<PAGE>


                                  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 March 25, 1999
                                            --------------

                                       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 000-23483
                                              ----------

                        --------------------------------

                           COLOR SPOT NURSERIES, INC.
             (Exact Name of Registrant as Specified in Its Charter)
<TABLE>
     <S>                                                              <C>
                           DELAWARE                                                  68-0363266
(State or Other Jurisdiction of Incorporation or Organization)        (I.R.S. Employer Identification No.)


          3478 BUSKIRK AVENUE, PLEASANT HILL, CA                                        94523
         (Address of Principal Executive Offices)                                     (Zip Code)
</TABLE>
    Registrant's Telephone Number, Including Area Code (925) 934-4443


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

     As of May 7, 1999, the Registrant had outstanding 6,954,807 shares of 
Common Stock, par value $0.001 per share.


<PAGE>

                          COLOR SPOT NURSERIES, INC.



FORWARD-LOOKING STATEMENTS

     CERTAIN STATEMENTS UNDER THE CAPTIONS "ITEM 2. MANAGEMENT'S DISCUSSION 
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "ITEM 3. 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK," AND ELSEWHERE 
THROUGHOUT THIS QUARTERLY REPORT ON FORM 10-Q ("QUARTERLY REPORT") OF COLOR 
SPOT NURSERIES, INC. (THE "COMPANY") WHICH ARE NOT HISTORICAL IN NATURE ARE 
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE 
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 
1934.  FORWARD-LOOKING STATEMENTS DEAL WITH THE CURRENT INTENTIONS, BELIEFS 
AND EXPECTATIONS OF MANAGEMENT WITH RESPECT TO THE COMPANY'S BUSINESS AND ARE 
TYPICALLY IDENTIFIED BY PHRASES SUCH AS "THE COMPANY PLANS," "MANAGEMENT 
BELIEVES" AND OTHER PHRASES OF SIMILAR MEANING.  THESE STATEMENTS INVOLVE 
KNOWN AND UNKNOWN RISKS AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, 
LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY OR THE 
INDUSTRY IN WHICH THE COMPANY COMPETES TO DIFFER, PERHAPS MATERIALLY, FROM 
ANTICIPATED RESULTS. THESE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS: THE 
COMPANY'S SUBSTANTIAL LEVERAGE AND DEBT SERVICE; RESTRICTIONS IMPOSED BY DEBT 
COVENANTS; THE EFFECT OF GROWTH ON THE COMPANY'S RESOURCES; THE AVAILABILITY 
OF SUITABLE NEW MARKETS AND SUITABLE LOCATIONS WITHIN SUCH MARKETS; CHANGES 
IN THE COMPANY'S OPERATING OR EXPANSION STRATEGY AND THE DEPENDENCE ON 
ACQUISITIONS FOR FUTURE GROWTH; FAILURE TO CONSUMMATE OR SUCCESSFULLY 
INTEGRATE PROPOSED DEVELOPMENTS OR ACQUISITIONS; THE UNCERTAINTY OF 
ADDITIONAL FINANCING TO FUND DESIRED GROWTH AND OTHER FUTURE CAPITAL NEEDS; 
WEATHER AND GENERAL AGRICULTURAL RISKS; SEASONALITY AND THE VARIABILITY OF 
QUARTERLY RESULTS; THE COMPANY'S DEPENDENCE ON MAJOR CUSTOMERS SUCH AS HOME 
DEPOT; REGULATORY CONSTRAINTS AND CHANGES IN LAWS OR REGULATIONS CONCERNING 
THE GARDENING INDUSTRY; LABOR LAWS AND CHANGES IN THE MINIMUM WAGE; THE 
COMPANY'S SHORT OPERATING HISTORY UNDER CURRENT MANAGEMENT; SENSITIVITY TO 
PRICE INCREASES OF CERTAIN RAW MATERIALS; THE COMPANY'S DEPENDENCE ON LEASED 
FACILITIES; COMPETITION; LACK OF A MARKET FOR THE COMPANY'S SECURITIES; 
PAYMENT OR NONPAYMENT OF DIVIDENDS AND CASH OUTLAYS FOR INCOME TAXES; RISKS 
ASSOCIATED WITH YEAR 2000 COMPLIANCE AND ESTIMATED COSTS ASSOCIATED WITH THE 
COMPANY'S AND ITS MAJOR CUSTOMERS' AND SUPPLIERS' COMPLIANCE EFFORTS; TRENDS 
IN THE GARDENING INDUSTRY, THE SPECIFIC MARKETS IN WHICH THE COMPANY'S 
PRODUCTION FACILITIES ARE LOCATED OR ARE PROPOSED TO BE LOCATED, AND THE 
GENERAL ECONOMY OF THE UNITED STATES; AND OTHER FACTORS AS MAY BE IDENTIFIED 
FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE 
COMMISSION OR IN THE COMPANY'S PRESS RELEASES.

     FOR A DISCUSSION OF THESE FACTORS AND OTHERS, PLEASE SEE THE 
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATION -- CERTAIN BUSINESS FACTORS" OF THE COMPANY'S ANNUAL REPORT ON FORM 
10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1998 (AS FILED WITH THE SECURITIES 
AND EXCHANGE COMMISSION ON OCTOBER 15, 1998).  READERS ARE CAUTIONED NOT TO 
PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS MADE IN, OR INCORPORATED 
BY REFERENCE INTO, THIS QUARTERLY REPORT OR OTHER FILINGS WITH THE SECURITIES 
AND EXCHANGE COMMISSION, ANY DOCUMENT OR STATEMENT REFERRING TO THIS 
QUARTERLY REPORT OR THE COMPANY'S PRESS RELEASES.


<PAGE>

                        COLOR SPOT NURSERIES, INC.


                                  INDEX

<TABLE>
<CAPTION>

PART I - FINANCIAL INFORMATION                                                            PAGE

<C>               <S>                                                                     <C>
      Item 1.     Financial Statements (Unaudited)

                  Consolidated Balance Sheets as of March 25, 1999 and
                  June 30, 1998..............................................................1

                  Consolidated Statements of Operations for the Three and Nine Months
                  Ended March 25, 1999 and March 26, 1998....................................2

                  Consolidated Statement of Changes in Stockholders' Equity and
                  Comprehensive Loss for the Nine Months Ended March 25, 1999................3

                  Consolidated Statements of Cash Flow for the Nine Months
                  Ended March 25, 1999 and March 26, 1998....................................4

                  Condensed Notes to Consolidated Financial Statements as of
                  March 25, 1999 ............................................................5

      Item 2.     Management's Discussion and Analysis
                  of Financial Condition and Results of Operations..........................12

      Item 3.     Quantitative and Qualitative Disclosure About
                  Market Risk...............................................................17



PART II - OTHER INFORMATION

      Item 1.     Legal Proceedings.........................................................18

      Item 2.     Changes in Securities and Use of Proceeds.................................18

      Item 3.     Defaults Upon Senior Securities...........................................18

      Item 4.     Submission of Matters to a Vote of Security Holders.......................18

      Item 5.     Other Information.........................................................18

      Item 6.     Exhibits and Reports on Form 8-K..........................................19

Signatures..................................................................................20

</TABLE>


<PAGE>

ITEM 1.
                   COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                     March 25,         June 30,
                                                                                       1999              1998
                                                                                   -------------    -------------
                                                                                    (unaudited)
<S>                                                                                <C>              <C>
                                        ASSETS
CURRENT ASSETS:
     Cash                                                                           $     1,564      $     2,244
     Accounts receivable, net of allowances of $1,304 and $3,084, respectively           23,665           28,463
     Inventories, net                                                                    53,835           42,306
     Prepaid expenses and other                                                             912            1,803
                                                                                   -------------    -------------
         Total current assets                                                            79,976           74,816

TREE INVENTORIES                                                                          3,249            3,607
PROPERTY, PLANT AND EQUIPMENT, net                                                       52,307           54,197
INTANGIBLE ASSETS, net                                                                   51,754           56,117
DEFERRED INCOME TAXES                                                                    27,034           20,167
NOTES RECEIVABLE AND  OTHER ASSETS                                                        1,232            1,446
                                                                                   -------------    -------------
         Total assets                                                               $   215,552      $   210,350
                                                                                   =============    =============


                     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
     Accounts payable                                                               $    10,662      $    16,305
     Accrued liabilities                                                                 16,699           14,404
     Dividends payable to stockholders                                                      169              232
     Deferred income taxes                                                               16,013           16,013
     Current maturities of long-term debt                                                   889            1,053
                                                                                   -------------    -------------
         Total current liabilities                                                       44,432           48,007

LONG-TERM DEBT                                                                          156,168          135,044
                                                                                   -------------    -------------
         Total liabilities                                                              200,600          183,051
                                                                                   -------------    -------------
SERIES A PREFERRED STOCK, $0.01 par value, 100,000 shares authorized,
     46,779 and 42,504 shares issued and outstanding, respectively                       37,421           32,524
REDEEMABLE COMMON STOCK, $0.001 par value, 1,143,339 and 1,163,550
     shares issued and outstanding, respectively                                          2,486            2,266
STOCKHOLDERS' EQUITY (DEFICIT):
     Preferred stock, $0.01 par value, 4,900,000 shares authorized,
         no shares issued and outstanding                                                     -                -
     Common stock, $0.001 par value, 50,000,000 shares authorized,
         5,811,468 and 5,773,518 shares issued and outstanding, respectively                 12               12
     Additional paid-in capital                                                          51,281           50,975
     Treasury stock, 6,220,439 and 6,200,228 shares, respectively                       (45,633)         (45,488)
     Warrants, 825,000 exercisable at $0.01 per share                                     8,250            8,250
     Accumulated deficit                                                                (38,865)         (21,240)
                                                                                   -------------    -------------
         Total stockholders' deficit                                                    (24,955)          (7,491)
                                                                                   -------------    -------------
         Total liabilities and stockholders' deficit                                $   215,552      $   210,350
                                                                                   =============    =============
</TABLE>


                    The accompanying notes are an integral part of
                       these consolidated financial statements


                                         1

<PAGE>

                   COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                                                Three Months Ended           Nine Months Ended
                                                                           March 25,      March 26,     March 25,       March 26,
                                                                             1999           1998          1999            1998
                                                                          -----------    -----------  ------------    ------------
<S>                                                                        <C>            <C>           <C>             <C>
NET SALES                                                                   $ 42,433       $ 38,549     $ 118,060       $ 102,739
COST OF SALES                                                                 20,294         26,791        71,805          70,438
                                                                          -----------    -----------  ------------    ------------
         Gross profit                                                         22,139         11,758        46,255          32,301

SALES, MARKETING AND DELIVERY EXPENSES                                         9,023         10,196        30,182          29,695
GENERAL AND ADMINISTRATIVE EXPENSES                                            5,167          2,941        14,152           8,233
SPECIAL CHARGES AND OTHER                                                          -              -         3,652               -
AMORTIZATION OF INTANGIBLE ASSETS                                                427            614         1,286           1,588
TERMINATION OF MANAGEMENT FEE AND OTHER                                            -              -             -           2,400
                                                                          -----------    -----------  ------------    ------------
         Income (loss) from operations                                         7,522         (1,993)       (3,017)         (9,615)

INTEREST EXPENSE                                                               4,369          3,556        12,103           9,361
OTHER (INCOME) EXPENSE                                                            96            (63)          146             (30)
                                                                          -----------    -----------  ------------    ------------
         Income (loss) before income taxes, cumulative effect of change
            in accounting principle and extraordinary loss                     3,057         (5,486)      (15,266)        (18,946)

INCOME TAX (PROVISION) BENEFIT                                                (1,082)           417         5,408           7,579
                                                                          -----------    -----------  ------------    ------------
         Income (loss) before cumulative effect of change in accounting        1,975         (5,069)       (9,858)        (11,367)
            principle and extraordinary loss

CUMMULATIVE EFFECT OF CHANGE IN ACCOUNTING
     PRINCIPLE, net of tax benefit                                                 -              -         1,687               -

EXTRAORDINARY LOSS, net of tax benefit                                             -              -           999           2,594
                                                                          -----------    -----------  ------------    ------------
         Net income (loss)                                                     1,975         (5,069)      (12,544)        (13,961)

SERIES A PREFERRED STOCK DIVIDENDS/ACCRETION                                   1,710          1,524         4,840           1,524
                                                                          -----------    -----------  ------------    ------------
         Net income (loss) applicable to common stock                          $ 265       $ (6,593)    $ (17,384)      $ (15,485)
                                                                          ===========    ===========  ============    ============

Basic income (loss) per common share:
     Income (loss) before cumulative effect of change in accounting           $ 0.04        $ (0.95)      $ (2.12)        $ (1.88)
         principle and extraordinary loss
     Cumulative effect of change in accounting principle                         -              -           (0.24)            -
     Extraordinary loss                                                          -              -           (0.15)          (0.38)
                                                                          -----------    -----------  ------------    ------------
         Total                                                                $ 0.04        $ (0.95)      $ (2.51)        $ (2.26)
                                                                          ===========    ===========  ============    ============
Shares used in per share calculation                                       6,942,981      6,937,068     6,939,039       6,852,057
                                                                          ===========    ===========  ============    ============
Diluted income (loss) per common share:
     Income (loss) before cumulative effect of change in accounting           $ 0.03        $ (0.95)      $ (2.12)        $ (1.88)
         principle and extraordinary loss
     Cumulative effect of change in accounting principle                         -              -           (0.24)            -
     Extraordinary loss                                                          -              -           (0.15)          (0.38)
                                                                          -----------    -----------  ------------    ------------
         Total                                                                $ 0.03        $ (0.95)      $ (2.51)        $ (2.26) 
                                                                          ===========    ===========  ============    ============
Shares used in per share calculation                                       8,144,239      6,937,068     6,939,039       6,852,057
                                                                          ===========    ===========  ============    ============
</TABLE>

                    The accompanying notes are an integral part of
                       these consolidated financial statements


                                         2

<PAGE>

                   COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                      (IN THOUSANDS, EXCEPT COMMON SHARES)




<TABLE>
<CAPTION>
                                                 Common        Common       Paid-In      Treasury                   Accumulated
                                                 Shares         Stock       Capital        Stock      Warrants        Deficit
                                               ----------     ----------   ---------    ------------  ---------    --------------
<S>                                             <C>           <C>           <C>         <C>           <C>          <C>
Balance, June 30, 1998                          5,773,518          $ 12     $ 50,975      $(45,488)     $ 8,250       $ (21,240)

Accretion of Series A preferred stock                   -             -            -             -            -            (622)
Accretion of redeemable common stock                    -             -            -             -            -            (240)
Exercise of stock options                          37,950             -           54             -            -               - 
Series A preferred stock dividends                      -             -            -             -            -          (4,219)
Other                                                   -             -          252          (145)           -               - 
Net loss                                                -             -            -             -            -         (12,544)
                                               ----------     ----------   ---------    ------------  ---------    --------------
Balance, March 25, 1999 (unaudited)             5,811,468          $ 12     $ 51,281      $(45,633)     $ 8,250       $ (38,865)
                                               ==========     ==========   =========    ============  =========    ==============
<CAPTION>

                                                      Total
                                                  Stockholders'       Comprehensive
                                                     Deficit                Loss
                                                  ------------        --------------
<S>                                               <C>                 <C>
Balance, June 30, 1998                              $ (7,491)         $            -

Accretion of Series A preferred stock                   (622)                      -
Accretion of redeemable common stock                    (240)                      -
Exercise of stock options                                 54                       -
Series A preferred stock dividends                    (4,219)                      -
Other                                                    107                       -
Net loss                                             (12,544)                (12,544)
                                                   ----------         ---------------
Balance, March 25, 1999 (unaudited)                $ (24,955)         $      (12,544)
                                                   ==========         ===============
</TABLE>

                    The accompanying notes are an integral part of
                       these consolidated financial statements


                                         3

<PAGE>

                   COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOW

                                   (UNAUDITED)

                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                                Nine Months Ended
                                                                                            March 25,         March 26,
                                                                                              1999              1998
                                                                                          ------------      ------------
<S>                                                                                       <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                                              $ (12,544)        $ (13,961)
     Adjustments to reconcile net loss to net cash provided by operating
         activities:
         Depreciation and amortization                                                         5,553             5,484
         Interest paid in kind                                                                   496               449
         Deferred compensation                                                                   286                 -
         Deferred income taxes                                                                (6,867)           (9,309)
         Write-off of organization costs                                                       2,612                 -
         Write-off of unamortized financing costs                                              1,547             4,324
         Changes in operating assets and liabilities, net of effect of acquired
            businesses:
            Decrease (increase) in accounts receivable                                         4,955            (1,548)
            Increase in inventories                                                          (11,171)          (31,334)
            Decrease (increase) in prepaid expenses and other assets                             891              (332)
            Increase (decrease) in accounts payable                                           (5,643)            9,999
            Increase in accrued and other liabilities                                          3,191               389
                                                                                          ------------      ------------
                Net cash used in operating activities                                        (16,694)          (35,839)

CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash paid in business acquisitions, less cash acquired                                        -           (40,539)
     Purchases of fixed assets                                                                (2,382)          (11,240)
                                                                                          ------------      ------------
                Net cash used in investing activities                                         (2,382)          (51,779)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Issuance of common stock                                                                      -             5,130
     Purchase of treasury stock                                                                  (85)             (260)
     Financing costs                                                                          (1,983)             (756)
     Issuance of preferred stock and warrants                                                      -            40,000
     Proceeds from borrowings                                                                      -           136,803
     Debt and stock issuance costs                                                                 -            (7,848)
     Net borrowings under revolving line of credit                                            21,176            16,933
     Repayments of long-term debt                                                               (712)         (104,489)
                                                                                          ------------      ------------
                Net cash provided by financing activities                                     18,396            85,513

NET DECREASE IN CASH                                                                            (680)           (2,105)

CASH AT BEGINNING OF PERIOD                                                                    2,244             2,762
                                                                                          ------------      ------------
CASH AT END OF PERIOD                                                                        $ 1,564             $ 657
                                                                                          ============      ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the period for:
         Interest                                                                            $ 8,061           $ 5,337
                                                                                          ============      ============
         Income taxes                                                                           $ 26               $ 3
                                                                                          ============      ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
     FINANCING ACTIVITIES:
     Stock issued for acquisitions                                                               $ -             $ 625
                                                                                          ============      ============
</TABLE>


                    The accompanying notes are an integral part of
                       these consolidated financial statements


                                         4

<PAGE>

                             COLOR SPOT NURSERIES, INC.
                CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   MARCH 25, 1999


NOTE 1 - BASIS OF PRESENTATION AND OPERATIONS

     The information contained in the following notes to the consolidated 
financial statements of Color Spot Nurseries, Inc. (the "Company") is 
condensed from that which would appear in the annual consolidated financial 
statements. Accordingly, these financial statements should be read in 
conjunction with the Company's annual financial statements for its fiscal 
year ended June 30, 1998, contained in its Annual Report on Form 10-K filed 
with the Securities and Exchange Commission.  For purposes of this quarterly 
report on Form 10-Q, the term "three months or quarter ended March 25, 1999," 
relates to the period from December 25, 1998, through March 25, 1999, and the 
term "three months or quarter ended March 26, 1998," relates to the period 
from December 26, 1997, through March 26, 1998, the term "nine months ended 
March 25, 1999," relates to the period from July 1, 1998, through March 25, 
1999, and the term "nine months ended March 26, 1998," relates to the period 
from July 1, 1997, through March 26, 1998.

     During the quarter ended September 24, 1998, the Company hired several 
new executives with significant operating experience to bolster its current 
management team. The new management team redesigned the Company's 
organizational structure and quickly implemented measures designed to improve 
production, distribution and selling efficiencies and reduce product returns 
and shrink.  One of the tactical initiatives implemented by management has 
been to adjust the production planning process to better match supply and 
demand and limit excess inventory while maintaining high quality customer 
service.  This production change has resulted in reduced strategic 
overproduction and consequently, less shrink (i.e. write-off of unsaleable 
excess inventory).  The Company recorded a $3.7 million non-recurring special 
charge during the three months ended September 24, 1998 relating to the 
reduction of excess capacity through the closure of certain facilities, 
employee severance and other non-recurring consulting costs associated with 
actions taken by the new management team. 

     The Company's fiscal 1998 operating results were adversely impacted by 
severe weather and inventory overproduction that resulted in significant 
write-offs of unsaleable excess product.  As a result, for the fiscal year 
ended June 30,1998, the Company reported a net loss before income taxes and 
extraordinary items of $29.7 million and used $25.9 million of cash in 
operating activities. Consequently, the Company was not in compliance with 
certain financial covenants on its revolving credit facility at June 30, 
1998, but a waiver was obtained from the banks for the violations. 

     As of March 25, 1999, the Company had $156.2 million of long-term 
indebtedness and an accumulated deficit of $38.9 million.  The Company is 
highly leveraged.  On October 15, 1998, the Company entered into a new 
three-year loan agreement providing up to $70.0 million of availability. In 
connection with this refinancing, the Company's existing revolving credit 
facility and its associated acquisition term loan facility and supplemental 
line were terminated (see Note 6).  Although the Company succeeded in 
refinancing its debt on October 15, 1998, there can be no assurance that the 
Company will be able to generate sufficient cash flows or meet its financial 
goals to comply with debt covenants in the future. The Company has 
significant debt service obligations.  The Company's debt service obligations 
will have important consequences to holders of its debt, preferred stock, 
warrants and common stock including the following: (i) a substantial portion 
of the Company's cash flow from operations will be dedicated to the payment 
of principal and interest on its indebtedness, thereby reducing the funds 
available to the Company for operations, acquisitions, future business 
opportunities and other purposes and increasing the Company's vulnerability 
to adverse general economic and industry conditions; (ii) the Company's 
leveraged position may increase its vulnerability to competitive pressures; 
(iii) the financial covenants and other restrictions contained in the new 
loan agreement, the indenture for its outstanding senior subordinated notes 
and the certificate of designation for the Series A Preferred Stock will 
require the Company to meet certain financial tests and will restrict its 


                                     5

<PAGE>

ability to borrow additional funds, to dispose of assets 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.

     The accompanying financial statements have been prepared contemplating 
the realization of all recorded assets, including intangible assets and 
deferred tax assets and the satisfaction of liabilities in the normal course 
of business. The Company must generate sufficient cash flow to meet its 
obligations as they come due, comply with the terms of its new credit 
facility, and maintain profitability or there will be a material adverse 
impact on the Company's business, financial position and results of 
operations. 

     The consolidated financial statements as of March 25, 1999, and for the 
three and nine months ended March 25, 1999, and March 26, 1998, are 
unaudited. However, in the opinion of management, these financial statements 
reflect all adjustments (of a normal and recurring nature) which are 
necessary for a fair presentation of the financial position, results of 
operations and cash flows for the interim periods. The preparation of 
financial statements in conformity with generally accepted accounting 
principles requires management to make estimates and assumptions that affect 
the reported amounts of assets and liabilities at the date of the financial 
statements and the reported amounts of revenues and expenses during the 
reporting period. Actual results could differ from those estimates. 
Accounting measurements at interim dates inherently involve greater reliance 
on estimates than at year-end. The Company's operations are highly seasonal 
and the results of operations for the interim periods are not necessarily 
indicative of the results to be expected for the entire year.

NOTE 2 - INVENTORIES
     
     Inventories at March 25, 1999 and June 30, 1998, consisted of the 
following (in thousands):

<TABLE>
<CAPTION>

                                                   MARCH 25,        JUNE 30,
                                                     1999             1998
                                                  -----------     -----------
                                                  (UNAUDITED)
         <S>                                      <C>            <C>
         Current:                                 
            Plants, shrubs and ground cover      $     51,458    $     39,764
            Raw materials and supplies                  4,743           7,565
            Inventory reserves                         (2,366)         (5,023)
                                                  -----------     -----------
               Total current inventories               53,835          42,306
         Non-current:
            Christmas trees                             3,249           3,607
                                                  -----------     -----------
               Total inventories                 $     57,084    $     45,913
                                                  ===========     ===========
</TABLE>



                                        6

<PAGE>

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment at March 25, 1999, and June 30, 1998, 
consisted of the following (in thousands): 

<TABLE>
<CAPTION>

                                                                  MARCH 25,                JUNE 30,
                                                                    1999                    1998
                                                              ----------------         -------------
                                                                   (UNAUDITED)
         <S>                                                 <C>                      <C>
         Land                                                $       10,049           $      10,047
         Greenhouses and buildings                                   25,439                  21,157
         Furniture and fixtures                                       5,027                  4,593
         Machinery and equipment                                     17,529                  16,333
         Leasehold improvements                                       5,690                  5,356
         Other                                                         -                      3,789
                                                              ----------------         -------------
                                                                     63,734                  61,275
         Less: Accumulated depreciation                             (11,427)                 (7,078)
                                                              ----------------         -------------
            Total property, plant and equipment              $       52,307           $      54,197
                                                              ================         =============
</TABLE>


NOTE 4 - INTANGIBLE ASSETS

     Intangible assets at March 25, 1999, and June 30, 1998, consisted of the
following (in thousands):


<TABLE>
<CAPTION>

                                                                    MARCH 25,                  JUNE 30,
                                                                      1999                       1998
                                                                  -------------            -------------
                                                                   (UNAUDITED)
             <S>                                                 <C>                      <C>
             Goodwill                                            $       47,517           $       47,517
             Organization costs                                            -                       3,578
             Financing costs                                              6,218                    5,911
             Non-compete agreements                                       1,694                    1,694
             Other                                                          916                      911
                                                                  -------------            -------------
                                                                         56,345                   59,611
             Less: Accumulated amortization                              (4,591)                  (3,494)
                                                                  -------------            -------------
                Total intangible assets                          $       51,754           $       56,117
                                                                  =============            =============
</TABLE>

     In April 1998, the AICPA issued Statement of Position 98-5 "Reporting on 
Costs of Start-Up Activities" ("SOP 98-5").  SOP 98-5 requires 
non-governmental entities to expense start-up costs, including organization 
costs, as incurred.  The Company early-adopted SOP 98-5 on July 1, 1998 and 
recognized a $2.6 million pre-tax charge ($1.7 million after tax benefit), 
which was accounted for as a change in accounting principle.


                                     7

<PAGE>

NOTE 5 - ACQUISITIONS

     Between July 31, 1997 and September 3, 1997, the Company acquired six 
businesses.  The Company accounted for all of these acquisitions using the 
purchase method of accounting whereby the purchase price, including 
liabilities assumed, was allocated based upon the fair value of the tangible 
and intangible assets of the acquired entity.  Results of operations of the 
acquired entities subsequent to the purchase date are included in the 
consolidated financial statements.

     Pro forma operating results of the Company, assuming all the above 
acquisitions occurred on July 1, 1997, are presented below (in thousands, 
except per share amounts):

<TABLE>
<CAPTION>
                                                                            NINE MONTHS ENDED
                                                                    MARCH 25,               MARCH 26,
                                                                      1999                    1998
                                                               --------------------    --------------------
                                                                   (UNAUDITED)             (UNAUDITED)
         <S>                                                  <C>                      <C>
         Net sales                                            $         118,060        $        104,602
         Loss before cumulative effect of
           change in accounting principle
           and extraordinary loss                                        (9,858)                (12,075)

         Loss per share before cumulative
           effect of change in accounting
           principle and extraordinary loss
           (including the effect of
         preferred stock dividends/accretion)                             (2.12)                  (1.98)
         Shares used in per share calculation                         6,939,039               6,856,897
</TABLE>

NOTE 6 - DEBT

     Debt at March 25, 1999, and June 30, 1998, consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                    MARCH 25,               JUNE 30,
                                                                      1999                    1998
                                                               --------------------    --------------------
                                                                   (UNAUDITED)
         <S>                                                  <C>                     <C>
         Revolving line of credit                             $           45,214      $           24,038
         Senior subordinated notes                                       100,000                 100,000
         Convertible note                                                  8,471                   7,986
         Non-compete agreements                                              819                   1,073
         Other                                                             2,553                   3,000
                                                               -----------------       -----------------
                                                                         157,057                 136,097
         Less: Current maturities                                           (889)                 (1,053)
                                                               -----------------       -----------------
             Long-term portion                                $          156,168      $          135,044
                                                               =================       =================
</TABLE>


                                     8

<PAGE>

     On October 15, 1998, the Company entered into a Loan and Security 
Agreement with Fleet Capital Corporation,  (the "Fleet Loan Agreement"), and 
the Company's existing credit facility was repaid in full.  The Fleet Loan 
Agreement provides a $70.0 million revolving credit facility, $55.0 million 
of which is subject to certain borrowing base limitations based on a 
percentage of eligible inventory and eligible accounts receivable and $15.0 
million of which is available, without limitation, from November 1 through 
April 30 each year.  As of March 25, 1999, a total of $45.2 million was 
outstanding and an additional $15.4 million was available under this line of 
credit.

     The Fleet Loan Agreement is secured by substantially all of the 
Company's assets.  Interest under the Fleet Loan Agreement accrues at a 
variable rate equal to the Prime plus 1.0% or LIBOR plus 3.0%.  In addition, 
to the extent that the Company's borrowings exceed certain borrowing base 
limitations during the period from November 1 through April 30, the interest 
rates increase by an additional 0.5%.  The Fleet Loan Agreement terminates 
October 15, 2001.  The Fleet Loan Agreement restricts, among other things, 
the Company's ability to incur additional indebtedness, incur liens, pay or 
declare dividends, or enter into certain transactions.  In addition, the 
Fleet Loan Agreement requires the Company to meet certain financial 
covenants. As of March 25, 1999, the Company was in compliance with these 
covenants.

     The Company recorded a $1.0 million non-cash extraordinary charge, net 
of tax benefit, related to the write-off of unamortized financing costs 
associated with the terminated credit facility in connection with the 
refinancing in its second fiscal quarter of fiscal 1999.


                                     9

<PAGE>

NOTE 7 - EARNINGS PER SHARE

     Basic and diluted earnings per share is as follows:

<TABLE>
<CAPTION>
                                                    Three Months Ended                                       Nine Months Ended
                                                      March 25, 1999                                          March 25, 1999
                                                      --------------                                          --------------

                                         Income/                       Per Share          Income/                    Per Share
                                         (loss)            Shares        Amount           (loss)            Shares     Amount
                                         ------            ------        ------           ------            ------     ------
                                      (in thousands)                                  (in thousands) 
<S>                                    <C>                 <C>       <C>              <C>                   <C>      <C>
BASIC EARNINGS PER SHARE:

Income (loss) before
   cumulative effect of change
   in accounting principle and
   extraordinary loss                  $    1,975                    $    0.29         $     (9,858)                  $    (1.42)

Preferred stock                                                                        
   dividends/accretion                     (1,710)                       (0.25)              (4,840)                       (0.70)
                                     -----------------               --------------   ----------------               -------------

Income (loss) before
   extraordinary loss and
   cumulative effect of change
   in accounting principle
   (including preferred
   stock dividends/accretion)                 265                         0.04            (14,698)                         (2.12)

Cumulative effect of change
   in accounting principle                    -                             -              (1,687)                         (0.24)

Extraordinary loss                            -                             -                (999)                         (0.15)
                                     -----------------               --------------   ----------------               -------------

Net income (loss) applicable
   to common stock                     $      265        6,942,981   $    0.04         $  (17,384)        6,939,039  $     (2.51)
                                     =================               ==============   ================               =============


DILUTED EARNINGS PER SHARE:

Convertible debt, options,
   etc.                                                 1,201,258
                                                       ------------

Net income applicable to
   common stock                        $      265       8,144,239    $    0.03
                                     =================               ==============
</TABLE>


                                      10

<PAGE>

<TABLE>
<CAPTION>
                                                        Three Months Ended                           Nine Months Ended
                                                          March 26, 1998                               March 26, 1998
                                                          --------------                               --------------

                                                 Income/                     Per Share       Income/                    Per Share
                                                 (loss)      Shares           Amount         (loss)        Shares         Amount
                                                 ------      ------           ------         ------        ------       ---------
                                                  (in                                          (in
                                               thousands)                                   Thousands)
<S>                                           <C>            <C>            <C>            <C>             <C>         <C>
BASIC AND DILUTED EARNINGS PER SHARE:
                                              $   (5,069)                   $    (0.73)    $   (11,367)                $    (1.66)
Loss before extraordinary loss

Preferred stock dividends/accretion               (1,524)                        (0.22)         (1,524)                     (0.22)
                                              --------------                -------------  --------------              ------------
Loss before extraordinary loss
  (including preferred stock
  dividends/accretion                             (6,593)                        (0.95)        (12,891)                     (1.88)

Extraordinary loss                                   -                            -             (2,594)                     (0.38)
                                              --------------                -------------  --------------              -----------

Net loss applicable to common stock           $   (6,593)     6,937,068     $    (0.95)    $   (15,485)    6,852,057   $    (2.26)
                                              =============                 =============  ==============              ===========
</TABLE>

     For the nine months ended March 25, 1999 and the three and nine months 
ended March 26, 1998, the effect of options, warrants and convertible 
securities was antidilutive and is therefore excluded from the computation of 
earnings per share. 

NOTE 8 - SPECIAL CHARGES AND OTHER 

     During the quarter ended September 24, 1998, the Company recorded a 
pre-tax special charge of $3.7 million related to the closure of certain 
facilities, employee severance, and other incurred, non-recurring consulting 
costs.  These costs were associated with new management's ongoing review of 
the Company's operations.


                                     11

<PAGE>

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

GENERAL

     The Company is one of the largest wholesale nurseries in the United 
States, based on annual revenue and greenhouse square footage.  The Company 
sells a wide assortment of high-quality bedding plants, shrubs, potted 
flowering plants, ground cover and Christmas trees as well as provides 
extensive merchandising services primarily to leading home centers and mass 
merchants.  The Company's business is seasonal with a peak selling season in 
the spring generally from March through June. Consequently, the Company has 
historically reported losses and lower revenues during its first and second 
fiscal quarters. 

     During the quarter ended September 24, 1998, the Company hired several 
new executives with significant operating experience to bolster its current 
management team.  The new management team redesigned the Company's 
organizational structure and quickly implemented measures designed to improve 
production and distribution efficiencies and reduce product returns and 
excess inventory.  One of the tactical initiatives implemented by management 
has been to adjust the production planning process to better match supply and 
demand and limit excess inventory while maintaining high quality customer 
service.  This production change has resulted in reduced strategic 
overproduction and consequently, less shrink (i.e. write-off of unsaleable 
excess inventory).

     The Company recorded a $3.7 million pre-tax, non-recurring special 
charge during the three months ended September 24, 1998 relating to the 
reduction of excess production capacity through the closure of certain 
facilities, employee severance and other non-recurring consulting costs 
associated with actions taken by the new management team.

THREE MONTHS ENDED MARCH 25, 1999, AS COMPARED TO THE THREE MONTHS ENDED MARCH
26, 1998

     NET SALES.  Net sales increased $3.9 million, or 10.1%, to $42.4 million 
for the three months ended March 25, 1999, from $38.5 million during the 
three months ended March 26, 1998.  This increase is primarily the result of 
higher sales in the Company's southwestern division and lower product returns 
in the western division.

     GROSS PROFIT.  Gross profit increased $10.4 million, or 88.3%, to $22.1 
million for the three months ended March 25, 1999, from $11.8 million during 
the three months ended March 26, 1998.  Gross profit as a percentage of net 
sales increased to 52.2% for the three months ended March 25, 1999, from 
30.5% for the three months ended March 26, 1998. The increase in gross profit 
percentage was primarily the result of a decrease in the write-off of excess 
inventory of $5.8 million, or 80.4%, a decrease in product returns of $1.7 
million and decreases in production units.  These decreases were accomplished 
through improved production planning and control combined with management's 
initiatives to better match supply with demand. 

     OPERATING EXPENSES.  Operating expenses include sales, marketing and 
delivery expenses, general and administrative expenses, amortization of 
intangible assets.  Sales, marketing and delivery expenses decreased $1.2 
million, or 11.5%, to $9.0 million for the three months ended March 25, 1999, 
from $10.2 million in the three months ended March 26, 1998.  As a percentage 
of net sales, sales, marketing and delivery expenses decreased to 21.3% for 
the three months ended March 25, 1999, from 26.4% for the three months ended 
March 26, 1998.  This decrease as a percentage of net sales was primarily the 
result of significantly improved delivery efficiencies that decreased 
delivery expenses as a percent of net sales to 10.7% for the three months 
ended March 25, 1999, from 14.2% for the three months ended March 26, 1998. 
General and administrative expenses increased $2.2 million, to $5.2 million 
for the three months ended March 25, 1999, from $2.9 million in the three 
months ended March 26, 1998. As a percentage of net sales, general and 
administrative expenses increased to 12.2% for the three months ended March 
25, 1999, from 7.6% for the three months ended March 26, 1998.  This increase 
as a percentage of net sales is primarily the result of increased hiring and 
a revised compensation structure for key management and other employees to 
support the Company's operations. Amortization of intangible assets decreased 
$0.2 million to $0.4 million for the three months ended March 25, 1999, from 
$0.6 million for the three months ended March 26,1998, due to the write-off 
of unamortized organization costs during the three months ended September 24, 
1998.


                                      12

<PAGE>

     INTEREST EXPENSE.  Interest expense increased $0.8 million to $4.4 
million for the three months ended March 25, 1999, from $3.6 million in the 
three months ended March 26, 1998, as a result of higher levels of borrowings 
required to fund operating losses in prior periods and the Company's working 
capital requirements.

     TAXES.  While the Company's financial statements include tax expense or 
benefit, the Company has historically not paid income taxes.  Agricultural 
companies are permitted to calculate taxable income on a cash basis. As a 
result of the Company's growth, this treatment has enabled the Company to 
generate significant net operating losses since its inception and accumulate 
a large net operating loss carryforward.  In addition, the Company's 
effective tax rate has been different than the U.S. statutory rate of 34%.  
The difference between the Company's effective tax rate and the U.S. 
statutory rate is due to state tax provisions and other California tax 
limitations on the use of net operating loss carryforwards.  The Company's 
effective tax rate increased to 35.4% for the three months ended March 25, 
1999, from 7.6% for the three months ended March 26, 1998.  This increase was 
primarily the result of adjustments necessary during the three months ended 
March 26, 1998 to record income taxes at the projected effective tax rate for 
the fiscal year ending June 30, 1998.

NINE MONTHS ENDED MARCH 25, 1999, AS COMPARED TO THE NINE MONTHS ENDED MARCH 26,
1998

     NET SALES.  Net sales increased $15.3 million, or 14.9 %, to $118.1 
million for the nine months ended March 25, 1999, from $102.7 million during 
the nine months ended March 26, 1998. This increase is primarily the result 
of a $4.5 million increase in net sales of the Company's Christmas tree 
division, higher sales in the Company's southwestern division, lower product 
returns in the western division as well as additional sales resulting from 
business acquisitions made during the nine months ended March 26, 1998.

     GROSS PROFIT.  Gross profit increased $14.0 million, or 43.2%, to $46.3 
million for the nine months ended March 25, 1999, from $32.3 million during 
the nine months ended March 26, 1998.  Gross profit as a percentage of net 
sales increased to 39.2% for the nine months ended March 25, 1999, from 31.4% 
for the nine months ended March 26, 1998. The increase in gross profit 
percentage was primarily the result of a decrease in the write-off of excess 
inventory of $8.7 million, or 17.4% and a decrease in product returns of $4.3 
million.  These decreases were accomplished through improved production 
planning and control combined with management's initiatives to better match 
supply with demand. 

     OPERATING EXPENSES.  Operating expenses include sales, marketing and 
delivery expenses, general and administrative expenses, amortization of 
intangible assets and special charges.  Sales, marketing and delivery 
expenses increased $0.5 million, or 1.6%, to $30.2 million for the nine 
months ended March 25, 1999, from $29.7 million in the nine months ended 
March 26, 1998.  As a percentage of net sales, sales, marketing and delivery 
expenses decreased to 25.6% for the nine months ended March 25, 1999, from 
28.9% for the nine months ended March 26, 1998. This decrease as a percentage 
of net sales was primarily the result of significantly improved delivery 
efficiencies that decreased delivery expense as a percent of net sales to 
14.8% for the nine months ended March 25, 1999, from 17.2% for the nine 
months ended March 26, 1998. General and administrative expenses increased 
$6.0 million, to $14.2 million for the nine months ended March 25, 1999, from 
$8.2 million for the nine months ended March 26, 1998.  As a percentage of 
net sales, general and administrative expenses increased to 12.0% for the 
nine months ended March 25, 1999, from 8.0% for the nine months ended March 
26, 1998.  This increase as a percentage of net sales is primarily the result 
of increased hiring and a revised compensation structure for key management 
and other employees to support the company's operations. Amortization of 
intangible assets decreased $0.3 million to $1.3 million for the nine months 
ended March 25, 1999, from $1.6 million for the nine months ended March 
26,1998, due to the write-off of unamortized organization costs during the 
nine months ended March 25, 1998.

     SPECIAL CHARGES AND OTHER.  During the quarter ended September 24, 1998, 
the Company recorded a pre-tax special charge of $3.7 million related to the 
closure of certain facilities, employee severance, and other non-recurring 
consulting costs.  These costs were associated with new management's ongoing 
review of the Company's operations.

     INTEREST EXPENSE.  Interest expense increased $2.7 million to $12.1 
million for the nine months ended March 25, 1999, from $9.4 million in the 
nine months ended March 26, 1998, as a result of significantly higher levels 
of borrowings required to fund operating losses and the Company's working 
capital requirements.


                                    13

<PAGE>

     TAXES.  While the Company's financial statements include tax expense or 
benefit, the Company has historically not paid income taxes.  Agricultural 
companies are permitted to calculate taxable income on a cash basis. As a 
result of the Company's growth, this treatment has enabled the Company to 
generate significant net operating losses since its inception and accumulate 
a large net operating loss carryforward. In addition, the Company's effective 
tax rate has been different than the U.S. statutory rate of 34%.  The 
difference between the Company's effective tax rate and the U.S. statutory 
rate is due to state tax provisions and other California tax limitations on 
the use of net operating loss carryforwards.  The Company's effective tax 
rate decreased to 35.4% for the nine months ended March 25, 1999, from 40.0% 
for the nine months ended March 26, 1998.  This decrease was primarily the 
result of expected full year results and the corresponding impact of the 
various state limitations thereon.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash needs are primarily to fund seasonal working capital 
requirements and capital expenditures.  During the three and nine months 
ended March 25, 1999, the Company's primary source of capital was a revolving 
line of credit. 

     On October 15, 1998, the Company entered into a Loan and Security 
Agreement with Fleet Capital Corporation (the "Fleet Loan Agreement"), and 
repaid in full its prior credit facility.  The Fleet Loan Agreement provides 
a $70.0 million revolving credit facility, $55.0 of which is subject to 
certain borrowing base limitations based on a percentage of eligible 
inventory and eligible accounts receivable and $15.0 million of which is 
available without limitation from November 1 through April 30 each year.  As 
of March 25, 1999, a total of $45.2 million was outstanding and an additional 
$15.4 million was available under this line of credit.

     During the nine months ended March 25, 1999, net cash used in operating 
activities was $16.7 million primarily as a result of operating losses and 
seasonal increases in inventory and decreases in accounts payable partially 
offset by lower levels of receivables resulting from improved collection 
efforts.  Net cash used in investing activities during the nine months ended 
March 25, 1999, and March 26, 1998, was $2.4 million and $51.8 million, 
respectively. The Company used $40.5 million of cash to acquire six 
businesses during the nine months ended March 26, 1998, and spent $2.4 
million and $11.2 million on capital expenditures during the nine months 
ended March 25, 1999, and March 26, 1998, respectively. 

     The Company is highly leveraged.  As of March 25, 1999, the Company has 
$156.2 million of long-term indebtedness and an accumulated deficit of $38.9 
million.  Although the Company believes that the cash available from the 
Fleet Loan Agreement and operations will be sufficient to finance working 
capital requirements and capital expenditures for the next 12 months, there 
is no assurance that the Company will be able to generate sufficient cash 
flows or meet its financial goals and comply with its debt covenants in the 
future.  The Company may incur additional indebtedness in the future, subject 
to certain limitations contained in the instruments governing its 
indebtedness and capital stock.  The Company's debt service obligations have 
important consequences to holders of its debt, preferred stock, warrants and 
common stock including the following: (i) a substantial portion of the 
Company's cash flow from operations will be dedicated to the payment of 
principal and interest on its indebtedness, thereby reducing the funds 
available to the Company for operations, acquisitions, future business 
opportunities and other purposes and increasing the Company's vulnerability 
to adverse general economic and industry conditions; (ii) the Company's 
leveraged position may increase its vulnerability to competitive pressures; 
(iii) the financial covenants and other restrictions contained in the Fleet 
Loan Agreement, the indenture for the outstanding senior subordinated notes 
and the certificate of designation for the Series A Preferred Stock will 
require the Company to meet certain financial tests and will restrict its 
ability to borrow additional funds, to dispose of assets 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.


                                     14

<PAGE>

YEAR 2000 COMPLIANCE PROGRAM

     YEAR 2000 PROBLEM

     The Year 2000 problem is the result of computer programs being written 
using two digits (rather than four) to define the applicable year.  Any of 
the Company's programs that have time-sensitive software or equipment that 
has time-sensitive embedded components may recognize a date using "00" as the 
year 1900 rather than the year 2000.  This could result in a major system 
failure or miscalculations.  The Company also may be vulnerable to other 
companies' Year 2000 issues.  The Company's current estimates of the impact 
of the Year 2000 problem on its operations and financial results do not 
include costs and time that may be incurred as a result of any vendors' or 
customers' failure to become Year 2000 compliant on a timely basis.  

     STATE OF READINESS

     During fiscal 1998, Color Spot developed and began to implement a Year 
2000 compliance plan to ensure that its business is not interrupted by the 
year 2000 problem.  In its compliance plan, the Company identified seven 
basic operational areas that have been and will continue to be examined:

     --   financial systems, such as general ledger, accounts receivable and
          payable, inventory, order entry, sales force automation and purchasing

     --   computer hardware, including major hardware to operate the financial
          systems and related operating software

     --   operational and support systems, such as telephone equipment,
          greenhouse automation and watering systems

     --   secondary computer systems, including custom built software

     --   customers' compliance efforts, including identifying whether the
          Company's high-volume customers are Year 2000 compliant

     --   suppliers' compliance efforts, including whether significant suppliers
          are Year 2000 compliant

     --   service vendors' compliance efforts, including identifying significant
          service vendors and whether they are Year 2000 compliant.

     The Company has tested its primary financial systems and hardware and 
determined that they are generally Year 2000 compliant; however, the Company 
has determined that one of its divisional financial systems and certain of 
its operational and support systems and secondary systems are not Year 2000 
compliant, but that the cost of making the necessary changes to ensure Year 
2000 compliance will not be material.  See "--Cost of Compliance and Risks of 
Non-Compliance."  The Company has contacted, or has been contacted by, its 
top ten customers and vendors and determined they are Year 2000 compliant.  
The Company anticipates that its compliance plan will be completed by 
mid-1999.

     COST OF COMPLIANCE AND RISKS OF NON-COMPLIANCE

     Color Spot believes that the cost of ensuring Year 2000 compliance for 
its own financial systems, computer hardware, operational and support systems 
and secondary computer systems will be less than $50,000 ($20,000 of which 
was incurred through March 25, 1999). 

     The Company continues to bear some risk, however, related to the Year 2000
issue and could be adversely affected if other entities affiliated with the
Company do not appropriately address their own Year 2000 compliance issues. The
Company's current estimates of the impact of the Year 2000 problem on its
operations and financial results do not include costs and time that may be
incurred as a result of other


                                     15

<PAGE>

companies' failure to become Year 2000 compliant on a timely basis.  There 
can be no assurance that such other companies will achieve Year 2000 
compliance or that any conversions by such companies to become Year 2000 
compliant will be compatible with the Company's computer system.  The 
inability of the Company or any of its principal vendors or customers to 
become Year 2000 compliant in a timely manner could have a material adverse 
effect on the Company's financial condition or results of operation.

     CONTINGENCY PLANS

     If the Company's suppliers and service vendors are not Year 2000 
compliant, the Company may have to arrange for alternative sources of supply 
and may increase its inventory of raw materials in the fall of 1999 in 
preparation for the Year 2000 growing season.  Because most of the Company's 
raw material purchases are made prior to year-end, the Company does not 
expect that its contingency plans will have a material effect on cash flows.



                                     16

<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company's liabilities consist primarily of a revolving line of 
credit, senior subordinated notes, other notes and accounts payable.  The 
Company has also issued Series A Preferred Stock and Redeemable Common Stock. 
Such liabilities and stockholders' equity have varying levels of sensitivity 
to changes in market interest rates.  Interest rate risk results when, due to 
different maturity dates and repricing intervals, interest rate indices for 
interest-bearing liabilities increase relative to income earning assets, 
thereby creating a risk of decreased net earnings and cash flow.

     The following table provides information about the Company's market 
sensitive liabilities, categorized by maturity, and constitutes a 
"forward-looking statement."  For more information, please refer to Item 1. 
"Financial Statements and Notes to Consolidated Financial Statements."

<TABLE>
<CAPTION>
                                 Expected Maturities
                                                                                                    There-
Long-term Liabilities:              1999         2000         2001         2002         2003         after       Total
                                 ------------ ------------ ------------ ------------ ------------ ----------- ------------ --
                                                                    (dollars in millions)
<S>                              <C>          <C>          <C>          <C>          <C>           <C>
   Fixed Rate:

       Series A Preferred Stock        -            -           -            -          $2.6        $94.6         $97.2
       Average Interest Rate         13%          13%          13%          13%          13%         13%

       Senior Subordinated
             Notes                  $10.5        $10.5        $10.5        $10.5        $10.5       $142.0      $194.5
       Average Interest Rate        10.5%         10.5%       10.5%         10.5%       10.5%       10.5%

       Convertible Note               -            -            -            -            -         $12.2        $12.2
       Average Interest Rate        8.0%         8.0%         8.0%         8.0%         8.0%         8.0%

       Non-compete Agreements       $0.1         $0.1         $0.1         $0.1         $0.1         $1.0        $1.6
       Average Interest Rate        9.0%          9.0%        9.0%         9.0%         9.0%         9.0%

   Variable Rate:
       Fleet Loan Agreement                                              $70.0(1)                                 $70.0

</TABLE>

     (1)  On October 15, 1998, the Company entered into the Fleet Loan 
Agreement, borrowed approximately $32 million, and repaid in full amounts due 
under its existing credit facility.  The Fleet Loan Agreement terminates in 
October 2001 (fiscal 2002).  See Item 2. Management's Discussion and Analysis 
of Financial Condition and Results of Operation -- Liquidity and Capital 
Resources" and Note 6 to the Notes to Consolidated Financial Statements.  The 
average interest rate is the Base Rate plus 1.0% or LIBOR plus 3.0%, as 
defined in the Fleet Loan Agreement.


                                     17

<PAGE>

                            PART II. - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

     The Company and its subsidiaries are from time to time subject to 
various legal proceedings incidental to its business.  Management believes 
that the ultimate resolution of these proceedings will not have a material 
adverse effect on the Company's financial position or results of operations, 
taken as a whole.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     During the quarter ended March 25, 1999, the Company issued 37,950 
shares of common stock to two employees upon exercise of options.  For both 
of these transactions, the Company relied on the exemption from registration 
provided by Section 4(2) of the Securities Act of 1933.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None.

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

     At the 1999 Annual meeting of Stockholders held March 17, 1999, the 
Company's stockholders:

     -    elected George T. Brophy, Richard E. George, Gary E. Mariani, and
          William F. Dordelman as directors;

     -    ratified the appointment of Marion Antonini, Raju Boligala, William F.
          Dordelman and A. Stephen Diamond as directors; and

     -    approved an amendment to the Company's Certificate of Incorporation
          that will allow directors to take action by written consent.

ITEM 5.  OTHER INFORMATION

     None.



                                     18

<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                         DESCRIPTION OF DOCUMENT
------                         -----------------------
<C>    <S>
3.1    Amendment to Articles of Incorporation.

10.1   Amended and Restated Employment Agreement between the Registrant and
       Raju Boligala.

11.1   Computations of Earnings Per Share -- See Note 7 to the Notes to
       Consolidated Financial Statements.

27.1   Financial Data Schedule.

</TABLE>

(b)    REPORTS ON FORM 8-K.

     None.


                                       19

<PAGE>

                                      SIGNATURES

     Pursuant to the requirements of Section 13 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.

     Date: May 7, 1999.


                              COLOR SPOT NURSERIES, INC.
                              a Delaware corporation


                              By: /s/ Michael F. Vukelich
                                 ---------------------------------
                              Name:     Michael F. Vukelich
                              Title:    Chairman of the Board, Chief
                                        Executive Officer and Director
                                        (PRINCIPAL EXECUTIVE OFFICER)


                              By: /s/ Carlos R. Plaza
                                 ---------------------------------
                              Name:     Carlos R. Plaza
                              Title:    Executive Vice President and Chief
                                        Financial Officer (PRINCIPAL FINANCIAL
                                        OFFICER AND PRINCIPAL ACCOUNTING
                                        OFFICER)



                                   20

<PAGE>

                                   EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                         DESCRIPTION OF DOCUMENT 
------                         -----------------------
<C>    <S>
3.1    Amendment to Articles of Incorporation.

10.1   Amended and Restated Employment Agreement between the Registrant and Raju
       Boligala.

11.1   Computations of Earnings Per Share -- See Note 7 to the Notes to
       Consolidated Financial Statements.

27.1   Financial Data Schedule.

</TABLE>



                                        21