UNIMARK GROUP INC, 10-Q, 2000-11-20

UNIMARK GROUP INC
10-Q, 2000-11-20
CANNED, FRUITS, VEG, PRESERVES, JAMS & JELLIES

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

MARK (ONE)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly period
ended September 30, 2000

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

Commission file number 0-26096

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

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

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

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

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

As of November 17, 2000, the number of shares outstanding of each class
of common stock was:

Common Stock, $.01 par value: 13,938,326 shares

<PAGE> 2

INDEX

<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets,
December 31, 1999 and September 30, 2000......................... 3
Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 1999
and 2000......................................................... 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999 and 2000............ 5
Notes to Condensed Consolidated Financial Statements -
September 30, 2000............................................... 6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 14

PART II. OTHER INFORMATION

Item 1. Legal Proceedings................................................. 23

Item 2. Sale of Unregistered Securities................................... 24

Item 3. Defaults Upon Senior Securities................................... 24

Item 4. Submission of Matters to a Vote of Security Holders............... 24

Item 5. Other Information................................................. 24

Item 6. Exhibits and Reports on Form 8-K.................................. 24

SIGNATURES.................................................................. 24
</TABLE>

2
<PAGE> 3

THE UNIMARK GROUP, INC.

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

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(NOTE 1) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 4,068 $ 2,615
Accounts receivable - trade, net of allowance of $378 in
1999 and $620 in 2000 ............................................. 7,273 3,441
Accounts receivable - other ......................................... 478 594
Notes receivable .................................................... 762 668
Inventories ......................................................... 15,521 13,365
Income and value added taxes receivable ............................. 1,478 1,310
Prepaid expenses .................................................... 1,011 683
-------- --------
Total current assets .......................................... 30,591 22,676
Property, plant and equipment, net ..................................... 41,387 39,539
Deferred income taxes .................................................. 2,788 2,788
Goodwill, net .......................................................... 2,958 2,897
Identifiable intangible assets ......................................... 166 37
Due from related parties ............................................... 1,602 1,593
Notes receivable, less current portion ................................. 1,060 820
Other assets ........................................................... 1,800 628
-------- --------
Total assets .................................................. $ 82,352 $ 70,978
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings ............................................... $ 21,551 $ 11,698
Current portion of long-term debt ................................... 898 1,664
Accounts payable - trade ............................................ 3,209 2,478
Accrued liabilities ................................................. 4,359 6,138
Income taxes payable ................................................ 104 --
Deferred income taxes ............................................... 5,333 4,296
-------- --------
Total current liabilities ..................................... 35,454 26,274
Long-term debt, less current portion ................................... 6,207 8,393
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 13,938,326 in
1999 and in 2000 ................................................ 139 139
Additional paid-in capital .......................................... 63,766 63,766
Accumulated deficit ................................................. (23,214) (27,594)
-------- --------
Total shareholders' equity .................................... 40,691 36,311
-------- --------
Total liabilities and shareholders' equity .................... $ 82,352 $ 70,978
======== ========
</TABLE>

See accompanying notes.

3
<PAGE> 4

THE UNIMARK GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
-------- -------- -------- --------
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Net sales ................................................ $ 14,593 $ 7,681 $ 50,434 $ 34,867
Cost of products sold .................................... 12,315 8,899 43,219 30,676
-------- -------- -------- --------
Gross profit (loss) ...................................... 2,278 (1,218) 7,215 4,191
Selling, general and administrative expenses ............. 3,626 3,278 11,448 9,518
-------- -------- -------- --------
Loss from operations ..................................... (1,348) (4,496) (4,233) (5,327)
Other income (expense):
Interest expense ...................................... (702) (688) (2,024) (2,305)
Interest income ....................................... 38 184 84 453
Gain on sale of Sunfresh(R)brand and
related assets ........................................ -- 3,089 -- 3,089
Nonrecurring gain from VAT refund ..................... -- 1,685 -- 1,685
Provision for losses on abandonment
of leased facility ............................... -- -- -- (2,490)
Foreign currency translation gain (loss) .............. (29) 49 (670) (259)
-------- -------- -------- --------
(693) 4,319 (2,610) 173
-------- -------- -------- --------
Loss before disposal of certain
operations and income taxes ........................... (2,041) (177) (6,843) (5,154)
Operating results of certain operations
disposed of during 1999:
Net sales ........................................ 4,574 -- 13,658 --
Costs and expenses ............................... (4,428) -- (13,785) --
-------- -------- -------- --------
Operating income (loss) .......................... 146 -- (127) --
-------- -------- -------- --------

Loss on disposal of certain operations ........... (1,517) -- (1,517) --
-------- -------- -------- --------
(1,371) -- (1,644) --
-------- -------- -------- --------

Loss before income taxes ................................. (3,412) (177) (8,487) (5,154)
Income tax benefit ....................................... (453) (284) (137) (774)
-------- -------- -------- --------
Net income (loss) ........................................ $ (2,959) $ 107 $ (8,350) $ (4,380)
======== ======== ======== ========
Basic and diluted income (loss) per share ................ $ (0.21) $ 0.01 $ (0.63) $ (0.31)
======== ======== ======== ========
</TABLE>

See accompanying notes.

4
<PAGE> 5

THE UNIMARK GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .................................................................... $ (8,350) $ (4,380)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on sale of Sunfresh(R)brand and related assets ..................... -- (3,089)
Loss on disposal of certain operations during 1999 ...................... 1,517 --
Depreciation ............................................................ 3,164 1,979
Amortization of intangible assets ....................................... 136 109
Deferred income taxes ................................................... (223) (1,037)
Provision for losses on abandonment of leased facility .................. -- 1,490
Other ................................................................... (59) --
Cash provided by (used in) operating working capital, excluding
working capital components associated with the sale of the
Sunfresh(R)brand:
Cash of operations held for sale .................................... (400) --
Receivables ......................................................... (86) 3,978
Inventories ......................................................... 3,497 (2,520)
Prepaid expenses .................................................... 24 239
Accounts payable and accrued liabilities ............................ (2,157) (367)
-------- --------
Net cash used in operating activities ....................................... (2,937) (3,598)

INVESTING ACTIVITIES
Purchases of property, plant and equipment .................................. (3,769) (4,063)
Net proceeds from sale of the Sunfresh(R)brand and related assets ........... -- 13,052
Net proceeds from sale of building .......................................... 411 --
Decrease (increase) in amounts due from related parties ..................... (146) 9
Decrease (increase) in other assets ......................................... (31) 48
-------- --------
Net cash provided by (used in) investing activities ......................... (3,535) 9,046

FINANCING ACTIVITIES
Net proceeds from issuance of common stock .................................. 4,975 --
Increase (decrease) in short-term and current portion of long-term
debt ........................................................................ 2,851 (8,976)
Proceeds from long-term debt ................................................ 334 4,523
Payments of long-term debt .................................................. (676) (2,448)
-------- --------
Net cash provided by (used in) financing activities ......................... 7,484 (6,901)
-------- --------

Net increase (decrease) in cash and cash equivalents ........................ 1,012 (1,453)
Cash and cash equivalents at beginning of period ............................ 4,247 4,068
-------- --------
Cash and cash equivalents at end of period .................................. $ 5,259 $ 2,615
======== ========
</TABLE>

See accompanying notes.

5
<PAGE> 6

THE UNIMARK GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Description of Business: The Company is a vertically integrated citrus and
tropical fruit growing and processing company with substantially all of its
operations in Mexico.

The UniMark Group, Inc. ("UniMark" or the "Company") conducts substantially
all of its operations through its wholly-owned operating subsidiaries: UniMark
Foods, Inc. ("UniMark Foods"), UniMark International, Inc. ("UniMark
International"), Industrias Citricolas de Montemorelos, S.A. de C.V. ("ICMOSA"),
AgroMark, S.A. de C.V. ("AgroMark"), Flavorfresh Limited ("Flavorfresh",
formerly UniMark Foods Europe Limited) and Grupo Industrial Santa Engracia, S.A.
de C.V. ("GISE").

Going Concern Considerations: As of September 30, 2000 the Company has
several projects and commitments requiring substantial capital. The Company's
cash requirements for the remainder of 2000 and beyond will depend primarily
upon the level of sales and gross margins, expenditures for capital equipment
and improvements, investments in agricultural projects, the timing of inventory
purchases and necessary reductions of debt. The Company has, in recent years,
relied upon sales of its common stock to its principal shareholder and bank
financing to finance its working capital and certain of its capital expenditure
needs. Management believes that it will not generate sufficient cash flow from
future operations to service its debt obligations and capital expenditures and
current levels of financing are insufficient to meet the Company's current cash
requirements for the remainder of 2000 and beyond. As discussed in Note 3, the
Company sold its Sunfresh(R) brand during the third quarter of 2000 and
generated cash of $13.5 million. A significant amount of the net proceeds were
used to repay short-term and long-term debt, transaction costs which included
professional fees, employee termination expenses associated with the sale, costs
associated with scaling back its U.S. operations and to provide working capital
for the supply contract with Del Monte Foods Company ("DLM"). The Company is
currently in discussions with an affiliate of its largest shareholder to borrow
up to $2.5 million on a short-term basis until additional equity can be raised.
The future success of the Company depends on its ability to obtain additional
debt and raise additional equity through the sale of registered and unregistered
securities. There can be no assurances that the Company's efforts to raise such
additional financing, and accordingly, the Company may be required to limit its
operations, dispose of certain assets and take other actions as considered
necessary to continue as a going concern.

The Company's loan agreements with its primary lender covering $ 4.3
million of short-term debt were outstanding at September 30, 2000 with scheduled
maturity on January 1, 2001. In prior periods the Company has not been in
compliance with certain covenants of its loan agreements with its primary lender
and has received waivers of these defaults. In addition, the Company has been
successful in extending the loan agreements maturity dates. As of September 30,
2000 the Company was in compliance with the loan agreements covenants. There can
be no assurances given that the primary lender will continue to renew such
facilities and waive any future covenant violations and, perhaps the Company's
ability to continue as a going concern.

The Company obtains a substantial amount of its 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 the Company's raw material or otherwise adversely affect
the Company's operations. Competitors may be affected differently upon their
ability to obtain adequate supplies from sources in other geographic areas. If
the Company is unable to pass along the increased raw materials cost, the
financial condition and results of operations of the Company could be materially
adversely affected.

6
<PAGE> 7

Dependence Upon on a Limited Number of Customers: For the nine months ended
September 30, 2000, no one customer accounted for more than 10% of net sales. As
a result of the Company's sale of its Sunfresh(R) brand to DLM on August 31,
2000 and the entering into a long-term supply agreement to supply the
Sunfresh(R) brand of chilled and canned citrus products for distribution into
its retail and wholesale club markets, a significant portion of the Company's
foreseeable future net sales will be dependent on this customer. The Company
believes that its future success depends upon the future operating results of
DLM and in its ability to broaden its customer base. There can be no assurances
that DLM will not reduce, delay or eliminate purchases from the Company, which
could have a material adverse affect on its business, results of operations and
financial condition. In addition, DLM could have significant leverage and could
attempt to change the terms, including pricing, upon which the Company and DLM
does business, thereby adversely affecting the Company's business, results of
operations and financial condition.

Interim Financial Statements: The condensed consolidated financial
statements at September 30, 2000, and for the three and nine month periods then
ended are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
interim period. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial Condition and
Results of Operations, contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 filed with the Securities and Exchange
Commission. The results of operations for the three and nine months ended
September 30, 2000 are not necessarily indicative of future financial results.

Year End Balance Sheet: The condensed consolidated balance sheet at
December 31, 1999 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.

Reclassifications: In prior periods, the Company classified freight expense
and discounts and allowances associated with customer invoicing as operating
expenses. In connection with the Company's further automation of its order entry
and pricing systems to customers and in improving changes in controls over these
costs, these expenses are now being classified differently in the financial
statements. Discounts and allowances are now classified as a reduction in net
sales and freight expense as a charge to cost of products sold. All prior and
current year operating results have been reclassified to conform to the new
presentation.

As discussed in Note 2 below, the Company disposed of several operations in
1999. The condensed consolidated statements of operations have been reclassified
for all periods presented to disclose separately the operating results of the
disposed operations. In addition, certain other prior period items have been
reclassified to conform to the current year presentation in the accompanying
condensed consolidated financial statements.

New Accounting Pronouncements: In June 1998, Statements of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("FAS 133") was issued, and was amended by FAS 137 and FAS 138 to be
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
This pronouncement standardizes the accounting for derivative instruments by
requiring that an entity recognize those items as assets or liabilities in the
financial statements and measure them at fair value. The Company has not yet
adopted or completed its assessment of the implications of this statement. In
December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101 (SAB 101) "Revenue Recognition in Financial Statements", and
provides guidance on revenue recognition. The Company does not anticipate the
effect of the adoption to have a material impact on either financial position or
results of operations in 2000.

7
<PAGE> 8

NOTE 2 - DISPOSAL OF CERTAIN OPERATIONS

In September 1999, the Board of Directors of the Company approved a
strategic plan for its packaged fruit segment designed to maximize shareholder
value by leveraging the Company's manufacturing facilities in Mexico with its
Sunfresh (R) brand and distribution network in the United States. Two of the
Company's subsidiaries, Les Produits Deli-Bon Inc. ("Deli-Bon") and Simply Fresh
Fruit, Inc. ("Simply Fresh") primarily sold private label fruit salads to the
food service industry and non-branded fresh cut fruit. Because the Company
believed that these lines of business offered less attractive growth
opportunities and lower operating margins than its Sunfresh (R) brand product
lines and did not further the Company's strategic objectives, the decision was
reached to divest these subsidiaries.

During October 1999, the Company completed the sale of its Canadian
subsidiary, Deli-Bon, in a transaction valued at approximately $1.4 million, and
sold substantially all the assets of its California based subsidiary, Simply
Fresh, in a transaction valued at approximately $3.6 million. Both transactions
included cash payments at closing and short and long-term secured notes. In
addition, the Simply Fresh sale included the forgiveness of the remaining
payments under a certain covenant-not-to-compete and the return to the Company
of 68,182 shares of UniMark common stock owned by the principal buyer.

These transactions resulted in the Company recording losses of
approximately $1.5 million in 1999. The results of operations for both Deli-Bon
and Simply Fresh for the three and nine months ended September 30, 1999 have
been reclassified from sales and expenses and included in the condensed
consolidated statements of operations as "Operating results of certain
businesses disposed of during 1999". Additionally, the reportable segment
information for packaged fruit in Note 8 has been restated to reflect the above
reclassifications.

NOTE 3 - NON OPERATING TRANSACTIONS

GAIN ON SALE OF SUNFRESH(R) BRAND

On August 31, 2000 the Company completed the sale to DLM, of the rights to
its Sunfresh(R) brand, its McAllen Texas distribution center, including certain
inventory, other intellectual property and property and equipment associated
with the Sunfresh(R) brand for $14.5 million in cash, subject to adjustment for
inventory levels. Separately, DLM and UniMark entered into a long-term supply
agreement under which UniMark will produce for the retail and wholesale club
markets chilled and canned citrus products for DLM at UniMark's existing
facilities in Mexico. The Company retained the rights to its food service and
Japanese sales. Also, DLM granted UniMark a long-term license for the rights to
the Sunfresh(R) brand for specific areas, including Europe, Asia, the Pacific
Rim and Mexico. The Company realized a pretax gain of $ 3.1 million on this
transaction during the quarter ended September 30, 2000. A significant portion
of the net proceeds was used to repay indebtedness outstanding under the
Rabobank Nederland loan agreements (as discussed in Note 4 below) and to repay
the mortgage note on the distribution facility.

NONRECURRING GAIN FROM VAT REFUND

In 1997 the Company's subsidiary, GISE, a Mexican citrus juice and oil
processor, filed a refund claim with the Mexican taxing authorities claiming
they were overcharged value added taxes ("VAT" - also called a IVA (Impuestos
Valor Agregado) tax in Mexico) for taxes paid during the years of 1992 through
1995 associated with the production and sale of frozen orange juice concentrate.
In August 2000, the Mexican taxing authorities agreed to GISE's claim and paid
them a refund on these VAT taxes. As a result, the Company realized a gain, net
of professional fees, of $1.7 million during the quarter ended September 30,
2000 from this refund.

8
<PAGE> 9

PROVISION FOR LOSSES ON ABANDONMENT OF LEASED PROPERTY

In December 1996, the Company entered into a deposit, operating and stock
purchase agreement with the owners of Frutalamo, S.A. de C.V. ("Frutalamo") for
the operation of a juice processing facility. Pursuant to the terms of the
agreement, the Company paid non-refundable deposits amounting to $1.9 million,
of which $1.5 million were included in other assets on the consolidated balance
sheet as of December 31, 1999, for the right to purchase all the issued and
outstanding shares of stock of Frutalamo from its existing shareholders. The
agreement also required the Company to pay a contractual penalty of $1.0 million
in the event a purchase of the shares is not exercised. This agreement expired
on October 31, 1999. Subsequent to October 31, 1999, the Company and the
shareholders of Frutalamo entered into a letter of intent to purchase the
shares, apply the deposits previously paid as a down payment and waive the
contractual penalty of $1.0 million.

The Company and Frutalamo have been unsuccessful in finalizing a definitive
agreement for the purchase of the shares. In addition, the Company has
experienced a general decline in the worldwide market prices of frozen
concentrate orange juice and has determined that it is not feasible at this time
to increase its production capacity. As a result of not having completed the
transaction, the Company received a notice from Frutalamo demanding the payment
of the contractual penalty, rent for the use of the facility from November 1,
1999 and the vacating of the processing facility. As result of the Company's
decision not to purchase the Frutalamo shares, the non-refundable deposit was
written-off and the contractual penalty recorded at June 30, 2000. These charges
are included in the consolidated statements of operations as "Provision for
losses on abandonment of leased facility." The Company is in the process of
negotiating a settlement with the Frutalamo shareholders.

NOTE 4 - LIQUIDITY AND CAPITAL RESOURCES

The Company, prior to the sale to DLM of its Sunfresh(R) brand, had loan
agreements with Cooperative Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank
Nederland"), its primary lender, that provided short-term dollar denominated
debt of up to $15.9 million. These agreements were as follows: (i) a revolving
credit agreement to provide up to $8.0 million of committed funds collateralized
by finished goods inventories in the U.S. and accounts receivable from U.S.
customers (the "U.S. Facility") and (ii) revolving credit agreements to provide
discretionary uncommitted lines up to $7.9 million collateralized by finished
goods inventories in Mexico and accounts receivable from export sales by the
Company's Mexican subsidiaries (the "Mexican Facilities"). At June 30, 2000 the
Company had outstanding aggregate loan balances under both the U.S. Facility and
the Mexican Facilities of $12.8 million. In connection with the sale, the
Company repaid $6.0 million of the U.S. Facility and $2.6 million of the Mexican
Facilities that related to its ICMOSA subsidiary. In addition, the Rabobank
Nederland loan agreements have been amended to eliminate $8.0 million of
committed funds and $3.6 million of discretionary uncommitted funds and to
modify the loan agreements consolidated covenants. At September 30, 2000, $4.3
million was outstanding under the GISE portion of the Mexican Facilities, the
maximum borrowings available. The Mexican Facilities are scheduled to mature on
January 1, 2001.

These agreements are cross-collateralized and guaranteed by the Company and
its subsidiaries and require the Company to maintain certain consolidated
financial performance levels relative to tangible net worth, working capital and
total debt. In addition, the agreements contain restrictions on the issuance of
additional shares of stock and the payment of dividends, among other things,
without prior written consent from the bank. As of September 30, 2000 the
Company was in compliance with the consolidated financial performance covenants.

On February 21, 2000, the Company entered into a $5.1 million (48,000,000
Mexican pesos) nine year term financing agreement (the "Agreement") with Fondo
de Captialization e Inversion del Sector Rural (`FOCIR"), a public Trust of the
Mexican Federal Government that invests in agricultural projects with long-term
viability. Under the terms of the Agreement, FOCIR will provide up to $5.1
million to fund additional Lemon Project costs, which will include land
preparation, planting, equipment, irrigation systems

9
<PAGE> 10

and grove maintenance. This financing represents the purchase of an equity
interest in GISE of approximately 17.6%. Amounts advanced under this Agreement
will be classified outside equity due to mandatory redemption provisions. As of
September 30, 2000, advances under the Agreement were $4.5 million (43,116,000
Mexican pesos).

The terms of the Agreement provide for the calculation and accrual of
annual accretion using one of two alternative methods. The first method
determines accretion by multiplying the year's Mexican inflation index rate plus
4.2% by the FOCIR balance. The second method determines annual accretion by
multiplying GISE's shareholders equity, using Mexican generally accepted
accounting principles, at the end of the year by a factor of 1.036 and then
multiplying by the FOCIR equity interest percent. The calculation that results
in the greater amount will be the annual accretion amount. Accretion accumulates
annually over the nine-year period of the Agreement and is paid only upon
expiration or early termination of the Agreement. As of September 30, 2000,
accretion accrued under the Agreement amounted to $0.2 million. The Agreement
also contains, among other things, certain provisions relating to GISE's future
financial performance, the establishment of an irrevocable trust guaranteeing
the FOCIR loan, which includes transferring to the trust GISE common shares that
represent 33.4% of GISE's outstanding shares and the governance of GISE.

Subsequent to September 30, 2000 GISE has requested FOCIR to fund an
additional advance of approximately $0.5 million under the Agreement.

NOTE 5 - RELATED PARTY TRANSACTIONS

Effective January 1, 1995, the Company entered into a five year operating
agreement with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to
operate a freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant
to the terms of the operating agreement, the Company is obligated to pay IHMSA
an operating fee sufficient to cover the interest payments on IHMSA's $3.4
million of outstanding debt. The Company is responsible for all raw material and
operating costs and the sale of the finished goods produced at the IHMSA plant.
The Vaquero family owns collectively an approximate 24% interest in IHMSA.
Certain members of the Vaquero family are shareholders and former directors of
the Company. Under the agreement, which has been extended, to January 1, 2001,
the Company has the option to buy the IHMSA facility for $4.5 million.

The Company has elected to advance funds to IHMSA to retire certain of its
outstanding debt since, under the terms of the operating agreement, the Company
would benefit from the IHMSA debt reduction. At September 30, 2000 amounts due
from IHMSA of $1,589,000 includes $1,481,000 that was a cash advance used to
reduce IHMSA's outstanding debt. This amount will be applied to the purchase
price when the Company purchases the facility pursuant to its purchase option.

Effective July 1, 1995, the Company entered into a ten-year operating
agreement with Empacadora de Naranjas Aztec, S.A. de C.V. ("Azteca"), to operate
a processing plant in Montemorelos, Nuevo Leon, and Mexico. The operating
agreement provides for payments in the amount of (i) interest on existing debt
of approximately $220,000 with credit institutions, (ii) asset tax, and (iii)
annual property tax. Prior to this time, Azteca "co-packed" chilled grapefruit
sections and mango slices for the Company. The Vaquero family owns collectively
an approximate 14.3% interest in Azteca. During the term of the operating
agreement, the Company has the right of first refusal to buy the Azteca facility
at its then fair market value.

In November 1995, the Company entered into a lease agreement with Loma
Bonita Partners, a Texas general partnership, for approximately 260 hectares
(642 acres) of land in Loma Bonita, Oaxaca, Mexico for the development of citrus
groves. The lease commenced in December 1995 and expires after ten years. Loma
Bonita Partners is 50% owned by a certain shareholder who is a former director
of the Company. The Company believes that said lease agreement is on terms no
less favorable to the Company than would be available from unrelated third
parties.

10
<PAGE> 11

The Company operates a 144 acre grapefruit grove located close to the
ICMOSA plant in Montemorelos pursuant to a ten-year operating agreement that
expires in 2004. Per the agreement, the Company operates the grove and purchases
all the grapefruit produced at a formula price tied to purchases from unrelated
third parties. The grove is owned by a partnership that consists primarily of
shareholders of Azteca. The Vaquero family owns a 14.3% interest in this
partnership. The Company believes that said arrangement is on terms no less
favorable to the Company than would be available from unrelated third parties.

NOTE 6 - NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted
earnings (loss) per share:

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1999 2000 1999 2000
--------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NUMERATOR
Net income (loss) .................................. $ (2,959) $ 107 $ (8,350) $ (4,380)

DENOMINATOR
Denominator for basic earnings per share -
weighted average shares outstanding .............. 13,938 13,938 13,301 13,938
======== ======== ======== ========

Basic and diluted income (loss) per share .......... $ (0.21) $ 0.01 $ ( 0.63) $ (0.31)
======== ======== ======== ========
</TABLE>

At September 30, 1999 and 2000 the Company had options outstanding of
431,000 and 538,000, respectively, that were not included in their respective
periods per share calculations because their effect would have been
anti-dilutive.

Loss per basic and diluted share for the three and nine months ended
September 30, 1999, calculated as if the Deli-Bon and Simply Fresh dispositions
had occurred on January 1, 1999, would have been $ (0.11) and $ (0.50),
respectively.

NOTE 7 - INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
----------- -------------
(IN THOUSANDS)
Finished goods:
<S> <C> <C>
Cut fruits ............................... $ 6,750 $ 3,026
Juice and oils ........................... 2,814 4,790
------- -------
9,564 7,816
Pineapple orchards ........................... 1,717 1,996
Raw materials and supplies ................... 2,995 2,538
Advances to suppliers ........................ 1,245 1,015
------- -------
Total ............................. $15,521 $13,365
======= =======
</TABLE>

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<PAGE> 12

NOTE 8 - SEGMENT INFORMATION

The Company has two reportable segments: packaged fruit and juice and oil.

<TABLE>
<CAPTION>
PACKAGED JUICE
FRUIT & OIL TOTAL
-------- ------- --------
<S> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1999
Revenues from external customers .............. $ 12,269 $ 2,324 $ 14,593
Inter-segment revenues ........................ 1 -- 1
Segment loss .................................. (1,150) (8) (1,558)

THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenues from external customers .............. $ 5,700 $ 1,981 $ 7,681
Inter-segment revenues ........................ -- --
Segment profit (loss) ......................... (306) 736 430

NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenues from external customers .............. $ 42,679 $ 7,755 $ 50,434
Inter-segment revenues ........................ 300 -- 300
Segment loss .................................. (4,222) (1,123) (5,345)

NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenues from external customers .............. $ 25,807 $ 9,060 $ 34,867
Inter-segment revenues ........................ 121 -- 121
Segment profit (loss) ......................... (1,596) 343 (1,253)
</TABLE>

The following are reconciliations of reportable segment loss to the
Company's consolidated totals.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 2000 1999 2000
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total profit (loss) for reportable segments ......... $(1,558) $ 430 $(5,345) $(1,253)
Amortization of subsidiary acquisition
costs recognized in consolidation ................. (70) (70) (212) (211)
Unallocated corporate expenses
o General and administrative ..................... (413) (537) (1,286) (1,200)
o Provision for losses on abandonment
of leased facility .......................... -- -- -- (2,490)
------- ------- ------- -------
Loss before disposal of certain operations
And income taxes .................................. (2,041) (177) (6,843) (5,154)
Operating results and loss on disposal of
Certain operations in 1999 ........................ (1,371) -- (1,644) --
------- ------- ------- -------
Loss before income taxes ............................ $(3,412) $ (177) $(8,487) $(5,154)
======= ======= ======= =======
</TABLE>

NOTE 9- CONTINGENCIES

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<PAGE> 13
default rate from the due date of September 1999, on a term note that expires in
March 2002. ICMOSA has filed a response, along with a request for dismissal
claiming the suit contains material errors, including the official recording of
the loan with the Official Bank of Mexico. The court has not ruled on ICMOSA's
response, and consequently, it cannot be determined at this time whether
ICMOSA's response will ultimately lead to a dismissal of the action. However,
ICMOSA and the Company believe that this litigation will be resolved without
material effect on the Company's consolidated financial condition, results of
operations or cash flow. Long-term debt at September 30, 2000 of $8.4 million
includes additional amounts owing to Bancrecer of $3.0 million that are not
included in the suit.

13
<PAGE> 14

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The discussion in this Quarterly Report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties. 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
Company's actual results for 2000 and beyond to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. These factors include, without limitation: dependence upon availability
and price of fresh fruit; competition; dependence upon significant customers;
uncertainty of new product development and market acceptance of new products;
seasonality and quarterly fluctuations; risk related to product liability and
recall; limited intellectual property protection; government regulation;
dependence on key management; economic, political and social conditions in
Mexico; exchange rate fluctuations and inflation; and labor relations and costs.
These factors are listed under "Risk Factors" in the Company's prospectus dated
June 14, 1996.

CONVERSION TO U.S. GAAP

The Company conducts substantially all of its operations through its wholly
owned operating subsidiaries. ICMOSA is a Mexican corporation with its
headquarters located in Montemorelos, Nuevo Leon, Mexico, whose principal
activities consist of operating citrus processing plants and various citrus
groves throughout Mexico. GISE is a Mexican corporation with its headquarters
located in Victoria, Tamaulipas, Mexico, whose principal activities consist of
operating three citrus juice and oil processing plants, as well as managing the
Company's 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. ICMOSA's and GISE's
financial statements have been converted to United States generally accepted
accounting principles ("U.S. GAAP") and U.S. dollars. Flavorfresh Limited
maintains its accounting records in British pounds sterling and in accordance
with United Kingdom generally accepted accounting principles and is subject to
United Kingdom income tax laws.

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.

RESULTS OF OPERATIONS

The following table sets forth certain condensed consolidated financial
data, after reflecting 1) disposition of certain operations disposed of during
1999, and 2) the reclassifications of customer discounts and allowances and
freight expenses (which are more fully discussed in Notes 1 and 2 to the
condensed consolidated financial statements), expressed as a percentage of net
sales for the periods indicated:

14
<PAGE> 15

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- ------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ............................................ 100.0% 100.0% 100.0% 100.0%
Cost of products sold ................................ 84.4 115.8 85.7 88.0
----- ----- ----- -----
Gross profit (loss) .................................. 15.6 (15.8) 14.3 12.0
Selling, general and administrative expenses ......... 24.8 42.7 22.7 27.3
----- ----- ----- -----

Loss from operations ................................. (9.2) (58.5) (8.4) (15.3)
Other income (expense):
Interest expense ................................. (4.8) (8.8) (4.0) (6.6)
Interest income .................................. 0.2 2.3 0.1 1.3
Gain on sale of assets ........................... -- 40.2 -- 8.9
Nonrecurring gain from VAT refund ................ -- 21.9 -- 4.8
Provision for losses on abandonment
of leased facility ............................... -- -- -- (7.2)
Foreign currency translation gain loss ........... (0.2) 0.6 (1.3) (0.7)
----- ----- ----- -----
(4.8) 56.2 (5.2) 0.5
----- ----- ----- -----
Loss before disposal of certain
Operations and income taxes .......................... (14.0) (2.3) (13.6) (14.8)
Operating results and loss on disposal of
certain operations disposed of during 1999:
Operating income (loss) .......................... 1.0 -- (0.2) --
Loss on disposal of operations ................... (10.4) -- (3.0) --
----- ----- ----- -----

Loss before income taxes ............................. (23.4) (2.3) (16.8) (14.8)
Income tax benefit ................................... (3.1) (3.7) (0.2) (2.2)
----- ----- ----- -----
Net income (loss) .................................... (20.3)% 1.4% (16.6)% (12.6)%
===== ===== ===== =====
</TABLE>

Three Months Ended September 30, 1999 and 2000

Net sales consist of packaged fruit and citrus juice and oil. Packaged fruit
sales decreased $6.2 million from $11.9 million in 1999 to $5.7 million in 2000,
or 52.1%. This sales decrease was primarily caused by a 69.0% decrease in food
service sales from $1.8 million in 1999 to $0.6 million in 2000, a decrease in
retail sales of 31.5% from $5.0 million in 1999 to $3.4 million in 2000, a
decrease in wholesale club sales of 74.1% from $1.8 million in 1999 to $0.5
million in 2000 and a decrease in sales to Japan of 72.2% from $2.0 million in
1999 to $0.5 million in 2000. Retail and wholesale club sales decreases were
impacted by reduced product line and product offerings as part of the Company's
previously announced cost cutting efforts, which were made in the second half of
1999, the discontinuation of certain of the Company's products by several
wholesale club customers in 2000 and as a result of the sale on August 31, 2000
to DLM of the world wide rights to its Sunfresh(R) brand of chilled and canned
citrus products, which included substantially all of its on hand inventory
associated with the Sunfresh(R) brand. As part of the sale, the Company entered
into a long-term supply agreement with DLM under which the Company is to produce
the chilled and canned citrus products for them at existing facilities in
Mexico. As a result of the DLM transaction, which included approximately $5.0
million of on hand inventories, sales under the supply agreement during
September 2000 were less than $0.5 million. In connection with the supply
agreement, DLM committed to purchase minimum quantities during the contracts
first year, which amounted to approximately $14.6 million. Subsequently, DLM has
revised their first year estimated quantity commitments and has increased them
by approximately 33.0%, primarily in canned products. Accordingly, estimated
sales to DLM during the first contract year could approach approximately $18.0
million. The decrease in sales to Japan was caused by reduced demand for these
products in the third quarter of 2000 compared to the same quarter in 1999.
Subsequent to September 30, 2000, the Company received purchase commitments from
its Japanese customers for the twelve months ending September 30, 2001 that are

15
<PAGE> 16
expected to be approximately $9.0 million. During September 2000 the Company
started distributing its retail line of chilled citrus products into several
major national food retailers in Mexico.

Citrus juice and oil sales decreased 14.8% from $2.3 million in 1999 to
$2.0 million in 2000. This decrease resulted from unfavorable worldwide market
prices of frozen concentrate orange juice and reduced demand in the 2000 third
quarter compared to the same quarter in 1999.

As a result of the foregoing, net sales decreased 47.3% from $14.6 million
in 1999 to $7.7 million in 2000 due to reduced sales in both packaged fruit and
citrus juice and oil.

Gross profit on packaged fruit sales decreased from 15.6% in 1999 to a loss
of 15.5% in 2000. The third quarter 2000 gross margins were significantly
impacted by reduced production volumes at the Company's Mexican production
facilities principally due to the significant decreases in packaged fruit sales
previously discussed. As a result of the projected volumes under the first year
of the DLM supply agreement, as well as the projected increases in its Japanese
business and anticipated future retail business in Mexico, the Company expects
future gross margins to improve significantly.

Citrus juice and oil sales gross profit decreased from 15.5% in 1999 to a
loss of 17.1% in 2000. The third quarter gross margins were significantly
impacted by decreases in sales volume, limited production and lower prices.

Overall, gross profit as a percentage of net sales decreased from 15.6% in
1999 to a loss of 15.8% in 2000 due to the negative gross margins in both
packaged fruit and citrus juice and oil.

Selling, general and administrative expenses ("SG&A") as a percentage of
net sales increased from 24.8% in 1999 to 42.7 % in 2000. Actual SG&A expenses
decreased from $3.6 million in 1999 to $3.3 million in 2000. As a result of the
DLM sale, the Company has significantly reduced the costs of its U.S.
operations. Costs associated with the U.S. retail and wholesale club business,
including distribution, selling and marketing, accounting functions and interest
costs, along with approximately 50 executive, administrative, warehouse and
sales employees, have been substantially eliminated from future periods.
Remaining U.S. selling and administrative expenses of the Company are those
needed to operate its U.S. food service and industrial products business,
develop its Mexico and European markets and those associated with a
publicly-held company.

Interest expense increased as a percent of net sales from 4.8% in 1999 to
8.8% in 2000. Actual interest expense remained at $0.7 million in both periods.
Increases in the Company's cost of debt in the 2000 period were offset by the
interest expense reduction associated with the debt retirement on August 31,
2000 as a result of the DLM transaction.

Gain on sale of assets of $3.1 million in the 2000 period represents the
gain realized on the August 31, 2000 sale of the Company's Sunfresh(R) brand to
DLM. See Note 3 to the condensed consolidated financial statements for further
discussion of this sale.

Nonrecurring gain from VAT refund of $1.7 million in the 2000 period
represents the value added tax refund received by one of the Company's foreign
subsidiaries. See Note 3 to the condensed consolidated financial statements for
further discussion of this refund.

Foreign currency translation gains (loss) were insignificant between the
periods.

Income tax benefits of $0.5 million and $0.3 million were recorded in the
1999 and 2000 periods, respectively, on losses before income taxes of $3.4
million in 1999 and $0.2 million in 2000 and are due primarily to permanent
differences between book income, or loss, reported in Mexico (as stated in U.S.
dollars and U.S. GAAP) and Mexican taxable income, or loss, calculated in
Mexican pesos according to Mexican income tax laws. In addition, the Company has
provided valuation allowances for net operating

16
<PAGE> 17
losses generated at ICMOSA and in the U.S. No income tax benefits from U.S.
operating losses are recognized and a partial valuation allowance has been
provided for losses generated by ICMOSA.

As a result of the foregoing, the Company reported a net loss of $3.0
million in 1999 and net income of $0.1 million in 2000.

Nine Months Ended September 30, 1999 and 2000

Net sales consist of sales of packaged fruit and citrus juice and oil.
Packaged fruit sales decreased $16.8 million from $42.7 million in 1999 to $25.8
million in 2000, or 39.5%. This sales decrease was primarily caused by a 66.6%
decrease in food service sales from $6.3 million in 1999 to $2.1 million in
2000, a decrease in retail sales of 16.5% from $19.5 million in 1999 to $16.3
million in 2000, a decrease in wholesale club sales of 52.4% from $5.9 million
in 1999 to $2.8 million in 2000 and a decrease in sales to Japan of 62.9% from
$8.1 million in 1999 to $3.0 million in 2000. Retail and wholesale club sales
decreases were impacted by reduced product line and product offerings as part of
the Company's previously announced cost cutting efforts, which were made in the
second half of 1999, the discontinuation of certain of the Company's products by
several wholesale club customers in 2000 and as a result of the sale on August
31, 2000 to DLM of the world wide rights to its Sunfresh(R) brand of chilled and
canned citrus products, which included substantially all of its on hand
inventory associated with the Sunfresh(R) brand. As part of the sale, the
Company entered into a long-term supply agreement with DLM under which the
Company will produce the chilled and canned citrus products for them at existing
facilities in Mexico. As a result of the DLM transaction, which included
approximately $5.0 million of on hand inventories sales under the supply
agreement during September 2000 were less than $0.5 million. In connection with
the supply agreement, DLM committed to purchase minimum quantities during the
agreements first year, which amounted to approximately $14.6 million.
Subsequently, DLM has revised their first year estimated quantity commitments
and has increased them by approximately 33.0%, primarily in canned products.
Accordingly, estimated sales to DLM during the first contract year could
approach approximately $18.0 million. The decrease in sales to Japan was caused
by reduced demand for these products in the first nine months of 2000 compared
to the same period in 1999. Subsequent to September 30, 2000, the Company
received purchase commitments from its Japanese customers for the twelve months
ending September 30, 2001 that are expected to be approximately $9.0 million.
During September 2000 the Company started distributing its retail line of
chilled citrus products into several major national food retailers in Mexico.

Citrus juice and oil sales increased $1.2 million from $7.8 million in 1999
to $9.0 million in 2000, or 16.8%. This increase was caused by a slight
improvement in the market prices of frozen concentrate orange juice in the first
six months of 2000 compared to the same period in 1999, and then partially
offset both by a decline in the worldwide market prices and demand of frozen
concentrate orange juice in the third quarter of 2000.

As a result of the foregoing, net sales decreased 30.9% from $50.4 million
in 1999 to $34.9 million in 2000 due to the reduced packaged fruit sales being
less than offset by the increase in citrus juice and oil sales.

Gross profit on packaged fruit sales increased slightly from 16.1% in 1999
to 16.4% in 2000. Gross profits in the 2000 period were negatively impacted by
the negative gross profits realized in the third quarter of 2000. As a result of
the projected volumes under the first year of the DLM supply agreement, as well
as the projected increases in its Japanese business and anticipated future
retail business in Mexico, the Company expects future gross margins to
significantly improve.

Citrus juice and oil gross profit decreased from 4.7% in 1999 to a loss of
0.5% in 2000. This decrease was primarily caused by the impact of unfavorable
worldwide market prices for frozen concentrate orange juice 2000 in the first
nine months of 2000.

17
<PAGE> 18

Overall, gross profit as a percentage of net sales decreased from 14.3% in
1999 to 12.0% in 2000 primarily due to the impact of the negative gross margins
in both packaged fruit and juice and oil in the third quarter of 2000.

Selling, general and administrative expenses ("SG&A") as a percentage of
net sales increased from 22.7% in 1999 to 27.3% in 2000. Actual SG&A expenses
decreased 16.9% from $11.4 million in 1999 to $9.5 million in 2000. This
decrease was primarily due to the significantly lower sales volumes, as well as
improved expense controls and reduced selling expenses associated with the
decrease in packaged fruit sales. As a result of the DLM sale, the Company has
significantly reduced the costs of its U.S. operations. Costs associated with
the U.S. retail and wholesale club business, including distribution, selling and
marketing, accounting functions and interest costs, along with approximately 50
executive, administrative, warehouse, administrative and sales employees, have
been substantially eliminated from future periods. Remaining U.S. selling and
administrative expenses of the Company are those needed to operate its U.S. food
service and industrial products business, develop its Mexico and European
markets and those associated with a publicly-held company.

Interest expense increased as a percent of net sales from 4.0% in 1999 to
6.6% in 2000. Actual interest expense also increased from $2.0 million in 1999
to $2.3 million in 2000. This increase was caused by the significantly higher
cost of the Company's debt in 2000 as compared to the 1999 period.

Provision for losses on abandonment of leased facility of $2.5 million in
the 2000 period represents a non-cash loss associated with the write-off of a
non-refundable deposit and the recording of a contractual penalty in connection
with management's decision not to exercise its option to purchase a certain
juice processing facility.

Foreign currency translation loss decreased from $0.7 million in 1999 to
$0.3 million in 2000 and resulted primarily from the conversion of the Company's
foreign subsidiaries' financial statements in Mexican pesos to U.S. dollars in
accordance with U.S. GAAP. These losses are due to translation losses on U.S.
dollar denominated net monetary liabilities in Mexico.

Income tax benefits of $0.1 million and $0.8 million were recorded in the
1999 and 2000 periods, respectively, on losses before income taxes of $8.5
million in 1999 and $4.9 million in 2000 and are due primarily to permanent
differences between book income, or loss, reported in Mexico (as stated in U.S.
dollars and U.S. generally accepted accounting principles) and Mexican taxable
income, or loss, calculated in Mexican pesos according to Mexican income tax
laws. In addition, the Company has provided valuation allowances for net
operating losses generated at ICMOSA and in the U.S. No income tax benefits from
U.S. operating losses are recognized and a partial valuation allowance has been
provided for losses generated by ICMOSA.

As a result of the foregoing, the Company reported net losses of $8.4
million in 1999 and $4.4 million in 2000.

STATUTORY EMPLOYEE PROFIT SHARING

All Mexican companies are required to pay their employees, in addition to
their agreed compensation benefits, profit sharing in an aggregate amount equal
to 10% of net income, calculated for employee profit sharing purposes, of the
individual corporation employing such employees. All of UniMark's Mexican

18
<PAGE> 19

employees are employed by its subsidiaries, each of which pays profit sharing in
accordance with its respective net income for profit sharing purposes. Statutory
employee profit sharing expense is reflected in the Company's cost of goods sold
and selling, general and administrative expenses, depending upon the function of
the employees to whom profit sharing payments are made. The Company's net income
(loss) on a consolidated basis as shown in the condensed consolidated financial
statements is not a meaningful indication of net income (loss) of the Company's
subsidiaries for profit sharing purposes or of the amount of employee profit
sharing.

EXCHANGE RATE AND INFLATION

The Company's consolidated results of operations are affected by changes in
the valuation of the Mexican peso to the extent that ICMOSA or GISE 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.

The Company's 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 ICMOSA's net deferred tax assets or net deferred tax liabilities.
Since these assets and liabilities are peso denominated, a falling peso results
in a translation loss to the extent there are net deferred tax assets or a
translation gain to the extent there are net deferred tax liabilities.

Pricing associated with the long-term supply agreement entered into with
DLM is in U.S. dollars. 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 the Company's ability to fulfill its contractual
obligations under the DLM supply agreement in a profitable manner, which could
result in a material adverse effect upon the Company.

MARKET RISK FACTORS

A significant portion of the Company's operations consists of processing
and sales activities in foreign jurisdictions. The Company processes its
products in Mexico and sells the products in that market as well as the United
States, European and Japanese markets. As a result, the Company's financial
results could be significantly affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in the foreign markets in
which the Company distributes its products. The Company's operating results are
exposed to changes in exchange rates between the U.S. dollar and the Mexican
peso, the British pound sterling and the Japanese yen.

When the U.S. dollar strengthens against these foreign currencies, the
value of nonfunctional currency sales decreases. When the U.S. dollar weakens,
the functional currency amount of sales increases. Overall, the Company is a net
payer of currencies other than the U.S. dollar and, as such, benefits from a
stronger dollar.

The Company procures and processes substantially all of its products in
Mexico for export to the United States, Europe and Japan. The cost of citrus
procured in Mexico generally reflects the spot market price for citrus in the
United States and all of UniMark's export sales from Mexico are denominated in
U.S. dollars. As such, UniMark does not anticipate sales revenues and raw
material expenses to be materially affected by changes in the valuation of the
Mexican peso. Labor and certain other processing costs are Mexican peso
denominated and, consequently, these costs are impacted by fluctuations in the
value of the Mexican peso relative to the U.S. dollar.

The Company's juice and oil segment primarily produces and sells frozen
concentrate orange juice. The price the Company is able to sell this product for
is generally determined by reference to the commodity futures market price, over
which the Company has no control.

19
<PAGE> 20
The Company's interest expense is most sensitive to changes in the general
level of U.S. interest rates and London interbank offered rates ("LIBOR"). In
this regard, changes in these interest rates affect the interest paid on the
Company's debt.

DEPENDENCE UPON AVAILABILITY AND PRICE OF FRESH FRUIT

The Company obtains a substantial amount of its 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 the Company's raw materials or otherwise adversely affect
the Company's operations. Competitors may be affected differently depending upon
their ability to obtain adequate supplies from sources in other geographic
areas. If the Company is unable to pass along the increased raw materials cost,
the financial condition and results of operations of the Company could be
materially adversely affected.

Although the DLM supply agreement contains a force majeure provision where
limited availability of fruit is due to a natural cause, pricing associated with
the long-term supply agreement does not provide for increases in raw material
costs. Accordingly, any increases in such costs could significantly impact the
Company's ability to fulfill its contractual obligations under the DLM supply
agreement in a profitable manner, which could result in a material adverse
effect upon the Company.

SEASONALITY

Demand for UniMark's citrus and tropical fruit products is strongest during
the fall, winter and spring when seasonal fresh products such as mangos,
peaches, plums, and nectarines are not readily available for sale in
supermarkets in North America. In addition, a substantial portion of UniMark's
exports to Japan are processed and shipped during the first and fourth quarter
each year. Management believes UniMark's quarterly net sales will continue to be
impacted by this pattern of seasonality.

IMPACT OF YEAR 2000

In prior years, the Company discussed the nature and progress of its plan
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.

POSSIBLE FAILURE TO QUALIFY FOR NASDAQ NATIONAL MARKET LISTING

The Company's common stock is listed on the Nasdaq National Market listing.
In order to qualify for continuous listing, the Company must comply with certain
minimum maintenance standards that include, among others things, a $5.0 million
market value of public float and a bid price of $1 per share, both over 30
consecutive trading days. Although the Company has, on occasion, failed to
maintain these criteria, the Company has subsequently met and maintained both
criteria for a minimum of 10 consecutive trading days. Failure to meet these
maintenance criteria may result in a discontinuation of the listing of the
Company's common stock on the Nasdaq National Market Listing.

Subsequent to September 30, 2000 the Company received a notification letter
from the Nasdaq Listings Qualifications Panel, dated October 24, 2000, that it

20
<PAGE> 21
is subject to delisting on the NASDAQ stock market effective with the close of
business on January 22, 2001 due to its failure to meet the minimum bid price of
$1 for its common stock.

If the Company is or becomes unable to meet the above referenced listing
criteria on a continued basis and is delisted therefrom, trading, if any, in the
common stock would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or, if then available, "Electric Bulletin Board"
administered by the National Association of Securities Dealers, Inc. In such an
event, the market price of the common stock may be adversely impacted and an
investor may find it difficult to dispose of or to obtain accurate quotations as
to the market value of the Company's common stock.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2000, cash and cash equivalents totaled $2.6 million, a
decrease of $1.5 million from year-end 1999. During 2000, operating activities
utilized cash of $3.6 million primarily due to operating losses and seasonal
increases in juice and oil inventories of $2.0 million.

The Company, prior to the sale to DLM of its Sunfresh(R) brand, had loan
agreements with Cooperative Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank
Nederland"), its primary lender, that provided short-term dollar denominated
debt of up to $15.9 million. These agreements were as follows: (i) a revolving
credit agreement to provide up to $8.0 million of committed funds collateralized
by finished goods inventories in the U.S. and accounts receivable from U.S.
customers (the U.S. Facility") and (ii) revolving credit agreements to provide
discretionary uncommitted lines up to $7.9 million collateralized by finished
goods inventories in Mexico and accounts receivable from export sales by the
Company's Mexican subsidiaries (the "Mexican Facilities"). At June 30, 2000 the
Company had outstanding aggregate loan balances under both the U.S. Facility and
the Mexican Facilities of $12.8 million. In connection with the sale, the
Company repaid $6.0 million of the U.S. Facility and $2.6 million of the Mexican
Facilities that related to its ICMOSA subsidiary. In addition, the Rabobank
Nederland loan agreements have been amended to eliminate $8.0 million of
committed funds and $3.6 million of discretionary uncommitted funds and to
modify the loan agreements consolidated covenants. At September 30, 2000, $4.3
million was outstanding under the GISE portion of the Mexican Facilities, the
maximum borrowings available. The Mexican Facilities are scheduled to mature on
January 1, 2001.

These agreements are cross-collateralized and guaranteed by the Company and
its subsidiaries and require the Company to maintain certain consolidated
financial performance levels relative to tangible net worth, working capital and
total debt. In addition, the agreements contain restrictions on the issuance of
additional shares of stock and the payment of dividends, among other things,
without the prior written consent from the bank. As of September 30, 2000 the
Company was in compliance with the consolidated financial performance covenants.

In recent years, the Company has relied upon bank financing, principally
short term, to finance its working capital and certain of its capital
expenditure needs. Although these revolving credit facilities with Rabobank
Nederland are being extended until January 1, 2001, no assurances can be given
that Rabobank Nederland will continue to renew such loan facilities or that such
loans will not be called in the event of future defaults due to noncompliance
with the loan covenants during the year 2000. Presently, the Company is in
discussions with other financial institutions to replace existing working
capital facilities and to establish a permanent long-term debt facility.
Although no assurances can be given, the Company believes it will be able to
obtain such working capital and long-term debt facilities on terms acceptable to
the Company. The failure to obtain such facilities could have a material adverse
effect on the Company and its ability to continue as a going concern.

21
<PAGE> 22

existing shareholders. The agreement also required the Company to pay a
contractual penalty of $1.0 million in the event a purchase of the shares is not
exercised. This agreement expired on October 31, 1999. Subsequent to October 31,
1999, the Company and the shareholders of Frutalamo entered into a letter of
intent to purchase the shares, apply the deposits previously paid as a down
payment and waive the contractual penalty of $1.0 million.

The Company and Frutalamo have been unsuccessful in finalizing a definitive
agreement for the purchase of the shares. In addition, the Company has
experienced a general decline in the worldwide market prices of frozen
concentrate orange juice and determined that it is not feasible at this time to
increase its production capacity. As a result of not having completed the
transaction, the Company received a notice from Frutalamo demanding the payment
of the contractual penalty, rent for the use of the facility from November 1,
1999 and vacating the facility. As result of the Company's decision not to
purchase the Frutalamo shares, the non-refundable deposit was written-off and
the contractual penalty recorded at June 30, 2000. These non-cash charges are
included in the consolidated statements of operations as "Provision for losses
on abandonment of leased facility". The Company is in the process of negotiating
a settlement with the Frutalamo shareholders.

In April, 1998, GISE and The Coca-Cola Export Corporation ("Coca-Cola"), an
affiliate of The Coca-Cola Company, entered into a new twenty year Supply
Contract (the "Lemon Project"), with a ten year renewal option, for the
production of Italian lemons. Pursuant to the terms of the Supply Contract, GISE
will plant and grow 3,500 hectares (approximately 8,650 acres) of Italian lemons
within the next three years for sale to Coca-Cola at pre-determined prices. The
Supply Contract requires Coca-Cola to provide, free of charge, up to 875,000
lemon trees, enough to plant approximately 2,800 hectares. In addition, the
Supply Contract requires Coca-Cola to purchase all the production from the
project. The planting program started in November 1996 and harvesting of the
first crops began in 2000 with full production scheduled for 2013. The status of
the Lemon Project as of September 30, 2000 is as follows:

<TABLE>
<CAPTION>
Hectares Acres
-------- -----
<S> <C> <C>
Land -
Acquired 3,032 7,489
Unpurchased or subcontracted 468 1,156
Preparation and Planting -
Prepared and planted 2,340 5,780
Prepared but not planted 460 1,136
Acquired land to be prepared and planted 232 573

Expenditures -
Total projected expenditures $18.5 million
Incurred since inception 14.7 million
Projected for remainder of 2000 and beyond 3.8 million
</TABLE>

Effective January 1, 1995, the Company entered into a five year operating
agreement with Industrias Horticolas de Montemorelos, S.A. de C.V. ("IHMSA") to
operate a freezing plant located in Montemorelos, Nuevo Leon, Mexico. Pursuant
to the terms of the operating agreement, the Company is obligated to pay IHMSA
an operating fee sufficient to cover the interest payments on IHMSA's existing
outstanding debt. During the term of the operating agreement, which has been
extended, to January 1, 2001, the Company has the option to buy the IHMSA
facility for $4.5 million. Since, under the terms of the operating agreement,
the Company would benefit from the reduction of IHMSA's debt, the Company
elected to advance funds to IHMSA to retire certain of its outstanding debt. At
September 30, 2000 amounts due from IHMSA of $1,589,000 includes $1,481,000 that
was a cash advance used to reduce IHMSA's outstanding debt. This amount will be
applied to the purchase price when the Company elects to purchase the facility
pursuant to its purchase option. The failure or inability of the Company to
exercise its purchase option could have a material adverse affect on the
Company.

22
<PAGE> 23

The Company's cash requirements for the remainder of 2000 and beyond will
depend primarily upon the level of sales and gross margins, expenditures for
capital equipment and improvements, investments in agricultural projects, the
timing of inventory purchases, increased acceptance of recently introduced
products and necessary reductions of debt. Management believes that it will not
generate sufficient cash flow from future operations in 2000 to service its debt
obligations and capital expenditures and current levels of financing are
insufficient to meet the Company's current cash requirements for the remainder
of 2000 and beyond. The future success of the Company depends on its ability to
obtain additional debt and raise additional equity through the sale of
registered and unregistered securities. There can be no assurances that the
Company's efforts to raise such additional financing will be successful, and
accordingly, the Company may be required to limit its operations, dispose of
certain assets and take other actions as considered necessary to continue as a
going concern.

On February 21, 2000, the Company entered into a $5.1 million (48,000,000
Mexican pesos) nine year term financing agreement (the "Agreement") with Fondo
de Capitalizacion e Inversion del Sector Rural ("FOCIR"), a public Trust of the
Mexican Federal Government that invests in agricultural projects with long-term
viability. Under the terms of the Agreement, FOCIR will provide up to $5.1
million to fund additional Lemon Project costs, which will include land
preparation, planting, equipment, irrigation systems and grove maintenance. This
financing represents the purchase of an equity interest in GISE of approximately
17.6%. Amounts advanced under this Agreement will be classified outside equity
due to mandatory redemption provisions. As of September 30, 2000, advances under
the Agreement were $4.5 million (43,116,000 Mexican pesos).

The terms of the Agreement provide for the calculation and accrual of
annual accretion using one of two alternative methods. The first method
determines accretion by multiplying the year's Mexican inflation index rate plus
4.2% by the FOCIR balance. The second method determines annual accretion by
multiplying GISE's shareholders equity, using Mexican generally accepted
accounting principles, at the end of the year by a factor of 1.036 and then
multiplying by the FOCIR equity interest percent. The calculation that results
in the greater amount will be the annual accretion amount. Accretion accumulates
annually over the nine-year period of the Agreement and is paid only upon
expiration or early termination of the Agreement. As of June 30, 2000, accretion
accrued under the Agreement amounted to $0.2 million. The Agreement also
contains, among other things, certain provisions relating to GISE's future
financial performance, the establishment of an irrevocable trust guaranteeing
the FOCIR loan, which includes transferring to the trust GISE common shares that
represent 33.4% of GISE's outstanding shares and the governance of GISE.

Subsequent to September 30, 2000 GISE has requested FOCIR to fund an
additional advance of approximately $0.5 million under the Agreement.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In June 2000, a suit was filed in the State Court, Monterrey, Nuevo Leon,
Mexico against the Company's subsidiary, ICMOSA and three guarantor employees
(two of which were directors of the Company), by Bancrecer, S.A., Institucion de
Banca Multiple ("Bancrecer"). The suit claims, among other things, that ICMOSA
failed to make a scheduled payment of $.8 million, including interest at the
default rate from the due date of September 1999, on a term note that expires in
March 2002. ICMOSA has filed a response, along with a request for dismissal
claiming the suit contains material errors, including the official recording of
the loan with the Official Bank of Mexico. The court has not ruled on ICMOSA's
response, and consequently, it cannot be determined at this time whether
ICMOSA's response will ultimately lead to a dismissal of the action. However,
ICMOSA and the Company believe that this litigation will be resolved without
material effect on the Company's consolidated financial condition, results of
operations or cash flow.

23
<PAGE> 24

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

ITEM 2. SALE OF UNREGISTERED SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits

27 Financial Data Schedule

B. Reports on Form 8-K

On September 18, 2000 the Company filed a current report on Form 8-K
announcing that on August 31, 2000 the Company completed the sale to
Del Monte Foods Company of the rights to its Sunfresh(R) brand, its
McAllen Texas distribution center, including certain inventory and
other assets associated with the Sunfresh(R) brand.

SIGNATURES

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

<TABLE>
<S> <C>
THE UNIMARK GROUP, INC.
-----------------------
Registrant

Date: November 20, 2000 /s/ Emilio Castillo
----------------------------------------
Emilio Castillo, Interim President
(Principal Executive Officer)

Date: November 20, 2000 /s/ David E. Ziegler
----------------------------------------
David E. Ziegler, Chief Financial Officer
(Principal Accounting Officer)
</TABLE>

24
<PAGE> 25

INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>