<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 June 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)

         As of August 10, 2005 there were 22,072,549 shares of Common Stock, par
value $0.01 per share, outstanding.

================================================================================


                                     Page 1
<PAGE>

                            HINES HORTICULTURE, INC.
                                      INDEX

                          PART I. FINANCIAL INFORMATION

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

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

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

         Condensed Consolidated Statements of Cash Flows for the
         Six Months Ended June 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        31

Item 4.  Controls and Procedures                                           31

                           PART II. OTHER INFORMATION


Item 1.  Legal Proceedings                                                 31

Item 4.  Submission of Matters to a Vote of Security Holders               32

Item 6.  Exhibits                                                          32

         Signature                                                         33

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

                                     Page 2
<PAGE>

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

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

ASSETS                                                       June 30,    December 31,
------
                                                               2005         2004
                                                             ---------    ---------
<S>                                                          <C>          <C>
CURRENT ASSETS:
        Cash                                                 $      --    $      --
        Accounts receivable, net                                67,189       19,969
        Inventories                                            168,997      181,133
        Prepaid expenses and other current assets                3,129        3,072
        Assets held for sale                                     7,046           --
                                                             ---------    ---------

                                      Total current assets     246,361      204,174
                                                             ---------    ---------

FIXED ASSETS, net                                              124,531      131,536

DEFERRED FINANCING EXPENSES, net                                 7,993        8,883
DEFERRED INCOME TAXES                                            9,210        9,210
GOODWILL                                                        43,926       43,926
                                                             ---------    ---------

                                                             $ 432,021    $ 397,729
                                                             =========    =========

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

CURRENT LIABILITIES:
        Accounts payable                                     $  24,809    $  11,958
        Accrued liabilities                                     17,140        9,820
        Accrued payroll and benefits                             8,905        5,900
        Accrued interest                                         4,710        5,194
        Interest rate swap agreement, current portion               --          895
        Long-term debt, current portion                          5,714        5,719
        Borrowings on revolving credit facility                 15,034       23,609
        Deferred income taxes                                   75,472       66,445
                                                             ---------    ---------

                                 Total current liabilities     151,784      129,540
                                                             ---------    ---------

LONG-TERM DEBT                                                 201,667      203,571

OTHER LIABILITIES                                                4,615        3,652
                                                             ---------    ---------

                                         Total liabilities     358,066      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 June 30, 2005 and December 31, 2004           221          221

        Additional paid-in capital                             128,781      128,781
        Accumulated deficit                                    (55,047)     (68,036)
                                                             ---------    ---------

                                Total shareholders' equity      73,955       60,966
                                                             ---------    ---------

                                                             $ 432,021    $ 397,729
                                                             =========    =========

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

                                     Page 3
</TABLE>
<PAGE>

<TABLE>
                                    HINES HORTICULTURE, INC.
                         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    Three Months and Six Months Ended June 30, 2005 and 2004
                            (Dollars in thousands, except share data)
                                           (Unaudited)


                                                 Three Months Ended June 30,     Six Months Ended June 30,
                                                     2005           2004           2005             2004
                                                 ------------   ------------    ------------    ------------

<S>                                              <C>            <C>             <C>             <C>
Sales, net                                       $    176,893   $    181,081    $    240,883    $    241,471
Cost of goods sold                                     87,843         87,392         120,609         118,516
                                                 ------------   ------------    ------------    ------------
    Gross profit                                       89,050         93,689         120,274         122,955
                                                 ------------   ------------    ------------    ------------

Selling and distribution expenses                      51,504         49,196          74,068          68,394
General and administrative expenses                     5,736          6,409          11,681          12,020
Other operating expenses, net                             544            547             429             547
                                                 ------------   ------------    ------------    ------------
    Total operating expenses                           57,784         56,152          86,178          80,961
                                                 ------------   ------------    ------------    ------------

    Operating income                                   31,266         37,537          34,096          41,994

Other expenses (income)
   Interest, net                                        5,846          6,884          12,086          13,584
   Interest rate swap agreement income                     --         (1,454)           (895)         (2,323)
   Amortization of deferred financing expenses            444            449             889             894
                                                 ------------   ------------    ------------    ------------
                                                        6,290          5,879          12,080          12,155
                                                 ------------   ------------    ------------    ------------

Income before income tax provision                     24,976         31,658          22,016          29,839

Income tax provision                                   10,241         12,980           9,027          12,234
                                                 ------------   ------------    ------------    ------------

Net income                                       $     14,735   $     18,678    $     12,989    $     17,605
                                                 ============   ============    ============    ============


Basic earnings per share:
Net income per common share                      $       0.67   $       0.85    $       0.59    $       0.80
                                                 ============   ============    ============    ============

Diluted earnings per share:
Net income per common share                      $       0.67   $       0.84    $       0.59    $       0.79
                                                 ============   ============    ============    ============

Weighted average shares outstanding--Basic         22,072,549     22,072,549      22,072,549      22,072,549
                                                 ============   ============    ============    ============

Weighted average shares outstanding--Diluted       22,131,507     22,154,141      22,129,403      22,168,978
                                                 ============   ============    ============    ============

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

                                             Page 4
</TABLE>
<PAGE>

<TABLE>
                            HINES HORTICULTURE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Six Months Ended June 30, 2005 and 2004
                             (Dollars in thousands)
                                   (Unaudited)

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

<S>                                                           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                $ 12,989    $ 17,605
    Adjustments to reconcile net income to net cash
      provided by operating activities:
         Depreciation                                            5,333       5,272
         Accretion of asset retirement obligations                  51          61
         Amortization of deferred financing expenses               889         894
         Interest rate swap agreement income                      (895)     (2,323)
         (Gain) loss on sale of assets                            (171)         71
         Deferred income taxes                                   9,027      12,234
                                                              --------    --------

                                                                27,223      33,814
Change in working capital accounts:
    Accounts receivable                                        (47,220)    (58,368)
    Inventories                                                 11,999      13,719
    Prepaid expenses and other current assets                      (57)        376
    Accounts payable and accrued liabilities                    22,593      16,086
                                                              --------    --------

      Change in working capital accounts                       (12,685)    (28,187)
                                                              --------    --------

        Net cash provided by operating activities               14,538       5,627
                                                              --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of fixed assets                                    (5,347)     (2,096)
    Proceeds from sale of fixed assets                             194          --
    Proceeds from land sale option                               1,100          --
                                                              --------    --------

        Net cash used in investing activities                   (4,053)     (2,096)
                                                              --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES
    Net (repayments) borrowing on revolving line of credit      (8,575)      3,343
    Repayments of long-term debt                                (1,910)     (1,950)
    Deferred financing expenses incurred                            --         (69)
                                                              --------    --------

        Net cash (used in) provided by financing activities    (10,485)      1,324
                                                              --------    --------


NET CHANGE IN CASH                                                  --       4,855

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

CASH, end of period                                           $     --    $  4,855
                                                              ========    ========


Supplemental disclosure of cash flow information:
    Cash paid for interest                                    $ 12,503    $ 13,522
    Cash paid for income taxes                                $     24    $      7

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

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

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

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

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

                  Accordingly, footnote and other disclosures, which would
         substantially duplicate the disclosures contained in the Company's Form
         10-K for the year ended December 31, 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 June


                                     Page 6
<PAGE>

         30, 2005 and 2004, the incremental shares related to 440,000 warrants
         outstanding were 56,169 and 81,592, respectively. For the six months
         ended June 30, 2005 and 2004, the incremental shares related to 440,000
         warrants outstanding were 54,190 and 96,429, respectively.
         Additionally, for the three and six months ended June 30, 2005,
         incremental shares related to the underlying employee stock options
         were 2,789 and 2,664, respectively, from total outstanding options of
         1,066,773. For the three and six months ended June 30, 2004, shares
         related to employee stock options in the amount of 1,070,323 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      Six months ended
                                                             June 30,               June 30,
                                                          2005       2004       2005        2004
                                                        --------   --------   --------   ----------
<S>                                                     <C>        <C>        <C>        <C>
         Net income, as reported                        $ 14,735   $ 18,678   $ 12,989   $   17,605
         Stock-based compensation expense, net of tax        (11)      (102)       (22)        (226)
                                                        --------   --------   --------   ----------
         Pro forma net income                           $ 14,724   $ 18,576   $ 12,967   $   17,379
                                                        ========   ========   ========   ==========

         Net income per share:

         Basic - as reported                            $   0.67   $   0.85   $   0.59   $     0.80
                                                        ========   ========   ========   ==========
         Basic - pro forma                              $   0.67   $   0.84   $   0.59   $     0.79
                                                        ========   ========   ========   ==========

         Diluted - as reported                          $   0.67   $   0.84   $   0.59   $     0.79
                                                        ========   ========   ========   ==========
         Diluted - pro forma                            $   0.67   $   0.84   $   0.59   $     0.78
                                                        ========   ========   ========   ==========
</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:

                                                    June 30,        December 31,
                                                      2005             2004
                                                    --------         --------
         Nursery stock                              $157,126         $169,908
         Material and supplies                        11,871           11,225
                                                    --------         --------
                                                    $168,997         $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 the Company's 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. The Company is in the process of evaluating the
         effect this standard may have on our 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 the Company's 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


                                     Page 8
<PAGE>

         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.

                  In May 2005, the Financial Accounting Standards Board ("FASB")
         issued Statement No. 154 ("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. 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.       Revolving Lines of Credit:
         --------------------------

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

         SENIOR CREDIT FACILITY. The Senior Credit Facility matures on
         September 30, 2008.

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

                  FIRST AMENDMENT TO SENIOR CREDIT FACILITY. In July 2005, Hines
         Nurseries negotiated and entered into the First Amendment to the Senior
         Credit Facility dated as of June 30, 2005 (the "Amendment") to the
         Senior Credit Facility dated as of September 30, 2003. The Amendment
         amends requirements for repayment of term loans and unscheduled
         reductions of revolving loan commitments regarding certain real
         property sales and applies the proceeds from such property sales to the
         term loans 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 Hines to meet less restrictive minimum fixed charge coverage
         ratio and maximum leverage ratio covenants.

                                     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 June 30, 2005, the Company was in
         compliance with all covenants.

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

                  BORROWING BASE. Availability of borrowings under the revolving
         facility are subject to a borrowing base consisting of the sum of (i)
         85% of eligible accounts receivable plus (ii) the lesser of (x) up to
         55% of eligible inventory or (y) 85% of the appraised net orderly
         liquidation value of eligible inventory. The Company must deliver
         borrowing base certificates and reports at least monthly. The borrowing
         base also may be subject to certain other adjustments and reserves to
         be determined by the agent. Eligible accounts receivable of both The
         Home Depot, the Company's largest customer, and Lowe's Companies, Inc.,
         its second largest customer, may not exceed 30% of total eligible
         accounts receivable at any time. At June 30, 2005, the Company had
         $93,814 of available credit.

                                    Page 10
<PAGE>

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

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

<TABLE>
                                                                           June 30,  December 31,
                                                                            2005       2004
                                                                           --------   --------
         <S>                                                               <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
         6.65% and 5.46% at June 30, 2005 and December 31, 2004,
         respectively.                                                     $ 32,381   $ 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
                                                                           --------   --------
                                                                            207,381    209,290

         Less current portion                                                 5,714      5,719
                                                                           --------   --------
                          Total long-term debt                             $201,667   $203,571
                                                                           ========   ========
</TABLE>


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

         SENIOR NOTES. On September 30, 2003, Hines Nurseries issued $175,000 of
         Senior Notes that mature on October 1, 2011. The Senior Notes bear
         interest at the rate of 10.25% per annum and will be payable
         semi-annually in arrears on each April 1 and October 1, which commenced
         on April 1, 2004.

                  GUARANTEES. Hines Horticulture and each of its domestic
         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


                                    Page 11
<PAGE>

         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.

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

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

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

                  In response to several previous unsolicited offers, we have
         requested proposals from several regional and national land developers
         regarding the potential sale of approximately 122 acres of land, which
         are currently in use at our Hines Miami facility. We anticipate that
         the contemplated transaction, if completed, would be structured to
         allow us up to two years to transition off of the property, build new
         facilities and increase capacity on our remaining land in Miami. We are
         currently in the process of receiving and reviewing proposals for this
         land and anticipate, if a transaction is successfully negotiated, that
         we will enter into a definitive purchase and sale agreement regarding
         the potential transaction during the third quarter of 2005.

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

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

                  The following condensed consolidating information shows (a)
         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 Enviro-Safe as
         subsidiary guarantors, (d) eliminations necessary to arrive at the
         information for the parent guarantor and its direct and indirect
         subsidiaries on a consolidated basis and (e) the parent guarantor on a
         consolidated basis as follows:

                                    Page 12
<PAGE>

         o    Condensed consolidating balance sheets as of June 30, 2005 and
              December 31, 2004;

         o    Condensed consolidating statements of operations for the six and
              three months ended June 30, 2005 and 2004; and

         o    A condensed consolidating statement of cash flows for the six
              months ended June 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 Enviro-Safe as subsidiary guarantors or eliminations.

                                    Page 13
<PAGE>

<TABLE>
                                      Guarantor / Non-guarantor Disclosures
                                      Condensed Consolidating Balance Sheet
                                               As of June 30, 2005
                                             (Dollars in thousands)
                                                   (Unaudited)


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

<S>                                                  <C>         <C>          <C>          <C>          <C>
Current assets:
    Cash                                             $      --   $      --    $      --    $      --    $      --
    Accounts receivable, net                                --      66,805          384           --       67,189
    Inventories                                             --     168,669          328           --      168,997
    Prepaid expenses and other current assets               --       3,129          626         (626)       3,129
    Assets held for sale                                    --       7,046           --           --        7,046
                                                     ---------   ---------    ---------    ---------    ---------
                              Total current assets          --     245,649        1,338         (626)     246,361
                                                     ---------   ---------    ---------    ---------    ---------

Fixed assets, net                                           --     124,506           25           --      124,531
Deferred financing expenses, net                            --       7,993           --           --        7,993
Deferred income taxes                                    2,922       6,288           --           --        9,210
Goodwill                                                    --      43,926           --           --       43,926
Investments in subsidiaries                             78,865          --           --      (78,865)          --
                                                     ---------   ---------    ---------    ---------    ---------
                                                     $  81,787   $ 428,362    $   1,363    $ (79,491)   $ 432,021
                                                     =========   =========    =========    =========    =========

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

Current liabilities:
    Accounts payable and accrued liabilities         $      --   $  55,517    $      47    $      --    $  55,564
    Long-term debt, current portion                         --       5,714           --           --        5,714
    Borrowings on revolving credit facility                 --      15,034           --           --       15,034
    Deferred income taxes                                   --      75,472           --           --       75,472
    Intercompany accounts                                7,832      (7,206)          --         (626)          --
                                                     ---------   ---------    ---------    ---------    ---------
                         Total current liabilities       7,832     144,531           47         (626)     151,784
                                                     ---------   ---------    ---------    ---------    ---------

Long-term debt                                              --     201,667           --           --      201,667
Accrued long-term liability, net                            --       4,615           --           --        4,615
Shareholders' equity                                    73,955      77,549        1,316      (78,865)      73,955
                                                     ---------   ---------    ---------    ---------    ---------

                                                     $  81,787   $ 428,362    $   1,363    $ (79,491)   $ 432,021
                                                     =========   =========    =========    =========    =========
</TABLE>

                                                    Page 14
<PAGE>


<TABLE>
                                      Guarantor / Non-guarantor Disclosures
                                      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
    ------

<S>                                                 <C>         <C>          <C>          <C>          <C>
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
</TABLE>
<PAGE>

<TABLE>
                                Guarantor / Non-guarantor Disclosures - Continued
                                 Condensed Consolidating Statement of Operations
                                     For the six months ended June 30, 2005
                                             (Dollars in thousands)
                                                   (Unaudited)


                                                          Hines
                                                       Horticulture   Hines
                                                        (Parent      Nurseries    Subsidary               Consolidated
                                                       Guarantor)    (Issuer)     Guarantors Eliminations    Total
                                                        ---------    ---------    ---------   ---------    ---------
<S>                                                     <C>          <C>          <C>         <C>          <C>
Sales, net                                              $      --    $ 239,929    $     954   $      --    $ 240,883
Cost of goods sold                                             --      119,984          625          --      120,609
                                                        ---------    ---------    ---------   ---------    ---------
    Gross Profit                                               --      119,945          329          --      120,274
Operating expenses                                             --       85,910          268          --       86,178
                                                        ---------    ---------    ---------   ---------    ---------
    Operating income                                           --       34,035           61          --       34,096
                                                        ---------    ---------    ---------   ---------    ---------
Other expenses:
   Interest                                                    --       12,086           --          --       12,086
   Interest rate swap agreement expense                        --         (895)          --          --         (895)
   Amortization of deferred financing expenses, other     (12,989)         889           --      12,989          889
                                                        ---------    ---------    ---------   ---------    ---------
                                                          (12,989)      12,080           --      12,989       12,080
                                                        ---------    ---------    ---------   ---------    ---------
Income (loss) before provision for income taxes            12,989       21,955           61     (12,989)      22,016
Income tax provision                                           --        9,027           --          --        9,027
                                                        ---------    ---------    ---------   ---------    ---------
Net income (loss)                                       $  12,989    $  12,928    $      61   $ (12,989)   $  12,989
                                                        =========    =========    =========   =========    =========



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

                                                          Hines
                                                       Horticulture   Hines
                                                        (Parent      Nurseries    Subsidary               Consolidated
                                                       Guarantor)    (Issuer)     Guarantors Eliminations    Total
                                                        ---------    ---------    ---------   ---------    ---------
Sales, net                                              $      --    $ 240,454    $   1,017   $      --    $ 241,471
Cost of goods sold                                             --      117,855          661          --      118,516
                                                        ---------    ---------    ---------   ---------    ---------
   Gross Profit                                                --      122,599          356          --      122,955
Operating expenses                                             --       80,703          258          --       80,961
                                                        ---------    ---------    ---------   ---------    ---------
   Operating income                                            --       41,896           98          --       41,994
                                                        ---------    ---------    ---------   ---------    ---------
Other expenses:
   Interest expense                                            --       13,584           --          --       13,584
   Interest rate swap agreement income                         --       (2,323)          --          --       (2,323)
   Amortization of deferred financing expenses, other     (17,605)         894           --      17,605          894
                                                        ---------    ---------    ---------   ---------    ---------
                                                          (17,605)      12,155           --      17,605       12,155
                                                        ---------    ---------    ---------   ---------    ---------
Income (loss) before provision for income taxes            17,605       29,741           98     (17,605)      29,839
Income tax provision                                           --       12,194           40          --       12,234
                                                        ---------    ---------    ---------   ---------    ---------
Net income (loss)                                       $  17,605    $  17,547    $      58   $ (17,605)   $  17,605
                                                        =========    =========    =========   =========    =========


                                                    Page 16
</TABLE>
<PAGE>

<TABLE>
                                GUARANTOR / NON-GUARANTOR DISCLOSURES - CONTINUED
                                      Consolidating Statement of Operations
                                    For the three months ended June 30, 2005
                                             (Dollars in thousands)
                                                   (Unaudited)

                                                          Hines
                                                      Horticulture     Hines
                                                         (Parent     Nurseries    Subsidary               Consolidated
                                                        Guarantor)    (Issuer)   Guarantors  Eliminations    Total
                                                        ---------    ---------    ---------   ---------    ---------
<S>                                                     <C>          <C>          <C>         <C>          <C>
Sales, net                                              $      --    $ 176,360    $     533   $      --    $ 176,893
Cost of goods sold                                             --       87,499          344          --       87,843
                                                        ---------    ---------    ---------   ---------    ---------
    Gross Profit                                               --       88,861          189          --       89,050
Operating expenses                                             --       57,656          128          --       57,784
                                                        ---------    ---------    ---------   ---------    ---------
    Operating income                                           --       31,205           61          --       31,266
                                                        ---------    ---------    ---------   ---------    ---------
Other expenses:
   Interest                                                    --        5,846           --          --        5,846
   Amortization of deferred financing expenses, other     (14,735)         444           --      14,735          444
                                                        ---------    ---------    ---------   ---------    ---------
                                                          (14,735)       6,290           --      14,735        6,290
                                                        ---------    ---------    ---------   ---------    ---------
Income (loss) before provision for income taxes            14,735       24,915           61     (14,735)      24,976
Income tax provision                                           --       10,241           --          --       10,241
                                                        ---------    ---------    ---------   ---------    ---------
Net income (loss)                                       $  14,735    $  14,674    $      61   $ (14,735)   $  14,735
                                                        =========    =========    =========   =========    =========



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

                                                          Hines
                                                      Horticulture     Hines
                                                         (Parent     Nurseries    Subsidary               Consolidated
                                                        Guarantor)    (Issuer)   Guarantors  Eliminations    Total
                                                        ---------    ---------    ---------   ---------    ---------
Sales, net                                              $      --    $ 180,295    $     786   $      --    $ 181,081
Cost of goods sold                                             --       86,881          511          --       87,392
                                                        ---------    ---------    ---------   ---------    ---------
    Gross Profit                                               --       93,414          275          --       93,689
Operating expenses                                             --       55,932          220          --       56,152
                                                        ---------    ---------    ---------   ---------    ---------
    Operating income                                           --       37,482           55          --       37,537
                                                        ---------    ---------    ---------   ---------    ---------
Other expenses:
   Interest expense                                            --        6,884           --          --        6,884
   Interest rate swap agreement income                         --       (1,454)          --          --       (1,454)
   Amortization of deferred financing expenses, other     (18,678)         449           --      18,678          449
                                                        ---------    ---------    ---------   ---------    ---------
                                                          (18,678)       5,879           --      18,678        5,879
                                                        ---------    ---------    ---------   ---------    ---------
Income (loss) before provision for income taxes            18,678       31,603           55     (18,678)      31,658
Income tax provision                                           --       12,958           22          --       12,980
                                                        ---------    ---------    ---------   ---------    ---------
Net income (loss)                                       $  18,678    $  18,645    $      33   $ (18,678)   $  18,678
                                                        =========    =========    =========   =========    =========


                                                    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 and (3) the terms "we," "us"
and "our" mean, collectively, the combined entity of Hines Horticulture and its
wholly owned subsidiaries.

         FORWARD LOOKING STATEMENTS AND RISK FACTORS

         Except for historical information contained herein, this quarterly
report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended, which involve certain risks and uncertainties.
Forward-looking statements are included with respect to, among other things, the
company's current business plan and strategy and strategic operating plan. These
forward-looking statements are identified by their use of such terms and phrases
as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects,"
"expect," "expected," "project," "projected," "projections," "plans,"
"anticipates," "anticipated," "should," "designed to," "foreseeable future,"
"believe," "believes" and "scheduled" and similar expressions. Our actual
results or outcomes may differ materially from those anticipated. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.

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

         OVERVIEW

         We are a leading national supplier of ornamental shrubs, color plants
and container-grown plants with 13 commercial nursery facilities located in
Arizona, California, Florida, Georgia, New York, Oregon, Pennsylvania, South
Carolina and Texas. We produce approximately 4,900 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
Canada. As of June 30, 2005, Hines Horticulture currently produced and
distributed horticultural products through its wholly owned subsidiaries, Hines


                                    Page 18
<PAGE>

Nurseries and Enviro-Safe Laboratories, Inc. In July 2005, we entered into an
asset purchase agreement whereby we disposed of substantially all of the assets
of Enviro-Safe and Enviro-Safe no longer actively conducts business. Please see
the disclosure under the heading "Enviro-Safe Laboratories, Inc. Asset Sale"
below.

         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 $29.7 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. Our state net operating losses in certain states begin to expire in
2005.

         Based on our current projections, we anticipate that we will incur tax
liability and begin paying cash income taxes for federal purposes in 2007. 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 June 30, 2005, we had a
current deferred liability for deferred income taxes of $75.5 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.

         ENVIRO-SAFE LABORATORIES, INC. ASSET SALE

         On July 25, 2005, Enviro-Safe and Hines Nurseries entered into an Asset
Purchase Agreement with a non-affiliated third party vendor to sell
substantially all of the assets of Enviro-Safe, 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


                                    Page 19
<PAGE>

for past purchases. In accordance with the agreement, we have agreed to provide
limited marketing support for up to three years, subject to certain
restrictions. We also 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.

         POTENTIAL LAND SALE OPPORTUNITY

         In response to several previous unsolicited offers, we have requested
proposals from several regional and national land developers regarding the
potential sale of approximately 122 acres of land, which are currently in use at
our Hines Miami facility. We anticipate that the contemplated transaction, if
completed, would be structured to allow us up to two years to transition off of
the property, build new facilities and increase capacity on our remaining land
in Miami. We are currently in the process of receiving and reviewing proposals
for this land and anticipate, if a transaction is successfully negotiated, that
we will enter into a definitive purchase and sale agreement regarding the
potential transaction during the third quarter of 2005. It is expected that any
agreement, if executed, would be subject to a feasibility contingency and other
customary closing conditions. We believe that the contemplated transaction will
not have a substantial impact on our future sales in the Southeast region and
will strengthen our balance sheet by reducing our outstanding term loan debt.
There can be no assurances that this potential transaction will be successfully
negotiated and if negotiated, that the closing conditions will be satisfied and
the potential transaction will be completed or that the Company will be able to
realize the anticipated benefits of the proposed transaction.

         REORGANIZATION

         During the second quarter, we implemented a strategic plan of
reorganization, permanently 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
recorded at the point the store sells our product to its customers. Sales under
this program began in February 2005 on a limited basis. It is currently planned
to roll out to additional stores of this customer by the end of 2005. Annuals
and perennials are the only products impacted by this new program.

                                    Page 20
<PAGE>

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

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

         NET SALES. Net sales of $176.9 million for the three months ended June
30, 2005 decreased $4.2 million, or 2.3%, from net sales of $181.1 million for
the comparable period in 2004. The decline in net sales was mainly due to
slightly lower sales unit volume, offset by approximately a 1% increase in our
average unit selling price during the three months ended June 30, 2005 compared
to the comparable period in 2004. The sales for the period were also impacted by
the consolidation of sales in the retail segment of the green goods market from
our customers to a fewer number of higher volume retails, such as home centers.
While we have been successful in transitioning lost sales volume to the home
centers, we estimate that the average unit selling price on these transitioned
units has declined approximately 8% from the average selling price during the
comparable period in 2004. We also had a customer unexpectedly cancel
approximately $3.0 million of orders in the period in the Southeast and
mid-Atlantic markets due to excessive levels of inventory, which resulted from
lower than expected consumer demand in its stores.

         GROSS PROFIT. Gross profit of $89.1 million for the three months ended
June 30, 2005 decreased $4.6 million, or 5.0%, from gross profit of $93.7
million for the comparable period in 2004. As a percentage of net sales, gross
profit for the quarter decreased to 50.3% from 51.7% for the comparable period
in 2004. The decline in gross profit and gross profit margin percentage was
mainly due to lower overall sales unit volume and higher commodity prices,
driven primarily by the increase in diesel fuel for the three months ended June
30, 2005 versus the prior year comparable period. For the three months ended
June 30, 2005 our average cost per unit increased approximately 5% mainly as a
result of higher container and fuel costs, partially offset by approximately a
1% increase in our average unit selling price.

         SELLING AND DISTRIBUTION EXPENSES. Selling and distribution expenses of
$51.5 million for the three months ended June 30, 2005 increased $2.3 million,
or 4.7%, from $49.2 million for the comparable period in 2004. As a percentage
of net sales, selling and distribution expenses for the quarter increased to
29.1% from 27.2% in the second quarter of 2004. Selling expenses of $14.4
million for the three months ended June 30, 2005 increased $0.9 million, or
6.7%, from $13.5 million a year ago. The increase in selling expenses resulted
from increased merchandising costs, particularly third-party merchandising
costs. Distribution expenses of $37.1 million for the three months ended June
30, 2005 increased $1.4 million, or 3.9%, from $35.7 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 also
primarily driven by more expensive diesel fuel.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses of $5.7 million for the three months ended June 30, 2005 decreased $0.7
million, or 10.5%, from $6.4 million for the comparable period in 2004. The
decline in general and administrative expenses was due to lower compensation
expenses during the quarter.

         OTHER OPERATING EXPENSES, NET. Other operating expenses of $0.5 million
for the three months ended June 30, 2005 remained unchanged from the comparable
period in 2004. Other operating expenses for the period consisted of a $0.6
million severance charge, which resulted from the Reorganization during the
second quarter of 2005, as discussed earlier. Other operating expenses for the
comparable period in 2004 consisted of $0.5 million in legal fees resulting from
the Lovell arbitration relating to earn-out payments for fiscal 2001.

                                    Page 21
<PAGE>

         OPERATING INCOME. Operating income of $31.3 million for the three
months ended June 30, 2005 decreased by $6.3 million, or 16.7%, from $37.5
million for the comparable period in 2004. The decline in operating income was
mainly due to the decrease in sales, gross profit and increase in selling and
distribution expenses, partially offset by lower general and administrative
expenses.

         OTHER EXPENSES. Other expenses of $6.3 million for the three months
ended June 30, 2005 increased $0.4 million, or 7.0%, from $5.9 million for the
comparable period in 2004 due to the decline in interest rate swap agreement
income, partially offset by lower interest expense. Interest expense for the
three months ended June 30, 2005 declined $1.0 million, or 15.1%, mainly as a
result of the termination of our $75.0 million interest rate swap agreement in
February 2005 and lower outstanding revolver debt, partially offset by higher
variable interest rates.

         INCOME TAX PROVISION. Our effective income tax rate was 41.0% for the
three months ended June 30, 2005, unchanged from the comparable period a year
ago. Provision for income taxes was $10.2 million for the three months ended
June 30, 2005, compared to $13.0 million for the comparable period in 2004.

         NET INCOME. Net income of $14.7 million for the three months ended June
30, 2005 decreased by $3.9 million, or 21.1%, from $18.7 million for the
comparable period in 2004. The decline in net income was due to the decrease in
operating income and the increase in other expenses, partially offset by a lower
provision for income taxes.

SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED JUNE 30, 2004

         NET SALES. Net sales of $240.9 million for the six months ended June
30, 2005 decreased $0.6 million, or 0.2%, from net sales of $241.5 million for
the comparable period in 2004 due to slightly lower sales unit volume, offset by
approximately a 2% increase in our overall average unit selling price during the
six months ended June 30, 2005 compared to the comparable period in 2004. Net
sales to home centers increased approximately $12.5 million as we transitioned
sales unit volume from lost customers. Lost customers represented a $13.7
million decline in net sales compared to the same period in 2004. We estimate
that the average unit selling price on the transitioned sales unit volume is
approximately 5% lower than in 2004.

         The following analysis regarding our sales for the six months ended
June 30, 2005 reviews our sales from a quarterly perspective because we believe
it provides meaningful information with regard to the sales for the period.

         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
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


                                    Page 22
<PAGE>

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 at the retail
independent garden centers. Net sales in the South during the second quarter of
2005 were down compared to the same period in 2004 due to fewer customer store
locations, while net sales in the Southeast were essentially flat to last year.

         GROSS PROFIT. Gross profit of $120.3 million for the six months ended
June 30, 2005 decreased $2.7 million, or 2.2%, from gross profit of $123.0
million for the comparable period in 2004. As a percentage of net sales, gross
profit for the quarter decreased to 49.9% from 50.9% for the comparable period
in 2004. The decline in gross profit and gross profit margin percentage was
attributable to slightly lower sales volume and higher commodity prices for the
six months ended June 30, 2005 versus the comparable period in 2004. For the six
months ended June 30, 2005 our average cost per unit increased approximately 7%
mainly as a result of higher container and fuel costs, partially offset by
approximately a 2% increase in our average unit selling price.

         SELLING AND DISTRIBUTION EXPENSES. Selling and distribution expenses of
$74.1 million for the six months ended June 30, 2005 increased $5.7 million, or
8.3%, from $68.4 million for the comparable period in 2004. As a percentage of
net sales, selling and distribution expenses for the six months ended June 30,
2005 increased to 30.7% from 28.3% for the comparable period in 2004. Selling
expenses of $22.3 million for the six months ended June 30, 2005 increased $1.7
million, or 8.1%, from $20.6 million a year ago. The increase in selling
expenses resulted from increased merchandising costs, particularly third-party
merchandising costs. Distribution expenses of $51.8 million for the six months
ended June 30, 2005 increased $4.0 million, or 8.4%, from $47.8 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 also primarily driven by more expensive diesel fuel.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses of $11.7 million for the six months ended June 30, 2005 decreased $0.3
million, or 2.8%, from $12.0 million for the comparable period in 2004. The
decline in general and administrative expenses was due to lower compensation
expenses during the period.

         OTHER OPERATING EXPENSES, NET. Other operating expenses of $0.4 million
for the six months ended June 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, as discussed earlier. 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.

                                    Page 23
<PAGE>

         OPERATING INCOME. Operating income of $34.1 million for the six months
ended June 30, 2005 decreased by $7.9 million, or 18.8%, from $42.0 million for
the comparable period in 2004. The decline in operating income was mainly due to
the decrease in sales, gross profit and the increase in selling and distribution
expenses, partially offset by lower general and administrative expenses.

         OTHER EXPENSES. Other expenses of $12.1 million for the six months
ended June 30, 2005 decreased $0.1 million, or 0.6%, from $12.2 million for the
comparable period in 2004 due to the decline in interest rate swap agreement
income, partially offset by lower interest expense. Interest expense for the six
months ended June 30, 2005 declined $1.5 million, or 11.0%, mainly as a result
of the termination of our $75.0 million interest rate swap agreement in February
2005 and lower outstanding revolver debt, partially offset by higher variable
interest rates.

         INCOME TAX PROVISION. Our effective income tax rate was 41.0% for the
six months ended June 30, 2005, unchanged from the comparable period a year ago.
Provision for income taxes was $9.0 million for the six months ended June 30,
2005, compared to $12.2 million for the comparable period in 2004.

         NET INCOME. Net income of $13.0 million for the six months ended June
30, 2005 decreased by $4.6 million, or 26.2%, from $17.6 million for the
comparable period in 2004. The decline in net income was due to the decrease in
operating income and the increase in other expenses, partially offset 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 consists of a revolving facility with availability of up to $145.0
million (subject to certain borrowing base limits) and a term loan facility of
up to $40.0 million. Note 7 and Note 8 to the Condensed Consolidated Financial
Statements (unaudited) included in Part I, Item 1 of this Quarterly Report on
Form 10-Q provide additional information pertaining to our senior credit
facility.

         The seasonal nature of our operations results in a significant
fluctuation in certain components of working capital (primarily accounts
receivable and inventory) during the growing and selling cycles. As a result,
operating activities during the first and fourth quarters use significant
amounts of cash, and in contrast, operating activities for the second and third
quarters generate substantial cash as we ship inventory and collect accounts
receivable.

         Net cash provided by operating activities was $14.5 million for the six
months ended June 30, 2005 compared to $5.6 million for the comparable period in
2004. The increase in cash provided by operating activities is mainly due to
improved customer collections. As a result of our Pay By Scan program, our days
sales outstanding with our largest customer has improved approximately twenty
days compared to the same period a year ago.

         Net cash used in investing activities was $4.1 million for the six
months ended June 30, 2005 compared to $2.1 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 $3.3 million, offset by an increase in
proceeds received from land sale option of $1.1 million. The increase in capital


                                    Page 24
<PAGE>

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 $1.1 million in payments received in accordance with our
option agreement and amended option agreement to sell our 168 acre nursery
property in Vacaville, California.

         Net cash used in financing activities was $10.5 million for the six
months ended June 30, 2005 compared to net cash provided by financing activities
of $1.3 million for the same period in 2004. The increase in cash used in
financing activities resulted from the repayment of $8.6 million of revolver
debt compared to the borrowing of $3.3 million of revolver debt for the same
period a year ago. The increase in the repayment of revolver debt was due to the
acceleration of customer collections, as discussed earlier.

         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 June 30, we
had $15.0 million of borrowings under our working capital revolver, resulting in
unused borrowing capacity of approximately $93.8 million after applying the
borrowing base limitations and letters of credits to our available borrowings.

         At June 30, 2005, we had total outstanding bank indebtedness of $222.4
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 June 30, 2005.

<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>
Term loan facility ...................         32.4         5.7        26.7          --           --
Senior Notes .........................        175.0          --          --          --        175.0
Revolving Facility ...................         15.0        15.0          --          --           --
Interest .............................        122.9        21.2        59.9        35.9          5.9
Operating Leases .....................         15.1         3.8         4.3         1.0          6.0
                                         ----------   ---------   ---------   ---------   ----------
Total ................................   $    360.4   $    45.7   $    90.9   $    36.9   $    186.9
                                         ==========   =========   =========   =========   ==========
</TABLE>


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

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

                                    Page 25
<PAGE>

         OUR SENIOR CREDIT FACILITY

         We entered into our Senior Credit Facility on September 30, 2003. Hines
Nurseries and its domestic operating subsidiaries are borrowers under the Senior
Credit Facility. The credit facility consists of (i) a revolving facility with
availability of up to $145.0 million (subject to borrowing base limits) and (ii)
a term loan facility of up to $40.0 million. The revolving facility also permits
us to obtain letters of credit up to a sub-limit. The 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 First Amendment to Credit
Agreement dated as of June 30, 2005 (the "Amendment") to the Credit Agreement
dated as of September 30, 2003 (the "Credit Agreement"). The Amendment amends
requirements for repayment of term loans and unscheduled reductions of revolving
loan commitments regarding the potential Miami land sale and applies the
proceeds from such property sales to the term loans 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 ratio and
maximum leverage ratio covenants. 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. 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.

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

         RESTRICTIONS; COVENANTS. The Senior Credit Facility places various
restrictions on Hines Nurseries and its subsidiaries, including, but not limited
to, limitations on our ability to incur additional debt, pay dividends or make
distributions, sell assets or make investments. The Senior Credit Facility
specifically restricts Hines Nurseries and its subsidiaries from making
distributions to Hines Horticulture. Distributions to Hines Horticulture are
limited to (i) payments covering customary general and administrative expenses,
not to exceed $0.5 million in any fiscal year, (ii) payments to discharge any
consolidated tax liabilities, (iii) and payments, not to exceed as much as $8.3
million in any fiscal year or $9.3 million over the term of the Senior Credit
Facility, to enable Hines Horticulture to repurchase its own outstanding common
stock from holders other than our majority shareholder. Dividends 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. At June 30, 2005, as amended by the Amendment, we were in compliance
with all of our debt covenants under the Senior Credit Facility.

         INTEREST RATE; FEES. The interest rate on the loans under the Senior
Credit Facility may be, at our option, prime rate loans or London Inter Bank
Offering Rate ("LIBOR") rate loans. Prime rate loans under the revolving loan
facility bear interest at the prime lending rate plus an additional amount that


                                    Page 26
<PAGE>

ranges from 0.75% to 1.75%, depending on our consolidated leverage ratio. Prime
rate loans under the term loan bear interest at the prime lending rate plus an
additional amount that ranges from 1.25% to 2.25%, depending on our consolidated
leverage ratio. Currently, the applicable margin for prime rate loans is (i)
1.75% for the new revolving loan facility and (ii) 2.25% for the new term loan.

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

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

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

         REPAYMENT. Amortization payments of $1.9 million on the term loan will
be required at the end of our second, third and fourth fiscal quarters which
began on June 30, 2004 and through the end of the term, with the full remaining
balance payable on the last installment date. Subject to certain exceptions,
100% of the net cash proceeds we receive from certain asset dispositions and
issuances of debt, 50% of the net cash proceeds we receive from issuances of
equity and 25% of excess cash flow (beginning in 2004) are required to be
applied to repay the term loan facility and are to be applied on a pro rata
basis to all scheduled installments of the term loan facility. Proceeds from the
potential Miami land sale will be used to pay down the Senior Credit Facility,
except for a portion that can be used for capital expenditures per the
Amendment. 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
Notes that mature on October 1, 2011. 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.

                                    Page 27
<PAGE>

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

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

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

         REPURCHASE ON A CHANGE IN CONTROL. The Notes contain a put option
whereby the holders have the right to put the Notes back to us at 101.000% of
the principal amount thereof on the date of purchase, plus accrued and unpaid
interest if a change 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
receivable due to sales discounts and allowances. The provision rate is
established by management using the following criteria: past sales returns
experience, current economic conditions and other relevant factors. The rate is


                                    Page 28
<PAGE>

re-evaluated on a quarterly basis. Provisions for sales discounts and allowances
charged against income increase the allowance. We record revenue, net of sales
discounts and allowances, when the risk of ownership is transferred to the
customer. Allowances are provided at the time revenue is recognized in
accordance with SFAS No. 48, "Revenue Recognition When Right of Return Exists."

         ALLOWANCE FOR DOUBTFUL ACCOUNTS.

         The allowance for bad debts is maintained at a level believed by
management to adequately reflect the probable losses in the trade receivable due
to customer defaults, insolvencies or bankruptcies. The provision is established
by management using the following criteria: customer credit history, customer
current credit rating and other relevant factors. The provision is re-evaluated
on a quarterly basis. Provisions to bad debt expense charged against income
increase the allowance. All recoveries on trade receivables previously charged
off are credited to the accounts receivable recovery account charged against
income, while direct charge-offs of trade receivables are deducted from the
allowance.

         ACCOUNTING FOR GOODWILL IMPAIRMENT.

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

         ACCRUED LIABILITIES.

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

         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.

                                    Page 29
<PAGE>

         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.

         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 ("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.

                                    Page 30
<PAGE>

         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 June 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
not affect the fair market value of such debt but do impact future earnings and
cash flows, assuming other factors are held constant. At June 30, 2005 the
carrying amount and estimated fair value of our long-term debt was $222.4
million and $224.2 million, respectively. Given the current balance of our fixed
rate and variable rate debt, we estimate a change in interest costs of
approximately $0.5 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.

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<PAGE>

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         We held our Annual Meeting of Stockholders on June 1, 2005 at which
meeting our shockholders elected seven directors and ratified the appointment of
PricewaterhouseCoopers LLP as our independent public accountants for the 2005
fiscal year.

         The following individuals were elected as directors and received the
number of votes indicated below:

Name of Nominee             Votes For               Against        Abstentions
---------------             ---------               -------        -----------
Douglas D. Allen            18,567,974              155,016            0
Stan R. Fallis              18,622,490              100,560            0
Robert A. Ferguson          18,576,524              146,526            0
G. Ronald Morris            18,690,450              32,600             0
Thomas R. Reusche           18,073,764              649,286            0
James R. Tenant             18,544,200              178,850            0
Paul R. Wood                18,070,064              652,986            0

FOR THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT PUBLIC
ACCOUNTANTS, 18,712,325 VOTES WERE CAST IN FAVOR, 10,700 VOTES WERE CAST AGAINST
AND THERE WERE 25 ABSTENTIONS.

ITEM 6.     EXHIBITS

         Exhibit 10.1   First Amendment to Credit Agreement, effective as of
                        June 30, 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

                                    Page 32
<PAGE>

                                    SIGNATURE

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

                                    HINES HORTICULTURE, INC.
                                    (REGISTRANT)



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

Date:  August 15, 2005


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