SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


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

For the quarterly period ended      January 31, 1999          
                              ----------------------------

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

For the transition from                      to

                         Commission file number 0-16158

                           TreeSource Industries, Inc.
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

            Oregon                                          93-0832150
-------------------------------                  -------------------------------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                              Identification No.)

          10260 S.W. Greenburg Road, Suite 900, Portland, Oregon 97223
--------------------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code)    (503) 246-3440   
                                                    ----------------------

                              WTD Industries, Inc.
--------------------------------------------------------------------------------
         (Former Name, Former Address and Former Fiscal Year, if Changed
                               Since Last Report)

     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
                                             ---  ---

     The number of shares  outstanding  of  Registrant's  Common  Stock,  no par
value, at February 28, 1999 was 11,162,874.


<PAGE>
                           TREESOURCE INDUSTRIES, INC.
                           ---------------------------

                                      INDEX

                                                                          Page
                                                                         Number
                                                                         ------
PART I.       Financial Information (Unaudited)


 Item 1.    Financial Statements

      Consolidated Statements of Operations -
        Three Months and Nine Months Ended January 31, 1999 and 1998        3


      Consolidated Balance Sheets -
        January 31, 1999 and April 30, 1998                                 4


      Consolidated Statements of Cash Flows -
         Nine Months Ended January 31, 1999 and 1998                        6


      Notes to Consolidated Financial Statements                            7

 Item 2.    Management's Discussion and Analysis
            of Financial Condition and Results of
            Operations                                                     11


PART II.  Other Information


 Item 1.   Legal Proceedings                                               16

 Item 3.    Default Upon Senior Securities                                 16

 Item 6.    Exhibits and Reports on Form 8-K                               16







                                       2

<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In Thousands, Except Per-Share Amounts)
                                   (Unaudited)


                                         THREE MONTHS ENDED                   NINE MONTHS ENDED
                                         JANUARY 31,                          JANUARY 31,
                                            1999            1998                 1999            1998
                                         ----------      ----------           ----------      ----------
<S>                                     <C>             <C>                  <C>             <C>       
NET SALES                               $   44,257      $   55,951           $  143,158      $  192,219

COST OF SALES                               43,273          56,958              135,307         182,653
                                         ----------      ----------           ----------      ----------
GROSS PROFIT (LOSS)                            984          (1,007)               7,851           9,566

SELLING, GENERAL AND
     ADMINISTRATIVE EXPENSES                 2,560           2,588                7,952           8,721
                                         ----------      ----------           ----------      ----------
OPERATING INCOME (LOSS)                     (1,576)         (3,595)                (101)            845

OTHER INCOME (EXPENSE)
     Interest Expense                       (1,143)         (1,165)              (3,461)         (3,558)
     Miscellaneous                             (80)           (486)                (180)           (350)
                                         ----------      ----------           ----------      ----------
                                            (1,223)         (1,651)              (3,641)         (3,908)
                                         ----------      ----------           ----------      ----------

INCOME (LOSS) BEFORE INCOME TAXES           (2,799)         (5,246)              (3,742)         (3,063)

PROVISION  FOR INCOME TAXES (BENEFIT)         (117)         (1,601)                (117)         (1,164)
                                         ----------      ----------           ----------      ----------
NET INCOME (LOSS)                           (2,682)         (3,645)              (3,625)         (1,899)

PREFERRED DIVIDENDS                            540             574                1,688           1,716
                                         ----------      ----------           ----------      ----------
NET INCOME (LOSS) APPLICABLE
  TO COMMON STOCKHOLDERS                $   (3,222)     $   (4,219)          $   (5,313)     $   (3,615)
                                         ==========      ==========           ==========      ==========

NET INCOME (LOSS) PER COMMON SHARE
     BASIC                                  ($0.29)         ($0.38)              ($0.48)         ($0.33)
                                            =======         =======              =======         =======


     DILUTED                                ($0.29)         ($0.38)              ($0.48)         ($0.33)
                                            =======         =======              =======         =======










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






                                        3

<PAGE>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
                                 (In Thousands)

                                                   JANUARY 31,        APRIL 30,
                                                      1999              1998
                                                    --------          --------
CURRENT ASSETS                                    (Unaudited)
   Cash and cash equivalents                       $  1,328          $  2,157
   Accounts receivable, net                           8,501            10,464
   Inventories                                       10,787            14,005
   Prepaid expenses                                   1,650             1,195
   Income tax refund receivable                         236                --
   Deferred tax asset                                   750               750
   Assets held for sale                               6,592             6,685
   Timber, timberlands and timber-related assets      2,607             4,252
                                                    --------          --------
      Total current assets                           32,451            39,508


NOTES AND ACCOUNTS RECEIVABLE                            43               103

PROPERTY, PLANT AND EQUIPMENT, at cost
   Land                                               2,236             2,849
   Buildings and improvements                        10,590            11,123
   Machinery and equipment                           64,698            62,623
                                                    --------          --------
                                                     77,524            76,595

     Less reserve for impairment                        941                --
     Less accumulated depreciation                   53,945            52,378
                                                    --------          --------
                                                     22,638            24,217

   Construction in progress                             546               225
                                                    --------          --------
                                                     23,184            24,442

OTHER ASSETS                                            972             1,258
                                                    --------          --------

                                                   $ 56,650          $ 65,311
                                                    ========          ========











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



                                        4
<PAGE>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                    (In Thousands, Except Share Information)



                                                   JANUARY 31,        APRIL 30,
                                                      1999              1998
                                                    --------          --------
CURRENT LIABILITIES                                (Unaudited)
   Accounts payable                                $  7,261          $  8,992
   Accrued expenses                                   6,535             6,568
   Timber contracts payable                             251               323
   Current maturities of long-term debt              43,470             8,467
                                                    --------          --------
      Total current liabilities                      57,517            24,350

LONG-TERM DEBT, less current maturities                 327            36,868

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
   Preferred stock, 10,000,000 shares authorized
     Series A, 270,079 shares outstanding            20,688            20,688
     Series B, 6,111 shares outstanding                 333               333
   Common stock, no par value, 40,000,000 shares
     authorized, 11,162,874 issued and outstanding
     (11,154,374 at April 30, 1998)                  28,761            28,752
   Additional paid-in capital                            15                15
   Retained deficit                                 (50,991)          (45,695)
                                                    --------          --------
                                                     (1,194)            4,093
                                                    --------          --------

                                                   $ 56,650          $ 65,311
                                                    ========          ========


















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



                                        5
<PAGE>
<TABLE>
<CAPTION>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                   (Unaudited)


                                                            NINE MONTHS ENDED JANUARY 31,
                                                           ------------------------------
                                                             1999                  1998
                                                           --------              --------
<S>                                                       <C>                   <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
  Net income (loss)                                       $ (3,625)             $ (1,899)
  Adjustments to reconcile net income (loss) to
     cash provided by operating activities:
    Depreciation, depletion and amortization                 3,098                 4,426
    Deferred income tax                                          0                (1,435)
    Accounts receivable                                      1,963                 8,052
    Inventories                                              3,218                   364
    Prepaid expenses                                          (455)                  387
    Timber, timberlands and timber-related assets - current  2,118                  (138)
    Payables and accruals                                   (1,793)               (3,322)
    Income taxes                                              (236)                   --
                                                           --------              --------
     Cash provided by operating activities                   4,288                 6,435
                                                           --------              --------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
  Acquisition of property, plant and equipment              (2,089)               (7,557)
  Net book value of retirements                                268                    41
  Net book value of disposed idle assets                       177                   173
  Other investing activities                                    60                    90
                                                           --------              --------
     Cash used for investing activities                     (1,584)               (7,253)

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
  Principal payments on long-term debt                      (1,577)               (2,783)
  Other assets                                                (294)                  (68)
  Dividends paid on preferred stock                         (1,671)               (1,722)
  Issuance of common stock                                       9                   105
                                                           --------              --------
     Cash used for financing activities                     (3,533)               (4,468)
                                                           --------              --------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS              (829)               (5,286)
CASH BALANCE AT BEGINNING OF PERIOD                          2,157                 8,209
                                                           --------              --------
CASH BALANCE AT END OF PERIOD                             $  1,328              $  2,923
                                                           ========              ========
CASH PAID (REFUNDED) DURING THE PERIOD FOR:
  Interest                                                  $3,195                $3,151
  Income taxes                                                 ($2)                 $270








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



                                        6
<PAGE>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

NOTE 1 - SUMMARY OF FINANCIAL STATEMENT PRESENTATION

     In the opinion of  management,  the  consolidated  financial  statements of
TreeSource  Industries,  Inc. and  subsidiaries  ("TreeSource" or "the Company")
presented herein include all adjustments, which are solely of a normal recurring
nature, necessary for a fair presentation of the financial position,  results of
operations  and  cash  flows  for  the  interim   periods   presented.   Certain
reclassifications may have been made to the prior period results and balances to
conform to the current period  classifications.  The financial statements should
be read with  reference to  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations" contained in this report, and the "Notes to
Consolidated  Financial  Statements" set forth in the Company's Annual Report on
Form 10-K for the year  ended  April 30,  1998,  filed with the  Securities  and
Exchange  Commission.  The results of operations for the current interim periods
are not  necessarily  indicative  of the results to be expected  for the current
year.

NOTE 2 - INVENTORIES

     Inventories are valued at the lower of cost or market. The amounts included
in  inventories  at  January  31,  1999 and April 30,  1998 are as  follows  (in
thousands):

                                        January 31,            April 30,
                                           1999                  1998
                                       -------------         -------------  
       Logs                            $       4,677         $      3,791
       Lumber                                  4,630                8,635
       Supplies and other                      1,480                1,579
                                       -------------         -------------  

                                       $      10,787         $     14,005
                                       =============         =============  

NOTE 3 - LONG-TERM DEBT

     The Company's primary debt agreement includes certain covenants,  including
the maintenance of specified levels of adjusted cumulative  operating income (as
defined),  tangible net worth, working capital, collateral coverage (as defined)
and total  liabilities  ratio (as defined).  This agreement also imposes certain
restrictions  and  limitations on capital  expenditures,  investments,  dividend
payments,   new  indebtedness,   and  transactions  with  officers,   directors,
shareholders and affiliates. This debt agreement was most recently amended as of
April 1,  1998,  with  respect  to  certain  affirmative  financial  performance
covenants.  At January 31, 1998, the Company was out of compliance with tangible
net worth, working capital and total liabilities ratio (as defined) covenants in
its primary debt agreement.

                                       7
<PAGE>
NOTE 3 - LONG-TERM DEBT (Continued)


     As a cash  savings  measure,  the  Company  has ceased  making  payments of
principal  and  interest  under the  primary  debt  agreement.  The  Company has
initiated discussions with its senior lenders to modify the covenants as well as
payment terms  associated with its primary debt agreement.  In that regard,  the
Company has engaged a financial  consulting firm to work with management and the
Company's  senior  lender  representatives  to  restructure  its  existing  debt
agreement.  Although  the  Company  has in the past  been  able to work with its
senior  lenders to achieve  modification  to its primary debt  agreement and the
Company is currently having positive discussions with its senior lenders,  there
can be no assurance that an agreement will be reached on modified debt terms.

     Because the primary  debt  agreement  is in default  and the  balances  due
thereunder are subject to possible acceleration by the Company's senior lenders,
the Company has chosen to classify the entire obligation as current.

NOTE 4 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING

     Stockholders' equity at January 31, 1999 consists of the following:

         Series A  preferred  stock,  $100  per  share  liquidation  preference;
         500,000  shares  authorized;  270,079  shares  issued and  outstanding;
         limited  voting  rights;  cumulative  dividends  payable  quarterly  in
         advance at the prime rate, with a minimum rate of 6% and a maximum rate
         of 9%; convertible into common stock at $7.50 per share after April 30,
         1999;  redeemable at original issue price plus accrued dividends at the
         option of the Board of  Directors,  in the form of cash or in  exchange
         for senior unsecured debt with a 12% coupon.  The holders of the Series
         A  preferred  stock  will  have the  right to elect a  majority  of the
         Company's  Board of  Directors  in the event the Company  misses  three
         consecutive  quarterly  dividend  payments,   four  quarterly  dividend
         payments  within  twenty-four  months  or a total  of  eight  quarterly
         dividend  payments.  The Company has missed one dividend payment on the
         Series A  preferred  stock,  which  otherwise  would  have been paid on
         February 26, 1999.

         Series B  preferred  stock,  $100  per  share  liquidation  preference;
         500,000 shares authorized; 6,111 shares issued and outstanding; limited
         voting  rights;  convertible  into  212,693  shares  of  Common  Stock;
         dividends   payable  only  if  paid  on  the  Company's  Common  Stock;
         redeemable at original issue price plus accrued dividends at the option
         of the Board of Directors  after all Series A preferred  stock has been
         redeemed.

         Series  C  junior   participating   preferred  stock,  $100  per  share
         liquidation preference;  400,000 shares authorized; no shares issued or
         outstanding;  each share has 100 votes,  voting  together  with  Common
         Stock;  dividends payable only if paid on the Company's Common Stock at
         100 times the Common Stock dividend rate. This class of preferred stock
         was authorized in connection with the  shareholder  rights plan adopted
         by the Company on March 4, 1998.

                                       8
<PAGE>
NOTE 4 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING
         (Continued)


         Common stock, no par value;  40,000,000 shares  authorized;  11,162,874
         shares issued and outstanding.  Before giving effect to any shares that
         might be  issued  pursuant  to the  exercise  of any stock  options  or
         conversion of any Series A preferred  stock, the total number of common
         shares  would  increase  to  11,375,567  shares if  remaining  Series B
         preferred stock  outstanding at January 31, 1999 is converted to common
         stock.

NOTE 5 - NET INCOME (LOSS) PER SHARE

    The  calculations  of net income  (loss) per share for the  three-month  and
nine-month  periods  ended  January 31, 1999 and 1998 are  summarized  below (in
thousands, except per-share data):
<TABLE>
<CAPTION>
                                               Three Months Ended        Nine Months Ended
                                                    January 31,              January 31, 
                                             ----------------------    ----------------------
                                                1999         1998         1999         1998 
                                             ---------    ---------    ---------    ---------
<S>                                          <C>          <C>          <C>          <C>
NET INCOME (LOSS) APPLICABLE TO
  COMMON SHAREHOLDERS                        $ (3,222)    $ (4,219)    $ (5,313)    $ (3,615)
                                             =========    =========    =========    =========


WEIGHTED AVERAGE SHARES OUTSTANDING
  -BASIC                                       11,163       11,154       11,160       11,122

ADDITIONAL SHARES ASSUMED FROM:
  Conversion of Series B preferred stock           --           --           --           --

  Exercise of stock options                        --           --           --           -- 
                                             ---------    ---------    ---------    ---------

AVERAGE NUMBER OF SHARES AND
  EQUIVALENTS OUTSTANDING
  - DILUTED                                    11,163       11,154       11,160       11,122 
                                             =========    =========    =========    =========

NET INCOME (LOSS) PER COMMON SHARE
  - BASIC                                      ($0.29)      ($0.38)      ($0.48)      ($0.33)
                                             =========    =========    =========    =========

  - DILUTED                                    ($0.29)      ($0.38)      ($0.48)      ($0.33)
                                             =========    =========    =========    =========
</TABLE>

NOTE 6 - INCOME TAXES

     The income tax  provision is based on the  estimated  effective  annual tax
rate for each fiscal year.  The provision  includes  anticipated  current income
taxes payable,  the tax effect of anticipated  differences between the financial
reporting and tax basis of assets and liabilities,  and the expected utilization
of net operating loss (NOL) carryforwards.





                                       9
<PAGE>
NOTE 6 - INCOME TAXES (Continued)


     The  federal  and state  income tax  provision  (benefit)  consists  of the
following (in thousands):
<TABLE>
<CAPTION>
                                                           Three Months Ended         Nine Months Ended
                                                               January 31,                 January 31,
                                                        -----------------------     -----------------------
                                                           1999          1998          1999          1998   
                                                        ---------     ---------     ---------     ---------
<S>                                                     <C>           <C>           <C>           <C>
           Income (loss) before income taxes            $ (2,799)     $ (5,246)     $ (3,742)     $ (3,063)
                                                        =========     =========     =========     =========

           Income tax provision:
             Federal                                    $     (5)     $ (1,391)     $     (5)     $ (1,041)
             State                                          (112)         (210)         (112)         (123)
                                                        ---------     ---------     ---------     ---------

                                                        $   (117)      $(1,601)      $   (117)     $(1,164)
                                                        =========     =========     =========     =========

             Current                                    $   (117)    $      26       $   (117)    $    271
             Deferred                                         --        (1,627)            --       (1,435)
                                                        ---------     ---------     ---------     ---------

                                                        $   (117)      $(1,601)      $   (117)     $(1,164)
                                                        =========     =========     =========     =========
</TABLE>

     Company's  remaining  adjusted NOL at April 30, 1998 was  approximately $22
million for federal  income tax and $20 million for state  income tax  purposes.
These carryforwards  expire in 2007 and 2012. Because of the difficult operating
environment  and the  likely  delayed  or  decreased  use of the  Company's  NOL
carryforwards,  the Company has  provided  for a valuation  reserve  against any
benefits created from the current period operating loss. Management periodically
reviews the above  factors and may change the amount of  valuation  allowance as
facts and circumstances dictate.

     In the quarter and nine months ended January 31, 1999, the Company recorded
a tax benefit of $117,000.  This is principally  the result of income tax refund
receivables.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

     The  Company is  involved in various  litigation  primarily  arising in the
normal  course of its business.  The Company has received  notices in connection
with  potential  environmental  litigation.   Additionally,  the  Company  is  a
defendant  in wage claim  litigation  arising out of the  operation of its Trask
facility. See "Legal Proceedings."

     The  Company is subject to  various  federal,  state and local  regulations
regarding waste disposal and pollution control.  Various  regulations  regarding
air and water emissions,  log yard  management,  and disposal or landfill of log
yard debris may require  material  expenditures in the future.  The expenditures
required for the Company to comply with any such regulations may have a material
adverse impact on the Company's  consolidated  financial condition or results of
operations.


                                       10
<PAGE>
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

Results of Operations
---------------------

     On a quarter-to-quarter  basis, the Company's financial results have varied
widely,  and will  continue  to vary,  due to seasonal  fluctuations  and market
factors  affecting  the demand for logs,  lumber  and other wood  products.  The
industry is subject to fluctuations in sales and earnings due to such factors as
industry  production  in relation to product  demand and  variations in interest
rates and  housing  starts.  Currency  fluctuations  affect  the  industry  when
exchange  rates spur log exports and drive up  domestic  log prices,  and when a
relatively   strong  U.S.  dollar   encourages  lumber  imports  from  competing
countries.  Trade  policies and  agreements  between the United States and other
countries,  such as Canada, can also significantly  affect log and lumber prices
in the Company's markets.

     The industry is also  affected by weather  conditions  and changing  timber
management  policies.   Fire  danger  and  excessively  dry  or  wet  conditions
temporarily  reduce  logging  activity and may increase  open market log prices.
Timber  management  policies of governmental  agencies change from time to time,
causing actual or feared  shortages in some areas  periodically.  These policies
change because of  environmental  concerns,  public agency budget issues,  and a
variety of other reasons.  Therefore, past results for any given year or quarter
are not necessarily indicative of future results.

     Results of operations are impacted by which  facilities the Company chooses
to operate. The Company has engaged Agincourt  Consulting of Tacoma,  Washington
to assist the  management  team in  developing  a new  strategic  direction  and
revised business plan. As a result of this work, the Company has decided to sell
its Philomath Forest Products,  Pacific Softwoods,  and Burke Lumber facilities.
Although  the   previously   announced  sale  of  the   Sedro-Woolley,   Midway,
GREENWELD(R) and Central Point businesses to the Encore Group failed for lack of
financing,  the  Company  intends to seek buyers for  Sedro-Woolley,  Midway and
GREENWELD(R), and will entertain offers for its Central Point facility. The work
on the Company's strategic approach and business plan is continuing.

     Raw  materials  comprise the  majority of the cost of products  sold by the
Company.  The Company  depends  principally on open market log purchases for its
raw materials needs.

     Fiscal year 1999 started off with weak lumber prices.  Prices  strengthened
through  the end of the  first  quarter  and into the early  part of the  second
quarter,  whereupon  they  reversed  direction and went down through most of the
second quarter.  Prices stayed low into the third quarter until some improvement
began in mid-December.  The costs  associated with curtailed  facilities and the
inability  to  adequately  reduce log costs in  relation  to lumber  prices have
combined to prevent the Company from achieving overall profitable operations for
the quarter or nine months ended  January 31, 1999.  The Company has added hours
of production at certain locations to optimize results of these operations.  The
margins recently experienced by the Company may not continue or improve, and may
even  decline  further.  During much of fiscal year 1998 and through much of the
first nine months of fiscal year 1999,  there was an oversupply of lumber in the
U.S. market.

                                       11
<PAGE>
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS (Continued)


     This  oversupply   principally   resulted  from  North  American  producers
redistributing to the U.S. market a substantial  portion of their historic level
of shipments to offshore  markets.  During the third quarter chip prices went up
from a year ago, while lumber prices and log costs have declined.

     The following table sets forth the percentages  which certain  expenses and
income items bear to net sales, and the  period-to-period  percentage  change in
each item:
<TABLE>
<CAPTION>
                                             Income and Expense Items as                 Percentage
                                              a Percentage of Net Sales              Increase (Decrease)      
                                       ---------------------------------------  ----------------------------
                                       Three Months Ended   Nine Months Ended     Three Months   Nine Months
                                            January 31,         January 31,         Ended          Ended
                                        -----------------   -----------------     01/31/99       01/31/99
                                                                                     to            to
                                          1999      1998      1999      1998      01/31/98       01/31/98      
                                        -------   -------   -------   -------     --------       --------
<S>                                     <C>       <C>       <C>       <C>         <C>            <C>
Net sales                                100.0 %   100.0 %   100.0 %   100.0 %     (20.9)%        (25.5)%
Cost of sales                             97.8     101.8      94.5      95.0       (24.0)         (25.9)
                                        -------   -------   -------   -------
Gross profit                               2.2      (1.8)      5.5       5.0          NM          (17.9)
Selling, general and
   administrative expense                  5.8       4.6       5.6       4.5        (1.1)           8.8
                                        -------   -------   -------   -------

Operating income                          (3.6)     (6.4)     (0.1)      0.4       (56.2)            NM


Interest expense                          (2.6)     (2.1)     (2.4)     (1.9)       (1.9)          (2.7)
Miscellaneous                             (0.2)     (0.9)     (0.1)     (0.2)      (83.5)         (48.6)
                                        -------   -------   -------   -------

Income (loss) before income taxes         (6.3)     (9.4)     (2.6)     (1.6)      (46.6)          22.2

Provision for income taxes (benefit)      (0.3)     (2.9)     (0.1)     (0.6)      (92.7)         (89.9)
                                        -------   -------   -------   -------
Net income (loss)                         (6.1) %   (6.5) %   (2.5) %   (1.0)%     (26.4)          90.9
                                         ======    ======    ======    ======
Note:  Percentages may not add precisely due to rounding.
NM:   Not Meaningful.
</TABLE>

Comparison of Three Months Ended January 31, 1999 and 1998
----------------------------------------------------------

    Net sales for the three  months  ended  January  31,  1999  decreased  $11.7
million (21%) from the three months ended January 31, 1998. This was principally
caused by a 16% decrease in lumber shipments,  a 9% decrease in chip deliveries,
and a 9% decrease in lumber prices;  partially  offset by a 16% increase in chip
prices. The reduced lumber shipments reflect reduced production resulting from a
weak market for products in the current  quarter  compared to a stronger  market
during much of the third  quarter of fiscal 1998.  The reduced  chip  deliveries
reflect not only reduced  lumber  production but also improved  lumber  recovery
resulting in fewer chips per thousand board feet ("mbf") of lumber produced.

     Gross profit for the quarter  ended January 31, 1999 was 2.2% of net sales,
compared to a negative 1.8% of net sales for the quarter ended January 31, 1998.
Lumber prices  declined by 9% from the third  quarter of fiscal 1998,  while the
Company's log costs also declined by 12%. Unit

                                       12
<PAGE>
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS (Continued)


manufacturing  costs  decreased by 1% from the quarter  ended  January 31, 1998,
principally reflecting more efficient production levels at several locations and
the curtailment of a facility with relatively higher production costs.  

     Selling,  general and  administrative  expenses in the three  months  ended
January 31, 1999  decreased  by $0.03  million  (1%) from the three months ended
January 31, 1998. This decrease  reflects the results of  cost-cutting  measures
taken by the  Company  and the  operation  of  fewer  facilities  in the  recent
quarter.

    In the quarter  ended January 31, 1999,  the Company  recorded a tax benefit
equal to 4% of its pre-tax  loss.  In the quarter  ended  January 31, 1998,  the
Company recorded a tax benefit equal to 30.5% of its pre-tax loss. See Note 6 to
Consolidated Financial Statements.

Comparison of Nine Months Ended January 31, 1999 and 1998
---------------------------------------------------------

     Net sales for the nine  months  ended  January  31,  1999  decreased  $49.1
million  (25.5%)  from  the  nine  months  ended  January  31,  1998.  This  was
principally caused by a 16% decrease in lumber shipments, a 16% decrease in chip
deliveries,  and a 15%  decrease  in lumber  prices;  partially  offset by a 35%
increase in chip prices. The reduced lumber shipments reflect reduced production
resulting from a weak market for products during the most recent period compared
to a stronger  market in the first three  quarters of fiscal  1998.  The reduced
chip  deliveries  reflect not only reduced  lumber  production but also improved
lumber recovery resulting in fewer chips per mbf.

     Gross  profit for the nine  months  ended  January 31, 1999 was 5.5% of net
sales, compared to 5.0% of net sales for the nine months ended January 31, 1998.
Lumber prices declined by 15% from the nine months ended January 31, 1998, while
the Company's log costs declined by 15%.  Production declined compared to levels
in the prior year, when production  levels reflected the more favorable  market.
Unit manufacturing  costs decreased by 2% from the nine months ended January 31,
1998,  principally  reflecting  more  efficient  production  levels  at  several
facilities.

     Selling,  general and  administrative  expenses  in the nine  months  ended
January 31,  1999  decreased  by $0.8  million  (9%) from the nine months  ended
January 31, 1998. This decrease  reflects the results of  cost-cutting  measures
taken by the Company and the  operation of fewer  facilities  in the more recent
period.

     In the nine months  ended  January  31,  1999,  the Company  recorded a tax
benefit  equal to 3% of its pre-tax  loss.  In the nine months ended January 31,
1998,  the Company  recorded a tax benefit equal to 38% of its pre-tax loss. See
Note 6 to Consolidated Financial Statements.


                                       13
<PAGE>
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS (Continued)


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

     The Company  relies on cash provided by its  operations to fund its working
capital  needs.  Such cash may not be sufficient  to fund the  Company's  future
operations.  Substantially  all of the Company's  assets are pledged as security
for its primary debt obligation.

     During the nine months ended January 31, 1999,  the Company's cash and cash
equivalents   decreased   by  $0.8  million  to  $1.3  million  at  January  31.
Approximately  $4.3  million  of cash was  provided  by  operations.  About $1.6
million was used to repay various debt obligations and $2.1 million was used for
capital expenditures. The Company also paid $1.7 million in dividends to holders
of its  Series A  preferred  stock.  In  order to  improve  the  Company's  cash
reserves,  the Company  has  elected not to declare and pay the  dividend on its
Series A preferred  stock that  otherwise  would have been paid on February  26,
1999.  In addition,  the Company has ceased  making  payments of  principal  and
interest on its  primary  debt  agreement  while it  negotiates  with its senior
lenders to restructure the Company's senior debt.

     Capital  spending in the first nine months of fiscal 1999 was $2.1 million.
Capital spending for the balance of the fiscal year is currently  forecast to be
approximately $0.2 million.  The Company had no material commitments for capital
spending at January 31, 1999.

     The Company's  Credit and Security  Agreement dated as of November 30, 1992
("Agreement")   contains  certain   covenants,   including  the  maintenance  of
prescribed  levels of  collateral  coverage  (as  defined),  tangible net worth,
working  capital,  adjusted  cumulative  operating income (as defined) and total
liabilities ratio (as defined). This debt agreement was most recently amended as
of April 1, 1998,  with  respect to certain  affirmative  financial  performance
covenants. [See Note 3 to Consolidated Financial Statements.]

     Due to poor lumber market conditions in the summer and fall of 1998 and the
resulting  poor financial  performance of the Company,  it was not in compliance
with three financial covenants under the Agreement at quarter-end.

     The Company has engaged Seneca Financial Group of Greenwich, Connecticut to
work with management in negotiations with its senior secured lenders with a goal
of  restructuring  its financial  structure to better  accommodate  the cyclical
nature of the Company's business.  In the interim and as a cash savings measure,
the Company has ceased  making  payments of  principal  and  interest  under the
Agreement.  The lenders  have been  supportive  of the  Company  and  previously
consented to  modifications to the Agreement and the Company is currently having
positive  discussions with the lenders,  although there can be no assurance that
lenders  will agree to the  requested  changes or that lenders will refrain from
exercising  their  remedies  under  the  Agreement.  Remedies  available  to the
Company's  lenders  include  seizing all assets  including  cash  necessary  for
operations.  Because the Agreement is in default and the balances due thereunder
are subject to  acceleration,  the entire  obligation has been  reclassified  as
current. [See Note 3 to Consolidated Financial Statements.]

                                       14
<PAGE>
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS (Continued)


     In the event of acceleration by lenders and seizure of assets,  the Company
would  not  have  the  cash  necessary  to  continue   operations.   Under  such
circumstances, the Company would consider all options available to it, including
liquidation  of the  Company  or seeking  protection  from its  creditors  under
applicable laws.

     At January 31, 1999, the Company had net working  capital of negative $25.1
million, $40.2 million less than at April 30, 1998. The working capital decrease
was  primarily  the result of  operating  losses,  capital  spending,  principal
payments on debt,  dividends paid on the Company's Series A preferred stock, and
reclassification of debt under the Agreement.

     The Company has engaged Agincourt  Consulting to assist the management team
in developing a new strategic  direction and revised  business plan. As a result
of this work,  the Company has decided to sell its  Philomath  Forest  Products,
Pacific  Softwoods,  and  Burke  Lumber  facilities.   Although  the  previously
announced  sale of the  Sedro-Woolley,  Midway,  GREENWELD(R)  and Central Point
businesses to the Encore Group failed for lack of financing, the Company intends
to seek buyers for  Sedro-Woolley,  Midway and GREENWELD(R),  and will entertain
offers  for  its  Central  Point  facility.  Under  the  existing  terms  of the
Agreement,  the bulk of the proceeds from the sale of such  facilities  would be
paid to the Company's secured lenders to reduce debt.

Forward - Looking Information
-----------------------------

     Certain statements in this Form 10-Q contain "forward-looking"  information
(as  defined in Section 27A of the  Securities  Act of 1933,  as  amended)  that
involve risks and uncertainties,  including, but not limited to, acceleration of
debt and  seizure  of all cash and other  assets of the  Company  by its  senior
lenders,  inadequate cash reserves or liquidity,  changes in  environmental  and
other   regulations,   additional   expenditures   necessary   to  comply   with
environmental  regulations or adverse outcomes in pending litigation (see "Legal
Proceedings"), the impact of foreign and domestic economic conditions, increased
interest rates, the impact of competitive products and pricing, availability and
cost of raw materials, changes in the Company's ability to use its net operating
loss carryforward and the risk factors listed from time to time in the Company's
SEC  reports,  including,  but not  limited  to, the report on Form 10-K for the
fiscal year ended April 30, 1998 (Part II, Item 7, "Management's  Discussion and
Analysis of Financial Condition and Results of Operations").







                                       15
<PAGE>
                           TREESOURCE INDUSTRIES, INC.

                           PART II. OTHER INFORMATION


Item 1.  Legal Proceedings

     The Company's  South Bend  facility has received a Notice of  Noncompliance
with effluent  permit terms from the  Washington  Department  of Ecology,  and a
Notice of  Noncompliance  with air permit  terms from the Olympic Air  Pollution
Control Authority.  The Company has received a Notice of Intent to sue under the
Clean  Water  Act  from a  citizen's  group  based  on the  effluent  Notice  of
Noncompliance.

     The Company has made  modifications to the plant's boiler system to address
the alleged effluent  noncompliance and a tentative settlement has been reached.
The Company is investigating the alleged air noncompliance.

     The Company and its Trask River subsidiary were named defendants in a claim
for wages and penalties filed in U.S.  District Court for the District of Oregon
on February 17, 1999,  Allen,  Blount,  et al., v. WTD Industries,  Inc.,  Trask
River  Lumber  Company,  Inc.,  and  Bruce  L.  Engel.   Plaintiffs  seek  class
certification. The Company has denied liability.

Item 3.  Default Upon Senior Securities

     Due to poor lumber market conditions in the summer and fall of 1998 and the
resulting  poor financial  performance of the Company,  it was not in compliance
with three  financial  covenants of its primary debt  agreement at  quarter-end.
Additionally,  as a cash saving measure while the Company renegotiates the terms
of its senior debt to better  accommodate  the cyclical  nature of its business,
the Company has elected not to make  payments of  principal  and interest on its
senior debt.  Amounts that otherwise  would be paid through March 17, 1999 total
approximately $1.326 million.

Item 6.    Exhibits and Reports on Form 8-K

       (a)    Exhibits

                  The Index to Exhibits is located on page 18.

       (b)    Reports on Form 8-K

                  No  reports on Form 8-K were filed  during the  quarter  ended
                  January 31, 1999.







                                       16
<PAGE>
                                   SIGNATURES

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




                                  TREESOURCE INDUSTRIES, INC.
                                  --------------------------- 
                                  (Registrant)



                                  By: /s/ Jess R. Drake 
                                     -------------------
                                     Jess R. Drake
                                     President


                                  By: /s/ David J. Loftus
                                     ---------------------
                                     David J. Loftus
                                     Chief Accounting Officer







         March 15, 1999














                                       17
<PAGE>
                           TREESOURCE INDUSTRIES, INC.

                                INDEX TO EXHIBITS
                                                                      Sequential
                                                                          Number
                                                                          System
                                                                            Page
                                                                          Number

3.1      Fourth Restated Articles of Incorporation of Registrant
         adopted effective November 27, 1992, as amended

3.2      Second Restated Bylaws of the Registrant adopted effective
         November 27, 1992(1)

19       Other reports furnished by securities holders with respect
         to the quarter ended January 31, 1999; March 2, 1999 press
         release                                                             19

27       Financial Data Schedule(2)

--------------------------------------------------------------------------------

         (1)Incorporated by reference to the exhibit of like number to the
Registrant's annual report on Form 10-K for the year ended April 30, 1993,
previously filed with the Commission.

         (2)This schedule has been submitted in the electronic form prescribed
by EDGAR.

--------------------------------------------------------------------------------

         All other required Exhibits are listed in the Company's Annual Report
on Form 10-K for the year ended April 30, 1998.














                                       18
<PAGE>
                                   EXHIBIT 19


                  TREESOURCE REPORTS THIRD QUARTER RESULTS


         Portland,  Ore.  --  March  2,  1999  --  TreeSource  Industries,  Inc.
(OTCBB:TRES)  reported  today a net loss of $2.7  million for the quarter  ended
January 31, 1999,  compared to a net loss of $3.6 million for the same period in
1998. The net loss applicable to common  shareholders was $.29 per share for the
quarter ended January 31, 1999,  compared to a net loss of $.38 per share in the
third  quarter last year.  Third quarter net sales were $44.3  million,  down 21
percent from $56 million in the comparable period last year.

         For the nine months ended January 31, 1999, the Company  reported a net
loss of $3.6 million, compared to a net loss of $1.9 million for the same period
last year. The net loss applicable to common shareholders was $.48 per share for
the nine months ended  January 31, 1999,  compared to a net loss  applicable  to
common  shareholders  of $.33 per share for the same period last year. Net sales
were $143.2 million for the nine months  compared to $192.2 million in the prior
year, down 25 percent.

         "As we started our third  quarter,  lumber prices were well below those
which  existed at the  beginning of our third  quarter for each of the last five
years. In mid-December  lumber prices began to improve as curtailments by lumber
producers in Canada created improved sales opportunities for domestic producers.
The  lumber  price  increases,  however,  were not  enough  to allow  profitable
operations overall, " said Jess Drake, president of TreeSource Industries.

         "As we start our fourth quarter, lumber prices are now better than they
were a year ago.  Lumber demand is good,  but  overproduction  and its effect on
lumber prices are still a concern.  There has been only a slight  improvement in
the export lumber market.  In large part it was the decline in the export lumber
market that sent domestic lumber prices sliding as North American  manufacturers
diverted more lumber production into the U.S. market.  Continued softness in the
paper and pulp markets also has put significant  downward  pressure on wood chip
prices.  Compared to this time last year, chip prices are now off  approximately
20%.

         On the positive side, the economy,  housing starts, and retail building
material  sales  all  continue  to show real  strength,  causing  some  economic
forecasters to raise their  forecasts for 1999.  The lumber market  continues to
exhibit strength as well, and our sales organization is increasingly  optimistic
about the lumber  market for 1999.  Unfortunately,  the weather has played havoc
with log supply, limiting availability and resulting in higher log costs. We are
hopeful  that  improved  weather and moving  into the  logging  season will help
mitigate these issues.

         The  improving  conditions  have  allowed us to go to two shifts at our
Glide facility and to increase hours of operation at some other  facilities.  We
continue  to explore  opportunities  to more fully  utilize  our  facilities  as
seasonal log flow increases occur.

         A  strategic  review  has been  completed  in order to  reposition  the
Company to be more successful in the future.  As a result of this review we have
decided to proceed with the sale of a

                                       19
<PAGE>
number of operations in order to focus our resources on our operations  with the
greatest  long-term  potential.  While The  Encore  Group  failed to secure  its
financing  to close on the purchase of several  businesses,  our efforts to sell
Sedro-Woolley,  the Midway  fingerjointing  operation and the GREENWELD(R)  glue
technology  business  will  continue.  Also,  we have decided to sell  Philomath
Forest  Products,  Pacific  Softwoods  and Burke  Lumber.  In addition,  we will
entertain  offers on Central Point.  Our resources will be  concentrated  in our
remaining  operations  in order to more fully  utilize them in the near-term and
modernize them over time to ensure their long-term  success.  So, although fewer
lumber  mills will be  operated,  those mills will  operate more hours than they
have historically.

         We have  also  taken a number  of steps to  reduce  our  costs and cash
needs. Since last year we have reduced our corporate and sales staff by over 40%
and are streamlining our organizational structure. Our focus is to maximize cash
for use in  operations.  As a result,  the  Board of  Directors  decided  not to
declare  the  quarterly  dividend  on the Series A  Preferred  Stock which would
otherwise  have  been  paid at the end of  February.  The  Company  can skip two
consecutive  quarterly  dividend  payments,  three quarterly  dividend  payments
within  twenty-four  months,  or a total of seven quarterly  dividend  payments.
Prior to this  action the Company  has not missed any  dividend  payments on its
Series A preferred stock.

         Due to the poor  lumber  market  in the  summer  and fall of 1998,  the
Company is not in compliance  with three  financial  covenants under its secured
credit agreement. Additionally, as further cash saving measures, we have elected
not to make  payments  under the  Company's  secured debt while we work with our
secured  lenders  to modify the terms of the debt  structure  in order to better
accommodate  the  cyclical  nature  of our  business.  We are  currently  having
positive  discussions with our senior lenders which are moving forward regarding
a  timetable  for  development  of a new  business  plan and a  revised  capital
structure along with a forbearance on interest and principal  during the period.
The Company is also  considering  a possible  equity  infusion,"  concluded  Mr.
Drake.

         The Company disclosed that it has retained Seneca Financial Group, Inc.
of Greenwich, Connecticut to advise it in connection with its strategic options.
Seneca is a merchant bank founded by James W. Harris, a former Managing Director
of Lehman Brothers.

         The Company  further  disclosed  that K.  Stanley  Martin  resigned his
employment  with the  Company  effective  February  15,  1999,  to take  another
position  outside  the  industry.   Mr.  Martin  had  been  the  Company's  Vice
President-Finance  and Chief  Financial  Officer.  A search is underway  for his
successor.  In the interim,  Mr. Martin's duties have been allocated to existing
finance department personnel.

         TreeSource Industries,  Inc. operates facilities in Oregon,  Washington
and  Vermont,  producing  softwood and hardwood  lumber  products.  TreeSource's
lumber is marketed  domestically and internationally  under the TreeSource brand
name.

         TreeSource   Industries,   Inc.   can  be   seen   at  its   web   site
http://www.treesource.com.  For more  information  contact  Robert J. Riecke via
telephone (503) 246-3440 or facsimile (503) 245-7773.


                                       20