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

FORM 10-Q

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

For the quarterly period ended June 30, 2001

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 0-18446

Fairwood Corporation
(Exact name of registrant as specified in its charter)

|                                |  |                    
|------------------------------- |  | -------------------
|Delaware                        |  | 13-3472113         
|                               
|                               
|                               
|                               
|(State or other jurisdiction of |  | (I.R.S. Employer   
|                               
|                               
|                               
|                               
|incorporation or organization)  |  | Identification No.)

|                                                                 |  |  |            | 
|---------------------------------------------------------------- |  |  | ---------- | 
|One Commerce Center1201 N. Orange St., Suite 790, Wilmington, DE |  |  | 19801      | 
|                                                                
|                                                                
|                                                                
|                                                                
|(Address of principal executive offices)                         |  |  | (Zip Code) | 

(302) 884-6749
(Registrants telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)

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, and (2) has been subject to such filing
requirements for the past 90 days.      Yes X     No

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practical date.

|                                   |  |                |         | 
|---------------------------------- |  | -------------- | ------- | 
|                                   |  | Outstanding at
|Class                              |  | June 30, 2001 
|                                   |  |               
|Class A Voting, $.01 Par Value     |  |                | 500     | 
|                                   |  |               
|Class B Non-Voting, $.01 Par Value |  |                | 999,800 | 
|                                   |  |               





---



FAIRWOOD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)

|                                       |                                                    |                      |        |             |        |              |        |       |        | 
|-------------------------------------- | -------------------------------------------------- | -------------------- | ------ | ----------- | ------ | ------------ | ------ | ----- | ------ | 
|                                       |                                                    |                      |        | June 30,    |        | December 31,
|Assets                                 |                                                    | 2001                 |        | 2000       
|                                       |                                                    |                      |        |            
|                                       |                                                    |                      |        | (Unaudited) |        |              |        |      
|Current Assets:                        |                                                    |                      |        |             |        |              |        |      
|                                      
|                                      
|                                      
|                                      
|                                       | Cash and cash equivalents                          |                      | $      | 6,531       |        |              |        | 4,580 |       
|                                       |                                                    |                      |        |             |        |              |        |      
|                                       | Trade accounts receivable                          |                      |        | 7,710       |        |              |        | 9,501 |       
|                                      
|                                      
|                                      
|                                      
|                                       | Less allowance for discounts and doubtful accounts |                      |        | 331         |        |              |        | 228   |       
|                                       |                                                    |                      |        |             |        |              |        |      
|                                       |                                                    |                      | 7,379  |             |        |              | 9,273  |      
|                                       |                                                    |                      |        |             |        |              |        |      
|                                       | Inventories                                        |                      |        | 7,966       |        |              |        | 7,605 |       
|                                      
|                                      
|                                      
|                                      
|                                       | Prepaid expenses and other current assets          |                      |        | 268         |        |              |        | 206   |       
|                                       |                                                    |                      |        |             |        |              |        |      
|                                       |                                                    | Total current assets |        |             | 22,144 |              |        |       | 21,664 | 
|                                       |                                                    |                      |        |             |        |              |        |      
|Property, plant and equipment, at cost |                                                    |                      | 8,353  |             |        |              | 8,327  |      
|                                      
|                                      
|                                      
|                                      
|                                       | Less accumulated depreciation and amortization     |                      |        | 5,655       |        |              |        | 5,512 |       
|                                       |                                                    |                      |        |             |        |              |        |      
|                                       |                                                    |                      | 2,698  |             |        |              | 2,815  |      
|                                       |                                                    |                      |        |             |        |              |        |      
|Other assets                           |                                                    |                      | 40     |             |        |              | 40     |      
|                                       |                                                    |                      |        |             |        |              |        |      
|                                       |                                                    | $                    | 24,882 |             |        |              | 24,519 |      
|                                       |                                                    |                      |        |             |        |              |        |      

(Continued)

See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.

- 2 -



---



FAIRWOOD CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)
(Dollars in thousands)

|                                             |                                                                  |                                            |                           |         |             |         |              |         |         |         | 
|-------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------------ | ------------------------- | ------- | ----------- | ------- | ------------ | ------- | ------- | ------- | 
|                                             |                                                                  |                                            |                           |         | June 30,    |         | December 31,
|Liabilities and Deficit                      |                                                                  | 2001                                       |                           | 2000   
|                                             |                                                                  |                                            |                           |        
|                                             |                                                                  |                                            |                           |         | (Unaudited) |         |              |         |        
|Current Liabilities:                         |                                                                  |                                            |                           |         |             |         |              |        
|                                            
|                                            
|                                            
|                                            
|                                             | Current maturities of long-term debt:                            |                                            |                           |         |             |         |              |         |        
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                  | Revolving credit                           |                           | $       | 457,463     |         |              |         |        |        
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                  | Senior subordinated debentures             |                           |         | 80,000      |         |              |         |        |        
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                  | Senior subordinated pay-in-kind debentures |                           |         | 105,853     |         |              |         | 105,853 |        
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                  | Merger debentures                          |                           |         | 62,928      |         |              |         | 62,928  |        
|                                            
|                                            
|                                            
|                                            
|                                             | Accrued interest                                                 |                                            |                           | 190,056 |             |         |              | 176,408 |        
|                                            
|                                            
|                                            
|                                            
|                                             | Accounts payable                                                 |                                            |                           | 2,303   |             |         |              | 1,972   |        
|                                            
|                                            
|                                            
|                                            
|                                             | Due to affiliate                                                 |                                            |                           | 3,963   |             |         |              | 3,976   |        
|                                            
|                                            
|                                            
|                                            
|                                             | Accrued expenses                                                 |                                            |                           | 2,372   |             |         |              | 3,224   |        
|                                            
|                                            
|                                            
|                                            
|                                             | Federal and state income taxes                                   |                                            |                           | 133     |             |         |              | 133     |        
|                                             |                                                                  |                                            |                           |         |             |         |              |        
|                                             |                                                                  |                                            | Total current liabilities |         |             | 905,071 |              |         |         | 354,494 | 
|                                             |                                                                  |                                            |                           |         |             |         |              |        
|Long-term debt:                              |                                                                  |                                            |                           |         |             |         |              |        
|                                            
|                                            
|                                            
|                                            
|                                             | Revolving credit                                                 |                                            |                           |        |             |         |              | 429,772 |        
|                                            
|                                            
|                                            
|                                            
|                                             | Senior subordinated debentures                                   |                                            |                           |        |             |         |              | 80,000  |        
|                                             |                                                                  |                                            |                           |         |             |         |              |        
|                                             |                                                                  |                                            |                          |         |             |         | 509,772      |        
|                                             |                                                                  |                                            |                           |         |             |         |              |        
|                                            
|                                            
|                                            
|                                            
|Other liabilities                            |                                                                  |                                            | 3,988                     |         |             |         | 3,403        |        
|                                             |                                                                  |                                            |                           |         |             |         |              |        
|Redeemable preferred stock:                  |                                                                  |                                            |                           |         |             |         |              |        
|                                            
|                                            
|                                            
|                                            
|                                             | Junior preferred, cumulative, par value $.01 per share           |                                            |                           | 100     |             |         |              | 100     |        
|                                             |                                                                  |                                            |                           |         |             |         |              |        
|Common stock and other shareowners deficit: |                                                                  |                                            |                           |         |             |         |              |        
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock and additional paid-in capital                      |                                            |                           | 55,948  |             |         |              | 55,948  |        
|                                            
|                                            
|                                            
|                                            
|                                             | Accumulated other comprehensive loss -
Minimum pension liability |                                            | (                         | 2,102   | )           |         | (            | 2,102   | )      
|                                            
|                                            
|                                            
|                                            
|                                             | Accumulated deficit                                              |                                            | (                         | 938,123 | )           |         | (            | 897,096 | )      
|                                             |                                                                  |                                            |                           |         |             |         |              |        
|                                             |                                                                  | (                                          | 884,277                   | )       |             | (       | 843,250      | )      
|                                             |                                                                  |                                            |                           |         |             |         |              |        
|                                             |                                                                  | $                                          | 24,882                    |         |             |         | 24,519       |        
|                                             |                                                                  |                                            |                           |         |             |         |              |        

See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.

- 3 -



---



FAIRWOOD CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

(In thousands)

|                                             |  |                    |        |                  |  |          |        |         |  |   |        |   |  |   |        |  
|-------------------------------------------- |  | ------------------ | ------ | ---------------- |  | -------- | ------ | ------- |  | - | ------ | - |  | - | ------ | -
|                                             |  | Three Months Ended |        | Six Months Ended
|                                             |  |                    |        |                 
|                                             |  | June 30,           |        | July 1,          |  | June 30, |        | July 1,
|                                             |  | 2001               |        | 2000             |  | 2001     |        | 2000   
|                                             |  |                    |        |                  |  |          |        |        
|Net sales                                    |  | $                  | 12,426 |                  |  |          | 15,047 |         |  |   | 27,260 |   |  |   | 28,510 |  
|                                             |  |                    |        |                  |  |          |        |         |  |   |        |   |  |   |        |  
|Cost of sales                                |  |                    | 10,254 |                  |  |          | 12,113 |         |  |   | 22,120 |   |  |   | 22,788 |  
|                                            
|                                            
|                                            
|                                            
|Selling, administrative and
general expenses |  |                    | 2,458  |                  |  |          | 2,572  |         |  |   | 4,868  |   |  |   | 4,953  |  
|                                             |  |                    |        |                  |  |          |        |         |  |   |        |   |  |   |        |  
|                                             |  |                    | 12,712 |                  |  |          | 14,685 |         |  |   | 26,988 |   |  |   | 27,741 |  
|                                             |  |                    |        |                  |  |          |        |         |  |   |        |   |  |   |        |  
|Operating income (loss)                      |  | (                  | 286    | )                |  |          | 362    |         |  |   | 272    |   |  |   | 769    |  
|                                            
|                                            
|                                            
|                                            
|Interest income                              |  |                    | 53     |                  |  |          | 31     |         |  |   | 119    |   |  |   | 77     |  
|                                            
|                                            
|                                            
|                                            
|Interest on indebtedness                     |  | (                  | 20,292 | )                |  | (        | 21,555 | )       |  | ( | 41,352 | ) |  | ( | 42,576 | )
|                                            
|                                            
|                                            
|                                            
|Other income (expenses), net                 |  |                    | 2      |                  |  | (        | 14     | )       |  |   |       |   |  | ( | 14     | )
|                                             |  |                    |        |                  |  |          |        |         |  |   |        |   |  |   |        |  
|Loss before income taxes                     |  | (                  | 20,523 | )                |  | (        | 22,176 | )       |  | ( | 40,961 | ) |  | ( | 41,744 | )
|                                            
|                                            
|                                            
|                                            
|Provision for income taxes                   |  |                    |       |                  |  |          |       |         |  |   |       |   |  |   |       |  
|                                             |  |                    |        |                  |  |          |        |         |  |   |        |   |  |   |        |  
|Net loss                                     |  | $(                 | 20,523 | )                |  | (        | 22,176 | )       |  | ( | 40,961 | ) |  | ( | 41,744 | )
|                                             |  |                    |        |                  |  |          |        |         |  |   |        |   |  |   |        |  

See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.

- 4 -



---



FAIRWOOD CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)

|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                  |        |         |        |     |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------ | ----------------------------------------- | ------ | ---------------- | ------ | ------- | ------ | --- | ------ | -
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        | Six Months Ended
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                 
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        | June 30,         |        | July 1,
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        | 2001             |        | 2000   
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                  |        |        
|Cash flows from operating activities:                                                                                                                                                                                                                                                   |                                                                             |                                                        |                                           |        |                  |        |         |       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        | Net loss                                                                    |                                                        | $(                                        | 40,961 | )                |        | (       | 41,744 | )  
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        | Adjustments to reconcile net loss to net cash
used in operating activities: |                                                        |                                           |        |                  |        |         |        |    
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        |                                                                             | Depreciation and amortization                          |                                           |        | 144              |        |         |        | 189 |       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        |                                                                             | Loss on disposal of property and equipment             |                                           |        | 2                |        |         |        |    |        |  
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        |                                                                             | Changes in assets and liabilities, net of disposition: |                                           |        |                  |        |         |        |     |       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        | Accounts receivable                       |        |                  | 1,894  |         |        | (   | 1,439  | )
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        | Inventories                               |        | (                | 361    | )       |        | (   | 1,705  | )
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        | Prepaid expenses and other current assets |        | (                | 62     | )       |        | (   | 79     | )
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        | Accounts payable                          |        |                  | 265    |         |        | (   | 118    | )
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        | Accrued expenses                          |        |                  | 12,796 |         |        |     | 14,044 |  
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        | Other, net                                |        |                  | 585    |         |        |     | 649    |  
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                  |        |         |       
|Cash used  operating activities                                                                                                                                                                                                                                                        |                                                                             | (                                                      | 25,698                                    | )      |                  | (      | 30,203  | )     
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                  |        |         |       
|Cash flows from investing activities:                                                                                                                                                                                                                                                   |                                                                             |                                                        |                                           |        |                  |        |         |       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        | Disposition of property, plant and equipment                                |                                                        |                                           | 1      |                  |        |         |       |    
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        | Capital expenditures                                                        |                                                        | (                                         | 30     | )                |        | (       | 97     | )  
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                  |        |         |       
|Cash provided (used)  investing activities                                                                                                                                                                                                                                             |                                                                             | (                                                      | 29                                        | )      |                  | (      | 97      | )     
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                  |        |         |       
|Cash flows from financing activities:                                                                                                                                                                                                                                                   |                                                                             |                                                        |                                           |        |                  |        |         |       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        | Repayments to affiliate                                                     |                                                        | (                                         | 13     | )                |        |         |       |    
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        | Proceeds from revolving credit                                              |                                                        |                                           | 27,691 |                  |        |         | 27,213 |    
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                  |        |         |       
|Cash provided  financing activities                                                                                                                                                                                                                                                    |                                                                             |                                                        | 27,678                                    |        |                  |        | 27,213  |       
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                  |        |         |       
|Increase (decrease) in cash and cash equivalents                                                                                                                                                                                                                                        |                                                                             |                                                        | 1,951                                     |        |                  | (      | 3,087   | )     
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|Cash and cash equivalents:                                                                                                                                                                                                                                                              |                                                                             |                                                        |                                           |        |                  |        |         |       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        | Beginning of period                                                         |                                                        |                                           | 4,580  |                  |        |         | 5,135  |    
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                  |        |         |       
|                                                                                                                                                                                                                                                                                        | End of period                                                               |                                                        | $                                         | 6,531  |                  |        |         | 2,048  |    
|                                                                                                                                                                                                                                                                                        |                                                                             |                                                        |                                           |        |                  |        |         |       
|Supplemental schedule of cash flow information Cash paid during year for:                                                                                                                                                                                                               |                                                                             |                                                        |                                           |        |                  |        |         |       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        | Interest                                                                    |                                                        | $                                         | 27,704 |                  |        |         | 27,188 |    
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                        | Income tax payments, net                                                    |                                                        |                                           |       |                  |        |         |       |    
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|Supplemental schedule of noncash operating and financing activities
In the six
month periods ending June 30, 2001 and July 1, 2000 the Company recognized $66
thousand and $55 thousand, respectively, of accrued dividends payable to
shareholders, which dividends have not been paid |                                                                             |                                                        |                                           |        |                  |        |         |       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                       
|Cash and cash equivalents include cash in banks and highly-liquid short-term
investments having a maturity of three months or less on date of purchase                                                                                                                                  |                                                                             |                                                        |                                           |        |                  |        |         |       

See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.

- 5 -



---



FAIRWOOD CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements



|1. |  | In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of
only normal recurring adjustments, necessary to present fairly the results
of operations for the three and six months ended June 30, 2001 and July 1,
2000, the financial position at June 30, 2001 and December 31, 2000 and
the cash flows for the six months ended June 30, 2001 and July 1, 2000.
The results of operations for the three and six month periods ended June
30, 2001 are not necessarily indicative of the results to be expected for
the full year.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Certain reclassifications have been made for 2000 amounts to conform to the
2001 presentations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|2. |  | The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with Fairwood Corporations (Fairwood or
Company) audited consolidated financial statements included in the 2000
annual report on Form 10-K. Fairwood is a holding company as is its
subsidiary, Consolidated Furniture Corporation (Consolidated Furniture)
which is the parent of Furniture Comfort Corporation (Furniture
Comfort), formerly Futorian Furnishings, Inc., whose operating division,
Barcalounger Division (Barcalounger) manufactures motion upholstered
residential furniture.     
|  
|3. |  | Fairwoods comprehensive loss includes a minimum pension liability on its
subsidiaries retirement plan, which is calculated and reported annually.
As a result, the minimum pension liability has no effect on the quarterly
unaudited condensed consolidated statements of operations.                                                                                                                                                                                                                                                                                                                            
|  
|4. |  | All inventories (materials, labor and overhead) are valued at the lower
of cost or market using the last-in, first-out (LIFO) method. The
components of inventory, in thousands, are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                   |  |               |       |                   |  |  |       | 
|---------------------------------- |  | ------------- | ----- | ----------------- |  |  | ----- | 
|                                   |  | June 30, 2001 |       | December 31, 2000
|                                   |  |               |       |                  
|                                   |  | (Unaudited)   |       |                   |  | 
|                                  
|Raw materials                      |  | $             | 4,844 |                   |  |  | 4,334 | 
|                                  
|                                  
|                                  
|                                  
|In process                         |  |               | 1,787 |                   |  |  | 1,838 | 
|                                  
|                                  
|                                  
|                                  
|Finished goods                     |  |               | 2,872 |                   |  |  | 2,770 | 
|                                   |  |               |       |                   |  |  |       | 
|                                  
|                                  
|                                  
|                                  
|Inventories at
first-in, first out |  |               | 9,503 |                   |  |  | 8,942 | 
|                                  
|                                  
|                                  
|                                  
|LIFO reserve                       |  |               | 1,537 |                   |  |  | 1,337 | 
|                                   |  |               |       |                   |  |  |       | 
|                                  
|                                  
|                                  
|                                  
|Inventories at LIFO                |  | $             | 7,966 |                   |  |  | 7,605 | 
|                                   |  |               |       |                   |  |  |       | 

- 6 -



---



FAIRWOOD CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements



|5. |  | In the second quarter of 1999, Fairwood paid an estimated tax liability
to the Internal Revenue Service (IRS) arising out of an IRS examination.
Fairwood continues to be obligated to the extent of any adjustment by the
IRS to the interest component of the settlement and the state tax effect
of this settlement. An accrual for additional interest of $4.0 million
and taxes of $0.1 million remains at June 30, 2001. These accruals for
interest and taxes are included in accrued interest and Federal and state
income taxes, respectively, on the accompanying consolidated balance
sheet. The Company has not reached final settlement with all taxing
authorities, therefore the amount of the accruals are subject to change.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | No provision for Federal income taxes has been provided during the three
months ended June 30, 2001 and July 1, 2000, as the Company is in a net
operating loss carryforward position, and the valuation allowance has been
increased to offset any future benefit from this position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|6. |  | On April 1, 1995 and each semi-annual interest payment date thereafter,
Fairwood failed to make the required interest payments due on the senior
subordinated pay-in-kind debentures and merger debentures (collectively,
the Fairwood Debentures) and Fairwood does not expect to make the cash
interest payments required under the Fairwood Debentures on any future
semi-annual interest payment date. Accrued interest of $182.4 million
on the Fairwood Debentures, which includes $110.7 million due to Court
Square Capital Limited (CSCL), is included in accrued interest on the
accompanying unaudited condensed consolidated balance sheet as of June 30,
2001. On January 3, 1996, certain holders of the Fairwood public
debentures (the Bondholders) filed an involuntary Chapter 7 petition
against Fairwood in the United States Bankruptcy Court for the Southern
District of New York (the Bankruptcy Court.) Fairwood, Consolidated
Furniture and certain Citicorp affiliates filed a motion in response to
the involuntary filing seeking to dismiss the petition. By order dated
December 4, 1996, the Bankruptcy Court denied the motion to dismiss the
petition.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Thereafter, on December 26, 1996, Fairwood exercised its right to convert
the Chapter 7 case to a case under Chapter 11 and continued to operate as a
debtor in possession under Section 1108 of the Bankruptcy Code. The Chapter
11 case pertained only to Fairwood Corporation. Fairwood Corporations
direct and indirect subsidiaries, including Consolidated Furniture
Corporation, Furniture Comfort Corporation, as well as its operating
division, Barcalounger, were not parties to the bankruptcy. In April 1997,
the Bondholders filed a Motion with the Bankruptcy Court seeking to
convert Fairwoods Chapter 11 case to a case under Chapter 7 or,
alternatively, for the appointment of a Chapter 11 trustee. By order dated
March 2, 1999, the Bondholders motion to convert the case or,
alternatively, for the appointment of a Chapter 11 trustee, was denied in
its entirety. On March 10, 2000, the District Court entered an Order
affirming the Bankruptcy Courts decision in all respects. The Bondholders
appealed to the Second Circuit Court of Appeals, which on January 4, 2001
entered an order affirming the judgment of the District Court and that
order has become final.

- 7 -



---



FAIRWOOD CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements



|   |  | By order dated May 9, 2001 the Bankruptcy Court dismissed Fairwoods
Chapter 11 case and that order has become final. It is not yet known what
further action, if any, the Bondholders will or could take. The Company
has not yet determined what affect this dismissal will have on the Company
going forward.                                                                                                                                                                                                                                                                                                                                                                     
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|7. |  | Consolidated Furnitures revolving credit under its Credit Agreement with
CSCL, an affiliate (the Credit Agreement) and senior subordinated
debentures mature on January 2, 2002 and, accordingly, have been
classified as current liabilities in the accompanying unaudited condensed
consolidated balance sheet of the Company as of June 30, 2001.
Consolidated Furniture intends to negotiate an extension of these maturity
dates prior to January 2, 2002. However, there can be no assurance that
Consolidated Furniture will be able to negotiate such an extension, or
that the terms of such extension will not be on terms less favorable than
those currently in place.
|  
|   |  | Fairwoods failure to make the April 1, 1995 and subsequent period interest
payments constitutes an event of default which permits the
acceleration of the Fairwood Debentures by the demand of the holders
of the requisite aggregate principal amount of the debentures. Upon
acceleration, the Fairwood Debentures would be currently due and
payable. Accordingly, the Fairwood Debentures have been classified as
current liabilities in the accompanying condensed consolidated balance
sheets as of June 30, 2001 and December 31, 2000.                                                                                                                                      
|  
|   |  | The Companys outstanding indebtedness includes its senior subordinated
pay-in-kind debentures and merger debentures (collectively, the Fairwood
Debentures).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|8. |  | Prior to Furniture Comforts sale of its Stratford operating division,
Fairwoods reportable segments were two strategic business units that
offered different products. They were managed separately because each
business had distinctly different markets and they had separate marketing
and manufacturing facilities.                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The segment financial information, in thousands, is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                 |  |                                |  |              |  |           |          |              |  |        |          |   |  |   |   |  |  |   |          |  
|-------------------------------- |  | ------------------------------ |  | ------------ |  | --------- | -------- | ------------ |  | ------ | -------- | - |  | - | - |  |  | - | -------- | -
|                                 |  | Six months ended June 30, 2001 |  |              |  |          
|                                 |  |                                |  |              |  |          
|                                 |  | (unaudited)                    |  |              |  |          
|                                 |  | Stratford                      |  | Barcalounger |  | Corporate |          | Eliminations |  | Totals
|                                 |  |                                |  |              |  |           |          |              |  |       
|Revenues from external
customers |  | $                              |  |             |  | $         | 27,260   |              |  | $      |         |   |  | $ |  |  |  | $ | 27,260   |  
|                                
|                                
|                                
|                                
|Interest expense
(income), net   |  |                                |  |             |  |           | (     98 | )            |  |        | 41,331   |   |  |   |  |  |  |   | 41,233   |  
|                                
|                                
|                                
|                                
|Segment profit (loss)            |  |                                |  |             |  |           | 1,783    |              |  |        | ( 42,744 | ) |  |   |  |  |  |   | ( 40,961 | )

- 8 -



---



FAIRWOOD CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

|                                 |  |                               |  |              |  |           |          |              |  |        |          |   |  |   |   |  |  |   |          |  
|-------------------------------- |  | ----------------------------- |  | ------------ |  | --------- | -------- | ------------ |  | ------ | -------- | - |  | - | - |  |  | - | -------- | -
|                                 |  | Six months ended July 1, 2000 |  |              |  |          
|                                 |  |                               |  |              |  |          
|                                 |  | (unaudited)                   |  |              |  |          
|                                 |  | Stratford                     |  | Barcalounger |  | Corporate |          | Eliminations |  | Totals
|                                 |  |                               |  |              |  |           |          |              |  |       
|Revenues from external
customers |  | $                             |  |             |  | $         | 28,510   |              |  | $      |         |   |  | $ |  |  |  | $ | 28,510   |  
|                                
|                                
|                                
|                                
|Interest expense
(income), net   |  |                               |  |             |  |           | (     31 | )            |  |        | 42,530   |   |  |   |  |  |  |   | 42,499   |  
|                                
|                                
|                                
|                                
|Segment profit (loss)            |  |                               |  |             |  |           | 2,371    |              |  |        | ( 44,115 | ) |  |   |  |  |  |   | ( 41,744 | )

|                                 |  |                                  |  |              |  |           |          |              |  |        |          |   |  |   |   |  |  |   |          |  
|-------------------------------- |  | -------------------------------- |  | ------------ |  | --------- | -------- | ------------ |  | ------ | -------- | - |  | - | - |  |  | - | -------- | -
|                                 |  | Three months ended June 30, 2001 |  |              |  |          
|                                 |  |                                  |  |              |  |          
|                                 |  | (unaudited)                      |  |              |  |          
|                                 |  | Stratford                        |  | Barcalounger |  | Corporate |          | Eliminations |  | Totals
|                                 |  |                                  |  |              |  |           |          |              |  |       
|Revenues from external
customers |  | $                                |  |             |  | $         | 12,426   |              |  | $      |         |   |  | $ |  |  |  | $ | 12,426   |  
|                                
|                                
|                                
|                                
|Interest expense
(income), net   |  |                                  |  |             |  |           | (     43 | )            |  |        | 20,282   |   |  |   |  |  |  |   | 20,239   |  
|                                
|                                
|                                
|                                
|Segment profit (loss)            |  |                                  |  |             |  |           | 567      |              |  |        | ( 21,090 | ) |  |   |  |  |  |   | ( 20,523 | )

|                                 |  |                                 |  |              |  |           |          |              |  |        |          |   |  |   |   |  |  |   |          |  
|-------------------------------- |  | ------------------------------- |  | ------------ |  | --------- | -------- | ------------ |  | ------ | -------- | - |  | - | - |  |  | - | -------- | -
|                                 |  | Three months ended July 1, 2000 |  |              |  |          
|                                 |  |                                 |  |              |  |          
|                                 |  | (unaudited)                     |  |              |  |          
|                                 |  | Stratford                       |  | Barcalounger |  | Corporate |          | Eliminations |  | Totals
|                                 |  |                                 |  |              |  |           |          |              |  |       
|Revenues from external
customers |  | $                               |  |             |  | $         | 15,047   |              |  | $      |         |   |  | $ |  |  |  | $ | 15,047   |  
|                                
|                                
|                                
|                                
|Interest expense
(income), net   |  |                                 |  |             |  |           | (      9 | )            |  |        | 22,533   |   |  |   |  |  |  |   | 22,524   |  
|                                
|                                
|                                
|                                
|Segment profit (loss)            |  |                                 |  |             |  |           | 1,306    |              |  |        | ( 23,482 | ) |  |   |  |  |  |   | ( 22,176 | )

- 9 -



---



Item 2.

FAIRWOOD CORPORATION AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Certain information in this quarterly report on Form 10-Q, including but not
limited to the Managements Discussion and Analysis of Financial Condition and
Results of Operations, may constitute forward-looking statements as such term
is defined in Section 27A of the Securities Act of 1933 (the Securities Act)
and Section 21E of the Securities Exchange Act of 1934. Certain
forward-looking statements can be identified by the use of forward-looking
terminology such as, believes, expects, may, will, should, seeks,
approximately, intends, plans, estimates, or anticipates or the
negative thereof or derivatives thereof or other comparable terminology, or by
discussions of strategy, plans or intentions. Forward-looking statements
involve risks and uncertainties, including those described in the Companys
Annual Report on Form 10-K for the year ended December 31, 2000, which could
cause actual results to be materially different than those in the
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof.
The Company assumes no obligation to update such information.

Liquidity and Capital Resources

At June 30, 2001, the Company had long-term debt of approximately $706.2
million, all of which is classified as current liabilities and approximately
$643.3 is owed to Court Square Capital Limited (CSCL), an affiliate.
Long-term debt was approximately $678.6 million at December 31, 2000, of which
$168.8 million was current and approximately $615.7 million was owed to CSCL.
Accrued interest on long-term debt was approximately $186.0 million and $176.4
million at June 30, 2001 and December 31, 2000, respectively. Approximately
$114.3 million and $106.1 million of the accrued interest was owed to CSCL at
June 30, 2001 and December 31, 2000, respectively. The Companys outstanding
indebtedness includes its senior subordinated pay-in-kind debentures and merger
debentures (collectively, the Fairwood Debentures).

Fairwood is a holding company with no operations. The Company has effectively
no cash flow from its subsidiaries because the cash produced by the operations
of the subsidiaries will not for the foreseeable future be sufficient to
permit the subsidiaries to transfer funds to Fairwood. Fairwoods sole asset
is the stock of Consolidated Furniture, its wholly-owned subsidiary. Fairwoods
obligations under the Fairwood Debentures are collateralized by Fairwoods
pledge of its interest in Consolidated Furnitures stock. CSCL, as holder of
Fairwoods senior subordinated pay-in-kind debentures, has a first priority
collateral interest in all of the outstanding stock of Consolidated Furniture,
and the holders of the merger debentures have a second priority collateral
interest in such stock. The Fairwood Debentures are obligations of Fairwood.
Consolidated Furniture is not an obligor under the Fairwood Debentures.

- 10 -



---



However, Consolidated Furniture is an obligor under the Credit Agreement with
CSCL (the Credit Agreement). The Credit Agreement does not permit
Consolidated Furniture to borrow funds and transfer them to Fairwood to enable
Fairwood to make cash interest payments on the Fairwood Debentures. The
borrowings under the Credit Agreement are collateralized by substantially all
of the assets of Consolidated Furniture. Consolidated Furniture is also a
holding company without operations. Its primary asset is the outstanding stock
of Furniture Comfort Corporation (Furniture Comfort, formerly Futorian
Furnishings, Inc.), which has operations that it conducts through its one
remaining operating division, Barcalounger. Furniture Comfort is also a direct
obligor under the Credit Agreement and has pledged substantially all of its
assets to collateralize the obligations under the Credit Agreement. Furniture
Comfort is not an obligor on the Fairwood Debentures.

On April 1, 1995 and each semi-annual interest payment date thereafter,
Fairwood failed to make the required interest payments due on the Fairwood
Debentures and Fairwood does not expect to make the cash interest payments
required under the Fairwood Debentures on any future semi-annual interest
payment date. Accrued interest of $182.4 million on the Fairwood Debentures,
which includes $110.7 million due to CSCL, is included in accrued interest in
the accompanying unaudited condensed consolidated balance sheet as of June 30,
2001.

There can be no assurance that Fairwood will be able to continue as a going
concern. On January 3, 1996, certain holders of the Fairwood public debentures
(the Bondholders) filed an involuntary Chapter 7 petition against Fairwood in
the United States Bankruptcy Court for the Southern District of New York (the
Bankruptcy Court.) Fairwood, Consolidated Furniture and certain Citicorp
affiliates filed a motion in response to the involuntary filing seeking to
dismiss the petition. By order dated December 4, 1996, the Bankruptcy Court
denied the motion to dismiss the petition.

Thereafter, on December 26, 1996, Fairwood exercised its right to convert the
Chapter 7 case to a case under Chapter 11 and continued to operate as a debtor
in possession under Section 1108 of the Bankruptcy Code. The Chapter 11 case
pertained only to Fairwood Corporation. Fairwood Corporations direct and
indirect subsidiaries, including Consolidated Furniture Corporation, Furniture
Comfort Corporation, as well as its operating division, Barcalounger, were not
parties to the bankruptcy. In April 1997, the Bondholders filed a Motion with
the Bankruptcy Court seeking to convert Fairwoods Chapter 11 case to a case
under Chapter 7 or, alternatively, for the appointment of a Chapter 11 trustee.
By order dated March 2, 1999, the Bondholders motion to convert the case or,
alternatively, for the appointment of a Chapter 11 trustee, was denied in its
entirety. On March 10, 2000, the District Court entered an Order affirming the
Bankruptcy Courts decision in all respects. The Bondholders appealed to the
Second Circuit Court of Appeals, which on January 4, 2001 entered an order
affirming the judgment of the District Court and that order has become final.

By order dated May 9, 2001 the Bankruptcy Court dismissed Fairwoods Chapter 11
case and that order has become final. It is not yet known what further action,
if any, the Bondholders will or could take. The Company has not yet determined
what affect this dismissal will have on the Company going forward.

- 11 -



---



Fairwoods failure to make the April 1, 1995 and subsequent period interest
payments constitutes an event of default which permits the acceleration of the
Fairwood Debentures by the demand of the holders of the requisite aggregate
principal amount of the debentures, subject to a 180-day acceleration blockage
provision. Upon acceleration, the Fairwood Debentures would be due and
payable. Accordingly, the Fairwood Debentures have been classified as current
liabilities in the accompanying unaudited condensed consolidated balance sheets
as of June 30, 2001 and December 31, 2000.

Consolidated Furniture, Fairwoods wholly-owned subsidiary, is expected to
service its interest payment obligations under the Credit Agreement and senior
subordinated debentures from its cash flow from operations and available credit
facilities. Throughout 2000 and the first six months of 2001, Consolidated
Furniture funded interest obligations related to long-term indebtedness on the
revolving line of credit and the senior subordinated debentures through
increased borrowings from CSCL under the Credit Agreement. Borrowings from
CSCL during the first six months of 2001 were approximately $27.7 million.
There were no principal repayments to CSCL during the first six months of 2001.
Consolidated Furniture is dependent upon CSCL for funding of its debt service
costs. CSCL has in the past increased its revolving credit line to
Consolidated Furniture in order for Consolidated Furniture to meet its debt
service obligations on the revolving line of credit and the senior subordinated
debentures. However, there can be no assurance that CSCL will continue to
increase its revolving credit line to Consolidated Furniture to allow
Consolidated Furniture to meet its debt service obligations on the revolving
line of credit and the senior subordinated debentures. Under the Credit
Agreement, Consolidated Furniture and its subsidiaries are generally restricted
from transferring moneys to Fairwood with the exception of amounts for (a)
specified administrative expenses of Fairwood and (b) payment of income taxes.
The senior subordinated debentures, senior subordinated pay-in-kind debentures
and merger debentures also have certain restrictions as to the payment and
transfer of moneys.

Management believes that cash flow from operations
and expected funding from CSCL will
be adequate to meet Consolidated Furnitures obligations on the revolving
credit and the senior subordinated debentures through December 31, 2001.

Consolidated Furnitures revolving credit and senior subordinated debentures
mature on January 2, 2002 and, accordingly, have been classified as current
liabilities in the accompanying unaudited condensed consolidated balance sheet
as of June 30, 2001. Consolidated Furniture intends to negotiate an extension
of these maturity dates with CSCL prior to January 2, 2002. However, there can
be no assurance that Consolidated Furniture will be able to negotiate such an
extension, or that the terms of such extension will not be on terms less
favorable than those currently in place.

For a discussion of the status of the IRS examination, refer to Fairwoods
consolidated financial statements as of December 31, 2000 included in
Fairwoods Form 10-K, and footnote 3 to Fairwoods condensed consolidated
financial statements included herein.

- 12 -



---



Results of Operations

Three Months Ended June 30, 2001 Versus Three Months Ended July 1, 2000

The following discussion presents the material changes in results of
operations, which have occurred in the second quarter of 2001 in comparison to
the same period in 2000.

Net sales on a consolidated basis were approximately $12.4 million in the
second quarter of 2001, a decrease of 17.3% from last years second quarter
consolidated net sales of approximately $15.0 million. This decrease in sales
reflects an increase of 3.8% in the average selling prices and a decrease in
sales volume of 19.7% in the second quarter of 2001 versus 2000. The increase
in average selling price is the result of price increases, with the results
being reflected with July 2000 shipments. The decrease in sales volume is the result of the
substantial backlog created in 2000 from the flood in September 1999, which created a continued strong
demand from our dealers for product through June 2000 and the result of the downturn in the economy,
which had a  major impact on the furniture industry during the second quarter of 2001.

Cost of sales on a consolidated basis decreased 14.9% in the second quarter of
2001 to $10.3 million, or 83.1% of net sales, as compared to $12.1 million, or
80.7% of net sales, in 2000. The increase in cost of sales as a percentage of
net sales was primarily the result of increased costs in 2001 for employee
hospitalization insurance and increases in customer service expenses partially
offset by the April 2000 price increases.

Consolidated selling, administrative and general expenses for the second
quarters of 2001 and 2000 were approximately $2.5 million and $2.6 million,
respectively, representing a decrease of 3.8%.

Interest expense, was approximately $20.3 million and $21.6 million for the
second quarters of 2001 and 2000, respectively, a decrease of 6.0%. The
decrease was primarily due to decreases in interest rate off-set partially by
increased borrowings on the Credit Agreement.

Six Months Ended June 30, 2001 Versus Six Months Ended July 1, 2000

The following discussion presents the material changes in results of
operations, which have occurred in the first six months of 2001 in comparison
to the same period in 2000.

Net sales on a consolidated basis were approximately $27.3 million in the first
six months of 2001, a decrease of 4.2% from last years first six months
consolidated net sales of approximately $28.5 million. This decrease in sales
reflects an increase of 6.7% in the average selling prices and a decrease in
sales volume of 9.5% in the first six months of 2001 versus 2000. The increase
in average selling price is the result of price increases, with the results
being reflected with July 2000 shipments. The decrease in sales volume is the
result of the substantial backlog created in 2000 from the flood in September 1999, 5
down days in January 2000 due to excessive snow and a continued strong demand
from our dealers for product through March 2000.

Cost of sales on a consolidated basis decreased 3.1% in the first six months of
2001 to approximately $22.1 million, or 81.0% of net sales, as compared to
$22.8 million, or 80.0% of net sales, in 2000. The increase in cost of sales
as a percentage of net sales was primarily the result of decreases in
production, which reduced overhead absorption, and increases in costs for group
hospitalization insurance.

- 13 -



---



Consolidated selling, administrative and general expenses for the first six
months of 2001 and 2000 were approximately $4.9 million and $5.0 million,
respectively, representing a decrease of 2.0%.

Interest expense, was approximately $41.4 million and $42.6 million for the
first six months of 2001 and 2000, respectively, a decrease of 2.8%. The
decrease was primarily due to decreases in interest rate offset partially by
increased borrowings on the Credit Agreement.

No income taxes have been provided in the first six months of 2001 and 2000,
respectively, as the Company is in a net operating loss carry forward position,
and a valuation allowance has been increased to offset any future benefit from
these positions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Fairwood is exposed to risks related to fluctuations in interest rates on the
Credit Agreement. Fairwood does not utilize interest rate swaps, forwards or
option contracts on foreign currencies or commodities, or other types of
derivative instruments. Fairwood has other borrowing facilities, however these
have fixed interest rates.

For fixed rate debt, changes in interest rates generally affect the fair value
of the underlying indebtedness, but not earnings or cash flows. Conversely, for
variable rate debt, changes in interest rates generally do not impact fair
value, but do affect future earnings and cash flows.

Assuming the amount outstanding under the Credit Agreement remains at $457.5
million, the balance at June 30, 2001, each one percentage point increase in
the prime interest rate would result in an increase in interest expense for the
coming year of approximately $4.6 million. The fixed rate debt includes the
following (in thousands):

|                                                     |  |        |         |                  |  |               |        |  
|---------------------------------------------------- |  | ------ | ------- | ---------------- |  | ------------- | ------ | -
|                                                     |  |        |         |                  |  | Interest rate
|                                                     |  | Amount |         | At June 30, 2001
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Senior subordinated debentures, due 2002             |  | $      | 80,000  |                  |  |               | 18     | %
|                                                    
|                                                    
|                                                    
|                                                    
|Senior subordinated pay-in-kind
debentures, due 2001 |  |        | 105,853 |                  |  |               | 15-1/2 | %
|                                                    
|                                                    
|                                                    
|                                                    
|Merger debentures, due 2004                          |  |        | 62,928  |                  |  |               | 16-7/8 | %
|                                                     |  |        |         |                  |  |               |        |  
|                                                     |  | $      | 248,781 |                  |  |               |        |  
|                                                     |  |        |         |                  |  |               |        |  

The fair value of the fixed rate debt, and changes in fair value due to
fluctuations in market rates cannot be reasonably estimated considering
Fairwoods ongoing financial difficulties.

- 14 -



---



FAIRWOOD CORPORATION AND SUBSIDIARIES

Part II OTHER INFORMATION



|Item 1. |  | Legal Proceedings                                                                                                                                                                                           
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|        |  | Reference is made to Item 3, Legal Proceedings, previously reported in
the Registrants Form 10-K for the year ended December 31, 2000 for a
description of pending legal action.                           
|       
|        |  | There are certain legal proceedings arising out of the normal course
of business, the financial risk of which are not considered material
in relation to the consolidated financial position of the Company.
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                                                                            
|       
|(a)     |  | Exhibits                                                                                                                                                                                                    
|       
|        |  | None                                                                                                                                                                                                        
|       
|(b)     |  | Reports on Form 8-K                                                                                                                                                                                         
|       
|        |  | None                                                                                                                                                                                                        

- 15 -



---



FAIRWOOD CORPORATION AND SUBSIDIARIES

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.

| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | FAIRWOOD CORPORATION
(Registrant)                                                                           
|
| | /s/ John B. Sganga
John B. Sganga
Chief Financial Officer,
Executive Vice President,
Secretary and Treasurer

Date: August 14, 2001

- 16 -