customers, particularly Del Monte Foods;
that we may lose our net operating loss carryforwards, which could prevent us
from offsetting future taxable income in the United States; and that we are
subject to risks associated in implementation of our business strategy. Risks

7

relating to our Mexican operations include the fact that we are subject to the
risk of fluctuating foreign currency exchange rates and inflation; that we are
dependent upon fruit growing conditions, access and availability of water and
the price of fresh fruit; that we are subject to governmental laws that relate
to ownership of rural lands in Mexico; that labor shortages and union activity
could affect our ability to hire and we are dependent on the Mexican labor
market; that we are subject to statutory employee profit sharing in Mexico; that
we are subject to volatile interest rates in Mexico which could increase our
capital costs; and that trade disputes between the United States, Mexico, Japan
and Europe could result in tariffs, quotas and bans on imports, including our
products, which could impair our financial condition. General business risk
include the fact that we may be subject to product liability and product recall;
that we are subject to governmental and environmental regulations; that we are
dependent upon our management team; that we have a seasonal business; that we
face strong competition; that we have a significant shareholder that has
substantial control over our company and can affect virtually all decisions made
by our shareholders and directors; and we are subject to recent legislative
actions and potential new accounting pronouncements. Risks relating to our
common stock include the delisting from the Over-the-Counter Bulletin Board has
further reduced the liquidity and marketability of our common stock and may
further depress the market price of our common stock; that "Penny Stock"
regulations may impose restrictions on marketability of our stock; that our
common stock price has been and may continue to be highly volatile; and that 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 Adopted Accounting Pronouncements:

In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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, legal obligations associated
with the retirement of long-lived assets will be recorded as a liability when
the retirement obligation arises, and the cost capitalized as part of the
related long-lived assets and amortized over the life of the assets. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002. The adoption of
SFAS No. 143 on January 1, 2003 did not have any impact on our condensed
consolidated financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44
and 64, Amendment of SFAS 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 for fiscal years beginning after May 15, 2002. We elected to adopt
SFAS No. 145 in 2002 related to a previously reported gain from the settlement
of certain debt with a Mexican bank, and reclassified the amount previously
reported as an extraordinary amount to other income.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with 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. The initial adoption of SFAS No. 146 on
January 1, 2003 did not have any impact on our condensed consolidated results of
operations or financial position.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others." Interpretation No. 45 supersedes
Interpretation No. 34, "Disclosure of Indirect Guarantees of Indebtedness of
Others," and provides guidance to guarantors on the recognition and disclosure
concerning obligations under certain guarantees in interim and annual financial
statements. The initial recognition and measurement provisions

8

of Interpretation No. 45 are effective for guarantees issued or modified after
December 31, 2002, and are to be applied prospectively. The disclosure
requirements were effective for financial statements for interim or annual
periods ending after December 15, 2002. The initial adoption of Interpretation
No. 45 on January 1, 2003 did not have any impact on our condensed consolidated
results of operations or financial position.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. This Statement also amends the disclosure
requirements of SFAS No. 123 to require prominent disclosure in annual and
interim financial statements about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure provisions of this Statement are effective for
financial reports containing financial statements for interim periods beginning
after December 15, 2002. The adoption of SFAS No. 148 during this quarter did
not have any impact on our condensed consolidated financial position or results
of operations.

New Accounting Pronouncements:

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 is generally effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. We do not expect adoption of this statement to
have any significant impact on our financial accounting and reporting as a
result of implementation of SFAS No 149.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
required that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS No. 150 is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. Through March 31, 2003 we have not issued financial
instruments with characteristics of both liabilities and equity.

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

NOTE 2 - LIQUIDITY AND CAPITAL RESOURCES

Financial Position:

At March 31, 2003, our cash and cash equivalents totaled $854,000, an
increase of $448,000 from year-end 2002. During the first quarter of 2003, our
operating activities generated cash of $28,000 principally from non-cash charges
associated with deprecation expense, impairment of long-lived assets and
disposal of property and equipment aggregating $740,000, which was offset
primarily by our net loss of $520,000. Capital expenditures were insignificant
and our net increase in short and long-term debt was $245,000. Working capital
at March 31, 2003 amounted to a deficit of $9.6 million, a slight improvement
from our December 31, 2002 deficit of $9.7 million.

Recent Transactions:

In April 2003, we consummated the portion of the transaction with
Coca-Cola pertaining to the rescission of all contract rights and obligations
for the growing and processing of Italian lemons for an

9

aggregate cash payment of $12.5 million, plus value added taxes. In June 2003,
we sold our Poza Rica juice plant to an unaffiliated third party for $1.0
million, plus value-added taxes of $120,000. Through October 15, 2003, total
cash payments received amount to $365,000 with the balance payable in five
remaining installments under a promissory note, which aggregate $200,000 in 2003
and $590,000 in 2004. Effective November 17, 2003, we closed the sale of our
Victoria juice and oil plant, for a cash payment of $3.5 million.

Through November 30, 2003, approximately $3.8 million of the proceeds from
the Coca-Cola transaction have been used to pay past due accounts payable,
current operating expenses of our lemon groves, operating expenses of our juice
and oil processing plants prior to sale, severance payments to former plant and
administrative employees of the juice division, corporate expense charges, repay
the Rabobank Nederland loan of $1.5 million, repay the Banamex loans of $558,000
and repayment of bridge loans to our largest shareholder, M&M Nominee of
$368,000. The remaining cash of approximately $6.3 million is anticipated to be
used to pay operating expenses of the lemon groves and provide working capital
for our continuing operations. Cash disbursements for purposes other than those
associated with GISE's juice division and agricultural operations are subject to
the FOCIR Agreement and would require their prior approval for disbursement.
Substantially all the proceeds are invested in short-term, interest bearing
investment grade securities. As of March 31, 2003, principal of $4.4 million and
accrued accretion of $1.5 million was owed to FOCIR.

Recent Developments Impacting Liquidity and Capital Resources:

As a result of our working capital deficits, we are experiencing
significant operational and financial challenges in the near term at our ICMOSA
subsidiary. Our working capital deficits at ICMOSA are approximately $6.0
million and we are negotiating a restructuring of its bank loans (see discussion
in Note 3 below). In addition, we are actively evaluating ICMOSA's business
strategy and operational model. The complexity of this evaluation is further
aggravated by the significant immediate liquidity issues that must be addressed
in parallel with any contemplated strategic and operational changes. In order
for ICMOSA to emerge from its current liquidity and operational difficulties
with a profitable business model, it must achieve success on a number of
critical fronts, including price increases from its largest customer and a
favorable conclusion to the renegotiation of its bank debt. While we are focused
on achieving these strategic and operational objectives, there can be no
assurance that ICMOSA will in fact achieve such success.

Although our current cash balances as of November 30, 2003 at our GISE
subsidiary are in excess of $9.6 million, this cash is restricted by the FOCIR
Agreement and would require FOCIR's prior approval before such cash could be
used to fund working capital deficits at our ICMOSA subsidiary or our general
corporate overhead. As an alternative, we could prepay the outstanding FOCIR
principal and accrued interest balances, which approximate $6.2 million, and
have available approximately $3.4 million in cash. This cash, at our discretion,
could be used to fund projected ICMOSA working capital deficits and corporate
overhead over the next 12-18 months.

Given the increased costs associated with being a public company, the lack
of liquidity for our common stock, the liquidity problems at ICMOSA and the
operational challenges facing the company, our Board of Directors, to maximize
shareholder value, has authorized us to explore all available "strategic
alternatives," including the sale of all or a part of the company, its
productive assets and strategic partnering relationships for the growing,
distribution and marketing of fresh lemons.

NOTE 3 - SHORT AND LONG-TERM DEBT

Short-term debt:

As of March 31, 2003, we owed $1.5 million to Rabobank Nederland under a
loan agreement that was due and payable on January 2, 2002. This loan, which was
in default at March 31, 2003, was repaid in May 2003.

10

As of December 31, 2002 and March 31, 2003, our Mexican subsidiary, ICMOSA,
owed $3.5 million under a secured pre-export financing loan agreement with
Bancomext. The outstanding balance consisted of six separate notes that became
due in various amounts and dates during 2002. These notes have not been renewed
by Bancomext and are due and payable. As of March 31, 2003, accrued interest on
these notes of approximately $165,000 is still outstanding. Bancomext has not
pursued its legal remedies under the loan agreement. We are currently
negotiating a restructuring of a joint loan with Bancomext and Grupo Financiero
Banorte ("Banorte") that would amortize the balances over a period of up to ten
years. No assurances, however, can be given that we will be successful in
restructuring these loans. If Bancomext and Banorte were to exercise all of the
rights and remedies available to them under their loan agreements, such action
could have a significant adverse effect upon our consolidated financial
condition and prospects and could significantly impact our ability to continue
as a going concern.

The Rabobank Nederland and Bancomext outstanding balances have been
included under the caption "Short and long-term debt in default" in our
condensed consolidated balance sheets at December 31, 2002 and March 31, 2003.

Long-term debt:

During 2002, ICMOSA entered into a restructured loan agreement with Banorte
that amortized the outstanding principal balance over a period of five and
one-half years. The loan repayment schedule requires quarterly payments of
principal and interest (Libor plus 3.50%) through December 31, 2007, with
$300,000 due over the next twelve months. As of December 31, 2002 and March 31,
2003, $3.0 million was outstanding under the restructured loan agreement. The
restructured loan agreement is secured by certain assets of ICMOSA, corporate
guarantees by the company and certain covenants that, amongst others, restrict
future borrowings and contains a cross-default provision. As a result of the
default of the Bancomext loan we are currently in default of the Banorte loan
agreement and the entire loan balance has been included under the caption "Short
and long-term debt in default" in our condensed consolidated balance sheets at
December 31, 2002 and March 31, 2003. We are currently in discussions with
Banorte to restructure their loan with our Bancomext loan. To date, they have
not pursued their legal remedies available to them under the loan agreement.

As of March 31, 2003, notes payable to a Mexican bank in the amounts of
$462,000 and $96,000, were in default of their scheduled payments and have been
included under the caption "Short and long-term debt in default" in our
condensed consolidated balance sheets at December 31, 2002 and March 31, 2003.
These loans were repaid in July 2003.

On February 21, 2000, we entered into a $48.0 million Mexican pesos (U.S.
$5.1 million at the exchange rate in effect at that time), 9-year term financing
agreement with FOCIR. Under the terms of the FOCIR Agreement, FOCIR agreed to
provide up to $48.0 million Mexican pesos to fund additional Lemon Project
costs, which included 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 December 31, 2002 and March 31, 2003, advances under the FOCIR Agreement
were $4.9 million and $4.4 million (47,033,971 Mexican pesos), respectively.

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, by factors of 1.126 for 2002, and 1.168 for 2003, and
then multiplying by the FOCIR equity interest percentage. The calculation that
results in the greater amount will be the annual accretion amount. Accretion
accumulates annually over the 9-year period of the FOCIR Agreement and is paid
only upon expiration or early termination of the FOCIR Agreement. As of December
31, 2002 and March 31, 2003, accretion accrued under the FOCIR Agreement
amounted to $1.4 million and $1.5 million, respectively, which is classified as
a long-term liability in our condensed consolidated balance sheets as of
December 31, 2002 and March 31, 2003. As of March 31, 2003, the weighted average
accretion rate for all advances

11

under the FOCIR Agreement was approximately 10.6%. 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 debt, which includes transferring to the trust GISE common shares that
represent 33.4% of GISE's outstanding shares and the governance of GISE. As of
December 31, 2002 and March 31, 2003, we were not in compliance with certain of
the FOCIR Agreement covenants, and accordingly, we were in default of the
agreement. We have received a waiver of these defaults from FOCIR through June
2004.

Certain of our Mexico loan contracts establish restrictions and obligations
with respect to the application of funds and require maintenance of insurance on
the assets and timely presentation of financial information. In addition, after
considering the repayment of the Rabobank Nederland and Banamex loans during
2003, approximately $7.0 million of net property, plant and equipment and
certain receivables are pledged as collateral under short and long-term debt
agreements.

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 become our President and Chief
Executive Officer at the annual rate of $150,000. Mr. Castillo was also a
Director of Promecap, S.C., a financial advisory services firm to Mexico
Strategic Investment Fund Ltd., which owns 80% of M&M Nominee. M&M Nominee is
our largest shareholder. On January 31, 2003, Mr. Castillo resigned his officer
positions with our company, and on May 30, 2003, resigned as a Director.

On January 10, 2003, January 24, 2003, February 11, 2003 and March 6, 2003,
respectively, we received $125,000, $200,000, $110,000 and $125,000 under the
terms of short-term promissory notes, interest at 10%, from our largest
shareholder. These notes, including an additional note under which we received
$100,000 on December 18, 2002, were repaid in April 2003, including accrued
interest of approximately $16,000.

NOTE 5 - LEMON PROJECT

In March 2003, we received formal offers from Coca-Cola to purchase our
Victoria juice and oil plant and rescind certain contract rights for the growing
and processing of Italian lemons for aggregate cash payments by Coca-Cola of
$16.0 million. In April 2003, we consummated the portion of the transaction with
Coca-Cola pertaining to the rescission of all contract rights and obligations
for the growing and processing of Italian lemons for an aggregate cash payment
of $12.5 million, plus value added taxes. In this regard, we retained the
approximately 7,100 acres of lemon groves, which included all the land,
irrigation systems and related agricultural equipment. As part of the sale
agreement we are contractually restricted from industrially processing our
lemons and are limited in marketing our lemons solely as fresh fruit until July
30, 2007. The proceeds from the rescission of the contract rights will be offset
against our deferred orchard costs during the second quarter of 2003.

As of March 31, 2003, our Lemon Project consisted of 2,871 hectares
(approximately 7,100 acres). This land, which is situated in the northern states
of Tamaulipas and San Luis Potosi, consists of two separate groves with
different maturity profiles. These groves were initially planted with
approximately 800,000 lemon trees. Pursuant to the terms of the now cancelled
long-term supply contract, Coca-Cola provided us, free of charge, 765,000 lemon
tree seedlings that were used for planting approximately 6,023 acres. We also
operate our own nursery where young seedlings are prepared for planting, which
provided us with the remaining 35,000 trees, as well as acting as a source of
replanting for damaged trees. In connection with the transaction with Coca-Cola
pertaining to the rescission of all contract rights and obligations for the
growing and processing of Italian lemons for an aggregate cash payment of $12.5
million, we elected to cease active cultivation of recently planted lemon tree
seedlings and used some for replanting of damaged trees. As such, we presently
have approximately 560,000 lemon trees under active cultivation on approximately
4,800 acres. As part of the sale agreement we are contractually restricted from
industrially processing our lemons and are limited in marketing our lemons
solely as fresh fruit until July 30, 2007.

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The planting program began in November 1996 with the first harvests in late
2000. Following is a summary of our first three years harvests:

All costs incurred to plant and maintain our lemon orchards have been
capitalized and deferred as of March 31, 2003. As a result of the rescission of
all contract rights and obligation for the growing of Italian lemons in April
2003, these deferred and capitalized costs will be amortized over their
estimated useful lives starting in our second quarter of 2003. In prior periods,
it was determined that these deferred costs would be amortized based on the
projected year's yield to total estimated yield over the life of the rescinded
supply contract.

As of March 31, 2003, our lemon groves consisted of the following:

(A) One hectare equals approximately 2.47 acres.

Included in our lemon land is a 30-year lease associated with 2,100
hectares (approximately 5,200 acres) of rural land used for the growing of
Italian lemons, comprising substantially all the land of our Flor de Maria
grove. This lease, which was prepaid at the price of the land sales price, $1.9
million, was entered into in 1999 with a group of local Mexican land owners,
which acquired the land under the "Ejido" system of land ownership. We are
currently in the process of negotiating a transition of the lease into land
ownership. No assurances can be given that such efforts will be successful. In
connection with transfer of this land, we have received a request from the
"Ejido" for the payment of an additional $1.2 million. The company has been
advised by Mexican counsel that it has no legal obligation to make such payment.
If we are unsuccessful in our efforts to transition the lease, such event could
adversely affect the potential strategic alternative to divest our lemon groves.

NOTE 6 - NET LOSS PER SHARE

The following table sets forth the computation of our basic and diluted net
loss per share:

13

We had stock options outstanding of 132,500 and 95,000 at March 31, 2002 and
2003, respectively, which were not included in their respective periods per
share calculations because their effect would have been anti-dilutive.

NOTE 7 - INVENTORIES

Inventories consist of the following:

NOTE 8 - SEGMENT INFORMATION

For operating and financial reporting purposes, we have historically
classified our business into two fundamental areas: packaged fruit and juice and
oil. Our packaged fruit divisions consists of three operating plants that
hand-process and sell tropical and citrus fruit products directly to our largest
customer, Del Monte, to foodservice providers and distributors and to industrial
food and beverage processors. This division also operated our pineapple
orchards. Our juice and oil business segment has consisted of our juice
division, which produced FCOJ and other citrus juices, which were sold directly
to juice bottlers and the extraction of essential oils from citrus fruits, which
were sold directly to commercial users, and our agricultural operation, which is
developing our Italian lemon orchards. With the completion of the sale of our
Victoria juice and oil plant and related processing equipment, our juice and oil
business segment consists exclusively of our Italian lemon groves.

We evaluate our segment performance and allocate resources based on profit
or loss from operations before income taxes and do not allocate corporate
general and administrative expenses and amortization of intangibles to our
segments. Inter-segment sales and transfers are insignificant. Our reportable
segments are each managed separately because they process and distribute
distinct products with different production processes. Information pertaining to
the operations of our two business segments is set forth below.

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

14

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Effective January 1, 1995, we entered into a long-term 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, our company was obligated to pay IHMSA an
operating fee sufficient to cover the interest payments on IHMSA's $3.4 million
of outstanding debt with a Mexican bank. 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 from January 1, 2002 to January 1, 2021, and reducing 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 then outstanding debt and during the fourth quarter of 2001, we advanced
IHMSA an additional $636,000, $300,000 of which was used to retire its $3.4
million of bank debt, both of which will be applied to the purchase price.

All amounts previously paid to IHMSA, along with the assumption of the $1.2
million of debt comprise the final purchase price. At March 31, 2003, all
amounts advanced to IHMSA of $1.9 million are included under the caption
"Deposit on plant facility" in our condensed consolidated balance sheet at March
31, 2003.

In December 2001, we exercised our purchase option and expected to finalize
formal closing documents and take title to the facility during 2002. The actual
closing of the purchase transaction is subject to approval of the debt
assumption by the Mexican lending institution and ICMOSA's current banks. Until
the closing takes place, ICMOSA will operate the IHMSA facility under the
long-term operating agreement.

Several legal proceedings arising in the normal course of business are
pending against us, including certain of our Mexican subsidiaries.

On September 18, 2002, an action captioned "Complaint for Avoidance of
Preferential Transfers and Turnover of Property of the Estate styled Golden Gem
Growers, Inc., a Reorganized Debtor and Daniel E. Dempsey, CPA, Disbursing Agent
for The Estate of Golden Gem Growers, Inc., Plaintiff vs. The UniMark Group,
Inc., Gisalamo S.A. de C.V., and Grupo Industrial Santa Engracia S.A. de C.V.,
Defendants", was filed in the United States Bankruptcy Court, Middle District of
Florida, Orlando Division, Adversary Proceeding No. 02-258. The compliant seeks
recovery of $200,000 of payments made by Golden Gem prior to its filing for
bankruptcy protection in September 2001. Although the ultimate resolution of
this matter cannot be determined at this time, any unfavorable outcome would not
have a material adverse effect on our consolidated financial condition.

As a result of the decline in the worldwide market prices of FCOJ, during
2000 we decided to discontinue operating a juice processing facility in Mexico
that had been leased from Frutalamo S.A. de C.V. ("Frutalamo") under the terms
of deposit, operating and stock purchase agreements entered into in December
1996. As we were unsuccessful in negotiating a settlement with Frutalamo to
terminate such agreements, we wrote off a previously recorded non-refundable
deposit of $1.5 million and recorded a cancellation fee of $1.0 million, both of
which were non-cash charges.

Subsequent to December 31, 2000, Frutalamo and certain of its shareholders
(collectively, the "Frutalamo Plaintiffs") initiated legal proceedings in Mexico
naming as defendants certain of our Mexican subsidiaries, certain current and
former employees, officers and directors of our company and a former contractor.
In September 2002, we settled these claims for $125,000 in cash. Recently, we
learned that, notwithstanding such settlement, certain claims asserted against
us by the Frutalamo Plaintiffs, prior to September 2002, continue to be under
review before the Mexican courts. Management denies any wrongdoing in this
matter and intends to vigorously contest these claims. The resolution of this
matter is

15

not expected to have a material adverse effect on our condensed consolidated
financial condition or results of operations.

On October 10, 2003, an action styled James R. Scott, Plaintiff vs. UniMark
Group, Inc, Defendant," was filed in the County Court, Denton, Texas, Cause
Number TI-2003-01345. The compliant seeks recovery of approximately $90,000 of
unpaid rent and injunctive relief.

From time to time our company is engaged in various other legal proceedings
in the normal course of business. The ultimate liability, if any, for the
aggregate amounts claimed cannot be determined at this time. However, our
company, based on the consultation with legal counsel, is of the opinion that
there are no matters pending or threatening which could have a material adverse
effect on our consolidated financial position or results of operations.

NOTE 10 - SUBSEQUENT EVENTS

In March 2003, we received formal offers from Coca-Cola to purchase our
Victoria juice and oil plant and rescind certain contract rights for the growing
and processing of Italian lemons for aggregate cash payments by Coca-Cola of
$16.0 million. In April 2003, we consummated the portion of the transaction with
Coca-Cola pertaining to the rescission of all contract rights and obligations
for the growing and processing of Italian lemons for an aggregate cash payment
of $12.5 million, plus value added taxes. In this regard, we retained the
approximately 7,100 acres of lemon groves, which included all the land,
irrigation systems and related agricultural equipment. As part of the sale
agreement we are contractually restricted from industrially processing our
lemons and are limited in marketing our lemons solely as fresh fruit until July
30, 2007. The proceeds from the rescission of the contract rights will be offset
against our deferred orchard costs during the second quarter of 2003.

Effective November 17, 2003, we closed the sale of our Victoria juice and
oil plant, for a cash payment of $3.5 million.

In June 2003, we sold our Poza Rica juice plant to an unaffiliated third
party for $1.0 million, plus value-added taxes of $120,000. Through October 15,
2003, total cash payments received amounted to $365,000 with the balance payable
in five remaining installments under a promissory note. The remaining payments,
which aggregate $200,000 in 2003 and $590,000 in 2004, are secured by personal
guarantees of the purchaser's shareholders and a related company and a pledge
agreement.

With the completion of the sale of our Victoria juice and oil plant and
related processing equipment, our juice and oil business segment consists
exclusively of our Italian lemon groves. Given the increased costs associated
with being a public company, the lack of liquidity for our common stock, the
liquidity problems at ICMOSA (see discussions in Note 2 - "Recent Developments
Impacting Liquidity and Capital Resources") and the operational challenges
facing the company, our Board of Directors, to maximize shareholder value, has
authorized us to explore all available "strategic alternatives," including the
sale of all or a part of the company, its productive assets and strategic
partnering relationships for the growing, distribution and marketing of fresh
lemons.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

RECENT DEVELOPMENTS

Due to the continued unfavorable and volatile worldwide market prices of
FCOJ that existed over the past several years and negative long-term prospects
for the FCOJ market, we explored various strategic alternatives for our juice
and oil business segment.

In March 2003, we received formal offers from Coca-Cola to purchase our
Victoria juice and oil plant and rescind certain contract rights for the growing
and processing of Italian lemons for aggregate cash payments by Coca-Cola of
$16.0 million. In April 2003, we consummated the portion of the transaction

16

with Coca-Cola pertaining to the rescission of all contract rights and
obligations for the growing and processing of Italian lemons for an aggregate
cash payment of $12.5 million, plus value added taxes. In this regard, we
retained the approximately 7,100 acres of lemon groves, which included all the
land, irrigation equipment and related agricultural equipment. As part of the
sale agreement we are contractually restricted from industrially processing our
lemons and are limited in marketing our lemons solely as fresh fruit until July
30, 2007. The proceeds from the rescission of the contract rights will be offset
against our deferred orchard costs during the second quarter of 2003.

In June 2003, we sold our Poza Rica juice plant to an unaffiliated third
party for $1.0 million, plus value-added taxes of $120,000. Through October 15,
2003, total cash payments received amounted to $365,000 with the balance payable
in five remaining installments under a promissory note. The remaining payments,
which aggregate $200,000 in 2003 and $590,000 in 2004, are secured by personal
guarantees of the purchaser's shareholders and a related company and a pledge
agreement.

Effective November 17, 2003, we closed the sale of our Victoria juice and
oil plant, for a cash payment of $3.5 million.

With the completion of the sale of our Victoria juice and oil plant and
related processing equipment, our juice and oil business segment consists
exclusively of our Italian lemon groves. Given the increased costs associated
with being a public company, the lack of liquidity for our common stock, the
liquidity problems at ICMOSA (see discussions in Note 2 - "Recent Developments
Impacting Liquidity and Capital Resources") and the operational challenges
facing the company, our Board of Directors, to maximize shareholder value, has
authorized us to explore all available "strategic alternatives," including the
sale of all or a part of the company, its productive assets and strategic
partnering relationships for the growing, distribution and marketing of fresh
lemons.

CONVERSION TO U.S. GAAP

We conduct substantially all of our operations through our wholly-owned
Mexican subsidiaries. ICMOSA is a Mexican corporation whose principal activities
consist of operating citrus processing plants and various citrus groves
throughout Mexico. GISE is a Mexican corporation whose principal activities were
the operation of two citrus juice and oil processing plants, as well as managing
our 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.

CRITICAL ACCOUNTING POLICIES

The preparation of our consolidated financial statements in conformity with
accounting principals generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported revenues and expenses
during the reporting periods. We base our estimates and judgments on historical
experience and various other factors that we believe to be reasonable under the
circumstances, which results in forming the basis for making judgments about the
carrying values of our assets and liabilities. Actual results may differ from
these estimates under different assumptions or conditions.

The critical accounting policies described herein are those that are most
important to the depiction of our condensed consolidated financial condition and
results of operations and their application requires management's most
subjective judgment in making estimates about the effect of matters that are
inherently uncertain. We believe that the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of
our condensed consolidated financial statements.

17

ALLOWANCE FOR DOUBTFUL ACCOUNTS

In the normal course of business, we extend credit to our customers on a
short-term basis. Although credit risks associated with our customers is
considered minimal, we routinely review our accounts receivable balances and
make provisions for probable doubtful accounts. In circumstances where
management is aware of a specific customer's inability to meet their financial
obligations to us, a specific reserve is provided to reduce the receivable to
the amount expected to be collected. Historically we do not provide a general
reserve.

IMPAIRMENT OF LONG-LIVED ASSETS

Effective January 1, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"), which requires our
management to review for impairment its long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset might not
be recoverable. When such an event occurs, management determines whether there
has been impairment by comparing the anticipated undiscounted future net cash
flows to the related asset's carrying value. If an asset is considered impaired,
the asset is written down to fair value, which is determined based either on
discounted cash flows or appraised value, depending on the nature of the asset.
Prior to January 1, 2002, management determined whether any long-lived assets
had 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 was considered impaired when the estimated undiscounted
cash flow from each asset was less than its carrying amount. In that event, we
recorded a loss equal to the amount by which the carrying amount exceeds the
fair value of the long-lived asset. Changes in our projected cash flows as well
as differences in the discount rate used in the calculation could have a
material effect on the condensed consolidated financial statements.

INCOME TAXES

Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted rates. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized as income in the period
that includes the enactment date. In assessing the realization of deferred
income tax assets, management considers whether it is more likely than not that
some portion or all of the deferred income tax assets will be realized. The
ultimate realization of deferred income tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Due to our historical operating results,
management is unable to conclude on a more likely than not basis that all
deferred income tax assets generated through operating losses through March 31,
2003 will be realized. Accordingly, we have recognized a valuation allowance
equal to the difference between deferred income tax assets and the deferred
income tax liabilities.

LEGAL PROCEEDINGS AND LOSS CONTINGENCIES

Our company is involved in routine legal and administrative matters that
arise from the normal conduct of business. Some of these matters are not within
our control and are difficult to predict and often are resolved over long
periods of time. We maintain insurance, including directors' and officers' and
corporate liability insurance, with third parties to mitigate any loss that is
related to certain claims. Loss contingencies are recorded as liabilities in the
financial statements when it is determined that we have incurred a loss that is
probable and the amount of the loss is reasonably estimable, in accordance with
SFAS No. 5, "Accounting for Contingencies."

18

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 2003 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.

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 March 31, 2003 and 2002

Net sales consist of packaged fruit and citrus juice and oil. Packaged fruit
sales in the first quarter increased $800,000 from $6.8 million in 2002 to $7.6
million in 2003, or 11.8%. This sales increase was primarily caused by a $1.9
million increase in our retail sales from $3.8 million in 2002 to $5.7 million
in 2003, or 50.0%, but was offset by a decrease in our Japan sales of $1.2
million from $2.4 million in 2002 to $1.2 million in 2003, or 50.0%. 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 and the recent
introduction by Del Monte of its new 8 oz. cup of fresh red grapefruit, which is
sold under their Fruit Naturals(R) trade name. 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. The decrease in our Japan
sales during the first quarter of 2003 was caused by timing differences in
shipments compared to the prior year quarter and to reduced demand from the
Japanese trading companies that purchase our citrus products.

Citrus juice and oil sales increased from $358,000 in 2002 to $581,000 in
2003. 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, we suspended our frozen
concentrate orange juice operations. During June 2003, we sold our Poza Rica
juice processing plant and expect to close the sale of our Victoria juice and
oil processing plant during our fourth quarter of 2003. With the

19

divestiture of our juice and oil plant assets, we have exited the juice division
of our juice and oil business segment. The 2002 sales consisted primarily of the
liquidation of inventories from previous processing seasons, whereas the 2003
sales consisted primarily from the processing Italian lemons for Coca-Cola.

As a result of the foregoing, net sales increased 15.5% from $7.1 million
in 2002 to $8.2 million in 2003 due to increased sales in both our packaged
fruit and juice and oil segments.

Gross profit, as a percentage of net sales, for packaged fruit sales
increased from 12.3% in 2002 to 19.9% in 2003. This increased gross margin
improvement was the result of continued cost cutting, favorable fruit
purchasing, increased volume and improved plant efficiencies in the 2003 quarter
over the prior year quarter.

Citrus juice and oil gross profit improved slightly from a negative 49.5%
in 2002 to a negative 37.2% in 2003. This improvement was primarily caused by
our decision to suspend our frozen concentrate orange juice operations during
the first quarter of 2002.

Gross profit, overall, as a percentage of net sales, increased as a percent
of net sales from 9.2% in 2002 to 15.9% in 2003 due to the increase in our
packaged fruit gross profit.

Selling, general and administrative ("SG&A") expenses remained at $1.0
million in both the 2002 and 2003 periods. Included in the 2003 period is
$65,000 of costs associated with the November 2002 going private proposal that
was withdrawn in March 2003.

Impairment of long-lived assets of $232,000 in 2003 represents a non-cash
charge that resulted from our decision to discontinue our pineapple growing
operations and write-down all long-lived assets associated with these operations
to estimated fair value.

Interest expense increased slightly in the 2003 quarter and was
insignificant between periods.

Other income (expense), net increased from net income of $120,000 in the
2002 period to net expense of $45,000 in the 2003 period, or a net decrease of
$165,000. The 2002 period consists primarily of short-term rental income and a
payroll tax refund, whereas the 2003 period consists of miscellaneous
non-operating income and expense items.

Foreign currency translation and exchange losses, which are primarily
non-cash charges, increased from a net loss of $36,000 in 2002 to a net loss of
$296,000 in 2003 and result primarily from the re-measurement of our foreign
subsidiaries financial statements to U.S. GAAP. This increased loss is the
result of a stronger Mexican peso in the current period as compared to the U.S.
dollar.

Income tax expense (benefit) decreased from a benefit of $4,000 in 2002 to
an expense of $165,000 in 2003. Included in the 2002 period is a Mexican jobs
tax credit of $169,000, associated with the increased employment at one of our
Mexican subsidiaries in prior years, which was used to offset our Mexican asset
taxes. Asset tax expense amounted to $165,000 in both periods.

As a result of the foregoing, we reported a net loss of $520,000 in 2003 as
compared to a net loss of $367,000 in 2002.

LIQUIDITY AND CAPITAL RESOURCES

Financial Position:

At March 31, 2003, our cash and cash equivalents totaled $854,000, an
increase of $448,000 from year-end 2002. During the first quarter of 2003, our
operating activities generated cash of $28,000 primarily from non-cash charges
associated with deprecation expense, impairment of long-lived assets and
disposal of property and equipment aggregating $740,000, which was offset
primarily by our net loss of $520,000. Capital expenditures were insignificant
and our net increase in short and long-term debt was $245,000.

20

Working capital at March 31, 2003 amounted to a deficit of $9.6 million, a
slight improvement from our December 31, 2002 deficit of $9.7 million.

Recent Transactions:

In April 2003, we consummated the portion of the transaction with Coca-Cola
pertaining to the rescission of all contract rights and obligations for the
growing and processing of Italian lemons for an aggregate cash payment of $12.5
million, plus value added taxes. In June 2003, we sold our Poza Rica juice plant
to an unaffiliated third party for $1.0 million, plus value-added taxes of
$120,000. As of September 15, 2003, total cash payments received amount to
$365,000 with the balance payable in five remaining installments under a
promissory note, which aggregate $200,000 in 2003 and $590,000 in 2004.
Effective November 17, 2003, we closed the sale of our Victoria juice and oil
plant, for a cash payment of $3.5 million.

Through November 30, 2003, approximately $3.8 million of the proceeds from
the Coca-Cola transaction have been used to pay past due accounts payable,
current operating expenses of our lemon groves, operating expenses of our juice
and oil processing plants prior to sale, severance payments to former plant and
administrative employees of the juice division, corporate expense charges, repay
the Rabobank Nederland loan of $1.5 million, repay the Banamex loans of $558,000
and repayment of bridge loans to our largest shareholder, M&M Nominee of
$368,000. The remaining cash of approximately $6.3 million is anticipated to be
used to pay operating expenses of the lemon groves and provide working capital
for our continuing operations. Cash disbursements for purposes other than those
associated with GISE's juice division and agricultural operations are subject to
the FOCIR Agreement and would require their prior approval for disbursement.
Substantially all the proceeds are invested in short-term, interest bearing
investment grade securities. As of March 31, 2003, principal of $4.4 million and
accrued accretion of $1.5 million was owed to FOCIR.

Recent Developments Impacting Liquidity and Capital Resources:

As a result of our working capital deficits, we are experiencing
significant operational and financial challenges in the near term at our ICMOSA
subsidiary. Our working capital deficits at ICMOSA are approximately $6.0
million and we are negotiating a restructuring of its bank loans (see discussion
in Note 3 below). In addition, we are actively evaluating ICMOSA's business
strategy and operational model. The complexity of this evaluation is further
aggravated by the significant immediate liquidity issues that must be addressed
in parallel with any contemplated strategic and operational changes. In order
for ICMOSA to emerge from its current liquidity and operational difficulties
with a profitable business model, it must achieve success on a number of
critical fronts, including price increases from its largest customer and a
favorable conclusion to the renegotiation of its bank debt. While we are focused
on achieving these strategic and operational objectives, there can be no
assurance that ICMOSA will in fact achieve such success.

Although our current cash balances as of November 21, 2003 at our GISE
subsidiary are in excess of $9.6 million, this cash is restricted by the FOCIR
Agreement and would require FOCIR's prior approval before such cash could be
used to fund working capital deficits at our ICMOSA subsidiary or our general
corporate overhead. As an alternative, we could prepay the outstanding FOCIR
principal and accrued interest balances, which approximate $6.2 million, and
have available approximately $3.4 million in cash. This cash, at our discretion
could be used to fund projected ICMOSA working capital deficits and corporate
overhead over the next 12-18 months.

Given the increased costs associated with being a public company, the lack
of liquidity for our common stock, the liquidity problems at ICMOSA (see
discussion in Item 1, Note 2 - "Recent Developments Impacting Liquidity and
Capital Resources") and the operational challenges facing the company, our Board
of Directors, to maximize shareholder value, has authorized us to explore all
available "strategic alternatives," including the sale of all or a part of the
company, its productive assets and strategic partnering relationships for the
growing, distribution and marketing of fresh lemons.

21

NEW ACCOUNTING PRONOUNCEMENTS

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 is generally effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. We do not expect adoption of this statement to
have any significant impact on our financial accounting and reporting as a
result of implementation of SFAS No 149.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
required that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS No. 150 is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. Through March 31, 2003, we have not issued financial
instruments with characteristics of both liabilities and equity.

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.

RISKS RELATING TO OUR FINANCIAL CONDITION

WE ARE EXPERIENCING SIGNIFICANT LIQUIDITY PROBLEMS AT ONE OF OUR MEXICAN
SUBSIDIARIES.

We have sustained net losses in each of the last six fiscal years and in
the first three months of 2003. As of March 31, 2003, our accumulated deficit
was $51.8 million, we are unable to repay two of our Mexican subsidiary's loans
with principal and accrued interest totaling approximately $6.7 million under
loan agreements that are in default, we had a working capital deficit of $9.6
million, our on hand cash balances were $854,000 and we are generating
insufficient gross margins.

Although our current cash balances as of November 21, 2003 at our GISE
subsidiary are in excess of $9.6 million, this cash is restricted by the FOCIR
Agreement and would require FOCIR's prior approval before such cash could be
used to fund working capital deficits at our ICMOSA subsidiary or our general
corporate overhead. As an alternative, we could prepay the outstanding FOCIR
principal and accrued interest balances, which approximate $6.2 million, and
have available approximately $3.4 million in cash. This cash, at our discretion,
could be used to fund projected ICMOSA working capital deficits and corporate
overhead over the next 12-18 months.

Our cash requirements for the remainder of 2003 and beyond will depend upon
the level of sales and gross margins, expenditures for capital equipment and
improvements, the timing of inventory purchases and necessary reductions of
debt. Projected working capital requirements for the remainder of 2003 and
beyond 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

22

capital and certain of our capital expenditures. Our inability to obtain
sufficient debt or equity capital for these 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. 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.

Given the increased costs associated with being a public company, the lack
of liquidity for our common stock, the liquidity problems at ICMOSA (see
discussion in Item 1, Note 2 - "Recent Developments Impacting Liquidity and
Capital Resources") and the operational challenges facing the company, our Board
of Directors, to maximize shareholder value, has authorized us to explore all
available "strategic alternatives," including the sale of all or a part of the
company, its productive assets and strategic partnering relationships for the
growing, distribution and marketing of fresh lemons.

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

As of March 31, 2003, our Mexican subsidiary, ICMOSA, owed $3.5 million and
$3.0 million, respectively, under secured financing agreements with Bancomext
and Banorte. The loan agreement with Bancomext has not been renewed and is in
default. As of March 31, 2003, accrued interest of approximately $165,000 is
still outstanding. Bancomext has not pursued its legal remedies under the loan
agreement. As a result of the default of the Bancomext loan, we are currently in
default of the Banorte loan agreement. We are currently negotiating a
restructuring of a joint loan with Bancomext and Banorte that would amortize the
balances over a period of up to ten years. No assurances, however, can be given
that we will be successful in restructuring these loans. If Bancomext and
Banorte were to exercise all of the rights and remedies available to them under
their loan agreements, such action could have a significant adverse effect upon
our consolidated financial condition and prospects and could significantly
impact our ability to continue as a going concern. In such event, we may be
forced to seek protection under the applicable provisions of the United States
and Mexico bankruptcy codes.

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

We have sustained net losses in each of the last six fiscal years and in
the first three months of 2003. As of March 31, 2003 our accumulated deficit was
$51.8 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 each of the last six years and during the
first three months of 2003, there can be no assurance that we will achieve a
profitable level of operations in remainder of fiscal 2003 and beyond, or, if
profitability is achieved that it can be sustained.

Given the increased costs associated with being a public company, the lack
of liquidity for our common stock, the liquidity problems at ICMOSA and the
operational challenges facing the company, our Board of Directors, to maximize
shareholder value, has authorized us to explore all available "strategic
alternatives," including the sale of all or a part of the company, its
productive assets and strategic partnering relationships for the growing,
distribution and marketing of fresh lemons.

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 entering into a 5-year 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 53.2% and 69.3%,
respectively, of our three months ended March 31, 2002 and 2003 consolidated net
sales. 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 5-year supply agreement

23

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 condensed consolidated
results of operations and financial condition.

WE MAY LOSE OUR NET OPERATING LOSS CARRYFORWARDS, WHICH COULD PREVENT US FROM
OFFSETTING FUTURE TAXABLE INCOME IN THE UNITED STATES.

In June 2001, we completed a rights offering wherein M&M Nominee, our
largest shareholder, purchased an additional 6,849,315 shares of our common
stock increasing their ownership from 42.5% to 62.5%. Accordingly, we
experienced an ownership change as defined by Section 382 of the Internal
Revenue Code of 1986, as amended, which limits the use of net operating loss
carryforwards where changes occur in the stock ownership of a company. As a
result, this limitation will allow us to use only a portion of our pre-change
net operating loss carryforwards, which amounted to $17.7 million at December
31, 2002, to reduce subsequent taxable income in the United States, if any for
federal income tax purposes. Based upon the limitations of Section 382, we may
only be allowed to use approximately $425,000 of such losses each year to reduce
taxable income, if any, until such unused losses expire.

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 business 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.

WE HAVE BEEN UNABLE TO FILE OUR FORM 10-Q QUARTERLY REPORTS FOR OUR SECOND AND
THIRD QUARTERS OF 2003 WITH THE SEC, AND MATERIAL INFORMATION CONCERNING OUR
CURRENT OPERATING RESULTS AND FINANCIAL CONDITION IS THEREFORE UNAVAILABLE.

We have been unable to file our periodic reports for the quarters ended
June 30, 2003 and September 30, 2003, and the information to be contained
therein is unavailable at this time. We cannot predict how soon complete
financial and operational information relating to our second and third quarters
for 2003 will become available. When it is, it may reflect changes or trends
that are material to our business.

IF CONDITIONS OR ASSUMPTIONS DIFFER FROM THE JUDGMENTS, ASSUMPTIONS OR ESTIMATES
USED IN OUR CRITICAL ACCOUNTING POLICIES, THE ACCURACY OF OUR FINANCIAL
STATEMENTS AND RELATED DISCLOSURES COULD BE AFFECTED.

The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make judgments, assumptions, and estimates that
affect the amounts reported in our consolidated financial statements and
accompanying notes. Our critical accounting policies, which are set forth above,
describe the significant accounting policies and methods used in the preparation
of our consolidated financial statements. These accounting policies are
considered "critical" because they require judgments, assumptions and estimates
that materially impact our consolidated financial statements and related
disclosures. As a result, if future events differ significantly from the
judgments, assumptions, and estimates in our critical accounting policies or
different assumptions are used in the future, such events or assumptions could
have a material impact on our consolidated financial statements and related
disclosures.

24

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 financial statements. Since the assets and
liabilities therein are peso denominated, a falling peso results in a
translation loss to the extent there are net peso assets or a translation gain
to the extent there are net peso liabilities. Pricing associated with the 5-year
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 sheet accounts, and the existing economic uncertainty and future
economic conditions in the Mexican 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 AND AVAILABILITY OF WATER
AND THE PRICE OF FRESH FRUIT.

We grow grapefruit, which is used in our packaged fruit operations, and
Italian lemons. 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 yields
of our lemon groves. Substantially all of our growing operations are irrigated
and a lack of water has not had a materially adverse effect on our growing
operations. There can be no assurances that future weather conditions and lack
of irrigation water will not have a material adverse effect on the results of
our operations and our 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.

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 are used primarily for growing our Italian lemons.
Historically, the ownership of rural land in Mexico has been subject to legal
limitations and claims by residents of rural communities. Although we have not
experienced any legal disputes with respect to our land ownership, we are
transitioning, pursuant to the terms of an existing agreement with an "Ejido"
system of land ownership, approximately 5,200 acres of land from a 30-year lease
to a land purchase. In connection with transfer of this land, we have received a
request from the "Ejido" for the payment of an additional $1.2 million. The
company has been advised by Mexican counsel that it has no legal obligation to
make such payment. If we were unsuccessful in our efforts to transition the
lease, such event could adversely affect the potential strategic alternative to
divest our lemon groves.

25

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 and work our lemon groves. The turnover rate among the
labor force is high due to competitive labor conditions in the area that our
plants are located. If it becomes necessary to pay more to attract labor, our
labor costs will increase.

Our Mexican work force, whether seasonal or permanent, are generally
affiliated with labor unions that 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 been required 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 as shown in
our consolidated statements of operations are not always 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 U.S. dollars. As a result, costs of operations for our
Mexican subsidiaries could be higher.

TRADE DISPUTES BETWEEN THE UNITED STATES, MEXICO, JAPAN 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, Japan
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, Japan and Europe, such actions, if taken, could adversely affect our
business.

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.

26

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 condensed 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
condensed consolidated results of operations and financial condition.

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. Our management believes that our quarterly condensed 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

27

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 own 13,149,274 shares of our common stock accounting for 62.48%
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 initiatives
taken by our company that are not acceptable to M&M Nominee.

WE ARE SUBJECT TO RECENT LEGISLATIVE ACTIONS AND POTENTIAL NEW ACCOUNTING
PRONOUNCEMENTS.

In order to comply with the newly adopted Sarbanes-Oxley Act of 2002 and
proposed accounting changes by the Securities and Exchange Commission, we may be
required to increase or modify our internal controls, hire additional personnel
and additional outside legal, accounting and advisory services, all of which
could cause our general and administrative costs to increase. Proposed changes
in accounting rules, including legislative and other proposals to account for
employee stock options as compensation expense among others, could potentially
increase the expenses we report under United States Generally Accepted
Accounting Practices and could adversely affect our operating results.

RISKS RELATING TO OUR COMMON STOCK

THE DELISTING FROM THE OVER-THE-COUNTER BULLETIN BOARD HAS FURTHER REDUCED THE
LIQUIDITY AND MARKETABILITY OF OUR COMMON STOCK AND MAY FURTHER 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." On May 29,
2003, our common stock ceased to be quoted for trading on the OTC Bulletin
Board, and is presently listed on the "Pink Sheets." Prices for securities
traded solely on the Pink Sheets may be difficult to obtain. As such, our stock
has very limited liquidity and marketability. This very limited liquidity,
marketability, the reduced public access to quotations for our common stock and
lack of a regular trading market for our stock have depressed the market price
of our stock. Although we intend to take actions necessary to have our stock
included in the OTC Bulletin Board, there can be no assurance that we will be
successful. Further, the OTC Bulletin Board is an unorganized, inter-dealer,
over-the-counter market with significantly less liquidity than other recognized
markets such as The Nasdaq Stock Market.

"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 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

28

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATE RISK

Our interest expense is most sensitive to changes in the general level of
U.S. interest rates and London interbank offered rates. In this regard, changes
in these interest rates affect the interest paid on our debt.

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)

29

The scheduled maturities of long-term debt above are based on the original
loan agreement maturities before reclassifications arising from defaults. At
March 31, 2003, U.S. dollar denominated long-term debt amounted to $3.1 million
as compared to Mexican peso denominated long-term debt of $4.8 million.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our company maintains a system of disclosure controls and procedures. The
term "disclosure controls and procedures", as defined by regulations of the
Securities and Exchange Commission ("SEC"), means controls and other procedures
that are designed to ensure that information required to be disclosed in the
reports that our company files or submits to the SEC under the Securities
Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized
and reported, within the time period specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by our
company in the reports that it files or submits to the SEC under the Act is
accumulated and communicated to our company's management, including its
principal executive officer and its principal financial officer, as appropriate
to allow timely decisions to be made regarding required disclosure. Our
company's Chief Executive Officer and our Chief Financial Officer have evaluated
our company's disclosure controls and procedures as of a date within 90 days of
the filing date of this quarterly report on Form 10-Q and have concluded that
our company's disclosure controls and procedures need improvement. (See Item 4
(b) below.)

With the filing of this quarterly report on Form 10-Q for the quarterly
period ended March 31, 2003, we will be filing approximately seven months past
our extension request to May 20, 2003. This filing delay has been caused by
several factors, which are as follows -

o The annual audit of our consolidated financial statements for our
fiscal year ending December 31, 2002, by our independent public
accountants was finalized on July 25, 2003 and we filed our
annual report on Form 10-K for our fiscal year ended December 31,
2002 on August 12, 2003. Their quarterly review under SAS 100 did
not commence until shortly after the completion of their audit.

o As a result of the finalization of a transaction with Coca-Cola
for the rescission of certain contract rights for the growing and
processing of Italian lemons in Mexico, which was completed in
April 2003, a detailed analysis of the impact of this transaction
on our December 31, 2002 deferred orchard costs was required to
assess impairment of these long-lived assets under current
accounting literature, which included an expert third party
appraisal of the assets which we obtained in June 2003.

o As part of our company's decision to discontinue the juice
division of our juice and oil business segment, we entered into
contracts to sell our juice processing plants and related
equipment located in Mexico. As a result, additional analysis was
required in assessing the impairment of these long-lived assets
under current accounting literature.

o The appointment of a new Chief Executive Officer.

o The replacement of several members of our company's Audit
Committee with independent directors.

o The resignation of certain personnel and their impact on
financial statement preparation.

(b) Changes in Internal Controls

Our company also maintains a system of internal controls. The term
"internal controls", as defined by the American Institute of Certified Public
Accountants' Codification of Statement on Auditing Standards, AU Section 319,
means controls and other procedures designed to provide reasonable assurance
regarding the achievement of objectives in the reliability of our company's
financial reporting, the effectiveness and efficiency of our company's
operations and our company's compliance with applicable laws and regulations. In
connection with the preparation of this quarterly report on Form 10-Q, our
management identified certain deficiencies in the company's internal control
procedures, none of which would be

30

deemed to be a material weakness under standards established by the American
Institute of Certified Public Accountants. These matters, which have been
discussed with our independent accountants and the Audit Committee of our Board
of Directors, are being addressed with corrective plans in place to eliminate
these deficiencies and to improve our internal and disclosure controls by early
2004.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Several legal proceedings arising in the normal course of business are
pending against us, including certain of our Mexican subsidiaries.

On September 18, 2002, an action captioned "Complaint for Avoidance of
Preferential Transfers and Turnover of Property of the Estate styled Golden Gem
Growers, Inc., a Reorganized Debtor and Daniel E. Dempsey, CPA, Disbursing Agent
for The Estate of Golden Gem Growers, Inc., Plaintiff vs. The UniMark Group,
Inc., Gisalamo S.A. de C.V., and Grupo Industrial Santa Engracia S.A. de C.V.,
Defendants", was filed in the United States Bankruptcy Court, Middle District of
Florida, Orlando Division, Adversary Proceeding No. 02-258. The compliant seeks
recovery of $200,000 of payments made by Golden Gem prior to its filing for
bankruptcy protection in September 2001. Although the ultimate resolution of
this matter cannot be determined at this time, any unfavorable outcome would not
have a material adverse effect on our condensed consolidated financial
condition.

As a result of the decline in the worldwide market prices of FCOJ, during
2000 we decided to discontinue operating a juice processing facility in Mexico
that had been leased from Frutalamo S.A. de C.V. ("Frutalamo") under the terms
of deposit, operating and stock purchase agreements entered into in December
1996. As we were unsuccessful in negotiating a settlement with Frutalamo to
terminate such agreements, we wrote off a previously recorded non-refundable
deposit of $1.5 million and recorded a cancellation fee of $1.0 million, both of
which were non-cash charges.

Subsequent to December 31, 2000, Frutalamo and certain of its shareholders
(collectively, the "Frutalamo Plaintiffs") initiated legal proceedings in Mexico
naming as defendants certain of our Mexican subsidiaries, certain current and
former employees, officers and directors of our company and a former contractor.
In September 2002, we settled these claims for $125,000 in cash. Recently, we
learned that, notwithstanding such settlement, certain claims asserted against
us by the Frutalamo Plaintiffs, prior to September 2002, continue to be under
review before the Mexican courts. Management denies any wrongdoing in this
matter and intends to vigorously contest these claims. The resolution of this
matter is not expected to have a material adverse effect on our condensed
consolidated financial condition or results of operations.

On October 10, 2003, an action styled James R. Scott, Plaintiff vs. UniMark
Group, Inc, Defendant," was filed in the County Court, Denton, Texas, Cause
Number TI-2003-01345. The compliant seeks recovery of approximately $90,000 of
unpaid rent and injunctive relief.

From time to time our company is engaged in various other legal proceedings
in the normal course of business. The ultimate liability, if any, for the
aggregate amounts claimed cannot be determined at this time. However, our
company, based on the consultation with legal counsel, is of the opinion that
there are no matters pending or threatening which could have a material adverse
effect on our condensed consolidated financial position or results of
operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

31

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

See Note 3 to our condensed consolidated financial statements for a
discussion of our noncompliance with our loan agreements with Banamex,
Bancomext, Banorte and Rabobank Nederland.

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

At the Annual Meeting of Shareholders of our company held on October 21,
2003, our shareholders elected or ratified, along with the results of these
votes, the following:

1. Elected eight (8) Directors.

2. Ratified Mancera, S.C., Member Practice of Ernst & Young
Global as independent public accountants of our company for
the fiscal year ending December 31, 2003. Results of the
voting, are as follows:

FOR: 19,197,623
AGAINST: 18,090
ABSTAIN: 3,730

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 10-K

(a) Exhibits

See "Exhibit Index" immediately following the signature page.

(b) Reports on Form 8-K -

On August 28, 2003, we filed a Current Report on Form 8-K with
the Securities and Exchange Commission announcing a management
change.

On December 2, 2003, we filed a Current Report on Form 8-K
with the Securities and Exchange Commission announcing the
sale of our Victoria juice processing plant and strategic
alternatives.

32

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: December 5, 2003 /s/ R. Arturo Herrera Barre
-----------------------------------------
Arturo Herrera Barre, President
(Principal Executive Officer)

Date: December 5, 2003 /s/ David E. Ziegler
-----------------------------------------
David E. Ziegler, Chief Financial Officer
(Principal Accounting Officer)

33

EXHIBIT INDEX