<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 quarterly period ended September 30, 2005

                                       OR

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

     For the transition period from _________________ to __________________

                             Commission File Number
                                    000-24439

                            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 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)

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

         As of November 9, 2005 there were 22,072,549 shares of Common Stock,
par value $0.01 per share, outstanding.
================================================================================



<PAGE>

<TABLE>
<S>     <C>
                                   HINES HORTICULTURE, INC.
                                             INDEX


                                 PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements (unaudited)                                           Page No.
                                                                                      --------

           Condensed Consolidated Balance Sheets as of
           September 30, 2005 and December 31, 2004                                       3

           Condensed Consolidated Statements of Operations for the
           Three Months and Nine Months Ended September 30, 2005
           and 2004                                                                       4

           Condensed Consolidated Statements of Cash Flows for the
           Nine Months Ended September 30, 2005 and 2004                                  5

           Notes to the Condensed Consolidated Financial Statements                       6

Item 2.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                                      18

Item 3.    Quantitative and Qualitative Disclosures About Market Risk                     32

Item 4.    Controls and Procedures                                                        33

                                  PART II. OTHER INFORMATION

Item 1.    Legal Proceedings                                                              33

Item 5.    Other Information                                                              33

Item 6.    Exhibits                                                                       34

           Signature                                                                      35

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


                                            Page 2


<PAGE>

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements

                                        HINES HORTICULTURE, INC.
                                  CONDENSED CONSOLIDATED BALANCE SHEETS
                                September 30, 2005 and December 31, 2004
                                (Dollars in thousands, except share data)
                                               (Unaudited)


                                                                     September 30,        December 31,
ASSETS                                                                   2005                 2004
------                                                              ---------------      ---------------

CURRENT ASSETS:
   Cash                                                             $            --      $            --
   Accounts receivable, net                                                  28,924               19,969
   Inventories                                                              178,524              181,133
   Prepaid expenses and other current assets                                  2,412                3,072
   Assets held for sale                                                       7,046                   --
                                                                    ---------------      ---------------
                                           Total current assets             216,906              204,174
                                                                    ---------------      ---------------

FIXED ASSETS, net                                                           124,493              131,536

DEFERRED FINANCING EXPENSES, net                                              7,719                8,883
DEFERRED INCOME TAXES                                                         9,210                9,210
GOODWILL                                                                     43,926               43,926
                                                                    ---------------      ---------------
                                                                    $       402,254      $       397,729
                                                                    ===============      ===============

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

CURRENT LIABILITIES:
   Accounts payable                                                 $        16,817      $        11,958
   Accrued liabilities                                                       12,512                9,820
   Accrued payroll and benefits                                               6,913                5,900
   Accrued interest                                                           9,229                5,194
   Interest rate swap agreement, current portion                                 --                  895
   Long-term debt, current portion                                            5,714                5,719
   Borrowings on revolving credit facility                                    5,002               23,609
   Deferred income taxes                                                     71,876               66,445
                                                                    ---------------      ---------------
                                      Total current liabilities             128,063              129,540
                                                                    ---------------      ---------------

LONG-TERM DEBT                                                              199,762              203,571

OTHER LIABILITIES                                                             5,647                3,652
                                                                    ---------------      ---------------
                                              Total liabilities             333,472              336,763
                                                                    ---------------      ---------------

SHAREHOLDERS' EQUITY
   Preferred stock
      Authorized - 2,000,000 shares, $0.01 par value;
      none outstanding                                                           --                   --
   Common stock
      Authorized - 60,000,000 shares, $0.01 par value;
      Issued and outstanding - 22,072,549 shares
      at September 30, 2005 and December 31, 2004                               221                  221

   Additional paid-in capital                                               128,781              128,781
   Accumulated deficit                                                      (60,220)             (68,036)
                                                                    ---------------      ---------------
                                     Total shareholders' equity              68,782               60,966
                                                                    ---------------      ---------------
                                                                    $       402,254      $       397,729
                                                                    ===============      ===============


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

                                                 Page 3


<PAGE>

                                                   HINES HORTICULTURE, INC.
                                        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                Three Months and Nine Months Ended September 30, 2005 and 2004
                                           (Dollars in thousands, except share data)
                                                          (Unaudited)


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

                                                             2005               2004               2005              2004
                                                        -------------      -------------      -------------      -------------

Sales, net                                              $      49,371      $      51,748      $     290,254      $     293,219
Cost of goods sold                                             27,839             28,220            148,448            146,736
                                                        -------------      -------------      -------------      -------------
    Gross profit                                               21,532             23,528            141,806            146,483
                                                        -------------      -------------      -------------      -------------

Selling and distribution expenses                              19,317             18,519             93,385             86,913
General and administrative expenses                             5,149              5,361             16,830             17,381
Other operating (income) expenses, net                            (15)                (4)               414                543
                                                        -------------      -------------      -------------      -------------
    Total operating expenses                                   24,451             23,876            110,629            104,837
                                                        -------------      -------------      -------------      -------------

    Operating (loss) income                                    (2,919)              (348)            31,177             41,646

Other expenses (income)
   Interest, net                                                5,382              6,602             17,468             20,186
   Interest rate swap agreement income                             --             (1,080)              (895)            (3,403)
   Amortization of deferred financing expenses                    467                445              1,356              1,339
                                                        -------------      -------------      -------------      -------------
                                                                5,849              5,967             17,929             18,122
                                                        -------------      -------------      -------------      -------------

(Loss) income before income tax (benefit) provision            (8,768)            (6,315)            13,248             23,524

Income tax (benefit) provision                                 (3,595)            (2,589)             5,432              9,645
                                                        -------------      -------------      -------------      -------------

Net (loss) income                                       $      (5,173)     $      (3,726)     $       7,816      $      13,879
                                                        =============      =============      =============      =============


Basic and diluted earnings per share:
Net (loss) income per common share                      $       (0.23)     $       (0.17)     $        0.35      $        0.63
                                                        =============      =============      =============      =============

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         22,119,345         22,136,050
                                                        =============      =============      =============      =============


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

                                                            Page 4


<PAGE>

                                         HINES HORTICULTURE, INC.
                             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              Nine Months Ended September 30, 2005 and 2004
                                          (Dollars in thousands)
                                               (Unaudited)


                                                                             2005               2004
                                                                        -------------      -------------
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                          $       7,816      $      13,879
    Adjustments to reconcile net income to net cash
      provided by operating activities:
         Depreciation                                                           8,024              7,905
         Accretion of asset retirement obligations                                 51                 92
         Amortization of deferred financing expenses                            1,356              1,339
         Interest rate swap agreement income                                     (895)            (3,403)
         (Gain) loss on sale of assets                                           (293)                71
         Deferred income taxes                                                  5,432              9,645
                                                                        -------------      -------------

                                                                               21,491             29,528
Change in working capital accounts:
    Accounts receivable                                                        (8,955)           (13,181)
    Inventories                                                                 2,021              2,314
    Prepaid expenses and other current assets                                     613                434
    Accounts payable and accrued liabilities                                   12,539             13,733
                                                                        -------------      -------------

      Change in working capital accounts                                        6,218              3,300
                                                                        -------------      -------------

        Net cash provided by operating activities                              27,709             32,828
                                                                        -------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of fixed assets                                                   (8,020)            (3,762)
    Proceeds from deposit on land sale                                            200                 --
    Proceeds from sale of fixed assets                                            725                 --
    Proceeds from land sale option                                              2,000                125
    Contingent consideration for acquisitions                                      --               (947)
                                                                        -------------      -------------

        Net cash used in investing activities                                  (5,095)            (4,584)
                                                                        -------------      -------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Net repayments on revolving line of credit                                (18,607)           (24,287)
    Repayments of long-term debt                                               (3,815)            (3,878)
    Deferred financing expenses incurred                                         (192)               (79)
                                                                        -------------      -------------

        Net cash used in financing activities                                 (22,614)           (28,244)
                                                                        -------------      -------------


NET CHANGE IN CASH                                                                 --                 --

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

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


Supplemental disclosure of cash flow information:
    Cash paid for interest                                              $      13,301      $      15,502
    Cash paid for income taxes                                          $          25      $          33


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

                                                 Page 5
</TABLE>


<PAGE>

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


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

                  Hines Horticulture, Inc. ("Hines Horticulture" or the
         "Company"), a Delaware corporation, produces and distributes
         horticultural products through its wholly owned subsidiaries, Hines
         Nurseries, Inc. ("Hines Nurseries") and Hines Fertilizer, Inc. ("Hines
         Fertilizer"), formerly known as Enviro-Safe Laboratories, Inc., which
         no longer actively conducts business. 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.

                  The Condensed Consolidated Financial Statements include the
         accounts of Hines Horticulture 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 for a fair statement
         of 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, footnotes and other disclosures, which would
         substantially duplicate the disclosures contained in the Company's Form
         10-K for the year ended December 31, 2004, filed on March 23, 2005 by
         Hines 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.       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 three months ended


                                     Page 6


<PAGE>

         September 30, 2005 and 2004, shares related to the 440,000 warrants
         were excluded from the computation of diluted earnings per share
         because they would have been anti-dilutive. For the nine months ended
         September 30, 2005 and 2004, shares related to warrants in the amount
         of 395,271 and 376,499, respectively, 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, 2005, shares related to employee stock options in the
         amount of 1,066,273 and 1,064,206, respectively, 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 employee stock options in the
         amount of 1,068,823 were excluded from the computation of diluted
         earnings per share because they would have been anti-dilutive.

4.       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 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."

<TABLE>
                                                               Three months ended                   Nine months ended
                                                                  September 30,                       September 30,
                                                              2005              2004              2005             2004
                                                          ------------      ------------      ------------     ------------
<S>                                                       <C>               <C>               <C>              <C>
         Net (loss) income, as reported                   $     (5,173)     $     (3,726)     $      7,816     $     13,879
         Stock-based compensation expense, net of tax              (11)               (2)              (32)            (228)
                                                          ------------      ------------      ------------     ------------
         Pro forma net (loss) income                      $     (5,184)     $     (3,728)     $      7,784     $     13,651
                                                          ============      ============      ============     ============

         Net (loss) income per share:

         Basic - as reported                              $      (0.23)     $      (0.17)     $       0.35     $      0.63
                                                          ============      ============      ============     ============
         Basic - pro forma                                $      (0.23)     $      (0.17)     $       0.35     $      0.62
                                                          ============      ============      ============     ============

         Diluted - as reported                            $      (0.23)     $      (0.17)     $       0.35     $      0.63
                                                          ============      ============      ============     ============
         Diluted - pro forma                              $      (0.23)     $      (0.17)     $       0.35     $      0.62
                                                          ============      ============      ============     ============
</TABLE>

                  In arriving at an option valuation, the Black-Scholes model
         considers, among other factors, the expected life of an option and the
         expected volatility of the Company's stock price. For pro forma
         purposes, the estimated fair value of the Company's stock-based awards
         to employees is amortized over their respective vesting periods.


                                     Page 7


<PAGE>

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

         Inventories consisted of the following:

                                      September 30,       December 31,
                                          2005               2004
                                     --------------     --------------

         Nursery stock               $      165,538     $      169,908
         Material and supplies               12,986             11,225
                                     --------------     --------------
                                     $      178,524     $      181,133
                                     ==============     ==============

6.       New Accounting Pronouncements:
         ------------------------------

                  In November 2004, the FASB issued Statement of Financial
         Accounting Standards (SFAS) No. 151, "Inventory Costs," which clarifies
         the accounting for abnormal amounts of idle facility expense, freight,
         handling costs, and wasted material. SFAS No. 151 will be effective for
         inventory costs incurred during fiscal years beginning after June 15,
         2005. The Company does not expect the adoption of this standard to have
         a material impact on its consolidated financial statements.

                  In December 2004, the FASB issued SFAS No. 123(R),
         "Share-Based Payment," which establishes standards for transactions in
         which an entity exchanges its equity instruments for goods or services.
         This standard requires a public entity to measure the cost of employee
         services received in exchange for an award of equity instruments based
         on the grant-date fair value of the award. This eliminates the
         exception to account for such awards using the intrinsic method
         previously allowable under Accounting Principles Board (APB) Opinion
         No. 25. In March 2005, the Securities and Exchange Commission (SEC)
         released Staff Accounting Bulletin (SAB) 107, "Share-Based Payment",
         which expresses views of the SEC Staff about the application of SFAS
         No. 123(R). SFAS No. 123(R) was to be effective for interim or annual
         reporting periods beginning on or after June 15, 2005, but in April
         2005 the SEC issued a rule that SFAS No. 123(R) will be effective for
         annual reporting periods beginning on or after June 15, 2005. The
         Company is in the process of evaluating the effect this standard may
         have on its financial condition, results of operations and cash flows.

                  In December 2004, the FASB issued SFAS No. 153, "Exchange of
         Non-Monetary Assets - An Amendment of ARB Opinion No. 29," which
         requires non-monetary asset exchanges to be accounted for at fair
         value. The Company is required to adopt the provisions of SFAS No. 153
         for non-monetary exchanges occurring in fiscal periods beginning after
         June 15, 2005. The Company does not expect the adoption of this
         standard to have a material impact on its consolidated financial
         statements.

                  In March 2005, the FASB issued FASB Interpretation No. ("FIN")
         47, "Accounting for Conditional Asset Retirement Obligations." FIN 47
         clarifies the term "conditional asset retirement obligation" used in
         SFAS No. 143, "Accounting for Asset Retirement Obligations." FIN 47 is
         effective no later than the end of the fiscal year ending after
         December 15, 2005. The Company is in the process of evaluating whether
         FIN 47 will result in the recognition of additional asset retirement
         obligations for the Company.


                                     Page 8


<PAGE>

                  In May 2005, the Financial Accounting Standards Board ("FASB")
         issued Statement No. 154, "Accounting Changes and Error Corrections."
         FASB No. 154 replaces APB Opinion No. 20, "Accounting Changes," and
         FASB Statement No. 3, "Reporting Accounting Changes in Interim
         Financial Statements," and changes the requirements for the accounting
         for and reporting of a change in an accounting principle. This
         Statement applies to all voluntary changes in an accounting principle.
         It also applies to changes required by an accounting pronouncement in
         the unusual instance that the pronouncement does not include specific
         transition provisions. When a pronouncement includes specific
         transition provisions, those provisions should be followed. APB Opinion
         No. 20 previously required that most voluntary changes in an accounting
         principle be recognized by including in net income of the period of the
         change the cumulative effect of changing to the new accounting
         principle. This Statement requires retrospective application to prior
         periods' financial statements of changes in an accounting principle.
         Statement No. 154 is effective for accounting changes and corrections
         of errors made in fiscal years beginning after December 15, 2005. The
         Company is in the process of evaluating the effect this standard may
         have on our financial condition, results of operations and cash flows.

7.       Senior Credit Facility:
         -----------------------

                  On September 30, 2003, the Company amended and restated its
         senior credit facility (the "Senior Credit Facility"), which matures on
         September 30, 2008. The Senior Credit Facility originally consisted of
         a revolving facility with availability of up to $145,000 (subject to
         borrowing base limits) and a term loan facility in the amount of
         $40,000. Hines Nurseries and Hines SGUS, Inc. ("Hines SGUS") are
         borrowers under the Senior Credit Facility. The revolving facility also
         permits the ability to obtain letters of credit up to a sub-limit. The
         Senior Credit Facility was amended by a First Amendment to Credit
         Agreement dated as of June 30, 2005 (the "Amendment") and again
         pursuant to a Waiver Regarding Financial Covenants dated as of October
         13, 2005 (the "Waiver"). On November 8, 2005, in accordance with the
         Waiver, the availability of the revolving facility was reduced from
         $145,000 to $120,000 (subject to borrowing base limits) and the entire
         outstanding balance of approximately $30,500 of the term loan facility
         was paid in full and was terminated.

                  GUARANTEES; COLLATERAL. Obligations under the Senior Credit
         Facility are guaranteed by Hines and any of its 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.

                  FIRST AMENDMENT TO SENIOR CREDIT FACILITY. In July 2005, Hines
         Nurseries negotiated and entered into the Amendment to the Senior
         Credit Facility dated as of September 30, 2003. The Amendment amended
         the Senior Credit Facility to require that the proceeds from the sale
         of property in Miami be used to pay down the term loan. The Amendment
         also amends the calculation of the fixed charge coverage ratio and the
         leverage ratio to allow as an addition to Earnings Before Income Taxes,
         Depreciation and Amortization ("EBITDA") certain adjustments related to
         work force reductions and requires Hines to meet less restrictive
         minimum fixed charge coverage ratio for the last fiscal quarter of
         2005, for 2006 and for the first quarter of 2007 and maximum leverage
         ratios for the last fiscal quarter of 2005, for 2006 and the first and
         second quarter of 2007.


                                     Page 9


<PAGE>

                  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
         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.

                  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, 2005, the Company was
         not in compliance with some of its covenants.

                  On October 13, 2005, the Company obtained a Waiver from the
         financial institutions party to its Senior Credit Facility to waive
         compliance with the minimum fixed charge coverage ratio and the maximum
         leverage ratio covenants of the Senior Credit Facility for the third
         fiscal quarter of 2005. As of the date of this filing, the Company was
         in compliance with the terms of the Waiver.

                  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 Offered 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.


                                    Page 10


<PAGE>

                  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, 2005, the Company had
         $72,564 of available credit.

                  REPAYMENT. Subject to certain exceptions, 100% of the net cash
         proceeds the Company receives from certain asset dispositions,
         insurance claims, condemnation actions 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
         revolving loan facility without any reduction in the revolving loan
         commitment. The Senior Credit Facility may be voluntarily prepaid at
         any time without premium or penalty.

8.       Long-Term Debt:
         ---------------

<TABLE>
                                                                            September 30,    December 31,
                                                                                2005             2004
                                                                            ------------     ------------
<S>      <C>                                                                <C>              <C>
         Senior Credit Facility - term loan at the bank's reference
         rate plus 2.25% or the LIBOR rate plus 3.25%. Interest rates
         were 7.15% and 5.46% at September 30, 2005 and December 31,
         2004, respectively.                                                $     30,476     $     34,285


         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 2005.                         --                5
                                                                            ------------     ------------
                                                                                 205,476          209,290

         Less current portion                                                      5,714            5,719
                                                                            ------------     ------------
                          Total long-term debt                              $    199,762     $    203,571
                                                                            ============     ============
</TABLE>

         SENIOR NOTES. On September 30, 2003, Hines Nurseries issued $175,000 of
         senior subordinated notes that mature on October 1, 2011 (the "Senior
         Notes"). 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, which commenced on April 1, 2004.

                  GUARANTEES. Hines Horticulture and each of its subsidiaries,
         subject to certain exceptions, have, 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
         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.

9.       Assets Held for Sale:
         ---------------------

                  On July 25, 2005, Hines Fertilizer and Hines Nurseries entered
         into an asset purchase agreement with a non-affiliated third party
         vendor to sell substantially all of the assets of Hines Fertilizer,
         excluding cash, accounts receivables and intercompany receivables. The
         purchase price for the assets was approximately $600 and was paid
         through the issuance of customer credits for past purchases. The gain
         on sale of assets was approximately $100. In accordance with the asset
         purchase agreement, the Company entered into a three year non-compete
         agreement, which restricts our ability to own and manage a competing
         fertilizer company and restricts our Miami production facility's
         ability to co-brand and market with competing fertilizer companies,
         unless directly requested by our customers. Upon a change in control of
         Hines Horticulture or Hines Nurseries, all non-compete restrictions
         shall cease and no longer be of any effect.

                  On September 12, 2005, the Company negotiated and entered into
         the Real Property Purchase and Sale Agreement and Escrow Instructions
         (the "Agreement") with Quantum Ventures, LLC (the "Buyer") to sell
         approximately 122 acres of unimproved property located in Miami-Dade
         County, Florida (the "Property") with a book value of approximately
         $7,000, which is currently being operated as a plant nursery. The
         Agreement provides that the gross purchase price (the "Purchase Price")
         of the Property would be $47,900, payable in cash, on the closing date.
         In addition to the Purchase Price, the Agreement provides that the
         Buyer will pay to the Company a deferred purchase price payment in the
         event the Property is subdivided or otherwise entitled for the
         development of more than four residences per acre.

                  On November 7, 2005, the Company successfully completed the
         sale of the Property and received net proceeds of $47,200. In
         accordance with the Amendment to our Senior Credit Facility, the
         proceeds from the sale of Property have been used to payoff the entire
         outstanding balance of the term loan; the residual amount having paid
         down our revolving credit facility. In accordance with the Agreement,
         the Company has entered into a two-year lease agreement (the "Lease
         Agreement") with the Buyer to lease the Property while transitioning
         operations to other locations. The Company will lease the entire
         Property for a one-year period, with a thirty-day extension right, and
         will then vacate approximately 33 acres. The Company will lease the
         remaining 89 acres for an additional one-year period, with extension
         rights for an additional ninety days, and will then vacate the
         remaining acreage. The Company will pay the Buyer rent of five hundred
         dollars per outstanding acre, annually, during the lease term.

                                    Page 12


<PAGE>

                  The Company is currently evaluating the accounting for the
         sale of the Property to be recorded in the fourth quarter. However, as
         a result of the Lease Agreement, the Company may have to defer all or a
         portion of any gain on sale.

10. Guarantor/Non-guarantor Disclosures:

                  The Senior Notes issued by Hines Nurseries (the "issuer") have
         been guaranteed by the Company (the "parent guarantor") and by both
         Hines SGUS and Hines Fertilizer, (collectively, Hines SGUS and Hines
         Fertilizer 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 Hines Fertilizer are not presented in
         accordance with the exceptions provided by Rule 3-10 of Regulation S-X.

                  The following condensed consolidating information shows (a)
         the Company 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 Hines Fertilizer
         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,
                  2005 and December 31, 2004;
         o        Condensed consolidating statements of operations for the nine
                  and three months ended September 30, 2005 and 2004; and
         o        A condensed consolidating statement of cash flows for the nine
                  months ended September 30, 2005 and 2004 has not been
                  presented as there were no cash flows from operating,
                  financing and investing activities of Hines Horticulture on a
                  parent company basis, Hines SGUS and Hines Fertilizer, as
                  subsidiary guarantors or eliminations.


                                    Page 13


<PAGE>

<TABLE>
                                                GUARANTOR / NON-GUARANTOR DISCLOSURES
                                                CONDENSED CONSOLIDATING BALANCE SHEET
                                                      AS OF SEPTEMBER 30, 2005
                                                       (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                                  --          28,886               38               --           28,924
    Inventories                                               --         178,524               --               --          178,524
    Prepaid expenses and other current assets                 --           2,379               33               --            2,412
    Assets held for sale                                      --           7,046               --               --            7,046
                                                     -----------     -----------      -----------      -----------      -----------
                         Total current assets                 --         216,835               71               --          216,906
                                                     -----------     -----------      -----------      -----------      -----------

Fixed assets, net                                             --         124,493               --               --          124,493
Deferred financing expenses, net                              --           7,719               --               --            7,719
Deferred income taxes                                      2,922           6,288               --               --            9,210
Goodwill                                                      --          43,926               --               --           43,926
Investments in subsidiaries                               73,693              --               --          (73,693)              --
                                                     -----------     -----------      -----------      -----------      -----------
                                                     $    76,615     $   399,261      $        71      $   (73,693)     $   402,254
                                                     ===========     ===========      ===========      ===========      ===========

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

Current liabilities:
    Accounts payable and accrued liabilities         $        --     $    45,457      $        14      $        --      $    45,471
    Long-term debt, current portion                           --           5,714               --               --            5,714
    Borrowings on revolving credit facility                   --           5,002               --               --            5,002
    Deferred income taxes                                     --          71,876               --               --           71,876
    Intercompany accounts                                  7,833          (7,833)              --               --               --
                                                     -----------     -----------      -----------      -----------      -----------
                    Total current liabilities              7,833         120,216               14               --          128,063
                                                     -----------     -----------      -----------      -----------      -----------

Long-term debt                                                --         199,762               --               --          199,762
Accrued long-term liability, net                              --           5,647               --               --            5,647
Shareholders' equity                                      68,782          73,636               57          (73,693)          68,782
                                                     -----------     -----------      -----------      -----------      -----------

                                                     $    76,615     $   399,261      $        71      $   (73,693)     $   402,254
                                                     ===========     ===========      ===========      ===========      ===========


                                                              Page 14


<PAGE>

                                         GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                               CONDENSED CONSOLIDATING BALANCE SHEET
                                                      AS OF DECEMBER 31, 2004
                                                       (DOLLARS IN THOUSANDS)
                                                            (UNAUDITED)


                                                     Hines
                                                  Horticulture       Hines
                                                    (Parent        Nurseries        Subsidiary                       Consolidated
                                                   Guarantor)       (Issuer)        Guarantors      Eliminations         Total
                                                 -------------    -------------    -------------    -------------    -------------
ASSETS
------

Current assets:
    Cash                                         $          --    $          --    $          --    $          --    $          --
    Accounts receivable, net                                --           19,682              287               --           19,969
    Inventories                                             --          180,806              327               --          181,133
    Prepaid expenses and other current assets               --            3,072              614             (614)           3,072
                                                 -------------    -------------    -------------    -------------    -------------
                         Total current assets               --          203,560            1,228             (614)         204,174
                                                 -------------    -------------    -------------    -------------    -------------

Fixed assets, net                                           --          131,508               28               --          131,536
Deferred financing expenses, net                            --            8,883               --               --            8,883
Deferred income taxes                                    2,922            6,288               --               --            9,210
Goodwill                                                    --           43,926               --               --           43,926
Investments in subsidiaries                             65,876               --               --          (65,876)              --
                                                 -------------    -------------    -------------    -------------    -------------
                                                 $      68,798    $     394,165    $       1,256    $     (66,490)   $     397,729
                                                 =============    =============    =============    =============    =============

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

Current liabilities:
    Accounts payable and accrued liabilities     $          --    $      32,871    $           1    $          --    $      32,872
    Interest rate swap agreement                            --              895               --               --              895
    Long-term debt, current portion                         --            5,719               --               --            5,719
    Borrowings on revolving credit facility                 --           23,609               --               --           23,609
    Deferred income taxes                                   --           66,445               --               --           66,445
    Intercompany accounts                                7,832           (7,218)              --             (614)              --
                                                 -------------    -------------    -------------    -------------    -------------
                    Total current liabilities            7,832          122,321                1             (614)         129,540
                                                 -------------    -------------    -------------    -------------    -------------

Long-term debt                                              --          203,571               --               --          203,571
Accrued long-term liability, net                            --            3,652               --               --            3,652
Shareholders' equity                                    60,966           64,621            1,255          (65,876)          60,966
                                                 -------------    -------------    -------------    -------------    -------------

                                                 $      68,798    $     394,165    $       1,256    $     (66,490)   $     397,729
                                                 =============    =============    =============    =============    =============


                                                              Page 15


<PAGE>

                                         GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                          CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                            FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
                                                       (DOLLARS IN THOUSANDS)
                                                            (UNAUDITED)

                                                     Hines
                                                  Horticulture       Hines
                                                    (Parent        Nurseries        Subsidiary                       Consolidated
                                                   Guarantor)       (Issuer)        Guarantors      Eliminations         Total
                                                 -------------    -------------    -------------    -------------    -------------

Sales, net                                       $          --    $     289,340    $         914    $          --    $     290,254
Cost of goods sold                                          --          147,809              639               --          148,448
                                                 -------------    -------------    -------------    -------------    -------------
    Gross Profit                                            --          141,531              275               --          141,806
Operating expenses                                          --          110,285              344               --          110,629
                                                 -------------    -------------    -------------    -------------    -------------
    Operating income                                        --           31,246              (69)              --           31,177
                                                 -------------    -------------    -------------    -------------    -------------
Other expenses (income):
   Interest, net                                            --           17,468               --               --           17,468
   Interest rate swap agreement expense                     --             (895)              --               --             (895)
   Amortization of deferred financing expenses              --            1,356               --               --            1,356
   Equitiy in earnings of subsidiaries                  (7,816)              --               --            7,816               --
                                                 -------------    -------------    -------------    -------------    -------------
                                                        (7,816)          17,929               --            7,816           17,929
                                                 -------------    -------------    -------------    -------------    -------------
Income (loss) before income taxes                        7,816           13,317              (69)          (7,816)          13,248
Income tax provision                                        --            5,432               --               --            5,432
                                                 -------------    -------------    -------------    -------------    -------------
Net income (loss)                                $       7,816    $       7,885    $         (69)   $      (7,816)   $       7,816
                                                 =============    =============    =============    =============    =============



                                         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        Subsidiary                       Consolidated
                                                   Guarantor)       (Issuer)        Guarantors      Eliminations         Total
                                                 -------------    -------------    -------------    -------------    -------------

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, net                                            --           20,186               --               --           20,186
   Interest rate swap agreement income                      --           (3,403)              --               --           (3,403)
   Amortization of deferred financing expenses              --            1,339               --               --            1,339
   Equity in earnings of subsidiaries                  (13,879)              --               --           13,879               --
                                                 -------------    -------------    -------------    -------------    -------------
                                                       (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
                                                 =============    =============    =============    =============    =============


                                                              Page 16


<PAGE>

                                         GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                          CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                           FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005
                                                       (DOLLARS IN THOUSANDS)
                                                            (UNAUDITED)

                                                     Hines
                                                  Horticulture       Hines
                                                    (Parent        Nurseries        Subsidiary                       Consolidated
                                                   Guarantor)       (Issuer)        Guarantors      Eliminations         Total
                                                 -------------    -------------    -------------    -------------    -------------

Sales, net                                       $          --    $      49,411    $         (40)   $          --    $      49,371
Cost of goods sold                                          --           27,826               13               --           27,839
                                                 -------------    -------------    -------------    -------------    -------------
    Gross Profit                                            --           21,585              (53)              --           21,532
Operating expenses                                          --           24,375               76               --           24,451
                                                 -------------    -------------    -------------    -------------    -------------
    Operating income                                        --           (2,790)            (129)              --           (2,919)
                                                 -------------    -------------    -------------    -------------    -------------
Other expenses:
   Interest, net                                            --            5,382               --               --            5,382
   Amortization of deferred financing expenses              --              467               --               --              467
   Equity in earnings of subsidiaries                    5,173               --               --           (5,173)              --
                                                 -------------    -------------    -------------    -------------    -------------
                                                         5,173            5,849               --           (5,173)           5,849
                                                 -------------    -------------    -------------    -------------    -------------
Income (loss) before income taxes                       (5,173)          (8,639)            (129)           5,173           (8,768)
Income tax benefit                                          --           (3,595)              --               --           (3,595)
                                                 -------------    -------------    -------------    -------------    -------------
Net (loss) income                                $      (5,173)   $      (5,044)   $        (129)   $       5,173    $      (5,173)
                                                 =============    =============    =============    =============    =============



                                         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)        Guarantors      Eliminations         Total
                                                 -------------    -------------    -------------    -------------    -------------

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                                        --              445               --               --              445
   Equity in earnings of subsidiaries                    3,726               --               --           (3,726)              --
                                                 -------------    -------------    -------------    -------------    -------------
                                                         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)
                                                 =============    =============    =============    =============    =============


                                                              Page 17
</TABLE>


<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, (3) the term "Hines
Fertilizer" means Hines Fertilizer, Inc., formerly known as Enviro-safe
Laboratories, Inc., a Florida Corporation, and a wholly owned subsidiary of
Hines Nurseries and (4) 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 4,900 varieties of ornamental
shrubs and color plants and we sell to more than 2,000 retail and commercial
customers, representing more than 8,700 outlets throughout the United States and


                                    Page 18


<PAGE>

Canada. As of September 30, 2005, Hines Horticulture produced and distributed
horticultural products through its wholly owned subsidiary, Hines Nurseries. In
July 2005, we entered into an asset purchase agreement whereby we disposed of
substantially all of the assets of Hines Fertilizer. Hines Fertilizer no longer
actively conducts business.

         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, 2004, we had $29.1 million in net operating loss
carryforwards for federal income tax purposes. In addition, we had approximately
$27.8 million in net operating loss carryforwards for state income tax reporting
purposes.

         As a result of the sale of property in Miami, as discussed below, and
current financial projections, we now anticipate paying cash income taxes for
federal and state purposes for the 2005 income tax year. We believe the taxable
gain from the sale of property in Miami will result in the full utilization of
our remaining federal net operating loss carryforward and the net operating loss
carryforwards for certain states. 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, 2005, we
had a current deferred liability for deferred income taxes of $71.9 million
related to the use of the cash method of accounting. 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.

         SALE OF 122 ACRES OF PROPERTY IN MIAMI

         On September 12, 2005, Hines Nurseries negotiated and entered into the
Real Property Purchase and Sale Agreement and Escrow Instructions (the
"Agreement") with Quantum Ventures, LLC (the "Buyer") to sell approximately 122
acres of unimproved property located in Miami-Dade County, Florida (the
"Property") with a book value of approximately $7.0 million, which is currently
being operated as a plant nursery. The Buyer, headquartered in Coral Gables,
Florida, is a residential real estate developer and homebuilder in south
Florida.

                                    Page 19


<PAGE>

         The Agreement provides that the gross purchase price (the "Purchase
Price") of the Property would be $47.9 million, payable in cash, on the closing
date. In addition to the Purchase Price, the Agreement provides that the Buyer
will pay to us a deferred purchase price payment in the event the Property is
subdivided or otherwise entitled for the development of more than four
residences per acre. The Buyer has agreed to pay us forty thousand dollars for
every residential lot created within the Property in excess of four lots per
acre. The Buyer is under no commitment to seek residential lots in excess of
four per acre, and the Buyer might not receive zoning for the excess lots or pay
any deferred purchase price. It is expected that the maximum possible density
per acre would be five residential lots. The deferred purchase price payment
will be due and payable upon recordation of final plats consummating the
residential subdivision of the Property. At the time of this filing, the maximum
possible density per acre of the Property had not been determined.

         On November 7, 2005, we successfully completed the sale of the Property
and received net proceeds of $47.2 million. In accordance with the First
Amendment to the Senior Credit Facility dated June 30, 2005 (the "Amendment"),
we used approximately $30.5 million of the proceeds to payoff the entire
outstanding balance of our term loan with the remaining proceeds of
approximately $16.7 million paying down the revolving credit facility. In
accordance with the Agreement, we have entered into a two-year lease agreement
(the "Lease Agreement") with the Buyer to lease the Property while transitioning
operations to other locations. We will lease the entire Property for a one-year
period, with a thirty-day extension right, and will then vacate approximately 33
acres. We will lease the remaining 89 acres for an additional one-year period,
with extension rights for an additional ninety days, and will then vacate the
remaining acreage. The terms of the Lease Agreement require us to pay the Buyer
rent of five hundred dollars per outstanding acre, annually, during the lease
term.

         We are currently evaluating the accounting for the sale of Property to
be recorded in the fourth quarter. However, as a result of the Lease Agreement,
we may have to defer all or a portion of the gain on sale.

         WAIVER REGARDING FINANCIAL COVENANTS

         At September 30, 2005, we were not in compliance with some of our debt
covenants under our senior credit facility dated September 30, 2003 (the "Senior
Credit Facility").

         On October 13, 2005, Hines Nurseries obtained a waiver (the "Waiver")
from the financial institutions party to its Senior Credit Facility to waive
compliance with the minimum fixed charge coverage ratio and the maximum leverage
ratio covenants of the Senior Credit Facility for the third fiscal quarter of
2005. The Waiver was subject to the sale of Property occurring no later than
November 30, 2005 and the net asset sale proceeds of the Property being no less
than $40.0 million. These conditions to the Waiver were satisfied on November 7,
2005 when we successfully completed the sale of the Property and Hines Nurseries
is in compliance with the terms of the Waiver.


                                    Page 20


<PAGE>

         In addition, pursuant to the Waiver, the aggregate revolving loan
availability under the Senior Credit Facility was reduced from $145.0 million to
$120.0 million (subject to borrowing base limits).

         IMPACT OF HURRICANES

         Our organization has been affected by the extremely active tropical
weather season that has plagued the southern and southeastern regions of the
United States during the third and fourth quarters of 2005. In particular,
hurricanes Katrina, Rita and Wilma have had an adverse effect on our sales and
operations. We estimate that hurricanes Katrina and Rita alone reduced our third
quarter net sales by as much as $2.0 to $3.0 million in total at our Miami,
Houston and Trenton facilities. We also anticipate that hurricane Wilma, which
hit Florida on October 24, 2005, along with the lingering effects of hurricanes
Katrina and Rita could potentially reduce our fourth quarter net sales by an
additional $4.0 to $6.0 million. Despite these declines, we have seen a modest
improvement in net sales during the third quarter in our other non-hurricane
impacted markets.

         Our Miami production facility incurred structural and crop damage from
hurricane Wilma. We are still assessing the damage, but believe that the
ultimate write-off of assets will be immaterial to our financial condition
considered as a whole. We believe that the replacement cost of fixed assets
could be up to $3.0 million. The retail value of crop loss damage at the Miami
facility could reach as high as $6.0 million; however, the Miami crops are
insured under the Federal Crop Insurance Act.

         HINES FERTILIZER ASSET SALE

         On July 25, 2005, Hines Fertilizer and Hines Nurseries entered into an
asset purchase agreement with a non-affiliated third party vendor to sell
substantially all of the assets of Hines Fertilizer, excluding cash, accounts
receivables and intercompany receivables. The purchase price for the assets was
approximately $0.6 million and was paid through the issuance of customer credits
for past purchases. The gain on sale of assets was approximately $0.1 million.
In accordance with the asset purchase agreement, we entered into a three year
non-compete agreement, which restricts our ability to own and manage a competing
fertilizer company and restricts our Miami facility's ability to co-brand and
market with competing fertilizer companies, unless directly requested by our
customers. Upon a change in control of Hines Horticulture or Hines Nurseries,
all non-compete restrictions shall cease and no longer be of any effect.

         REORGANIZATION

         During the second quarter, we implemented a strategic plan of
reorganization (the "Reorganization"), reducing headcount and realigning certain
aspects of our management team. We estimate that these changes will result in
annualized cost savings of approximately $3.8 million, excluding a $0.6 million
severance charge recorded in the second quarter of 2005.

         PAY BY SCAN

         In January 2005, we entered into an agreement with our largest customer
to sell a portion of our product under a new pay by scan ("PBS") program. Under
this program, our customer does not take ownership of the inventory at its
stores until the product is scanned at the check out register. Revenue is


                                    Page 21


<PAGE>

recorded at the point the store sells our product to its customers. Sales under
this program began on a limited basis in February 2005 in the southern and
southeastern regions of the United States. Beginning in September 2005, we began
rolling out additional stores under this program throughout the western region
of the country. Annuals, perennials and groundcovers are currently the only
products impacted by this program.

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

THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2004

         NET SALES. Net sales of $49.4 million for the three months ended
September 30, 2005 decreased $2.4 million, or 4.6%, from net sales of $51.7
million for the comparable period in 2004. The decline in net sales was due to
lower sales unit volume, partially offset by approximately an 8% increase in our
average unit selling price during the three months ended September 30, 2005
compared to the comparable period in 2004. The decline in sales unit volume was
due to lower consumer demand throughout the South and Southeast primarily as a
result of hurricanes Katrina and Rita. Net sales from our production facilities
in the South and Southeast declined approximately $3.4 million compared to the
same period in 2004. Net sales from our facilities throughout the rest of
country increased approximately $1.0 million compared to the same period a year
ago.

         GROSS PROFIT. Gross profit of $21.5 million for the three months ended
September 30, 2005 decreased $2.0 million, or 8.5%, from gross profit of $23.5
million for the comparable period in 2004. As a percentage of net sales, gross
profit for the quarter decreased to 43.6% from 45.5% for the comparable period
in 2004. The decline in gross profit was mainly due to the decline in sales, as
discussed above. Gross profit as a percentage of net sales declined primarily as
a result of increased scrap due to hurricanes Katrina and Rita. Higher raw
material and commodity costs also contributed to the decline in gross profit
margin for the quarter. For the three months ended September 30, 2005, our
average cost per unit increased approximately 11% as a result of these
increases, partially offset by the 8% increase in our average unit selling
price.

         SELLING AND DISTRIBUTION EXPENSES. Selling and distribution expenses of
$19.3 million for the three months ended September 30, 2005 increased $0.8
million, or 4.3%, from $18.5 million for the comparable period in 2004. As a
percentage of net sales, selling and distribution expenses for the quarter
increased to 39.1% from 35.8% in the third quarter of 2004.

         Selling expenses of $5.9 million for the three months ended September
30, 2005 decreased $1.0 million, or 14.8%, from $6.9 million a year ago. The
decrease in selling expense resulted from reduced headcount from the
Reorganization and lower sales commissions as a result of lower net sales.

         Distribution expenses of $13.4 million for the three months ended
September 30, 2005 increased $1.8 million, or 15.8%, from $11.6 million for the
comparable period in 2004. The increase in distribution expenses was mainly due
to higher diesel fuel costs and increased third party carrier charges, which
were primarily driven by more expensive diesel fuel.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses of $5.1 million for the three months ended September 30, 2005 decreased
$0.2 million, or 3.9%, from $5.4 million for the comparable period in 2004. The
decline in general and administrative expenses was due to lower compensation and
benefit expenses, which mainly resulted from reduced headcount from the
Reorganization.


                                    Page 22


<PAGE>

         OTHER OPERATING INCOME, NET. There were no material changes in other
operating income for the three months ended September 30, 2005 to the comparable
period in 2004.

         OPERATING LOSS. Operating loss of $2.9 million for the three months
ended September 30, 2005 increased by $2.6 million from an operating loss of
$0.3 million for the comparable period in 2004. The increase in operating loss
was mainly due to the decrease in sales and gross profit and the increase in
distribution expenses, partially offset by lower selling and general and
administrative expenses.

         OTHER EXPENSES. Other expenses of $5.8 million for the three months
ended September 30, 2005 decreased $0.1 million, or 2.0%, from $6.0 million for
the comparable period in 2004 due to lower interest expense, partially offset by
the decline in interest rate swap agreement income. Interest expense for the
three months ended September 30, 2005 declined $1.2 million, or 18.5%, mainly as
a result of the termination of our $75.0 million interest rate swap agreement in
February 2005 and lower outstanding debt, partially offset by higher variable
interest rates.

         INCOME TAX BENEFIT. Our effective income tax rate was 41.0% for the
three months ended September 30, 2005, unchanged from the comparable period a
year ago. Benefit for income taxes was $3.6 million for the three months ended
September 30, 2005, compared to $2.6 million for the comparable period in 2004.

         NET LOSS. Net loss of $5.2 million for the three months ended September
30, 2005 increased by $1.4 million, or 38.8%, from $3.7 million for the
comparable period in 2004. The increase in net loss was due to the increase in
operating loss, partially offset by the decrease in other expenses and a higher
benefit from income taxes.

NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2004

         NET SALES. Net sales of $290.3 million for the nine months ended
September 30, 2005 decreased $3.0 million, or 1.0%, from net sales of $293.2
million for the comparable period in 2004. Net sales declined due to lower sales
unit volume, partially offset by approximately a 3% increase in our overall
average unit selling price. Net sales to home centers increased approximately
$9.2 million as we transitioned sales unit volume from lost customers. Lost
customers represented a $15.3 million decline in net sales compared to the same
period in 2004 and we estimate that the average unit selling price on the
transitioned sales unit volume during the nine months ended September 30, 2005
is approximately 11% lower than the average unit selling price on such units
during the comparable period in 2004.

         The following analysis regarding our net sales for the nine months
ended September 30, 2005 reviews our sales from a quarterly perspective, because
we believe it provides meaningful information.

         Our first quarter 2005 net sales increased compared to the first
quarter of 2004 as a result of improved customer pricing, favorable changes to
our product mix and a higher volume of early spring shipments into markets in
the East. Sales in the Southwest during the first quarter of 2005 declined


                                    Page 23


<PAGE>

compared to the same period a year ago as southern California and Arizona
experienced low consumer demand as a result of record-breaking amounts of winter
rain. Net sales in the Northeast during the first quarter of 2005 increased
compared to the same period in 2004 as a result of the timing of Easter sales,
while net sales in the Southeast during the first quarter of 2005 declined as a
result of our new PBS program, which deferred approximately $0.8 million of net
sales into the second quarter of 2005.

         Our second quarter 2005 net sales decreased compared to the second
quarter of 2004 due to lower sales unit volume, offset by an increase in average
unit selling price. Net sales during the second quarter of 2005 in the Southwest
increased during the second quarter as the record-breaking winter rains
dissipated and consumers in the region returned to gardening. Net sales in the
Northeast during the second quarter of 2005 declined compared to the same period
in 2004 as a result of lower consumer demand for bedding plants. Net sales in
the South during the second quarter of 2005 were down compared to the same
period in 2004 due to lower customer demand, while net sales in the Southeast
were essentially flat to last year.

         Our third quarter 2005 net sales decreased compared to the third
quarter of 2004 due to lower consumer demand throughout the South and Southeast
primarily as a result of hurricanes Katrina and Rita. Net sales from our
production facilities in the South and Southeast declined compared to the same
period in 2004 while net sales from our facilities throughout the rest of
country increased slightly compared to the same period a year ago.

         GROSS PROFIT. Gross profit of $141.8 million for the nine months ended
September 30, 2005 decreased $4.7 million, or 3.2%, from gross profit of $146.5
million for the comparable period in 2004. As a percentage of net sales, gross
profit for the quarter decreased to 48.9% from 50.0% for the comparable period
in 2004. The decline in gross profit was mainly due to the decline in sales, as
discussed above. Gross profit as a percentage of net sales declined as a result
of higher raw material and commodity costs compared to the same period in 2004.
For the nine months ended September 30, 2005, our average cost per unit
increased approximately 5% as result of these cost increases, partially offset
by the 3% increase in our average unit selling price.

         SELLING AND DISTRIBUTION EXPENSES. Selling and distribution expenses of
$93.4 million for the nine months ended September 30, 2005 increased $6.5
million, or 7.4%, from $86.9 million for the comparable period in 2004. As a
percentage of net sales, selling and distribution expenses for the nine months
ended September 30, 2005 increased to 32.2% from 29.6% for the comparable period
in 2004.

         Selling expenses of $28.2 million for the nine months ended September
30, 2005 increased $0.6 million, or 2.4%, from $27.6 million a year ago. The
increase in selling expenses resulted from increased third-party merchandising
costs, partially offset by the cost savings generated from the Reorganization
carried out in the second quarter of 2005.

         Distribution expenses of $65.2 million for the nine months ended
September 30, 2005 increased $5.8 million, or 9.8%, from $59.4 million for the
comparable period in 2004. The increase in distribution expenses was
attributable to higher diesel fuel costs and increased third party carrier
charges, which were primarily driven by more expensive diesel fuel.


                                    Page 24


<PAGE>

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses of $16.8 million for the nine months ended September 30, 2005 decreased
$0.6 million, or 3.2%, from $17.4 million for the comparable period in 2004. The
decline in general and administrative expenses was due to lower compensation and
benefits expenses during the period.

         OTHER OPERATING EXPENSES, NET. Other operating expenses of $0.4 million
for the nine months ended September 30, 2005 declined $0.1 million from $0.5
million from the comparable period in 2004. Other operating expenses in 2005
consisted of a $0.6 million severance charge, which resulted from the
Reorganization during the second quarter of 2005, offset primarily by the gain
on sale of assets from Hines Fertilizer and other assets. Other operating
expenses in 2004 consisted of $0.5 million in legal fees, resulting from the
Lovell arbitration relating to earn-out payments for fiscal 2001.

         OPERATING INCOME. Operating income of $31.2 million for the nine months
ended September 30, 2005 decreased by $10.5 million, or 25.1%, from $41.6
million for the comparable period in 2004. The decline in operating income was
mainly due to the decrease in sales and gross profit and the increase in selling
and distribution expenses, partially offset by lower general and administrative
expenses.

         OTHER EXPENSES. Other expenses of $17.9 million for the nine months
ended September 30, 2005 decreased $0.2 million, or 1.1%, from $18.1 million for
the comparable period in 2004 due to lower interest expense, partially offset by
the decline in interest rate swap agreement income. Interest expense for the
nine months ended September 30, 2005 declined $2.7 million, or 13.5%, mainly as
a result of the termination of our $75.0 million interest rate swap agreement in
February 2005 and lower outstanding debt, partially offset by higher variable
interest rates.

         INCOME TAX PROVISION. Our effective income tax rate was 41.0% for the
nine months ended September 30, 2005, unchanged from the comparable period a
year ago. Provision for income taxes was $5.4 million for the nine months ended
September 30, 2005, compared to $9.6 million for the comparable period in 2004.

         NET INCOME. Net income of $7.8 million for the nine months ended
September 30, 2005 decreased by $6.1 million, or 43.7%, from $13.9 million for
the comparable period in 2004. The decline in net income was due to the decrease
in operating income, partially offset by the decrease of other expenses and by a
lower provision for income taxes.

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, as of November 7, 2005, consists of a revolving facility with
availability of up to $120.0 million (subject to certain borrowing base limits).
Additional information pertaining to our Senior Credit Facility is provided
below and in Note 7 to the Condensed Consolidated Financial Statements
(unaudited) included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

         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.


                                    Page 25


<PAGE>

         Net cash provided by operating activities was $27.7 million for the
nine months ended September 30, 2005 compared to $32.8 million for the
comparable period in 2004. The decrease in cash provided by operating activities
is mainly due to lower earnings driven by lower gross profit and higher
operating expenses, partially offset by improved customer collections as a
result of favorable payment terms.

         Net cash used in investing activities was $5.1 million for the nine
months ended September 30, 2005 compared to $4.6 million for the same period a
year ago. The increase in cash used in investing activities was mainly due to an
increase in capital expenditures of $4.3 million, offset by an increase in
proceeds received from land sale option of $2.0 million, proceeds received from
sale of fixed assets of $0.7 million and the $0.2 million deposit received for
the sale of Property.

         The increase in capital expenditures was due to the development of our
new Winters South nursery facility in northern California. The increase in
proceeds received from land sale option was due to $2.0 million in payments
received in accordance with our option agreement and amended option agreement to
sell our 168 acre nursery property in Vacaville, California. The increase in
proceeds received from sale of fixed assets was mainly due to payments received
from the sale of Hines Fertilizer assets.

         Net cash used in financing activities was $22.6 million for the nine
months ended September 30, 2005 compared to $28.2 million for the same period in
2004. The decrease in cash used in financing activities resulted from the
decrease in repayment of revolver debt of $5.7 compared the same period a year
ago. The decrease in the repayment of revolver debt was due to lower earnings
during the period.

         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 on past history, approximately 72% of our sales generally 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, 2005 we had $5.0 million of borrowings under our revolving facility,
resulting in unused borrowing capacity of approximately $72.6 million after
applying the borrowing base limitations and letters of credits to our available
borrowings.

         At September 30, 2005, we had total outstanding bank indebtedness of
$210.5 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, 2005.


                                    Page 26


<PAGE>

<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>            <C>
Term loan facility ..................       $  30.5         $  5.7         $ 24.8          $   -          $    -
Senior Notes.........................         175.0             -              -               -            175.0
Revolving Facility...................           5.0            5.0             -               -               -
Interest.............................         126.0           22.1           62.0            35.9             6.0
Operating Leases.....................          14.1            3.6            3.6             0.9             6.0
                                        --------------- -------------- --------------- -------------- --------------
Total                                       $ 350.6         $ 36.4         $ 90.4          $ 36.8         $ 187.0
                                        =============== ============== =============== ============== ==============
</TABLE>

         On November 8, 2005, in accordance with the Amendment, we used the
$47.2 million net proceeds from the sale of Property to payoff the entire
outstanding balance of our term loan, which was approximately $30.5 million. The
remaining funds of approximately $16.7 million were used to pay down our
revolving facility. As a result of these reductions in outstanding debt, we now
estimate our total contractual cash obligation for interest to be approximately
$116.4 million.

         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 subordinated notes due 2011.

         OUR SENIOR CREDIT FACILITY

         We entered into our Senior Credit Facility on September 30, 2003. Hines
Nurseries and its operating subsidiaries are borrowers under the Senior Credit
Facility. As of November 8, 2005, the Senior Credit Facility consists of a
revolving facility with availability, of up to $120.0 million (subject to
borrowing base limits). The term loan facility of up to $40.0 million, which was
previously contained in the Senior Credit Facility was repaid in full on
November 8, 2005 and was terminated. The revolving facility also permits us to
obtain letters of credit up to a sub-limit. The Senior Credit Facility matures
on September 30, 2008.

         As previously disclosed by the company in a Form 8-K filed with the SEC
in July 2005, we negotiated and entered into the Amendment to our Senior Credit
Facility. The Amendment amended the Senior Credit Facility to require that the
proceeds from the sale of Property be used to pay down the term loan and allows
for the exclusion of certain expenditures to replace assets sold. The Amendment
also amends the calculation of fixed charge coverage ratio and leverage ratio to
allow as an addition to EBITDA certain adjustments related to work force
reductions and requires us to meet less restrictive minimum fixed charge
coverage ratios for the last fiscal quarter of 2005, for 2006 and for the first
quarter of 2007 and the maximum leverage ratios for the last fiscal quarter of
2005, for 2006 and the first and second quarter of 2007. In consideration for
approving the Amendment, all consenting lenders were paid a fee of 10 basis
points on outstanding loan commitments, which equated to approximately $0.2
million. Our noncompliance with regard to the minimum fixed charge coverage
ratio and the maximum leverage ratio covenants contained in the Senior Credit
Facility were waived pursuant to the Waiver as the sale of Property satisfied
the conditions contained in the Waiver. Pursuant to the Waiver, the aggregate
revolving loan availability under the Senior Credit Facility was reduced from
$145.0 million to $120.0 million (subject to borrowing base limits). For
purposes of the following disclosure, the term "Senior Credit Facility" means
the Senior Credit Facility as amended by the Amendment, unless otherwise
specifically noted.

                                    Page 27


<PAGE>

         GUARANTEES; COLLATERAL. Obligations under the Senior Credit Facility
are guaranteed by us and any of our 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 from Hines
Nurseries 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. Please see the section "Waiver Regarding Financial Covenants" above
for an explanation of our compliance with financial 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
Offered 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 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 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 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.


                                    Page 28


<PAGE>

         BORROWING BASE. Availability of borrowing under the revolving facility
is 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.
Eligible accounts receivable of 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. At September 30, 2005, the Company had
$72,564 of available credit.

         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.

         REPAYMENT. Subject to certain exceptions, 100% of the net cash proceeds
we receive from certain asset dispositions, insurance claims and condemnation
actions 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 revolving loan facility (without any reduction in the revolving loan
commitment). The Senior Credit Facility may also be voluntarily prepaid at any
time without premium or penalty.

         OUR SENIOR NOTES

         On September 30, 2003, Hines Nurseries issued $175.0 million of senior
subordinated notes that mature on October 1, 2011 (the "Senior Notes"). The
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, which commenced on 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 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 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 Senior 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 Senior 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 Senior Notes also constitutes an
event of default under our Senior Credit Facility.


                                    Page 29


<PAGE>

         REPURCHASE ON A CHANGE IN CONTROL. The Senior Notes contain a put
option whereby the holders have the right to put the Senior 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 of control occurs.

         CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

         Sales with pay by scan arrangements are recognized when the products
are sold by the retailers.

         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
receivables 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.


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<PAGE>

         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.

         NEW ACCOUNTING PRONOUNCEMENTS.

         In November 2004, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 151, "Inventory Costs", which clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material. SFAS No. 151 will be effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. We do not expect the adoption of
this standard to have a material impact on our consolidated financial
statements.

         In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
Payment", which establishes standards for transactions in which an entity
exchanges its equity instruments for goods or services. This standard requires a
public entity to measure the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the award.
This eliminates the exception to account for such awards using the intrinsic
method previously allowable under APB Opinion No. 25. In March 2005, the
Securities and Exchange Commission (SEC) released Staff Accounting Bulletin
(SAB) 107, Share-Based Payment, which expresses views of the SEC Staff about the
application of SFAS No. 123(R). SFAS No. 123(R) was to be effective for interim
or annual reporting periods beginning on or after June 15, 2005, but in April
2005 the SEC issued a rule that SFAS No. 123(R) will be effective for annual
reporting periods beginning on or after June 15, 2005. We are in the process of
evaluating the effect this standard may have on our financial condition, results
of operations and cash flows.


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<PAGE>

         In December 2004, the FASB issued SFAS No. 153, "Exchange of
Non-Monetary Assets - An Amendment of ARB Opinion No. 29," which requires
non-monetary asset exchanges to be accounted for at fair value. The Company is
required to adopt the provisions of SFAS No. 153 for non-monetary exchanges
occurring in fiscal periods beginning after June 15 2005. We do not expect the
adoption of this standard to have a material impact on our consolidated
financial statements.

         In March 2005, the FASB issued FASB Interpretation No. ("FIN") 47,
"Accounting for Conditional Asset Retirement Obligations." FIN 47 clarifies the
term "conditional asset retirement obligation" used in SFAS No. 143, "Accounting
for Asset Retirement Obligations." FIN 47 is effective no later than the end of
the fiscal year ending after December 15, 2005. We are in the process of
evaluating whether FIN 47 will result in the recognition of additional asset
retirement obligations for the Company.

         In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement No. 154, "Accounting Changes and Error Corrections." FASB No. 154
replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements, and changes the
requirements for the accounting for and reporting of a change in an accounting
principle. This Statement applies to all voluntary changes in an accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition provisions, those
provisions should be followed. APB Opinion 20 previously required that most
voluntary changes in an accounting principle be recognized by including in net
income of the period of the change the cumulative effect of changing to the new
accounting principle. This Statement requires retrospective application to prior
periods' financial statements of changes in an accounting principle. Statement
No. 154 is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. We are in the process of
evaluating the effect this standard may have on our financial condition, results
of operations and cash flows.

         EFFECTS OF INFLATION

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

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, 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, 2005 that
are impacted by changes in interest rates.

         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


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<PAGE>

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, 2005 the
carrying amount and estimated fair value of our long-term debt was $210.5
million and $215.7 million, respectively. Given the current balance of our fixed
rate and variable rate debt, we estimate a change in interest costs of
approximately $0.4 million for every one-percentage point change in applicable
interest rates.

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 fiscal quarter covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.


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.

ITEM 5.  OTHER INFORMATION

         At September 30, 2005, we were not in compliance with some of our debt
covenants under the senior credit facility dated as of September 30, 2003 (the
"Senior Credit Facility"), as amended by a First Amendment to Credit Agreement
dated as of June 30, 2005 by and among Hines Nurseries, Inc., Hines Fertilizer,
Inc. (formerly known as Enviro-safe Laboratories, Inc.), and Hines SGUS Inc., as
borrowers, the lenders listed therein, Deutsche Bank Trust Company Americas, as
Agent, Fleet Capital Corporation and Lasalle Business Credit, LLC, as
Co-Syndication Agents, and Harris Trust and Savings Bank and Wells Fargo Bank,
N.A., as Co-Documentation Agents.

         On October 13, 2005, the Company obtained a waiver (the "Waiver") from
the financial institutions party to its Senior Credit Facility to waive
compliance with the minimum fixed charge coverage ratio and the maximum leverage
ratio covenants of the Senior Credit Facility for the third fiscal quarter of
2005. The Waiver was subject to the sale of Miami property occurring no later
than November 30, 2005, and the net asset sale proceeds of the Miami property
being no less than $40.0 million. These conditions to the Waiver were satisfied
when we successfully completed the sale of the Miami property. In addition,
pursuant to the Waiver the aggregate revolving loan availability under the
Senior Credit Facility was reduced from $145.0 million to $120.0 million.


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<PAGE>

ITEM 6.  EXHIBITS

               Exhibit 10.1 First Amendment to Credit Agreement, effective as of
                      June 30, 2005 (incorporated by reference to Exhibit 10.1
                      to Hines Horticulture, Inc.'s Quarterly Report on Form
                      10-Q filed on August 15, 2005).

               Exhibit 10.2 Waiver Regarding Financial Covenants dated October
                      13, 2005, among Hines Nurseries, Inc. and Hines SGUS Inc.,
                      as borrowers, the lenders listed therein, and Deutsche
                      Bank Trust Company Americas, as agent.*

               Exhibit 10.3 Real Property Purchase and Sale Agreement and Escrow
                      Instructions, dated September 12, 2005, by and between
                      Hines Nurseries, Inc. and Quantum Ventures, LLC
                      (incorporated by reference to Exhibit 10.2 to Hines
                      Horticulture, Inc.'s Form 8-K filed on November 9, 2005).

               Exhibit 10.4 Summary of Oral Amendment to Real Property Purchase
                      and Sale Agreement and Escrow Instructions, dated
                      September 12, 2005, by and between Hines Nurseries, Inc.
                      and Quantum Ventures, LLC (incorporated by reference to
                      Exhibit 10.3 to Hines Horticulture, Inc.'s Form 8-K filed
                      on November 9, 2005).

               Exhibit 10.5 Lease Agreement dated November 7, 2005, by and
                      between Hines Nurseries, Inc. and Quantum Ventures, LLC
                      (incorporated by reference to Exhibit 10.1 to Hines
                      Horticulture, Inc.'s Form 8-K filed on November 9, 2005).

               Exhibit 31.1 Certification of Chief Executive Officer Pursuant To
                      Rules 13a-14(a) and 15d-14(a) under the Securities
                      Exchange Act of 1934, as amended.*

               Exhibit 31.2 Certification of Chief Financial Officer Pursuant To
                      Rules 13a-14(a) and 15d-14(a) under the Securities
                      Exchange Act of 1934, as amended.*

               Exhibit 32.1 Certification of Chief Executive Officer Pursuant To
                      18 U.S.C. Section 1350. Rule 13a-14(d)/15d-14(d)*

               Exhibit 32.2 Certification of Chief Financial Officer Pursuant To
                      18 U.S.C. Section 1350. Rule 13a-14(d)/15d-14(d)*

               Exhibit 99.1 Cautionary Statements*


* Filed herewith

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<PAGE>

                                    SIGNATURE

         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.

                                               HINES 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 14, 2005


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