<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 10-Q

                                  (Mark One)
         [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                     For the quarter ended March 31, 2000

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

   For the transition period from___________________ to _____________________

                            Commission File Number
                                    0-24439

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


     Delaware                                          33-0803204
  (State or other jurisdiction of                      (I.R.S. Employer
  incorporation or organization)                       Identification Number)

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

                                (949) 559-4444
             (Registrant's telephone number, including area code)

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes [X]  No [_]

As of April 30, 2000 there were 22,072,549 shares of Common Stock, par value
$0.01 per share, outstanding.
===============================================================================
<PAGE>

                           HINES HORTICULTURE, INC.


                                     Index

                         Part I. Financial Information
<TABLE>
<CAPTION>

Item 1.   Financial Statements                                          Page No.
<S>       <C>                                                           <C>
            Consolidated Balance Sheets as of
            March 31, 2000 and December 31, 1999                            1

            Consolidated Statements of Operations for the Three
            Months Ended March 31, 2000 and 1999                            3

            Consolidated Statements of Cash Flows for the
            Three Months Ended March 31, 2000 and 1999                      4

            Notes to the Consolidated Financial Statements                  5

Item 2.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                      15

Item 3.   Quantitative and Qualitative Disclosures About Market Risk       22


                          Part II. Other Information

Item 6.   Exhibits and Reports on Form 8-K                                 22

          Signatures                                                       23



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

                           HINES HORTICULTURE, INC.
                          CONSOLIDATED BALANCE SHEETS
                     March 31, 2000 and December 31, 1999
                  (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                       March 31,    December 31,
ASSETS                                                   2000           1999
------                                               ------------   ------------
                                                      (Unaudited)
<S>                                                  <C>            <C>
CURRENT ASSETS:
    Cash                                               $      0       $      0
    Accounts receivable, net of allowance for
      doubtful accounts of $1,789 and $1,444             85,418         37,196
    Inventories                                         170,566        144,915
    Prepaid expenses and other current assets             5,271          5,204
                                                       --------       --------

                Total current assets                    261,255        187,315


FIXED ASSETS, net of accumulated depreciation
  and depletion of $41,547 and $38,455                  195,311        169,317


DEFERRED FINANCING EXPENSES, net of
  accumulated amortization of $2,227 and $1,985           6,378          3,327


GOODWILL, net of accumulated amortization
  of $4,557 and $3,872                                  139,014         58,822
                                                       --------       --------

                                                       $601,958       $418,781
                                                       ========       ========
</TABLE>

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

                                    Page 1
<PAGE>

                           HINES HORTICULTURE, INC.
                          CONSOLIDATED BALANCE SHEETS
                     March 31, 2000 and December 31, 1999
                   (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                              March 31,     December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY                            2000            1999
------------------------------------                       --------------   ------------
                                                            (Unaudited)
<S>                                                        <C>              <C>
CURRENT LIABILITIES:
    Accounts payable                                          $ 30,114        $ 18,282
    Accrued liabilities                                          7,193           8,618
    Accrued payroll and benefits                                 5,453           7,402
    Accrued interest                                             4,158           4,926
    Long-term debt, current portion                             12,355          12,730
    Borrowings on revolving credit facility                     88,500          34,750
    Deferred income taxes                                       46,759          46,565
                                                              --------        --------

                 Total current liabilities                     194,532         133,273

LONG-TERM DEBT                                                 314,146         195,677

DEFERRED INCOME TAXES                                           16,079          15,081

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
    Common Stock
      Authorized - 60,000,000 shares  $.01 par value;
      Issued and outstanding - 22,072,549 shares
      at March 31, 2000 and December 31, 1999                      221             221

    Additional paid in capital                                 127,938         127,938
    Notes receivable from stock sales                             (127)           (173)
    Deficit                                                    (46,815)        (49,145)
    Accumulated other comprehensive loss                        (4,016)         (4,091)
                                                              --------        --------

                 Total shareholders' equity                     77,201          74,750
                                                              --------        --------

                                                              $601,958        $418,781
                                                              ========        ========
</TABLE>

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

                                    Page 2
<PAGE>

                           HINES HORTICULTURE, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                  Three Months Ended March 31, 2000 and 1999
                   (Dollars in thousands except share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                      2000             1999
                                                   -----------      -----------
<S>                                                <C>              <C>
Sales, net                                         $    84,900      $    59,402
Cost of goods sold                                      44,082           29,343
                                                   -----------      -----------

   Gross profit                                         40,818           30,059
                                                   -----------      -----------

Selling and distribution expenses                       20,894           14,712
General and administrative expenses                      8,334            7,666
Amortization of goodwill                                   685              305
                                                   -----------      -----------
   Total operating expenses                             29,913           22,683
                                                   -----------      -----------

   Operating income                                     10,905            7,376
                                                   -----------      -----------

Other expenses
   Interest                                              7,084            4,302
   Amortization of deferred financing expenses             242              187
                                                   -----------      -----------
                                                         7,326            4,489
                                                   -----------      -----------

Income before income taxes                               3,579            2,887

Income tax provision                                     1,249            1,187
                                                   -----------      -----------

Net income                                         $     2,330      $     1,700
                                                   ===========      ===========

Basic earnings per share:

   Net income per common share                     $      0.11      $      0.08
                                                   ===========      ===========

Diluted earnings per share:

   Net income per common share                     $      0.11      $      0.08
                                                   ===========      ===========

Weighted average shares outstanding--Basic          22,072,549       22,072,549
                                                   ===========      ===========
Weighted average shares outstanding--Diluted        22,072,549       22,072,549
                                                   ===========      ===========
</TABLE>

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

                                    Page 3
<PAGE>

                           HINES HORTICULTURE, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Three Months Ended March 31, 2000 and 1999
                   (Dollars in thousands, except share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                        2000             1999
                                                    -----------      -----------
<S>                                                 <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                         $   2,330        $  1,700
  Adjustments to reconcile net income to
   net cash provided by operating activities -
    Depreciation, depletion and amortization             3,844           2,900
    Amortization of deferred financing costs               242             187
    Gain on sale of fixed assets                           (28)              -
    Deferred income taxes                                1,192           1,603
                                                     ---------        --------
                                                         7,580           6,390
Change in working capital accounts, net of effect
 of acquisitions:
  Accounts receivable                                  (43,132)        (33,673)
  Inventories                                          (15,042)        (11,831)
  Prepaid expenses and other current assets                 70             130
  Accounts payable and accrued liabilities               3,153           9,239
                                                     ---------        --------
    Net cash used in operating activities              (47,371)        (29,745)
                                                     ---------        --------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of fixed assets                              (9,101)         (6,957)
  Proceeds from sale of fixed assets                        38               -
  Acquisitions, net of cash                           (112,034)           (985)
                                                     ---------        --------
    Net cash used in investing activities             (121,097)         (7,942)
                                                     ---------        --------

CASH FLOWS FROM FINANCING ACTIVITIES
  Borrowings on revolving line of credit                65,265          38,550
  Repayments on revolving line of credit               (11,515)         (1,500)
  Proceeds from the issuance of long-term debt         119,416             127
  Repayments of long-term debt                          (1,317)             (5)
  Proceeds from stock sales notes receivable                46               -
  Deferred financing costs incurred                     (3,293)              -
                                                     ---------        --------
    Net cash provided by financing activities          168,602          37,172
                                                     ---------        --------

    Effect of exchange rate changes on cash               (134)              -

NET DECREASE IN CASH                                         -            (515)

CASH, beginning of period                                    -             515
                                                     ---------        --------

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

Supplemental disclosure of cash flow information:
  Cash paid for interest, net of capitalized
   interest of $166 and $135                         $   7,852        $  1,468
  Cash paid for income taxes                         $     297        $     43
</TABLE>

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

                                    Page 4
<PAGE>

                           HINES HORTICULTURE, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (Dollars in thousands)
                            MARCH 31, 2000 AND 1999
                                  (UNAUDITED)

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

     Hines Horticulture, Inc., a Delaware corporation ("Hines"), produces and
     distributes horticultural products through two operating divisions: (1) its
     nursery division, Hines Nurseries and (2) its growing media division, Sun
     Gro Horticulture ("Sun Gro").  The business of Hines is currently conducted
     through Hines Nurseries, Inc. ("Hines Nurseries") a wholly owned subsidiary
     of Hines, and through Sun Gro Horticulture Inc. ("Sun Gro-U.S.") a wholly
     owned subsidiary of Hines Nurseries, Sun Gro-U.S.'s wholly owned
     subsidiary, Sun Gro Horticulture Canada Ltd. ("Sun Gro-Canada"), and Sun
     Gro-Canada's direct and indirect Canadian subsidiaries.  Unless otherwise
     specified, references to "Hines" or the "Company" refer to Hines
     Horticulture, Inc. and its subsidiaries.

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

     Sun Gro produces and markets peat moss and professional peat and bark-based
     growing media horticulture products for both retail and professional
     customers.  Sun Gro markets its products in North America and various
     international markets with production facilities located in Canada and the
     United States.

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

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



                                     Page 5
<PAGE>

     Accordingly, footnote and other disclosures which would substantially
     duplicate the disclosures contained in the Form 10-K filed on March 27,
     2000 by Hines Horticulture, Inc. under the Securities Exchange Act of 1934,
     as amended (the "Exchange Act"), have been omitted.  The financial
     information herein is not necessarily representative of a full year's
     operations.

3.   Earnings Per Share:
     -------------------

     For the three months ended March 31, 2000, there are no differences between
     the numerators and denominators for basic and diluted earnings per share
     since common stock equivalents have been excluded from the earnings per
     share calculation because the effect would be anti-dilutive. The only
     potentially dilutive shares relate to stock options.  There were no
     dilutive common stock equivalents outstanding during the three months ended
     March 31, 1999.

4.   Inventories:
     ------------

     Inventories consisted of the following:

                                           March 31,   December 31,
                                           ---------   ------------
                                              2000         1999
                                           ---------   ------------
     Nursery stock                         $146,253       $121,330
     Finished goods                          10,830         10,799
     Materials and supplies                  13,483         12,786
                                           --------       --------
                                           $170,566       $144,915
                                           ========      =========

5.   Supplemental Cash Flow Information
     ----------------------------------

     Supplemental disclosure of non-cash investing and financing activities were
     as follows:

                                                     March 31,
                                                     ---------
                                                   2000      1999
                                                  --------  -------
     Fair value of assets acquired                $116,571   $   -
     Liabilities assumed and incurred
     in connection with acquisitions                 4,537       -
                                                  --------  -------
     Cash paid                                    $112,034   $   -
                                                  ========  =======


                                     Page 6
<PAGE>

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

    Comprehensive income includes all changes in equity during a period except
    those resulting from investments by and distributions to the Company's
    stockholders.  The Company's comprehensive income is composed of cumulative
    foreign currency translation adjustments. The components of comprehensive
    income during the three months ended March 31, 2000 and 1999, were as
    follows:

                                          Three Months Ended March 31,
                                    ----------------------------------------
                                         2000                   1999
                                        ------                 ------
    Net income                          $2,330                 $1,700
    Cumulative foreign currency
    translation adjustments                 75                     -
                                        ------                 ------

    Comprehensive income                $2,405                 $1,700
                                        ======                 ======

7.  Acquisitions
    ------------
    During the three months ended March 31, 2000, the Company made two
    acquisitions, both of which have been accounted for under the purchase
    method for accounting purposes.  Accordingly, the purchase prices were
    allocated to certain assets and liabilities based on their respective fair
    market values.  The excess of the purchase price over the estimated fair
    market value of the net assets acquired relating to each transaction was
    accounted for as goodwill.  Amounts allocated to goodwill are being
    amortized on a straight-line basis over thirty-five years.  The purchase
    agreements include provisions to adjust the purchase price subject to the
    occurrence of certain future conditions.   The Company's existing
    acquisition facility and a new term loan provided the funds used for the
    acquisitions. The consolidated financial statements include the operating
    results of each acquisition from the date of acquisition.

    On March 3, 2000, the Company entered into an agreement to acquire (i)
    substantially all of the assets and assume certain liabilities of Lovell
    Farms, Inc., and Botanical Farms, Inc.; (ii) the capital stock of Enviro-
    Safe Laboratories, Inc.; and (iii) the partnership interest of Lovell
    Properties (collectively referred to as "Lovell"). Lovell is a supplier of
    bedding and holiday plants to independent garden centers, home centers,
    mass merchandisers and other professional customers in the southeastern
    United States. The total acquisition price was approximately $92.0 million,
    which resulted in goodwill of approximately $70.2 million. In addition,
    under the terms of the purchase agreement, the Company may be required to
    make additional payments of up to $12.5 million, contingent upon Lovell
    achieving certain operating results during 2000 and 2001.

                                     Page 7
<PAGE>

     On January 14, 2000, the Company entered into an agreement to acquire
     certain assets (primarily land and buildings) and all of the outstanding
     capital stock of Willow Creek Greenhouses, Inc. ("Willow Creek"), a
     producer of quality annual bedding plants and holiday plants. The total
     acquisition price was approximately $18.8 million, which resulted in
     goodwill of approximately $10.2 million. In addition, under the terms of
     the purchase agreement, the Company may be required to make additional
     payments of up to $1.1 million, contingent upon Willow Creek achieving
     certain operating results during 2000 and 2001.

     In connection with the Lovell acquisition on March 3, 2000, the Company
     entered into an amendment to its existing senior credit facility (the
     "Amended Senior Credit Facility") to provide for a new $100 million term
     loan and a $15 million increase in the Company's existing working capital
     revolving credit facility.  The term loan requires annual principal
     payments of $1 million through December 31, 2003, $47 million in fiscal
     year 2004 and the remaining balance in fiscal year 2005.  The term loan and
     revolving credit facility interest rate is a percentage spread over the
     U.S. prime rate and the Eurodollar rate depending upon the Company's
     quarterly leverage and interest rate coverage ratios as defined in the
     Amended Senior Credit Facility.  The term loan and revolving credit
     facility are secured by substantially all of the assets and common stock of
     the Company's domestic subsidiaries and 65% of the common stock of its
     foreign subsidiary.  The Lovell acquisition was financed with proceeds from
     the Amended Senior Credit Facility.

     Pro Forma Operating Data

     The following summary of condensed unaudited pro forma results of
     operations for the three months ended March 31, 2000 and 1999 gives effect
     to the acquisitions of Strong Lite Inc. ("Strong Lite"), Pro-Gro Products,
     Inc. and related companies ("Pro Gro"), Atlantic Greenhouses, Inc.
     ("Atlantic"), Willow Creek and Lovell as if they had occurred on January 1,
     1999 (in thousands, except per share data):

     The above acquisitions were completed on August 2, 1999, August 23, 1999,
     September 9, 1999, January 14, 2000 and March 3, 2000, respectively.

                                     Page 8
<PAGE>

<TABLE>
<CAPTION>
                                            For the Three Months Ended March 31,
                                            ------------------------------------
                                              2000                         1999
                                            -------                      -------
<S>                                         <C>                          <C>
Sales, net                                  $91,914                      $84,661
Net Income applicable to common stock         2,192                        2,279
Basic earnings per share:
Income per common share                     $   .10                      $   .10
Diluted earnings per share:
Income per common share                     $   .10                      $   .10
</TABLE>

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

     The Senior Subordinated Notes issued by Hines Nurseries (the issuer) have
     been guaranteed by Hines (the parent guarantor) and by Sun Gro-U.S. (the
     subsidiary guarantor). The issuer and the subsidiary guarantor are wholly
     owned subsidiaries of the parent guarantor and the parent and subsidiary
     guarantees are full, unconditional, and joint and several. Separate
     financial statements of Hines Nurseries and Sun Gro-U.S. are not presented
     and Hines Nurseries and Sun Gro-U.S. are not filing separate reports under
     the Exchange Act because management believes that they would not be
     material to investors. The Senior Subordinated Notes are not guaranteed by
     Sun Gro-Canada or its present or future subsidiaries.

     The following information provides the required disclosures with respect to
     the Company's segments pursuant to Statement of Financial Accounting
     Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise
     and Related Information". The Company operates in two segments: 1) the
     nursery segment and 2) the growing media segment.

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

     .    Consolidating balance sheets as of March 31, 2000 (unaudited) and
          December 31, 1999;

     .    Consolidating statements of operations for the three months ended
          March 31, 2000 and 1999 (unaudited) ; and

     .    Consolidating statements of cash flows for the three months ended
          March 31, 2000 and 1999 (unaudited).

                                     Page 9
<PAGE>

                     Guarantor / Non-guarantor Disclosures

                          Consolidating Balance Sheet
                             As of March 31, 2000
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                          Nursery
                                                          Segment          Growing Media Segment
                                                         ---------  -----------------------------------
                                                                                   Sun Gro
                                              Hines                   Sun Gro       Canada
                                           Horticulture    Hines        U.S.     (Subsidiary
                                             (Parent     Nurseries  (Subsidiary      Non-      Sun Gro                 Consolidated
                                            Guarantor)    (Issuer)   Guarantor)  Guarantors)  Sub-total  Eliminations      Total
                                           ------------  ---------  -----------  -----------  ---------  ------------  ------------
<S>                                        <C>           <C>        <C>          <C>          <C>        <C>           <C>
                  ASSETS
                  ------
Current assets:
  Cash                                         $      -   $      -      $     -      $     -   $      -     $       -      $      -
  Accounts receivable, net                            -     48,786       31,581        5,051     36,632             -        85,418
  Inventories                                         -    151,991       10,055        8,520     18,575             -       170,566
  Prepaid expenses and other current assets           -      1,825        2,923          523      3,446             -         5,271
  Deferred income taxes                              23        122        1,019          466      1,485        (1,630)            -
                                               --------   --------      -------      -------   --------     ---------      --------
                       Total current assets    $     23   $202,724      $45,578      $14,560   $ 60,138     $  (1,630)     $261,255
                                               --------   --------      -------      -------   --------     ---------      --------
Fixed assets, net                                     -    123,686       13,833       57,792     71,625             -       195,311
Deferred financing expenses, net                      -      6,378            -            -          -             -         6,378
Goodwill, net                                         -    117,294       21,014          706     21,720             -       139,014
Deferred income taxes                                 -     13,606            -            -          -       (13,606)            -
Investments in subsidiaries                      83,924     13,309        9,451            -      9,451      (106,684)            -
                                               --------   --------      -------      -------   --------     ---------      --------
                                               $ 83,947   $476,997      $89,876      $73,058   $162,934     $(121,920)     $601,958
                                               ========   ========      =======      =======   ========     =========      ========

  LIABILITIES AND SHAREHOLDERS' EQUITY
  ------------------------------------
Current liabilities:
  Accounts payable                             $      -   $ 20,740      $ 5,474      $ 3,900   $  9,374     $       -      $ 30,114
  Accrued liabilities                                 -      3,106        3,815          272      4,087             -         7,193
  Accrued payroll and benefits                        -      3,698          754        1,001      1,755             -         5,453
  Accrued interest                                    -      3,871          287            -        287             -         4,158
  Long-term debt, current portion                     -      8,308        1,510        2,537      4,047             -        12,355
  Revolving line of credit                            -     88,500            -            -          -             -        88,500
  Deferred income taxes                               -     48,389            -            -          -        (1,630)       46,759
  Intercompany accounts                           6,746    (56,821)      33,028       17,047     50,075             -             -
                                               --------   --------      -------      -------   --------     ---------      --------
                  Total current liabilities       6,746    119,791       44,868       24,757     69,625        (1,630)      194,532
                                               --------   --------      -------      -------   --------     ---------      --------
Long-term debt                                        -    268,241       29,140       16,765     45,905             -       314,146
Deferred income taxes                                 -     11,300          800       17,585     18,385       (13,606)       16,079
Shareholders' equity
  Common stock                                      221     17,971       11,414        4,500     15,914       (33,885)          221
  Additional paid in capital                    127,938     21,362        5,889        1,777      7,666       (29,028)      127,938
  Notes receivable from stock sales                (127)         -            -            -          -             -          (127)
  Retained earnings (deficit)                   (46,815)    38,332        1,781        7,674      9,455       (47,787)      (46,815)
  Accumulated other comprehensive loss           (4,016)         -       (4,016)           -     (4,016)        4,016        (4,016)
                                               --------   --------      -------      -------   --------     ---------      --------
                 Total shareholders' equity      77,201     77,665       15,068       13,951     29,019      (106,684)       77,201
                                               --------   --------      -------      -------   --------     ---------      --------
                                               $ 83,947   $476,997      $89,876      $73,058   $162,934     $(121,920)     $601,958
                                               ========   ========      =======      =======   ========     =========      ========
</TABLE>

                                    Page 10
<PAGE>

              Guarantor / Non-guarantor Disclosures - (Continued)

                          Consolidating Balance Sheet
                            As of December 31, 1999
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                          Nursery
                                                          Segment          Growing Media Segment
                                                         ---------  -----------------------------------
                                                                                   Sun Gro
                                              Hines                   Sun Gro       Canada
                                           Horticulture    Hines        U.S.     (Subsidiary
                                             (Parent     Nurseries  (Subsidiary      Non-      Sun Gro                 Consolidated
                                            Guarantor)    (Issuer)   Guarantor)  Guarantors)  Sub-total  Eliminations      Total
                                           ------------  ---------  -----------  -----------  ---------  ------------  ------------
<S>                                        <C>           <C>        <C>          <C>          <C>        <C>           <C>
                  ASSETS
                  ------
Current assets:
  Cash                                         $      -   $      -      $     -      $     -   $      -     $       -      $      -
  Accounts receivable, net                            -     14,705       19,288        3,203       22,491           -        37,196
  Inventories                                         -    126,272        9,742        8,901       18,643           -       144,915
  Prepaid expenses and other current assets           -      2,460        2,231          513        2,744           -         5,204
  Deferred income taxes                              24        122        1,018          465        1,483      (1,629)            -
                                               --------   --------      -------      -------     --------   ---------      --------
                       Total current assets    $     24   $143,559      $32,279      $13,082     $ 45,361   $  (1,629)     $187,315
                                               --------   --------      -------      -------     --------   ---------      --------
Fixed assets, net                                     -     99,124       12,984       57,209       70,193           -       169,317
Deferred financing expenses, net                      -      3,327            -            -            -           -         3,327
Goodwill, net                                         -     36,906       21,206          710       21,916           -        58,822
Deferred income taxes                                 -     13,606            -            -            -     (13,606)            -
Investments in subsidiaries                      81,596     12,874        7,648            -        7,648    (102,118)            -
                                               --------   --------      -------      -------     --------   ---------      --------
                                               $ 81,620   $309,396      $74,117      $71,001     $145,118   $(117,353)     $418,781
                                               ========   ========      =======      =======     ========   =========      ========

  LIABILITIES AND SHAREHOLDERS' EQUITY
  ------------------------------------
Current liabilities:
  Accounts payable                             $      -   $  9,709      $ 4,751      $ 3,822     $  8,573   $       -      $ 18,282
  Accrued liabilities                                 -      2,567        4,617        1,434        6,051           -         8,618
  Accrued payroll and benefits                        -      5,854          702          846        1,548           -         7,402
  Accrued interest                                    -      4,828           98            -           98           -         4,926
  Long-term debt, current portion                     -      8,669        1,516        2,545        4,061           -        12,730
  Revolving line of credit                            -     34,750            -            -            -           -        34,750
  Deferred income taxes                               -     48,194            -            -            -      (1,629)       46,565
  Intercompany accounts                           6,870    (41,587)      17,863       16,854       34,717           -             -
                                               --------   --------      -------      -------     --------   ---------      --------
                  Total current liabilities       6,870     72,984       29,547       25,501       55,048      (1,629)      133,273
                                               --------   --------      -------      -------     --------   ---------      --------
Long-term debt                                        -    149,775       29,134       16,768       45,902           -       195,677
Deferred income taxes                                 -     11,300          803       16,584       17,387     (13,606)       15,081
Shareholders' equity
  Common stock                                      221     17,971       11,414        4,500       15,914     (33,885)          221
  Additional paid in capital                    127,938     21,362        5,889        1,777        7,666     (29,028)      127,938
  Notes receivable from stock sales                (173)         -            -            -            -           -          (173)
  Retained earnings (deficit)                   (49,145)    36,004        1,421        5,871        7,292     (43,296)      (49,145)
  Accumulated other comprehensive loss           (4,091)         -       (4,091)           -       (4,091)      4,091        (4,091)
                                               --------   --------      -------      -------     --------   ---------      --------
                 Total shareholders' equity      74,750     75,337       14,633       12,148       26,781    (102,118)       74,750
                                               --------   --------      -------      -------     --------   ---------      --------
                                               $ 81,620   $309,396      $74,117      $71,001     $145,118   $(117,353)     $418,781
                                               ========   ========      =======      =======     ========   =========      ========
</TABLE>

                                    Page 11
<PAGE>

              Guarantor / Non-guarantor Disclosures - (Continued)

                     Consolidating Statement of Operations
                     For the quarter ended March 31, 2000
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                          Nursery
                                                          Segment          Growing Media Segment
                                                         ---------  -----------------------------------
                                                                                   Sun Gro
                                              Hines                   Sun Gro       Canada
                                           Horticulture    Hines        U.S.     (Subsidiary
                                             (Parent     Nurseries  (Subsidiary      Non-      Sun Gro                 Consolidated
                                            Guarantor)    (Issuer)   Guarantor)  Guarantors)  Sub-total  Eliminations      Total
                                           ------------  ---------  -----------  -----------  ---------  ------------  ------------
<S>                                        <C>           <C>        <C>          <C>          <C>        <C>           <C>
Sales, net                                      $     -    $49,293      $32,123      $12,870    $44,993       $(9,386)      $84,900
Cost of goods sold                                    -     26,233       20,241        6,994     27,235        (9,386)       44,082
                                                -------    -------      -------      -------    -------       -------       -------
  Gross Profit                                        -     23,060       11,882        5,876     17,758             -        40,818

Operating expenses                                    -     17,139       10,248        2,526     12,774             -        29,913
                                                -------    -------      -------      -------    -------       -------       -------
  Operating income                                    -      5,921        1,634        3,350      4,984             -        10,905
                                                -------    -------      -------      -------    -------       -------       -------
Other expenses:
  Interest                                           (3)     5,913          796          378      1,174             -         7,084
  Interest - intercompany                             -       (839)         542          297        839             -             -
  Amortization of deferred financing
   expenses, other                               (2,328)    (1,676)      (1,704)           -     (1,704)        5,950           242
                                                -------    -------      -------      -------    -------       -------       -------
                                                 (2,331)     3,398         (366)         675        309         5,950         7,326
                                                -------    -------      -------      -------    -------       -------       -------

Income before provision for income taxes          2,331      2,523        2,000        2,675      4,675        (5,950)        3,579
Income tax provision                                  1        195          105          948      1,053             -         1,249
                                                -------    -------      -------      -------    -------       -------       -------
Net income                                      $ 2,330    $ 2,328      $ 1,895      $ 1,727    $ 3,622       $(5,950)      $ 2,330
                                                =======    =======      =======      =======    =======       =======       =======
</TABLE>

                     Guarantor / Non-guarantor Disclosures

                     Consolidating Statement of Operations
                     For the quarter ended March 31, 1999
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                          Nursery
                                                          Segment          Growing Media Segment
                                                         ---------  -----------------------------------
                                                                                   Sun Gro
                                              Hines                   Sun Gro       Canada
                                           Horticulture    Hines        U.S.     (Subsidiary
                                             (Parent     Nurseries  (Subsidiary      Non-      Sun Gro                 Consolidated
                                            Guarantor)    (Issuer)   Guarantor)  Guarantors)  Sub-total  Eliminations      Total
                                           ------------  ---------  -----------  -----------  ---------  ------------  ------------
<S>                                        <C>           <C>        <C>          <C>          <C>        <C>           <C>
Sales, net                                      $     -    $33,173      $22,106       $9,997    $32,103       $(5,874)      $59,402
Cost of goods sold                                    -     17,813       11,418        5,986     17,404        (5,874)       29,343
                                                -------    -------      -------       ------    -------       -------       -------
  Gross Profit                                        -     15,360       10,688        4,011     14,699             -        30,059

Operating expenses                                    -     11,854        8,093        2,736     10,829             -        22,683
                                                -------    -------      -------       ------    -------       -------       -------
  Operating income                                    -      3,506        2,595        1,275      3,870             -         7,376
                                                -------    -------      -------       ------    -------       -------       -------
Other expenses:
  Interest                                            -      3,794          157          351        508             -         4,302
  Interest - intercompany                             -       (359)         331           28        359             -             -
  Amortization of deferred financing
   expenses, other                               (1,700)    (1,585)          49            -         49         3,423           187
                                                -------    -------      -------       ------    -------       -------       -------
                                                 (1,700)     1,850          537          379        916         3,423         4,489
                                                -------    -------      -------       ------    -------       -------       -------

Income before provision for income taxes          1,700      1,656        2,058          896      2,954        (3,423)        2,887
Income tax provision                                  -        (44)         443          788      1,231             -         1,187
                                                -------    -------      -------       ------    -------       -------       -------
Net income                                      $ 1,700    $ 1,700      $ 1,615       $  108    $ 1,723       $(3,423)      $ 1,700
                                                =======    =======      =======       ======    =======       =======       =======
</TABLE>

                                    Page 12
<PAGE>

                  Guarantor / Non-guarantor Disclosures

                  Consolidating Statement of Cash Flows
                   For the quarter ended March 31, 2000
                          (Dollars in thousands)

<TABLE>
<CAPTION>
                                                          Nursery
                                                          Segment          Growing Media Segment
                                                         ---------  -----------------------------------
                                                                                   Sun Gro
                                              Hines                   Sun Gro       Canada
                                           Horticulture    Hines        U.S.     (Subsidiary
                                             (Parent     Nurseries  (Subsidiary      Non-      Sun Gro                 Consolidated
                                            Guarantor)    (Issuer)   Guarantor)  Guarantors)  Sub-total  Eliminations      Total
                                           ------------  ---------  -----------  -----------  ---------  ------------  ------------
<S>                                        <C>           <C>        <C>          <C>          <C>        <C>           <C>
Cash provided by (used in) operating
 activities                                        $  3  $ (36,294)    $(12,503)     $ 1,423   $(11,080)         $  -     $ (47,371)
                                                   ----  ---------     --------      -------   --------          ----     ---------

Cash flows from investing activities:
  Purchase of fixed assets, net                       -     (6,468)      (1,312)      (1,283)    (2,595)            -        (9,063)
  Acquisitions, net of cash                           -   (112,034)           -            -          -             -      (112,034)
                                                   ----  ---------     --------      -------   --------          ----     ---------
    Net cash used in investing activities             -   (118,502)      (1,312)      (1,283)    (2,595)            -      (121,097)
                                                   ----  ---------     --------      -------   --------          ----     ---------

Cash flows from financing activities:
  Proceeds from revolving line of credit              -     53,750            -            -          -             -        53,750
  Intercompany advances (repayments)                (49)   (15,324)      15,373            -     15,373             -             -
  Proceeds from the issuance of long-term
   debt                                               -    119,416            -            -          -             -       119,416
  Repayments of long-term debt                        -     (1,311)           -           (6)        (6)            -        (1,317)
  Deferred financing costs                            -     (3,293)           -            -          -             -        (3,293)
  Dividends received (paid)                           -      1,558       (1,558)           -     (1,558)            -             -
  Repayments of notes receivables from
   stock sales                                       46          -            -            -          -             -            46
                                                   ----  ---------     --------      -------   --------          ----     ---------
    Net cash provided by (used in)
     financing activities                            (3)   154,796       13,815           (6)    13,809             -       168,602
                                                   ----  ---------     --------      -------   --------          ----     ---------
  Effect of exchange rate changes on cash
   and cash equivalents                               -          -            -         (134)      (134)            -          (134)
                                                   ----  ---------     --------      -------   --------          ----     ---------

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

                                    Page 13
<PAGE>

                     Guarantor / Non-guarantor Disclosures

                     Consolidating Statement of Cash Flows
                     For the quarter ended March 31, 1999
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                          Nursery
                                                          Segment          Growing Media Segment
                                                         ---------  -----------------------------------
                                                                                   Sun Gro
                                              Hines                   Sun Gro       Canada
                                           Horticulture    Hines        U.S.     (Subsidiary
                                             (Parent     Nurseries  (Subsidiary      Non-      Sun Gro                 Consolidated
                                            Guarantor)    (Issuer)   Guarantor)  Guarantors)  Sub-total  Eliminations      Total
                                           ------------  ---------  -----------  -----------  ---------  ------------  ------------
<S>                                        <C>           <C>        <C>          <C>          <C>        <C>           <C>
Cash provided by (used in) operating
 activities                                        $  -   $(24,218)     $(6,645)     $ 1,118    $(5,527)         $  -      $(29,745)
                                                   ----   --------      -------      -------    -------          ----      --------

Cash flows from investing activities:
  Purchase of fixed assets, net                     (16)    (6,033)        (148)        (760)      (908)            -        (6,957)
  Acquisitions, net of cash                           -       (500)           -         (485)      (485)            -          (985)
                                                   ----   --------      -------      -------    -------          ----      --------
    Net cash used in investing activities           (16)    (6,533)        (148)      (1,245)    (1,393)            -        (7,942)
                                                   ----   --------      -------      -------    -------          ----      --------

Cash flows from financing activities:
  Proceeds from revolving line of credit,
   net                                                -     37,050            -            -          -             -        37,050
  Intercompany advances (repayments)                 16     (6,809)       6,793            -      6,793             -             -
  Proceeds from the issuance of long-term
   debt                                               -          -            -          127        127             -           127
  Repayments of long-term debt                        -         (5)           -            -          -             -            (5)
                                                   ----   --------      -------      -------    -------          ----      --------
    Net cash provided by financing activities        16     30,236        6,793          127      6,920             -        37,172
                                                   ----   --------      -------      -------    -------          ----      --------

Net decrease in cash                                  -       (515)           -            -          -             -          (515)
Cash, beginning of year                               -        515            -            -          -             -           515
                                                   ----   --------      -------      -------    -------          ----      --------
Cash, end of year                                  $  -   $      -      $     -      $     -    $     -          $  -      $      -
                                                   ----   --------      -------      -------    -------          ----      --------
</TABLE>

                                    Page 14
<PAGE>

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

    CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
               PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

          This report contains forward-looking statements. Hines desires to take
     advantage of the safe harbor provisions of the Private Securities
     Litigation Reform Act of 1995 and is including this statement for the
     express purpose of availing itself of the protections of the safe harbor
     with respect to all forward-looking statements. Several important factors,
     in addition to the specific factors discussed in connection with such
     forward-looking statements individually, could affect the future results of
     the Company and could cause those results to differ materially from those
     expressed in the forward-looking statements contained herein.

          The Company's estimated or anticipated future results, products and
     service performance or other non-historical facts are forward-looking and
     reflect Hines' current perspective of existing trends and information.
     These statements involve risks and uncertainties that cannot be predicted
     or quantified and, consequently, actual results may differ materially from
     those expressed or implied by such forward-looking statements. Such risks
     and uncertainties include, among others, the continued ability of Hines' to
     access water, the impact of growing conditions, risks associated with
     customer concentration, future acquisitions and the ability to integrate
     such acquisitions in a timely and cost effective manner, the ability to
     manage growth, the impact of competition, the ability to obtain future
     financing, limitations of leverage and debt restrictions, government
     regulations and other risks and uncertainties defined from time to time in
     Hines' Securities and Exchange Commission filings.

          Therefore, the Company wishes to caution each reader of this report to
     consider carefully these factors as well as the specific factors discussed
     with each forward-looking statement in this report and disclosed in the
     Company's filings with the Securities and Exchange Commission as such
     factors, in some cases, have affected, and in the future (together with
     other factors) could affect, the ability of the Company to implement its
     business strategy and may cause actual results to differ materially from
     those contemplated by the statements expressed herein.

     Overview

          General. Hines is one of the largest commercial nursery operations in
     North America, producing one of the broadest assortments of container-grown
     plants in the industry. The Company sells its nursery products primarily to
     the retail segment, which includes premium independent garden centers, as
     well as leading home centers and mass merchandisers, such as Home Depot,
     Lowe's, Wal-Mart, Kmart and Target. The Company is also the largest North
     American producer and marketer of sphagnum peat moss and professional bark-
     based growing mixes. The Company sells its growing media products primarily
     to professional customers, including greenhouse growers, nursery growers
     and golf course developers. The Company believes that sales of its nursery
     and growing media products have been positively affected by societal and
     demographic trends, such as greater levels of home ownership, the aging of
     the American population and the increasing popularity of gardening. Recent
     trends in the retail distribution channel, such as the expansion of large
     "big box" retailers and their growing emphasis on the lawn and garden
     category, have increased consumer exposure to lawn and garden products.
     Management believes these trends have favorably impacted the Company and
     provide excellent opportunities for improved operating performance.

          Seasonality. The Company's nursery business, like that of its
     competitors, is highly seasonal. In 1999, approximately 75% of Hines
     Nurseries' net sales and approximately 117% of Hines Nurseries' operating
     income occurred in the first half of the year. Approximately 57% of Hines
     Nurseries' net sales and approximately 105% of Hines Nurseries' operating
     income occurred in the second quarter of 1999. The Company has experienced
     and expects to continue to experience significant seasonality in net sales,
     operating income and net income. This quarterly variability is primarily
     the result of the consumer gardening cycle, which is closely aligned to
     seasonal weather patterns, particularly weekend weather during the peak
     growing season, as well as other factors. Sun Gro's sales, because they are
     more heavily weighted towards the professional markets, typically do not
     experience the large seasonal variances present in the retail market, and
     are only slightly weighted towards the first half of the year.

                                    Page 15
<PAGE>

          Acquisitions. The Company has completed a number of recent
     acquisitions to expand and diversify its operations. Since January 1, 1997,
     the Company has completed eight acquisitions, all of which have been
     accounted for under the purchase method. Accordingly, the purchase prices
     were allocated to certain assets and liabilities based on their respective
     fair market values. The excess of the purchase price over the estimated
     fair market value of the net assets acquired relating to each transaction
     was accounted for as goodwill. Amounts allocated to goodwill are being
     amortized on a straight-line basis over thirty-five years. The Company's
     existing acquisition facility and a new term loan provided the funds used
     for the acquisitions. The consolidated financial statements include the
     operating results of each acquisition from the date of acquisition.

          On March 3, 2000, the Company entered into an agreement to acquire (i)
     substantially all of the assets and assume certain liabilities of Lovell
     Farms, Inc., and Botanical Farms, Inc.; (ii) the capital stock of Enviro-
     Safe Laboratories, Inc.; and (iii) the partnership interest of Lovell
     Properties (collectively referred to as "Lovell"). Lovell is a supplier of
     bedding and holiday plants to independent garden centers, home centers,
     mass merchandisers and other professional customers in the southeastern
     United States. The total acquisition price was approximately $92.0 million,
     which resulted in goodwill of approximately $70.2 million. In addition,
     under the terms of the purchase agreement, the Company may be required to
     make additional payments of up to $12.5 million, contingent upon Lovell
     achieving certain operating results during 2000 and 2001.

          On January 14, 2000, the Company entered into an agreement to acquire
     certain assets (primarily land and buildings) and all of the outstanding
     capital stock of Willow Creek Greenhouses, Inc. ("Willow Creek"), a
     producer of quality annual bedding plants and holiday plants. The total
     acquisition price was approximately $18.8 million, which resulted in
     goodwill of approximately $10.2 million. In addition, under the terms of
     the purchase agreement, the Company may be required to make additional
     payments of up to $1.1 million, contingent upon Willow Creek achieving
     certain operating results during 2000 and 2001.

          These acquisitions have and will continue to affect the
     period-to-period comparability of the operating results discussed below.
     The Company intends to pursue strategic acquisitions from time to time that
     increase its production capacity, broaden or complement its existing
     product lines, expand its geographic presence or offer operating synergies.
     The Company believes that the highly fragmented nature of the nursery
     industry presents it with a number of opportunities to make such
     acquisitions, though the Company does not have current agreements to
     consummate any such acquisitions.

                                    Page 16
<PAGE>

          Tax Matters. The Company derives significant benefits under the U.S.
     federal tax code by qualifying to use the cash method of accounting for
     federal income tax purposes. Under the cash method, sales are included in
     taxable income when payments are received and expenses are deducted as they
     are paid. The primary benefit the Company receives is the ability to deduct
     the cost of inventory as it is incurred. As a result of the Company's
     ability to deduct its growing costs under the farming exception, the
     Company has generally not been required to pay cash income taxes and has
     generated net operating losses for federal income tax purposes. In 1999,
     the Company generated taxable income for federal income tax purposes. To
     the extent taxable income is offset with net operating loss carry forwards,
     no cash federal income tax will be paid apart from a small amount due to
     the alternative minimum tax. During the same period, the Company has
     continued to show a tax provision relating to the recording of deferred
     taxes. At December 31, 1999, the Company had approximately $36.5 million in
     net operating loss carry forwards for federal income tax reporting
     purposes.

     Results of Operations

     Three Months Ended March 31, 2000 compared to Three Months Ended March 31,
     1999

          Net sales. Net sales of $84.9 million for the three months ended March
     31, 2000 increased $25.5 million, or 42.9%, from net sales of $59.4 million
     for the comparable period in 1999. This substantial sales gain was
     attributable in part to recently completed acquisitions in both the nursery
     and growing media businesses. Sales from the Company's nursery operations
     increased 49% during the first quarter, with particularly strong
     performances registered in its Eastern and Southern regions. The Southern
     region continues to benefit from planned capacity expansions and successful
     store service programs. The Company's most recent nursery acquisitions,
     Willow Creek in Arizona and Lovell Farms in Florida were both major
     contributors to a strong first quarter performance as each significantly
     increased sales from recent capacity expansions.

          Net sales of the Company's growing media products increased by 36%
     from the comparable period in 1999. Sales in the Eastern and Central
     regions increased significantly, with recent acquisitions, Strong Lite and
     Pro Gro registering solid performances. Sales of professional peat and mix
     led the growing media segment due in large part to the mounting popularity
     of the Company's professional mixes and the introduction of the Company's
     co-packing operations with large bagged goods companies.

          Gross profit. Gross profit of $40.8 million for the three months ended
     March 31, 2000 increased $10.7 million, or 35.5%, from gross profit of
     $30.1 million for the comparable period in 1999. The increase was primarily
     attributable to higher sales at both the Company's nursery and growing
     media operations.

                                    Page 17
<PAGE>

          As a percent of sales, gross margin decreased from 50.6% to 48.1% of
     net sales primarily due to the impact of recent acquisitions having lower
     gross margins than the existing base business both within the nursery and
     growing media operations and the costs related to scaling up the Company's
     co-packing initiative.

          Operating expenses. Operating expenses of $29.9 million for the three
     months ended March 31, 2000 increased $7.2 million, or 31.7%, from $22.7
     million for the comparable period in 1999. The increase was primarily
     attributable to acquisitions and the significant investment in sales and
     management infrastructure required to support the Company's current and
     future growth. Operating expenses as a percentage of net sales were reduced
     from 38.2% to 35.2% in first three months of 2000, primarily attributable
     to the Company's ability to leverage operating expenses on higher sales
     volume.

          Operating income. Operating income of $10.9 million for the three
     months ended March 31, 2000 increased $3.5 million, or 47.3%, from $7.4
     million for the comparable period in 1999. As a percentage of net sales,
     operating income improved 0.4% to 12.8% from 12.4%, due primarily to the
     ability of the Company's growing media business to streamline a number of
     support functions to gain increased administrative efficiencies.

          Interest expense. Interest expense of $7.1 million for the three
     months ended March 31, 2000 increased $3.8 million, or 65.1%, from $4.3
     million for the comparable period in 1999. This increase in interest
     expense is a result of the acquisitions made during the past nine months
     and higher interest rates.

          Provision for income taxes. The Company's effective income tax rate
     was 34.9% and 41.1% for the three months ended March 31, 2000 and 1999,
     respectively. The decrease in the effective income tax rate is mainly due
     to the release of tax reserves management determined will no longer be
     necessary.

          Net income. Net income of $2.3 million for the three months ended
     March 31, 2000 increased $0.6 million from a net income of $1.7 million for
     the comparable period in 1999. The improvement to net income was primarily
     attributable to increased sales and the Company's ability to leverage its
     operating expenses on higher sales volume.

                                    Page 18
<PAGE>

Liquidity and Capital Resources
-------------------------------

     The Company has historically satisfied its working capital requirements
through operating cash flow and borrowing from its working capital facility. Due
to the highly seasonal nature of the Company's nursery operations, the Company
historically significantly increases its borrowing under its revolving credit
facilities to fund peak needs.

     In 1998, the Company entered into a senior credit facility (the "Senior
Credit Facility") which provided for a $50.0 million term loan and a $200.0
million revolving credit facility, comprised of a $100.0 million working capital
facility and a $100.0 million acquisition facility. The Senior Credit Facility
has a five-year term. The revolving credit facility and all other obligations
under the Senior Credit Facility are secured by substantially all of the assets
and common stock of Hines Nurseries and Sun Gro-U.S., as well as a pledge of 65%
of the common stock of Sun Gro-Canada. The principal repayment schedule for the
term loan is $6.25 million in 2000, $11.25 million in 2001, $18.75 million in
2002 and $11.25 million in 2003. Amounts borrowed under the acquisition facility
will convert into a term loan in September 2000 and will begin to amortize
thereafter. The Senior Credit Facility, among other things, limits the ability
of Hines Nurseries and its subsidiaries to pay any dividends.

     In connection with the Lovell acquisition on March 3, 2000, the Company
entered into an amendment to its existing senior credit facility (the "Amended
Senior Credit Facility") to provide for a new $100 million term loan and a $15
million increase in the Company's existing working capital revolving credit
facility. The term loan requires annual principal payments of $1 million through
December 31, 2003, $47 million in fiscal year 2004 and the remaining balance in
fiscal year 2005. The term loan and revolving credit facility interest rate is a
percentage spread over the U.S. prime rate and the Eurodollar rate depending
upon the Company's quarterly leverage and interest rate coverage ratios as
defined in the Amended Senior Credit Facility. The term loan and revolving
credit facility are secured by substantially all of the assets and common stock
of the Company's domestic subsidiaries and 65% of the common stock of its
foreign subsidiary. The Lovell acquisition was financed with proceeds from the
Amended Senior Credit Facility.

     As of March 31, 2000, $78.0 million in aggregate principal amount remains
outstanding of the Company's 11 3/4% Senior Subordinated Notes due 2005, Series
B. The indenture pursuant to which the Senior Subordinated Notes were issued
imposes a number of restrictions on Hines Nurseries and Sun Gro-U.S. The
indenture limits, among other things, their ability to incur additional
indebtedness, to make certain restricted payments (including dividends to
Hines), to make certain asset dispositions, to incur certain liens and to enter
into certain significant transactions.

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<PAGE>

In addition, breach of a material term of the indenture or any other
material indebtedness that results in the acceleration of such indebtedness
would trigger an event of default under the Senior Credit Facility, causing all
amounts owing thereunder to become immediately due and payable. The Senior
Credit Facility imposes a number of similar and certain additional restrictions
(including financial covenants) on Hines Nurseries and its subsidiaries.

     The seasonal nature of the Company's operations results in a significant
increase in certain components of working capital (primarily accounts receivable
and inventory) during the growing and selling cycles. Net cash used by operating
activities for the three months ended March 31, 2000, of $47.4 million increased
$17.7 million, from $29.7 million for the comparable period in 1999. This
increase is attributable to the increased inventory levels to support the
Company's expanded operations and an increased accounts receivable balance
related to the increase in sales in the three months ended March 31, 2000.

     Net cash used for investing activities during the three months ended March
31, 2000 increased $113.2 million to $121.1 million from $7.9 million for the
comparable period in 1999. The increase was primarily due to the Company's
acquisitions of Willow Creek and Lovell, and the development of additional
nursery acreage, the purchase of nursery-related structures, certain vehicles,
and machinery and equipment.

     Net cash provided by financing activities during the three months ended
March 31, 2000 increased $131.4 million to $168.6 million from $37.2 million for
the comparable period in 1999. The increase was primarily associated with
increased borrowings under the Amended Senior Credit Facility related to the
acquisitions described above.

     The Company typically draws under its revolving credit facilities in the
first and fourth quarters to fund its inventory buildup of nursery products and
seasonal operating expenses. Approximately 75% of the sales of Hines Nurseries
occur in the first half of the year, generally allowing the Company to reduce
borrowings under its revolving credit facilities in the second and third
quarters. Working capital requirements for the Company's growing media
operations are less seasonal in nature, with slight inventory buildups generally
occurring in the third and fourth quarters. As the Company approaches the peak-
selling season, this also represents the peak in the Company's borrowings as the
Company funds the significant build-up of receivables and inventories. On April
30, 2000, the Company had unused borrowing capacity of $1.4 million and $11.5
million under its acquisition facility and working capital revolver,
respectively, within the Amended Senior Credit Facility.

                                    Page 20
<PAGE>

     As a result of the Company's ability to deduct its growing costs under the
farming exception, the Company has generally not been required to pay cash
income taxes in recent years and has generated net operating losses for federal
income tax purposes. Even with the benefits of the farming exception, the
Company may nonetheless be required to pay cash income taxes in future years
after use, loss or expiration of its tax net operating loss carry forwards. Such
cash income taxes could also result from increased taxable income due to, among
other reasons, (1) any slowdown in, or elimination of, future growth in the
Company's inventory of growing plants, or (2) limits on the Company's ability to
use net operating loss carryforwards to offset all of its tax liability under
the alternative minimum tax system.

     The Company's capital expenditures were approximately $9.1 million for the
three months ended March 31, 2000. The capital expenditures for Hines Nurseries
($6.5 million) related primarily to the purchase and development of additional
nursery acreage, the purchase of nursery-related structures, vehicles, and
machinery and equipment. The capital expenditures for Sun Gro ($2.6 million)
related primarily to peat bog development and the purchase of peat bog
harvesting and processing equipment. The Company's capital expenditures for 2000
are expected to be approximately $39 million.

     Management believes that cash generated by operations and borrowings
available under the Amended Senior Credit Facility will be sufficient to meet
the Company's anticipated working capital, capital expenditures and debt service
requirements for the foreseeable future. However, as a result of its plan to
pursue strategic acquisitions, the Company will likely require additional debt
or equity financing in the future. There can be no assurance that such
additional financing will be on terms favorable to the Company, or at all.

Year 2000 Compliance
--------------------

     The Company instituted a program to determine whether its computerized
information systems are able to interpret dates beyond the year 1999 and
implemented programming modifications to its main operational and financial
reporting systems to address these issues. The financial systems of companies
recently acquired by the Company were also evaluated to determine whether they
were Year 2000 compliant.

     To date, the Company has not incurred any significant failures,
interruptions of supplies or services related to the Year 2000 issue.

                                    Page 21
<PAGE>

Recent Accounting Pronouncements
--------------------------------

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," which deferred the effective date until the first
fiscal quarter of the first fiscal year beginning after June 15, 2000. Through
March 31, 2000, the Company has not engaged in significant hedging activities or
invested in derivative instruments.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk
         The Company has not experienced any material changes to its market risk
         exposures since December 31, 1999.

                          PART II.  OTHER INFORMATION

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

         (a) Exhibits

         27.1 Financial Data Schedule

         (b) Reports on Form 8-K

         Current Report on Form 8-K dated March 17, 2000, setting forth an
         executed purchase agreement to acquire (i) substantially all of the
         assets and assume certain liabilities of Lovell Farms, Inc., and
         Botanical Farms, Inc.; (ii) the capital stock of Enviro-Safe
         Laboratories, Inc.; and (iii) the partnership interest of Lovell
         Properties.

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

                                    Page 22
<PAGE>

                                   SIGNATURE


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                    HINES HORTICULTURE, INC.
                                    (Registrant)



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



Date:     May 15, 2000

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