<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                                   FORM 10-Q

                                   (Mark One)
         (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                     For the quarter ended March 31, 2001

         ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
   For the transition period from___________________ to _____________________

                            Commission File Number
                                    0-24439

                           HINES HORTICULTURE, INC.
            (Exact name of registrant as specified in its charter)


            Delaware                               33-0803204
      (State or other jurisdiction of             (I.R.S. Employer
      incorporation or organization)              Identification Number)

                              12621 Jeffrey Road
                           Irvine, California 92620
              (Address of principal executive offices) (Zip Code)


                                (949) 559-4444
             (Registrant's telephone number, including area code)


     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 and 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 April 30, 2001 there were 22,072,549 shares of Common Stock, par value
$0.01 per share, outstanding.
================================================================================
<PAGE>

                           HINES HORTICULTURE, INC.


                                     Index

                         Part I. Financial Information


Item 1. Financial Statements                                            Page No.
                                                                        --------

          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 2000                            2

          Consolidated Statements of Cash Flows for the
          Three Months Ended March 31, 2001 and 2000                      3

          Notes to the Consolidated Financial Statements                  4

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk        22


                           Part II. Other Information

Item 6. Exhibits and Reports on Form 8-K                                  22

        Signatures                                                        23



Note:   Items 1, 2, 3, 4 and 5 of Part II are omitted because they are not
applicable.
<PAGE>

                           HINES HORTICULTURE, INC.
                          CONSOLIDATED BALANCE SHEETS
                     March 31, 2001 and December 31, 2000
                   (Dollars in thousands, except share data)

ASSETS                                                March 31,     December 31,
------                                                  2001           2000
                                                    ------------   ------------
                                                     (Unaudited)

                 CURRENT ASSETS:
        Cash                                            $      -       $      -
        Accounts receivable, net of allowance
        for
        doubtful accounts of $2,041 and $2,204            91,286         49,102
        Inventories                                      184,112        168,575
        Prepaid expenses and other current                 5,547          5,542
        assets                                      ------------   ------------

                           Total current assets          280,945        223,219

FIXED ASSETS, net of accumulated depreciation
   and depletion of $51,604 and $49,273                  207,722        208,719

DEFERRED FINANCING EXPENSES, net of
   accumulated amortization of $4,307 and                 11,144         12,085
    $3,503

GOODWILL, net of accumulated amortization                142,886        143,950
   of $8,538 and $7,474                             ------------   ------------
                                                        $642,697       $587,973
                                                    ============   ============
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------

                 CURRENT LIABILITIES:
        Accounts payable                                $ 31,286       $ 13,665
        Accrued liabilities                               18,496         15,976
        Accrued payroll and benefits                       5,887          9,350
        Accrued interest                                   6,523          1,732
        Long-term debt, current portion                   26,513         26,513
        Borrowings on revolving credit facility          111,000         79,500
        Deferred income taxes                             60,958         61,585
                                                    ------------   ------------
                      Total current liabilities          260,663        208,321
                                                    ------------   ------------
LONG-TERM DEBT                                           289,065        288,907
                                                    ------------   ------------
DERIVATIVE LIABILITY                                       5,706              -
                                                    ------------   ------------
DEFERRED INCOME TAXES                                      2,208          3,338
                                                    ------------   ------------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
        Common Stock
         Authorized - 60,000,000 shares  $.01
         par value; Issued and
         outstanding - 22,072,549 shares
         at March 31, 2001 and December 31, 2000             221            221

        Additional paid in capital                       128,781        128,781
        Notes receivable from stock sales                    (30)           (30)
        Deficit                                          (35,505)       (36,707)
        Accumulated other comprehensive loss              (8,412)        (4,858)
                                                    ------------   ------------
                     Total shareholders' equity           85,055         87,407
                                                    ------------   ------------
                                                        $642,697       $587,973
                                                    ============   ============

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

                                    Page 1
<PAGE>

                           HINES HORTICULTURE, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                  Three Months Ended March 31, 2001 and 2000
                   (Dollars in thousands, except share data)
                                  (Unaudited)

                                                       2001           2000
                                                   ------------    -----------

    Sales, net                                         $100,753        $88,610
    Cost of goods sold                                   50,985         44,082
                                                   ------------    -----------
      Gross profit                                       49,768         44,528
                                                   ------------    -----------
    Selling and distribution expenses                    28,349         24,604
    General and administrative expenses                   8,912          8,437
    Other operating expenses                              1,843            582
    Gain on receipt of insurance claims                  (5,000)             -
     proceeds
      Total operating expenses                           34,104         33,623
                                                   ------------    -----------
      Operating income                                   15,664         10,905
                                                   ------------    -----------
    Other expenses
      Interest                                           10,835          7,084
      Interest rate agreement expense                     1,992              -
      Amortization of deferred financing                    804            242
       expenses
                                                   ------------    -----------
                                                         13,631          7,326
                                                   ------------    -----------
    Income before income taxes                            2,033          3,579

    Income tax provision                                    831          1,249
                                                   ------------    -----------
    Net income                                           $1,202         $2,330
                                                   ============    ===========
    Basic earnings per share:

      Net income per common share                         $0.05          $0.11
                                                   ============    ===========
    Diluted earnings per share:

      Net income per common share                         $0.05          $0.11
                                                   ============    ===========
    Weighted average shares outstanding--Basic       22,072,549     22,072,549
                                                   ============    ===========
    Weighted average shares outstanding--Basic       22,105,459     22,072,549
                                                   ============    ===========


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


                                    Page 2
<PAGE>

                           HINES HORTICULTURE, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Three Months Ended March 31, 2001 and 2000
                   (Dollars in thousands, except share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                          2001                     2000
                                                                        --------                 ---------
<S>                                                                     <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                             $  1,202                 $   2,330
 Adjustments to reconcile net income to
 net cash provided by operating activities -
    Depreciation, depletion and amortization                               4,337                     3,844
    Amortization of deferred financing costs                               1,139                       242
    Interest rate agreement expense                                        1,992                         -
    Gain on sale of fixed assets                                               -                       (28)
    Deferred income taxes                                                   (180)                    1,192
                                                                        --------                 ---------
                                                                           8,490                     7,580
Change in working capital accounts:
 Accounts receivable                                                     (42,184)                  (43,132)
 Inventories                                                             (15,537)                  (15,042)
 Prepaid expenses and other current assets                                    (5)                       70
 Accounts payable and accrued liabilities                                 21,470                     3,153
                                                                        --------                 ---------
    Net cash used in operating activities                                (27,766)                  (47,371)
                                                                        --------                 ---------
CASH FLOWS FROM INVESTING ACTIVITIES
 Purchase of fixed assets                                                 (4,536)                   (9,101)
 Proceeds from sale of fixed assets                                           47                        38
 Purchase of fixed assets with insurance claims proceeds                    (405)                        -
 Acquisitions, net of cash acquired                                            -                  (112,034)
                                                                        --------                 ---------
    Net cash used in investing activities                                 (4,894)                 (121,097)
                                                                        --------                 ---------
CASH FLOWS FROM FINANCING ACTIVITIES
 Borrowings on revolving line of credit                                   42,400                    65,265
 Repayments on revolving line of credit                                  (10,900)                  (11,515)
 Proceeds from the issuance of long-term debt                                  -                   119,416
 Repayments of long-term debt                                                (43)                   (1,317)
 Proceeds from stock sales notes receivable                                    -                        46
 Deferred financing costs incurred                                             -                    (3,293)
                                                                        --------                 ---------
    Net cash provided by financing activities                             31,457                   168,602
                                                                        --------                 ---------
 Effect of exchange rate changes on cash and cash equivalents              1,203                      (134)
                                                                        --------                 ---------
NET DECREASE IN CASH                                                           -                         -

CASH, beginning of period                                                      -                         -
                                                                        --------                 ---------
CASH, end of period                                                     $      -                 $       -
                                                                        ========                 =========

Supplemental disclosure of cash flow information:
 Cash paid for interest, net of capitalized interest ($0, $166)         $  5,709                 $   7,852
 Cash paid for income taxes                                             $    203                 $     297
</TABLE>

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

                                     Page 3
<PAGE>

                           HINES HORTICULTURE, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Dollars in thousands)
                            MARCH 31, 2001 AND 2000
                                  (UNAUDITED)

1.   Description of Business:
     ------------------------

          Hines Horticulture, Inc. ("Hines" or the "Company"), a Delaware
     corporation, produces and distributes horticultural products through three
     operating divisions: (i) its Nursery division, (ii) its Color division and
     (iii) its Growing Media division. The Nursery division and Color division
     make up the green goods business. The green goods business is conducted
     through Hines Nurseries, Inc. ("Hines Nurseries"), a wholly owned
     subsidiary of Hines, and the business of the Growing Media division is
     conducted through Sun Gro Horticulture, Inc. ("Sun Gro-U.S."), a wholly
     owned subsidiary of Hines Nurseries, Sun Gro-U.S.'s wholly owned
     subsidiary, Sun Gro Horticulture Canada Ltd. ("Sun Gro-Canada"), and Sun
     Gro Canada's direct and indirect Canadian subsidiaries. Unless otherwise
     specified, references to "Hines" or the "Company" refer to Hines
     Horticulture, Inc. and its subsidiaries.

          Hines Nurseries is a leading national supplier of ornamental shrubs,
     color plants and container-grown plants with commercial nursery facilities
     located in Arizona, California, Florida, Georgia, New York, Oregon,
     Pennsylvania, South Carolina and Texas. Hines Nurseries markets its
     products to retail and commercial customers throughout the United States.

          Sun Gro produces and markets sphagnum peat moss and peat and bark-
     based growing media horticulture products for both professional and retail
     customers. Sun Gro markets its products in North America and various
     international markets with 14 production facilities located in Canada and
     the United States.

2.   Unaudited Financial Information:
     --------------------------------

          The unaudited financial information furnished herein, in the opinion
     of management, reflects all adjustments (consisting of only normal
     recurring adjustments), which are necessary to state fairly the
     consolidated financial position, results of operations and cash flows of
     the Company as of and for the periods indicated. The Company presumes that
     users of the interim financial information herein have read or have access
     to the Company's audited consolidated financial statements for the
     preceding fiscal year and that the adequacy of additional disclosure needed
     for a fair presentation, except in regard to material contingencies or
     recent significant events, may be determined in that context.

                                     Page 4
<PAGE>

          Accordingly, footnote and other disclosures which would substantially
     duplicate the disclosures contained in the Form 10-K filed on March 30,
     2001 by Hines Horticulture, Inc. under the Securities Exchange Act of 1934,
     as amended (the "Exchange Act"), have been omitted.  The financial
     information herein is not necessarily representative of a full year's
     operations.

3.   Earnings Per Share:
     -------------------

          Earnings per share are calculated in accordance with SFAS No. 128,
     "Earnings per Share", which requires the Company to report both basic
     earnings per share, based on the weighted-average number of common shares
     outstanding, and diluted earnings per share, based on the weighted-average
     number of common shares outstanding adjusted to include the potentially
     dilutive effect of outstanding stock options and warrants. At March 31,
     2001, there were 2,889 options and 440 warrants outstanding.

4.   Adoption Of Accounting Pronouncement:
     -------------------------------------

          Effective January 1, 2001 Hines adopted the provisions of Statement of
     Financial Accounting Standards No. 133, "Accounting for Derivative
     Instruments and Hedging Activities" ("SFAS No. 133"), as amended. SFAS No.
     133 requires companies to record derivatives on the balance sheet as assets
     and liabilities, measured at fair value. The accounting for the gain or
     loss due to changes in fair value of the derivative instrument depends on
     whether the derivative qualifies as a hedge. If the derivative instrument
     does not qualify as a hedge, the gains or losses are reported in earnings
     when they occur. If the derivative instrument qualifies as a hedge, the
     accounting varies based upon the type of risk being hedged.

          As of January 1, 2001 the Company held an interest rate cap and swap
     agreement that had previously been designated as a cash flow hedging
     relationship but that did not qualify as a hedge under SFAS No. 133.
     Adopting the provisions of SFAS No. 133 on January 1, 2001 resulted in a
     cumulative after-tax charge to accumulated other comprehensive loss as of
     January 1, 2001 of $2,334, representing the fair value of the interest rate
     agreement, net of tax.

          For the three months ended March 31, 2001, the Company recognized a
     pre-tax loss of $ $1,992 reported as interest rate agreement expense in the
     Consolidated Statement of Operations related to the change in the fair
     value of the interest rate agreement. The Company expects that it will
     reclassify to earnings approximately $950 of the transition adjustment
     currently recorded in accumulated other comprehensive loss during 2001.

                                     Page 5
<PAGE>

5.   Shipping and Handling Fees and Costs:
     -------------------------------------

          In September 2000, the Emerging Issues Task Force ("EITF") reached a
     final consensus on Issue No. 00-10, "Accounting for Shipping and Handling
     Fees and Costs" ("EITF 00-10"). EITF 00-10 addresses the income statement
     classification of amounts charged to customers for shipping and handling,
     as well as costs related to shipping and handling. The EITF concluded that
     amounts billed to a customer in a sale transaction related to shipping and
     handling should be classified as revenue. The Company adopted EITF 00-10 in
     the fourth quarter of 2000. Prior to adopting EITF 00-10, the Company
     classified certain shipping and handling fees as an offset to selling and
     distribution expenses. Shipping and handling fees reclassified to revenues
     totaled $3,710 in the quarter ended March 31, 2000.

6.   Gain On Receipt Of Insurance Claims Proceeds:
     ---------------------------------------------

          On November 4, 2000, the Company's Seba Beach growing media production
     facility located in Alberta, Canada was substantially destroyed by fire.
     The facility and its operations are covered by replacement and business
     interruption insurance.  During the first quarter of 2001, the Company
     recorded a gain of $5,000 representing insurance proceeds received to cover
     business interruption expenses related to the fire.

7.   Inventories:
     ------------

          Inventories consisted of the following:

                                            March 31,   December 31,
                                              2001          2000
                                            --------    -----------

     Nursery stock                          $162,764      $146,924
     Finished goods                            7,391         8,213
     Materials and supplies                   13,957        13,438
                                            --------      --------
                                            $184,112      $168,575
                                            ========      ========

8.   Supplemental Cash Flow Information:
     -----------------------------------

          Supplemental disclosure of non-cash investing and financing activities
     were as follows:
                                                   March 31,
                                                   --------
                                              2001          2000
                                            --------      --------
     Fair value of assets acquired          $     -       $116,571
     Liabilities assumed and incurred
      in connection with acquisitions             -          4,537
                                            --------      --------
     Cash paid                              $     -       $112,034
                                            ========      ========

                                     Page 6
<PAGE>

9.   Comprehensive Income:
     ---------------------

          Comprehensive income includes all changes in equity during a period
     except those resulting from investments by and distributions to the
     Company's stockholders. The Company's comprehensive income is composed of
     cumulative foreign currency translation adjustments and the change in
     valuation of derivative instruments. The components of comprehensive income
     during the three months ended March 31, 2001 and 2000, were as follows:


                                            Three Months Ended March 31,
                                            ----------------------------
                                              2001                 2000
                                            -------               ------

     Net income                              $1,202               $2,330
     Cumulative foreign currency
       translation adjustments               (1,359)                  75
     Transaction impact upon
       adoption of FAS 133                   (2,334)                   -
     Loss on derivatives
       reclassified to earnings                 139                    -
                                            -------               ------
     Comprehensive (loss) income            $(2,352)              $2,405
                                            =======               ======

10.  Acquisitions:
     -------------

          The following acquisitions have been accounted for under the purchase
     method for accounting purposes. The consolidated financial statements
     include the operating results of each acquisition from the date of
     acquisition.

          On January 14, 2000, the Company completed its acquisition of certain
     assets (primarily land and buildings) and all of the outstanding capital
     stock of Willow Creek Greenhouses, Inc. ("Willow Creek"), a producer of
     quality annual bedding plants and holiday plants.  The total acquisition
     price was approximately $18,800, which resulted in goodwill of
     approximately $9,700.  In accordance with the terms of the purchase
     agreement, and as a result of Willow Creek achieving certain operating
     results relating to the year ended December 31, 2000, the Company will be
     making an additional purchase price payment of $850 in fiscal 2001.  At
     December 31, 2000, the Company recorded this amount as goodwill.  In
     addition, contingent upon Willow Creek achieving certain operating results
     for the year ending December 31, 2001, the Company may be required to make
     additional purchase price payments of up to $665 in fiscal 2002.

          On March 3, 2000, the Company completed its acquisition of (i)
     substantially all of the assets and certain liabilities of Lovell Farms,
     Inc. and Botanical Farms, Inc.; (ii) the capital stock of Enviro-Safe
     Laboratories, Inc. and (iii) the partnership interest of Lovell Properties
     (collectively referred to as "Lovell").

                                     Page 7
<PAGE>

          Lovell is a producer of quality annual bedding and holiday plants. The
     total acquisition price was approximately $92,000, which resulted in
     goodwill of approximately $72,200. In accordance with the terms of the
     purchase agreement, and as a result of Lovell achieving certain operating
     results relating to the year ended December 31, 2000, the Company will be
     making an additional purchase price payment of $7,500 in fiscal 2001. At
     December 31, 2000, the Company recorded this amount as goodwill. In
     addition, contingent upon Lovell achieving certain operating results for
     the year ending December 31, 2001, the Company may be required to make
     additional purchase price payments of up to $5,000 in fiscal 2002.

     Pro Forma Operating Data

          The following summary of condensed unaudited pro forma results of
     operations for the three months ended March 31, 2000 gives effect to the
     acquisitions of Willow Creek and Lovell as if they had occurred on
     January 1, 2000 (in thousands, except per share data):

                                                            2000
                                                           -------

       Sales, net                                          $95,773
       Net Income                                            2,192
       Basic and diluted earnings per share                $   .10


11.  Segment Information and Guarantor/Non-Guarantor Disclosures:
     ------------------------------------------------------------

          The Senior Subordinated Notes issued by Hines Nurseries ("the issuer")
     have been guaranteed by Hines ("the parent guarantor") and by Sun Gro-U.S.
     ("the subsidiary guarantor"). The issuer and the subsidiary guarantor are
     wholly owned subsidiaries of the parent guarantor and the parent and
     subsidiary guarantees are full, unconditional and joint and several.
     Separate financial statements of Hines Nurseries and Sun Gro-U.S. are not
     presented and Hines Nurseries and Sun Gro-U.S. are not filing separate
     reports under the Exchange Act because management believes that they would
     not be material to investors. The Senior Subordinated Notes are not
     guaranteed by Sun Gro-Canada or its present or future subsidiaries.

          The following information provides the required disclosures with
     respect to the Company's segments pursuant to Statement of Financial
     Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an
     Enterprise and Related Information." The Company operates in two segments:
     1) the nursery segment and 2) the growing media segment.

                                     Page 8
<PAGE>

          The following consolidating information shows (a) Hines on a parent
     company basis only as the parent guarantor (carrying its investment in its
     subsidiary under the equity method), (b) Hines Nurseries as the issuer
     (carrying its investment in its subsidiary under the equity method), (c)
     Sun Gro-U.S. as subsidiary guarantor (carrying its investment in Sun Gro-
     Canada under the equity method), (d) Sun Gro-Canada and its direct and
     indirect subsidiaries, as subsidiary non guarantors, (e) eliminations
     necessary to arrive at the information for the parent guarantor and its
     direct and indirect subsidiaries on a consolidated basis and (f) the parent
     guarantor on a consolidated basis, as follows:

          .  Consolidating balance sheets as of March 31, 2001 (unaudited) and
             December 31, 2000;

          .  Consolidating statements of operations for the three months ended
             March 31, 2001 and 2000 (unaudited); and

          .  Consolidating statements of cash flows for the three months ended
             March 31, 2001 and 2000 (unaudited).

                                     Page 9
<PAGE>

                     Guarantor / Non-guarantor Disclosures
                          Consolidating Balance Sheet
                             As of March 31, 2001
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                           --------------------------------------------------------------------------------------------------------
                                            Nursery                Growing Media Segment
                                            Segment
                           --------------------------------------------------------------------------------------------------------
                               Hines                       Sun Gro      Sun Gro Canada
                            Horticulture      Hines          U.S.        (Subsidiary
                              (Parent       Nurseries    (Subsidiary         Non-          Sun Gro                     Consolidated
                             Guarantor)     (Issuer)      Guarantor)     (Guarantors)     Sub-total    Eliminations        Total
                            -------------------------------------------------------------------------------------------------------
<S>                         <C>            <C>          <C>             <C>               <C>          <C>             <C>
       ASSETS
       ------

Current assets:
   Cash                         $    --      $     --        $    --           $    --     $     --      $       --        $     --
   Accounts
    receivable, net                  --        58,748         28,548             3,990       32,538              --          91,286
   Inventories                       --       170,437          7,019             6,656       13,675              --         184,112
   Prepaid expenses and
    other current assets             --         2,223          1,973             1,351        3,324              --           5,547
   Deferred income taxes             93           122          1,239               583        1,822          (2,037)             --
                            -------------------------------------------------------------------------------------------------------
       Total current assets     $    93      $231,530        $38,779           $12,580     $ 51,359         ($2,037)       $280,945
                            -------------------------------------------------------------------------------------------------------

Fixed assets, net                    --       143,274         12,580            51,868       64,448              --         207,722
Deferred financing
 expenses, net                      660        10,484             --                --           --              --          11,144
Goodwill, net                        --       123,311         18,941               634       19,575              --         142,886
Deferred income taxes                --        20,828             --                --           --         (20,828)             --
Investments in subsidiaries      93,145         9,944          9,230                --        9,230        (112,319)             --
                            -------------------------------------------------------------------------------------------------------
                                $93,898      $539,371        $79,530           $65,082     $144,612       ($135,184)       $642,697
                            =======================================================================================================

   LIABILITIES AND
   SHAREHOLDERS' EQUITY
   --------------------

Current liabilities:
   Accounts payable             $    --      $ 22,670        $ 3,574           $ 5,042     $  8,616      $       --        $ 31,286
   Accrued liabilities               --        15,849          2,233               414        2,647              --          18,496
   Accrued payroll and
    benefits                         --         4,603            425               859        1,284              --           5,887
   Accrued interest                  --         6,523             --                --           --              --           6,523
   Long-term debt,
    current portion                  --        18,196          3,771             4,546        8,317              --          26,513
   Borrowings on revolving
    credit facility                  --       111,000             --                --           --              --         111,000
   Deferred income taxes             --        62,995             --                --           --          (2,037)         60,958
   Intercompany accounts          8,843       (56,839)        34,149            13,847       47,996              --              --
                            -------------------------------------------------------------------------------------------------------
       Total current
        liabilities               8,843       184,997         44,152            24,708       68,860          (2,037)        260,663
                            =======================================================================================================

Long-term debt                       --       252,002         24,874            12,189       37,063              --         289,065
Derivative liability                 --         5,706             --                --           --              --           5,706
Deferred income taxes                --         9,780         (1,199)           14,455       13,256         (20,828)          2,208
Shareholders' equity
   Common stock                     221        17,971         11,414             4,500       15,914         (33,885)            221
   Additional paid in
    capital                     128,781        21,362          5,889             1,777        7,666         (29,028)        128,781
   Notes receivable from
    stock sales                     (30)           --             --                --           --              --             (30)

   Retained earnings
    (deficit)                   (35,505)       49,748            617             7,453        8,070         (57,818)        (35,505)
   Accumulated other
    comprehensive loss           (8,412)       (2,195)        (6,217)                -       (6,217)          8,412          (8,412)
                            -------------------------------------------------------------------------------------------------------
       Total shareholders'
        equity                   85,055        86,886         11,703            13,730       25,433        (112,319)         85,055
                            -------------------------------------------------------------------------------------------------------
                                $93,898      $539,371        $79,530           $65,082     $144,612       ($135,184)       $642,697
                            =======================================================================================================
</TABLE>

                                    Page 10
<PAGE>

              Guarantor / Non-guarantor Disclosures - (Continued)
                          Consolidating Balance Sheet
                            As of December 31, 2000
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                            -----------------------------------------------------------------------------------------------------
                                            Nursery                Growing Media Segment
                                            Segment
                            -----------------------------------------------------------------------------------------------------
                               Hines                      Sun Gro       Sun Gro Canada
                            Horticulture      Hines        U.S.          (Subsidiary
                              (Parent       Nurseries   (Subsidiary          Non-       Sun Gro                      Consolidated
                             Guarantor)     (Issuer)    Guarantor)       Guarantors)   Sub-total       Eliminations     Total
                            -----------------------------------------------------------------------------------------------------
<S>                         <C>            <C>          <C>             <C>            <C>             <C>              <C>
      ASSETS
      ------

Current assets:
   Cash                         $      -       $      -      $     -        $     -        $      -     $      -        $       -
   Accounts
    receivable,  net                   -         26,754       19,681          2,667          22,348            -           49,102
   Inventories                         -        153,125        7,881          7,569          15,450            -          168,575
   Prepaid expenses and
    other current assets               -          1,880        2,060          1,602           3,662            -            5,542
   Deferred income taxes               -            122        1,239            608           1,847       (1,969)               -
                            -----------------------------------------------------------------------------------------------------
       Total current assets     $      -       $181,881      $30,861        $12,446        $ 43,307      ($1,969)       $ 223,219
                            -----------------------------------------------------------------------------------------------------

Fixed assets, net                      -        141,210       12,819         54,690          67,509            -          208,719
Deferred financing
 expenses, net                       797         11,288            -              -               -            -           12,085
Goodwill, net                          -        124,196       19,082            672          19,754            -          143,950
Deferred income taxes                 37         20,828            -          1,538           1,538      (22,403)               -
Investments in subsidiaries       94,057          9,211        7,283              -           7,283     (110,551)               -
                            -----------------------------------------------------------------------------------------------------
                                $ 94,891       $488,614      $70,045        $69,346        $139,391    ($134,923)       $ 587,973
                            =====================================================================================================

   LIABILITIES AND
   SHAREHOLDERS' EQUITY
   --------------------

Current liabilities:
   Accounts payable             $      -      $   8,919      $ 1,836        $ 2,910        $  4,746     $      -         $ 13,665
   Accrued liabilities                 -         13,151        2,294            531           2,825            -           15,976
   Accrued payroll and
    benefits                           -          7,339          916          1,095           2,011            -            9,350
   Accrued  interest                   -          1,732            -              -               -            -            1,732
   Long-term debt,
    current portion                    -         18,196        3,769          4,548           8,317            -           26,513
   Borrowings on revolving
    credit facility                    -         79,500            -              -               -            -           79,500
   Deferred income taxes               -         63,554            -              -               -       (1,969)          61,585
   Intercompany accounts           7,484        (54,698)      27,738         19,476          47,214            -                -
                            -----------------------------------------------------------------------------------------------------
       Total current
        liabilities                7,484        137,693       36,553         28,560          65,113        (1,969)        208,321
                            -----------------------------------------------------------------------------------------------------

Long-term debt                         -        251,823       24,875         12,209          37,084            -          288,907
Deferred income taxes                  -         11,300       (2,353)        16,794          14,441      (22,403)           3,338
Shareholders' equity
   Common stock                      221         17,971       11,414          4,500          15,914      (33,885)             221
   Additional paid in
    capital                      128,781         21,362        5,889          1,778           7,667      (29,029)         128,781
   Notes receivable from
    stock sales                      (30)             -            -              -               -            -              (30)
   Retained earnings
    (deficit)                    (36,707)        48,465       (1,475)         5,505           4,030      (52,495)         (36,707)
   Accumulated other
    comprehensive loss            (4,858)                     (4,858)             -          (4,858)       4,858           (4,858)
                            -----------------------------------------------------------------------------------------------------
       Total shareholders'
        equity                    87,407         87,798       10,970         11,783          22,753     (110,551)          87,407
                            -----------------------------------------------------------------------------------------------------
                                 $94,891       $488,614      $70,045        $69,346        $139,391    ($134,923)        $587,973
                            =====================================================================================================
</TABLE>

                                      Page 11
<PAGE>

               Guarantor / Non-guarantor Disclosures - Continued
                     Consolidating Statement of Operations
                     For the quarter ended March 31, 2001
                            (Dollars in thousands)


<TABLE>
<CAPTION>
                                   ------------------------------------------------------------------------------------------------

                                                   Nursery            Growing Media Segment
                                                   Segment
                                   ------------------------------------------------------------------------------------------------
                                      Hines                     Sun Gro    Sun Gro Canada
                                   Horticulture     Hines        U.S.       (Subsidiary
                                     (Parent      Nurseries   (Subsidiary       Non-       Sun Gro                     Consolidated
                                    Guarantor)     (Issuer)    Guarantor)    Guarantors)  Sub-total     Eliminations       Total
                                   ------------------------------------------------------------------------------------------------
<S>                                <C>            <C>         <C>          <C>            <C>           <C>             <C>
Sales, net                           $     -        $67,757      $30,920        11,907      $42,827       ($9,831)       $100,753
Cost of goods sold                         -         32,714       19,100         9,002       28,102       ($9,831)         50,985
                                   ------------------------------------------------------------------------------------------------
  Gross Profit                             -         35,043       11,820         2,905       14,725             -          49,768
Operating expenses                         -         25,230       10,290        (1,416)       8,874             -          34,104
                                   ------------------------------------------------------------------------------------------------
  Operating income                         -          9,813        1,530         4,321        5,851             -          15,664
                                   ------------------------------------------------------------------------------------------------
Other expenses:
  Interest                               137         11,509          782           399        1,181             -          12,827
  Interest - intercompany                  -         (1,131)         792           339        1,131             -               -
  Amortization of deferred
   financing expenses, other          (1,283)        (1,288)      (2,114)            -       (2,114)        5,489             804
                                   ------------------------------------------------------------------------------------------------
                                      (1,146)         9,090         (540)          738          198         5,489          13,631
                                   ------------------------------------------------------------------------------------------------

Income before provision for
 income taxes                          1,146            723        2,070         3,583        5,653        (5,489)          2,033
Income tax (benefit) provision           (56)          (560)         (22)        1,469        1,447             -             831
                                   ------------------------------------------------------------------------------------------------
Net income                           $ 1,202        $ 1,283      $ 2,092         2,114      $ 4,206       ($5,489)       $  1,202
                                   ================================================================================================
</TABLE>




               Guarantor / Non-guarantor Disclosures - Continued
                     Consolidating Statement of Operations
                     For the quarter ended March 31, 2000
                            (Dollars in thousands)


<TABLE>
<CAPTION>

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

                                                   Nursery            Growing Media Segment
                                                   Segment
                                   ------------------------------------------------------------------------------------------------
                                      Hines                     Sun Gro    Sun Gro Canada
                                   Horticulture     Hines        U.S.       (Subsidiary
                                     (Parent      Nurseries   (Subsidiary       Non-       Sun Gro                     Consolidated
                                    Guarantor)     (Issuer)    Guarantor)    Guarantors)  Sub-total     Eliminations       Total
                                   ------------------------------------------------------------------------------------------------
<S>                                <C>            <C>         <C>          <C>            <C>           <C>             <C>
Sales, net                           $     -        $53,003      $32,123        12,870      $44,993       ($9,386)       $ 88,610
Cost of goods sold                         -         26,233       20,241         6,994       27,235        (9,386)         44,082
                                   ------------------------------------------------------------------------------------------------
  Gross Profit                             -         26,770       11,882         5,876       17,758             -          44,528
Operating expenses                         -         20,849       10,248         2,526       12,774             -          33,623
                                   ------------------------------------------------------------------------------------------------
  Operating income                         -          5,921        1,634         3,350        4,984             -          10,905
                                   ------------------------------------------------------------------------------------------------
Other expenses:
  Interest                                (3)         5,913          796           378        1,174             -           7,084
  Interest - intercompany                  -           (839)         542           297          839             -               -
  Amortization of deferred
   financing expenses, other          (2,328)        (1,676)      (1,704)                    (1,704)        5,950             242
                                   ------------------------------------------------------------------------------------------------
                                      (2,331)         3,398         (366)          675          309         5,950           7,326
                                   ------------------------------------------------------------------------------------------------

Income before provision for
 income taxes                          2,331          2,523        2,000         2,675        4,675        (5,950)          3,579
Income tax provision                       1            195          105           948        1,053             -           1,249
                                   ------------------------------------------------------------------------------------------------
Net income                           $ 2,330        $ 2,328      $ 1,895         1,727      $ 3,622       ($5,950)       $  2,330
                                   ================================================================================================
</TABLE>

                                    Page 12
<PAGE>

               Guarantor / Non-guarantor Disclosures - Continued
                     Consolidating Statement of Cash Flows
                     For the quarter ended March 31, 2001
                            (Dollars in thousands)
<TABLE>
<CAPTION>
                                    --------------- ----------- --------------------------------------- ------------- --------------
                                                      Nursery            Growing Media Segment
                                                      Segment
                                    --------------- ----------- --------------------------------------- ------------- --------------
                                         Hines                    Sun Gro    Sun Gro Canada
                                      Horticulture     Hines        U.S.      (Subsidiary
                                        (Parent      Nurseries  (Subsidiary       Non-        Sun Gro                 Consolidated
                                       Guarantor)    (Issuer)    Guarantor)   Guarantors)    Sub-total  Eliminations     Total
                                    --------------- ----------- ------------ --------------- ---------- ------------- --------------
<S>                                   <C>            <C>        <C>          <C>             <C>        <C>           <C>
Cash used in operating activities       $        --    ($26,610)       ($606)          ($550)   ($1,156)  $        --      ($27,766)
                                    ------------------------------------------------------------------------------------------------
Cash flows from investing
 activities:
  Purchase of fixed assets, net                  --      (4,089)        (176)           (629)      (805)           --        (4,894)
                                    ------------------------------------------------------------------------------------------------
    Net cash used in investing
     activities                                  --      (4,089)        (176)           (629)      (805)           --        (4,894)
                                    ------------------------------------------------------------------------------------------------
Cash flows from financing
 activities:
  Proceeds from revolving line of
   credit                                        --       31,500          --              --         --            --        31,500
  Intercompany advances
   (repayments)                                  --         (782)        782              --        782            --            --
  Repayments of long-term debt                   --          (19)         --             (24)       (24)           --           (43)
                                    ------------------------------------------------------------------------------------------------
    Net cash provided by (used in)
     financing activities                        --       30,699         782             (24)       758            --        31,457
                                    ------------------------------------------------------------------------------------------------
  Effect of exchange rate changes
   on cash and cash equivalents                  --           --          --           1,203      1,203            --         1,203
                                    ------------------------------------------------------------------------------------------------
Net decrease in cash                             --           --          --              --         --            --            --
Cash, beginning of year                          --           --          --              --         --            --            --
                                    ------------------------------------------------------------------------------------------------
Cash, end of year                       $        --     $     --      $   --          $   --     $   --   $        --     $      --
                                    ================================================================================================

</TABLE>

               Guarantor / Non-guarantor Disclosures - Continued
                     Consolidating Statement of Cash Flows
                     For the quarter ended March 31, 2000
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                    --------------- ----------- --------------------------------------- ------------- --------------
                                                      Nursery            Growing Media Segment
                                                      Segment
                                    --------------- ----------- --------------------------------------- ------------- --------------
                                         Hines                    Sun Gro    Sun Gro Canada
                                      Horticulture     Hines        U.S.      (Subsidiary
                                        (Parent      Nurseries  (Subsidiary       Non-        Sun Gro                 Consolidated
                                       Guarantor)    (Issuer)    Guarantor)   Guarantors)    Sub-total  Eliminations     Total
                                    --------------- ----------- ------------ --------------- ---------- ------------- --------------
<S>                                   <C>            <C>        <C>          <C>             <C>        <C>           <C>
Cash provided by (used in)
 operating activities                   $         3    ($36,294)    ($12,503)        $ 1,423   ($11,080)  $        --      ($47,371)
                                    ------------------------------------------------------------------------------------------------
Cash flows from investing
 activities:
  Purchase of fixed assets, net                  --      (6,468)      (1,312)         (1,283)    (2,595)           --        (9,063)
  Acquisitions                                   --    (112,034)          --              --         --            --      (112,034)
                                    ------------------------------------------------------------------------------------------------
    Net cash used in investing
     activities                                  --    (118,502)      (1,312)         (1,283)    (2,595)           --      (121,097)
                                    ------------------------------------------------------------------------------------------------
Cash flows from financing
 activities:
  Proceeds from revolving line of
   credit                                        --      53,750           --              --         --            --        53,750
  Intercompany advances
   (repayments)                                 (49)    (15,324)      15,373              --     15,373            --            --
  Proceeds from the issuance of
   long-term debt                                --     119,416           --              --         --            --       119,416
  Repayments of long-term debt                   --      (1,311)          --              (6)        (6)           --        (1,317)
  Defererd financing costs                       --      (3,293)          --              --         --            --        (3,293)
  Dividends received (paid)                      --        1558       (1,558)             --     (1,558)           --            --
  Repayments of notes receivable
   from stock sales                              46          --           --              --         --            --            46
                                    ------------------------------------------------------------------------------------------------
    Net cash provided by (used in)
     financing activities                        (3)    154,796       13,815              (6)    13,809            --       168,602
                                    ------------------------------------------------------------------------------------------------
  Effect of exchange rate changes
   on cash and cash equivalents                  --          --           --            (134)      (134)           --          (134)
                                    ------------------------------------------------------------------------------------------------
Net decrease in cash                             --          --           --              --         --            --            --
Cash, beginning of year                          --          --           --              --         --            --            --
                                    ------------------------------------------------------------------------------------------------
Cash, end of year                       $        --    $     --      $    --         $    --    $    --   $        --      $     --
                                    ================================================================================================

</TABLE>

                                    Page 13
<PAGE>

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

     CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
     PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         This report contains forward-looking statements. Hines desires to take
     advantage of the safe harbor provisions of the Private Securities
     Litigation Reform Act of 1995 and is including this statement for the
     express purpose of availing itself of the protections of the safe harbor
     with respect to all forward-looking statements. Several important factors,
     in addition to the specific factors discussed in connection with such
     forward-looking statements individually, could affect the future results of
     the Company and could cause those results to differ materially from those
     expressed in the forward-looking statements contained herein.

         The Company's estimated or anticipated future results, products and
     service performance or other non-historical facts are forward-looking and
     reflect Hines' current perspective of existing trends and information.
     These statements involve risks and uncertainties that cannot be predicted
     or quantified and, consequently, actual results may differ materially from
     those expressed or implied by such forward-looking statements. Such risks
     and uncertainties include, among others, the continued ability of Hines to
     access water, the impact of growing conditions, risks associated with
     customer concentration, future acquisitions and the ability to integrate
     such acquisitions in a timely and cost effective manner, the ability to
     manage growth, the impact of competition, the ability to obtain future
     financing or to satisfy payment obligations under existing financing,
     limitations of Hines' substantial leverage and debt restrictions,
     government regulations and other risks and uncertainties described from
     time to time in Hines' Securities and Exchange Commission filings.

         Therefore, the Company wishes to caution each reader of this report to
     consider carefully these factors as well as the specific factors discussed
     with each forward-looking statement in this report and disclosed in the
     Company's filings with the Securities and Exchange Commission as such
     factors, in some cases, have affected, and in the future (together with
     other factors) could affect, the ability of the Company to implement its
     business strategy and may cause actual results to differ materially from
     those contemplated by the statements expressed herein.

                                    Page 14
<PAGE>

Overview

         General. Hines is one of the largest commercial nursery operations in
     North America, producing one of the broadest assortments of container-grown
     plants in the industry. The Company sells its nursery products primarily to
     the retail segment which includes premium independent garden centers, as
     well as leading home centers and mass merchandisers, such as Home Depot,
     Lowe's, Wal-Mart, Kmart and Target. The Company is also the largest North
     American producer and marketer of sphagnum peat moss and professional bark-
     based growing mixes. The Company sells its growing media products primarily
     to professional customers, including greenhouse growers, nursery growers
     and golf course developers. The Company believes that sales of its nursery
     and growing media products have been positively affected by societal and
     demographic trends, such as greater levels of homeownership, the aging of
     the American population and the increasing popularity of gardening. Recent
     trends in the retail distribution channel, such as the expansion of large
     "big box" retailers and their growing emphasis on the lawn and garden
     category, have increased consumer exposure to lawn and garden products.
     Management believes these trends have favorably impacted the Company and
     provide excellent opportunities for improved operating performance.

         Seasonality. The Company's green goods business, like that of its
     competitors, is highly seasonal. In 2000, approximately 72% of Hines
     Nurseries' net sales and approximately 101% of Hines Nurseries' operating
     income occurred in the first half of the year. Approximately 54% of Hines
     Nurseries' net sales and approximately 88% of Hines Nurseries' operating
     income occurred in the second quarter of 2000. The Company has experienced
     and expects to continue to experience significant seasonality in net sales,
     operating income and net income. This quarterly variability is primarily
     the result of the consumer gardening cycle, which is closely aligned to
     seasonal weather patterns, particularly weekend weather during the peak
     growing season, as well as other factors. Sun Gro's sales, because they are
     more heavily weighted towards the professional markets, typically do not
     experience the large seasonal variances present in the retail market, and
     are only slightly weighted towards the first half of the year.

         Acquisitions. The Company has completed a number of recent acquisitions
     to expand and diversify its operations. In the three years ended December
     31, 2000, the Company completed six acquisitions, all of which have been
     accounted for under the purchase method. Accordingly, the purchase prices
     were allocated to certain assets and liabilities based on their respective
     fair values. The excess of the purchase price over the estimated fair value
     of the net assets acquired relating to each transaction was accounted for
     as goodwill. Amounts allocated to goodwill are being amortized on a
     straight-line basis over an estimated life of thirty-five years.

                                    Page 15
<PAGE>

         The funds used for the acquisitions were provided by the Company's
     existing acquisition facility. The consolidated financial statements
     include the operating results of each acquisition from the date of
     acquisition. These acquisitions have and will continue to affect the
     period-to-period comparability of the operating results discussed below.
     The Company has historically pursued strategic acquisitions from time to
     time that increase its production capacity, broaden or complement its
     existing product lines, expand its geographic presence or offer operating
     synergies. While the Company continues to believe that the highly
     fragmented nature of the nursery industry presents it with a number of
     opportunities to make such acquisitions, management's current priority is
     to increase its operating cash flows and financial flexibility.
     Accordingly, the Company does not have current agreements to consummate
     further acquisitions.

         Tax Matters. The Company derives significant benefits under the U.S.
     federal tax code by qualifying to use the cash method of accounting for its
     nursery operations for federal income tax purposes. Under the cash method,
     sales are included in taxable income when payments are received and
     expenses are deducted as they are paid. The primary benefit the Company
     receives is the ability to deduct the cost of inventory as it is incurred.
     As a result of the Company's ability to deduct its growing costs under the
     farming exception, the Company has generally not been required to pay cash
     income taxes and has generated net operating losses for federal income tax
     purposes. In 2000, the Company generated a taxable loss for federal income
     tax purposes. During the same period, the Company has continued to show a
     tax provision relating to the recording of deferred taxes. At December 31,
     2000, the Company had approximately $52.4 million in net operating loss
     carryforwards for federal income tax reporting purposes.

         Foreign Currency Translation. Effective April 1, 1999, the Company
     changed the functional currency of Sun Gro's Canadian operations to the
     Canadian dollar. In 1998, the Company acquired Lakeland, significantly
     expanding the scope of its Canadian operations. Since the acquisition of
     Lakeland, the Company's Canadian operations have become increasingly self-
     sufficient and less dependent upon its U.S.-based parent. As a result, the
     Canadian dollar has become the principal operating currency of Sun Gro's
     Canadian operations and effective April 1, 1999, the Company changed the
     functional currency of Sun Gro's Canadian operations to the Canadian
     dollar. Assets and liabilities denominated in Canadian dollars are
     translated into U.S. dollars at the foreign exchange rate in effect as of
     the balance sheet date. Revenues and expenses are translated into U.S.
     dollars at the weighted average exchange rate for the period. Translation
     adjustments are recorded in accumulated other comprehensive loss.

                                    Page 16
<PAGE>

     Results of Operations

     Three Months Ended March 31, 2001 compared to Three Months Ended March 31,
     2000

         Net sales. Net sales of $100.8 million for the three months ended
     March 31, 2001 increased $12.2 million, or 13.8%, from net sales of
     $88.6 million for the comparable period in 2000 primarily due to increased
     sales from the Company's green goods business as discussed below.

         Sales from the Company's green goods business increased by almost 28%
     as both the nursery and color divisions had strong performances across the
     country. Internal growth in the nursery division was especially strong,
     with excellent results being achieved in the eastern region and the
     southern sunbelt markets. The sales force reorganization implemented during
     2000 has enabled Hines to bring about a resurgence in sales growth to
     independent garden centers. This performance complements consistently high
     growth rates in sales to mass retail customers, which have been supported
     by the Company's successful store service programs.

         Net sales of the Company's growing media business decreased by 7% from
     the comparable period in 2000, due in part to a late spring in certain
     parts of the country. In the growing media business, the Company's focus
     has been on rebuilding the Seba Beach production facility and increasing
     gross margins in its major lines. In order to meet these margin objectives,
     the Company has continued to emphasize higher margin professional lines and
     exercised increased discipline in pricing decisions on retail products.

         Gross profit. Gross profit of $49.8 million for the three months ended
     March 31, 2001 increased $5.3 million, or 11.9%, from gross profit of
     $44.5 million for the comparable period in 2000. The increase was primarily
     attributable to higher sales at the Company's green goods business as
     discussed above.

         As a percent of sales, gross margin decreased from 50.3% to 49.4% of
     net sales primarily due to the impact of the Seba Beach facility fire,
     which accounted for $2.4 million of additional costs. Excluding these
     additional costs, the gross margins would have increased by 1.5% from 50.3%
     to 51.8% primarily due to product mix and pricing increases in the green
     goods business and production improvements in the growing media business.

         Operating expenses. Operating expenses of $34.1 million for the three
     months ended March 31, 2001 increased $0.5 million, or 1.5%, from
     $33.6 million for the comparable period in 2000. Included in operating
     expenses are $0.3 million of incremental costs relating to the Seba Beach
     facility fire and a gain of $5.0 million representing insurance proceeds
     received during the quarter. Excluding these incremental costs and gain,
     operating expenses as a percentage of net sales increased from 37.9% to
     38.6% in first three months of 2001, primarily attributable to the lower
     sales from the growing media business as discussed above.

                                    Page 17
<PAGE>

         Operating income. Operating income of $15.7 million for the three
     months ended March 31, 2001 increased $4.8 million, or 44.0%, from
     $10.9 million for the comparable period in 2000. Excluding the $2.3 million
     positive impact of the receipt of the Seba Beach insurance proceeds, net of
     the incremental production and operating costs relating to the fire,
     operating income of $13.3 million increased $2.4 million, or 22% from
     $10.9 million for the comparable period in 2000. Excluding this
     $2.3 million positive impact, as a percentage of net sales, operating
     income improved 0.9% to 13.2% from 12.3%, due primarily to increased gross
     margins as discussed above.

         Interest expense. Interest expense of $10.8 million for the three
     months ended March 31, 2001 increased $3.7 million, or 52.1%, from
     $7.1 million for the comparable period in 2000. The increase was primarily
     attributable to increased borrowing levels due to the acquisitions made in
     early fiscal 2000 and increased borrowing rates.

         For the three months ended March 31, 2001, the Company recognized a
     pre-tax loss of $1,992 reported as interest rate agreement expense in the
     Consolidated Statement of Operations related to the change in the fair
     value of the interest rate agreement. See a further discussion in Note 4 to
     the Consolidated Financial Statements regarding the adoption of SFAS
     No. 133.

         Provision for income taxes. The Company's effective income tax rate was
     40.9% and 34.9% for the three months ended March 31, 2001 and 2000,
     respectively. The increase in the effective income tax rate is mainly due
     to the prior year's release of tax reserves management determined were no
     longer necessary.

         Net income. Net income of $1.2 million for the three months ended
     March 31, 2001 decreased $1.1 million from a net income of $2.3 million for
     the comparable period in 2000. The decrease was primarily due to the higher
     interest expense as discussed above, the higher financing costs and the
     interest rate agreement expense of $1,992 discussed above.

     Liquidity and Capital Resources
     -------------------------------

         The Company has historically satisfied its working capital requirements
     through operating cash flow. Due to the highly seasonal nature of its
     nursery operations, the Company historically borrows under its revolving
     credit facilities to fund peak needs.

         In 1998, the Company entered into a senior credit facility (the "Senior
     Credit Facility") which provided for a $50.0 million term loan and a
     $200.0 million revolving credit facility, comprised of a $100.0 million
     working capital facility and a $100.0 million acquisition facility. The
     Senior Credit Facility has a five-year term. The revolving credit facility
     and all other obligations under the Senior Credit Facility are secured by
     substantially all of the assets and common stock of Hines Nurseries and Sun
     Gro-U.S., as well as a pledge of 65% of the common stock of Sun Gro-Canada.
     The principal repayment schedule for the term loan and acquisition facility
     is $11.9 million in 2000, $23.6 million in 2001, $63.1 million in 2002 and
     $48.2 million in 2003.

                                    Page 18
<PAGE>

         In connection with the Lovell acquisition on March 3, 2000, the Company
     entered into an amendment to its existing senior credit facility (the
     "Amended Senior Credit Facility") to provide for a new $100.0 million term
     loan and a $15.0 million increase in the Company's existing working capital
     revolving credit facility. The term loan requires annual principal payments
     of $1.0 million through December 31, 2003, $47.0 million in fiscal year
     2004 and the remaining balance in fiscal year 2005.

         The term loan and revolving credit facility interest rate is a
     percentage spread over the U.S. prime rate and the Eurodollar rate,
     depending upon the Company's quarterly leverage and interest rate coverage
     ratios as defined in the Amended Senior Credit Facility. The Lovell
     acquisition was financed with proceeds from the Amended Senior Credit
     Facility.

         Effective November 28, 2000 the Company's Amended Senior Credit
     Facility was further amended to (i) provide the Company with additional
     revolving loan commitments in the amount of $30.0 million guaranteed by its
     majority shareholder Madison Dearborn Capital Partners, L.P. ("MDCP"),
     which can only be borrowed and can only be outstanding between March 15 and
     June 15 of 2001 and of 2002, (ii) increase the interest rate on all loans
     by 1/4% to 1/2%, (iii) reset the financial covenants that establish minimum
     interest coverage ratios and net worth levels, and maximum leverage ratios
     and capital expenditure amounts, (iv) add a minimum EBITDA covenant, (v)
     amend the clean down requirement for working capital revolving loans and
     (vi) provide for additional restrictions on the Company's ability to make
     acquisitions and reinvest proceeds from asset sales. In consideration for
     its guarantee on the additional revolving loan commitments, MDCP received a
     fee of $600,000 and warrants to purchase 440,000 shares of the common stock
     of Hines. These warrants are exercisable at any time prior to December 31,
     2005 at an exercise price of $3.50. All other significant terms and
     conditions of the Amended Senior Credit Facility remain unchanged. If MDCP
     is required to make any payment with respect to its guaranty of new
     revolver, the Company would be required to issue to MDCP an additional
     warrant to purchase a number of shares of the Company's common stock equal
     to the amount of such payment divided by the then current market price of
     the Company's common stock.

         In October 1995, Hines Nurseries issued $120.0 million in aggregate
     principal amount of 11 3/4% senior subordinated notes due 2005 (the "Senior
     Subordinated Notes") to refinance certain indebtedness incurred in
     connection with the acquisition of Hines by MDCP and certain members of
     management. As of December 31, 2000, $78.0 million in aggregate principal
     amount remains outstanding. The indenture pursuant to which the Senior
     Subordinated Notes were issued imposes a number of restrictions on Hines
     Nurseries and Sun Gro-U.S. The indenture limits, among other things, their
     ability to incur additional indebtedness, to make certain restricted
     payments (including dividends to Hines), to make certain asset
     dispositions, to incur certain liens and to enter into certain significant
     transactions. In addition, breach of a material term of the indenture or
     any other material indebtedness that results in the acceleration of such
     indebtedness would trigger an event of default under the Senior Credit
     Facility, causing all amounts owing thereunder to become immediately due
     and payable.

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<PAGE>

     The Senior Credit Facility imposes a number of similar and certain
     additional restrictions (including financial covenants) on Hines Nurseries
     and Sun Gro-U.S. and its subsidiaries.

         Effective November 28, 2000, Hines Nurseries also received the approval
     of its noteholders to amend the Indenture governing the Senior Subordinated
     Notes for the purpose of amending the definition of "Permitted
     Indebtedness" within the Indenture to include (i) all indebtedness that may
     be incurred under the Amended Senior Credit Facility in an aggregate
     principal amount to not exceed $365.0 million (less the amount of all
     mandatory principal repayments and required permanent reductions made
     thereunder) plus (ii) up to an additional $35.0 million in indebtedness
     under the additional revolving loan commitments, provided that such
     borrowings may only be borrowed and may only be outstanding between March
     15 and June 15 of 2001 and 2002. In consideration for the amendment, Hines
     Nurseries agreed to (i) pay a fee of $35 per $1,000 of the principal amount
     of Notes, (ii) increase the interest rate thereon from 11 3/4% to 12 3/4%
     per annum, (iii) increase the optional redemption price to 106.00% of the
     principal amount thereof, (iv) increase the purchase price upon a change of
     control from 101.00% to 105.00% of the principal amount thereof and add to
     the events that constitute a change of control and (v) pay a premium at
     maturity equal to 5.00% of the principal amount to be repaid. All other
     terms of the Notes remain unchanged.

         Net cash used by operating activities for the three months ended March
     31, 2001 of $27.8 million decreased by $19.6 million from $47.4 million for
     the comparable period in 2000. The lower level of cash used was primarily
     due to the higher levels of accounts payable and accrued liabilities.

         The seasonal nature of the Company's operations results in a
     significant increase in certain components of working capital (primarily
     accounts receivable and inventory) during the growing and selling cycles.
     As a result, operating activities during the first and fourth quarters of
     the year use significant amounts of cash and, in contrast, the operating
     activities for the second and third quarters generate substantial cash as
     the Company ships inventory and collects accounts receivable.

         Net cash used in investing activities during the three months ended
     March 31, 2001 decreased $116.2 million to $4.9 million from $121.1 million
     for the comparable period in 2000. The decrease was primarily due to the
     Company's prior year's acquisitions of Willow Creek and Lovell and, to a
     lesser extent, lower capital expenditures this year.

         Net cash provided by financing activities during the three months ended
     March 31, 2001 decreased $137.1 million to $31.5 million from $168.6
     million for the comparable period in 2000. The decrease was directly
     related to the prior year's advances under the acquisition facility to
     finance the acquisitions completed in the prior year and to lower
     borrowings under the Company's revolving line of credit.

                                    Page 20
<PAGE>

         The Company typically draws on its revolving credit facilities in the
     first and fourth quarters to fund its seasonal inventory buildup of green
     goods products and seasonal operating expenses. Approximately 75% of the
     sales of Hines Nurseries occur in the first half of the year, generally
     allowing the Company to reduce borrowings under its revolving credit
     facilities in the second and third quarters. Working capital requirements
     for the Company's growing media operations are less seasonal in nature,
     with slight inventory buildups generally occurring in the third and fourth
     quarters. On May 3 2001, the Company had unused borrowing capacity of $1.4
     million, $7.5 million and $20.5 million under its acquisition facility,
     working capital revolver and the additional $30.0 million revolving loan
     commitment, respectively, within the Amended Senior Credit Facility.

         As a result of the Company's ability to deduct its growing costs under
     the farming exception, the Company has generally not been required to pay
     cash income taxes in recent years and has generated net operating losses
     for federal income tax purposes. Even with the benefits of the farming
     exception, the Company may nonetheless be required to pay cash income taxes
     in future years after use, loss or expiration of its tax net operating loss
     carryforwards. Such cash income taxes could also result from increased
     taxable income due to, among other reasons: (i) any slowdown in, or
     elimination of, future growth in the Company's inventory of growing plants
     or (ii) limits on the Company's ability to use net operating loss
     carryforwards to offset all of its tax liability under the alternative
     minimum tax system.

         The Company's capital expenditures were approximately $4.9 million for
     the three months ended March 31, 2001. The capital expenditures for the
     green goods business ($4.1 million) related primarily to the development of
     acreage and the purchase of nursery-related structures, vehicles, machinery
     and equipment and the continued implementation of the ERP information
     system, which will standardize systems and processes throughout the
     Company. The capital expenditures for the growing media business ($0.8
     million) related primarily to peat bog development and the purchase of peat
     bog harvesting and processing equipment. The Company's capital expenditures
     for 2001 are expected to be approximately $15.0 million.

         Principal repayments due under the Company's various borrowings
     agreements total $26.5 million in 2001, $64.3 million in 2002, $49.4
     million in 2003 and $175.3 million thereafter. Management believes that
     cash generated by operations and borrowings available under the Amended
     Senior Credit Facility will be sufficient to meet the Company's anticipated
     working capital, capital expenditures and debt service requirements through
     2002. Management is currently considering various alternatives to
     facilitate the refinancing or repayments of amounts due under the Amended
     Senior Credit Facility in 2002. Management believes at this time that the
     Company will be able to successfully refinance or repay amounts due under
     the Amended Senior Credit Facility in accordance with its terms; however,
     there is no assurance that the Company will be able to do so.

                                    Page 21
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         As part of its ongoing business, the Company is exposed to certain
     market risks, including fluctuations in interest rates, foreign exchange
     rates, commodity prices and its common stock price. The Company does not
     enter into transactions designed to mitigate its market risks for trading
     or speculative purposes.

         In May 2000, the Company entered into an interest rate swap and cap
     agreement (interest rate agreement) to hedge $75.0 million of its loan
     facility. The interest rate agreement effectively changes the Company's
     exposure on its variable rate interest payments to fixed rate interest
     payments of 7.13% based on the 3-month LIBOR rate in effect at the
     beginning of each quarterly period, with a maximum rate of 8%. The interest
     rate agreement matures in February 2005. At March 31, 2001, the estimated
     fair value of the interest rate agreement was $5.7.

         The Company also manages its interest rate risk by balancing the amount
     of its fixed and variable long-term debt. For fixed-rate debt, interest
     rate changes affect the fair market value of such debt but do not impact
     earnings or cash flows. Conversely, for variable rate debt, interest rate
     changes generally do not affect the fair market value of such debt but do
     impact future earnings and cash flows, assuming other factors are held
     constant.


                          PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

                    None

Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.

                                    Page 22
<PAGE>

                                   SIGNATURE


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


                                       HINES HORTICULTURE, INC.
                                       (Registrant)



                                       By:  /s/ Claudia M. Pieropan
                                            -----------------------
                                            Claudia M. Pieropan
                                            Chief Financial Officer
                                            (Principal financial officer
                                            and duly authorized officer)



Date:    May 14, 2001

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