<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, 2002

     ( ) 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 October 31, 2002 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
         September 30, 2002 (unaudited) and December 31, 2001                1

         Consolidated Statements of Operations for the Three Months
         and Nine Months Ended September 30, 2002
         and 2001 (unaudited)                                                2

         Consolidated Statements of Cash Flows for the
         Nine Months Ended September 30, 2002 and 2001 (unaudited)           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         31

Item 4.  Disclosure on Internal Control Procedures                          31


                           PART II. OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K                                   32

         Signatures                                                         33


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

<PAGE>
<TABLE>

                                 HINES HORTICULTURE, INC.
                                CONSOLIDATED BALANCE SHEETS
                         September 30, 2002 and December 31, 2001
                         (Dollars in thousands, except share data)
<CAPTION>

ASSETS                                                          September 30,    December 31,
                                                                    2002            2001
                                                                 ----------      ----------
                                                                (Unaudited)
<S>                                                              <C>             <C>
CURRENT ASSETS:
        Cash                                                     $      --       $      --
        Accounts receivable, net of allowance for
           doubtful accounts of $1,329 and $1,303                   33,833          28,182
        Inventories                                                157,789         164,675
        Prepaid expenses and other current assets                    9,507           2,322
        Assets of discontinued operations                               --          40,134
                                                                 ----------      ----------

                                       Total current assets        201,129         235,313
                                                                 ----------      ----------

FIXED ASSETS, net of accumulated depreciation
   and depletion of $36,048 and $30,106                            139,619         142,387
DEFERRED FINANCING EXPENSES, net of
   accumulated amortization of $11,689 and $8,357                    7,999           8,317
ASSETS OF DISCONTINUED OPERATIONS                                       --          95,029
DEFFERRED INCOME TAX                                                    --           7,727
GOODWILL                                                           121,897         121,371
                                                                 ----------      ----------

                                                                 $ 470,644       $ 610,144
                                                                 ==========      ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
        Accounts payable                                         $  13,014       $  12,824
        Accrued liabilities                                         11,674           8,450
        Accrued payroll and benefits                                10,678           7,091
        Accrued interest                                             3,567           2,904
        Long-term debt, current portion                             10,584          43,159
        Borrowings on revolving credit facility                     59,250         100,000
        Liabilities of discontinued operations                          --          37,097
        Deferred income taxes                                       67,716          64,874
                                                                 ----------      ----------

                                  Total current liabilities        176,483         276,399
                                                                 ----------      ----------

LONG-TERM DEBT                                                     171,660         209,639

DERIVATIVE LIABILITY                                                 9,211           7,117

DEFERRED INCOME TAXES                                               13,354              --
LIABILITIES OF DISCONTINUED OPERATIONS                                  --          28,244

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
        Common Stock
           Authorized - 60,000,000 shares  $.01 par value;
           Issued and outstanding - 22,072,549 shares
           at September 30, 2002 and December 31, 2001                 221             221

        Additional paid-in capital                                 128,781         128,781
        Deficit                                                    (22,475)        (33,282)
        Accumulated other comprehensive loss                        (6,591)         (6,975)
                                                                 ----------      ----------

                                 Total shareholders' equity         99,936          88,745
                                                                 ----------      ----------

                                                                 $ 470,644       $ 610,144
                                                                 ==========      ==========

      The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                          Page 1
<PAGE>
<TABLE>

                                           HINES HORTICULTURE, INC.
                                     CONSOLIDATED STATEMENTS OF OPERATIONS
                        Three Months and Nine Months Ended September 30, 2002 and 2001
                                        (Dollars in thousands, except share data)
                                                 (unaudited)

<CAPTION>

                                                               Three Months Ended                Nine Months Ended
                                                                 September 30,                      September 30,
                                                            2002              2001             2002              2001
                                                         -------------------------------------------------------------
<S>                                                      <C>             <C>             <C>             <C>
Sales, net                                               $     45,049    $     43,023    $    295,918    $    284,961
Cost of goods sold                                             23,700          22,386         144,237         134,394
                                                         -------------   -------------   -------------   -------------

    Gross profit                                               21,349          20,637         151,681         150,567
                                                         -------------   -------------   -------------   -------------

Selling and distribution expenses                              18,492          17,255          85,993          79,149
General and administrative expenses                             5,992           6,012          19,424          19,786
Other operating income                                            (18)             --          (2,121)             --
Amortization of goodwill                                           --             934              --           2,752
                                                         -------------   -------------   -------------   -------------
    Total operating expenses                                   24,466          24,201         103,296         101,687
                                                         -------------   -------------   -------------   -------------

    Operating (loss) income                                    (3,117)         (3,564)         48,385          48,880

Other expenses
   Interest                                                     5,770           7,151          19,232          22,921
   Interest rate swap agreement expense (income)                2,043           3,278           2,806           4,798
   Amortization of deferred financing expenses                  1,047           1,139           3,332           3,416
                                                         -------------   -------------   -------------   -------------
                                                                8,860          11,568          25,370           31,135
                                                         -------------   -------------   -------------   -------------

(Loss) income before provision for income taxes,
  discontinued operations, and extraordinary items            (11,977)        (15,132)         23,015          17,745

Income tax provision                                           (4,910)         (6,187)          9,440           7,265
                                                         -------------   -------------   -------------   -------------

(Loss) income from continuing operations                       (7,067)         (8,945)         13,575          10,480

Income (loss) from discontinued operations, net of tax             --             919          (1,742)          4,768

Extraordinary item, net of tax benefit                             --              --          (1,026)             --
                                                         -------------   -------------   -------------   -------------

Net (loss) income                                        $     (7,067)   $     (8,026)   $     10,807    $     15,248
                                                         =============   =============   =============   =============


Basic and diluted earnings per share:

(Loss) income per common share from
  continuing operations                                  $      (0.32)   $      (0.40)   $       0.62    $       0.47

Income (loss) per common share from
  discontinued operations                                $         --    $       0.04    $      (0.08)   $       0.22

Extraordinary item                                       $         --    $         --    $      (0.05)   $         --
                                                         -------------   -------------   -------------   -------------

Net (loss) income per common share                       $      (0.32)   $      (0.36)   $       0.49   $        0.69
                                                         =============   =============   =============   =============

Weighted average shares outstanding--Basic                 22,072,549      22,072,549      22,072,549      22,072,549
                                                         =============   =============   =============   =============
Weighted average shares outstanding--Diluted               22,072,549      22,104,710      22,108,668      22,093,843
                                                         =============   =============   =============   =============

                The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                                    Page 2
<PAGE>
<TABLE>

                                 HINES HORTICULTURE, INC.
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                       Nine Months Ended September 30, 2002 and 2001
                         (Dollars in thousands, except share data)
                                        (Unaudited)
<CAPTION>

                                                                   2002            2001
                                                                ----------      ----------
<S>                                                             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                   $  10,807       $  15,248
   Loss (income) from discontinued operations                       1,742          (4,768)
   Adjustments to reconcile net income to
     net cash provided by operating activities -
        Depreciation, depletion and amortization                    6,515           9,268
        Amortization of deferred financing costs                    3,332           3,416
        Interest rate swap agreement expense                        2,806           4,798
        Gain on sale of assets                                     (2,121)             --
        Extraordinary item (net of tax)                             1,026              --
        Deferred income taxes                                       9,042           7,265
                                                                ----------      ----------
                                                                   33,149          35,227
Change in working capital accounts
   Accounts receivable                                             (5,651)         (9,266)
   Inventories                                                      6,886             386
   Prepaid expenses and other current assets                        1,029          (1,901)
   Accounts payable and accrued liabilities                         5,393          12,403
                                                                ----------      ----------
     Change in working capital accounts                             7,657           1,622
                                                                ----------      ----------

Net cash provided by operating activities                          40,806          36,849
                                                                ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of fixed assets                                        (4,533)        (15,575)
   Net cash (used in) provided by discontinued operations          (4,320)          2,280
   Proceeds from sale of discontinued operations                  119,262              --
   Proceeds from sale of land                                       3,143              --
   Acquisitions, adjusted                                          (1,426)         (8,311)
                                                                ----------      ----------
       Net cash provided by (used in) investing activities        112,126         (21,606)
                                                                ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Borrowings on revolving line of credit                         109,182         107,700
   Repayments on revolving line of credit                        (149,932)       (109,950)
   Repayments of long-term debt                                  (107,982)        (13,023)
   Deferred financing costs incurred                               (4,200)             --
   Repayments of notes receivables from stock sales                    --              30
                                                                ----------      ----------
       Net cash used in financing activities                     (152,932)        (15,243)
                                                                ----------      ----------


NET INCREASE IN CASH                                                   --              --

CASH, beginning of period                                              --              --
                                                                ----------      ----------

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


Supplemental disclosure of cash flow information:
   Cash paid for interest                                       $  19,819       $  27,038
   Cash paid for income taxes                                   $     857       $     503


      The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                          Page 3
<PAGE>

                            HINES HORTICULTURE, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)


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

               As of September 30, 2002, Hines Horticulture, Inc. ("Hines" or
         the "Company"), a Delaware corporation, produces and distributes
         horticultural products through two operating divisions: (i) its Nursery
         division and (ii) its Color division. The Nursery and Color divisions
         make up the green goods business. The green goods business is conducted
         through Hines Nurseries, Inc. ("Hines Nurseries"), a wholly owned
         subsidiary of Hines. 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.

               As of December 31, 2001, the Company also had a third division,
         the growing media business. The growing media business was 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.

               During December 2001, the Company's Board of Directors approved
         and authorized management to proceed with a planned sale of Sun
         Gro-Canada and the assets of Sun Gro-U.S. to a Canadian income fund. On
         March 27, 2002, the Company sold the assets of Sun Gro-U.S. and the
         stock of Sun Gro-Canada, its growing media business, to the Sun Gro
         Horticulture Income Fund, a newly established Canadian income fund. The
         assets sold included 14 facilities located across Canada and the United
         States and control of approximately 50,000 acres of peat bogs in
         Canada. Hines no longer harvests, produces or sells peat moss or has
         the rights to the Sunshine, Parkland Fairway, Black Gold, Lakeland
         Grower, Alberta Rose, Nature's and Gardener's Gold trade names. Hines
         received net proceeds of approximately $120,000 from the sale, which
         were used to pay down outstanding bank debt. The Company recognized a
         $1,200 loss, net of tax, from the sale of its growing media business
         for the nine months ended September 30, 2002. The Company's current
         operations consist solely of its Nursery and Color divisions.

               The consolidated financial statements include the accounts of
         Hines and its wholly owned subsidiaries after elimination of inter
         company accounts and transactions. In 2001, the Company adopted the
         provisions of Statement of Financial Accounting Standards ("SFAS") No.
         144 (Accounting for the Impairment or Disposal of Long-lived Assets),
         and accordingly, the Company's consolidated financial statements have
         been restated to reflect the financial position, results of operations
         and cash flows of the Sun Gro business as "Discontinued Operations."
         Refer to Note 8 "Guarantor/Non-guarantor Disclosures" for information
         about the Company's guarantors for the nine months ended September 30,
         2002.

                                     Page 4
<PAGE>

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.

               Accordingly, footnote and other disclosures, which would
         substantially duplicate the disclosures contained in the Form 10-K,
         filed on April 1, 2002 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. For the nine months ended September 30, 2002, the
         incremental shares related to 440 warrants outstanding resulted in a
         difference between basic and diluted earnings per share. Additionally,
         for the nine months ended September 30, 2002, shares related to the
         underlying employee stock options in the amount of 429 were excluded
         from the computation of diluted earnings per share because they would
         have been anti-dilutive.

4.       Adoption Of Accounting Pronouncements:
         --------------------------------------

               In October 2001, the FASB issued SFAS No. 144 (Accounting for the
         Impairment or Disposal of Long-Lived Assets). SFAS No. 144 addresses
         financial accounting and reporting for the impairment or disposal of
         long-lived assets and supercedes SFAS No. 121 (Accounting for the
         Impairment of Long-Lived Assets and for Long-Lived Assets to Be
         Disposed Of), and the accounting and reporting provisions of Accounting
         Principles Board ("APB") Opinion No. 30 (Reporting the Results of
         Operations--Reporting the Effects of Disposal of a Segment of a
         Business and Extraordinary, Unusual and Infrequently Occurring Events
         and Transactions), for the disposal of a segment of a business. SFAS
         No. 144 shall be effective for financial statements issued for fiscal
         years beginning after December 15, 2001, but early adoption is
         encouraged. The Company adopted SFAS No. 144 in fiscal 2001.

               Effective January 1, 2001, Hines adopted the provisions of SFAS
         No. 133, (Accounting for Derivative Instruments and Hedging
         Activities), as amended. Adopting the provisions of SFAS No. 133 on
         January 1, 2001 resulted in a cumulative after-tax charge to
         Accumulated Other Comprehensive Income as of January 1, 2001 of $2,334,
         representing the fair value of the interest rate agreement, net of tax.
         This amount is being amortized as interest rate agreement expense over
         the term of the debt. For the nine months ended September 30, 2002, the
         Company recognized a pre-tax loss of $2,806 reported as interest rate
         swap agreement expense in the Consolidated Statements of Operations
         related to the change in the fair value of the interest rate agreement.

                                     Page 5
<PAGE>

               For the twelve months ending December 31, 2002, the Company
         anticipates that $560, net of tax, will be amortized as interest rate
         agreement expense related to the $2,334 cumulative after-tax charge
         made to Accumulated Other Comprehensive Income on January 1, 2001.

5.       Inventories:
         ------------

         Inventories consisted of the following:

                                                 September 30,  December 31,
                                                 -------------  ------------
                                                     2002          2001
                                                     ----          ----

         Nursery stock                             $148,127      $155,096
         Material and supplies                        9,662         9,579
                                                   ---------     ---------
         Inventory from continuing operations       157,789       164,675
         Discontinued operations                         --        14,054
                                                   ---------     ---------
         Total inventory                           $157,789      $178,729
                                                   =========     =========

6.       Comprehensive Income:
         ---------------------

               Comprehensive income includes all changes in equity during a
         period except those resulting from investments by and distributions to
         the Company's shareholders. 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 nine months ended September 30, 2002
         and 2001, were as follows:

                                              Nine Months Ended
                                                September 30,
                                             2002           2001
                                             ----           ----

         Net income                        $ 10,807       $ 15,248
         Cumulative foreign currency            (36)        (1,455)
             translation adjustments
         Transaction impact upon
             adoption of SFAS 133                --         (2,334)
         Loss on derivatives
             reclassified to earnings           420            419
                                           ---------      ---------
         Comprehensive income              $ 11,191       $ 11,878
                                           =========      =========


                                     Page 6
<PAGE>

7.       New Accounting Pronouncements:
         ------------------------------

               In July 2001, the Financial Accounting Standards Board ("FASB")
         issued SFAS No. 141 (Business Combinations) and SFAS No. 142 (Goodwill
         and Other Intangible Assets). SFAS No. 141, among other things,
         eliminates the use of the pooling of interests method of accounting for
         business combinations. Under the provisions of SFAS No. 142, goodwill
         will no longer be amortized, but will be subject to a periodic test for
         impairment based upon fair values. SFAS No. 141 is effective for all
         business combinations initiated after June 30, 2001. SFAS No. 142 is
         effective for the Company beginning January 1, 2002. SFAS No. 142
         requires that goodwill be tested annually for impairment using a
         two-step process.

               The first step is to identify a potential impairment and, in
         transition, this step must be measured as of the beginning of the
         fiscal year. A company has six months from the date of adoption to
         complete the first step. The Company completed the first step of SFAS
         No. 142 by June 30, 2002.

               The second step of the goodwill impairment test measures the
         amount of the impairment loss (measured as of the beginning of the year
         of adoption), if any, and must be completed by the end of the Company's
         fiscal year. The Company's goodwill impairment analysis has not yet
         been completed. The current estimate of the impairment charge related
         to goodwill as of January 1, 2002 is in the range of $70,000 to $90,000
         before tax (tax impact of the goodwill impairment charge will range
         between $22,000 and $28,000), pending completion of the impairment
         analysis, and is expected to be recorded in the fourth quarter of the
         2002 fiscal year, effective as of January 1, 2002. The impairment
         charge will be recorded net of tax in the fourth quarter as a
         cumulative change in accounting principle. Net income will be reduced
         by the amount of the after-tax impairment charge. For the nine months
         ended September 30, 2001 and the year ended December 31, 2001, the
         Company reported goodwill amortization of $2,752 and $3,686,
         respectively, excluding discontinued operations. As of September 30,
         2002, the Company had $121,897 of goodwill.

               In August 2001, Financial Accounting Standards Board issued SFAS
         No. 143 (Accounting for Asset Retirement Obligations). SFAS No. 143
         addresses financial accounting and reporting for obligations associated
         with the retirement of tangible long-lived assets and the associated
         asset retirement costs. It would be effective for the Company beginning
         with its 2003 financial statements. The Company is in the process of
         evaluating the impact of SFAS No. 143 on its financial statements and
         will adopt the provisions of this statement in the first quarter of
         fiscal year 2003.

               In April 2002, Financial Accounting Standards Board issued SFAS
         No. 145 (Rescission of FASB Statements No. 4, 44 and 64, Amendment of
         FASB Statement No. 13 and Technical Corrections). SFAS No. 145
         addresses financial accounting and reporting for the extinguishments of
         debt, leases and intangible assets of motor carriers. It would be
         effective for the Company beginning with its 2003 financial statements.
         The Company is in the process of evaluating the impact of SFAS No. 145
         on its financial statements and will adopt the provisions of this
         statement in the first quarter of fiscal year 2003.

               In June 2002, Financial Accounting Standards Board issued SFAS
         No. 146 (Accounting for Costs Associated with Exit or Disposal
         Activities). SFAS No. 146 addresses financial accounting and reporting
         for costs associated with exit or disposal activities and nullifies
         Emerging Issues Task Force (EITF) Issue No. 94-3, (Liability
         Recognition for Certain Employee Termination Benefits and Other Costs
         to Exit an Activity, including Certain Costs Incurred in a
         Restructuring). The provisions of this statement are effective for exit
         or disposal activities that are initiated after December 31, 2002, with
         early application encouraged. The Company is in the process of
         evaluating the impact of SFAS No. 146 on its financial statements for
         both the fourth quarter of fiscal 2002 and the 2003 fiscal year.

                                     Page 7
<PAGE>

8.       Segment Information and Guarantor/Non-guarantor Disclosures:
         ------------------------------------------------------------

               Prior to the sale of the growing media business on March 27,
         2002, the Senior Subordinated Notes issued by Hines Nurseries ("the
         issuer") were guaranteed by Hines ("the parent guarantor") and by
         certain subsidiaries of Hines including Sun Gro-U.S. After the March
         27, 2002 sale of the growing media business, Hines and Enviro-Safe
         Laboratories, Inc. are the remaining guarantors and such guarantees are
         full, unconditional and joint and several. Separate financial
         statements of Hines Nurseries are not presented and Hines Nurseries is
         not filing separate reports under the Exchange Act because management
         believes that they would not be material to investors.

               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) for periods prior to March 27, 2002, Sun
         Gro-U.S. as subsidiary guarantor (carrying its investment in Sun
         Gro-Canada under the equity method), (d) for periods prior to March 27,
         2002, 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:

         o        Consolidating balance sheets as of September 30, 2002
                  (unaudited) and December 31, 2001;

         o        Consolidating statements of operations for the three months
                  and nine months ended September 30, 2002 and 2001 (unaudited);
                  and

         o        Consolidating statements of cash flows for the nine months
                  ended September 30, 2002 and 2001 (unaudited).

                                     Page 8
<PAGE>
<TABLE>

                                     GUARANTOR / NON-GUARANTOR DISCLOSURES
                                          Consolidating Balance Sheet
                                           As of September 30, 2002
                                            (Dollars in thousands)
<CAPTION>

                                              -------------------------------------------------------------------------
                                                               Green      Growing Media
                                                               Goods         Segment
                                                              Segment     (DISCONTINUED
                                                                           OPERATIONS)
                                              -------------------------------------------------------------------------
                                                  Hines
                                              Horticulture     Hines
                                                 (Parent     Nurseries       Sun Gro                     Consolidated
                                               Guarantor)    (Issuer)      Horticulture  Eliminations        Total
                                              -------------------------------------------------------------------------
       ASSETS
       ------
<S>                                                <C>         <C>             <C>       <C>                 <C>
Current assets:
    Cash                                           $      -    $      -        $    -    $       -           $      -
    Accounts receivable, net                              -      33,833             -            -             33,833
    Inventories                                           -     157,789             -            -            157,789
    Prepaid expenses and other current assets             -       9,507         8,214       (8,214)             9,507
    Deferred income taxes                                 -           -             -            -                  -
                                              ------------------------------------------------------------------------
                      Total current assets                -     201,129         8,214       (8,214)           201,129
                                              ------------------------------------------------------------------------

Fixed assets, net                                         -     139,619             -            -            139,619
Deferred financing expenses, net                          -       7,999             -            -              7,999
Goodwill, net                                             -     121,897             -            -            121,897
Deferred income taxes                                 2,922      28,417             -      (31,339)                 -
Investments in subsidiaries                         104,846           -             -     (104,846)                 -
                                              ------------------------------------------------------------------------
                                                   $107,768    $499,061        $8,214    ($144,399)          $470,644
                                              ========================================================================

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

Current liabilities:
    Accounts payable                               $      -    $ 13,014        $    -    $       -           $ 13,014
    Accrued liabilities                                   -      11,674         8,214       (8,214)            11,674
    Accrued payroll and benefits                          -      10,678             -            -             10,678
    Accrued interest                                      -       3,567             -            -              3,567
    Long-term debt, current portion                       -      10,584             -            -             10,584
    Borrowings on revolving credit facility               -      59,250             -            -             59,250
    Deferred income taxes                                 -      67,716             -            -             67,716
    Intercompany accounts                             7,832      (7,832)            -            -                  -
                                              ------------------------------------------------------------------------
                 Total current liabilities            7,832     168,651         8,214       (8,214)           176,483
                                              ------------------------------------------------------------------------

Long-term debt                                            -     171,660             -            -            171,660
Derivative liability                                      -       9,211             -            -              9,211
Deferred income taxes                                     -      44,693             -      (31,339)            13,354
Shareholders' equity
    Common stock                                        221      17,971             -      (17,971)               221
    Additional paid in capital                      128,781      21,362             -      (21,362)           128,781
    Retained earnings (deficit)                     (22,475)     66,868             -      (66,868)           (22,475)
    Accumulated other comprehensive loss             (6,591)     (1,355)            -        1,355             (6,591)
                                              ------------------------------------------------------------------------
                Total shareholders' equity           99,936     104,846             -     (104,846)            99,936
                                              ------------------------------------------------------------------------

                                                   $107,768    $499,061        $8,214    ($144,399)          $470,644
                                              ========================================================================
</TABLE>

                                                    Page 9
<PAGE>
<TABLE>

                              GUARANTOR / NON-GUARANTOR DISCLOSURES - (CONTINUED)
                                          Consolidating Balance Sheet
                                            As of December 31, 2001
                                            (Dollars in thousands)
<CAPTION>

                                             ----------------------------------------------------------------------------
                                                            Green       Growing Media
                                                            Goods          Segment
                                                           Segment      (DISCONTINUED
                                                                         OPERATIONS)
                                             ----------------------------------------------------------------------------
                                                Hines
                                             Horticulture   Hines
                                               (Parent    Nurseries        Sun Gro                        Consolidated
                                             Guarantor)   (Issuer)       Horticulture     Eliminations       Total
                                             ----------------------------------------------------------------------------
       ASSETS
       ------
<S>                                              <C>        <C>               <C>          <C>               <C>
Current assets:
    Cash                                         $     -    $      -          $      -     $       -         $      -
    Accounts receivable, net                           -      28,182            22,878             -           51,060
    Inventories                                        -     164,675            14,054             -          178,729
    Prepaid expenses and other current assets          -       2,322             3,202             -            5,524
    Deferred income taxes                              -           -               384          (384)               -
                                             -------------------------------------------------------------------------
                     Total current assets              -     195,179            40,518          (384)         235,313
                                             -------------------------------------------------------------------------

Fixed assets, net                                      -     150,638            67,651             -          218,289
Deferred financing expenses, net                     250       8,067                 -             -            8,317
Goodwill, net                                          -     121,371            19,127             -          140,498
Deferred income taxes                                253      28,417             3,153       (24,096)           7,727
Investments in subsidiaries                       96,038       4,115            12,308      (112,461)               -
                                             -------------------------------------------------------------------------
                                                 $96,541    $507,787          $142,757     ($136,941)        $610,144
                                             =========================================================================

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

Current liabilities:
    Accounts payable                             $     -    $ 12,824          $  5,840     $       -         $ 18,664
    Accrued liabilities                                -       8,450               879             -            9,329
    Accrued payroll and benefits                       -       7,091             2,139             -            9,230
    Accrued interest                                   -       2,904                 -             -            2,904
    Long-term debt, current portion                    -      43,159            21,113             -           64,272
    Borrowings on revolving credit facility            -     100,000                 -             -          100,000
    Deferred income taxes                              -      64,874             7,510          (384)          72,000
    Intercompany accounts                          7,796     (58,993)           51,197             -                -
                                             -------------------------------------------------------------------------
                Total current liabilities          7,796     180,309            88,678          (384)         276,399
                                             -------------------------------------------------------------------------

Long-term debt                                         -     209,639            15,959             -          225,598
Interest rate swap agreement                           -       7,117                 -             -            7,117
Deferred income taxes                                  -      20,943            15,438       (24,096)          12,285
Shareholders' equity
    Common stock                                     221      17,971            15,914       (33,885)             221
    Additional paid in capital                   128,781      21,362             7,666       (29,028)         128,781
    Retained earnings (deficit)                  (33,282)     52,221             4,302       (56,523)         (33,282)
    Accumulated other comprehensive loss          (6,975)     (1,775)           (5,200)        6,975           (6,975)
                                             -------------------------------------------------------------------------
               Total shareholders' equity         88,745      89,779            22,682      (112,461)          88,745
                                             -------------------------------------------------------------------------

                                                 $96,541    $507,787          $142,757     ($136,941)        $610,144
                                             =========================================================================
</TABLE>

                                                   Page 10
<PAGE>
<TABLE>

                               GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                     Consolidating Statement of Operations
                              For the nine month period ended September 30, 2002
                                            (Dollars in thousands)
<CAPTION>

                                                     -------------------------------------------------------------------------------
                                                                        Green      Growing Media
                                                                        Goods         Segment
                                                                       Segment      (DISCONTINUED
                                                                                     OPERATIONS)
                                                     -------------------------------------------------------------------------------
                                                         Hines
                                                      Horticulture      Hines
                                                        (Parent       Nurseries        Sun Gro                       Consolidated
                                                       Guarantor)     (Issuer)      Horticulture     Eliminations        Total
                                                     -------------------------------------------------------------------------------
<S>                                                         <C>          <C>             <C>            <C>             <C>
Sales, net                                                  $     -      $295,918        $31,150         ($1,583)       $325,485
Cost of goods sold                                                -       144,237         16,929          (1,583)        159,583
                                                     ----------------------------------------------------------------------------
    Gross Profit                                                  -       151,681         14,221                     -   165,902
Operating expenses                                            6,259       112,623        (13,954)              -         104,928
                                                     ----------------------------------------------------------------------------
    Operating income                                         (6,259)       39,058         28,175               -          60,974
                                                     ----------------------------------------------------------------------------
Other expenses:
   Interest                                                       -        19,954            528               -          20,482
   Interest - intercompany                                        -          (722)           722               -               -
  Amortization of deferred financing expenses, other        (14,397)       (1,565)             -          22,100           6,138
                                                     ----------------------------------------------------------------------------
                                                            (14,397)       17,667          1,250          22,100          26,620
                                                     ----------------------------------------------------------------------------

Income (loss) before provision for income taxes               8,138        21,391         26,925         (22,100)         34,354
Income tax (benefit) provision                               (2,669)        5,718         19,472                          22,521
                                                     ----------------------------------------------------------------------------
Net income  before extraordinary item                        10,807        15,673          7,453         (22,100)         11,833
Extraordinary item                                                -         1,026              -               -           1,026
                                                     ----------------------------------------------------------------------------
Net income                                                  $10,807      $ 14,647        $ 7,453        ($22,100)       $ 10,807
                                                     ============================================================================
</TABLE>

<TABLE>

                               GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                    Consolidating Statement of Operations
                             For the three month period ended September 30, 2002
                                            (Dollars in thousands)
<CAPTION>

                                                      ------------------------------------------------------------------------------
                                                                         Green       Growing Media
                                                                         Goods          Segment
                                                                        Segment      (DISCONTINUED
                                                                                      OPERATIONS)
                                                      ------------------------------------------------------------------------------
                                                          Hines
                                                       Horticulture      Hines
                                                         (Parent       Nurseries        Sun Gro                       Consolidated
                                                        Guarantor)     (Issuer)      Horticulture     Eliminations        Total
                                                      ------------------------------------------------------------------------------
<S>                                                       <C>           <C>                  <C>           <C>            <C>
Sales, net                                                $     -       $45,049              $  -          $    -         $45,049
Cost of goods sold                                              -        23,700                 -               -          23,700
                                                      ----------------------------------------------------------------------------
    Gross Profit                                                -        21,349                 -               -          21,349
Operating expenses                                              -        24,466                 -               -          24,466
                                                      ----------------------------------------------------------------------------
    Operating income                                            -        (3,117)                -               -          (3,117)
                                                      ----------------------------------------------------------------------------
Other expenses:
   Interest                                                     -         5,770                 -               -           5,770
   Interest - intercompany                                      -             -                 -               -               -
  Amortization of deferred financing expenses, other        7,067         3,090                 -          (7,067)          3,090
                                                      ----------------------------------------------------------------------------
                                                            7,067         8,860                 -          (7,067)          8,860
                                                      ----------------------------------------------------------------------------

Income before provision for income taxes                   (7,067)      (11,977)                -           7,067         (11,977)
Income tax provision                                            -        (4,910)                -               -          (4,910)
                                                      ----------------------------------------------------------------------------
Net (loss)                                                ($7,067)      ($7,067)             $  -          $7,067         ($7,067)
                                                      ============================================================================
</TABLE>

                                                   Page 11
<PAGE>
<TABLE>

                               GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                     Consolidating Statement of Operations
                              For the nine month period ended September 30, 2001
                                            (Dollars in thousands)
<CAPTION>

                                                      ------------------------------------------------------------------------------
                                                                          Green      Growing Media
                                                                          Goods          Segment
                                                                         Segment      (DISCONTINUED
                                                                                       OPERATIONS)
                                                      ------------------------------------------------------------------------------
                                                           Hines
                                                       Horticulture       Hines
                                                          (Parent       Nurseries        Sun Gro                        Consolidated
                                                        Guarantor)      (Issuer)       Horticulture     Eliminations        Total
                                                      -----------------------------------------------------------------------------
<S>                                                       <C>          <C>                <C>             <C>             <C>
Sales, net                                                $     -      $284,961           $103,483        ($18,212)       $370,232
Cost of goods sold                                              -       134,394             63,295         (18,212)        179,477
                                                      -----------------------------------------------------------------------------
    Gross Profit                                                -       150,567             40,188               -         190,755
Operating expenses                                              -       101,687             26,148               -         127,835
                                                      -----------------------------------------------------------------------------
    Operating income                                            -        48,880             14,040               -          62,920
                                                      -----------------------------------------------------------------------------
Other expenses:
   Interest                                                   410        25,742              3,104               -          29,256
   Interest - intercompany                                      -        (2,821)             2,821               -               -
  Amortization of deferred financing expenses, other      (15,490)        3,036                  -          20,258           7,804
                                                      -----------------------------------------------------------------------------
                                                          (15,080)       25,957              5,925          20,258          37,060
                                                      -----------------------------------------------------------------------------

Income (loss) before provision for income taxes            15,080        22,923              8,115         (20,258)         25,860
Income tax (benefit) provision                               (168)        7,433              3,347               -          10,612
                                                      -----------------------------------------------------------------------------
Net income                                                $15,248      $ 15,490           $  4,768        ($20,258)       $ 15,248
                                                      =============================================================================
</TABLE>

<TABLE>

                               GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                     Consolidating Statement of Operations
                              For the three month period ended September 30, 2001
                                            (Dollars in thousands)
<CAPTION>

                                                      ------------------------------------------------------------------------------
                                                                          Green       Growing Media
                                                                          Goods          Segment
                                                                         Segment      (DISCONTINUED
                                                                                       OPERATIONS)
                                                      ------------------------------------------------------------------------------
                                                           Hines
                                                       Horticulture       Hines
                                                          (Parent       Nurseries        Sun Gro                        Consolidated
                                                        Guarantor)      (Issuer)       Horticulture     Eliminations        Total
                                                      -----------------------------------------------------------------------------
<S>                                                       <C>           <C>                <C>             <C>             <C>
Sales, net                                                $     -       $43,023            $24,735         ($3,053)        $64,705
Cost of goods sold                                              -        22,386             13,410          (3,053)         32,743
                                                      -----------------------------------------------------------------------------
    Gross Profit                                                -        20,637             11,325               -          31,962
Operating expenses                                              -        24,201              8,225               -          32,426
                                                      -----------------------------------------------------------------------------
    Operating income                                            -        (3,564)             3,100               -            (464)
                                                      -----------------------------------------------------------------------------
Other expenses:
   Interest                                                   410         7,908                858               -           9,176
   Interest - intercompany                                      -          (757)               757               -               -
  Amortization of deferred financing expenses, other        7,672         3,361                  -          (7,026)          4,007
                                                      -----------------------------------------------------------------------------
                                                            8,082        10,512              1,615          (7,026)         13,183
                                                      -----------------------------------------------------------------------------

Income before provision for income taxes                   (8,082)      (14,076)             1,485           7,026         (13,647)
Income tax provision                                          (56)       (6,131)               566               -          (5,621)
                                                      -----------------------------------------------------------------------------
Net (loss)                                                ($8,026)      ($7,945)           $   919         $ 7,026         ($8,026)
                                                      =============================================================================
</TABLE>

                                                   Page 12
<PAGE>
<TABLE>

                               GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                     Consolidating Statement of Cash Flows
                                 For the nine months ended September 30, 2002
                                            (Dollars in thousands)

                                                             -----------------------------------------------------------------------
                                                                              Green       Growing Media
                                                                              Goods          Segment
                                                                             Segment      (DISCONTINUED
                                                                                           OPERATIONS)
                                                              ----------------------------------------------------------------------
                                                                  Hines
                                                              Horticulture     Hines
                                                                 (Parent     Nurseries       Sun Gro                    Consolidated
                                                               Guarantor)     (Issuer)     Horticulture   Eliminations      Total
                                                              ---------------------------------------------------------------------
<S>                                                              <C>       <C>              <C>             <C>           <C>
Cash provided by (used in) operating activities                  $  -      $32,217          ($2,233)        $  -          $ 29,984
                                                              ---------------------------------------------------------------------

Cash flows from investing activities:
     Purchase of fixed assets, net                                  -       (4,533)          (2,503)           -            (7,036)
     Sales proceeds                                                 -        3,143          127,338            -           130,481
     Acquisitions, adjusted                                         -         (526)               -            -              (526)
                                                              ---------------------------------------------------------------------
         Net cash (used in) provided by investing activities        -       (1,916)         124,835            -           122,919
                                                              ---------------------------------------------------------------------

Cash flows from financing activities:
     Repayments on revolving line of credit                         -      (40,750)               -            -           (40,750)
     Intercompany advances (repayments)                             -       92,840          (92,840)           -                 -
     Repayments of long-term debt                                   -      (95,982)         (12,000)           -          (107,982)
     Deferred financing costs                                       -       (4,200)               -            -            (4,200)
     Dividends received (paid)                                      -       17,791          (17,791)           -                 -
                                                              ---------------------------------------------------------------------
         Net cash used in financing activities                      -      (30,301)        (122,631)           -          (152,932)
                                                              ---------------------------------------------------------------------

     Effect of exchange rate changes on cash and cash equivalents   -            -               29            -                29
                                                              ---------------------------------------------------------------------

Net increase (decrease) in cash                                     -            -                -            -                 -
Cash, beginning of year                                             -            -                -            -                 -
                                                              ---------------------------------------------------------------------
Cash, end of period                                              $  -      $     -         $      -         $  -          $      -
                                                              =====================================================================
</TABLE>

<PAGE>

<TABLE>

                               GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                     Consolidating Statement of Cash Flows
                                 For the nine months ended September 30, 2001
                                            (Dollars in thousands)
<CAPTION>

                                                             -----------------------------------------------------------------------
                                                                              Green       Growing Media
                                                                              Goods          Segment
                                                                             Segment      (DISCONTINUED
                                                                                           OPERATIONS)
                                                              ----------------------------------------------------------------------
                                                                  Hines
                                                              Horticulture     Hines
                                                                 (Parent     Nurseries       Sun Gro                    Consolidated
                                                               Guarantor)     (Issuer)     Horticulture   Eliminations      Total
                                                              ---------------------------------------------------------------------
<S>                                                              <C>       <C>               <C>            <C>            <C>
Cash provided by operating activities                            $  -      $36,849           $8,586         $  -           $45,435
                                                              ---------------------------------------------------------------------

Cash flows from investing activities:
     Purchase of fixed assets, net                                  -      (15,575)          (2,082)           -           (17,657)
     Proceds from sales of fixed assets                             -            -               95            -                95
     Acquisitions, adjusted                                         -       (8,311)               -            -            (8,311)
                                                              ---------------------------------------------------------------------
         Net cash used in investing activities                      -      (23,886)          (1,987)           -           (25,873)
                                                              ---------------------------------------------------------------------

Cash flows from financing activities:
     Repayments on revolving line of credit                         -       (2,250)               -            -            (2,250)
     Intercompany advances (repayments)                           (30)       1,067           (1,037)           -                 -
     Repayments of long-term debt                                   -      (13,023)          (5,685)           -           (18,708)
     Dividends received (paid)                                      -        1,243           (1,243)           -                 -
     Repayments of notes receivables from stock sales              30            -                -            -                30
                                                              ---------------------------------------------------------------------
         Net cash used in financing activities                      -      (12,963)          (7,965)           -           (20,928)
                                                              ---------------------------------------------------------------------

     Effect of exchange rate changes on cash and cash equivalents   -            -            1,366            -             1,366
                                                              ---------------------------------------------------------------------

Net increase (decrease) in cash                                     -            -                -            -                 -
Cash, beginning of year                                             -            -                -            -                 -
                                                              ---------------------------------------------------------------------
Cash, end of period                                              $  -      $     -           $    -         $  -           $     -
                                                              =====================================================================
</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.

         SALE OF SUN GRO BUSINESS

               On March 27, 2002, the Company completed the sale of its growing
         media business to Sun Gro Horticulture Income Fund, a newly established
         Canadian income fund. The assets sold included 14 facilities located
         across Canada and the United States and control of approximately 50,000
         acres of peat bogs in Canada.

                                    Page 14
<PAGE>

               Hines no longer harvests, produces or sells peat moss or has the
         rights to the Sunshine, Parkland Fairway, Black Gold, Lakeland Grower,
         Alberta Rose, Nature's and Gardener's Gold trade names. Hines received
         net proceeds of approximately $120 million from the sale, which were
         used to pay down outstanding bank debt.

               The growing media business was sold pursuant to an Acquisition
         Agreement, dated as of March 18, 2002, by and among Hines, the Fund and
         other related parties which contained customary representations,
         warranties and indemnification obligations of Hines, including
         indemnification for tax related matters associated with transfer
         pricing issues and the reorganization of the growing media business
         prior to the sale to the Fund. In connection with the sale, Hines
         entered into an Underwriting Agreement, dated as of March 18, 2002,
         among Hines, the Fund and other related parties, pursuant to which the
         Units of the Fund were offered. The Underwriting Agreement contains
         customary representations, warranties and indemnification obligations
         of Hines. Hines also entered into a supply agreement with a subsidiary
         of the Fund to purchase peat moss and other growing media products to
         be used in the Company's green goods business.

               In connection with the sale of the growing media business to the
         Sun Gro Horticulture Income Fund, the Canadian Customs & Revenue
         Authority (CCRA) required that approximately $13.1 million Canadian
         (US$ 8.3 million) of the gross proceeds from the transaction be
         withheld in an escrow account pending the determination of whether
         certain aspects of the sale were taxable for Canadian purposes. The
         amount withheld was not included in the measurement of the gain on the
         sale of Sun Gro for financial statement purposes. The Company firmly
         believes that the transaction is exempt from tax for Canadian purposes,
         but after more than seven months of discussions with the CCRA, progress
         on this matter has not been satisfactory to the Company. Accordingly,
         the Company decided that the best course of action was to file a tax
         return, submit the required tax payment, and make a claim for refund on
         the basis that the transaction is exempt from tax for Canadian
         purposes. On November 7, 2002, the Company submitted a tax payment of
         approximately $8.3 million Canadian (US$ 5.2 million) to the CCRA. The
         balance of the escrow funds of approximately $4.9 million Canadian (US$
         3.1 million) was then remitted to the Company. The receipt of the $4.9
         million Canadian (US$ 3.1 million) has not been recorded in the
         financial statements for the period ended September 30, 2002, but will
         be recorded as an adjustment to the gain on the sale of Sun Gro in the
         fourth quarter. The Company will continue to actively pursue a refund
         of the $8.3 million Canadian (US$ 5.2 million) through all the
         appropriate administrative and/or judicial channels.

               In accordance with SFAS No. 144 (Accounting for the Impairment or
         Disposal of Long-lived Assets), the Company's consolidated financial
         statements have been restated to reflect the financial position,
         results of operations and cash flows of the Sun Gro business as
         "discontinued operations."

         OVERVIEW

               GENERAL. Hines is one of the largest commercial green goods
         operations in North America, producing one of the broadest assortments
         of container-grown plants in the industry. The Company sells its green
         goods 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 and Target.

                                    Page 15
<PAGE>

               SEASONALITY. The Company's green goods business, like that of its
         competitors, is highly seasonal. The Company has experienced, and
         expects to continue to experience, significant variability in net
         sales, operating income and net income on a quarterly basis.

               ACQUISITIONS. In the two years ended December 31, 2001, the
         Company completed, in connection with its green goods business, two
         acquisitions in 2000, both 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 market
         values. The excess of the purchase price over the estimated fair market
         value of the net assets acquired relating to each transaction was
         accounted for as goodwill. Beginning January 1, 2002, goodwill will no
         longer be amortized, but will be subject to a periodic test for
         impairment based upon fair values. Refer to Note 7 "New Accounting
         Pronouncements" for information on the goodwill impairment testing.

               In connection with the Company's acquisition of Lovell Farms, the
         Company agreed to make earn-out payments to the sellers of up to
         approximately $5.0 million for fiscal year 2001 if the purchased
         operations achieved certain performance thresholds. Although the
         Company determined that the thresholds were not met and no earn-out
         payment was required, the sellers of Lovell Farms have indicated to the
         Company that they are disputing the Company's determination. As of the
         time of this filing, no formal proceedings have commenced. The Company
         firmly believes that it will prevail in this matter. However, in the
         event of an adverse determination, the Company could be required to pay
         all or a portion of the disputed earn-out payment plus other fees and
         expenses. The amount of such earn-out payment would become part of the
         purchase price for the assets associated with the acquisition and would
         be accounted for as goodwill subject to the impairment testing
         discussed in Note 7.

               TAX MATTERS. The Company derives significant benefits under the
         U.S. federal tax code by qualifying to use the cash method of
         accounting 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. If the Company's ability to use
         the cash method of accounting for federal income tax purposes was
         limited or eliminated, the Company's cash income tax payments could
         increase significantly. At December 31, 2001, the Company had


                                    Page 16
<PAGE>

         approximately $49.2 million in net operating loss carryforwards for
         federal income tax reporting purposes. As a result of the sale of the
         Sun Gro business, the Company expects to utilize a significant amount
         of these net operating loss carryforwards in 2002 for federal income
         tax reporting purposes. As a result, the Company anticipates it will
         pay cash income taxes for federal purposes in the future. The Company
         is currently paying cash income taxes for state income tax purposes in
         certain states due to the differing rules regarding the carryforward of
         net operating losses.

               At September 30, 2002, the Company has a current liability for
         deferred income taxes of $67.7 million. Because the majority of the
         items to which this liability relates are comprised of current assets
         and current liabilities in the balance sheet (such as inventory,
         accounts receivable, accounts payable, etc.) this deferred tax item is
         also characterized as current. The classification of this liability as
         a current item does not mean that it will be paid within the next year.

         CRITICAL ACCOUNTING POLICIES

               The preparation of financial statements in conformity with
         generally accepted accounting principles requires management to make
         estimates and assumptions that affect the reported amounts of assets
         and liabilities and disclosure of contingent assets and liabilities at
         the date of the financial statements and the reported amounts of
         revenues and expenses during the reporting period. Actual results could
         differ from those estimates. Management believes that the following
         areas represent its most critical accounting policies related to actual
         results that may vary from those estimates.

               SALES RETURNS AND ALLOWANCES: Amounts accrued for sales returns
         and allowances are maintained at a level believed adequate by
         management to absorb probable losses in the trade receivable due to
         sales discounts and allowances. The provision rate is established by
         management using the following criteria: past sales returns experience,
         current economic conditions and other relevant factors. The rate is
         re-evaluated on a quarterly basis. The allowance is increased by
         provisions for sales discounts and allowances charged against income.
         The Company records revenue, net of sales discounts and allowances,
         when the risk of ownership is transferred to the customer. Allowances
         are provided at the time of revenue is recognized in accordance with
         SFAS No. 48 (Revenue Recognition When Right of Return Exists).

               ALLOWANCE FOR DOUBTFUL ACCOUNTS: The allowance for bad debts is
         maintained at a level believed by management to adequately reflect the
         probable losses in the trade receivables due to customer defaults,
         insolvencies or bankruptcies.

               The provision is established by management using the following
         criteria: customer credit history, customer current credit rating and
         other relevant factors. The provision is re-evaluated on a quarterly
         basis. The allowance is increased by provisions to bad debt expense
         charged against income.

                                    Page 17
<PAGE>

               All recoveries on trade receivables previously charged off are
         credited to the accounts receivable recovery account charged against
         income, while direct charge-offs of trade receivables are deducted from
         the allowance.

               ACCOUNTING FOR GOODWILL IMPAIRMENT: Beginning January 1, 2002,
         under the provisions of SFAS No. 142, goodwill will no longer be
         amortized, but will be subject to a periodic test for impairment based
         upon fair values. SFAS No. 142 requires that goodwill be tested
         annually for impairment using a two-step process. The first step is to
         identify a potential impairment and, in transition, this step must be
         measured as of the beginning of the fiscal year. However, a company has
         six months from the date of adoption to complete the first step. The
         Company completed the first step by June 30, 2002.

               The second step of the goodwill impairment test measures the
         amount of the impairment loss (measured as of the beginning of the year
         of adoption), if any, and must be completed by the end of the Company's
         fiscal year. The goodwill impairment analysis has not yet been
         completed. The current estimate of the impairment charge related to
         goodwill as of January 1, 2002 is in the range of $70.0 million to
         $90.0 million before tax (tax impact of the goodwill impairment charge
         will range between $22.0 million and $28.0 million), pending completion
         of the impairment analysis, and is expected to be recorded in the
         fourth quarter of the 2002 fiscal year, effective as of January 1,
         2002. The impairment charge will be recorded net of tax in the fourth
         quarter as a cumulative change in accounting principle. Net income will
         be reduced by the amount of the after-tax impairment charge. This
         impairment charge is not expected impact the Company's covenants under
         its Amended Senior Credit Facility. For the nine months ended September
         30, 2001 and the year ended December 31, 2001, the Company reported
         goodwill amortization of $2.8 million and $3.7 million respectively,
         excluding discontinued operations. As of September 30, 2002, the
         Company had $121.9 million of goodwill.

               ACCRUED LIABILITIES: The accrued liabilities include amounts
         accrued for expected claims costs relating to the Company's insurance
         programs for workers compensation and auto liability. The Company has
         large deductibles for these lines of insurance, which means it must pay
         the portion of each claim that falls below the deductible amount. The
         Company's expected claims costs are based on an actuarial analysis that
         considers the Company's current payroll and automobile profile, recent
         claims history, insurance industry loss development factors and the
         deductible amounts. The Company accrues its expected claims costs for
         each year on a ratable monthly basis with a corresponding charge
         against income. Management reviews the adequacy of the accruals at the
         end of each quarter. The accruals for the expected costs relating to
         the Company's insurance programs for workers compensation and auto
         liability are maintained at levels believed by management to adequately
         reflect the Company's probable claims obligations.

                                    Page 18
<PAGE>

         RESULTS OF OPERATIONS

         THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS
         ENDED SEPTEMBER 30, 2001

               NET SALES. Net sales of $45.0 million for the three months ended
         September 30, 2002 increased $2.0 million, or 4.7%, from net sales of
         $43.0 million for the comparable period in 2001. The increase was due
         primarily to increased sales volume resulting from strong sales
         generated by the Company's West Coast operations, increased sales in
         the Southwest markets and strong sales of perennials. This was somewhat
         offset by sluggish sales in the Southeast markets. Sales generated by
         the Company's West Coast operations were strong because of product line
         changes, while increased sales in the Southwest market were driven by
         successful in-store service programs. In addition, given Kmart's
         uncertain financial situation, the Company reduced its third quarter
         sales to the large retailer by approximately $1.0 million from the
         third quarter of 2001.

               GROSS PROFIT. Gross profit of $21.3 million for the three months
         ended September 30, 2002 increased $0.7 million, or 3.4%, from gross
         profit of $20.6 million for the comparable period in 2001 primarily due
         to the higher sales as discussed above. As a percent of net sales,
         gross margins decreased to 47.4% from 48.0% of net sales mainly due to
         higher unit production costs in the Company's nursery operations
         stemming primarily from cost increases that exceeded the Company's
         limited price increases.

               SELLING AND DISTRIBUTION EXPENSES. Selling and distribution
         expenses of $18.5 million for the three months ended September 30, 2002
         increased $1.2 million, or 6.9%, from $17.3 million for the comparable
         period in 2001. The increase was primarily due to the higher sales,
         additional sales and merchandising personnel, and higher distribution
         costs. Distribution costs increased significantly as the Company
         completed its transition to a unitized delivery mode for many of its
         nursery products.

               GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
         expenses of $6.0 million for the three months ended September 30, 2002
         did not change from $6.0 million for the comparable period in 2001.
         These costs remained flat primarily due to efforts by the Company to
         control costs, improve efficiencies and consolidate many of its
         operational activities.

               OPERATING (LOSS) INCOME. Operating loss of $3.1 million for the
         three months ended September 30, 2002 improved by $0.5 million, or
         13.9%, from the $3.6 million loss for the comparable period in 2001
         primarily because goodwill is no longer being amortized under the
         provisions of SFAS No. 142 as discussed above. As a percentage of net
         sales, the operating loss improved to negative 6.9% from negative 8.3%.

               OTHER EXPENSES. Other expenses of $8.9 million for the three
         months ended September 30, 2002 decreased $2.7 million, or 23.3%, from
         $11.6 million for the comparable period in 2001. The decrease was
         primarily attributable to lower interest expenses and a mark-to-market
         charge of $2.0 million relating to the Company's $75.0 million interest
         rate swap agreement as compared to a charge of $3.3 million for the
         comparable period in 2001. This adjustment arose from the quarterly
         change in the swap's valuation, which is based on long-term interest


                                    Page 19
<PAGE>

         rate expectations. Interest expense was $1.4 million lower, which
         resulted from using the net proceeds from the sale of the Sun Gro
         business and the sale of an additional 22.5 acres of land to reduce
         debt. As a result of the debt reduction, interest expense is expected
         to be lower during the remainder of 2002 when compared to 2001.

               INCOME TAX PROVISION. The Company's effective income tax rate
         was 41.0% and 40.9% for the three months ended September 30, 2002 and
         2001, respectively.

               (LOSS) INCOME FROM CONTINUING OPERATIONS. The net loss from
         continuing operations of $7.1 million for the three months ended
         September 30, 2002 improved by $1.8 million from the net loss of $8.9
         million for the comparable period in 2001. The improvement was
         primarily due to lower other expenses as discussed above.

               NET (LOSS) INCOME. The net loss improved to $7.1 million for the
         three months ended September 30, 2002 compared to $8.0 million in the
         comparable period in 2001 primarily due to the higher income from
         continuing operations as discussed above.

         NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS
         ENDED SEPTEMBER 30, 2001

               NET SALES. Net sales of $295.9 million for the nine months ended
         September 30, 2002 increased $10.9 million, or 3.8%, from net sales of
         $285.0 million for the comparable period in 2001. The increase was due
         primarily to increased sales volume resulting from strong sales
         generated by the Company's West Coast operations, successful in-store
         service programs in the Southwest and Northeast markets and strong
         sales of perennials. This was somewhat offset by sluggish sales in the
         South and Southeast. Sales generated by the Company's West Coast
         operations were strong because of product line changes, while increased
         sales in both the Southwest market and the Company's Northeast color
         region were driven by successful in-store service programs. These
         programs enable us to offer a broader selection of green goods and
         streamline ordering and in-store merchandising activities with our
         customers. In addition, given Kmart's uncertain financial situation,
         the Company reduced its sales to the large retailer for the nine months
         ended September 30, 2002 by approximately $7.4 million from the nine
         months ended September 30, 2001.

               GROSS PROFIT. Gross profit of $151.7 million for the nine months
         ended September 30, 2002 increased $1.1 million, or 0.7%, from gross
         profit of $150.6 million for the comparable period in 2001. As a
         percent of net sales, gross margins decreased to 51.3% from 52.8% of
         net sales mainly due to the lower sales in our Southeast markets, which
         typically carry higher margins, and increased scrap rates primarily
         related to the lower Kmart sales and higher unit production costs in
         the nursery operations.

               SELLING AND DISTRIBUTION EXPENSES. Selling and distribution
         expenses of $86.0 million for the nine months ended September 30, 2002
         increased $6.9 million, or 8.7%, from $79.1 million for the comparable
         period in 2001. The increase was primarily due to the higher sales,
         additional sales and merchandising personnel and higher distribution
         costs. Distribution costs increased significantly as the Company
         transitioned to a unitized delivery mode for many of its nursery
         products.

                                    Page 20
<PAGE>

               GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
         expenses of $19.4 million for the nine months ended September 30, 2002
         decreased $0.4 million, or 2.0%, from $19.8 million for the comparable
         period in 2001. The decrease is primarily attributable to efforts by
         the Company to control costs, improve efficiencies and consolidate many
         of its operational activities.

               OTHER OPERATING INCOME. Other operating income of $2.1 million
         for the nine months ended September 30, 2002 represents primarily the
         net gain from the sale of our property in Hillsboro, Oregon.

               OPERATING INCOME. Operating income of $48.4 million for the nine
         months ended September 30, 2002 decreased $0.5 million, or 1.0%, from
         $48.9 million for the comparable period in 2001. As a percentage of net
         sales, operating income decreased to 16.4% from 17.2% due primarily to
         the lower gross margins and the higher selling and distribution costs
         as discussed above.

               OTHER EXPENSES. Other expenses of $25.4 million for the nine
         months ended September 30, 2002 decreased $5.7 million, or 18.3%, from
         $31.1 million for the comparable period in 2001. The decrease was
         primarily attributable to lower interest expenses and a mark-to-market
         charge of $2.8 million relating to the Company's $75.0 million interest
         rate swap agreement as compared to a charge of $4.8 million for the
         comparable period in 2001. This adjustment results from the quarterly
         change in the swap's valuation, which is based on long-term interest
         rate expectations. Interest expense was $3.7 million lower, which
         resulted from using the net proceeds from the sale of the Sun Gro
         business and the sale of an additional 22.5 acres of land to reduce
         debt. As a result of the debt reduction, interest expense is expected
         to be lower during the remainder of 2002 when compared to 2001.

               INCOME TAX PROVISION. The Company's effective income tax rate
         was 41.0% and 40.9% for the nine months ended September 30, 2002 and
         2001, respectively.

               INCOME FROM CONTINUING OPERATIONS. Income from continuing
         operations of $13.6 million for the nine months ended September 30,
         2002 increased $3.1 million from income of $10.5 million for the
         comparable period in 2001. The increase was primarily due to lower
         other expenses, the net gain from the sale of the Oregon property and
         the Company no longer amortizing goodwill under the provisions of SFAS
         142 as discussed above.

               (LOSS) INCOME FROM DISCONTINUED OPERATIONS. The loss from
         discontinued operations of $1.7 million includes a loss of $1.5
         million, net of tax, from the sale of the Sun Gro business and a loss
         of $0.5 million from the operations of Sun Gro through the date of
         sale.

               EXTRAORDINARY ITEM. The extraordinary item of $1.0 million, net
         of tax, represents the write-off of unamortized financing costs
         resulting from the early extinguishment of debt which occurred as a
         result of using the net proceeds received from the sale of the Sun Gro
         business to pay down outstanding debt before its maturity.

                                    Page 21
<PAGE>

               NET INCOME. Net income decreased to $10.8 million for the nine
         months ended September 30, 2002 compared to $15.2 million in the
         comparable period in 2001 primarily due to the loss from discontinued
         operations and the extraordinary item as discussed above.

         LIQUIDITY AND CAPITAL RESOURCES

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

                  On March 27, 2002, the Company completed the sale of the Sun
         Gro business and received net proceeds of approximately $120 million,
         which were used to pay down outstanding bank debt. In addition, the
         Company completed the sale of 22.5 acres of land located in Hillsboro,
         Oregon in March 2002, and used the net proceeds of approximately $2.9
         million to pay down outstanding bank debt.

                  The Company used $107.9 million of the proceeds from the sale
         of the Sun Gro business and the sale of land to reduce long-term debt
         with the remaining amount of $15.0 million used to reduce the amount
         outstanding under its working capital revolver.

                  The Company's net debt position (short and long term-debt) at
         September 30, 2002 was $241.5 million compared to net debt of $389.9
         million at December 31, 2001, which included long-term debt from
         discontinued operations. The decrease in debt compared to December 31,
         2001 was due to the Company using the net proceeds from the sale of the
         Sun Gro business and the sale of 22.5 acres in Hillsboro, Oregon to
         reduce debt.

                  Net cash provided by operating activities was $40.8 million
         for the nine months ended September 30, 2002 compared to $36.8 million
         for the comparable period in 2001 mainly due to increased cash
         generated from working capital changes. The improvement in working
         capital was mainly due to an improvement in Days Sales Outstanding and
         lower inventory volume growth. This was somewhat offset by a smaller
         increase in accounts payable and accrued liabilities compared to the
         same period in 2001. Because the Company's working capital improvement
         plan began in 2001, the 2001 comparable period was favorably impacted
         by a one-time improvement relating to a change in accounts payable and
         accrued liabilities. As part of the plan, the Company sought and
         obtained extended payment terms from a significant number of vendors.
         These factors thereby increased its accounts payable and accrued
         liabilities amounts for the nine months ended September 30, 2001.

                  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 use significant amounts of cash, and in contrast,
         operating activities for the second and third quarters generate
         substantial cash as the Company ships inventory and collects accounts
         receivable.

                                    Page 22
<PAGE>

                  Net cash provided by investing activities was $112.1 million
         for the nine months ended September 30, 2002 compared to a net use of
         cash of $21.6 million for the comparable period in 2001. The increase
         was primarily due to the proceeds received from the sale of the Sun Gro
         business and the sale of the Oregon property. In addition, capital
         expenditures were $11.1 million less than those for the comparable
         period in 2001.

                  Net cash used in financing activities was $152.9 million for
         the nine months ended September 30, 2002 compared to $15.2 million for
         the comparable period in 2001. The increase in net cash used was
         primarily related to the use of the proceeds from the sale of the Sun
         Gro business and the sale of the Oregon property to pay down
         outstanding bank debt in the amount of $107.9 million and to pay
         financing costs of $4.2 million.

                  The Company typically draws under 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 74% of the Company's sales of nursery products
         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. On November 8, 2002, the Company had unused
         borrowing capacity of $49.0 million under its $115.0 million working
         capital revolver facility within the Amended Senior Credit Facility. In
         addition, the Company had fully repaid its $30.0 million seasonal
         revolver facility which can only be utilized between February 1 and
         June 15.

                  The Company's capital expenditures were approximately $4.5
         million for the nine months ended September 30, 2002 and included the
         continued implementation of our ERP information system, the completion
         of acreage expansion plans at our South Carolina facility, which we
         began in 2001, and the purchase of nursery related structures,
         machinery and equipment. The Company's capital expenditures for 2002
         are expected to be approximately $7.5 to $8.0 million.

                  The Company's primary sources of liquidity are funds generated
         by operations and borrowings under its Amended Senior Credit Facility,
         which matures on December 31, 2004, as amended. As of September 30,
         2002, this facility is comprised of a $115.0 million working capital
         revolver, a $30.0 million seasonal revolving loan commitment, which can
         only be utilized for the period between February 1 and June 15, a New
         Term Loan in the amount of $51.4 million and a Tranche B Term Loan in
         the amount of $51.1 million. Borrowings under the Amended Senior Credit
         Facility are secured by substantially all the Company's assets. The
         Amended Senior Credit Facility places various restrictions on the
         Company, including, but not limited to, limitations on the Company's
         ability to incur additional debt, limitations on capital expenditures
         and limitations on dividends the Company can pay to shareholders. The
         Amended Senior Credit Facility requires the Company to meet specific
         covenants and financial ratios. At the Company's option, the interest
         rate on the loans under the Amended Senior Credit Facility may be base
         rate loans, which is the higher of the prime rate or the rate which is
         1/2 of 1% in excess of the federal funds effective rate, or Eurodollar
         rate loans.

                                    Page 23
<PAGE>

                  Base rate loans under the working capital revolving loan and
         the New Term Loan bear interest at the base rate plus an additional
         amount which ranges from 1.00% to 3.00%, depending on the Company's
         consolidated leverage ratio. Base rate loans under the seasonal working
         capital revolver bear interest at the base rate plus 2.25% and under
         the Tranche B Term Loan at the base rate plus an additional amount
         between 2.75% and 3.00%, depending on the Company's consolidated
         leverage ratio. Currently, the applicable margin for base rate loans is
         (i) 3.00% for working capital revolving loans, (ii) 3.00% for the New
         Term Loan and (iii) 3.00% for the Tranche B Term Loan.

                  Eurodollar rate loans under the working capital revolving loan
         and the New Term Loan bear interest at the Eurodollar rate plus an
         additional amount that ranges from 2.00% to 4.00%, depending on the
         Company's consolidated leverage ratio. Eurodollar rate loans under the
         seasonal working capital revolver bear interest at the Eurodollar rate
         plus 3.25% and under the Tranche B Term Loan at the Eurodollar rate
         plus an additional amount between 3.75% and 4.00%, depending on the
         Company's consolidated leverage ratio. Currently, the applicable margin
         for Eurodollar rate loans is (i) 4.00% for working capital revolving
         loans, (ii) 4.00% for the New Term Loan and (iii) 4.00% for the Tranche
         B Term Loan.

                  Principal repayments due under the Company's Amended Senior
         Credit Facility total $17.5 million in 2003 and $84.9 million in 2004.
         The expiration of the Company's seasonal working capital facility has
         been extended to June 15, 2004. Madison Dearborn Capital Partners, L.P.
         ("MDCP"), our principal shareholder, provided a guarantee for the
         extension of the $30.0 million seasonal revolving loan commitment under
         the Amended Senior Credit Facility.

                  If MDCP is required to make any payment with respect to its
         guarantee on the seasonal revolving loan commitment, 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 addition, Hines Nurseries (the issuer and our wholly owned
         subsidiary) has outstanding $78.0 million of Senior Subordinated Notes
         (the "Notes") due October of 2005. The Company has fully and
         unconditionally guaranteed the issuer's obligations under the Notes and
         the Notes are redeemable, in whole or in part, at the option of the
         Company, on or after October 15, 2000 at a redemption price of 106.00%
         of the principal amount thereof plus accrued interest, if any, to the
         date of redemption. Upon a change of control, each holder will have the
         right to require the Company to repurchase such holder's Notes at a
         price equal to 105.00% of the principal amount thereof plus accrued
         interest, if any, to the date of repurchase.

                                    Page 24
<PAGE>

                  The Notes currently bear interest at 12.75% per annum, and the
         indenture pursuant to which the Notes were issued imposes a number of
         restrictions on our operating subsidiaries, including their ability to
         incur additional indebtedness, to make certain restricted payments
         (including dividends to the Company), to make certain asset
         dispositions, to incur additional liens and to enter into significant
         transactions. A breach of a material term of the indenture for the
         Notes or other material indebtedness that results in the acceleration
         of the indebtedness under the Notes also constitutes an event of
         default under the Amended Senior Credit Facility. In addition, the
         Company is obligated to pay a premium at maturity equal to 5.00% of the
         principal amount of the Notes to be repaid. The Company is accreting
         this premium over the term of the maturity of the Notes as additional
         interest expense. At September 30, 2002, the amount of the premium was
         $1.6 million and, based on the $78.0 million of Notes outstanding, is
         expected to be $3.9 million upon maturity.

                  At September 30, 2002, the Company had the following
         contractual obligations (payments due by period, in millions):

                             2002       2003       2004       2005       Total
                             ----       ----       ----       ----       -----
Tranche B Term Loan         $ --      $  --      $  51.1    $  --      $   51.1
New Term Loan                 --         17.5       33.8       --          51.3
Senior Subordinated Notes     --         --         --         81.9        81.9
Other obligations             --          0.2       --         --           0.2
                            -------   --------   --------   --------   ---------
Total                       $  0.0    $  17.7    $  84.9    $  81.9    $  184.5
                            =======   ========   ========   ========   =========

                  Hines does not have any off balance sheet financing or any
         financial arrangements with any related parties, except for operating
         leases, which are disclosed in the Notes to Consolidated Financial
         Statements included in the Company's Annual Report on Form 10-K.

                  In our opinion, cash generated by operations and from
         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 as the Company's business is
         currently conducted through 2002 and thereafter for the next twelve
         months. However, we cannot ensure that we will generate sufficient cash
         flow from operations, that anticipated operating improvements will be
         realized on schedule or at all, or that future borrowings will be
         available under our credit facility in amounts sufficient to pay
         indebtedness or fund our liquidity needs. Actual results of operations
         will depend on numerous factors, many of which are beyond our control.
         We cannot ensure that we will be able to refinance any indebtedness,
         including our amended credit facility, on commercially reasonable terms
         or at all.

         FORWARD LOOKING STATEMENTS AND RISK FACTORS

                  We have made and will make "forward-looking statements" within
         the meaning of Section 27A of the Securities Act of 1933 and Section
         21E of the Securities Exchange Act of 1934 in our Annual Report, Forms
         10-K and 10-Q and in other contexts relating to our future prospects,
         our operations and our strategies. Forward-looking statements include,
         but are not limited to, information regarding our future economic
         performance and financial condition, the plans and objectives of our
         management and our assumptions regarding our performance and these
         plans and objectives.

                                    Page 25
<PAGE>

                  The forward-looking statements that we make in our Annual
         Report, Forms 10-K and 10-Q and in other contexts represent challenging
         goals for our Company, and the achievement of these goals and our
         operations are subject to a variety of risks and assumptions and
         numerous factors beyond our control. Important factors that could cause
         actual results to differ materially from the forward-looking statements
         we make are described below. The following risk factors should not be
         considered a definitive list of all risks associated with our
         operations and should be read in conjunction with the risks and
         uncertainties contained in our other filings with the Securities and
         Exchange Commission.

         WEATHER; GENERAL AGRICULTURAL RISKS

                  Adverse weather or production difficulties occurring at a time
         of peak production or sales (in the first half of the calendar year),
         particularly on weekends during the peak gardening season, could cause
         declines in net sales and operating income that could have a material
         adverse effect on the Company. The Company's operations may also be
         adversely affected by disease, freezing conditions, snow, drought or
         other inclement weather. There can be no assurance that future weather
         conditions will not have a material adverse effect on the Company.
         Agricultural production is highly dependent upon the availability of
         water. The Company's facilities receive their water from a variety of
         sources, including on-site wells, reservoirs and holding ponds,
         municipal water districts and irrigation water supplied to local
         districts by facilities owned and operated by the United States acting
         through the Department of Interior Bureau of Reclamation. The loss or
         reduction of access to water at any of the company's facilities could
         have a material adverse effect on the Company.

         SUDDEN OAK DEATH

                  Sudden Oak Death (SOD) is caused by a fungus-like pathogen
         recently identified by University of California scientists and named
         PHYTOPHTHORA RAMORUM. Since its appearance in 1995, SOD has killed tens
         of thousands of coast live oak, black oak, tan oak and Shreve oak in
         Northern California. It can also infect leaves and branches of
         rhododendron, buckeye, madrone, manzanita, bigleaf maple, bay laurel,
         and evergreen huckleberry. Most recently, both saplings of Redwood and
         Douglas Fir trees have been found to be susceptible. To date, SOD has
         been identified in 12 California counties and has been confirmed in a
         small town in southwest Oregon.

                  Restrictive regulation of soil media containing Redwood and/or
         Douglas Fir sawdust by the U.S. Department of Agriculture or California
         Department of Forest & Agriculture could cause declines in net sales
         and operating income that could have a material adverse effect on the
         Company given that our California nursery operations utilize soil media
         containing Redwood and/or Douglas Fir sawdust. At this point in time,
         it is not clear how the USDA/CDFA will regulate soil media. Currently,
         there is no scientific data that indicates that P. RAMORUM is present


                                    Page 26
<PAGE>

         in sawdust, but Redwoods and Douglas Firs are on the host list as
         discussed above. We are currently undergoing studies growing plants in
         alternatives to Redwood and/or Douglas Fir sawdust. We are also working
         closely with local, state and federal researchers on an effective
         treatment for P. RAMORUM in a nursery operation. There is no known or
         accepted treatment for wide-scale infection of this disease at this
         time nor is it known how this disease is spread.

         SEASONALITY; VARIABILITY OF QUARTERLY RESULTS AND CERTAIN CHANGES

                  The Company's business, like that of its competitors, is
         highly seasonal. In 2001, approximately 74% of net sales and
         approximately 108% of operating profits occurred in the first half of
         the year, with approximately 53% of net sales and approximately 88% of
         operating profits occurring in the second quarter of 2001. The Company
         has experienced, and expects to continue to experience, significant
         variability in net sales, operating income and net income on a
         quarterly basis. The principal factor contributing to this variability
         is weather, particularly on weekends during the peak gardening season,
         which could cause declines in net sales and operating income that could
         have a material adverse effect on the Company.

         Other factors that may contribute to this variability include:

         -        weather conditions during peak growing and gardening seasons;
         -        shifts in demand for live plant products;
         -        changes in product mix, service levels and pricing by the
                  Company and its competitors;
         -        the effect of acquisitions;
         -        the economic stability of the retail customers; and
         -        the Company's relationship with each of its retail customers.


         CUSTOMER CONCENTRATION; DEPENDENCE ON HOME DEPOT

                  Our top 10 customers together accounted for approximately 74%
         of our fiscal year 2001 net sales. Our largest customer, Home Depot,
         accounted for approximately 44% of our fiscal year 2001 net sales.
         These customers hold significant positions in the retail lawn and
         garden market. Management expects that a small number of customers will
         continue to account for a substantial portion of the Company's net
         sales for the foreseeable future. The Company does not have long-term
         contracts with any of its retail customers, and there can be no
         assurance that they will continue to purchase its products.

                  The loss of, or a significant adverse change in, the Company's
         relationship with Home Depot or any other major customer could have a
         material adverse effect on the Company. The loss of, or a reduction in
         orders from, any significant retail customers, losses arising from
         retail customers' disputes regarding shipments, fees, merchandise
         condition or related matters, or the Company's inability to collect
         accounts receivable from any major retail customer could have a
         material adverse effect on the Company. In addition, there can be no
         assurance that revenue from customers that have accounted for
         significant revenue in past periods, individually or as a group, will
         continue, or if continued, will reach or exceed historical levels in
         any period.

                                    Page 27
<PAGE>

         KMART BANKRUPTCY

                  Kmart, one of our top customers, filed for bankruptcy relief
         under Chapter 11 of the bankruptcy code on January 22, 2002. Following
         such filing, we recommenced shipping products to Kmart. If Kmart does
         not successfully emerge from its bankruptcy reorganization, the loss
         of, or reduction in, orders or the Company's inability to collect
         accounts receivables from Kmart, could have a material adverse effect
         on the Company, its business and operations During the nine months
         ended September 30, 2002 the Company's net sales to Kmart were
         approximately $7.6 million, a decrease of $7.4 million from the
         comparable period in 2001.

                  The Company recently proposed a modification of the terms
         under which it makes sales to Kmart, which they declined. Accordingly,
         the Company believes that this is likely to further reduce future sales
         to Kmart. As noted above, for the nine months ended September 30, 2002
         the Company had approximately $7.6 million of sales to Kmart and for
         the three-month period ended December 31, 2001 had net sales of
         approximately $1.9 million to Kmart.

         SUBSTANTIAL LEVERAGE

                  We have a significant amount of debt. Our substantial
         indebtedness could have important consequences for you. For example, it
         could:

         -        make it more difficult for us to satisfy our obligations;
         -        increase our vulnerability to general adverse economic and
                  industry conditions;
         -        require us to dedicate a substantial portion of cash flows
                  from operations to payments on our indebtedness, which would
                  reduce cash flows available to fund working capital, capital
                  expenditures, and other general corporate requirements;
         -        limit our flexibility in planning for, or reacting to, changes
                  in our business and the industry in which we operate;
         -        place us at a competitive disadvantage compared to our
                  competitors that have less debt;
         -        limit our ability to borrow additional funds; and
         -        expose us to risks inherent in interest rate fluctuations
                  because some of our borrowings are at variable rates of
                  interest, which could result in higher interest expense in the
                  event of increases in interest rates.

                  Our ability to make payments on and to refinance our
         indebtedness and to fund planned capital expenditures will depend on
         our ability to generate cash in the future. To some extent, this is
         subject to general economic, financial, competitive, legislative,
         regulatory and other factors that are beyond our control.

                                    Page 28
<PAGE>

                  We may need to refinance all or a portion of our indebtedness
         on or before maturity. We cannot assure that we will be able to
         refinance any of our indebtedness on commercially reasonable terms or
         at all.

         COVENANT RESTRICTIONS

                  Our credit facility and the indenture governing our
         outstanding Notes contain restrictive covenants that require us to
         maintain specified financial ratios and satisfy other financial
         condition tests. Our ability to meet those financial ratios and tests
         can be affected by events beyond our control, and we cannot assure you
         that we will meet those tests. A breach of any of these covenants could
         result in a default under our credit facility and/or the Notes, the
         lenders and/or noteholders could elect to declare all of our
         outstanding indebtedness to be immediately due and payable and
         terminate all commitments to extend further credit. We cannot be sure
         that our lenders or the noteholders would waive a default or that we
         could pay the indebtedness in full if it were accelerated.

         GOVERNMENTAL REGULATIONS; MINIMUM WAGE

                  The Company is subject to certain federal, state and local
         health, safety and environmental laws and regulations regarding the
         production, storage and transportation of certain of its products and
         the disposal of its waste.

                  Certain of the Company's operations and activities, such as
         water runoff from its production facilities and the use of certain
         pesticides, are subject to regulation by the United States
         Environmental Protection Agency (the "EPA") and similar state and local
         agencies. These agencies may regulate or prohibit the use of such
         products, procedures or operations, thereby affecting the Company's
         operations and profitability. In addition, the Company must comply with
         a broad range of environmental laws and regulations. Additional or more
         stringent environmental laws and regulations may be enacted in the
         future and such changes could have a material adverse effect on the
         Company. The Company uses reclamation water as one of the sources of
         water for a few of its production facilities. Federal reclamation laws
         and regulations govern the use and pricing of reclamation water,
         including availability of subsidized water rates. Changes in the law
         could have a material adverse effect on the Company.

                  In addition, the Company is subject to the Fair Labor
         Standards Act as well as various federal, state and local regulations
         that govern matters such as minimum wage requirements, overtime and
         working conditions. A large number of the Company's seasonal employees
         are paid at or slightly above the applicable minimum wage level and,
         accordingly, changes in such laws and regulations could have a material
         adverse effect on the Company by increasing its costs.

         MADISON DEARBORN CAPITAL PARTNERS, L.P. OWNS APPROXIMATELY 54% OF
         THE OUTSTANDING COMMON SHARES OF HINES ON A FULLY DILUTED BASIS.

                  Madison Dearborn Capital Partners, L.P. ("MDCP") owns
         approximately 54% of the outstanding commons shares of Hines on a fully
         diluted basis and has sufficient voting power to control, or at the
         least, significantly influence the election of directors and the
         approval of other actions requiring the approval of our shareholders.

                                    Page 29
<PAGE>

         COMPETITION

                  The wholesale nursery industry is highly competitive.
         Competition in the nursery products segment of the lawn and garden
         industry is based principally on the breadth of product offering,
         consistent product quality and availability, customer service and
         price. The nursery products segment is highly fragmented.

                  According to the 1997 Census of Agriculture released by the
         USDA's National Agricultural Statistics Service, the nursery business
         is comprised of approximately 30,000 primarily small and regionally
         based growers, with the top 100 growers accounting for approximately
         22% of the industry volume. Management believes Hines Nurseries is one
         of only two growers able to serve every major regional market in North
         America; the Company's only national competitor being Monrovia Nursery
         Company. In each of its markets, Hines competes with regional growers
         such as Color Spot Nurseries, Inc. in the West, Clinton Nurseries in
         the Northeast, Zelenka Nurseries in the Midwest, Wight Nurseries in the
         South and many other smaller regional and local growers. Hines
         Nurseries' key competitive advantages are its ability to provide
         consistent, high quality products in large volumes, its nationwide
         distribution and its value-added services.

         DEPENDENCE ON MANAGEMENT

                  The Company's success is largely dependent on the skills,
         experience and efforts of its senior management. The loss of services
         of one or more members of the Company's senior management could have a
         material adverse effect on the Company. The Company does not maintain
         key-man life insurance policies on any members of management. No
         members of senior management are bound by non-compete agreements, and
         if any such members were to depart and subsequently compete with the
         Company, such competition could have a material adverse effect on the
         Company.

                                    Page 30
<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 September 30,
         2002, the estimated fair value of the Company's obligation under the
         interest rate agreement was $9.2 million. For the nine months ended
         September 30, 2002, the Company recognized a pre-tax loss of $2,043
         reported as interest rate swap agreement expense related to the change
         in the fair value of the interest rate agreement. In addition, for the
         twelve months ending December 31, 2002, the Company anticipates that
         $0.6 million, net of tax, will be amortized as interest rate agreement
         expense related to the $2.3 million cumulative after-tax charge made to
         Accumulated Other Comprehensive Income on January 1, 2001.

                  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.

ITEM 4.           CONTROLS AND PROCEDURES

                  Within the 90 days prior to the date of this report, the
         Company carried out an evaluation, under the supervision and with the
         participation of the Company's management, including the Company's
         President and Chief Executive Officer and Chief Financial Officer, of
         the effectiveness of the design and operation of the Company's
         disclosure controls and procedures, as defined in Exchange Act Rule
         15d-14(c). Based upon that evaluation, the Company's President and
         Chief Executive Officer and Chief Financial Officer concluded that the
         Company's disclosure controls and procedures are effective in enabling
         the Company to record, process, summarize and report information
         required to be included in the Company's periodic SEC filings within
         the required time period. There have been no significant changes in the
         Company's internal controls or in other factors that could
         significantly affect internal controls subsequent to the date the
         Company carried out its evaluation.

                                    Page 31
<PAGE>

PART II.  OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

               (a) Exhibits

               Exhibit 99.1    Certification of Chief Executive Officer Pursuant
                        To 18 U.S.C. Section 1350, As Adopted Pursuant To
                        Section 906 Of The Sarbanes-Oxley Act of 2002.

               Exhibit 99.2    Certification of Chief Financial Officer Pursuant
                        To 18 U.S.C. Section 1350, As Adopted Pursuant To
                        Section 906 Of The Sarbanes-Oxley Act of 2002.



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

                                    Page 32
<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:  November 14, 2002



                                 CERTIFICATIONS

I, Stephen P. Thigpen, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Hines
         Horticulture, Inc.;

2.       Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

         c)       presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.



Date: November 14, 2002               By: /S/ STEPHEN P. THIGPEN
                                          ---------------------------
                                          Stephen P. Thigpen
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)

                                    Page 33
<PAGE>

I, Claudia M. Pieropan, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Hines
         Horticulture, Inc.;

2.       Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

         c)       presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.



Date: November 14, 2002              By:  /S/ CLAUDIA M. PIEROPAN
                                          -----------------------------------
                                          Claudia M. Pieropan
                                          Chief Financial Officer, Secretary and
                                          Treasurer
                                          (Principal Financial Officer)



                                    Page 34