---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

---

FORM 10-Q

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2001

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 000-23483

---

COLOR SPOT NURSERIES, INC.(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or Other Jurisdiction of Incorporation
or Organization)

68-0363266(I.R.S. Employer Identification No.)3478 Buskirk Avenue, Suite 260,
Pleasant Hill, CA(Address of Principal Executive Offices)

94523(Zip Code)


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 1, 2001, the Registrant had 6,948,597 shares of its common stock outstanding.

---

---

---

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. 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" or "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 to differ, perhaps materially, from anticipated results. These risks and uncertainties include, among others:



For a discussion of these factors and others, please see "Management's Discussion and Analysis of Financial Condition and Results of
OperationCertain Business Considerations" of the Company's Transition Report on Form 10-K for the period ended December 31, 2000 (as filed with the Securities
and Exchange Commission on April 2, 2001). 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 press releases.

---

COLOR SPOT NURSERIES, INC.

INDEX

|                             |         |                                                                                                      |                                                                                       | PAGE
|---------------------------- | ------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----
|Part IFinancial Information |         |                                                                                                     
|                             | Item 1. |                                                                                                      | Financial Statements:                                                                 |     
|                             |         | Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000                               |                                                                                       | 1   
|                             |         | Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and March 30, 2000.  |                                                                                       | 2   
|                             |         | Consolidated Statement of Changes in Stockholders' Equity for the Three Months Ended March 31, 2001. |                                                                                       | 3   
|                             |         | Consolidated Statements of Cash Flow for the Three Months Ended. March 31, 2001 and March 30, 2000   |                                                                                       | 4   
|                             |         | Condensed Notes to Consolidated Financial Statements as of March 31, 2001                            |                                                                                       | 5   
|                             | 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Other Information    |         |                                                                                                     
|                             | 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                   |         |                                                                                                      |                                                                                       | 13  

---



Item 1.

COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (in thousands, except share data)

|                                                                                                                                                |                                                                                                       | March 31,
2001                              |         | December 31,
2000 |        
|----------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------- | ----------------- | -------
|
|ASSETS                                                                                                                                          |                                                                                                       |                                             |         |                   |        
|CURRENT ASSETS:                                                                                                                                 |                                                                                                       |                                             |         |                   |        
|                                                                                                                                                | Cash                                                                                                  |                                             | $       | 1,186             |        
|                                                                                                                                                | Accounts receivable, net of allowances of $1,680 and $1,935, respectively                             |                                             |         | 26,941            |        
|                                                                                                                                                | Inventories, net                                                                                      |                                             |         | 59,543            |        
|                                                                                                                                                | Prepaid expenses and other                                                                            |                                             |         | 823               |        
|                                                                                                                                                |                                                                                                       |                                             |         |                   |        
|                                                                                                                                                |                                                                                                       | Total current assets                        |         |                   | 88,493 
|CHRISTMAS TREE INVENTORIES                                                                                                                      |                                                                                                       |                                             | 8,603   |                   |        
|PROPERTY, PLANT AND EQUIPMENT, net                                                                                                              |                                                                                                       |                                             | 49,301  |                   |        
|ASSETS HELD FOR SALE                                                                                                                            |                                                                                                       |                                             |        |                   |        
|INTANGIBLE ASSETS, net                                                                                                                          |                                                                                                       |                                             | 44,440  |                   |        
|DEFERRED INCOME TAXES                                                                                                                           |                                                                                                       |                                             | 26,575  |                   |        
|NOTES RECEIVABLE AND OTHER ASSETS                                                                                                               |                                                                                                       |                                             | 790     |                   |        
|                                                                                                                                                |                                                                                                       |                                             |         |                   |        
|                                                                                                                                                |                                                                                                       | Total assets                                |         | $                 | 218,202
|                                                                                                                                                |                                                                                                       |                                             |         |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                  |                                                                                                       |                                             |         |                   |        
|CURRENT LIABILITIES:                                                                                                                            |                                                                                                       |                                             |         |                   |        
|                                                                                                                                                | Accounts payable                                                                                      |                                             | $       | 10,601            |        
|                                                                                                                                                | Accrued liabilities                                                                                   |                                             |         | 26,277            |        
|                                                                                                                                                | Dividends payable to stockholders                                                                     |                                             |         | 327               |        
|                                                                                                                                                | Deferred income taxes                                                                                 |                                             |         | 13,392            |        
|                                                                                                                                                | Current maturities of long-term debt                                                                  |                                             |         | 52,604            |        
|                                                                                                                                                |                                                                                                       |                                             |         |                   |        
|                                                                                                                                                |                                                                                                       | Total current liabilities                   |         |                   | 103,201
|LONG-TERM DEBT                                                                                                                                  |                                                                                                       |                                             | 110,950 |                   |        
|                                                                                                                                                |                                                                                                       |                                             |         |                   |        
|                                                                                                                                                |                                                                                                       | Total liabilities                           |         |                   | 214,151
|                                                                                                                                                |                                                                                                       |                                             |         |                   |        
|SERIES A PREFERRED STOCK, REDEEMABLE, $0.01 par value, 100,000 shares authorized, 60,397 and 58,498 shares issued and outstanding, respectively |                                                                                                       |                                             | 52,763  |                   |        
|REDEEMABLE COMMON STOCK, $0.001 par value, 1,143,339 shares issued and outstanding                                                              |                                                                                                       |                                             | 3,430   |                   |        
|STOCKHOLDERS' EQUITY (DEFICIT):                                                                                                                 |                                                                                                       |                                             |         |                   |        
|                                                                                                                                                | Common stock, $0.001 par value, 50,000,000 shares authorized, 5,805,258 shares issued and outstanding |                                             |         | 12                |        
|                                                                                                                                                | Additional paid-in capital                                                                            |                                             |         | 51,822            |        
|                                                                                                                                                | Treasury stock, 6,226,649 shares                                                                      |                                             |         | (45,651           | )      
|                                                                                                                                                | Warrants, 825,000 exercisable at $0.01 per share                                                      |                                             |         | 8,250             |        
|                                                                                                                                                | Accumulated deficit                                                                                   |                                             |         | (66,575           | )      
|                                                                                                                                                |                                                                                                       |                                             |         |                   |        
|                                                                                                                                                |                                                                                                       | Total stockholders' deficit                 |         |                   | (52,142
|                                                                                                                                                |                                                                                                       |                                             |         |                   |        
|                                                                                                                                                |                                                                                                       | Total liabilities and stockholders' deficit |         | $                 | 218,202
|                                                                                                                                                |                                                                                                       |                                             |         |                   |        

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

1

---

COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share data)

|                                                   |                                     | Three Months Ended |          
|-------------------------------------------------- | ----------------------------------- | ------------------ | ---------
|
|
|NET SALES                                          |                                     | $                  | 42,089   
|COST OF SALES                                      |                                     |                    | 22,442   
|                                                   |                                     |                    |          
|                                                   | Gross profit                        |                    |          
|SALES, MARKETING AND DELIVERY EXPENSES             |                                     |                    | 10,263   
|GENERAL AND ADMINISTRATIVE EXPENSES                |                                     |                    | 5,146    
|AMORTIZATION OF INTANGIBLE ASSETS                  |                                     |                    | 509      
|                                                   |                                     |                    |          
|                                                   | Income from operations              |                    |          
|INTEREST EXPENSE                                   |                                     |                    | 4,460    
|OTHER EXPENSE, NET                                 |                                     |                    | 184      
|                                                   |                                     |                    |          
|                                                   | Income (loss) before income taxes   |                    |          
|INCOME TAX BENEFIT (PROVISION)                     |                                     |                    | 190      
|                                                   |                                     |                    |          
|                                                   | Net Income (Loss)                   |                    |          
|SERIES A PREFERRED STOCK DIVIDENDS/STOCK ACCRETION |                                     |                    | 2,181    
|                                                   |                                     |                    |          
|                                                   | Net loss applicable to common stock |                    | $        
|                                                   |                                     |                    |          
|Basic and diluted loss per common share            |                                     | $                  | (0.42    
|                                                   |                                     |                    |          
|Shares used in per share calculation               |                                     |                    | 6,948,597
|                                                   |                                     |                    |          

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

2

---



COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)        (in thousands, except common shares)

|                                      |  | Common
Shares |  | Common
Stock |    | Additional
Paid-In
Capital |   | Treasury
Stock |  | Warrants |         | Retained
Earnings
(Accumulated
Deficit) |   | Total
Stockholders'
Equity
(Deficit) | 
|------------------------------------- |  | ------------- |  | ------------ | -- | -------------------------- | - | -------------- |  | -------- | ------- | --------------------------------------- | - | ------------------------------------ | 
|Balance, December 31, 2000            |  | 5,805,258     |  |              | 12 |                            |   | 51,822         |  |          | (45,651 | )                                       |   | 8,250                                | 
|Accretion of Series A preferred stock |  |              |  |              |   |                            |   |               |  |          |        |                                         |   |                                     | 
|Accretion of redeemable common stock  |  |              |  |              |   |                            |   |               |  |          |        |                                         |   |                                     | 
|Series A preferred stock dividends    |  |              |  |              |   |                            |   |               |  |          |        |                                         |   |                                     | 
|Net loss                              |  |              |  |              |   |                            |   |               |  |          |        |                                         |   |                                     | 
|                                      |  |               |  |              |    |                            |   |                |  |          |         |                                         |   |                                      | 
|Balance, March 31, 2001 (unaudited)   |  | 5,805,258     |  | $            | 12 |                            | $ | 51,822         |  | $        | (45,651 | )                                       | $ | 8,250                                | 
|                                      |  |               |  |              |    |                            |   |                |  |          |         |                                         |   |                                      | 

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

3

---

COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOW        (in thousands)

|                                                  |                                               | Three Months Ended                                                          |                                             
|------------------------------------------------- | --------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:             |                                               |                                                                             |                                             
|                                                  | Net income (loss)                             |                                                                             | $                                           
|                                                  |                                               | Adjustments to reconcile net loss to net cash used in operating activities: |                                             
|                                                  |                                               |                                                                             | Depreciation and amortization               
|                                                  |                                               |                                                                             | Loss on sale of fixed assets                
|                                                  |                                               |                                                                             | Interest paid in kind                       
|                                                  |                                               |                                                                             | Deferred income taxes                       
|                                                  |                                               |                                                                             | Changes in operating assets and liabilities:
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|CASH FLOWS FROM INVESTING ACTIVITIES:             |                                               |                                                                             |                                             
|                                                  | Purchases of fixed assets                     |                                                                             |                                             
|                                                  | Proceeds from sale of fixed assets            |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|CASH FLOWS FROM FINANCING ACTIVITIES:             |                                               |                                                                             |                                             
|                                                  | Net increase (decrease) in cash float         |                                                                             |                                             
|                                                  | Net borrowings under revolving line of credit |                                                                             |                                             
|                                                  | Repayments of long-term debt                  |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               |                                                                             |                                             
|NET INCREASE (DECREASE) IN CASH                   |                                               |                                                                             | 312                                         
|CASH AT BEGINNING OF PERIOD                       |                                               |                                                                             | 874                                         
|                                                  |                                               |                                                                             |                                             
|CASH AT END OF PERIOD                             |                                               | $                                                                           | 1,186                                       
|                                                  |                                               |                                                                             |                                             
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |                                               |                                                                             |                                             
|                                                  | Cash paid during the period for:              |                                                                             |                                             
|                                                  |                                               | Interest                                                                    |                                             
|                                                  |                                               |                                                                             |                                             
|                                                  |                                               | Income taxes                                                                |                                             
|                                                  |                                               |                                                                             |                                             

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

4

---



COLOR SPOT NURSERIES, INC.  CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  March 31, 2001

Note 1Basis of Presentation, Operations and Liquidity

The consolidated financial statements of Color Spot Nurseries, Inc. ("the Company") as of March 31, 2001, and for the three months ended
March 31, 2001 and March 30, 2000 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 Company's 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.

The
information contained in the following notes to the consolidated financial statements 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 the transition period ended December 31, 2000, contained in its
Transition Report on Form 10-K filed with the Securities and Exchange Commission.

The
Company is one of the largest wholesale nurseries in the United States, based on revenue and greenhouse square footage. The Company provides a wide assortment of high quality
plants, including packaged bedding plants, flowering potted plants, groundcover, ornamental plants and shrubs, and fresh-cut Christmas trees. As of March 31, 2001, the Company
operates 13 production facilities located in 4 states. The Company also owns or leases growing fields for Christmas trees in Oregon, Michigan, North Carolina, and Tennessee. The Company sells
primarily to leading home centers and mass merchants, and to independent garden centers and commercial landscapers, located predominantly in California, Texas and other western states. The Company
conducts its operations through one reportable segment.

On
October 15, 1998, the Company entered into a three-year credit agreement with Fleet Capital Corporation ("Credit Agreement") providing up to $70.0 million
of credit, of which $13.6 million, as amended, is available without limitation on a seasonal basis with the remainder subject to certain borrowing base limitations based upon a percentage of
eligible inventory and eligible accounts receivable. As of June 30, 2000, the Company was not in compliance with a certain financial covenant of the Credit Agreement; however, the Company
received a waiver of the noncompliance and an amendment waiving the covenant violation and amending the agreement to reset the financial covenants.

At
December 31, 2000, the Company was not in compliance with the new financial covenants under the Credit Agreement. However, on March 9, 2001, the Company received a
waiver of such noncompliance. On March 31, 2001, an amendment was received which reset the financial covenants for the quarterly test period ended March 31, 2001, added an additional
test period on April 28, 2001 and extended the availability under the seasonal credit line through April 30, 2001. The Company was in compliance with its financial covenants on
March 31, 2001.

The
Company's Credit Agreement expires on October 15, 2001. Management is currently working with its lenders to renegotiate and extend the Credit Agreement. If management is
unable to renegotiate and extend the facility with the existing lenders, it will seek alternative sources of financing.

5

---

The Company is highly dependent on its Credit Agreement to fund operations; therefore, if the Company is unable to renegotiate or extend its Credit Agreement or find alternative financing, it may be
unable to continue as a going concern.

Although
the accompanying financial statements were prepared contemplating the realization of all recorded 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 credit facilities, including meeting its financial covenants and successfully
refinancing its Credit Agreement, and ultimately attain profitability, or there will be a material adverse impact on the Company's business, financial position and results of operations. No assurance
can be provided that the Company will be able to attain profitability or that assets will be realizable at their carrying values.

As
of March 31, 2001, the Company had $163.6 million of debt and an accumulated deficit of $66.6 million. The Company is highly leveraged and has significant debt
service obligations. The Company's debt service obligations have important consequences to holders of the Senior Subordinated Notes, Series A Preferred Stock, common stock and warrants,
including the following: (i) a substantial portion of its cash flow from operations will be dedicated to the payment of principal and interest on its indebtedness, thereby reducing the funds
available for operations, acquisitions, future business opportunities and other purposes and increasing its vulnerability to adverse general economic and industry conditions; (ii) its leveraged
position may increase its vulnerability to competitive pressures;
(iii) the amended financial covenants and other restrictions contained in the current Credit Agreement, the indenture 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.

Note 2Inventories

Inventories at March 31, 2001 and December 31, 2000, consisted of the following (in thousands):

March 31,
2001

December 31,
2000(Unaudited)Current:Plants, shrubs and ground cover

$
57,226

$
44,852Raw materials and supplies


5,897


4,587Inventory reserves


(3,580
)

(3,459
)Total current inventories


59,543


45,980Non-current:Christmas trees


8,603


8,309Total inventories

$
68,146

$
54,289


6

---

Note 3Property, Plant and Equipment

Property, plant and equipment at March 31, 2001 and December 31, 2000, consisted of the following (in thousands):

March 31,
2001

December 31,
2000(Unaudited)Land and land improvements

$
10,350

$
10,350Greenhouses and buildings


23,397


23,389Furniture and fixtures


6,160


5,894Machinery and equipment


20,214


21,061Leasehold improvements


8,337


7,824Assets under capital leases


539


482Construction in progress


4,119


2,77473,116


71,777Less: Accumulated depreciation


(23,815
)

(22,112
)Total property, plant and equipment

$
49,301

$
49,665


Note 4Intangible Assets

Intangible assets at March 31, 2001 and December 31, 2000, consisted of the following (in thousands):

March 31,
2001

December 31,
2000(Unaudited)Goodwill

$
47,517

$
47,517Financing costs


6,278


6,278Non-compete agreements


1,694


1,694Other


916


91656,405


56,405Less: Accumulated amortization


(11,965
)

(11,073
)Total intangible assets

$
44,440

$
45,332


Note 5Debt

Debt at March 31, 2001 and December 31, 2000, consisted of the following (in thousands):

March 31,
2001

December 31,
2000(Unaudited)Revolving line of credit

$
51,862

$
35,604Senior subordinated notes


100,000


100,000Convertible note


9,901


9,719Non-compete agreements


161


220Other


1,630


1,680163,554


147,223Less: Current maturities


(52,604
)

(36,455
)Long-term portion


110,950


110,768


7

---

The
revolving line of credit represents borrowings under the Company's Credit Agreement 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 the remainder subject to certain borrowing base limitations based upon a percentage of eligible inventory and eligible accounts receivable. As
of March 31, 2001 a total of $51.9 million was outstanding and an additional $7.5 million was available under this line of credit.

At
December 31, 2000, the Company was not in compliance with its financial covenants under the Credit Agreement. However, on March 9, 2001, the Company received a waiver
of such noncompliance. On March 31, 2001, an amendment was received which reset the financial covenants for the quarterly test period ended March 31, 2001, added an additional test
period on April 28, 2001 and extended the availability under the seasonal credit line through April 30, 2001. The Company was in compliance with its financial covenants on
March 31, 2001.

The
Company's Credit Agreement expires on October 15, 2001. Management is currently working with its lenders to renegotiate and extend the Credit Agreement. If management is
unable to renegotiate and extend the facility with the existing lenders, it will seek alternative sources of financing. The Company is highly dependent on its Credit Agreement to fund operations;
therefore, if the Company is unable to renegotiate or extend its Credit Agreement or find alternative financing, it may be unable to continue as a going concern.

Note 6Earnings Per Share

Basic and diluted earnings per share is as follows:

Three Months Ended
March 31, 2001Income/(loss)

Shares

Per Share
Amount(in thousands)Basic and diluted earnings per share:Net loss

$
(725
)Preferred stock dividends/stock accretion


(2,181
)Net loss applicable to common stock

$
(2,906
)
6,948,597

$
(0.42
)


Three Months Ended
March 30, 2000Income/(loss)

Shares

Per Share
Amount(in thousands)Basic and diluted earnings per share:Net income

$
1,203Preferred stock dividends/stock accretion


(2,016
)Net loss applicable to common stock

$
(813
)
6,948,597

$
(0.12
)


For
the three months ended March 31, 2001 and March 30, 2000, the effect of options, warrants and convertible securities was antidilutive and is therefore excluded from
the computation of earnings per share.

8

---



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 highly seasonal with a peak selling season generally from March through June.

Three Months Ended March 31, 2001 as Compared to the Three Months Ended March 30, 2000

Net Sales.Net sales decreased $5.4 million, or 11.3%, to $42.1 million for the three months ended
March 31, 2001, from $47.5 million during the three months ended March 30, 2000. This decrease is primarily the result of lower sales to smaller, lower volume customers as well as
lower sales to customers in less profitable outlying markets such as Colorado, Tennessee and Idaho. The Company is also operating under a more conservative sales and production plan for the three
months ended March 31, 2001. Additionally, generally wetter weather conditions prevailed during the month of February 2001 which negatively impacted sales.

Gross Profit.Gross profit decreased approximately $3.5 million to $19.6 million for the three months
ended March 31, 2001, from $23.2 million during the three months ended March 30, 2000. Gross profit as a percentage of net sales decreased to 46.7% for the three months ended
March 31, 2001, from 48.8% for the three months ended March 30, 2000. The decrease in gross profit as a percentage of net sales was primarily the result of higher utility and natural gas
rates and higher shrink experienced during the three months ended March 31, 2001.

Sales, Marketing and Delivery Expenses.Sales, marketing and delivery expenses decreased $0.7 million to
$10.3 million for the three months ended March 31, 2001, from $11.0 million in the three months ended March 30, 2000. Sales, marketing and delivery expenses, as a
percentage of net sales, increased slightly to 24.4% for the three months ended March 31, 2001, from 23.2% for the three months ended March 30, 2000, primarily due to the impact of
certain fixed costs combined with lower net sales.

General and Administrative Expenses.General and administrative expenses decreased $0.5 million, to
$5.1 million for the three months ended March 31, 2001, from $5.6 million in the three months ended March 30, 2000. This decrease is primarily due to the lack of an accrual
for management bonuses since bonus targets were not achieved during the three months ended March 31, 2001.

Interest Expense.Interest expense increased to $4.5 million for the three months ended March 31, 2001,
from $4.1 million in the three months ended March 30, 2000, as a result of higher average levels of borrowings during the three months ended March 31, 2001 due to operating losses
incurred from April through December 2000.

Taxes.The effective tax rate decreased to 20.8% for the three months ended March 31, 2001, from 39.5% for the
three months ended March 30, 2000, primarily as a result of the effect of permanent book-tax differences on a pre-tax loss for the three months ended March 31,
2001. The Company's state net operating loss carryforwards expire beginning on June 30, 2001 and are fully reserved. Although the Company has not provided a valuation allowance against its
federal net operating loss carryforwards, the realizability of the related assets is periodically evaluated. The federal net operating losses expire beginning on June 30, 2011.

9

---

Liquidity and Capital Resources

The Company's cash requirements are primarily to fund its seasonal working capital requirements and capital expenditures. During the three months ended
March 31, 2001 and March 30, 2000, the Company's primary source of capital was borrowing on its revolving line of credit. The Company's operating activities used cash of
$16.8 million during the three months ended March 31, 2001 and $14.1 million during the three months ended March 30, 2000. The Company's operating activities typically use
significant amounts of cash during the first quarter to fund its seasonal working capital requirements in advance of the spring selling season. The Company also invested $1.3 million and
$1.6 million, during the three months ended March 31, 2001 and March 30, 2000, respectively, for necessary production equipment and facility infrastructure repairs and
improvements as well as required capital projects to meet environmental requirements.

On
October 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 available
without limitation on a seasonal basis with the remainder subject to certain borrowing base limitations based upon a percentage of eligible inventory and eligible accounts receivable. As of
March 31, 2001, the Company had borrowed $51.9 million under its Credit Agreement and had $7.5 million of remaining credit availability. The Credit Agreement is secured by
substantially all of the Company's assets. Interest under this agreement accrues at a variable rate equal to Prime plus 1.0% or LIBOR plus 3.0%. In addition, to the extent that borrowings exceed
certain borrowing base limitations during the period from October 1 through March 31 of any year, the interest rates increase by an additional 0.5%.

At
December 31, 2000, the Company was not in compliance with its financial covenants under the Credit Agreement. However, on March 9, 2001 the Company received a waiver
of such noncompliance. On March 31, 2001, the Company received an amendment which reset financial covenants for the quarterly test period ended March 31, 2001, added an additional
covenant on April 28, 2001 and extended the availability under the seasonal credit line period through April 30, 2001. The Company was in compliance with its financial covenants as of
March 31, 2001. As of March 31, 2001, the Company had $163.6 million of debt. The Company is highly leveraged.

The
Credit Agreement expires on October 15, 2001. Management is currently working with its lenders to renegotiate and extend the Credit Agreement. If management is unable to
renegotiate and extend the facility it will seek alternative sources of financing. The Company is highly dependent on its Credit Agreement to fund operations; therefore, if the Company is unable to
renegotiate or extend its Credit Agreement or find alternative financing, it may be unable to continue as a going concern.

On
December 24, 1997, the Company raised $133.5 million, net of fees and expenses from the sale of 101/2% Senior Subordinated Notes and 13%
Series A Preferred Stock, including warrants, which it used to repay existing indebtedness. Interest on these notes is due semi-annually on June 15 and December 15.
Dividends on the Series A Preferred Stock are payable quarterly in cash, or through December 15, 2002, in shares of Series A Preferred Stock on March 15, June 15,
September 15 and December 15. During the three months ended March 31, 2001 and March 30, 2000, the Company issued 1,899 shares and 1,672 shares of Series A Preferred
Stock as dividends, respectively.

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 re-pricing 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.

10

---

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

|                       |                | Expected Maturities      
|---------------------- | -------------- | -------------------------
|
|
|Long-term Liabilities: |                |                          
|                       | Fixed Rate:    |                          
|                       |                | Series A Preferred Stock 
|                       |                | Average Interest Rate    
|                       |                | Senior Subordinated Notes
|                       |                | Average Interest Rate    
|                       |                | Convertible Note         
|                       |                | Average Interest Rate    
|                       |                | ODA Note                 
|                       |                | Average Interest Rate    
|                       | Variable Rate: |                          
|                       |                | Credit Agreement(1)      

---

11

---

PART II.OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is 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 its financial position or results of operations, taken as a whole. The San Diego Regional Water Quality Control Board has notified the Company
that it may be subject to unspecified fines related to potential violations of wastewater management regulations at its Fallbrook facility. This matter is currently under investigation and the
financial impact, if any, of this matter will be reflected in the Company's financial statements when it can be accurately estimated.

Item 2.  Changes in Securities and Use of Proceeds

None.

Item 3.  Defaults Upon Senior Securities

None.

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

None.

Item 5.  Other Information

Richard E. Parker elected to retire due to health concerns and resigned as President and Chief Executive Officer of the Company effective May 4, 2001.
Mr. Parker also resigned as a member of the Registrant's Board of Directors.

On
May 4, 2001, David J. Barrett was appointed Chief Executive Officer of the Company. Mr Barrett has been Chief Operating Officer of the Company since January 2001.
From 1994 to 2000, Mr. Barrett was President and Chief Executive Officer of Scovill Fasteners, Inc. From 1991 to 1994, he was Executive Vice President of Operations at Scovill.
Mr. Barrett holds an MBA from Syracuse University and a BS from Lehigh University. Mr. Barrett offers a positive and aggressive approach to business performance. He is an experienced and
successful manager with solid turn around expertise.

On
March 26, 2001, Charles A. Ferer was appointed Chief Financial Officer of the Company. Since 1999, Mr. Ferer was Chief Financial Officer of Old Navy, a division of
Gap, Inc. From 1996 to 1999, Mr. Ferer served as Vice President of Strategy and Business Development of the Real Estate Information Companies division of Transamerica, Inc. Prior
to 1996, Mr. Ferer held various positions with PepsiCo, Inc. Mr. Ferer holds an MBA in finance from Indiana University and a BA in Economics from the University of Puget Sound.
Mr. Ferer's background offers a robust business perspective with extensive expertise in operations, distribution, profitability analysis, strategic planning and business development.

Item 6.  Exhibits and Reports on Form 8-K

Exhibit Number

Description of Document10.1

Employment Agreement with David J.Barrett dated December 20, 2000.10.2

Employment Agreement with Charles A. Ferer dated March 9, 2001.


None.

12

---

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 14, 2001. |  | COLOR SPOT NURSERIES, INC.
a Delaware corporation
|------------------- |  | -------------------------------------------------
|                    |  | By:                                              
|                    |  | Name:                                            
|                    |  | Title:                                           
|                    |  | By:                                              
|                    |  | Name:                                            
|                    |  | Title:                                           

13

---

QuickLinks