<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 September 30, 1997

(  )  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
                                    33-99452



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



            Nevada                                 52-1720681
(State or other jurisdiction of          (I.R.S. Employer Identification
incorporation or organization)          Number)


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

                                 (714) 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 October 31, 1997 there were 10,414,734 shares of Common Stock of
Hines Holdings, Inc., par value $.01 per share, outstanding and 20,685,266
shares of 12% Cumulative Redeemable Junior Preferred Stock of Hines Holdings,
Inc., par value $.01 per share, outstanding.  As of such date, none of such
shares were held by persons other than affiliates and employees of the
registrant, and there was no public market for such shares.


===============================================================================
<PAGE>
 
                             HINES HOLDINGS, INC.

                                     Index

                         Part I. Financial Information
                                        

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

          Condensed Consolidated Balance Sheets as of
          December 31, 1996 and September 30, 1997                     1

          Condensed Consolidated Statements of Operations and
          Deficit for the Three Months and Nine Months Ended
          September 30, 1996 and 1997                                  3

          Condensed Consolidated Statements of Cash Flows for the
          Nine Months Ended September 30, 1996 and 1997                4

          Notes to the Condensed Consolidated Financial Statements     5

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


                          Part II. Other Information

Item 2.   Changes in Securities                                       18

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

          Signature                                                   20

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

<PAGE>
<TABLE>
<CAPTION>

                             HINES HOLDINGS, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                   December 31, 1996 and September 30, 1997


           ASSETS                                    December 31, 1996      September 30, 1997
           ------                                    -----------------      ------------------
                                                             (Dollars in thousands)
<S>                                                 <C>                    <C>

CURRENT ASSETS:
   Cash                                                       $    631                $      -
   Accounts receivable, net of allowance for
      doubtful accounts of $1,019 and $1,183                    15,644                  24,516
   Inventories                                                  95,224                  95,728
   Prepaid expenses and other current assets                     3,177                   2,208
                                                              --------                --------

                                  Total current assets         114,676                 122,452
                                                              --------                --------

FIXED ASSETS, net of accumulated depreciation
   and depletion of $14,169 and $18,682                         81,870                  85,706

DEFERRED FINANCING EXPENSES, net of
   accumulated amortization of $1,235 and $2,039                 6,352                   6,049

OTHER ASSETS                                                        36                      36

GOODWILL                                                        24,581                  24,831
                                                              --------                --------
                                                              $227,515                $239,074
                                                              ========                ========














   See accompanying Notes to Condensed Consolidated Financial Statements and Management's
   Discussion and Analysis of Financial Condition and Results of Operations.


</TABLE>

                                       1
  
<PAGE>



                             HINES HOLDINGS, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                   December 31, 1996 and September 30, 1997
<TABLE>
<CAPTION>

        LIABILITIES AND SHAREHOLDERS' DEFICIT
        -------------------------------------
                                                                December 31, 1996      September 30, 1997
                                                                -----------------      ------------------
                                                                 (Dollars in thousands except share data)
<S>                                                             <C>                    <C>
CURRENT LIABILITIES:
        Accounts payable                                          $      7,875           $       9,067
        Accrued liabilities                                              5,358                   8,632
        Accrued payroll and benefits                                     5,957                   8,710
        Long-term debt, current portion                                  4,897                   5,211
        Revolving line of credit                                        29,357                  22,658
        Deferred income taxes                                           31,402                  36,117
        Other liabilities                                                  269                     262
                                                                  ------------           -------------
                   Total current liabilities                            85,115                  90,657
                                                                  ------------           -------------

LONG-TERM DEBT                                                         152,769                 148,775

DEFERRED INCOME TAXES                                                    6,006                   6,877

COMMITMENTS AND CONTINGENCIES

CUMULATIVE REDEEMABLE SENIOR PREFERRED
   STOCK 12 PERCENT, par value $.01 per share;
   liquidation preference of $1,000 per share; 30,000
   shares authorized; 30,000 shares issued
   at December 31, 1996 and September 30, 1997                          30,921                  34,046

CUMULATIVE REDEEMABLE JUNIOR PREFERRED
   STOCK 12 PERCENT, par value $.01 per share;
   liquidation preference of $1 per share; 22,000,000
   shares authorized; 20,498,816 and 20,685,266 shares
   issued at December 31, 1996 and September 30, 1977                   23,989                  26,353

SHAREHOLDERS' DEFICIT
        Common Stock
           Authorized - 30,000,000 shares  $.01 par value;
           Issued and outstanding - 10,226,184 and
           10,414,734 at December 31, 1996 and
           September 30, 1997                                              102                     104

        Additional paid-in capital                                       5,600                     460

        Notes receivable from stock sales                                 (577)                   (659)

        Deficit                                                        (76,410)                (67,539)
                                                                  ------------           -------------

                   Total shareholders' deficit                         (71,285)                (67,634)
                                                                  ------------           -------------

                                                                  $    227,515           $     239,074
                                                                  ============           =============
</TABLE>

        See accompanying Notes to Condensed Consolidated Financial Statements
        and Management's Discussion and Analysis of Financial Condition and
        Results of Operations.

                                       2


<PAGE>
                             HINES HOLDINGS, INC.

          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
        Three Months and Nine Months Ended September 30, 1996 and 1997

<TABLE>
<CAPTION>
                                                                 Three Months Ended September 30     Nine Months Ended September 30
                                                                 -------------------------------     ------------------------------
                                                                    1996                 1997           1996                1997
                                                                 ----------           ----------     ----------          ----------
<S>                                                              <C>                  <C>            <C>                 <C> 
                                                                             (Dollars in thousands except per share data)

SALES, NET                                                          $28,085              $31,104       $138,412            $172,983

COST OF GOODS SOLD                                                   13,943               14,301         67,954              85,784
                                                                 ----------           ----------     ----------          ----------

                                               Gross Profit          14,142               16,803         70,458              87,199
                                                                 ----------           ----------     ----------          ----------

SELLING AND DISTRIBUTION EXPENSES                                     9,279               10,479         34,490              40,347
GENERAL AND ADMINISTRATIVE EXPENSES                                   4,128                4,867         13,147              15,933
UNUSUAL ITEMS                                                        -                       271         -                       78
                                                                 ----------           ----------     ----------          ----------

                                   Total operating expenses          13,407               15,617         47,637              56,358
                                                                 ----------           ----------     ----------          ----------

                                           Operating income             735                1,186         22,821              30,841
                                                                 ----------           ----------     ----------          ----------

OTHER EXPENSES:
  Interest                                                            4,718                4,897         14,996              15,519
  Amortization of deferred financing expenses                           242                  277            698                 804
                                                                 ----------           ----------     ----------          ----------

                                                                      4,960                5,174         15,694              16,323
                                                                 ----------           ----------     ----------          ----------
Income (loss) before provision for (benefit from)
  income taxes                                                       (4,225)              (3,988)         7,127              14,518

PROVISION FOR (BENEFIT FROM) INCOME TAXES                            (1,559)              (1,677)         2,894               5,647
                                                                 ----------           ----------     ----------          ----------

NET INCOME (LOSS)                                                    (2,666)              (2,311)         4,233               8,871
Less: Preferred stock dividends                                        (960)              (1,955)        (2,760)             (5,249)
                                                                 ----------           ----------     ----------          ----------

NET INCOME (LOSS) applicable to common stock                        ($3,626)             ($4,266)        $1,473              $3,622
                                                                 ==========           ==========     ==========          ==========

Net income (loss) per common share                                   ($0.35)              ($0.42)         $0.15               $0.33
                                                                 ==========           ==========     ==========          ==========

Weighted average shares outstanding                              10,267,521           11,064,235     10,083,807          11,059,762
                                                                 ==========           ==========     ==========          ==========


DEFICIT, beginning of period                                       ($69,807)            ($65,228)      ($76,338)           ($76,410)
NET INCOME (LOSS) during the period                                  (2,666)              (2,311)         4,233               8,871
Additional cost of repurchase and retirement of stock                    87               -                (281)             -
                                                                 ----------           ----------     ----------          ----------
DEFICIT, end of period                                             ($72,386)            ($67,539)      ($72,386)           ($67,539)
                                                                 ==========           ==========     ==========          ==========
</TABLE> 

See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

                                       3

<PAGE>
 
                             HINES HOLDINGS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Nine Months Ended September 30, 1996 and 1997

<TABLE> 
<CAPTION> 
                                                                 Nine Months Ended September 30
                                                                 ------------------------------
                                                                     1996              1997
                                                                 ------------      ------------
                                                                     (Dollars in thousands)
<S>                                                              <C>               <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                    $      4,233      $      8,871
   Adjustments to reconcile net income to
      net cash provided by operating activities -
        Depreciation, depletion and amortization                        4,532             5,372
        Gain on sale of fixed assets                                        -              (122)
        Gain on involuntary disposal of fixed assets                        -            (1,194)
        Deferred income taxes                                           2,433             5,527
        Other                                                             148                86
                                                                 ------------      ------------
                                                                       11,346            18,540

CHANGE IN WORKING CAPITAL ACCOUNTS:
   Accounts receivable                                                 (3,792)           (8,872)
   Inventories                                                          2,128              (505)
   Prepaid expenses and other assets                                      272               714
   Other assets                                                          (597)              (82)
   Accounts payable and accrued liabilities                             2,584             7,216
   Other liabilities                                                     (161)               (7)
                                                                 ------------      ------------

              Net cash provided by operating activities                11,780            17,004
                                                                 ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of fixed assets                                            (6,231)           (7,379)
   Proceeds from sales of fixed assets                                      -               154
   Proceeds from insurance claims                                           -             1,194
   Purchase of fixed assets with insurance claim
      proceeds                                                              -            (1,081)
   Acquisitions, net of cash acquired                                 (10,301)                -
                                                                 ------------      ------------

                  Net cash used in investing activities               (16,532)           (7,112)
                                                                 ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from revolving line of credit                             147,194           167,306
   Repayments on revolving line of credit                            (139,898)         (174,005)
   Repayments of long-term debt                                        (2,921)           (3,673)
   Deferred financing costs                                              (153)             (501)
   Additional cost of repurchase and retirement of stock                 (281)                -
   Repurchase and retirement of stock                                       -               (75)
   Issuance of preferred and common stock                                 666               425
   Other                                                                  (36)                -
                                                                 ------------      ------------

    Net cash provided by (used in) financing activities                 4,571           (10,523)
                                                                 ------------      ------------

NET DECREASE IN CASH                                                     (181)             (631)

CASH beginning of period                                                    0               631
                                                                 ------------      ------------

CASH end of period                                               $         -       $          -
                                                                 ============      ============
</TABLE> 

   See accompanying Notes to Condensed Consolidated Financial Statements and
   Management's Discussion and Analysis of Financial Condition and Results of
   Operations.


                                       4
<PAGE>
 
                              HINES HOLDINGS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1996 AND 1997
                                        


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

     Hines Holdings, Inc. (Holdings) produces and distributes horticultural
     products through its two operating divisions, Hines Nurseries (Hines) and
     Sun Gro Horticulture (Sun Gro). The business of Hines is conducted through
     Hines Horticulture, Inc. (Hines Horticulture) and the business of Sun Gro
     is conducted through Sun Gro Horticulture Inc. (Sun Gro-U.S.), a wholly
     owned subsidiary of Hines Horticulture, and its wholly owned subsidiary,
     Sun Gro Horticulture Canada Ltd. (Sun Gro-Canada).  Holdings, together with
     Hines, Sun Gro and Sun Gro-Canada, are hereafter collectively referred to
     as "the Company."

     Hines is a leading national supplier of ornamental, container-grown plants
     with nursery facilities located in California, Oregon, Texas and South
     Carolina.  Hines markets its products to retail merchandisers in North
     America.

     Sun Gro produces, markets and distributes a range of peat-based
     horticulture products for both retail and professional customers.  Sun Gro
     markets its products in North America and various international markets.
     Manufacturing is conducted in 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 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.  Accordingly,
     footnote and other disclosures which would substantially duplicate the
     disclosures contained in the Form 10-K filed on March 31, 1997 by Hines
     Holdings, Inc. under the Securities Exchange Act of 1934, as amended, have
     been omitted.  The financial information herein is not necessarily
     representative of a full year's operations.

                                       5
<PAGE>
 
3.   Inventories:
     -----------

     As of December 31, 1996 and September 30, 1997, inventories consist of the
     following (dollars in thousands):

<TABLE>
<CAPTION>
                                        December 31,       September 30,
                                           1996                1997
                                        -----------        ------------
<S>                                     <C>                <C>
Nursery stock                           $    85,611        $     84,661
Finished goods                                2,975               3,451
Materials and supplies                        6,638               7,616
                                        -----------        ------------
 
                                        $    95,224        $     95,728
                                        ===========        ============
</TABLE>

4.  Acquisition:
    -----------

     On October 7, 1997, Hines II, Inc. (Hines II), was incorporated in Delaware
     as a wholly-owned subsidiary of the Company.  On October 20, 1997, Hines II
     acquired substantially all of the assets of Pacific Color Nurseries, Inc. a
     color bedding grower located in Chowchilla and Madera, California, for
     $1,700,000.  The Company issued a Demand Note in the aggregate principal
     amount of $2,500,000 in favor of Madison Dearborn Capital Partners, L.P.,
     the Company's controlling stockholder, in order to finance the acquisition.
     In addition, the Company is in the process of obtaining further financing
     through Hines II to fund future acquisitions.

     Pacific Color Nurseries, Inc.,  has operated since 1990 as a color bedding
     grower servicing central and northern California and the acquired business
     will be operated under the name of Hines Color - Fresno.  The business is
     comprised of two parcels, the first a 20 acre growing facility in
     Chowchilla, and the second a 30 acre facility located nearby in Madera.

5.  Unusual Items:
    -------------

     The unusual items for the nine months ended September 30, 1997 represent a
     $1,194,000 gain on involuntary disposal of fixed assets and a $1,272,000
     charge for the restructuring plan at Sun Gro.

     During the nine months ended September 30, 1997, the Company received
     $1,194,000 of proceeds from insurance claims to replace assets that had
     been damaged and, accordingly, recorded a gain of $1,194,000 representing
     the difference between the proceeds received and the carrying amount of the
     damaged assets.  As of September 30, 1997, the Company has acquired
     $1,081,000 of fixed assets utilizing the insurance proceeds.

                                       6
<PAGE>
 
     During the second quarter of 1997, the Company approved a restructuring
     plan for Sun Gro which, for the nine months ended September 30, 1997,
     resulted in an unusual charge of $1,272,000.  The charge represents
     $1,100,000 of severance related payments and $172,000 of other related
     restructuring charges.  As of September 30, 1997, $987,000 has been paid.

6.   Net Income Per Common Share:
     ---------------------------

     Net income per common share is computed by dividing net income, after
     deduction for preferred dividends, by the weighted average number of common
     shares outstanding and common stock equivalents.

     Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
     (SFAS No. 128), issued in February 1997, would require the Company to
     report a basic earnings per share and a diluted earnings per share.  Basic
     earnings per share would be computed by dividing net income available to
     common stockholders by the weighted average shares outstanding during the
     period, with no assumption of conversion of dilutive common stock
     equivalents.  Diluted earnings per share would be computed by reflecting
     the potential dilution that could occur if additional shares of common
     stock were issued upon the exercise of stock warrants.

     SFAS No. 128 also would require a reconciliation of the numerator and
     denominator of the basic EPS computation to the numerator and denominator
     of the diluted EPS computation.  SFAS No. 128 will be effective for the
     Company in the fourth quarter 1997.  Earlier adoption is not permitted .
     However, disclosure of pro forma EPS computed using SFAS 128 is permitted
     in the notes to the financial statements.  The following table sets forth
     unaudited pro forma EPS data computed under the provisions of SFAS 128:

<TABLE>
<CAPTION>
                    Nine Months Ended          Three Months Ended
                      September 30,               September 30,
                      1996      1997          1996            1997
                    -----------------         --------------------
<S>                 <C>         <C>           <C>           <C>
 
     Basic EPS      $ 0.15      $0.35          $(0.35)      $(0.42)
     Diluted EPS    $ 0.15      $0.33          $(0.35)      $(0.42)
</TABLE>

                                       7
<PAGE>
 
7.   Guarantor/Non-Guarantor Disclosures:
     -----------------------------------

     The 11.75% Senior Subordinated Notes issued by Hines Horticulture, Inc.
     (the issuer) have been guaranteed by Holdings (the parent guarantor) and by
     Sun Gro-U.S. (the subsidiary guarantor).  The issuer and the subsidiary
     guarantor are direct and indirect 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 and Sun Gro-
     U.S. are not presented and Hines and Sun Gro-U.S. are not filing separate
     reports under the Securities Exchange Act of 1934 because management
     believes that they would not be material to investors.

     Holdings has no material assets other than the common stock of Hines, and
     accordingly, its ability to perform under the guarantee will be dependent
     on the financial condition  and net worth of Hines Horticulture.  The
     Senior Subordinated Notes are not guaranteed by Sun Gro-Canada (the
     subsidiary non-guarantor) or its subsidiaries.

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

 .    Condensed consolidating balance sheets as of December 31, 1996 and
     September 30, (unaudited);

 .    Condensed unaudited consolidating statements of operations and retained
     earnings (deficit) and condensed unaudited consolidating statements of cash
     flows for the nine month periods ended September 30, 1996 and 1997.

                                       8
<PAGE>

<TABLE>
<CAPTION>

  Supplemental Condensed Consolidating Balance Sheets
  As of December 31, 1996
  (Dollars in thousands)

                                                                                            Sun Gro
                                                  Hines                      Sun Gro         Canada                      
                                                 Holdings      Hines           U.S.       (Subsidiary
                                                 (Parent      Horticulture  (Subsidiary       Non-                     Consolidated
                                                Guarantor)     (Issuer)     Guarantor)     Gurantor)     Eliminations      Total
                                              -------------------------------------------------------------------------------------
<S>                                           <C>            <C>             <C>        <C>            <C>            <C>

ASSETS
------
CURRENT ASSETS:
  Cash                                         $     --              $631          $91          ($91)   $   --              $631
  Accounts receivable, net                           --             5,316        8,679         1,649        --            15,644
  Inventories                                        --            88,361        1,455         5,408        --            95,224
  Prepaid expenses and other current assets          --             1,074          991         1,112        --             3,177
  Deferred income taxes                              --                50          603           --           (653)           --
                                              ----------------------------------------------------------------------------------
                    Total current assets             --            95,432       11,819         8,078          (653)      114,676
                                              ----------------------------------------------------------------------------------
FIXED ASSETS, net                                    --            32,851        4,540        44,479        --            81,870
DEFERRED FINANCING EXPENSES, net                     --             5,020           43         1,289        --             6,352
OTHER ASSETS                                         --                             36           --         --                36
GOODWILL, net                                        --            23,738          --            843        --            24,581
DEFERRED INCOME TAXES                                --            10,163          --            --        (10,163)            -

INVESTMENTS IN SUBSIDIARIES                            40,296      15,606        7,729           --        (63,631)            -
                                              ----------------------------------------------------------------------------------
                                                $      40,296    $182,810      $24,167       $54,689      ($74,447)     $227,515
                                              ==================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
  Accounts payable                              $      --          $4,048       $1,426        $2,401     $    --          $7,875
  Accrued liabilities                                  --           2,718        2,127           513          --           5,358
  Accrued payroll and benefits                         --           4,270        1,318           369          --           5,957
  Long-term debt, current portion                      --           2,147         --           2,750          --           4,897
  Revolving line of credit                             --          24,201        5,156           --           --          29,357
  Deferred income taxes                                --          31,942         --             113          (653)       31,402
  Other liabilities                                    --           --              63           206          --             269
  Intercompany accounts                                56,671     (65,199)      (9,023)       17,551          --              --
                                               ---------------------------------------------------------------------------------
               Total current liabilities               56,671       4,127        1,067        23,903          (653)       85,115
                                               ---------------------------------------------------------------------------------
LONG-TERM DEBT                                           --       142,269        --           10,500                     152,769
DEFERRED INCOME TAXES                                    --         2,377        1,235        12,557       (10,163)        6,006
CUMULATIVE REDEEMABLE SENIOR
  PREFERRED STOCK                                      30,921        --          --           --             --           30,921
CUMULATIVE REDEEMABLE JUNIOR
  PREFERRED STOCK                                      23,989        --          --            --            --           23,989
SHAREHOLDERS' EQUITY
  Common stock                                            102       3,971       11,414         --          (15,385)          102
  Additional paid-in capital                            5,600      21,364        5,793         1,777       (28,934)        5,600
  Notes receivable from stock sales                      (577)       --           --            --           --
  Retained earnings (deficit)                         (76,410)      8,702        4,658         5,952       (19,312)      (76,410)
                                              -----------------------------------------------------------------------------------
    Total shareholders' equity (deficit)              (71,285)     34,037       21,865         7,729       (63,631)      (71,285)
                                              -----------------------------------------------------------------------------------
                                                      $40,296    $182,810      $24,167       $54,689      ($74,447)     $227,515
                                              ===================================================================================

</TABLE>
                                       9
<PAGE>
 
Supplemental Condensed Consolidating Balance Sheets
  As of September 30, 1997
  (Dollars in thousands)                                           
          
<TABLE> 
<CAPTION> 

                                                                                         Sun Gro
                                               Hines                      Sun Gro         Canada
                                              Holdings       Hines          U.S.       (Subsidiary
                                              (Parent     Horticulture  (Subsidiary        Non-                     Consolidated
                                             Guarantor)     (Issuer)     Guarantor)     Guarantor)     Eliminations     Total
                                             ------------------------------------------------------------------------------------
<S>                                          <C>          <C>            <C>            <C>            <C>           <C> 
ASSETS
CURRENT ASSETS:
  Cash                                       $    -       $     -       $    -         $     -         $     -      $     -
  Accounts receivable, net                        -             13,382        8,937          2,197                        24,516
  Inventories                                     -             87,480        2,198          6,050           -            95,728
  Prepaid expenses and other current assets       -                785          624            799           -             2,208
  Deferred income taxes                           -                 50          603          -                 (653)      -
                                             ------------------------------------------------------------------------------------
                    Total current assets          -            101,697       12,362          9,046             (653)     122,452
                                             ------------------------------------------------------------------------------------

FIXED ASSETS, net                                 -             37,032        4,402         44,272           -            85,706
DEFERRED FINANCING EXPENSES, net                  -              4,809          181          1,059           -             6,049
OTHER ASSETS                                      -             -                36          -               -                36
GOODWILL, net                                     -             24,007       -                 824           -            24,831
DEFERRED INCOME TAXES                             -             10,163       -               -              (10,163)      -
INVESTMENTS IN SUBSIDIARIES                     49,159          11,401        7,515          -              (68,075)      -
                                             ------------------------------------------------------------------------------------
                                             $  49,159    $    189,109  $    24,496    $    55,201     $    (78,891)$    239,074
                                             ====================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
  Accounts payable                           $    -       $      3,798  $       978    $     4,291           -      $      9,067
  Accrued liabilities                             -              6,021        1,813            798           -             8,632
  Accrued payroll and benefits                    -              7,079          889            742           -             8,710
  Long-term debt, current portion                 -              2,274       -               2,937           -             5,211
  Revolving line of credit                        -             17,206        5,452          -               -            22,658
  Deferred income taxes                           -             36,657       -                 113             (653)      36,117
  Other liabilities                               -             -                63            199           -               262
  Intercompany accounts                         56,389         (71,789)      (2,871)        18,271           -            -
                                             ------------------------------------------------------------------------------------
                   Total current liabilities    56,389           1,246        6,324         27,351             (653)      90,657
                                             ------------------------------------------------------------------------------------

LONG-TERM DEBT                                    -            140,524       -               8,251           -           148,775
DEFERRED INCOME TAXES                                5           4,439          512         12,084          (10,163)       6,877
CUMULATIVE REDEEMABLE SENIOR
  PREFERRED STOCK                               34,046          -            -               -               -            34,046
CUMULATIVE REDEEMABLE JUNIOR
  PREFERRED STOCK                               26,353          -            -               -               -            26,353
SHAREHOLDERS' EQUITY
  Common stock                                     104           3,971       11,414          -              (15,385)         104
  Additional paid-in capital                       460          21,364        5,889          1,777          (29,030)         460
  Notes receivable from stock sales               (659)         -            -               -               -              (659)
  Retained earnings (deficit)                  (67,539)         17,565          357          5,738          (23,660)     (67,539)
                                             ------------------------------------------------------------------------------------   
        Total shareholders' equity (deficit)   (67,634)         42,900       17,660          7,515          (68,075)     (67,634)
                                             ------------------------------------------------------------------------------------
                                             $  49,159    $    189,109  $    24,496    $    55,201     $    (78,891)$    239,074
                                             ====================================================================================
</TABLE> 

                                      10
<PAGE>

Supplemental Condensed Consolidating Statements of Operations and Retained
Earnings (Deficit)
  (Dollars in thousands)
<TABLE> 
<CAPTION> 

                                                                For the Nine Month Period Ended September 30, 1996
                                                      ----------------------------------------------------------------------------
                                                                                               Sun Gro
                                                            Hines                  Sun Gro     Canada
                                                          Holdings      Hines        U.S.    (Subsidiary
                                                          (Parent   Horticulture (Subsidiary    Non-                  Consolidated
                                                         Guarantor)   (Issuer)   Guarantor)   Guarantor)   Eliminations   Total
                                                      ----------------------------------------------------------------------------
<S>                                                   <C>           <C>           <C>         <C>          <C>          <C>   
  SALES, NET                                             $   -      $     84,414 $    47,390 $    16,412   $    (9,804) $  138,412
  COST OF GOODS SOLD                                         -            41,983      24,822      10,953        (9,804)     67,954
                                                      ----------------------------------------------------------------------------
                                         Gross Profit        -            42,431      22,568       5,459         -          70,458
  OPERATING EXPENSES                                         -            21,892      20,480       5,265         -          47,637
                                                      ----------------------------------------------------------------------------
                                     Operating income        -            20,539       2,088         194         -          22,821
                                                      ----------------------------------------------------------------------------
                                                     
  OTHER EXPENSES:
     Interest                                                -            13,731         361         904         -          14,996
     Interest - intercompany                                 -              (489)        405          84         -            -
     Other, net                                             (4,233)          325         818         222         3,566         698
                                                      ----------------------------------------------------------------------------
                                                            (4,233)       13,567       1,584       1,210         3,566      15,694
                                                      ----------------------------------------------------------------------------
                                                     
  Income (loss) before income tax provision (benefit)        4,233         6,972         504      (1,016)       (3,566)      7,127
  INCOME TAX PROVISION (BENEFIT)                             -             2,739         353        (198)        -           2,894
                                                      ----------------------------------------------------------------------------
  NET INCOME (LOSS)                                          4,233         4,233         151        (818)       (3,566)      4,233
  Retained earnings (deficit), beginning of period         (76,338)        8,494      12,931       6,818       (28,243)    (76,338)
  Additional cost of repurchase and retirement of stock       (281)       -           (4,342)      -             4,342        (281)
                                                      ----------------------------------------------------------------------------
  Retained earnings (deficit), end of period             $ (72,386) $     12,727 $     8,740 $     6,000   $   (27,467) $  (72,386)
                                                      ============================================================================
</TABLE> 
                                                      
<TABLE> 
<CAPTION> 
                                                                For the Three Month Period Ended September 30, 1996
                                                      ----------------------------------------------------------------------------
                                                                                               Sun Gro
                                                            Hines                  Sun Gro     Canada
                                                          Holdings      Hines        U.S.    (Subsidiary
                                                          (Parent   Horticulture (Subsidiary    Non-                  Consolidated
                                                         Guarantor)   (Issuer)   Guarantor)   Guarantor)   Eliminations   Total
                                                      ----------------------------------------------------------------------------
<S>                                                   <C>           <C>           <C>         <C>          <C>          <C>   
  SALES, NET                                             $   -      $     12,861 $    13,501 $     4,823   $    (3,100) $   28,085
  COST OF GOODS SOLD                                         -             6,781       6,958       3,304        (3,100)     13,943
                                                      ----------------------------------------------------------------------------
                                         Gross Profit        -             6,080       6,543       1,519         -          14,142
  OPERATING EXPENSES                                         -             5,244       6,541       1,622         -          13,407
                                                      ----------------------------------------------------------------------------
                                     Operating income        -               836           2        (103)        -             735
                                                      ---------------------------------------------------------------------------- 
  OTHER EXPENSES:
     Interest                                                -             4,424         113         181         -           4,718
     Interest - intercompany                                 -              (190)        149          41         -             -
     Other, net                                               2,666          681         331          77        (3,512)        242
                                                      ----------------------------------------------------------------------------
                                                              2,666        4,915         593         299        (3,512)      4,960
                                                      ----------------------------------------------------------------------------  
  Income (loss) before income tax provision (benefit)        (2,666)      (4,079)       (591)       (402)        3,512      (4,225)
  INCOME TAX PROVISION (BENEFIT)                             -            (1,414)        (74)        (71)        -          (1,559)
                                                      ----------------------------------------------------------------------------
  NET INCOME (LOSS)                                          (2,666)      (2,665)       (517)       (331)        3,512      (2,666)
  Retained earnings (deficit), beginning of period          (69,807)      15,392      12,340       6,331       (34,063)    (69,807)
  Additional cost of repurchase and retirement of stock          87         -         (3,084)      -             3,084          87
                                                      ---------------------------------------------------------------------------- 
  Retained earnings (deficit), end of period             $  (72,386)$     12,727 $     8,740 $     6,000   $   (27,467) $  (72,386)
                                                      ============================================================================
</TABLE> 

                                      11
<PAGE>

<TABLE> 
<CAPTION> 

 
Supplemental Condensed Consolidating Statements of Operations and Retained Earnings (Deficit)
  (Dollars in thousands)

                                                                    For the Nine Month Period Ended September 30, 1997
                                                        -------------------------------------------------------------------------
                                                                                               Sun Gro
                                                           Hines                  Sun Gro      Canada
                                                          Holdings    Hines         U.S.     (Subsidiary
                                                          (Parent  Horticulture (Subsidiary     Non-                 Consolidated
                                                         Guarantor)  (Issuer)    Guarantor)   Guarantor)   Eliminations   Total
                                                        -------------------------------------------------------------------------
<S>                                                    <C>          <C>         <C>          <C>          <C>           <C> 
  SALES, NET                                              $   -     $    117,275 $    48,160  $    16,433   $   (8,885) $  172,983
  COST OF GOODS SOLD                                          -           58,795      25,566       10,308       (8,885)     85,784
                                                        --------------------------------------------------------------------------
                                           Gross Profit       -           58,480      22,594        6,125        -          87,199
  OPERATING EXPENSES                                          -           27,607      23,165        5,586        -          56,358
                                                        --------------------------------------------------------------------------
                                       Operating income       -           30,873        (571)         539        -          30,841
                                                        --------------------------------------------------------------------------
                                                           
  OTHER EXPENSES:
     Interest                                                  (13)       14,171         561          800        -          15,519
     Interest - intercompany                                  -             (637)        543           94        -            -
     Other, net                                             (8,863)        1,758         246          230        7,433         804
                                                        --------------------------------------------------------------------------
                                                            (8,876)       15,292       1,350        1,124        7,433      16,323
                                                        --------------------------------------------------------------------------
                                                      
  Income (loss) before income tax provision (benefit)        8,876        15,581      (1,921)        (585)      (7,433)     14,518
  INCOME TAX PROVISION (BENEFIT)                                 5         6,718        (705)        (371)       -           5,647
                                                        --------------------------------------------------------------------------
  NET INCOME (LOSS)                                          8,871         8,863      (1,216)        (214)      (7,433)      8,871
  Retained earnings (deficit), beginning of period         (76,410)        8,702       4,658        5,952      (19,312)    (76,410)
  Dividends - intercompany                                    -            -          (3,085)        -           3,085        -
                                                        --------------------------------------------------------------------------
  Retained earnings (deficit), end of period              $(67,539)  $    17,565 $       357  $     5,738   $  (23,660) $  (67,539)
                                                        ==========================================================================
</TABLE> 

<TABLE> 
<CAPTION> 
                                                      

                                                               For the Three Month Period Ended September 30, 1997
                                                        -------------------------------------------------------------------------
                                                                                               Sun Gro
                                                           Hines                  Sun Gro      Canada
                                                          Holdings    Hines         U.S.     (Subsidiary
                                                          (Parent  Horticulture (Subsidiary     Non-                 Consolidated
                                                         Guarantor) (Issuer)    Guarantor)    Guarantor)   Eliminations   Total
                                                        -------------------------------------------------------------------------
<S>                                                    <C>          <C>         <C>          <C>          <C>           <C> 
  SALES, NET                                              $  -      $   15,751   $   13,355   $   3,953     $   (1,955)  $ 31,104
  COST OF GOODS SOLD                                         -           7,750        6,669       1,837         (1,955)    14,301
                                                        -------------------------------------------------------------------------
                                           Gross Profit      -           8,001        6,686       2,116           -        16,803
  OPERATING EXPENSES                                         -           7,101        6,720       1,796           -        15,617
                                                        -------------------------------------------------------------------------
                                       Operating income      -             900          (34)        320           -         1,186
                                                        -------------------------------------------------------------------------

  OTHER EXPENSES:
     Interest                                                -           4,473          171         253           -         4,897
     Interest - intercompany                                 -            (247)         214          33           -          -
     Other, net                                             2,311          389           14          77         (2,514)       277
                                                        -------------------------------------------------------------------------
                                                            2,311        4,615          399         363         (2,514)     5,174
                                                        -------------------------------------------------------------------------

  Income (loss) before income tax provision (benefit)      (2,311)      (3,715)        (433)        (43)         2,514     (3,988)
  INCOME TAX PROVISION (BENEFIT)                             -          (1,404)        (229)        (44)          -        (1,677)
                                                        -------------------------------------------------------------------------
  NET INCOME (LOSS)                                        (2,311)      (2,311)        (204)          1          2,514     (2,311)
  Retained earnings (deficit), beginning of period        (65,228)      19,876          561       5,737        (26,174)   (65,228)
  Dividends - intercompany                                   -            -             -          -              -          -
                                                        -------------------------------------------------------------------------
  Retained earnings (deficit), end of period             $(67,539)  $   17,565   $      357   $   5,738     $  (23,660)  $(67,539)
                                                        =========================================================================
</TABLE> 

                                      12 
<PAGE>

<TABLE> 
<CAPTION> 




Supplemental Condensed Consolidating Statements of Cash Flow
  (Dollars in thousands)                                       For the Nine Month Period Ended September 30, 1996
                                                       ---------------------------------------------------------------------------
                                                                                              Sun Gro
                                                           Hines                  Sun Gro      Canada
                                                          Holdings     Hines        U.S.    (Subsidiary
                                                          (Parent  Horticulture (Subsidiary     Non-                 Consolidated
                                                         Guarantor)   (Issuer)   Guarantor)   Guarantor)   Eliminations   Total
                                                       ---------------------------------------------------------------------------
<S>                                                   <C>            <C>         <C>         <C>           <C>          <C>  
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:         $    (597) $     8,574  $    1,208  $     2,595   $    -     $    11,780
                                                       ---------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of fixed assets                                    -          (3,743)     (1,200)      (1,288)       -          (6,231)
  Acquisitions, net of cash acquired                          -         (10,301)       -            -           -         (10,301)
                                                       ---------------------------------------------------------------------------
                 Net cash used in investing activities        -         (14,044)     (1,200)      (1,288)       -         (16,532)
                                                       ---------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from revolving line of credit                      -          95,883      51,311         -           -         147,194
  Repayments on revolving line of credit                      -         (92,539)    (47,359)        -           -        (139,898)
  Intercompany advances (repayments)                           212         (820)        418          190        -            -
  Repayments of long-term debt                                -          (1,546)       -          (1,375)       -          (2,921)
  Deferred financing costs                                    -             (31)       -            (122)       -            (153)
  Dividends received (paid)                                   -           4,342      (4,342)        -           -            -
  Issuance of preferred and common stock                       666         -           -            -           -             666
  Additional cost of repurchase and retirement of stock       (281)        -           -            -           -            (281)
  Other                                                       -            -            (36)        -           -             (36)
                                                       ---------------------------------------------------------------------------
  Net cash provided by (used in) financing activities          597        5,289          (8)      (1,307)       -           4,571
                                                       ---------------------------------------------------------------------------
                                    
NET DECREASE IN CASH                                          -            (181)       -            -           -            (181)
CASH, beginning of period                                     -             181        -            -           -             181
                                                       ---------------------------------------------------------------------------
CASH, end of period                                      $    -     $      -     $     -     $      -      $    -     $      -
                                                       ===========================================================================
                                                                                                          

                                                               For the Nine Month Period Ended September 30, 1997
                                                       ---------------------------------------------------------------------------
                                                                                              Sun Gro
                                                           Hines                  Sun Gro      Canada
                                                          Holdings     Hines        U.S.    (Subsidiary
                                                          (Parent  Horticulture (Subsidiary     Non-                 Consolidated
                                                         Guarantor)   (Issuer)   Guarantor)   Guarantor)   Eliminations   Total
                                                       ---------------------------------------------------------------------------
<S>                                                   <C>            <C>         <C>         <C>           <C>          <C>  
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:         $     (68) $   16,402   $  (3,389)  $     3,964   $       95 $    17,004
                                                       ---------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of fixed assets                                    -         (4,858)       (641)       (1,880)       -          (7,379)
  Proceeds from sales of fixed assets                         -            154         -            -           -             154
  Proceeds from insurance claims                              -          1,194         -            -           -           1,194
  Purchase of fixed assets from insurance claim proceeds      -         (1,081)        -            -           -          (1,081)
                                                       ---------------------------------------------------------------------------
                 Net cash used in investing activities        -         (4,591)       (641)       (1,880)       -          (7,112)
                                                       ---------------------------------------------------------------------------
                          
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from revolving line of credit                      -        112,934      54,372          -           -         167,306
  Repayments on revolving line of credit                      -       (119,929)    (54,076)         -           -        (174,005)
  Intercompany advances (repayments)                          (282)     (6,590)      6,894           (22)       -            -
  Repayments of long-term debt                                -         (1,611)       -           (2,062)       -          (3,673)
  Deferred financing costs                                    -           (331)       (170)         -           -            (501)
  Dividends received (paid)                                   -          3,085      (3,085)         -           -            -
  Repurchase and retirement of stock                           (75)       -           -             -           -             (75)
  Issuance of preferred and common stock                       425        -             95          -             (95)        425
                                                       ---------------------------------------------------------------------------
   Net cash provided by (used in) financing activities          68     (12,442)      4,030        (2,084)         (95)    (10,523)
                                                       ---------------------------------------------------------------------------

NET DECREASE IN CASH                                          -           (631)       -             -           -            (631)
CASH, beginning of period                                     -            631        -             -           -             631
                                                       ---------------------------------------------------------------------------
CASH, end of period                                      $    -     $     -      $    -      $      -      $    -      $     -
                                                       ===========================================================================

</TABLE> 
                                      13
<PAGE>
 
Item 2.

                              HINES HOLDINGS, INC.
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                        

Results of Operations

     The following discussion contains trend analysis and other forward looking
statements.  Actual results could differ materially from those projected in the
forward looking statements throughout this Report.

     The Company's nursery business is highly seasonal in nature, with the
strong retail demand for lawn and garden products typically occurring in the
second quarter of the fiscal year. Accordingly, the Company realizes a higher
portion of its annual net sales and operating earnings during the second
quarter.  The Company's peat moss business is more heavily weighted towards the
professional markets, which do not typically experience the large seasonal
variances present in the retail market.

Three Months Ended September 30, 1997 compared to Three Months Ended September
30, 1996.

     Net Sales.  Net sales of $31.1 million for the three months ended September
30, 1997 increased $3.0 million, or 10.7%, from net sales of $28.1 million for
the comparable period in 1996.  The Company's sales of its nursery products
increased 22.5%, reflecting $2.0 million of sales from the Iverson and Flynn
nursery acquisitions and increased sales volumes and prices from the other
nursery operations.  The Iverson and Flynn nursery operations were acquired on
August 30, 1996 and November 27, 1996, respectively.  Excluding the
acquisitions, sales from the remaining core nursery operations increased 7.0%
from the comparable period in 1996.  Net sales of peat moss and peat-based
products increased 1.0% from the comparable three month period.  Sales from the
professional peat and mix business increased 1.8% from the comparable period in
1996 with continued strong volume growth from the value added professional mix
business.  Sales for the retail peat and mix business decreased marginally from
the comparable period in 1996.

     Gross Profit.  Gross profit of $16.8 million (54.0% of net sales) for the
three months ended September 30, 1997 increased $2.7 million, or 19.1%, from
gross profit of $14.1 million (50.4% of net sales) for the comparable period in
1996.  The increase was primarily attributable to the Iverson and Flynn nursery
acquisitions.  The increase in gross margin percentage is primarily due to
higher margins from the nursery business resulting from higher average sales
prices and higher margins from the peat and peat-based business due to higher
sales of professional mix, a higher margin product mix, and some improvement in
professional peat prices.

                                       14
<PAGE>
 
     Operating Expenses.  Operating expenses of $15.6 million (50.2% of net
sales) for the three months ended September 30, 1997 increased $2.2 million, or
16.4%, from $13.4 million (47.7% of net sales) for the comparable period in
1996.  The increase was primarily attributable to the Iverson and Flynn
acquisitions.

     Operating Income.  Operating income of $1.2 million for the three months
ended September 30, 1997 increased $0.5 million, or 71.4%, from $0.7 million for
the comparable period in 1996, due to  the higher sales from the Company's
nursery operations.

     Interest Expense.  Interest expense of $4.9 million for the three months
ended September 30, 1997 increased $0.2 million from $4.7 million for the
comparable period in 1996.  The increase was attributable to higher borrowing
levels under the Company's revolving credit facility.

     Net Loss.   The net loss of $2.3 million for the three months ended
September 30, 1997 decreased by $0.4 million from a net loss of $2.7 million for
the comparable period in 1996.  The decrease was primarily due to the higher
sales from the Company's nursery operations.

Nine Months Ended September 30, 1997 compared to Nine Months Ended September 30,
1996.

     Net Sales.  Net sales of $173.0 million for the nine months ended September
30, 1997 increased $34.6 million, or 25.0%, from net sales of $138.4 million for
the comparable period in 1996.  The Company's sales of its nursery products
increased 38.9%, reflecting $24.4 million of sales from the Iverson and Flynn
nursery acquisitions and increased sales volumes and prices from the other
nursery operations.  Excluding these acquisitions, sales from the remaining core
nursery operations increased 10.0% from the comparable period in 1996.  Net
sales of peat moss and peat-based products increased 3.2% from the comparable
nine month period.  Sales from the professional peat and mix business increased
1.6% from the comparable period in 1996 with continued strong volume growth from
the value added professional mix business.  For the retail peat and mix
business, sales increased 7.0% from the comparable period in 1996, primarily due
to volume growth as pricing pressures continued to adversely affect retail peat
sales.

     Gross Profit.  Gross profit of $87.2 million (50.4% of net sales) for the
nine months ended September 30, 1997 increased $16.7 million, or 23.7%, from
gross profit of $70.5 million (50.9% of net sales) for the comparable period in
1996.  The increase was primarily attributable to the Iverson and Flynn nursery
acquisitions and the higher sales from the core nursery operations.  The slight
decrease in gross margin percentage is primarily due to lower margins from these
acquisitions, as they are still in the process of being integrated into the main
nursery operations, and lower margins from the peat and peat-based business due
to continued pricing pressures from the retail peat business.

     Operating Expenses.  Operating expenses of $56.4 million (32.6% of net
sales) for the nine months ended September 30, 1997 increased $8.8 million, or
18.5%, from $47.6 million 

                                       15
<PAGE>
 
(34.4% of net sales) for the comparable period in 1996. The increase was
primarily attributable to the Iverson and Flynn acquisitions.

     Operating Income.  Operating income of $30.8 million for the nine months
ended September 30, 1997 increased $8.0 million, or 35.1%, from $22.8 million
for the comparable period in 1996, due to  the Iverson and Flynn nursery
acquisitions and the higher sales from the Company's core nursery operations.

     Interest Expense.  Interest expense of $15.5 million for the nine months
ended September 30, 1997 increased $0.5 million from $15.0 million for the
comparable period in 1996.  The increase was attributable to higher borrowing
levels under the Company's revolving credit facility.

     Net Income.   Net income of $8.9 million for the nine months ended
September 30, 1997 increased by $4.7 million from net income of $4.2 million for
the comparable period in 1996.  The increase was primarily due to the Iverson
and Flynn acquisitions and the higher sales from the Company's core nursery
operations.

Liquidity and Capital Resources

     As a result of the highly seasonal nature of the Company's nursery products
operations, the Company has historically satisfied its working capital
requirements through revolving credit facilities and operating cash flow.  The
Company maintains a $75.0 million revolving credit facility pursuant to a Credit
Agreement dated as of August 4, 1995, as subsequently amended, by and among
Hines Horticulture, Sun Gro-U.S. and Sun Gro-Canada, as borrowers, the lenders
listed therein and BT Commercial Corporation, as agent (the "Bank Credit
Agreement").  The revolving credit facility  is subject to a borrowing base tied
to accounts receivable and inventory and expires on December 31, 2000.  The
revolving credit facility and all other obligations under the Bank Credit
Agreement are secured by substantially all of the assets and common stock of
Hines Horticulture and Sun Gro-U.S. as well as a pledge of 66% of the common
stock of Sun Gro-Canada.  Proceeds from the revolving credit facility can be
distributed downstream to any of the Company's subsidiaries, including Sun Gro-
Canada.  The Company typically draws under its revolving credit facility in its
first and fourth fiscal quarters to fund its nursery products inventory buildup
and continuing operating expenses.  Approximately 75% of Hines' sales occur in
the first half of the year, which allows the Company to reduce the revolving
credit facility after the first quarter.  Working capital requirements for the
Company's peat moss operations are less seasonal in nature, with slight
inventory buildups occurring in the third and fourth quarters. The Company had
$19.6 million of unused borrowing capacity under its revolving credit facility
on October 31, 1997.

                                       16
<PAGE>
 
     The Company's capital expenditures totaled $7.4 million for the nine month
period ended September 30, 1997.  These capital expenditures consisted primarily
of vehicles, machinery equipment and the purchase of other nursery related
structures required to execute the Company's 1997 expansion plans and capital
expenditures related to preparing peat bogs for harvest.  The Company's capital
expenditures for fiscal 1997 are expected to be approximately $11.1 million, and
will be used for capacity expansion at several of the nursery operations and
other maintenance expenditures.  These capital expenditures will be funded from
operating cash flow and borrowings under the revolving credit facility.

     The debt service costs associated with the borrowings under the Bank Credit
Agreement and the 11 3/4% Senior Subordinated Notes due 2005 of Hines
Horticulture (the "Notes") significantly increased the Company's liquidity
requirements.  All borrowings under the Bank Credit Agreement, including term
loans made to Hines Horticulture and Sun Gro-Canada in an initial aggregate
principal amount of $25.0 million, will mature prior to the Notes.  The
Company's remaining principal repayment schedule for the term loans under the
Bank Credit Agreement is $4.5 million, $5.0 million $5.5 million and $6.5
million for the years 1997 through 2000, respectively.

     The Indenture pursuant to which the Notes were issued imposes a number of
restrictions on the Company.  The Indenture limits, among other things, the
Company's ability to incur additional indebtedness, to make certain restricted
payments, 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
Bank Credit Agreement causing all amounts owing under the Bank Credit Agreement
to become immediately due and payable.

     On October 7, 1997, subsequent to the period covered by this Report, Hines
II, Inc. was incorporated in Delaware as a wholly-owned subsidiary of the
Company.  On October 20, 1997, Hines II, Inc. acquired substantially all of the
assets of Pacific Color Nurseries Inc., a color bedding grower servicing central
and northern California, for $1,700,000.  The Company issued a Demand Note in
the aggregate principal amount of $2,500,000 in favor of Madison Dearborn
Capital Partners, L.P., the Company's controlling stockholder, in order to
finance the acquisition. The Company is in the process of obtaining further
financing through Hines II, Inc. to fund future acquisitions.  On November 7,
1997, the Company and certain of its subsidiaries entered into the Eighth
Amendment and Limited Waiver to Credit Agreement and First Amendment to Holdings
Guaranty and Holdings Pledge Agreement, a copy of which is being filed as an
exhibit to this Report, to cure certain technical defaults under the Bank Credit
Agreement and related agreements arising in connection with the Company's
formation of Hines II, Inc. and its acquisition of the assets of Pacific Color
Nurseries, Inc.

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<PAGE>
 
     The Company expects that cash flow from operating activities together with
borrowings available under the Bank Credit Agreement and borrowings being
obtained under Hines II, Inc. will be sufficient to fund working capital needs,
capital spending requirements and the debt service requirements of the Company's
current capital structure for the foreseeable future.

                          PART II.  OTHER INFORMATION

Item 2.   Changes in Securities

  On September 29, 1997, the Registrant sold 100,000 shares of its Common Stock,
par value $.01 per share, to Mr. S. Thigpen, a management employee of Hines
Horticulture Inc., a wholly-owned subsidiary of the Registrant, in a transaction
not involving a public offering and therefore exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.  The
aggregate purchase price for such shares was $100,000, payable by a full-
recourse promissory note in favor of the Registrant due in three equal
installments on April 30 of each of 1998, 1999 and 2000.

  On September 30, 1997, the Registrant sold 32,200 shares of its Common Stock,
par value $.01 per share, and 67,800 shares of its 12% Cumulative Redeemable
Junior Preferred Stock, par value $.01 per share, to Mr. S. Rizzi, a management
employee of Hines Horticulture Inc., a wholly-owned subsidiary of the
Registrant, and his spouse, in a transaction not involving a public offering and
therefore exempt from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof.  The aggregate purchase price for such shares
was $100,000, payable by a full-recourse promissory note in favor of the
Registrant due in three equal installments on September 30, 1997 and on March 31
of each of 1998 and 1999.

     On September 30, 1997, the Registrant sold 48,300 shares of its Common
Stock, par value $.01 per share, and 101,700 shares of its 12% Cumulative
Redeemable Junior Preferred Stock, par value $.01 per share, to Mr. M. Weaver, a
management employee of Sun Gro Horticulture Inc., an indirect wholly-owned
subsidiary of the Registrant, in a transaction not involving a public offering
and therefore exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof.  The aggregate purchase price for
such shares was $150,000, payable by a full-recourse promissory note in favor of
the Registrant due in five equal installments on September 30, 1997 and on March
31 of each of 1998, 1999, 2000 and 2001.

                                       18
<PAGE>
 
Item 6.  Exhibits and Reports on Form 8-K

(a)
Exhibits:

          27.1 Financial Data Schedule

          4.1 Eighth Amendment and Limited Waiver to Credit Agreement and First
          Amendment to Holdings Guaranty and Holdings Pledge Agreement dated as
          of November 7, 1997.

(b)  Reports on Form 8-K:

     No Current Reports on Form 8-K were filed by the Registrant during the
     period covered by this Report.


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

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<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 HOLDINGS, INC.
                                    (Registrant)



                                    By: /s/ Claudia M. Pieropan
                                        ---------------------------
                                            Claudia M. Pieropan
                                            Chief Financial Officer



Date:  November 13, 1997



     Claudia M. Pieropan is signing in the dual capacities as (i) principal
financial officer, and (ii) a duly authorized officer of the Company.

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