----

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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

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**FORM 10-Q**

**ý****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF          THE SECURI­TIES EXCHANGE ACT OF1934**

**For the quarterly period ended       June 30, 2001**

**OR**

**o****      TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF          THE SECURI­TIES EXCHANGEACT OF 1934**

**For the transition period from            to           **

**Commission file number  000-23483**

**COLORSPOT NURSERIES, INC.**(Exact Name of Registrant as Specified in Its Charter)

 

| **Delaware**                                                    | **68-0363266**                        |
|-----------------------------------------------------------------|---------------------------------------|
| (State or Other  Jurisdiction of Incorporation or Organization) | (I.R.S. Employer  Identification No.) |
|                                                            |                                  |
|                                                            |                                  |
| **3478 Buskirk Avenue, Suite 260, Pleasant Hill, CA**           | **94523**                             |
| (Address of Principal  Executive Offices)                       | (Zip Code)                            |

Registrant'sTelephone Number, Including Area Code             **(925) 934-4443**

 

             Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yesý                          Noo

             Asof August 1, 2001, the Registrant had 6,948,597 shares of its common stockoutstanding.

----

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**COLOR SPOT NURSERIES, INC.**

 

**FORWARD-LOOKINGSTATEMENTS**

*          Certainstatements under the captions “Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and “Item 3. Quantitative andQualitative Disclosures About Market Risk,” and elsewhere throughout thisQuarterly Report on Form 10-Q (“Quarterly Report”) of Color Spot Nurseries,Inc. which are not historical in nature are forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934.  Forward-looking statements deal with the current intentions, beliefs andexpectations of management with respect to the Company’s business and aretypically identified by phrases such as “the Company plans” or “Managementbelieves” and other phrases of similar meaning.  These statements involve known and unknown risks and otherfactors which may cause actual results, levels of activity, performance orachievements to differ, perhaps materially, from anticipated results.  These risks and uncertainties include, amongothers:*

•   *The Company’s substantial leverage and debt service;*

•   *restrictions imposed by debt covenants and the effect of a default onthe Company’s operations;*

•   *the uncertainty of additional financing to fund future operating andcapital needs;*

•   *weather and general agricultural risks;*

•   *seasonality and the variability of quarterly results;*

•   *dependence on major customers such as Home Depot;*

•   *regulatory constraints and changes in laws or regulations concerningthe gardening industry;*

•   *labor laws and changes in the minimum wage;*

•   *the short operating history under current management;*

•   *sensitivity to price increases of certain raw materials, fuel andutilities;*

•   *the Company’s dependence on leased facilities;*

•   *lack of a market for the Company’s securities; and*

•   *other factors as may be identified from time to time in the Company’sfilings with the Securities and Exchange Commission or in press releases.*

                *For a discussion of these factors andothers, please see “Management’s Discussion and Analysis of Financial Conditionand Results of Operation — Certain Business Considerations” of the Company’sTransition Report on Form 10-K for the period ended December 31, 2000 (as filedwith the Securities and Exchange Commission on April 2, 2001). Readers arecautioned not to place undue reliance on forward-looking statements made in, orincorporated by reference into, this Quarterly Report or other filings with theSecurities and Exchange Commission, any document or statement referring to thisQuarterly Report or press releases.*

 

**COLORSPOT NURSERIES, INC.**

 

**INDEX**

**Part I – Financial Information**

|   | Item  1. | Financial  Statements:                                                     |
|--------|----------|----------------------------------------------------------------------------|
|   |     |                                                                       |
|   |     | Consolidated  Balance Sheets as of June 30, 2001 and                       |
|   |     | December 31, 2000                                                          |
|   |     |                                                                       |
|   |     | Consolidated  Statements of Operations for the Three Months and Six Months |
|   |     | Ended  June 30, 2001 and June 30, 2000.                                    |
|   |     |                                                                       |
|   |     | Consolidated  Statement of Changes in Stockholders’ Equity            |
|   |     | for  the Six Months Ended June 30, 2001.                                   |
|   |     |                                                                       |
|   |     | Consolidated  Statements of Cash Flow for the Six Months                   |
|   |     | Ended June  30, 2001 and June 30, 2000                                     |
|   |     |                                                                       |
|   |     | Condensed  Notes to Consolidated Financial Statements as of                |
|   |     | June  30, 2001                                                             |
|   |     |                                                                       |
|   | Item  2. | Management’s  Discussion and Analysis                                 |
|   |     | of  Financial Condition and Results of Operations                          |
|   |     |                                                                       |
|   | Item 3.  | Quantitative  and Qualitative Disclosure About                             |
|   |     | Market  Risk                                                               |

 

**Part II – OtherInformation**

|       | Item 1.  | Legal Proceedings                                     |
|------------|----------|-------------------------------------------------------|
|       |     |                                                  |
|       | Item  2. | Changes  in Securities and Use of Proceeds            |
|       |     |                                                  |
|       | Item 3.  | Defaults  Upon Senior Securities                      |
|       |     |                                                  |
|       | Item  4. | Submission  of Matters  to a Vote of Security Holders |
|       |     |                                                  |
|       | Item 5.  | Other Information                                     |
|       |     |                                                  |
|       | Item 6.  | Exhibits  and Reports on Form  8-K                    |
|       |     |                                                  |
| Signatures |

 

**COLOR SPOT NURSERIES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS****(inthousands, except share data)**

|                                                                                                                                                      | June  30, 2001                                                                                               |       | December  31, 2000 |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|
|                                                                                                                                                      |                                                                                                              |       |                    |       |
|                                                                                                                                                      | (Unaudited)                                                                                                  |       |               |       |
| **ASSETS**                                                                                                                                                |                                                                                                         | ** ** |               | ** ** |
| CURRENT ASSETS:                                                                                                                                           |                                                                                                         |       |               |       |
|                                                                                                                                                      | Cash                                                                                                         | $          | 783                |       | $ | 874 |   |
|                                                                                                                                                      | Accounts receivable, net of allowances of $1,321 and  $1,935, respectively                                   | 21,554     |               | 15,850     |   |
|                                                                                                                                                      | Inventories, net                                                                                             | 40,809     |               | 45,980     |   |
|                                                                                                                                                      | Prepaid expenses and other                                                                                   | 699        |               | 699        |   |
|                                                                                                                                                      |                                                                                                              |       |                    |       |
|                                                                                                                                                      | Total current assets                                                                                         | 63,845     |               | 63,403     |   |
|                                                                                                                                                      |                                                                                                         |       |               |       |
| CHRISTMAS TREE  INVENTORIES                                                                                                                               | 9,660                                                                                                        |       | 8,309              |       |
| PROPERTY, PLANT AND  EQUIPMENT, net                                                                                                                       | 48,727                                                                                                       |       | 49,665             |       |
| ASSETS HELD FOR SALE                                                                                                                                      | -                                                                                                            |       | 612                |       |
| INTANGIBLE ASSETS, net                                                                                                                                    | 43,390                                                                                                       |       | 45,332             |       |
| DEFERRED INCOME TAXES                                                                                                                                     | 25,129                                                                                                       |       | 26,387             |       |
| NOTES RECEIVABLE  AND  OTHER ASSETS                                                                                                                  | 610                                                                                                          |       | 995                |       |
|                                                                                                                                                      |                                                                                                              |       |                    |       |
|                                                                                                                                                      | Total assets                                                                                                 | $          | 191,361            |       | $ | 194,703 |   |
|                                                                                                                                                      |                                                                                                              |       |                    |       |
|                                                                                                                                                      |                                                                                                         |       |               |       |
| **LIABILITIES AND  STOCKHOLDERS' EQUITY (DEFICIT)**                                                                                                       |                                                                                                         | ** ** |               | ** ** |
| CURRENT LIABILITIES:                                                                                                                                      |                                                                                                         |       |               |       |
|                                                                                                                                                      | Accounts payable                                                                                             | $          | 6,893              |       | $ | 5,737 |   |
|                                                                                                                                                      | Accrued liabilities                                                                                          | 21,056     |               | 23,246     |   |
|                                                                                                                                                      | Dividends payable to stockholders                                                                            | 338        |               | 317        |   |
|                                                                                                                                                      | Deferred income taxes                                                                                        | 13,393     |               | 13,392     |   |
|                                                                                                                                                      | Current maturities of long-term debt                                                                         | 128,982    |               | 36,455     |   |
|                                                                                                                                                      |                                                                                                         |            |               |            |   |
|                                                                                                                                                      |                                                                                                         |       |               |       |   |
|                                                                                                                                                      | Total current liabilities                                                                                    | 170,662    |               | 79,147     |   |
|                                                                                                                                                      |                                                                                                         |       |               |       |
| LONG-TERM DEBT                                                                                                                                            | 11,148                                                                                                       |       | 110,768            |       |
|                                                                                                                                                      |                                                                                                              |       |                    |       |
|                                                                                                                                                      | Total liabilities                                                                                            | 181,810    |               | 189,915    |   |
|                                                                                                                                                      |                                                                                                              |       |                    |       |
| SERIES A PREFERRED  STOCK, REDEEMABLE, $0.01 par value, 100,000   shares  authorized, 62,353 and 58,498  shares issued and outstanding, respectively | 54,942                                                                                                       |       | 50,641             |       |
| REDEEMABLE COMMON  STOCK, $0.001 par value, 1,143,339   shares issued  and  outstanding                                                              | 3,430                                                                                                        |       | 3,383              |       |
| STOCKHOLDERS' EQUITY  (DEFICIT):                                                                                                                          |                                                                                                         |       |               |       |
|                                                                                                                                                      | Common stock, $0.001 par value, 50,000,000  shares authorized, 5,805,258 shares issued  and outstanding | 12         |               | 12         |   |
|                                                                                                                                                      | Additional paid-in capital                                                                                   | 51,822     |               | 51,822     |   |
|                                                                                                                                                      | Treasury stock, 6,226,649 shares                                                                             | (45,651    | )                  | (45,651    | ) |
|                                                                                                                                                      | Warrants, 825,000 exercisable at $0.01 per share                                                             | 8,250      |               | 8,250      |   |
|                                                                                                                                                      | Accumulated deficit                                                                                          | (63,254    | )                  | (63,669    | ) |
|                                                                                                                                                      |                                                                                                              |       |                    |       |
|                                                                                                                                                      | Total stockholders' deficit                                                                                  | (48,821    | )                  | (49,236    | ) |
|                                                                                                                                                      |                                                                                                         |            |               |            |   |
|                                                                                                                                                      | Total liabilities and stockholders' deficit                                                                  | $          | 191,361            |       | $ | 194,703 |   |
|                                                                                                                                                      |                                                                                                         |            |               |            |   |
|                                                                                                                                                           |                                                                                                              |            |                    |            |  |  |  |  |

 

**COLOR SPOT NURSERIES, INC. ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OFOPERATIONS****(inthousands, except per share data)**

|                                                | Three  Months Ended                          |   | Six  Months Ended |   |
|-----------------------------------------------------|----------------------------------------------|--------|-------------------|--------|
|                                                | June  30, 2001                               |   | June  30, 2000    |   | June  30, 2001 |   | June  30, 2000 |   |
|                                                |                                              |   |                   |   |  |   |  |   |
|                                                | (Unaudited)                                  |   | (Unaudited)       |   | (Unaudited) |   | (Unaudited) |   |
|                                                |                                         |   |              |   |   |   |   |   |
| NET SALES                                           | $                                            | 83,380 |              | $      | 87,651 |   | $ | 125,469 |   | $ | 135,102 |   |
| COST OF SALES                                       | 48,932                                       |   | 59,278            |   | 71,374 |   | 83,564 |   |
|                                                |                                              |   |                   |   |  |   |  |   |
|                                                | Gross profit                                 | 34,448 |              | 28,373 |   | 54,095 |   | 51,538 |   |
|                                                |                                         |   |              |   |   |   |   |   |
| SALES, MARKETING AND  DELIVERY EXPENSES             | 16,982                                       |   | 20,071            |   | 27,246 |   | 31,078 |   |
| GENERAL AND  ADMINISTRATIVE EXPENSES                | 5,832                                        |   | 3,050             |   | 10,977 |   | 8,658 |   |
| AMORTIZATION OF  INTANGIBLE ASSETS                  | 257                                          |   | 429               |   | 766 |   | 858 |   |
|                                                |                                              |   |                   |   |  |   |  |   |
|                                                | Income from operations                       | 11,377 |              | 4,823  |   | 15,106 |   | 10,944 |   |
|                                                |                                         |   |              |   |   |   |   |   |
| INTEREST EXPENSE                                    | 4,401                                        |   | 4,171             |   | 8,861 |   | 8,304 |   |
| OTHER INCOME  (EXPENSE), NET                        | 11                                           |   | (1,357            | )      | 195 |   | (1,357 | ) |
|                                                |                                              |   |                   |   |  |   |  |   |
|                                                | Income before income  taxes                  | 6,965  |              | 2,009  |   | 6,050 |   | 3,997 |   |
|                                                |                                         |   |              |   |   |   |   |   |
| INCOME TAX PROVISION                                | (1,447                                       | )      | (3,016            | )      | (1,257 | ) | (3,801 | ) |
|                                                |                                              |   |                   |   |  |   |  |   |
|                                                | Net income (loss)                            | 5,518  |              | (1,007 | ) | 4,793 |   | 196 |   |
|                                                |                                         |   |              |   |   |   |   |   |
| SERIES A PREFERRED  STOCK DIVIDENDS/STOCK ACCRETION | 2,197                                        |   | 2,069             |   | 4,378 |   | 4,085 |   |
|                                                |                                              |   |                   |   |  |   |  |   |
|                                                | Net income (loss) applicable to common stock | $      | 3,321             |   | $ | (3,076 | ) | $ | 415 |   | $ | (3,889 | ) |
|                                                |                                              |   |                   |   |  |   |  |   |
| Basic and diluted  income (loss) per common share   | $                                            | 0.48   |              | $      | (0.44 | ) | $ | 0.06 |   | $ | (0.56 | ) |
|                                                |                                              |   |                   |   |  |   |  |   |
| Shares used in per  share calculation               | 6,948,597                                    |   | 6,948,597         |   | 6,948,597 |   | 6,948,597 |   |
|                                                |                                              |   |                   |   |  |   |  |   |
|                                                     |                                              |        |                   |        |  |  |  |  |  |  |  |  |  |  |

 

**COLOR SPOT NURSERIES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENT OFCHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)(in thousands, except common shares)**

|                                   | Common  Shares |   | Common  Stock |   | Additional  Paid-In  Capital |   | Treasury  Stock |   | Warrants |    | Retained  Earnings  (Accumulate  (Deficit) |   | Total  Stockholders'  Equity  (Deficit) |   |
|----------------------------------------|----------------|--------|---------------|--------|------------------------------|--------|-----------------|--------|----------|---------|--------------------------------------------|--------|-----------------------------------------|--------|
|                                   |                |   |               |   |                              |   |                 |   |          |    |                                            |   |                                         |   |
|                                   |           |   |          |   |                         |   |            |   |     |    |                                       |   |                                    |   |
| Balance, December 31,  2000            | 5,805,258      |   | $             | 12     |                         | $      | 51,822          |   | $        | (45,651 | )                                          | $      | 8,250                                   |   | $ | (63,669 | ) | $ | (49,236 | ) |
|                                   |           |   |          |   |                         |   |            |   |     |    |                                       |   |                                    |   |
| Accretion of Series A  preferred stock | -              |   | -             |   | -                            |   | -               |   | -        |    | (446                                       | )      | (446                                    | )      |
| Accretion of  redeemable common stock  | -              |   | -             |   | -                            |   | -               |   | -        |    | (47                                        | )      | (47                                     | )      |
| Series A preferred  stock dividends    | -              |   | -             |   | -                            |   | -               |   | -        |    | (3,885                                     | )      | (3,885                                  | )      |
| Net income                             | -              |   | -             |   | -                            |   | -               |   | -        |    | 4,793                                      |   | 4,793                                   |   |
|                                   |                |   |               |   |                              |   |                 |   |          |    |                                            |   |                                         |   |
| Balance, June 30, 2001  (unaudited)    | 5,805,258      |   | $             | 12     |                         | $      | 51,822          |   | $        | (45,651 | )                                          | $      | 8,250                                   |   | $ | (63,254 | ) | $ | (48,821 | ) |
|                                   |                |   |               |   |                              |   |                 |   |          |    |                                            |   |                                         |   |

 

**COLOR SPOT NURSERIES, INC. ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOW****(inthousands)**

|                                               | Six  Months Ended                                                                  |   |
|----------------------------------------------------|------------------------------------------------------------------------------------|--------|
|                                               | June  30, 2001                                                                     |   | June  30, 2000 |   |
|                                               |                                                                                    |   |  |   |
|                                               | (Unaudited)                                                                        |   | (Unaudited) |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:             |                                                                               |   |   |   |
|                                               | Net income                                                                         | $      | 4,793 |   | $ | 196 |   |
|                                               | Adjustments to reconcile net income to net cash provided  by operating activities: |   |   |   |   |
|                                               | Depreciation and amortization                                                      | 4,324  |   | 3,923 |   |
|                                               | Loss (gain) on sale of fixed assets                                                | 180    |   | (1,455 | ) |
|                                               | Interest paid in kind                                                              | 380    |   | 364 |   |
|                                               | Deferred income taxes                                                              | 1,259  |   | 3,778 |   |
|                                               | Changes in operating assets and liabilities:                                       |   |   |   |   |
|                                               | Increase in accounts receivable                                                    | (5,704 | ) | (787 | ) |
|                                               | Decrease in inventories                                                            | 5,171  |   | 7,829 |   |
|                                               | Decrease in prepaid expenses and other current assets                              | -      |   | 881 |   |
|                                               | Increase in Christmas tree inventory                                               | (1,351 | ) | (1,742 | ) |
|                                               | Decrease in notes receivable and other assets                                      | 385    |   | 164 |   |
|                                               | Increase in accounts payable                                                       | 1,156  |   | 2,665 |   |
|                                               | Increase (decrease)   in accrued liabilities                                  | (2,422 | ) | 1,543 |   |
|                                               |                                                                                    |   |  |   |
|                                               | Net cash provided by operating activities                                          | 8,171  |   | 17,359 |   |
|                                               |                                                                               |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:             |                                                                               |   |   |   |
|                                               | Purchases of fixed assets                                                          | (2,461 | ) | (5,428 | ) |
|                                               | Proceeds from sale of fixed assets                                                 | 432    |   | 1,940 |   |
|                                               |                                                                                    |   |  |   |
|                                               | Net cash used in investing activities                                              | (2,029 | ) | (3,488 | ) |
|                                               |                                                                               |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:             |                                                                               |   |   |   |
|                                               | Net increase (decrease) in cash float                                              | 1,240  |   | (4,468 | ) |
|                                               | Financing and organizational costs                                                 | -      |   | 25 |   |
|                                               | Net repayments under revolving line of credit                                      | (7,268 | ) | (7,864 | ) |
|                                               | Repayments of long-term debt                                                       | (205   | ) | (423 | ) |
|                                               |                                                                                    |   |  |   |
|                                               | Net cash used in financing activities                                              | (6,233 | ) | (12,730 | ) |
|                                               |                                                                               |   |   |   |
| NET INCREASE  (DECREASE) IN CASH                   | (91                                                                                | )      | 1,141 |   |
|                                               |                                                                               |   |   |   |
| CASH AT BEGINNING OF  PERIOD                       | 874                                                                                |   | 598 |   |
|                                               |                                                                                    |   |  |   |
| CASH AT END OF PERIOD                              | $                                                                                  | 783    |   | $ | 1,739 |   |
|                                               |                                                                                    |   |  |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION: |                                                                               |   |   |   |
|                                               | Cash paid during the period for:                                                   |   |   |   |   |
|                                               | Interest                                                                           | $      | 3,762 |   | $ | 8,485 |   |
|                                               |                                                                                    |   |  |   |
|                                               | Income taxes                                                                       | $      | - |   | $ | 63 |   |
|                                               |                                                                                    |   |  |   |
|                                               |                                                                               |   |   |   |
|                                                    |                                                                                    |        |  |  |  |  |  |  |  |  |

**COLOR SPOT NURSERIES, INC.CONDENSED NOTES TOCONSOLIDATED FINANCIAL STATEMENTSJune 30, 2001**

**Note 1– Basis of Presentation, Operations and Liquidity**

             Theconsolidated financial statements of Color Spot Nurseries, Inc. (“the Company”)as of June 30, 2001, and for the three and six months ended June 30, 2001 andJune 30, 2000 are unaudited.  However,in the opinion of management, these financial statements reflect alladjustments (of a normal and recurring nature) which are necessary for a fairpresentation of the Company’s financial position, results of operations andcash flows for the interim periods. The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates. Accounting measurements at interim dates inherentlyinvolve greater reliance on estimates than at year-end. The Company’soperations are highly seasonal and the results of operations for the interimperiods are not necessarily indicative of the results to be expected for theentire year.

             Theinformation contained in the following notes to the consolidated financialstatements is condensed from that which would appear in the annual consolidatedfinancial statements.  Accordingly,these financial statements should be read in conjunction with the Company’sfinancial statements for the transition period ended December 31, 2000,contained in its Transition Report on Form 10-K filed with the Securities andExchange Commission.

             TheCompany is one of the largest wholesale nurseries in the United States, basedon revenue and greenhouse square footage. The Company provides a wideassortment of high quality plants, including packaged bedding plants, floweringpotted plants, groundcover, ornamental plants and shrubs, and fresh-cutChristmas trees. As of June 30, 2001, the Company operates 13 productionfacilities located in 4 states. The Company also owns or leases growing fieldsfor Christmas trees in Oregon, Michigan, North Carolina, and Tennessee.  The Company sells primarily to leading homecenters and mass merchants, and to independent garden centers and commerciallandscapers, located predominantly in California, Texas and other westernstates.  The Company conducts itsoperations through one reportable segment.

             OnOctober 15, 1998, the Company entered into a three-year credit agreement withFleet Capital Corporation (“Credit Agreement”) providing up to $70.0 million ofcredit, of which $13.6 million, as amended, is available without limitation ona seasonal basis with the remainder subject to certain borrowing baselimitations based upon a percentage of eligible inventory and eligible accountsreceivable.  As of June 30, 2000, theCompany was not in compliance with a certain financial covenant of the CreditAgreement; however, the Company received a waiver of the noncompliance and anamendment waiving the covenant violation and amending the agreement to resetthe financial covenants.

             AtDecember 31, 2000, the Company was not in compliance with the reset financialcovenants under the Credit Agreement. However, on March 9, 2001, the Company received a waiver of suchnoncompliance.  On March 31, 2001, anamendment was received which reset the financial covenants for the quarterlytest period ended March 31, 2001, added an additional test period on April 28,2001 and extended the availability under the seasonal credit line through April30, 2001.  The Company was not incompliance with the additional financial covenant on April 28, 2001 as well as one of the financialcovenants on June 30, 2001.  The Companydid not receive a waiver of these covenant violations but has been allowed tocontinue to borrow under the Credit Agreement.

             On  June 15, 2001, Fleet Capital Corporation ,as agent under the Credit Agreement, did not consent to the payment of interestto the holders of the Company’s 10 1⁄2% Senior Subordinated Notes Due 2007 (the“Notes”) that was due on June 15, 2001. Consequently, the interest payment was not made within the 30 day graceperiod, thereby constituting an Event of Default under the Indenture governing the Notes.  The Event of Default allows the Trustee orthe holders of 25% of the Notes to declare all of the principal and accruedinterest on the Notes to be due and payable. The Company has not received a notice of acceleration from any holdersof the Notes.  The Notes have beenclassified in current maturities of long term debt because of the Event ofDefault.

             TheCompany has engaged Chanin Capital Partners to provide financial advisoryservices in connection with its plan to restructure its indebtedness. With theassistance of Chanin Capital Partners, the Company has submitted arestructuring proposal to the holders of its Notes, convertible noteholder andFleet Capital Corporation. Management anticipates that the Event of Defaultwill be cured in connection with the restructuring.

             TheCompany has received preliminary approval from a substantial majority of theholders of its Notes on the restructuring proposal to materially reduce itsdebt balance through the conversion of a substantial portion of its Notes intopreferred stock.   The contemplatedrestructuring is subject to definitive documentation and other pre-closingconditions, as described below.

             TheNotes will be retired through an exchange offer and consent solicitation.  The exchange offer will be for all Notes andwill be made in conjunction with a solicitation of consents to amend theexisting Indenture to remove certain covenants.

             Inexchange for the tender of the Notes, the Company will issue new seniorsubordinated notes in a principal amount equal to 50% of the principal amounttendered and new series B preferred stock with a face value equal to 60% of theprincipal amount tendered.  Simultaneouswith the issuance of the new senior subordinated notes, the Company will makethe cash interest payment due June 15, 2001 on the Notes.

             Thefinal execution of the anticipated restructuring, expected in October 2001, isconditioned upon several events, including but not limited to, the exchange ofat least 95% of the aggregate principal amount of the Notes, the issuance ofnew senior subordinated notes and series B preferred stock, the closing underthe new credit facility and the issuance of $5.5 million in additional capitalsubordinate to the new credit facility to fund the cash interest payment dueJune 15, 2001 on the Notes.  The sourceof these funds has not yet been secured.

             Thenew senior subordinated notes will represent an outstanding principal amount ofapproximately $50 million and will be due in 2005.  Interest will be payable quarterly in cash at a rate of 13%,except that for payments occurring on or prior to June 15, 2003, interest maybe paid, at the Company’s option, by the payment in cash of interest at theannual rate of 11% and issuance of additional notes at an annual rate of 2.0%.

             Thenew series B preferred stock will represent an outstanding principal amount ofapproximately $60 million.  Dividends willbe payable in cash at a rate of 13%, except for payments occurring on or priorto June 15, 2003, dividends may be paid, at the Company’s option, by theissuance of additional shares of new series B preferred stock. Consequently,the first mandatory cash dividend date will be September 15, 2003.  The new series B preferred stock will besenior to all other existing and future equity, including the Company’s  Series A Preferred Stock.  Mandatory redemption is in 2005.

             FleetCapital Corporation has approved the restructuring proposal, pending finaldocumentation and execution, provided that the Company will be permitted to paythe cash interest due on the Notes on June 15, 2001 only if all funds used tomake such payment constitute the proceeds of additional capital subordinate tothe new credit facility. Additionally, Fleet Capital Corporation and theCompany have agreed in principle to renew the Credit Agreement for anadditional two-year period subject to, among other conditions, negotiation of adefinitive credit agreement and completion of the aforementioned restructuring.

             TheCredit Agreement expires on October 15, 2001. If management is unable to renewthe facility with the existing lenders, it will seek alternative sources offinancing. The Company is highly dependent on its Credit Agreement to fundoperations; therefore, if the Company is unable to renegotiate or extend itsCredit Agreement or find alternative financing, it may be unable to continue asa going concern.

             Althoughthe accompanying financial statements were prepared contemplating therealization of all recorded assets and the satisfaction of liabilities in thenormal course of business, the Company must generate sufficient cash flow tomeet its obligations as they come due, comply with the terms of its creditfacilities, including meeting its financial covenants and successfullyrefinancing its Credit Agreement or there will be a material adverse impact onthe Company’s business, financial position and results of operations and the Companymay be unable to continue as a going concern.  No assurance can be provided that the Company’s assets will berealizable at their carrying values.

             Asof June 30, 2001, the Company had $140.1 million of debt and an accumulateddeficit of $63.3 million. The Company is highly leveraged and has significantdebt service obligations.  The Company’sdebt service obligations have important consequences to holders of its SeniorSubordinated Notes, Series A Preferred Stock, common stock and warrants,including the following: (i) a substantial portion of its cash flow fromoperations will be dedicated to the payment of principal and interest on itsindebtedness, thereby reducing the funds available for operations,acquisitions, future business opportunities and other purposes and increasingits vulnerability to adverse general economic and industry conditions; (ii) itsleveraged position may increase its vulnerability to competitive pressures;(iii) the amended financial covenants and other restrictions contained in thecurrent Credit Agreement, the indenture and the certificate of designation forthe Series A Preferred Stock will require the Company to meet certain financialtests and will restrict its ability to borrow additional funds, to dispose ofassets or to pay cash dividends on, or repurchase, preferred or common stock;and (iv) funds available for working capital, capital expenditures,acquisitions and general corporate purposes may be limited.

**Note 2 – Inventories**

             Inventoriesat June 30, 2001 and December 31, 2000, consisted of the following (inthousands):

|         | **June  30, 2001**               |   | **December  31, 2000** |   |
|--------------|----------------------------------|--------|------------------------|--------|
|         | ****                             |   | ****                   |   |
| Current:     | **(Unaudited**)                  |   |                   |   |
|         | Plants, shrubs and  ground cover | $      | 40,286                 |   | $ | 44,852 |   |
|         | Raw materials and  supplies      | 5,143  |                   | 4,587  |   |
|         | Inventory reserves               | (4,620 | )                      | (3,459 | ) |
|         |                                  |   |                        |   |
|         | Total current  inventories       | 40,809 |                   | 45,980 |   |
| Non-current: |                             |   |                   |   |
|         | Christmas trees                  | 9,660  |                   | 8,309  |   |
|         |                                  |   |                        |   |
|         | Total inventories                | $      | 50,469                 |   | $ | 54,289 |   |
|         |                                  |   |                        |   |
|              |                                  |        |                        |        |  |  |  |  |

**Note 3 – Property, Plant and Equipment**

             Property,plant and equipment at June 30, 2001 and December 31, 2000, consisted of thefollowing (in thousands):

|                            | **June  30, 2001**                   |   | **December  31, 2000** |   |
|---------------------------------|--------------------------------------|--------|------------------------|--------|
|                            | ****                                 |   | ****                   |   |
|                            | **(Unaudited)**                      |   |                   |   |
| Land and land  improvements     | $                                    | 10,362 |                   | $      | 10,353 |   |
| Greenhouses and  buildings      | 23,523                               |   | 23,389                 |   |
| Furniture and fixtures          | 3,459                                |   | 3,197                  |   |
| Computer software               | 5,567                                |   | 2,697                  |   |
| Machinery and  equipment        | 20,849                               |   | 21,061                 |   |
| Leasehold improvements          | 9,090                                |   | 7,824                  |   |
| Assets under capital  leases    | 539                                  |   | 482                    |   |
| Construction in  progress       | 846                                  |   | 2,774                  |   |
|                            |                                      |   |                        |   |
|                            | 74,235                               |   | 71,777                 |   |
| Less: accumulated  depreciation | (25,508                              | )      | (22,112                | )      |
|                            |                                      |   |                        |   |
|                            | Total property, plant  and equipment | $      | 48,727                 |   | $ | 49,665 |   |
|                            |                                 |        |                   |        |   |

** **

**Note 4 – Intangible Assets**

             Intangibleassets at June 30, 2001 and December 31, 2000, consisted of the following (inthousands):

|                            | **June  30, 2001**       |   | **December  31, 2000** |   |
|---------------------------------|--------------------------|--------|------------------------|--------|
|                            | ****                     |   | ****                   |   |
|                            | **(Unaudited)**          |   |                   |   |
| Goodwill                        | $                        | 47,517 |                   | $      | 47,517 |   |
| Financing costs                 | 6,278                    |   | 6,278                  |   |
| Non-compete agreements          | 1,694                    |   | 1,694                  |   |
| Other                           | 916                      |   | 916                    |   |
|                            |                          |   |                        |   |
|                            | 56,405                   |   | 56,405                 |   |
| Less: accumulated  amortization | (13,015                  | )      | (11,073                | )      |
|                            |                          |   |                        |   |
|                            | Total intangible  assets | $      | 43,390                 |   | $ | 45,332 |   |
|                            |                          |   |                        |   |
|                                 |                          |        |                        |        |  |  |  |

**Note 5 – Debt**

             Debtat June 30, 2001 and December 31, 2000, consisted of the following (inthousands):

|                       | **June  30, 2001** |   | **December  31, 2000** |       |
|----------------------------|--------------------|--------|------------------------|------------|
|                       | ****               |   | ****                   |       |
|                       | **(Unaudited)**    |   |                   | ** ** |
| Revolving line of  credit  | **$**              | 28,336 |                   | $          | 35,604 |   |
| Senior subordinated  notes | 100,000            |   | 100,000                |       |
| Convertible note           | 10,102             |   | 9,719                  |       |
| Non-compete agreements     | 102                |   | 220                    |       |
| Other                      | 1,590              |   | 1,680                  |       |
|                       |                    |   |                        |       |
|                       | 140,130            |   | 147,223                |       |
| Less: current  maturities  | (128,982           | )      | (36,455                | )          |
|                       |                    |   |                        |       |
|                       | Long-term portion  | **$**  | 11,148                 | ** ** | **$** | 110,768 | ** ** |
|                       | ****               |   | ****                   |       |
|                            |                    |        |                        |            |  |  |  |

             Therevolving line of credit represents borrowings under the Company’s CreditAgreement which provides up to $70.0 million of credit of which $13.6 million,as amended, is available without limitation on a seasonal basis with theremainder subject to certain borrowing base limitations based upon a percentageof eligible inventory and eligible accounts receivable.  As of June 30, 2001 a total of $28.3 millionwas outstanding and an additional $4.4 million was available under this line ofcredit.

             AtDecember 31, 2000, the Company was not in compliance with the financialcovenants under the Credit Agreement. However, on March 9, 2001, the Company received a waiver of suchnoncompliance.  On March 31, 2001, anamendment was received which reset the financial covenants for the quarterlytest period ended March 31, 2001, added an additional test period on April 28,2001 and extended the availability under the seasonal credit line through April30, 2001.  The Company was not incompliance with the additional financial covenant on April 28, 2001 as well asone of the financial covenants on June 30, 2001. The Company did not receive awaiver of these covenant violations but has been allowed to continue to borrowunder the Credit Agreement.

             OnJune 15, 2001, Fleet Capital Corporation, did not consent to the payment ofinterest on the Notes that was due on June 15, 2001. Consequently, the interestpayment was not made within the 30 day grace period, thereby constituting anEvent of Default under the Indenture governing the Notes. The Event of Defaultallows the Trustee or the holders of 25% of the Notes to declare all of theprincipal and accrued interest on the Notes to be due and payable. The Companyhas not received a notice of acceleration from any holders of the Notes.  The Notes have been classified in currentmaturities of long term debt because of the Event of Default.  Management anticipates that the Event ofDefault will be cured in connection with the planned restructuring.

             TheCompany’s Credit Agreement expires on October 15, 2001.  Fleet Capital Corporation and the Companyhave agreed to renew the Credit Agreement for an additional two-year period,subject to, among other conditions, negotiation of a definitive creditagreement and completion of the planned restructuring.  If management is unable to renew thefacility with the existing lenders, it will seek alternative sources offinancing. The Company is highly dependent on its Credit Agreement to fundoperations; therefore, if the Company is unable to renegotiate or extend itsCredit Agreement or find alternative financing, it may be unable to continue asa going concern.

**Note 6 — Earnings Per Share**

             Basicand diluted earnings per share is as follows:

|                                   | Three  Months Ended June 30, 2001 |   | Six  Months Ended June 30, 2001 |      |
|----------------------------------------|-----------------------------------|--------|---------------------------------|-----------|
|                                   |                                   |   |                                 |      |
|                                   | Income                            |   | Shares                          |      | Per  Share Amount |   | Income |   | Shares |   | Per  Share Amount |   |
|                                   |                                   |   |                                 |      |  |   |  |   |  |   |  |   |
|                                   | (in  thousands)                   |   |                            |      |   |   | (in  thousands) |   |   |   |   |   |
| Basic  and diluted earnings per share: |                              |   |                            |      |   |   |   |   |   |   |   |   |
| Net income                             | $                                 | 5,518  |                            | $         |   |   |   |   | $ | 4,793 |   |   |   |   |   |
|                                   |                              |   |                            |      |   |   |   |   |   |   |   |   |
| Preferred stock  dividends/accretion   | (2,197                            | )      |                            |      |   |   | (4,378 | ) |   |   |   |   |
|                                   |                                   |   |                            |      |   |   |  |   |   |   |   |   |
| Net income applicable  to common stock | $                                 | 3,321  |                            | 6,948,597 |   | $ | 0.48 |   | $ | 415 |   | 6,948,597 |   | $ | 0.06 |   |
|                                   |                                   |   |                            |      |  |   |  |   |   |   |  |   |
|                                        |                                   |        |                                 |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

|                                   | Three  Months Ended June 30, 2000 |   | Six  Months Ended June 30, 2000 |      |
|----------------------------------------|-----------------------------------|--------|---------------------------------|-----------|
|                                   |                                   |   |                                 |      |
|                                   | Income/  (loss)                   |   | Shares                          |      | Per  Share Amount |   | Income/  (loss) |   | Shares |   | Per  Share Amount |   |
|                                   |                                   |   |                                 |      |  |   |  |   |  |   |  |   |
|                                   | (in  thousands)                   |   |                            |      |   |   | (in  thousands) |   |   |   |   |   |
| Basic  and diluted earnings per share: |                              |   |                            |      |   |   |   |   |   |   |   |   |
| Net income/(loss)                      | $                                 | (1,007 | )                               |      |   |   |   | $ | 196 |   |   |   |   |   |
|                                   |                              |   |                            |      |   |   |   |   |   |   |   |   |
| Preferred stock  dividends/accretion   | (2,069                            | )      |                            |      |   |   | (4,085 | ) |   |   |   |   |
|                                   |                                   |   |                            |      |   |   |  |   |   |   |   |   |
| Net loss applicable to  common stock   | $                                 | (3,076 | )                               | 6,948,597 |   | $ | (0.44 | ) | $ | (3,889 | ) | 6,948,597 |   | $ | (0.56 | ) |
|                                   |                                   |   |                            |      |  |   |  |   |   |   |  |   |
|                                        |                                   |        |                                 |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

                For the three and six months ended June 30, 2000 andJune 30, 2001, the effect of options, warrants and convertible securities wasantidilutive and is therefore excluded from the computation of earnings pershare.

**Note 7**—**Recent Accounting Pronouncements**

             InJuly 2001, the Financial Accounting Standards Board ("FASB") issuedStatement of Accounting Standards No. 141, "Business Combinations"("SFAS141") and Statement of Accounting Standards No. 142,"Accounting for Goodwill" ("SFAS 142").  SFAS 141 requires that all businesscombinations be accounted for using the purchase method of accounting; use ofthe pooling-of-interests method is prohibited. The provisions of the statement apply to all business combinations initiatedafter June 30, 2001.  The Company doesnot expect that SFAS No. 141 will have a material impact on its consolidatedfinancial statements.  SFAS 142establishes accounting standards for existing goodwill related to purchasebusiness combinations. SFAS 142 requires the Company to discontinue theperiodic amortization of goodwill effective January 1, 2002.  Additionally, the Statement requires theCompany to evaluate all unamortized goodwill for possible impairment within thefirst six months of fiscal 2002 based on new valuation criteria set forth inthe Statement.  All provisions of SFAS142 must be applied for the fiscal year beginning January 1, 2002 to all of theCompany's goodwill and other intangible assets, regardless of when those assetswere initially recognized.  At thistime, the Company cannot reasonably estimate the impact of this statement ontheir consolidated financial statements. It is possible that upon finalanalysis, SFAS 142 could have a material impact on the Company's recordedgoodwill balance.

** **

| **Item 2.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|-------------------------------------------------------------------------------------------------|

**General**

             TheCompany is one of the largest wholesale nurseries in the United States, basedon annual revenue and greenhouse square footage.  The Company sells a wide assortment of high quality beddingplants, shrubs, potted flowering plants, ground cover and Christmas trees aswell as provides extensive merchandising services primarily to leading homecenters and mass merchants.  TheCompany’s business is highly seasonal with a peak selling season generally fromMarch through June.

**ThreeMonths Ended June 30, 2001 as Compared to the Three Months Ended June 30, 2000**

*             Net Sales.*  Net sales decreased $4.3 million, or 4.9%,to $83.4 million for the three months ended June 31, 2001, from $87.7 millionduring the three months ended June 30, 2000. This decrease is primarily the result of lower sales to smaller, lowervolume customers as well as lower sales to customers in less profitableoutlying markets such as Colorado, Tennessee and Idaho.  Additionally, same store sales for theCompany’s larger accounts are down from the comparable period of the prior yearreflecting the general economic slowdown in its retail markets.

*             GrossProfit.*  Gross profit increased approximately $6.1million to $34.4 million for the three months ended June 30, 2001, from $28.4million during the three months ended June 30, 2000.  Gross profit as a percentage of net sales increased to 41.3% forthe three months ended June 30, 2001, from 32.4% for the three months ended June30, 2000.  The increase in gross profitas a percentage of net sales in 2001 was primarily the result of improvedpricing strategies, lower shrink, tighter cost controls and reduced excessproduction offset by higher utility rates.

*             Sales,Marketing and Delivery Expenses.*  Sales, marketing and delivery expensesdecreased $3.1 million to $17.0 million for the three months ended June 30,2001, from $20.1 million in the three months ended June 30, 2000. Sales,marketing and delivery expenses, as a percentage of net sales, decreased to20.4% for the three months ended June 30, 2001, from 22.9% for the three monthsended June 30, 2000.  The decrease as apercentage of net sales was primarily the result of the Company’s cost controlefforts plus improved distribution efficiencies and greater route densities.

*             Generaland Administrative Expenses.*  Generaland administrative expenses increased $2.7 million, to $5.8 million for thethree months ended June 30, 2001, from $3.1 million in the three months endedJune 30, 2000.  This increase isprimarily due to a large reversal of management bonuses recorded during thethree months ended June 30, 2000 which were accrued in the early part of fiscal2000.

*             InterestExpense.*  Interest expense increased to $4.4 millionfor the three months ended June 30, 2001, from $4.2 million in the three monthsended June 30, 2000, as a result of higher average levels of borrowings duringthe three months ended June 30, 2001.

             *Taxes.*  Theeffective tax rate decreased to 20.8% for the three months ended June 30, 2001,from 150.1% for the three months ended June 30, 2000, primarily due to year endcumulative rate adjustments recorded during the three months ended June 30,2000 as a result of weaker than expected performance plus the effect ofpermanent book-tax differences on a pre-tax loss for the three months endedJune 30, 2001. The Company’s state net operating loss carryforwards expirebeginning on June 30, 2001 and are fully reserved. Although the Company has notprovided a valuation allowance against its federal net operating losscarryforwards, the realizability of the related assets is periodicallyevaluated.  The federal net operatinglosses expire beginning on June 30, 2011.

**SixMonths Ended June 30, 2001 as Compared to the Six Months Ended June 30, 2000**

             *Net Sales.*  Net sales decreased $9.6 million, or 7.1%,to $125.5 million for the six months ended June 30, 2001, from $135.1 millionduring the six months ended June 30, 2000. This decrease is primarily the result of lower sales to smaller, lowervolume customers as well as lower sales to customers in less profitableoutlying markets such as Colorado, Tennessee and Idaho.  Additionally, same store sales for theCompany’s larger accounts are down from the comparable period of the prior yearreflecting the general economic slowdown in its retail markets.

*             GrossProfit.*  Gross profit increased approximately $2.6million to $54.1 million for the six months ended June 30, 2001, from $51.5million during the six months ended June 30, 2000.  Gross profit as a percentage of net sales increased to 43.1% forthe six months ended June 30, 2001, from 38.1% for the six months ended June30, 2000.  The increase in gross profitas a percentage of net sales in 2001 was primarily the result of improvedpricing strategies, tighter cost controls and reduced excess production offsetby higher utility rates.

*             Sales, Marketing and DeliveryExpenses.*  Sales, marketing and delivery expensesdecreased $3.8 million to $27.2 million for the six months ended June 30, 2001,from $31.1 million in the six months ended June 30, 2000.  Sales, marketing and delivery expenses, as apercentage of net sales, decreased to 21.7% for the six months ended June 30,2001, from 23.0% for the six months ended June 30, 2000.  The decrease as a percentage of net saleswas the result of the Company’s cost control efforts.

*             Generaland Administrative Expenses.*  Generaland administrative expenses increased $2.3 million, to $11.0 million for thesix months ended June 30, 2001, from $8.7 million in the six months ended  June 30, 2000.  This increase is primarily due to a large reversal of managementbonuses recorded during the six months ended June 30, 2000 which were accrued in early fiscal 2000.

*             InterestExpense.*  Interest expense increased to $8.9 millionfor the six months ended June 30, 2001, from $8.3 million in the six monthsended June 30, 2000, as a result of higher average levels of borrowings duringthe six months ended June 30, 2001.

             *Taxes.* The effective tax rate decreased to 20.8% for the six months ended June30, 2001, from 95.1% for the six months ended June 30, 2000, primarily due toyear end cumulative rate adjustments recorded during the six months ended June30, 2000 plus the effect of permanent book-tax differences on a pre-tax lossfor the six months ended June 30, 2001.

**Liquidity and Capital Resources**

             TheCompany’s cash requirements are primarily to fund its seasonal working capitalrequirements and capital expenditures. During the six months ended June 30, 2001 and June 30, 2000, theCompany’s operating activities provided funds to pay down the Company’srevolving line of credit and fund capital expenditures. The Company’s operatingactivities provided cash of $8.2 million during the six months ended June 30, 2001and $17.4 million during the six months ended June 30, 2000. The Company also invested $2.5million and $5.4 million, during the six months ended June 30, 2001 and June30, 2000, respectively, for necessary production and computer equipment andfacility infrastructure repairs and improvements as well as required capitalprojects to meet environmental requirements.

             OnOctober 15, 1998, the Company entered into its Credit Agreement providing up to$70.0 million of credit, of which $13.6 million, as amended, is availablewithout limitation on a seasonal basis with the remainder subject to certainborrowing base limitations based upon a percentage of eligible inventory andeligible accounts receivable.As of June 30, 2001 a total of $28.3 million was outstanding andan additional $4.4 million was available under the Credit Agreement. The CreditAgreement is secured by substantially all of the Company’s assets.  Interestaccrues at a variable rate equal to Prime plus 1.0% or LIBOR plus 3.0%. In addition, tothe extent that borrowings exceed certain borrowing base limitations during theperiod from October 1 through April 30 of any year, the interest rates increaseby an additional 0.5%.

             AtDecember 31, 2000, the Company was not in compliance with the financialcovenants under the Credit Agreement. However, on March 9, 2001, the Company received a waiver of suchnoncompliance.  On March 31, 2001, anamendment was received which reset the financial covenants for the quarterlytest period ended March 31, 2001, added an additional test period on April 28,2001 and extended the availability under the seasonal credit line through April30, 2001.  The Company was not incompliance with the additional financial covenant on April 28, 2001 as well asone of the financial covenants on June 30, 2001. The Company did not receive awaiver of these covenant violations but has been allowed to continue to borrowunder the Credit Agreement.

             OnJune 15, 2001, Fleet Capital Corporation , did not consent to the payment ofinterest to the holders of the Company’s 10 1⁄2% Senior Subordinated Notes Due2007 (the “Notes”) that was due on June 15, 2001.  Consequently, the interest payment was not made within the 30 daygrace period, thereby constituting an Event of Default under the Indenture governing the Notes.  The Event of Default allows the Trustee orthe holders of 25% of the Notes to declare all of the principal and accruedinterest on the Notes to be due and payable. The Company has not received a notice of acceleration from any holdersof the Notes.  The Notes have beenclassified in current maturities of long term debt because of the Event ofDefault.

             TheCompany has engaged Chanin Capital Partners to provide financial advisoryservices in connection with its plan to restructure its indebtedness. With theassistance of Chanin Capital Partners, the Company has submitted arestructuring proposal to the holders of its Notes, convertible noteholder andFleet Capital Corporation. Management anticipates that the Event of Defaultwill be cured in connection with the restructuring.

             TheCompany has received preliminary approval from a substantial majority of theholders of its Notes on the restructuring proposal to materially reduce itsdebt balance through the conversion of a substantial portion of its Notes intopreferred stock.   The contemplatedrestructuring is subject to definitive documentation and other pre-closingconditions, as described below.

             TheNotes will be retired through an exchange offer and consent solicitation.  The exchange offer will be for all Notes andwill be made in conjunction with a solicitation of consents to amend theexisting Indenture to remove certain covenants.

             Inexchange for the tender of the Notes, the Company will issue new seniorsubordinated notes in a principal amount equal to 50% of the principal amounttendered and new series B preferred stock with a face value equal to 60% of theprincipal amount tendered.  Simultaneouswith the issuance of the new senior subordinated notes, the Company will makethe cash interest payment due June 15, 2001 on the Notes.

             Thefinal execution of the anticipated restructuring, expected in October 2001, isconditioned upon several events, including but not limited to, the exchange ofat least 95% of the aggregate principal amount of the Notes, the issuance ofnew senior subordinated notes and series B preferred stock, the closing underthe new credit facility and the issuance of $5.5 million in additional capitalsubordinate to the new credit facility to fund the cash interest payment dueJune 15, 2001 on the Notes.  The sourceof these funds has not yet been secured.

             Thenew senior subordinated notes will represent an outstanding principal amount ofapproximately $50 million and will be due in 2005.  Interest will be payable quarterly in cash at a rate of 13%,except that for payments occurring on or prior to June 15, 2003, interest maybe paid, at the Company’s option, by the payment in cash of interest at theannual rate of 11% and issuance of additional notes at an annual rate of 2.0%.

             Thenew series B preferred stock will represent an outstanding principal amount ofapproximately $60 million.  Dividendswill be payable in cash at a rate of 13%, except for payments occurring on orprior to June 15, 2003, dividends may be paid, at the Company’s option, by theissuance of additional shares of new series B preferred stock. Consequently,the first mandatory cash dividend date will be September 15, 2003.  The new series B preferred stock will besenior to all other existing and future equity, including the Company’s  Series A Preferred Stock.  Mandatory redemption is in 2005.

             FleetCapital Corporation has approved the restructuring proposal, pending finaldocumentation and execution, provided that the Company will be permitted to paythe cash interest due on the Notes on June 15, 2001 only if all funds used tomake such payment constitute the proceeds of additional capital subordinate tothe new credit facility. Additionally, Fleet Capital Corporation and theCompany have agreed in principle to renew the Credit Agreement for anadditional two-year period subject to, among other conditions, negotiation of adefinitive credit agreement and completion at the aforementioned restructuring.

             TheCredit Agreement expires on October 15, 2001. If management is unable to renewthe facility with the existing lenders, it will seek alternative sources offinancing. The Company is highly dependent on its Credit Agreement to fundoperations; therefore, if the Company is unable to renegotiate or extend itsCredit Agreement or find alternative financing, it may be unable to continue asa going concern.

**Item3.  QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISK**

             TheCompany’s liabilities consist primarily of a revolving line of credit, seniorsubordinated notes, other notes and accounts payable.  The Company has also issued Series A Preferred Stock andRedeemable Common Stock.  Suchliabilities and stockholders’ equity have varying levels of sensitivity tochanges in market interest rates. Interest rate risk results when, due to different maturity dates andre-pricing intervals, interest rate indices for interest-bearing liabilitiesincrease relative to income earning assets, thereby creating a risk ofdecreased net earnings and cash flow.

             Thefollowing table provides information about our market sensitive liabilities,categorized by maturity, and constitutes a “forward-looking statement.”  For more information, please refer to Item1. “Financial Statements and Condensed Notes to Consolidated FinancialStatements.”

|                   | Expected  Maturities           |   |
|------------------------|--------------------------------|--------|
| Long-term Liabilities: | 2001                           |   | 2002 |   | 2003 |   | 2004 |   | 2005 |   | There-After |   | Total |   |
|                   |                                |   |
|                   | (dollars  in millions)         |   |
| Fixed Rate:            |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                   | Series A Preferred  Stock      | -      |   | - |   | $ | 2.6 |   | $ | 5.2 |   | $ | 5.2 |   | $ | 84.2 |   | $ | 97.2 |   |
|                   | Average Interest Rate          | 13     | % | 13 | % | 13 | % | 13 | % | 13 | % | 13 | % |   |   |
|                   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                   | Senior Subordinated  Notes (2) | $      | 100.0 |   | - |   | - |   | - |   | - |   | - |   | $ | 100.0 |   |
|                   | Average Interest Rate          | 10.5   | % | - |   | - |   | - |   | - |   | - |   |   |   |
|                   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                   | Convertible Note               | -      |   | - |   | - |   | $ | 13.3 |   | - |   | - |   | $ | 13.3 |   |
|                   | Average Interest Rate          | 8.0    | % | 8.0 | % | 8.0 | % | 8.0 | % | - |   | - |   |   |   |
|                   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                   | ODA Note                       | $      | 0.1 |   | $ | 0.1 |   | $ | 0.1 |   | $ | 1.0 |   | - |   | - |   | $ | 1.3 |   |
|                   | Average Interest Rate          | 9.0    | % | 9.0 | % | 9.0 | % | 9.0 | % | - |   | - |   |   |   |
|                   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Variable Rate:         |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                   | Credit Agreement (1)           | $      | 70.0 |   |   |   |   |   |   |   |   |   |   |   | $ | 70.0 |   |
|                        |                                |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

(1)  The Credit Agreement expires on October 15,2001.  See also “Liquidity and CapitalResources” and “Note 5 to Condensed Notes to Consolidated FinancialStatements”.

(2)  Total interest payments of $10.5 million aredue each year on the Senior Subordinated Notes.  However, the entire outstanding principal has been shown ascurrently due because of the default on the Senior Subordinated Notes, asdescribed above under "Item 2. Management's Discussion and Analysis ofFinancial Condition and Results of Operations -- Liquidity and CapitalResources".

**PART II. - OTHER INFORMATION**

**Item 1.  LegalProceedings**

             TheCompany is from time to time subject to various legal proceedings incidental toits business.  Management believes thatthe ultimate resolution of these proceedings will not have a material adverseeffect on its financial position or results of operations, taken as a whole.

**Item 2.  Changes in Securities and Use of Proceeds**

          None.

**Item 3.  Defaults UponSenior Securities**

             TheCompany informed Fleet Capital Corporation, as agent under the Credit Agreementdated October 15, 1998 that it was in default of a financial covenant for thetest period ended April 28, 2001.  Theprimary cause of the violation was a shortfall in earnings for the four monthsended April 28, 2001 of approximately $0.5 million due primarily to higherutility rates.

             On  June 15, 2001, Fleet Capital Corporation ,did not consent to the payment of interest to the holders of the Company’s 101⁄2% Senior Subordinated Notes Due 2007 (the “Notes”) that was due on June 15,2001.  Consequently, the interestpayment was not made within the 30 day grace period, thereby constituting anEvent of  Default under the Indenturegoverning the Notes.  The Event ofDefault allows the Trustee or the holders of 25% of the Notes to declare all ofthe principal and accrued interest on the Notes to be due and payable.  The Company has not received a notice ofacceleration from any holders of the Notes.

             TheCompany has engaged Chanin Capital Partners to provide financial advisoryservices in connection with its plan to restructure its indebtedness.  With the assistance of Chanin CapitalPartners, the Company has submitted a restructuring proposal to the holders ofits Notes, convertible noteholder and Fleet Capital Corporation.  The restructuring proposal, if fullyapproved and executed, would result in certain changes to the Company's debtand equity structure including converting a substantial portion of itsoutstanding public debt to preferred stock. The Company has received preliminary approval of this restructuring froma substantial majority of the holders of its Notes.  Management anticipates that the Event of Default will be cured inconnection with the restructuring.

             FleetCapital Corporation has approved the restructuring proposal, pending finaldocumentation and execution, provided that the Company will be permitted to paythe cash interest due on the Notes on June 15, 2001 only if all funds used tomake such payment constitute the proceeds of additional capital subordinate tothe new credit facility.

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

          None.

**Item 5.  OtherInformation**

          None

**Item 6.  Exhibits andReports on Form 8-K**

**(a)**         **Exhibits**

             None

**(b)**     **Reports on Form 8-K.**

          On May 31, 2001, the Company filed aCurrent Report on Form 8-K to disclose that the Company had failed to complywith a financial covenant under the Credit Agreement.

          On June 19, 2001, the Company filed aCurrent Report on Form 8-K to disclose that Fleet Capital Corporation, as agentunder the Credit Agreement, did not consent to the payment of interest due onJune 15, 2001 to holders of the Company’s 10.5% Senior Subordinated Notes due2007.

**SIGNATURES**

             Pursuantto the requirements of Section 13 of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

| Date:  August 20, 2001. |                                             |                                                                                       |
|------------------------------|--------------------------------------------------|--------------------------------------------------------------------------------------------|
|                         |                                             |                                                                                       |
|                         | COLOR SPOT NURSERIES, INC.a Delaware corporation |
|                         |                                             |                                                                                       |
|                         |                                             |                                                                                       |
|                         | By:                                              | /s/  David J. Barrett                                                                 |
|                         |                                             |                                                                                            |
|                         | Name:                                            | David  J. Barrett                                                                          |
|                         | Title:                                           | Chief  Executive Officer*(Principal  Executive Officer)*                                   |
|                         |                                             |                                                                                       |
|                         |                                             |                                                                                       |
|                         | By:                                              | /s/  Charles A. Ferer                                                                 |
|                         |                                             |                                                                                            |
|                         | Name:                                            | Charles  A. Ferer                                                                          |
|                         | Title:                                           | Chief  Financial Officer *(Principal Financial Officer and Principal  Accounting Officer)* |