<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, 2004

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

                             Commission File Number
                                    000-24439

                            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( )

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
                                  Yes( ) No(X)

         As of October 18, 2004 there were 22,072,549 shares of Common Stock,
par value $0.01 per share, outstanding.
================================================================================

                                     Page 1
<PAGE>

                            HINES HORTICULTURE, INC.
                                      INDEX

                          PART I. FINANCIAL INFORMATION

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

         Condensed Consolidated Balance Sheets as of
         September 30, 2004 (unaudited) and December 31, 2003              3

         Condensed Consolidated Statements of Operations for the
         Three Months and Nine Months Ended September 30, 2004 and
         2003 (unaudited)                                                  4

         Condensed Consolidated Statements of Cash Flows for the
         Nine Months Ended September 30, 2004 and 2003 (unaudited)         5

         Notes to the Condensed Consolidated Financial Statements
         (unaudited)                                                       6

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                         20

Item 3.  Quantitative and Qualitative Disclosures About Market Risk        31

Item 4.  Controls and Procedures                                           32

                           PART II. OTHER INFORMATION


Item 1.  Legal Proceedings                                                 33

Item 6.  Exhibits                                                          33

         Signature                                                         35

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

                                     Page 2
<PAGE>
<TABLE>

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

                                             HINES HORTICULTURE, INC.
                                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                     September 30, 2004 and December 31, 2003
                                     (Dollars in thousands, except share data)

ASSETS
------                                                                      September 30,    December 31,
                                                                                2004            2003
                                                                             ----------      ----------
                                                                            (Unaudited)
<S>                                                                          <C>             <C>
CURRENT ASSETS:
        Cash                                                                 $      --       $      --
        Accounts receivable, net of allowance for
           doubtful accounts of $521 and $601                                   36,904          23,724
        Inventories                                                            170,570         173,090
        Prepaid expenses and other current assets                                2,723           3,157
                                                                             ----------      ----------
                                                   Total current assets        210,197         199,971
                                                                             ----------      ----------

FIXED ASSETS, net of accumulated depreciation
   of $55,489 and $47,566                                                      132,132         136,435

DEFERRED FINANCING EXPENSES, net of
   accumulated amortization of $1,782 and $443                                   9,328          10,589
DEFERRED INCOME TAXES                                                           12,234          12,234
GOODWILL                                                                        43,926          42,979
                                                                             ----------      ----------
                                                                             $ 407,817       $ 402,208
                                                                             ==========      ==========

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

CURRENT LIABILITIES:
        Accounts payable                                                     $  14,765       $  10,104
        Accrued liabilities                                                     11,286           9,234
        Accrued payroll and benefits                                             9,689           6,971
        Accrued interest                                                         9,377           5,073
        Interest rate swap agreement, current portion                            1,916           5,320
        Long-term debt, current portion                                          5,722           5,789
        Borrowings on revolving credit facility                                  6,031          30,318
        Deferred income taxes                                                   74,831          65,186
                                                                             ----------      ----------

                                              Total current liabilities        133,617         137,995
                                                                             ----------      ----------

LONG-TERM DEBT                                                                 205,476         209,287

OTHER LIABILITIES                                                                2,115           2,196


SHAREHOLDERS' EQUITY
        Common stock
           Authorized - 60,000,000 shares, $.01 par value;
           Issued and outstanding - 22,072,549 shares
           at September 30, 2004 and December 31, 2003                             221             221

        Additional paid-in capital                                             128,781         128,781
        Accumulated deficit                                                    (62,393)        (76,272)
                                                                             ----------      ----------

                                             Total shareholders' equity         66,609          52,730
                                                                             ----------      ----------

                                                                             $ 407,817       $ 402,208
                                                                             ==========      ==========

                        The accompanying notes are an integral part of these condensed
                                      consolidated financial statements.
</TABLE>
                                                    Page 3
<PAGE>
<TABLE>

                                                     HINES HORTICULTURE, INC.
                                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  Three Months and Nine Months Ended September 30, 2004 and 2003
                                             (Dollars in thousands, except share data)
                                                            (Unaudited)

                                                    Three Months Ended September 30,      Nine Months Ended September 30,

                                                         2004               2003               2004               2003
                                                    -------------      -------------      -------------      -------------
<S>                                                 <C>                <C>                <C>                <C>
Sales, net                                          $     51,748       $     51,792       $    293,219       $    300,396
Cost of goods sold                                        28,220             27,939            146,736            147,161
                                                    -------------      -------------      -------------      -------------
    Gross profit                                          23,528             23,853            146,483            153,235
                                                    -------------      -------------      -------------      -------------

Selling and distribution expenses                         18,519             18,782             86,913             87,938
General and administrative expenses                        5,361              5,753             17,381             17,550
Other operating (income) expenses                             (4)               203                543              1,635
                                                    -------------      -------------      -------------      -------------
    Total operating expenses                              23,876             24,738            104,837            107,123
                                                    -------------      -------------      -------------      -------------

    Operating (loss) income                                 (348)              (885)            41,646             46,112

Other expenses (income)
   Interest expense                                        6,602              5,730             20,186             18,466
   Loss on debt extinguishment                                --              9,235                 --              9,235
   Interest rate swap agreement income                    (1,080)              (852)            (3,403)            (1,496)
   Amortization of deferred financing expenses               445              1,140              1,339              3,328
                                                    -------------      -------------      -------------      -------------
                                                           5,967             15,253             18,122             29,533
                                                    -------------      -------------      -------------      -------------

(Loss) income before income taxes                         (6,315)           (16,138)            23,524             16,579

Income tax (benefit) provision                            (2,589)            (6,645)             9,645              6,798
                                                    -------------      -------------      -------------      -------------

(Loss) income from continuing operations                  (3,726)            (9,493)            13,879              9,781

Income from discontinued operations, net                      --              4,013                 --              4,013
                                                    -------------      -------------      -------------      -------------

Net (loss) income                                   $     (3,726)      $     (5,480)      $     13,879       $     13,794
                                                    =============      =============      =============      =============


Basic and diluted earnings per share:

(Loss) income per common share from
  continuing operations                             $      (0.17)      $      (0.43)      $       0.63       $       0.44
Income per common share from
  discontinued operations                           $         --       $       0.18       $         --       $       0.18
                                                    -------------      -------------      -------------      -------------

Net (loss) income per common share:                 $      (0.17)      $      (0.25)      $       0.63       $       0.62
                                                    =============      =============      =============      =============

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         22,072,549         22,136,050         22,108,668
                                                    =============      =============      =============      =============

                                  The accompanying notes are an integral part of these condensed
                                                consolidated financial statements.
</TABLE>
                                                              Page 4
<PAGE>
<TABLE>

                                           HINES HORTICULTURE, INC.
                                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                Nine Months Ended September 30, 2004 and 2003
                                            (Dollars in thousands)
                                                  (Unaudited)

                                                                           2004            2003
                                                                        ----------      ----------
<S>                                                                     <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                          $  13,879       $  13,794
    Income from discontinued operations                                        --          (4,013)
    Adjustments to reconcile net income to net cash
      provided by operating activities:
         Depreciation and accretion of asset retirement obligation          7,997           7,005
         Amortization of deferred financing expenses                        1,339           3,328
         Interest rate swap agreement income                               (3,403)         (1,496)
         Loss on sale of assets                                                71              73
         Loss on debt extinguisment                                            --           9,235
         Deferred income taxes                                              9,645           6,798
                                                                        ----------      ----------
                                                                           29,528          34,724
Change in working capital accounts:
    Accounts receivable                                                   (13,181)         (9,270)
    Inventories                                                             2,314           7,379
    Prepaid expenses and other current assets                                 434            (839)
    Accounts payable and accrued liabilities                               13,733          (1,952)
                                                                        ----------      ----------
      Change in working capital accounts                                    3,300          (4,682)
                                                                        ----------      ----------

        Net cash provided by operating activities                          32,828          30,042
                                                                        ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of fixed assets                                               (3,762)         (4,173)
    Payments on sale of discontinued operations                                --            (500)
    Acquisitions, adjusted                                                   (947)             --
    Leasehold incentive proceeds                                              125           1,150
                                                                        ----------      ----------
        Net cash used in investing activities                              (4,584)         (3,523)
                                                                        ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Net repayments on revolving line of credit                            (24,287)        (45,352)
    Proceeds from the issuance of long-term debt                               --         215,000
    Repayments of long-term debt                                           (3,878)       (180,533)
    Deferred financing expenses incurred                                      (79)        (10,101)
    Penalty on early payment of Senior Subordinated Notes                      --          (5,533)
                                                                        ----------      ----------
        Net cash used in financing activities                             (28,244)        (26,519)
                                                                        ----------      ----------


NET CHANGE IN CASH                                                             --              --

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

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

Supplemental disclosure of cash flow information:
    Cash paid for interest                                              $  15,502       $  24,073
    Cash paid for income taxes                                          $      33       $     380


                        The accompanying notes are an integral part of these condensed
                                      consolidated financial statements.
</TABLE>
                                               Page 5
<PAGE>

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


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

                  Hines Horticulture, Inc. ("Hines" or the "Company"), a
         Delaware corporation, produces and distributes horticultural products
         through its wholly owned subsidiaries, Hines Nurseries, Inc. ("Hines
         Nurseries") and Enviro-Safe Laboratories, Inc. Unless otherwise
         specified, references to "Hines" or the "Company" refer to Hines
         Horticulture, Inc. and its subsidiaries.

                  Hines 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 markets its
         products to retail and commercial customers throughout the United
         States and Canada.

                  On March 27, 2002, the Company sold the assets of Sun Gro-U.S.
         and the stock of Sun Gro-Canada (collectively referred to as "Sun
         Gro"), 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 other growing media
         soil mixes. Hines received net proceeds of approximately $125,000 from
         the sale, which were used to pay down outstanding bank debt.

                  In connection with the sale of Sun Gro, the Canadian Customs &
         Revenue Authority ("CCRA") required that approximately $13,136 Canadian
         of the gross proceeds from the sale be withheld in an escrow account
         pending the determination of whether certain aspects of the sale were
         taxable for Canadian purposes. The proceeds withheld were not included
         in the initial measurement of the loss on the sale of Sun Gro. In 2002,
         the Company filed a tax return, submitted a tax payment of $8,219
         Canadian from the escrow funds and submitted a claim for refund on the
         basis that the transaction is exempt from tax for Canadian purposes.
         The balance of the escrow funds of $4,917 Canadian was then remitted to
         us and was recorded in the fourth quarter of 2002 as an adjustment to
         the loss on the sale of Sun Gro. On September 30, 2003, the CCRA
         completed its assessment of our tax return in which it determined that
         the transaction was exempt from tax for Canadian purposes and issued a
         refund to us of all tax paid, plus accrued interest. Hines received the
         refund check of $8,663 Canadian on October 2, 2003 and recorded it in
         the third quarter of 2003 as an adjustment to the loss on the sale of
         Sun Gro.

                                     Page 6
<PAGE>

                  The Condensed Consolidated Financial Statements include the
         accounts of Hines and its wholly owned subsidiaries after elimination
         of intercompany accounts and transactions.

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, may be determined
         in that context.

                  Accordingly, footnote and other disclosures, which would
         substantially duplicate the disclosures contained in the Company's Form
         10-K for the year ended December 31, 2003, filed on March 30, 2004 by
         Hines Horticulture, Inc. under the Securities Exchange Act of 1934, as
         amended, have been omitted. The financial information herein is not
         necessarily representative of a full year's operations.

3.       Reclassifications:
         ------------------

                  Certain prior year amounts have been reclassified to conform
         to current year presentations.

4.       Earnings Per Share:
         -------------------

                  Earnings per share are calculated in accordance with Statement
         of Financial Accounting Standard ("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 using the treasury method. For the nine months ended
         September 30, 2004, the incremental shares related to 440,000 warrants
         outstanding increased fully diluted shares by 63,501. For the three
         months ended September 30, 2004, the incremental shares related to
         440,000 warrants outstanding were excluded from the computation of
         diluted earnings per share because they would have been anti-dilutive.
         Additionally, for the three and nine months ended September 30, 2004,
         shares related to the underlying employee stock options in the amount
         of 1,067,823 were excluded from the computation of diluted earnings per
         share because they would have been anti-dilutive.

5.       Stock-Based Compensation:
         -------------------------

                  In December 2002, the Financial Accounting Standards Board
         ("FASB") issued SFAS No. 148, "Accounting for
         Stock-Based-Compensation-Transition and Disclosure-an Amendment of FASB


                                     Page 7
<PAGE>

         Statement No. 123" ("SFAS No. 148"). SFAS No. 148 amends SFAS No. 123,
         "Accounting for Stock-Based Compensation" ("SFAS No. 123") to provide
         alternative methods of transition for a voluntary change to the fair
         value based method of accounting for stock-based employee compensation.
         In addition, SFAS No. 148 amends the disclosure requirements of SFAS
         No. 123 to require prominent disclosures in both annual and interim
         financial statements about the method of accounting for stock-based
         employee compensation and the effect of the method used on reported
         results. As permitted under both SFAS No. 123 and SFAS No. 148, the
         Company continues to follow the intrinsic value method of accounting
         under Accounting Principles Board No. 25 "Accounting for Stock Issued
         to Employees."

                                                           Nine months ended
                                                              September 30,
                                                           2004          2003
                                                       -----------   -----------
         Net income, as reported                       $   13,879    $  13,794
         Stock option expense                                (228)         (23)
                                                       -----------   ----------
         Pro forma net income                          $   13,651    $  13,771
                                                       ===========   ==========

         Net income per share:

         Basic - as reported                           $     0.63    $    0.62
                                                       ===========   ==========
         Basic - pro forma                             $     0.62    $    0.62
                                                       ===========   ==========

         Diluted - as reported                         $     0.63    $    0.62
                                                       ===========   ==========
         Diluted - pro forma                           $     0.62    $    0.62
                                                       ===========   ==========

                  The Company estimates the weighted average fair value of each
         stock option on the grant date using the Black-Scholes option-pricing
         model with the following weighted-average assumptions:

                                                     September 30,
                                                   2004         2003
                                               ------------ ------------
         Dividend Yield                                 0%           0%
         Expected volatility                        61.08%       81.48%
         Risk-free interest rate                     3.90%        3.41%
         Expected life                           Six years    Six years



                                     Page 8
<PAGE>

6.       Inventories:
         ------------

         Inventories consisted of the following:


                                   September 30,    December 31,
                                       2004             2003
                                    ---------        ---------

         Nursery stock              $156,870         $162,861
         Material and supplies        13,700           10,229
                                    ---------        ---------
                                    $170,570         $173,090
                                    =========        =========
7.       Goodwill:
         ---------

                  In connection with the Company's acquisition of Lovell Farms,
         the Company agreed, subject to various provisions in the purchase
         agreement, to make earn-out payments to the sellers of up to
         approximately $5,000 for fiscal 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, as previously disclosed the sellers of Lovell Farms disputed
         the Company's determination and initiated arbitration proceedings
         against the Company. Going into the hearings, the sellers demanded that
         the arbitrator award $5,000 and payment of their attorney's fees and
         costs. An arbitration hearing regarding this matter was held in May
         2004 and final determination was made by the arbitrator on July 26,
         2004 awarding the sellers $947 and denying their request for
         reimbursement of attorney's fees and costs. The amount of this award
         has been accounted for by the Company as part of the purchase price
         associated with the acquisition and has resulted in an increase the
         Company's goodwill in the third quarter of 2004. Legal fees and other
         costs in connection with the arbitration have been expensed as
         incurred.

8.       Revolving Lines of Credit:
         --------------------------

                  On September 30, 2003, the Company amended and restated its
         Senior Credit Facility. Hines Nurseries and its domestic operating
         subsidiaries are borrowers under the Senior Credit Facility. The Senior
         Credit Facility consists of (i) a revolving facility with availability
         of up to $145,000 (subject to borrowing base limits) and (ii) a term
         loan facility of up to $40,000. The revolving facility also permits the
         Company to obtain letters of credit up to a sub-limit.

         SENIOR CREDIT FACILITY. The Company entered into the amended and
         restated Senior Credit Facility on September 30, 2003. The Senior
         Credit Facility matures on September 30, 2008.

                  GUARANTEES; COLLATERAL. Obligations under the Senior Credit
         Facility are guaranteed by Hines and any of its domestic subsidiaries
         that are not borrowers under the Senior Credit Facility. Borrowings
         under the Senior Credit Facility are collateralized by substantially
         all of the Company's assets.

                  RESTRICTIONS; COVENANTS. The Senior Credit Facility places
         various restrictions on Hines Nurseries and its subsidiaries,
         including, but not limited to, limitations on the Company's ability to
         incur additional debt, pay dividends or make distributions, sell assets
         or make investments. The Senior Credit Facility specifically restricts

                                     Page 9
<PAGE>

         Hines Nurseries and its subsidiaries from making distributions to Hines
         Horticulture. Distributions to Hines Horticulture are limited to (i)
         payments covering customary general and administrative expenses, not to
         exceed $500 in any fiscal year, (ii) payments to discharge any
         consolidated tax liabilities, (iii) and payments, not to exceed as much
         as $8,300 in any fiscal year or $9,300 over the term of the Senior
         Credit Facility, to enable Hines Horticulture to repurchase its own
         outstanding common stock from holders other than its majority
         shareholder. Dividends to Hines Horticulture are disallowed under the
         Senior Credit Facility.

                  The Senior Credit Facility requires Hines Nurseries and its
         subsidiaries to meet specific covenants and financial ratios, including
         a minimum fixed charge coverage test, a maximum leverage test and a
         maximum capital expenditure test. The Senior Credit Facility contains
         customary representations and warranties and customary events of
         default and other covenants. As of September 30, 2004, the Company was
         in compliance with all covenants.

                  INTEREST RATE; FEES. The interest rate on the loans under the
         Senior Credit Facility may be, at the Company's option, Prime rate
         loans or London Inter Bank Offering Rate ("LIBOR") rate loans. Prime
         rate loans under the revolving loan facility bear interest at the Prime
         lending rate plus an additional amount that ranges from 0.75% to 1.75%,
         depending on its consolidated leverage ratio. Prime rate loans under
         the term loan bear interest at the Prime lending rate plus an
         additional amount that ranges from 1.25% to 2.25%, depending on its
         consolidated leverage ratio. Currently, the applicable margin for Prime
         rate loans is (i) 1.75% for the revolving loan facility and (ii) 2.25%
         for the term loan. LIBOR rate loans under the revolving loan facility
         bear interest at the LIBOR rate plus an additional amount that ranges
         from 1.75% to 2.75%, depending on its consolidated leverage ratio.
         LIBOR rate loans under the term loan bear interest at the LIBOR rate
         plus an additional amount that ranges from 2.25% to 3.25%, depending on
         its consolidated leverage ratio. Currently, the applicable margin for
         LIBOR rate loans is (i) 2.75% for the revolving loan facility and (ii)
         3.25% for the term loan. In addition to paying interest on outstanding
         principal, the Company is required to pay a commitment fee on the daily
         average unused portion of the revolving facility that will accrue from
         the closing date based on the utilization of the revolving facility.

                  BORROWING BASE. Availability of borrowings under the revolving
         facility are subject to a borrowing base consisting of the sum of (i)
         85% of eligible accounts receivable plus (ii) the lesser of (x) up to
         55% of eligible inventory or (y) 85% of the appraised net orderly
         liquidation value of eligible inventory. The Company must deliver
         borrowing base certificates and reports at least monthly. The borrowing
         base also may be subject to certain other adjustments and reserves to
         be determined by the agent. Eligible accounts receivable of both The
         Home Depot, the Company's largest customer, and Lowe's Companies, Inc.,
         its second largest customer, may not exceed 30% of total eligible
         accounts receivable at any time. At September 30, 2004, the Company had
         $71,030 of available credit.

                                    Page 10
<PAGE>

                  REPAYMENT. Under the terms of the Senior Credit Facility,
         amortization payments of $1,905 on the term loan are required at the
         end of each of its second, third and fourth fiscal quarters that began
         on June 30, 2004 and through the end of the term, with the full
         remaining balance payable on the last installment date. Subject to
         certain exceptions, 100% of the net cash proceeds the Company receives
         from certain asset dispositions and issuances of debt, 50% of the net
         cash proceeds the Company receives from issuances of equity and 25% of
         excess cash flow are required to be applied to repay the term loan
         facility and are to be applied on a pro rata basis to all remaining
         scheduled installments of the term loan facility. The Senior Credit
         Facility may also be voluntarily prepaid at any time without premium or
         penalty.

9.       Long-Term Debt:
<TABLE>
                                                                   September 30,  December 31,
                                                                       2004          2003
                                                                     ---------     ---------
         <S>                                                         <C>           <C>
         Term loan at the bank's reference rate plus 2.25% or
         the LIBOR rate plus 3.25%. Interest rates were 5.14%
         and 4.44% at September 30, 2004 and December 31,
         2003, respectively                                          $ 36,190      $ 40,000

         Senior Notes, interest at 10.25% payable semi-annually
         on each April 1 and October 1, maturing
         on October 1, 2011                                           175,000       175,000

         Other obligations due at various dates through 2004                8            76
                                                                     ---------     ---------
                                                                      211,198       215,076

         Less current portion                                           5,722         5,789
                                                                     ---------     ---------
                          Total long-term debt                       $205,476      $209,287
                                                                     =========     =========
</TABLE>

         SENIOR CREDIT FACILITY - TERM LOAN. Please see Note 7 above for the
         terms.

         SENIOR NOTES. On September 30, 2003, Hines Nurseries issued $175,000 of
         Senior Notes that mature on October 1, 2011. The Senior Notes bear
         interest at the rate of 10.25% per annum and will be payable
         semi-annually in arrears on each April 1 and October 1.

                  GUARANTEES. Hines Horticulture and each of its domestic
         subsidiaries, subject to certain exceptions, has, jointly and
         severally, fully and unconditionally guaranteed, on a senior unsecured
         basis, the obligations of Hines Nurseries under the Senior Notes.

                  REDEMPTION. Prior to October 1, 2006, up to 35% of the
         aggregate principal amount of the Senior Notes may be redeemed with the
         net cash proceeds from one or more public equity offerings, at the
         Company's option, at a redemption price of 110.250% of the principal
         amount thereof plus accrued interest, if any, to the date of
         redemption. On or after October 1, 2007, the Company is entitled, at
         its option, to redeem all or a portion of the Senior Notes at
         redemption prices ranging from 100.000% to 105.125%, depending on the
         redemption date plus accrued and unpaid interest.

                                    Page 11
<PAGE>

                  RESTRICTIONS. The indenture pursuant to which the Senior Notes
         were issued imposes a number of restrictions on Hines Nurseries and its
         other subsidiaries. Subject to certain exceptions, the Company may not
         incur additional indebtedness, make certain restricted payments, make
         certain asset dispositions, incur additional liens or enter into
         significant transactions. A breach of a material term of the indenture
         or other material indebtedness that results in acceleration of the
         indebtedness under the Senior Notes also constitutes an event of
         default under its Senior Credit Facility.

                  REPURCHASE OR A CHANGE OF CONTROL. The Senior Notes contain a
         put option whereby the holders have the right to put the Senior Notes
         back to Hines at 101.000% of the principal amount thereof on the date
         of purchase plus accrued and unpaid interest if a change of control
         occurs.

10.      Interest Rate Swap Agreement:
         -----------------------------

                  In May 2000, the Company entered into an interest rate swap
         agreement to hedge $75,000 of debt. The interest rate swap agreement
         effectively changes the Company's exposure on its variable-rate
         interest payments to fixed-rate interest payments (7.13%) based on the
         3-month LIBOR rate in effect at the beginning of each quarterly period.
         Despite the debt refinancing, the interest rate swap agreement remains
         outstanding and matures in February 2005. The estimated fair value of
         the Company's obligation under the interest rate swap agreement was
         $1,916 at September 30, 2004.

11.      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 includes
         the amortization of the fair value of the interest rate agreement
         recognized upon adoption of SFAS No. 133, "Accounting for Derivative
         Instruments and Hedging Activities." The components of comprehensive
         income during the three and nine months ended September 30, 2004 and
         2003, were as follows:

<TABLE>
                                                                    Three months ended          Nine months ended
                                                                       September 30,              September 30,
                                                                    2004          2003          2004         2003
                                                                  --------      --------      --------     --------
<S>                                                               <C>           <C>           <C>          <C>
         Net (loss) income                                        $(3,726)      $(5,480)      $13,879      $13,794
         Amortization of interest rate swap agreement,
            net of tax of $0, $97, $0 and $291, respectively           --           140            --          420
         Loss on debt extinguishment, net of tax
            of $0, $552, $0 and $552, respectively                     --           795            --          795
                                                                  --------      --------      --------     --------
         Comprehensive (loss) income                              $(3,726)      $(4,545)      $13,879      $15,009
                                                                  ========      ========      ========     ========
</TABLE>

                                    Page 12
<PAGE>

12.      Guarantor/Non-guarantor Disclosures:
         ------------------------------------

                  The 10.25% Senior Subordinated Notes issued by Hines Nurseries
         (the "issuer") have been guaranteed by Hines Horticulture (the "parent
         guarantor") and by both Hines SGUS, Inc. ("Hines SGUS") and Enviro-Safe
         Laboratories, Inc. ("Enviro-Safe") (collectively Hines SGUS and
         Enviro-Safe are the "subsidiary guarantors"). The issuer and the
         subsidiary guarantors are 100% owned subsidiaries of the parent
         guarantor and the parent and subsidiary guaranties are full,
         unconditional and joint and several. Separate financial statements of
         Hines Nurseries, Hines SGUS and Enviro-Safe are not presented in
         accordance with the exceptions provided by Rule 3-10 of Regulation S-X.

                  The following condensed consolidating information shows (a)
         Hines Horticulture on a parent company basis only as the parent
         guarantor (carrying its investment in its subsidiaries under the equity
         method), (b) Hines Nurseries as the issuer, (c) Hines SGUS and
         Enviro-Safe as subsidiary guarantors, (d) eliminations necessary to
         arrive at the information for the parent guarantor and its direct and
         indirect subsidiaries on a consolidated basis and (e) the parent
         guarantor on a consolidated basis as follows:

         o        Condensed consolidating balance sheets as of September 30,
                  2004 and December 31, 2003;
         o        Condensed consolidating statements of operations for the nine
                  and three months ended September 30, 2004 and 2003; and
         o        Condensed consolidating statements of cash flows for the nine
                  months ended September 30, 2004 and 2003.

                                    Page 13
<PAGE>
<TABLE>

                                               GUARANTOR / NON-GUARANTOR DISCLOSURES
                                               Condensed Consolidating Balance Sheet
                                                     As of September 30, 2004
                                                      (Dollars in thousands)
                                                            (Unaudited)


                                                          Hines
                                                       Horticulture       Hines
                                                         (Parent        Nurseries       Subsidiary                     Consolidated
                                                        Guarantor)       (Issuer)       Guarantors     Eliminations        Total
                                                        ----------      ----------      ----------      ----------      ----------
<S>                                                     <C>             <C>             <C>             <C>             <C>
      ASSETS
      ------

Current assets:
   Cash                                                 $      --       $      --       $      --       $      --       $      --
   Accounts receivable, net                                    --          36,664             240              --          36,904
   Inventories                                                 --         170,134             436              --         170,570
   Prepaid expenses and other current assets                   --           2,186             537              --           2,723
                                                        ----------      ----------      ----------      ----------      ----------
                              Total current assets             --         208,984           1,213              --         210,197
                                                        ----------      ----------      ----------      ----------      ----------

Fixed assets, net                                              --         132,102              30              --         132,132
Deferred financing expenses, net                               --           9,328              --              --           9,328
Deferred income taxes                                       2,922          28,461              --         (19,149)         12,234
Goodwill                                                       --          43,926              --              --          43,926
Investments in subsidiaries                                71,519              --              --         (71,519)             --
                                                        ----------      ----------      ----------      ----------      ----------
                                                        $  74,441       $ 422,801       $   1,243       $ (90,668)      $ 407,817
                                                        ==========      ==========      ==========      ==========      ==========

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

Current liabilities:
   Accounts payable                                     $      --       $  14,709       $      56       $      --       $  14,765
   Accrued liabilities                                         --          11,286              --              --          11,286
   Accrued payroll and benefits                                --           9,689              --              --           9,689
   Accrued interest                                            --           9,377              --              --           9,377
   Interest rate swap agreement, current portion               --           1,916              --              --           1,916
   Long-term debt, current portion                             --           5,722              --              --           5,722
   Borrowings on revolving credit facility                     --           6,031              --              --           6,031
   Deferred income taxes                                       --          78,617              --          (3,786)         74,831
   Intercompany accounts                                    7,832          (7,832)             --              --              --
                                                        ----------      ----------      ----------      ----------      ----------
                         Total current liabilities          7,832         129,515              56          (3,786)        133,617
                                                        ----------      ----------      ----------      ----------      ----------

Long-term debt                                                 --         205,476              --              --         205,476
Deferred income taxes                                          --          15,363              --         (15,363)             --
Other liabilties                                               --           2,115              --              --           2,115
Shareholders' equity
   Common stock                                               221          16,981             990         (17,971)            221
   Additional paid-in capital                             128,781          21,362              --         (21,362)        128,781
   Retained earnings (deficit)                            (62,393)         31,989             197         (32,186)        (62,393)
                                                        ----------      ----------      ----------      ----------      ----------
                        Total shareholders' equity         66,609          70,332           1,187         (71,519)         66,609
                                                        ----------      ----------      ----------      ----------      ----------

                                                        $  74,441       $ 422,801       $   1,243       $ (90,668)      $ 407,817
                                                        ==========      ==========      ==========      ==========      ==========
</TABLE>

                                                             Page 14
<PAGE>
<TABLE>

                                        GUARANTOR / NON-GUARANTOR DISCLOSURES - (CONTINUED)
                                               Condensed Consolidating Balance Sheet
                                                      As of December 31, 2003
                                                      (Dollars in thousands)
                                                            (Unaudited)


                                                     Hines
                                                  Horticulture       Hines
                                                    (Parent        Nurseries       Subsidiary                    Consolidated
                                                   Guarantor)       (Issuer)       Guarantors     Eliminations       Total
                                                   ----------      ----------      ----------      ----------      ----------
<S>                                                <C>             <C>             <C>             <C>             <C>
       ASSETS
       ------

Current assets:
    Cash                                           $      --       $      --       $      --       $      --       $      --
    Accounts receivable, net                              --          23,361             363              --          23,724
    Inventories                                           --         172,626             464              --         173,090
    Prepaid expenses and other current assets             --           2,640             517              --           3,157
                                                   ----------      ----------      ----------      ----------      ----------
                         Total current assets             --         198,627           1,344              --         199,971
                                                   ----------      ----------      ----------      ----------      ----------

Fixed assets, net                                         --         136,399              36              --         136,435
Deferred financing expenses, net                          --          10,589              --              --          10,589
Deferred income taxes                                  2,922          28,461              --         (19,149)         12,234
Goodwill                                                  --          42,979              --              --          42,979
Investments in subsidiaries                           57,641              --              --         (57,641)             --
                                                   ----------      ----------      ----------      ----------      ----------
                                                   $  60,563       $ 417,055       $   1,380       $ (76,790)      $ 402,208
                                                   ==========      ==========      ==========      ==========      ==========

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

Current liabilities:
    Accounts payable                               $      --       $  10,099       $       5       $      --       $  10,104
    Accrued liabilities                                   --           9,061             173              --           9,234
    Accrued payroll and benefits                          --           6,971              --              --           6,971
    Accrued interest                                      --           5,073              --              --           5,073
     Interest rate swap agreement                         --           5,320              --              --           5,320
    Long-term debt, current portion                       --           5,789              --              --           5,789
    Borrowings on revolving credit facility               --          30,318              --              --          30,318
    Deferred income taxes                                 --          68,972              --          (3,786)         65,186
    Intercompany accounts                              7,832          (7,832)             --              --              --
                                                   ----------      ----------      ----------      ----------      ----------
                    Total current liabilities          7,832         133,771             178          (3,786)        137,995
                                                   ----------      ----------      ----------      ----------      ----------

Long-term debt                                            --         209,287              --              --         209,287
Deferred income taxes                                     --          15,363              --         (15,363)             --
Other liabilities                                         --           2,196              --              --           2,196
Shareholders' equity
    Common stock                                         221          16,981             990         (17,971)            221
    Additional paid-in capital                       128,781          21,362              --         (21,362)        128,781
    Retained earnings (deficit)                      (76,271)         18,095             212         (18,308)        (76,272)
                                                   ----------      ----------      ----------      ----------      ----------
                   Total shareholders' equity         52,731          56,438           1,202         (57,641)         52,730
                                                   ----------      ----------      ----------      ----------      ----------

                                                   $  60,563       $ 417,055       $   1,380       $ (76,790)      $ 402,208
                                                   ==========      ==========      ==========      ==========      ==========
</TABLE>

                                                             Page 15
<PAGE>
<TABLE>

                                         GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                          Condensed Consolidating Statement of Operations
                                           For the nine months ended September 30, 2004
                                                      (Dollars in thousands)
                                                            (Unaudited)

                                                            Hines
                                                         Horticulture       Hines
                                                           (Parent        Nurseries       Subsidary                     Consolidated
                                                          Guarantor)       (Issuer)       Guarantors     Eliminations       Total
                                                          ----------      ----------      ----------      ----------      ----------
<S>                                                       <C>             <C>             <C>             <C>             <C>
Sales, net                                                $      --       $ 291,972       $   1,247       $      --       $ 293,219
Cost of goods sold                                               --         145,833             903              --         146,736
                                                          ----------      ----------      ----------      ----------      ----------
    Gross Profit                                                 --         146,139             344              --         146,483
Operating expenses                                               --         104,472             365              --         104,837
                                                          ----------      ----------      ----------      ----------      ----------
    Operating income (loss)                                      --          41,667             (21)             --          41,646
                                                          ----------      ----------      ----------      ----------      ----------
Other expenses (income):
   Interest expense                                              --          20,186              --              --          20,186
   Interest rate swap agreement income                           --          (3,403)             --              --          (3,403)
   Amortization of deferred financing expenses, other       (13,879)          1,339              --          13,879           1,339
                                                          ----------      ----------      ----------      ----------      ----------
                                                            (13,879)         18,122              --          13,879          18,122
                                                          ----------      ----------      ----------      ----------      ----------
Income (loss) before income taxes                            13,879          23,545             (21)        (13,879)         23,524
Income tax provision                                             --           9,651              (6)             --           9,645
                                                          ----------      ----------      ----------      ----------      ----------
Net income (loss)                                         $  13,879       $  13,894       $     (15)      $ (13,879)      $  13,879
                                                          ==========      ==========      ==========      ==========      ==========


                                         GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                          Condensed Consolidating Statement of Operations
                                           For the nine months ended September 30, 2003
                                                      (Dollars in thousands)
                                                            (Unaudited)

                                                            Hines
                                                         Horticulture       Hines
                                                           (Parent        Nurseries      Subsidiary                     Consolidated
                                                          Guarantor)       (Issuer)       Guarantor     Eliminations       Total
                                                          ----------      ----------      ----------     ----------      ----------
Sales, net                                                $      --       $ 299,216       $   1,180      $      --       $ 300,396
Cost of goods sold                                               --         146,391             770             --         147,161
                                                          ----------      ----------      ----------     ----------      ----------
    Gross Profit                                                 --         152,825             410             --         153,235
Operating expenses                                               --         106,751             372             --         107,123
                                                          ----------      ----------      ----------     ----------      ----------
    Operating income                                             --          46,074              38             --          46,112
                                                          ----------      ----------      ----------     ----------      ----------
Other expenses (income):
   Interest expense                                              --          18,466              --             --          18,466
   Loss on debt extinguishment                                   --           9,235              --             --           9,235
   Interest rate swap agreement income                           --          (1,496)             --             --          (1,496)
   Amortization of deferred financing expenses, other       (13,794)          3,328              --         13,794           3,328
                                                          ----------      ----------      ----------     ----------      ----------
                                                            (13,794)         29,533              --         13,794          29,533
                                                          ----------      ----------      ----------     ----------      ----------
Income (loss) before income taxes                            13,794          16,541              38        (13,794)         16,579
Income tax provision                                             --           6,788              10             --           6,798
                                                          ----------      ----------      ----------     ----------      ----------
Income from continuing operations                            13,794           9,753              28        (13,794)          9,781
Income from discontinued operations                              --           4,013              --             --           4,013
                                                          ----------      ----------      ----------     ----------      ----------
Net income (loss)                                            13,794          13,766              28        (13,794)         13,794
                                                          ==========      ==========      ==========     ==========      ==========
</TABLE>

                                                             Page 16
<PAGE>
<TABLE>

                                         GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                          Condensed Consolidating Statement of Operations
                                           For the three months ended September 30, 2004
                                                      (Dollars in thousands)
                                                            (Unaudited)

                                                            Hines
                                                         Horticulture      Hines
                                                           (Parent       Nurseries      Subsidiary                   Consolidated
                                                          Guarantor)      (Issuer)       Guarantor    Eliminations       Total
                                                           ---------      ---------      ---------      ---------      ---------
<S>                                                        <C>            <C>            <C>            <C>            <C>
Sales, net                                                 $     --       $ 51,518       $    230       $     --       $ 51,748
Cost of goods sold                                               --         27,978            242             --         28,220
                                                           ---------      ---------      ---------      ---------      ---------
    Gross Profit                                                 --         23,540            (12)            --         23,528
Operating expenses                                               --         23,769            107             --         23,876
                                                           ---------      ---------      ---------      ---------      ---------
    Operating loss                                               --           (229)          (119)            --           (348)
                                                           ---------      ---------      ---------      ---------      ---------
Other expenses (income):
   Interest expense                                              --          6,602             --             --          6,602
   Interest rate swap agreement income                           --         (1,080)            --             --         (1,080)
   Amortization of deferred financing expenses, other         3,726            445             --         (3,726)           445
                                                           ---------      ---------      ---------      ---------      ---------
                                                              3,726          5,967             --         (3,726)         5,967
                                                           ---------      ---------      ---------      ---------      ---------
(Loss) income before income taxes                            (3,726)        (6,196)          (119)         3,726         (6,315)
Income tax benefit                                               --         (2,543)           (46)            --         (2,589)
                                                           ---------      ---------      ---------      ---------      ---------
Net (loss) income                                          $ (3,726)      $ (3,653)      $    (73)      $  3,726       $ (3,726)
                                                           =========      =========      =========      =========      =========


                                         GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                          Condensed Consolidating Statement of Operations
                                           For the three months ended September 30, 2003
                                                      (Dollars in thousands)
                                                            (Unaudited)

                                                             Hines
                                                         Horticulture      Hines
                                                            (Parent      Nurseries      Subsidiary                   Consolidated
                                                           Guarantor)     (Issuer)       Guarantor    Eliminations       Total
                                                           ---------      ---------      ---------      ---------      ---------
Sales, net                                                 $     --       $ 51,567       $    225       $     --       $ 51,792
Cost of goods sold                                               --         27,784            155             --         27,939
                                                           ---------      ---------      ---------      ---------      ---------
    Gross Profit                                                 --         23,783             70             --         23,853
Operating expenses                                               --         24,610            128             --         24,738
                                                           ---------      ---------      ---------      ---------      ---------
    Operating loss                                               --           (827)           (58)            --           (885)
                                                           ---------      ---------      ---------      ---------      ---------
Other expenses (income):
   Interest expense                                              --          5,730             --             --          5,730
   Loss on debt extinguishment                                   --          9,235             --             --          9,235
   Interest rate swap agreement income                           --           (852)            --             --           (852)
   Amortization of deferred financing expenses, other         5,480          1,140             --         (5,480)         1,140
                                                           ---------      ---------      ---------      ---------      ---------
                                                              5,480         15,253             --         (5,480)        15,253
                                                           ---------      ---------      ---------      ---------      ---------
(Loss) income before income taxes                            (5,480)       (16,080)           (58)         5,480        (16,138)
Income tax benefit                                               --         (6,618)           (27)            --         (6,645)
                                                           ---------      ---------      ---------      ---------      ---------
Loss from continuing operations                            $ (5,480)      $ (9,462)      $    (31)      $  5,480       $ (9,493)
Income from discontinued operations                              --          4,013             --             --          4,013
                                                           ---------      ---------      ---------      ---------      ---------
Net (loss) income                                          $ (5,480)      $ (5,449)      $    (31)      $  5,480       $ (5,480)
                                                           =========      =========      =========      =========      =========
</TABLE>

                                                             Page 17
<PAGE>
<TABLE>

                                         GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                          Condensed Consolidating Statement of Cash Flows
                                           For the nine months ended September 30, 2004
                                                      (Dollars in thousands)
                                                            (Unaudited)

                                                     Hines
                                                  Horticulture    Hines
                                                    (Parent      Nurseries     Subsidiary                 Consolidated
                                                   Guarantor)    (Issuer)       Guarantor   Eliminations      Total
                                                   ---------     ---------      ---------     ---------     ---------
<S>                                                <C>           <C>            <C>           <C>           <C>
Cash provided by operating activities              $     --      $ 32,828       $     --      $     --      $ 32,828
                                                   ---------     ---------      ---------     ---------     ---------

Cash flows from investing activities:
    Purchase of fixed assets                             --        (3,762)            --            --        (3,762)
    Acquisitions, adjusted                               --          (947)            --            --          (947)
    Leasehold incentive proceeds                         --           125             --            --           125
                                                   ---------     ---------      ---------     ---------     ---------
       Net cash used in investing activities:            --        (4,584)            --            --        (4,584)
                                                   ---------     ---------      ---------     ---------     ---------

Cash flows from financing activities:
    Repayments on revovling line of credit               --       (24,287)            --            --       (24,287)
    Repayments of long-term debt                         --        (3,878)            --            --        (3,878)
    Deferred financing costs                             --           (79)            --            --           (79)
                                                   ---------     ---------      ---------     ---------     ---------
       Net cash used in financing activities             --       (28,244)            --            --       (28,244)
                                                   ---------     ---------      ---------     ---------     ---------

Net change in cash                                       --            --             --            --            --
Cash, beginning of year                                  --            --             --            --            --
                                                   ---------     ---------      ---------     ---------     ---------
Cash, end of year                                  $     --      $     --       $     --      $     --      $     --
                                                   =========     =========      =========     =========     =========
</TABLE>

                                                             Page 18
<PAGE>
<TABLE>

                                         GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                          Condensed Consolidating Statement of Cash Flows
                                           For the nine months ended September 30, 2003
                                                      (Dollars in thousands)
                                                            (Unaudited)

                                                                 Hines
                                                              Horticulture     Hines
                                                                (Parent      Nurseries      Subsidiary                  Consolidated
                                                               Guarantor)     (Issuer)       Guarantor   Eliminations       Total
                                                               ---------     ----------      ---------     ---------     ----------
<S>                                                            <C>           <C>             <C>           <C>           <C>
Cash provided by operating activities                          $     --      $  30,042       $     --      $     --      $  30,042
                                                               ---------     ----------      ---------     ---------     ----------

Cash flows from investing activities:
    Purchase of fixed assets                                         --         (4,173)            --            --         (4,173)
    Payments on sale of discontinued operations                      --           (500)            --            --           (500)
    Leasehold incentive proceeds                                     --          1,150             --            --          1,150
                                                               ---------     ----------      ---------     ---------     ----------
       Net cash used in investing activities:                        --         (3,523)            --            --         (3,523)
                                                               ---------     ----------      ---------     ---------     ----------

Cash flows from financing activities:
    Repayments on revovling line of credit                           --        (45,352)            --            --        (45,352)
    Proceeds from the issuance of long-term debt                     --        215,000             --            --        215,000
    Repayments of long-term debt                                     --       (180,533)            --            --       (180,533)
    Deferred financing costs                                         --        (10,101)            --            --        (10,101)
    Penalty on early payment of Senior Subordinated Notes            --         (5,533)            --            --         (5,533)
                                                               ---------     ----------      ---------     ---------     ----------
       Net cash used in financing activities                         --        (26,519)            --            --        (26,519)
                                                               ---------     ----------      ---------     ---------     ----------

Net change in cash                                                   --             --             --            --             --
Cash, beginning of year                                              --             --             --            --             --
                                                               ---------     ----------      ---------     ---------     ----------
Cash, end of year                                              $     --      $      --       $     --      $     --      $      --
                                                               =========     ==========      =========     =========     ==========
</TABLE>

                                                             Page 19
<PAGE>

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

         Unless the context otherwise requires, the term (1) "Hines
Horticulture" means Hines Horticulture, Inc., a Delaware corporation, (2) the
term "Hines Nurseries" means Hines Nurseries, Inc., a California corporation,
and a wholly owned subsidiary of Hines Horticulture and (3) the terms "we," "us"
and "our" mean, collectively, the combined entity of Hines Horticulture and its
wholly owned subsidiaries.

         FORWARD LOOKING STATEMENTS AND RISK FACTORS

         Except for historical information contained herein, this quarterly
report on Form 10-Q contains 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, as amended, which involve certain risks and uncertainties.
Forward-looking statements are included with respect to, among other things, the
company's current business plan and strategy and strategic operating plan. These
forward-looking statements are identified by their use of such terms and phrases
as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects,"
"expect," "expected," "project," "projected," "projections," "plans,"
"anticipates," "anticipated," "should," "designed to," "foreseeable future,"
"believe," "believes" and "scheduled" and similar expressions. Our actual
results or outcomes may differ materially from those anticipated. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.

         Important factors that we believe might cause actual results to differ
from any results expressed or implied by these forward-looking statements are
discussed in the cautionary statements contained in Exhibit 99.1 to this Form
10-Q, which are incorporated herein by reference. In assessing forward-looking
statements contained herein, readers are urged to read carefully all cautionary
statements contained in this Form 10-Q and in Exhibit 99.1 to this Form 10-Q.
Our business and operations are subject to a number of risks and uncertainties,
and the cautionary statements contained in this Form 10-Q and in Exhibit 99.1 to
this Form 10-Q should not be considered to be a definitive list of all factors
that might affect our business, financial condition and future results of
operations and should be read in conjunction with the factors, risks and
uncertainties contained in our other filings with the Securities and Exchange
Commission. For any forward-looking statements, we claim the protection of the
safe harbor for forward-looking statements in Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934.

         OVERVIEW

         We are a leading national supplier of ornamental shrubs, color plants
and container-grown plants with 13 commercial nursery facilities located in
Arizona, California, Florida, Georgia, New York, Oregon, Pennsylvania, South
Carolina and Texas. We produce approximately 4,300 varieties of ornamental
shrubs and color plants and we sell to more than 2,000 retail and commercial
customers, representing more than 8,000 outlets throughout the United States.
Hines Horticulture currently produces and distributes horticultural products
through its wholly owned subsidiaries, Hines Nurseries and Enviro-Safe
Laboratories, Inc.

                                    Page 20
<PAGE>

         On September 30, 2003, we closed a refinancing plan, which we refer to
as the "Refinancing," which included the issuance by our wholly owned
subsidiary, Hines Nurseries, of $175.0 million principal amount of 10.25% Senior
Notes due 2011 and amending and restating our senior credit facility, which, as
amended, we refer to as our "Senior Credit Facility". The Senior Credit Facility
has a term of five years and consists of a $145.0 million revolving facility,
with availability subject to a borrowing base, and a $40.0 million term loan
facility. Borrowings under the Senior Credit Facility are collateralized by
substantially all of our assets. The net proceeds from the Refinancing were used
to refinance all borrowings under our prior credit facility and to redeem all of
Hines Nurseries' then outstanding 12.75% Senior Subordinated Notes due 2005.

         DISCONTINUED OPERATIONS

         In March 2002, we completed the sale of Sun Gro Horticulture, which we
refer to as "Sun Gro", to a newly established Canadian income fund. We received
net proceeds of approximately $125.0 million from the sale, which includes the
tax refunds from the Canadian Customs & Revenue Authority recorded in the fourth
quarter of 2002 and the third quarter of 2003, the majority of which were used
to pay down outstanding indebtedness. As a result of the sale of Sun Gro, we no
longer harvest or produce peat moss or other growing soil mixes.

         LOVELL FARMS ARBITRATION SETTLEMENT

         In connection with the acquisition of Lovell Farms, we agreed, subject
to various provisions in the purchase agreement, to make earn-out payments to
the sellers ("Claimants") of up to approximately $5.0 million for fiscal 2001 if
certain performance thresholds were met. We determined that the thresholds were
not met and that no earn-out payment be made. In response to this decision, the
Claimants initiated arbitration proceedings, which concluded in May 2004. Going
into the hearings, the Claimants demanded that the arbitrator award $5.0 million
and payment of their attorney's fees and costs. A final determination was made
on July 26, 2004 awarding the Claimants $0.9 million and denying their request
for attorney's fees and costs. Payment of the $0.9 million increased our
goodwill during the third quarter of 2004. Legal defense fees and other costs
incurred in connection with the arbitration of $0.5 million have been expensed
during the nine month period ended September 30, 2004.

         UNITED STATES TAX MATTERS

         As a result of our business activities, we qualify for a special
exception under the U.S. federal tax code that allows us 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. We derive significant tax benefits by being able to deduct the
cost of inventory as the cost is incurred. As a result of our ability to utilize
the cash method of accounting, we have historically generated net operating
losses for federal income tax purposes and have not been required to pay cash
income taxes. At December 31, 2003, we had $26.0 million in net operating loss
carryforwards for federal income tax purposes.

                                    Page 21
<PAGE>

         Based on our current projections, we anticipate that we will incur tax
liability and begin paying cash income taxes for federal purposes in 2006. We
are currently paying cash income taxes for state income tax purposes in certain
states due to the differing rules regarding the utilization of net operating
losses.

         Although the use of the cash method of accounting for federal income
taxes defers the payment of federal income taxes, the deferral of such taxes
produces a current liability for accounting purposes. At September 30, 2004, we
had a current liability for deferred income taxes of $74.8 million. The
liability is deemed current for accounting purposes because the majority of the
items to which this liability relates are comprised of current assets and
current liabilities in our balance sheet (such as inventory, accounts receivable
and accounts payable). The classification of this liability as a current item,
however, does not mean that it is required to be paid within the next twelve
months.

         SEASONALITY

         Our business is highly seasonal. The seasonal nature of our operations
results in a significant increase in our working capital between the growing and
selling cycles. As a result, operating activities in the first and fourth
quarters use significant amounts of cash, and in contrast, operating activities
in the second and third quarters generate substantial cash as we ship inventory
and collect accounts receivable. We have experienced, and expect to continue to
experience, significant variability in net sales, operating income and net
income on a quarterly basis.

         RECENT EVENTS

         On September 20, 2004 we announced that our Forest Grove, Oregon
facility had suspended the shipment of all plant material known capable of
carrying PHYTOPHTHORA RAMORUM, also know as Sudden Oak Death ("SOD"), as a
result of receiving notification from the U.S. Department of Agriculture
("USDA") that a routine inspection had resulted in a positive detection of the
pathogen. Total net sales from our Oregon facility of SOD capable host and
associated host plants, represented less than 1.0% of our net sales for the past
twelve months.



RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2003

         NET SALES. Net sales of $51.7 million for the three months ended
September 30, 2004 decreased $0.1 million, or 0.1%, from net sales of $51.8
million for the comparable period in 2003. Net sales in the Sunbelt markets
increased $2.9 million as strong spring-like demand continued into July as a
result of favorable weather and the Company's continued focus on the
merchandising of its products. Third quarter shrub sales in these regions also
benefited from a successful joint marketing effort with a major customer.

                                    Page 22
<PAGE>

         Net sales in the Southeast for the three months ended September 30,
2004 declined $2.0 million compared to the same period a year ago mainly as a
result of hurricanes Charley, Frances, Ivan, and Jeanne. All four major
hurricanes made landfall at a distance of approximately 100 miles or more from
our Miami facility, which resulted in little or no damage to our inventory and
facilities. However, the hurricanes did force our facility to temporarily
shutdown for several days during the quarter and considerably reduced consumer
demand for our products throughout the entire region.

         Net sales throughout the rest of the country declined $1.0 million
compared to a year ago as a result of overcapacity in the market from recent
nursery liquidations and gardening retailer bankruptcies.

         GROSS PROFIT. Gross profit of $23.5 million for the three months ended
September 30, 2004 decreased $0.3 million, or 1.4%, from gross profit of $23.9
million for the comparable period in 2003. As a percentage of net sales, gross
profit for the quarter declined to 45.5% from 46.1% for the three months ended
September 30, 2003. The decline in gross profit and gross profit margin was
mainly due to increased scrap levels at our Miami facility as a result of the
lower demand caused by the four major hurricanes that impacted the Southeast
region.

          SELLING AND DISTRIBUTION EXPENSES. Selling and distribution expenses
of $18.5 million for the three months ended September 30, 2004 decreased $0.3
million, or 1.4%, from $18.8 million for the comparable period in 2003. Selling
expenses for the quarter increased $0.8 million mainly as a result of increased
merchandising efforts. Distribution expense declined $1.1 million mainly due to
fewer sales. However, as a percentage of net sales, distribution expenses for
the three months ended September 30, 2004 improved to 22.4% from 24.4% for the
same period in 2003 as a result of improved logistics and better payload
management.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses of $5.4 million for the three months ended September 30, 2004 decreased
$0.4 million, or 6.8%, from $5.8 million for the comparable period in 2003 as
management continued to focus on controlling costs.

         OTHER OPERATING EXPENSES. There were no significant other operating
expenses to report in the third quarter of 2004.

         OPERATING LOSS. Operating loss of $0.3 million for the three months
ended September 30, 2004 decreased by $0.5 million, or 60.7%, from $0.9 million
for the comparable period in 2003. The improvement in operating loss was mainly
due to lower distribution expenses and general and administrative expenses, as
discussed above.

         OTHER EXPENSES. Other expenses of $6.0 million for the three months
ended September 30, 2004 decreased $9.3 million, or 60.9%, from $15.3 million
for the comparable period in 2003. The decrease in other expenses was mainly due
to the $9.2 million loss on debt extinguishment recognized during the third
quarter of 2003 as a result of our Refinancing.

         INCOME TAX PROVISION. Our effective income tax rate was approximately
41% for the three months ended September 30, 2004 and 2003.

                                    Page 23
<PAGE>

         INCOME FROM DISCONTINUED OPERATIONS. Income from discontinued
operations of $4.0 million for the three months ended September 30, 2003,
represents the after-tax portion of the $6.3 million received as a result of
collecting the receivable for withheld Canadian income taxes from the Canadian
government. The $6.3 million received included the collection of the $5.1
million receivable for previously withheld Canadian income taxes and $1.2
million due to the favorable exchange rate at the time the receivable was
collected.

          NET LOSS. Net loss of $3.7 million for the three months ended
September 30, 2004 decreased by $1.8 million, or 32.0%, from a net loss of $5.5
million for the comparable period in 2003 as a result of the decline in other
expenses partially offset by the decline in income from discontinued operations,
as discussed above.

NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003

         NET SALES. Net sales of $293.2 million for the nine months ended
September 30, 2004 decreased by $7.2 million, or 2.4%, from $300.4 million for
the comparable period in 2003. We began the year with strong sales of color
plants and shrubs in the Sunbelt markets primarily as a result of favorable
weather and our new market strategy. However, net sales slowed at the end of the
first quarter as the gardening retailers continued their recent trend of better
managing inventory levels by reducing pre-spring stocking orders.

         Net sales during the second quarter started strong as spring arrived
throughout the country and as the gardening retailers began to rebuild their
inventory levels. However, as the quarter progressed net sales began to
significantly decline as a result of reduced demand for perennials and bedding
plants in the Midwest, Mid-Atlantic and Southeast. The decline in demand
resulted mainly from unfavorable weather in the Midwest and Mid-Atlantic and
competitive pressure from other growers during the middle-to-late parts of
spring.

         Net sales for the third quarter started strong as spring-like demand
continued into July. However, the impact in the Southeast region of the four
major hurricanes over a six-week period ended up offsetting our strong
performance in the Sunbelt markets and significantly hindered our sales recovery
strategy in the third quarter.

         GROSS PROFIT. Gross profit of $146.5 million for the nine months ended
September 30, 2004 decreased by $6.8 million, or 4.4%, from $153.2 million for
the comparable period in 2003. As a percentage of net sales, gross profit for
the period decreased to 50.0% compared to 51.0% in 2003. The decline in gross
profit and gross profit margin was mainly due to the decline in net sales, which
mainly resulted from lower demand and unfavorable weather in the second quarter
and the impact of the four major hurricanes during the third quarter. We also
experienced increased scrap rates at our Miami facility during the third
quarter.

          SELLING AND DISTRIBUTION EXPENSES. Selling and distribution expenses
of $86.9 million for the nine months ended September 30, 2004 decreased by $1.0
million, or 1.2%, from $87.9 million for the comparable period in 2003. Selling
expense for the nine-month period increased $1.7 million to $27.6 million mainly
as a result of increased merchandising efforts at our customers' store
locations. Distribution expenses improved to $59.4 million, or 20.2% of net
sales, compared to $62.1 million, or 20.7% of net sales, for the comparable
period in 2003. Improved logistics, increased payloads and better carrier
relations have successfully offset rising fuel costs and increased common
carrier charges resulting from new trucking regulations.

                                    Page 24
<PAGE>

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses of $17.4 million for the nine months ended September 30, 2004 decreased
by $0.2 million, or 1.0%, from $17.6 million for the comparable period in 2003
as management continued to focus on controlling costs.

         OTHER OPERATING EXPENSES. Other operating expenses of $0.5 million for
the nine months ended September 30, 2004 decreased $1.1 million from $1.6
million for the comparable period in 2003. The decline was due to severance
costs associated with the resignation of our former Chief Executive Officer in
February of 2003, offset by legal fees of $0.5 million incurred as a result of
the Lovell Farms Arbitration Settlement.

         OPERATING INCOME. Operating income of $41.6 million for the nine months
ended September 30, 2004 decreased by $4.5 million, or 9.7%, from $46.1 million
for the comparable period in 2003. The decline in operating income was mainly
due to the decrease in net sales and gross profit, as discussed above.

         OTHER EXPENSES. Other expenses of $18.1 million for the nine months
ended September 30, 2004 decreased $11.4 million, or 38.6%, from $29.5 million
for the comparable period in 2003. The decline in other expenses was mainly due
to the $9.2 million loss on debt extinguishment recognized during the third
quarter of 2003 as a result of our Refinancing. The improvement was also due to
the impact of the mark to market adjustment on our interest rate swap and a
decline in the amortization of deferred financing expenses of $2.0 million,
partially offset by higher interest expense. For the nine months ended September
30, 2004, the mark to market adjustment amounted to income of $3.4 million
compared with income of $1.5 million for the same period a year ago. Interest
expense increased to $20.2 million from $18.5 million a year ago due to our
Refinancing, which shifted more of our revolving debt to higher interest rate
fixed-term instruments in order to increase availability under our new revolving
credit facility.

         INCOME TAX PROVISION. Our effective income tax rate was approximately
41% for the nine months ended September 30, 2004 and 2003.

         INCOME FROM DISCONTINUED OPERATIONS. Income from discontinued
operations of $4.0 million for the nine months ended September 30, 2003,
represents the after-tax portion of the $6.3 million received as a result of
collecting the receivable for withheld Canadian income taxes from the Canadian
government. The $6.3 million received included the collection of the $5.1
million receivable for previously withheld Canadian income taxes and $1.2
million due to the favorable exchange rate at the time the receivable was
collected.

         NET INCOME. Net income of $13.9 million for the nine months ended
September 30, 2004 increased by $0.1 million, or 0.6%, from $13.8 million for
the comparable period in 2003 as a result of the improvements in other expenses,
partially offset by the decline in operating income, as discussed above.

                                    Page 25
<PAGE>

         LIQUIDITY AND CAPITAL RESOURCES

         Our primary sources of liquidity are funds generated by operations and
borrowings under our Senior Credit Facility. Our Senior Credit Facility expires
in 2008 and consists of a revolving facility with availability of up to $145.0
million (subject to certain borrowing base limits) and a term loan facility of
up to $40.0 million. At September 30, 2004, we were in compliance with all of
our debt covenants.

         The seasonal nature of our operations results in a significant
fluctuation 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 we ship inventory and collect accounts
receivable.

         Net cash provided by operating activities was $32.8 million for the
nine months ended September 30, 2004 compared to $30.0 million for the
comparable period in 2003 mainly due to the change in timing of our semi-annual
interest payment of $9.0 million, which will be paid during the fourth quarter.
Interest payments on our previously outstanding 12.75% senior subordinated notes
amounted to $7.4 million during the third quarter of 2003.

         Net cash used in investing activities was $4.6 million for the nine
months ended September 30, 2004 compared to $3.5 million for the comparable
period in 2003 mainly due to the $1.0 million of leasehold incentives received
in accordance with our Irvine lease agreement during the third quarter of 2003.

         Our capital expenditures were $3.8 million for the nine months ended
September 30, 2004 compared to capital expenditures of $4.2 million for the nine
months ended September 30, 2003. The capital expenditures for the nine months
ended September 30, 2004 primarily included the purchase of nursery related
machinery and equipment. We currently expect that our total capital expenditures
for 2004 will be approximately $6.5 million.

         Net cash used in financing activities was $28.2 million for the nine
months ended September 30, 2004 compared to $26.5 million for the comparable
period in 2003. The increase in cash used in financing activities was primarily
related to the impact of our Refinancing. As part of the Refinancing, proceeds
from the issuance of new debt helped to offset the repayments of existing debt,
the payment of deferred financing fees and the early redemption premium on the
previously outstanding 12.75% senior subordinated notes.

         We typically draw down our revolving credit facilities in the first and
fourth quarters to fund our seasonal inventory buildup and seasonal operating
expenses. Based upon 2003, approximately 73% of our sales occur in the first
half of the year, generally allowing us to reduce borrowing under our revolving
credit facilities in the second and third quarters. On September 30, 2004, we
had $6.0 million of borrowings under our working capital revolver, resulting in
unused borrowing capacity of approximately $71.0 million after applying the
borrowing base limitations and letters of credits to our available borrowings.

                                    Page 26
<PAGE>

         At September 30, 2004, we had total outstanding indebtedness of $217.2
million.

         We do not have any off balance sheet financing or any financial
arrangements with related parties, other than operating leases. The following
table discloses aggregate information about our contractual obligations and
commercial commitments as of September 30, 2004.

<TABLE>
                                                                     PAYMENTS DUE BY PERIOD
                                                   -------------------------------------------------------------
                                                     Less than        (DOLLARS IN MILLIONS)           After
     Contractual Cash Obligations      Total          1 year        1-3 years       4-5 years        5 years
                                   --------------- -------------- --------------- --------------  --------------
<S>                                <C>             <C>            <C>             <C>             <C>
Term Loan .........................          36.2            5.7            17.2           13.3               -
10.25% Senior Notes................         175.0              -               -              -           175.0
Revolving Facility.................           6.0            6.0               -              -               -
Operating Leases...................          19.3            4.5             7.2            7.6
                                   --------------- -------------- --------------- --------------  --------------
Total                              $        236.5  $        16.2  $         24.4  $        20.9   $       175.0
                                   =============== ============== =============== ==============  ==============
</TABLE>

         We believe that cash generated by operations and from borrowings
expected to be available under our Senior Credit Facility will be sufficient to
meet our anticipated working capital, capital expenditures and debt service
requirements for at least the next twelve months.

         The following is a summary of certain material terms of our Senior
Credit Facility and Hines Nurseries' 10.25% Senior Notes due 2011.

         OUR SENIOR CREDIT FACILITY

         We entered into our Senior Credit Facility on September 30, 2003. Hines
Nurseries and its domestic operating subsidiaries are borrowers under the Senior
Credit Facility. The credit facility consists of (i) a revolving facility with
availability of up to $145.0 million (subject to borrowing base limits) and (ii)
a term loan facility of up to $40.0 million. The revolving facility also permits
us to obtain letters of credit up to a sub-limit. The term loan facility was
drawn down in full in connection with our Refinancing. The Senior Credit
Facility matures on September 30, 2008.

         GUARANTEES; COLLATERAL. Obligations under the Senior Credit Facility
are guaranteed by Hines Horticulture and any of our domestic subsidiaries that
are not borrowers under the new credit facility. Borrowings under the Senior
Credit Facility are collateralized by substantially all of our assets.

         RESTRICTIONS; COVENANTS. The Senior Credit Facility places various
restrictions on Hines Nurseries and its subsidiaries, including, but not limited
to, limitations on our ability to incur additional debt, pay dividends or make
distributions, sell assets or make investments. The Senior Credit Facility
specifically restricts Hines Nurseries and its subsidiaries from making
distributions to Hines Horticulture. Distributions to Hines Horticulture are
limited to (i) payments covering customary general and administrative expenses,
not to exceed $0.5 million in any fiscal year, (ii) payments to discharge any
consolidated tax liabilities, (iii) and payments, not to exceed as much as $8.3
million in any fiscal year or $9.3 million over the term of the Senior Credit
Facility, to enable Hines Horticulture to repurchase its own outstanding common
stock from holders other than our majority shareholder. Dividends to Hines
Horticulture are disallowed under the Senior Credit Facility.

                                    Page 27
<PAGE>

         The Senior Credit Facility requires Hines Nurseries and its
subsidiaries to meet specific covenants and financial ratios, including a
minimum fixed charge coverage test, a maximum leverage test and a maximum
capital expenditure test. The new Senior Credit Facility contains customary
representations and warranties and customary events of default and other
covenants. As of September 30, 2004, we were in compliance with all covenants.

         INTEREST RATE; FEES. The interest rate on the loans under the Senior
Credit Facility may be, at our option, prime rate loans or London Inter Bank
Offering Rate ("LIBOR") rate loans. Prime rate loans under the revolving loan
facility bear interest at the prime lending rate plus an additional amount that
ranges from 0.75% to 1.75%, depending on our consolidated leverage ratio. Prime
rate loans under the term loan bear interest at the prime lending rate plus an
additional amount that ranges from 1.25% to 2.25%, depending on our consolidated
leverage ratio. Currently, the applicable margin for prime rate loans is (i)
1.75% for the new revolving loan facility and (ii) 2.25% for the new term loan.

         LIBOR rate loans under the revolving loan facility bear interest at the
LIBOR rate plus an additional amount that ranges from 1.75% to 2.75%, depending
on our consolidated leverage ratio. LIBOR rate loans under the term loan bear
interest at the LIBOR rate plus an additional amount that ranges from 2.25% to
3.25%, depending on our consolidated leverage ratio. Currently, the applicable
margin for LIBOR rate loans is (i) 2.75% for the new revolving loan facility and
(ii) 3.25% for the term loan. In addition to paying interest on outstanding
principal, we are required to pay a commitment fee on the daily average unused
portion of the revolving facility which will accrue from the closing date based
on the utilization of the revolving facility.

         BORROWING BASE. Availability of borrowing under the revolving facility
are subject to a borrowing base consisting of the sum of (i) 85% of eligible
accounts receivable plus (ii) the lesser of (x) up to 55% of eligible inventory
or (y) 85% of the appraised net orderly liquidation value of eligible inventory.

         We must deliver borrowing base certificates and reports at least
monthly. The borrowing base also may be subject to certain other adjustments and
reserves to be determined by the agent. Eligible accounts receivable of both The
Home Depot, our largest customer, and Lowe's Companies, Inc., our second largest
customer, may not exceed 30% of total eligible accounts receivable at any time.

         REPAYMENT. Amortization payments of $1.9 million on the term loan are
required at the end of our second, third and fourth fiscal quarters that began
on June 30, 2004 and through the end of the term, with the full remaining
balance payable on the last installment date. Subject to certain exceptions,
100% of the net cash proceeds we receive from certain asset dispositions and
issuances of debt, 50% of the net cash proceeds we receive from issuances of
equity and 25% of excess cash flow are required to be applied to repay the term
loan facility and are to be applied on a pro rata basis to all scheduled
installments of the term loan facility. The Senior Credit Facility may also be
voluntarily prepaid at any time without premium or penalty.

                                    Page 28
<PAGE>

         OUR SENIOR NOTES

         On September 30, 2003, Hines Nurseries issued $175.0 million of Senior
Notes that mature on October 1, 2011. The Senior Notes bear interest at the rate
of 10.25% per annum and are payable semi-annually in arrears on each April 1 and
October 1, which commenced April 1, 2004.

         GUARANTEES. Hines Horticulture and each of its domestic subsidiaries,
subject to certain exceptions, has, jointly and severally, fully and
unconditionally guaranteed, on a senior unsecured basis, the obligations of
Hines Nurseries under the Notes.

         REDEMPTION. Prior to October 1, 2006, up to 35% of the aggregate
principal amount of the Notes may be redeemed with the net cash proceeds from
one or more public equity offerings, at our option, at a redemption price of
110.250% of the principal amount thereof plus accrued interest, if any, to the
date of redemption. On or after October 1, 2007, we are entitled, at our option,
to redeem all or a portion of the Notes at redemption prices ranging from
100.000% to 105.125%, depending on the redemption date, plus accrued and unpaid
interest.

         RESTRICTIONS. The indenture pursuant to which the Notes were issued
imposes a number of restrictions on Hines Nurseries and our other subsidiaries.
Subject to certain exceptions, we may not incur additional indebtedness, make
certain restricted payments, make certain asset dispositions, incur additional
liens or enter into significant transactions. A breach of a material term of the
indenture or other material indebtedness that results in acceleration of the
indebtedness under the Notes also constitutes an event of default under our
Senior Credit Facility.

         REPURCHASE ON A CHANGE IN CONTROL. The Notes contain a put option
whereby the holders have the right to put the Notes back to us at 101.000% of
the principal amount thereof on the date of purchase, plus accrued and unpaid
interest if a change in control occurs.

         CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires us 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. We believe that the following
areas represent our most critical accounting policies related to actual results
that may vary from those estimates.

         REVENUE RECOGNITION.

         We record revenue, net of sales discounts and allowances, when all of
the following have occurred: an agreement of sale exists, product delivery and
acceptance has occurred and collection is reasonably assured.

                                    Page 29
<PAGE>

         SALES RETURNS AND ALLOWANCES.

         Amounts accrued for sales returns and allowance 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. Provisions for sales discounts and allowances
charged against income increase the allowance. We record revenue, net of sales
discounts and allowances, when the risk of ownership is transferred to the
customer. Allowances are provided at the time 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 receivable 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. Provisions to bad debt expense charged against income
increase the allowance. 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.

         On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." In accordance with this standard, goodwill has been
classified as indefinite-lived assets no longer subject to amortization.
Indefinite-lived assets are subject to impairment testing upon adoption of SFAS
No. 142 and at least annually thereafter. In accordance with SFAS No. 142, this
involves a two step process. First, we must determine if the carrying amount of
equity exceeds the fair value based upon the quoted market price of our common
stock. If we determine that goodwill may be impaired, we compare the "implied
fair value" of the goodwill, as defined by SFAS No. 142, to its carrying amount
to determine the impairment loss, if any.

         ACCRUED LIABILITIES.

         The accrued liabilities include amounts accrued for expected claims
costs relating to our insurance programs for workers compensation and auto
liability. We have large deductibles for these lines of insurance, which means
we must pay the portion of each claim that falls below the deductible amount.
Our expected claims costs are based on an actuarial analysis that considers our
current payroll and automobile profile, recent claims history, insurance
industry loss development factors and the deductible amounts. We accrue our
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 our insurance programs for workers compensation and auto liability
are maintained at levels believed by our management to adequately reflect our
probable claims obligations.

         EFFECTS OF INFLATION

         Management believes our results of operations have not been materially
impacted by inflation over the past three years.

                                    Page 30
<PAGE>

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         As part of our ongoing business, we are exposed to certain market
risks, including fluctuations in interest rates, foreign exchange rates,
commodity prices and Hines Horticulture's common stock price. We do not enter
into transactions designed to mitigate market risks for trading or speculative
purposes.

         We have various debt instruments outstanding at September 30, 2004 that
are impacted by changes in interest rates. As a means of managing our interest
rate risk on variable-rate debt, we entered into the interest rate swap
agreement described below to effectively convert certain variable rate debt
obligations to fixed rate obligations.

         In May 2000, we entered into an interest rate swap agreement to hedge
$75.0 million of debt. The interest rate swap agreement effectively changes our
exposure on the variable-rate interest payments to fixed-rate interest payments
(7.13%) based on the 3-month LIBOR rate in effect at the beginning of each
quarterly period. The estimated fair value of our obligation under the interest
rate swap agreement was $1.9 million at September 30, 2004. The interest rate
swap agreement remains outstanding and matures in February 2005.

         We also manage our interest rate risk by balancing the amount of our
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. At September 30, 2004 the
carrying amount and estimated fair value of our long-term debt was $217.2
million and $227.7 million, respectively. Given the current balance of our fixed
rate and variable rate debt, we estimate a change in interest costs of
approximately $0.3 million for every one-percentage point change in applicable
interest rates. Without considering the fixed interest rate provided by our swap
agreement, which expires at the end of February of 2005, we estimate a change in
interest costs of approximately $0.4 million for every one-percentage point
change in applicable interest rates.

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<PAGE>

ITEM 4.           CONTROLS AND PROCEDURES

         Based on the evaluation of the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended), our principal executive officer and our
principal financial officer have concluded that such controls and procedures
were effective as of the end of the period covered by this report. In connection
with such evaluation, no change in our internal control over financial reporting
occurred during the last fiscal quarter covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.



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<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         From time to time, the Company is involved in various disputes and
litigation matters, which arise in the ordinary course of business. The
litigation process is inherently uncertain and it is possible that the
resolution of these disputes and lawsuits may adversely affect the Company's
financial position. Management believes, however, that the ultimate resolution
of such matters will not have a material adverse impact on the Company's
consolidated financial position, results of operations or cash flows.

         In connection with the Company's acquisition of Lovell Farms, the
Company agreed, subject to various provisions in the purchase agreement, to make
earn-out payments to the sellers of up to approximately $5.0 million for fiscal
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, as previously disclosed the sellers of Lovell Farms
disputed the Company's determination and initiated arbitration proceedings
against the Company. Going into the hearings, the sellers demanded that the
arbitrator award $5.0 million and payment of their attorney's fees and costs. An
arbitration hearing regarding this matter was held in May 2004 and final
determination was made by the arbitrator on July 26, 2004 awarding the sellers
$0.9 million and denying their request for reimbursement of attorney's fees and
costs. The amount of this award has been accounted for by the Company as part of
the purchase price associated with the acquisition and has resulted in an
increase the Company's goodwill in the third quarter of 2004. Legal fees and
other costs in connection with the arbitration have been expensed as incurred.


ITEM 6.  EXHIBITS

               Exhibits

               Exhibit 31.1 Certification of Chief Executive Officer Pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002.

               Exhibit 31.2 Certification of Chief Financial Officer Pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002.

               Exhibit 32.1 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 32.2 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.*

               Exhibit 99.1 Cautionary Statements

                                    Page 33
<PAGE>

* Pursuant to Commission Release No. 33-8238, this certification will be treated
as "accompanying" this Quarterly Report on Form 10-Q and not "filed" as part of
such report for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, or otherwise subject to the liability of Section 18 of the
Securities Exchange Act of 1934, as amended, and this certification will not be
deemed to be incorporated by reference into any filing under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except
to the extent that the registrant specifically incorporates it by reference.


                                    Page 34
<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,
                                                   Secretary and Treasurer
                                                   (Principal financial officer
                                                   and duly authorized officer)

Date:  November 12, 2004



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