TREESOURCE INDUSTRIES, INC.

    United States Securities and Exchange Commission, Washington, D.C. 20549

                                   FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended                   Commission file number
April 30, 2000                              0-16158

TREESOURCE INDUSTRIES, INC., formerly WTD Industries, Inc.
(Exact name of registrant as specified in its charter)

Oregon                                      93-0832150
(State of Incorporation)                    (I.R.S. Employer Identification No.)

10260 S.W. Greenburg Road, Suite 900        Registrant's telephone number,
Portland, Oregon 97223                      including area code: (503) 246-3440
(Address of principal executive offices)

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value (Title of Class)

--------------------------------------------------------------------------------
         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. X
                            ---

         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  twelve  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
    ---

         State  the  aggregate   market  value  of  the  Common  Stock  held  by
non-affiliates of the registrant, as of July 12, 2000: $523,539.

         Indicate the number of shares  outstanding of each of the  registrant's
classes  of Common  Stock,  as of July 12,  2000:  Common  Stock,  no par value:
11,162,874.

                                      -1-
<PAGE>

                           FORM 10-K TABLE OF CONTENTS
Item No.                                                             Page No.

PART I                                                                      3

Item 1.        BUSINESS                                                     3

Item 2.        PROPERTIES                                                   7

Item 3.        LEGAL PROCEEDINGS                                            8

Item 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS          8

PART II                                                                     9

Item 5.        MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
               RELATED STOCKHOLDER MATTERS                                  9

Item 6.        SELECTED FINANCIAL DATA                                     10

Item 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS                         11

Item 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                 18

Item 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE                         18

PART III                                                                   19

Item 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT          19

Item 11.       EXECUTIVE COMPENSATION                                      21

Item 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT                                                  28

Item 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS              29

PART IV                                                                    30

Item 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
               ON FORM 8-K                                                 30
               (a) (1)    Financial Statements                             30
               (a) (2)    Financial Statement Schedules                    30
               (a) (3)    Exhibit Index                                    30
               (b)        Reports on Form 8-K                              36

                                      -2-

<PAGE>

                                     PART I

Item 1.  BUSINESS

The Company
-----------

         TreeSource  Industries,  Inc. is a  corporation  organized in Oregon in
1983, which, through its subsidiaries, manufactures softwood and hardwood lumber
and  by-products.   TreeSource   Industries,   Inc.  and  its  subsidiaries  are
hereinafter  referred to as "TreeSource"  or the "Company".  The Company changed
its name  effective  October 27, 1998 from WTD  Industries,  Inc. to  TreeSource
Industries, Inc. The Company markets its products primarily in the United States
and Canada.

Reorganization of the Company
-----------------------------

         During  the  third  quarter  of  fiscal  1998,  demand by Asia for wood
products  declined  dramatically  causing  lumber  prices  in North  America  to
decline.  Lumber markets remained weak through the third quarter of fiscal 1999.
The Company incurred significant losses as a result of this protracted period of
weak  lumber  markets  combined  with  the  Company's  high  level  of debt  and
substantial  preferred  stock  dividend  obligations,  and  failed  to  generate
sufficient cash from operations to enable the Company to pay its commitments and
continue operating.

         In response to this situation,  on September 27, 1999 the Company filed
for voluntary  reorganization  under Chapter 11 of the U.S. Bankruptcy Code (the
"Code").    The   Company    continues    to   operate   its   business   as   a
debtor-in-possession.  As a debtor-in-possession  under the Code, the Company is
authorized  to operate its  business  subject to the terms of a cash  collateral
order,  but may not engage in  transactions  outside of the  ordinary  course of
business without Court approval.

         On  April  12,  2000  the  Company  filed  an  Amended  Joint  Plan  of
Reorganization  (the "Plan") in U.S.  Bankruptcy  Court (the  "Court")  that, if
confirmed  by the  Court,  would  result in the  cancellation  of the  Company's
current  classes of common and preferred stock and eliminate any value remaining
in these equity securities. The Company's senior secured lenders have a security
interest in  substantially  all the assets of the  Company.  Under the  proposed
Plan,  these senior  secured  lenders  would  exchange a portion of their claims
against  the  Company  for new  equity  securities  to be issued by the  Company
pursuant to the Plan.  The  proposed  Plan also sets up a defined  pool of funds
from which unsecured trade creditors would be paid. The percentage  recovery for
unsecured  trade  creditors  would depend on a number of issues,  including  the
resolution of disputed claims. Based on the Company's estimates of its unsecured
claims,  unsecured  creditors  would receive up to 90% of their claims under the
Plan. On May 17, the Company successfully petitioned the Court to delay the Plan
confirmation  hearing for 120 days due to current lumber market conditions.  The
Company may, at its option, further amend or withdraw the Plan.

         During fiscal 2000 the  equipment at the  Philomath  and  Sedro-Woolley
facilities was auctioned and the land is currently  being prepared for sale. The
Company also  continues to hold for sale the assets of Burke Lumber Co.,  Midway
Engineering,  and Pacific


                                      -3-
<PAGE>

Softwoods. These assets are classified as "Assets Held for Sale" and are carried
at management's estimate of their net realizable value.


Products and Markets
--------------------

         Softwood Lumber
         ---------------

         The  Company  manufactures  a  variety  of  softwood  lumber  products,
predominantly  from Douglas fir,  hemlock,  and white fir. The Company  produces
softwood studs in several species,  generally as 2x4 or 2x6 lumber in lengths of
8 to 10 feet. The Company also makes  dimension  softwood lumber in a wide range
of  widths  and  thicknesses  in  lengths  from 6 to 26  feet.  Softwood  lumber
accounted for 89% of net sales in fiscal 2000,  87% of net sales in fiscal 1999,
and 89% of net sales in fiscal 1998.

         The  Company  sells  softwood  lumber to a large  number of  customers,
primarily  distribution centers and wholesalers and directly to large retailers.
Softwood lumber is used in a variety of applications,  including residential and
commercial construction, packaging, and industrial uses.

         Other Products
         --------------

         The  Company  produces a small  quantity  of  hardwood  lumber in sizes
targeted  principally  for the furniture and cabinet  industries.  Wood chips, a
by-product of the manufacturing  process, are sold principally to pulp and paper
manufacturers. Wood chips and other by-products accounted for 7% of net sales in
fiscal 2000, 8% of net sales in fiscal 1999, and 7% of net sales in fiscal 1998.

Distribution and Marketing
--------------------------

         The Company markets,  distributes,  and arranges transportation for its
lumber products through its wholly owned subsidiary and sales agent,  TreeSource
Industries, Inc. Through its centralized sales function, the Company coordinates
the  production  capabilities  of  individual  mills  to meet a broad  range  of
customer needs.  TreeSource sells primarily through telephone  contacts from its
office in Portland, Oregon.

         Shipments of wood products are generally made by rail or truck directly
from the mill.  Exports do not represent a material portion of the Company's net
sales.

         The Company does not attempt to  accumulate a large  backlog of orders.
TreeSource's  general  practice is to maintain an order file  ranging from about
one to four weeks' production. The filling of orders for certain items, however,
may  require a  substantially  longer  period of time.  The dollar  value of the
Company's  backlog  of orders at both  April 30,  2000 and 1999 was $8  million.
Backlog on any  particular  date may not be indicative of the Company's  average
backlog, net sales, or the backlog for any succeeding period.

         No single  customer  accounted  for as much as 10% of the Company's net
sales  during  fiscal  2000.  The  loss  of  any  one  customer  would  not,  in
management's  opinion,  have a material  adverse  impact on the  Company and its
subsidiaries taken as a whole.



                                      -4-
<PAGE>

Timber Supply
-------------

         The Company has  historically  purchased  timber and logs in sufficient
quantities to match only the current operating requirements of its mills. During
the past year the  Company  generally  increased  the  quantity  of logs held in
inventory pursuant to its revised  procurement  strategy to allow it to maintain
timber and log  supplies  to assure  reasonably  uninterrupted  mill  production
during periods of inclement weather and changes in local log market  conditions.
The goal of the strategy is to allow mills to increase their hours of operation,
more  effectively  manage  both the price and  quality of log  purchases  during
periods of tight supply, and maintain more stable operating costs.

         Timber and logs  comprise the majority of the cost of products  sold by
the Company.  The Company  relies  mainly on open market log purchases to supply
its raw material  needs.  It also purchases  timber-cutting  contracts  ("timber
contracts")  and has  historically  obtained logs to a minor extent from its own
fee  timberlands.  At April 30,  2000,  the Company  owned a small amount of fee
timberlands  in the vicinity of various  mills.  The  following  table shows the
percentages of logs supplied by open market  purchases,  public timber contracts
and fee timberlands, and total log footage required:

         Year Ended    Open      Timber     Fee         Log
          April 30,   Market   Contracts   Timber   Requirements
         ----------   ------   ---------   ------   ------------
            1995        95%        5%          --   317,100 MBF
            1996        94%        5%         1%    228,162 MBF
            1997        94%        5%         1%    320,507 MBF
            1998        94%        6%          --   284,300 MBF
            1999        94%        5%         1%    233,501 MBF
            2000        96%        4%         --    279,670 MBF

MBF - Thousand Board Feet

         During fiscal years 1995 through 1999, the Company operated most of its
mills on a one-shift  basis,  typically  using logs purchased on the open market
from industrial and  non-industrial  private land owners.  In the latter half of
fiscal 1999 and the first  quarter of fiscal  2000,  three mills were moved to a
two-shift operating basis, increasing their annual log consumption.  The ability
to maintain the present level of operations at the Company's  mills depends on a
continuing supply of logs from these private sources.

         The  availability  and cost of timber  and logs have  been,  and should
continue to be, influenced by a variety of factors, including demand by domestic
and export  competitors,  the  environmental and harvest policies of federal and
state  agencies,  and in the long term,  the acreage of commercial  timber land.
For further discussion of current industry conditions relating to timber supply,
see    the     section     titled     "Factors     Affecting     Forward-Looking
Statements--Availability of Logs".

Employees
---------

         The Company and its  subsidiaries  had  approximately  950 employees at
July 12, 2000. The Company uses bonus  programs to motivate its  employees.  See
Note 10 to Consolidated Financial Statements.

                                      -5-
<PAGE>

Environmental Regulation
------------------------

         The Company is subject to federal,  state, and local pollution  control
regulations,  including those regulating air, water,  and noise pollution,  that
have  required,  and are expected to continue to require,  operating and capital
expenditures.   During  fiscal  2000,  the  Company  incurred   expenditures  of
approximately $433,000 for environmental  protection measures.  Expenditures are
projected  to be  approximately  $900,000  for each of  fiscal  2001  and  2002,
including costs to remediate the properties at  Sedro-Woolley,  Washington,  and
Philomath,  Oregon in  preparation  for sale.  Additional  expenditures  will be
necessary to remediate  other sites in preparation for sale. Such amounts cannot
be estimated at this time and may be material. Various regulations regarding air
and water  emissions  and  disposal  or  landfill of log yard debris may require
material  expenditures  in the future.  See "Factors  Affecting  Forward-Looking
Statements--Federal and State Regulations".

Industry Conditions
-------------------

         The United States lumber industry is highly  sensitive to the condition
of the nation's  economy and tends to experience  poor financial  results during
general economic downturns.  Although sales traditionally increase in the spring
and summer  months and decline  during the fall and winter months in response to
seasonal  building  construction  cycles,  such seasonal  patterns are sometimes
absent.  During fiscal 1998, the advent of the Asian financial crisis negatively
impacted  the  industry  and the  Company.  Demand  for  lumber  exports to Asia
decreased significantly.  Manufacturers in North America that had been producing
for the export lumber  market  converted  production to supply the U.S.  market,
which caused an oversupply of lumber.  The  resulting  oversupply  placed strong
downward  pressure  on lumber  prices for most of fiscal  1998 and fiscal  1999,
despite reasonable interest rates and strong construction activity in the United
States.

         Lumber market conditions improved  dramatically in late fiscal 1999 and
through the first quarter of fiscal 2000 as construction  activity  continued to
be strong.  By the second  quarter of fiscal 2000 lumber prices began to decline
as mills  increased  production  and by the third  quarter of fiscal 2000 lumber
prices had returned to the low levels  experienced  in fiscal 1998.  The general
seasonal  spring lumber market upturn did not occur during the fourth quarter of
fiscal 2000 as lumber supply remained greater than lumber demand.

         Wood chip demand and prices are  determined by conditions in the global
pulp and paper  industry and  generally  are not  affected by seasonal  business
cycles.  During  fiscal  2000,  demand for pulp and paper  products  improved as
compared to fiscal 1999 levels,  but the relative  balance of chip production to
chip consumption  caused prices to be essentially  flat. See "Factors  Affecting
Forward-Looking Statements" for further discussion.

Competition
-----------

         The wood products  industry is highly  competitive and includes a large
number  of  companies   manufacturing   relatively  standardized  products.  The
principal  means of  competition  in the lumber  industry  are log costs,  fiber
recovery,  unit production costs,  pricing,  product quality, and the ability to
satisfy customer needs promptly. The Company believes it can compete effectively
based on the foregoing  factors.  Some of  TreeSource's  competitors  are large,
integrated companies that have significantly  greater financial,  production and
marketing  resources  than  the  Company.  Some  of  these  competitors  have  a
significant  base of  low-cost  fee  timberlands  and  timber  contracts,  which
protects them from


                                      -6-
<PAGE>

fluctuations  in log prices and gives them an advantage over the Company,  which
relies  on the  open  log  market  to  supply  the  bulk  of its  raw  materials
requirements.

         The Company's competition also includes lumber manufacturers located in
Canada  that  benefit  from  advantageous  exchange  rates and,  in some  areas,
low-cost  government owned timber when exporting lumber to the United States. As
a result of U.S.  government-initiated  trade talks, Canada agreed that starting
April 1, 1996, for a period of five years,  and subject to specific  exceptions,
lumber exporters in certain  provinces will pay export taxes if  pre-established
levels of exports to the U.S. are exceeded.  The goal of the trade  agreement is
to limit the volume of lumber exported to the U.S. by Canadian  producers.  This
trade  agreement has not fully achieved the desired  effect.  However,  to date,
Canadian lumber producers have paid  significant  export taxes for exceeding the
pre-established  levels of exports.  Current  discussions  between the U.S.  and
Canada  indicate a general  dissatisfaction  with the current  agreement that is
due to expire in 2001.  The lumber  industry  could be  negatively  impacted  by
either the termination or alteration of the current agreement.

         See the sections titled, "Timber Supply",  "Management's Discussion and
Analysis  of  Financial  Condition  and  Results of  Operations",  and  "Factors
Affecting Forward-Looking Statements".

Item 2.  PROPERTIES
<TABLE>
<CAPTION>
MANUFACTURING FACILITIES(1)                                             Thousand Board Feet
                                                                    ---------------------------
                                                                      Fiscal        Est. Annual
                                                                       2000         Production
                                                                    Production      Capacity(2)
                                                                    ----------      -----------
<S>                                                                 <C>             <C>
Softwood Lumber
---------------
Burke Lumber Co., West Burke, Vermont(3)(4)                             24,000           50,000
Central Point Lumber Co., Central Point, Oregon                         64,000          120,000
Glide Lumber Products Co., Glide, Oregon                               150,000          135,000
Morton Forest Products Co., Morton, Washington                          88,000           93,000
North Powder Lumber Co., North Powder, Oregon                           52,000          100,000
Pacific Softwoods Co., Philomath, Oregon(5)(6)                             ---              ---
Philomath Forest Products Co., Philomath, Oregon(5)(7)                     ---              ---
Sedro-Woolley Lumber Co., Sedro-Woolley, Washington(5)(7)(8)               ---              ---
Spanaway Lumber Co., Spanaway, Washington(9)                            91,000          110,000
Trask River Lumber Co., Tillamook, Oregon(9)                            66,000          137,000
Tumwater Lumber Co., Tumwater, Washington(9)                            93,000          107,000

Hardwood Lumber
---------------
Pacific Hardwoods-South Bend Co., South Bend, Washington(9)             18,000           24,000

Fingerjointed Lumber
--------------------
Midway Engineered Wood Products, Inc., Corvallis, Oregon(5)(8)(9)            ---            ---
</TABLE>
----------
(1)  The machinery and equipment of all  facilities  are subject to the security
     interests of certain lenders.
(2)  Capacity is generally computed using a two-shift-per-day, five-day-per-week
     operating schedule.
(3)  Capacity is calculated on a one-shift basis.
(4)  Facility operated during fiscal 2000 and has subsequently  ceased operating
     and is for sale.
(5)  This facility is not operating and is for sale.
(6)  This facility is currently  operating as a custom  drying  operation and is
     for sale.
(7)  The equipment at these  facilities has been auctioned and the land is being
     prepared for sale.
(8)  These subsidiaries lease a substantial  portion of their equipment pursuant
     to operating leases.
(9)  These  subsidiaries  lease the real  property  on which the mill is located
     pursuant to ground leases.

                                      -7-
<PAGE>

         During fiscal 2000 the  equipment at the  Philomath  and  Sedro-Woolley
facilities was auctioned and the land is currently  being prepared for sale. The
Company also  continues to hold for sale the assets of Burke Lumber Co.,  Midway
Engineering,  and Pacific Softwoods. These assets are classified as "Assets Held
for Sale" and are  carried  at  management's  estimate  of their net  realizable
value.


Item 3.  LEGAL PROCEEDINGS

         On September 27, 1999,  TreeSource  Industries,  Inc. and a majority of
its subsidiaries filed a voluntary petition for reorganization  under Chapter 11
of the Federal  Bankruptcy  Code.  The proceeding was filed in the United States
Bankruptcy  Court  for the  Western  District  of  Washington  in  Seattle  (the
"Bankruptcy Court"). The jointly administered proceeding is titled:  "TreeSource
Industries, Inc., et al.", Case Numbers 99-10932, 99-10937 through 99-10961.

         The Company and its Trask River Lumber 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., vs. WTD Industries, Inc.,
Trask  River  Lumber and Bruce L.  Engel).  Although  the case was stayed by the
Company's  Chapter 11 filing,  the plaintiffs  filed a class Proof of Claim. The
Court granted limited relief from stay to allow plaintiffs to attempt to certify
their class and, if successful, to liquidate their claim in the District Court.

         The  Company  and  its  Central  Point  Lumber  subsidiary  were  named
defendants  in a claim for damages filed in Circuit Court of the State of Oregon
for  Jackson  County on August  27,  1999.  The  plaintiff  alleges  retaliatory
wrongful  discharge  and  loss  of  wages  as a  result  of  filing  a  worker's
compensation  claim.  (Donald D. Leiter II  vs.TreeSource  Industries,  Inc. and
Central  Point  Lumber).  This action is currently  stayed due to the  Company's
Chapter 11 filing.

         The Company was named as a  defendant  in a claim for damages  filed in
U.S.  District Court for Eastern  District of Louisiana on January 26, 2000. The
plaintiff is an employee of one of the  Company's  customers who alleges that he
was injured while unloading a box car of lumber. (Alvin Robertson vs. TreeSource
Industries,  Inc., et al.). The suit,  which was being defended by the Company's
insurance carrier, has been settled by the insurance company.



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

         None.



                                      -8-
<PAGE>

                                     PART II

Item 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

Principal Market
----------------

         Effective  January 7, 1999, the Company's Common Stock is quoted on the
OTC Bulletin Board,  under the symbol  TRES.OB.  Before that date, the Company's
stock was quoted on the Nasdaq  National  Market  System  under the same  symbol
(before  October  27,  1998,  under the symbol  WTDI).  The number of holders of
record of TreeSource Industries,  Inc. Common Stock at July 6, 2000 was 564. The
Company   estimates   that  the  total  number  of  its  direct  and  beneficial
shareholders is approximately 4,100.

Stock Price and Dividend Information
------------------------------------

         The  following  tables  show  the  range of  reported  high and low bid
quotations for the two years ended April 30, 2000:

         Fiscal Year Ended
            April 30, 2000            Low             High
         -----------------          -------          -------

         First Quarter              $0.3125          $0.4375
         Second Quarter             $0.0250          $0.3438
         Third Quarter              $0.0156          $0.0781
         Fourth Quarter             $0.0625          $0.0781

         Fiscal Year Ended
            April 30, 1999            Low             High
         -----------------          -------          -------

         First Quarter*             $0.7500          $1.5630
         Second Quarter*            $0.5000          $1.0000
         Third Quarter              $0.3125          $1.0940
         Fourth Quarter             $0.3125          $0.7187



* Prior to January 7, 1999, prices are as reported on Nasdaq.

         The high and low bid  quotations  shown  are  those  quoted  on the OTC
Bulletin Board,  except where noted.  They reflect  inter-dealer  prices, do not
include retail  markups,  markdowns,  or  commissions,  and may not  necessarily
represent actual transactions.  Prior to the Company's October 1986 public stock
offering, there was no public trading market for its Common Stock.

         TreeSource  does not pay any cash  dividends on its Common  Stock.  The
Company's various debt instruments restrict the payment of dividends.  See Notes
1 and 9 to Consolidated Financial Statements.



                                      -9-
<PAGE>

Item 6.  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
FIVE-YEAR SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Amounts and Ratios)
                                                                      YEAR ENDED APRIL 30,
                                                  -------------------------------------------------------------
                                                    2000         1999         1998         1997         1996
                                                  ---------    ---------    ---------    ---------    ---------
<S>                                               <C>          <C>          <C>          <C>          <C>
NET SALES                                         $252,594     $195,390     $242,051     $284,086     $191,964

COST OF SALES                                      235,800      184,015      231,303      255,068      186,514
                                                  ---------    ---------    ---------    ---------    ---------
GROSS PROFIT                                        16,794       11,375       10,748       29,018        5,450

GENERAL, SELLING AND ADMINISTRATIVE EXPENSES        10,888       10,738       11,290       12,529        9,685

IMPAIRMENT AND REORGANIZATION  CHARGES               3,028        6,310        4,168            -         (409)
                                                  ---------    ---------    ---------    ---------    ---------
OPERATING INCOME (LOSS)                               2,878      (5,673)      (4,710)      16,489       (3,826)

INTEREST EXPENSE                                    (2,049)      (4,732)      (4,682)      (5,029)      (5,318)

OTHER INCOME (EXPENSE)                                 283           63         (394)         630          646
                                                  ---------    ---------    ---------    ---------    ---------
INCOME (LOSS) BEFORE INCOME TAXES                     1,112     (10,342)      (9,786)      12,090       (8,498)

PROVISION FOR INCOME TAXES (BENEFIT)                    100         (96)       2,364        3,120       (2,454)
                                                  ---------    ---------    ---------    ---------    ---------
NET INCOME (LOSS)                                     1,012     (10,246)     (12,150)       8,970       (6,044)

PREFERRED DIVIDENDS                                    ---        1,671        2,290        2,228        2,364
                                                  ---------    ---------    ---------    ---------    ---------
NET INCOME (LOSS) APPLICABLE TO                      $1,012    ($11,917)    ($14,440)      $6,742      ($8,408)
  COMMON SHAREHOLDERS                             =========    =========    =========    =========    =========

NET INCOME (LOSS) PER COMMON SHARE, BASIC
  - net income (loss)                                 $0.09      ($1.07)      ($1.30)       $0.61       ($0.76)

    Average shares outstanding                       11,163       11,161       11,130       11,078       11,077

NET INCOME (LOSS) PER COMMON SHARE, DILUTED
  - net income (loss)                                 $0.09      ($1.07)      ($1.30)       $0.59       ($0.76)

    Average shares outstanding                       11,163       11,161       11,130       11,385       11,077


CASH DIVIDENDS PER COMMON SHARE                         --           --           --           --           --

PERIOD END BALANCES

  Working capital                                   $27,975    ($24,340)     $15,158      $29,475      $25,052

  Total assets                                      $57,363      $54,987      $65,311      $86,486      $77,396

  Long-term debt, excluding current maturities         $183         $324      $36,868      $46,086      $50,310

  Stockholders' equity                              ($6,804)     ($7,816)      $4,093      $18,434      $11,686

SELECTED FINANCIAL RATIOS

  Net income (loss) to average:

    Total assets                                       1.80 %      (17.0) %     (16.0) %      10.9  %      (7.3) %

    Stockholders' equity                              (13.8) %     550.4  %    (107.9) %      59.6  %     (38.1) %

  Average stockholders' equity to average
    total assets                                      (13.0) %      (3.1) %     (14.8) %      18.4  %      19.1  %
</TABLE>
                                      -10-
<PAGE>
Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Overview
--------

         On a quarter-to-quarter basis, the Company's financial results have and
will vary widely, due to seasonal  fluctuations and market factors affecting the
demand for logs,  lumber, and other wood products.  Therefore,  past results for
any given year or quarter are not necessarily indicative of future results.

         Lumber market  conditions for fiscal 2000 began on a positive note with
several  months  of  successive  price  increases.  Prices  peaked  in July then
softened  during the rest of fiscal 2000.  The unit price for the  benchmark 2x4
standard and better  increased  from $324 per unit for fiscal 1999 to an average
of $385 per unit for fiscal 2000, a 19%  increase.  During the same period,  the
unit cost of the #2 fir sawlog - a benchmark  for the  Company's  raw  materials
costs - increased from an average of $563 to $634 per unit, a 13% increase. With
lumber prices increasing more than log prices for fiscal 2000,  margins improved
and the Company's profits increased.  Winter weather  conditions  throughout the
Pacific  Northwest  were  relatively  mild  allowing for fewer  weather  related
logging disruptions and more consistent availability of logs.

Reorganization of the Company
-----------------------------

         During  the  third  quarter  of  fiscal  1998,  demand by Asia for wood
products  declined  dramatically  causing  lumber  prices  in North  America  to
decline.  Lumber markets remained weak through the third quarter of fiscal 1999.
The Company incurred significant losses as a result of this protracted period of
weak  lumber  markets,  combined  with  the  Company's  high  level  of debt and
substantial  preferred  stock  dividend  obligations,  and  failed  to  generate
sufficient cash from operations to enable the Company to pay its commitments and
continue operating.

         In response to this situation,  on September 27, 1999 the Company filed
for voluntary  reorganization  under Chapter 11 of the U.S. Bankruptcy Code (the
"Code").    The   Company    continues    to   operate   its   business   as   a
debtor-in-possession.  As a debtor-in-possession  under the Code, the Company is
authorized  to operate its  business  subject to the terms of a cash  collateral
order,  but may not engage in  transactions  outside of the  ordinary  course of
business without Court approval.

         On  April  12,  2000  the  Company  filed  an  Amended  Joint  Plan  of
Reorganization  (the "Plan") in U.S.  Bankruptcy  Court (the  "Court")  that, if
confirmed  by the  Court,  would  result in the  cancellation  of the  Company's
current  classes of common and preferred stock and eliminate any value remaining
in these equity securities. The Company's senior secured lenders have a security
interest in  substantially  all the assets of the  Company.  Under the  proposed
Plan,  these senior  secured  lenders  would  exchange a portion of their claims
against  the  Company  for new  equity  securities  to be issued by the  Company
pursuant to the Plan.  The  proposed  Plan also sets up a defined  pool of funds
from which unsecured trade creditors would be paid.  The percentage recovery for
unsecured trade creditors would


                                      -11-
<PAGE>
depend on a number of issues, including the resolution of disputed claims. Based
on the Company's  estimates of its unsecured claims,  unsecured  creditors would
receive  up to 90% of their  claims  under  the  Plan.  On May 17,  the  Company
successfully petitioned the Court to delay the Plan confirmation hearing for 120
days due to current  lumber market  conditions.  The Company may, at its option,
further amend or withdraw the Plan.

         The costs  associated with the  reorganization  totaled  $2,805,000 for
fiscal 2000.  Interest expense for the year was  approximately  $2,668,000 lower
than it otherwise would have been due to the filing for  reorganization.  During
the  reorganization  period,  the  Company is  allowed  relief  from  payment of
interest  charges on  pre-petition  debt,  but is  required  to accrue  interest
expense on claims that are,  in the opinion of  management,  fully  secured.  No
interest  expense has been  recorded  since  September 27, 1999 on the Company's
senior secured debt or unsecured senior  subordinated  notes because  management
believes these claims are under-secured.  (See Note 6 to Consolidated  Financial
Statements).  The Company filed for  reorganization  in response to a protracted
period of weak lumber markets combined with the Company's high level of debt and
substantial  preferred  stock  dividend  obligations.   The  cash  generated  by
operations was not sufficient to enable the Company to pay its  commitments  and
continue operating.


Yearly Comparisons
------------------

         The  following  table  compares  certain  income and expense items as a
percentage of net sales,  and the  period-to-period  percentage  change for each
item:
<TABLE>
<CAPTION>
                                                    INCOME AND EXPENSE ITEMS AS                       PERCENTAGE
                                                       A PERCENT OF NET SALES                     INCREASE (DECREASE)
                                            ---------------------------------------------     ----------------------------
                                                                                                  2000           1999
                                                        Year Ended April 30,                       vs             vs
                                                                                                  1999           1998
                                            ---------------------------------------------     -------------  -------------
                                               2000              1999            1998
                                            ------------     ------------    ------------     -------------  -------------
<S>                                          <C>              <C>             <C>                <C>          <C>
Net sales                                      100.0 %          100.0 %         100.0 %            29.3%        (19.3)%
Cost of sales                                   93.4             94.2            95.6              28.1         (20.4)
                                            ----------       ----------      ----------
  Gross profit                                   6.6              5.8             4.4              47.6           5.8

Selling, general and administrative expense      4.3              5.5             4.7               1.4          (4.9)
Impairment loss                                  1.2              3.2             1.7             (52.0)           NM
                                            ----------       ----------      ----------
  Operating income (loss)                        1.1             (2.9)           (1.9)              NM          (20.4)

Interest expense                               (0.8)             (2.4)           (1.9)            (56.7)          1.1
Miscellaneous                                   0.1               0.0            (0.2)            349.2            NM
                                            ---------        ----------      ----------
  Income (loss) before income taxes             0.4              (5.3)           (4.0)              NM           (5.7)

Provision for income taxes (benefit)             0.0             (0.0)            1.0               NM             NM
  Net income (loss)                              0.4%            (5.2)%          (5.0)%             NM            15.7
                                            =========        ==========      ==========
</TABLE>

NM - Not Meaningful
Note - percentages may not add due to rounding.

Comparison of 2000 to 1999
--------------------------

         Net sales for the year ended April 30,  2000  increased  $57.2  million
(29%) from the year ended April 30, 1999. This increase was  principally  caused
by a 15%  increase in lumber  sales  volume and an 11% increase in the net sales
average.  The increase in lumber  shipments in fiscal 2000 as compared to fiscal
1999 reflects the Company's strategy to increase asset utilization by increasing
the number of shifts operated at three facilities.

                                      -12-
<PAGE>

         Gross  profit for the year ended  April 30, 2000 was 6.6% of net sales,
compared to 5.8% of net sales for the year ended April 30,  1999.  Lumber  sales
average and volume  increased by 11% and 15%, respectively,  from the year ended
April 30, 1999,  while the  Company's  average log costs  increased by 10%. Unit
manufacturing  costs in fiscal 2000  decreased  by 3% from costs in fiscal 1999,
primarily  due to an  increase  in the  number  of  shifts  operated  at  select
facilities and an increase in productivity at most facilities.

         Selling,  general and  administrative  expenses in the year ended April
30, 2000,  excluding  reorganization and impairment  charges,  increased by $0.2
million (1.4%) as compared to the year ended April 30, 1999.  Impairment charges
for the year ended April 30, 2000 were $0.2  million as compared to $6.3 million
for fiscal 1999.  Reorganization  charges  related to the  Company's  Chapter 11
filing were $2.8 million in fiscal 2000 and $0 occurred in fiscal 1999.

         During fiscal 2000 the  equipment at the  Philomath  and  Sedro-Woolley
facilities  was  auctioned.  Due to the results of the auction,  the  impairment
reserve was  adjusted to reflect the  Company's  estimate of the net  realizable
value of the  remaining  assets held for sale.  Three  facilities  are currently
being held for sale: Burke Lumber Co., Midway  Engineering,  Pacific  Softwoods,
along with the parcels of land associated with Philomath  Forest  Products,  and
Sedro-Woolley Lumber Co. See Note 3 to Consolidated Financial Statements.

         As of April 30,  2000,  the Company  had  available  approximately  $40
million and $28 million,  respectively,  in net  operating  losses  ("NOLs") for
federal and state income tax purposes. Due to the bankruptcy,  substantial doubt
exists regarding the Company's ability to fully utilize these NOLs. As a result,
the Company fully reserved for the NOLs generated during the twelve months ended
April 30 for both 1999 and 2000. As of April 30, 2000 the Company has a deferred
tax asset of $0.8 million.  The Company  periodically  reviews the above factors
and may change  the amount of  valuation  allowance  as facts and  circumstances
dictate.


Comparison of 1999 to 1998
--------------------------

         Net sales for the year ended April 30,  1999  decreased  $46.6  million
(19%) from the year ended April 30, 1998. This decline was principally caused by
a 14%  decrease  in  lumber  sales  volume  and a 6%  decrease  in the net sales
average. The reduced lumber shipments in fiscal 1999 as compared to fiscal 1998,
reflect the closure of the Philomath, Pacific Softwoods, and Sedro-Woolley mills
and weather related curtailments during the winter in fiscal 1999.

         Gross  profit for the year ended  April 30, 1999 was 5.8% of net sales,
compared to 4.4% of net sales for the year ended April 30,  1998.  Lumber  sales
declined  by 11% from the year ended April 30,  1998,  while the  Company's  log
costs  declined by 6%. Unit  manufacturing  costs in fiscal 1999 decreased by 3%
from  costs in fiscal  1998,  primarily  due to a  curtailment  of  higher  cost
operations and an increase in production volume at other operations.

         Selling,  general and  administrative  expenses in the year ended April
30, 1999  decreased by $0.6 million  (4.9%) as compared to such expenses for the
year ended April 30, 1998. This decrease reflects  reductions in corporate staff
and office lease space as well as the closure of certain facilities.

                                      -13-
<PAGE>

         During  the  fourth  quarter  of  fiscal  1999,  the  Company  took  an
impairment  charge in the  amount  of $6.3  million  to  reflect  the  Company's
estimate of the fair value of certain assets that are being held for sale. As of
the end of fiscal 1999, five  facilities  were held for sale:  Burke Lumber Co.,
Midway  Engineering,  Pacific  Softwoods,  along with the land  associated  with
Philomath  Forest  Products,   and  Sedro-Woolley  Lumber  Co.  See  Note  3  to
Consolidated Financial Statements.

         Other expenses for fiscal 1999 reflect  payments made to Bruce L. Engel
in connection with his retirement during the first quarter of the fiscal year.

         In the year ended April 30,  1999,  the Company  sustained  significant
losses.  Because of the difficult  operating  environment  and likely delayed or
decreased  use of the Company's  deferred tax assets,  no income tax benefit was
recorded for the year.  The Company  periodically  reviews the above factors and
may change the amount of valuation allowance as facts and circumstances dictate.
See Note 8 to Consolidated Financial Statements.


LIQUIDITY AND CAPITAL RESOURCES

         At April 30, 2000, the Company had net working capital of $28.0 million
as compared to a net working  capital  deficit of $24.3 million,  an increase of
$52.3  million of which $50.0  million is due to the  exclusion  of  Liabilities
Subject to Compromise from current liabilities. See Note 1 and 6 to Consolidated
Financial  Statements.  Other improvements in working capital resulted primarily
from increases in inventory,  accounts receivable, and cash. Cash increased $1.4
million during the year to $3.5 million due primarily to the sale of assets. The
Company currently holds in an escrow account $1.6 million in cash, pending Court
approval for its  disposition,  from the sale of the  equipment at Philomath and
Sedro-Woolley.

         The Company is currently  operating as a  debtor-in-possession  under a
cash collateral order approved by the Court, pursuant to a number of conditions.
The cash  collateral  order allows the Company to use funds from  operations and
the revolving line of credit for normal operating purposes.  The cash collateral
order also  grants a security  interest in  substantially  all the assets of the
Company to the  pre-petition  senior secured lenders and  post-petition  secured
debtor-in-possession   lenders.   The  current  cash  collateral  order  expires
September  30,  2000.  If the  Company  is unable  to  either  confirm a plan of
reorganization  or obtain a new cash  collateral  order by October 1, 2000,  the
Company may not be able to meet its short term  liquidity  needs.  The Company's
pre-petition  senior secured  creditors have already agreed to one such new cash
collateral order during these bankruptcy proceedings.

         Cash and cash  equivalents  decreased  by  approximately  $0.3  million
during the year ended April 30, 2000, to $1.9 million, excluding $1.6 million in
restricted  cash generated from the sale of certain assets.  Approximately  $0.8
million of cash was  generated by  operations,  including  accounts  receivable,
which increased $2.2 million,  inventories  which increased by $2.1 million, and
pre-paid  expenses which increased $1.2 million.  Cash generated from operations
of $0.8  million  includes  $6.2  million in  pre-petition,  unsecured  accounts
payable  and  accrued  interest  for which  payment was stayed by the Chapter 11
filing. To conserve cash prior to filing for reorganization, the Company has not
paid interest or principal on its


                                      -14-
<PAGE>

senior secured debt and  subordinated  debentures,  or dividends on its Series A
Preferred Stock since March 1999.

         The  Company  historically  has  not had a line of  credit  or  working
capital financing available to it, and,  therefore,  has relied on cash provided
by its  operations  to fund its working  capital  needs.  In early  October,  in
connection  with the  Company's  Chapter  11 filing the  Company  obtained a $16
million  debtor-in-possession  revolving  working  line of credit to provide for
day-to-day liquidity and seasonal log inventory increases.  As of April 30, 2000
there was a $0.4 million loan balance on the  Company's  line of credit and $2.9
million in letters of credit outstanding.

         For the year ended April 30, 2000,  the Company  spent $1.7 million for
capital improvements to its facilities.  The Company had no material commitments
for capital spending at April 30, 2000.

         The Company does not invest in market risk sensitive instruments.


FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

         The  statements  contained  in this report that are not  statements  of
historical  fact and may  include  forward-looking  statements  (as  defined  in
Section 27A of the  Securities Act of 1933, as amended) that involve a number of
risks and uncertainties. Moreover, from time to time the Company may issue other
forward-looking  statements.  The following  factors are among the elements that
could  cause  actual  results  to  differ  materially  from the  forward-looking
statements   and  should  be  considered  in  evaluating   any   forward-looking
statements.

Uncertain Outcome  of Company's Chapter 11 Filing
-------------------------------------------------

         The Company  filed a proposed Plan of  reorganization  in May 2000 that
was  deferred  120 days.  If the  Company is unable to confirm  this Plan or any
other  potential  plan the  ability of the  Company  to  continue  operating  is
uncertain.  Confirmation of any plan depends on the support of creditors and the
Court. If the Company is unable to demonstrate  that it is viable,  conformation
of a plan of  reorganization  is  unlikely.  Viability  may be  demonstrated  by
showing that a Company is worth more as an operating entity than liquidated.

         The worth of a Company  is based on a number of factors  including  but
not limited to: past financial performance; value of the asset; projected future
market conditions and operating  configuration;  projected capital expenditures;
among  other  items.  The  uncertain  nature  of many of the  items  on  which a
Company's worth is based may result in differing  opinions regarding a Company's
worth.  Such differences can result in the opposition and possible  rejection of
any Plan of reorganization proposed by the Company.

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

         On   October   5,   1999   the   Company   obtained   a   $16   million
debtor-in-possession  revolving  line of credit  ("Revolver").  The  Revolver is
secured by accounts  receivable and inventory.  The Revolver was consented to by
the  pre-petition  senior  secured  lenders  to  whom  substantially  all of the
Company's  assets were pledged.  Through the cash collateral


                                      -15-
<PAGE>

order issued by the Bankruptcy  Court, the  pre-petition  senior secured lenders
agreed to the Company's  request for a revolving line of credit to fund seasonal
inventory and general  corporate  needs.  From time to time the cash  collateral
order expires,  if the Company failed to negotiate a new cash collateral  order,
there can be no assurance that cash provided by operations will be sufficient to
fund  the  Company's   future  operating  and  capital  needs.  See  Note  7  to
Consolidated Financial Statements.

Adverse Operating Conditions; Fluctuations in Quarterly Results
---------------------------------------------------------------

         Unusually  robust  domestic  demand  for and  supply  of  lumber  in an
environment  of  increasing  interest  rates has,  and may again  cause  adverse
operating conditions if domestic demand cools. A decline in lumber demand to the
levels  experienced  over the past five years may cause an  oversupply of lumber
and corresponding weakness in lumber prices.

         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  both the  availability  of, and the demand for, logs and the
demand  for  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.
The demand for lumber and wood  products is  primarily  affected by the level of
new residential  construction activity,  which is subject to fluctuations due to
changes in economic  conditions,  real estate  prices,  interest  rates,  credit
availability,   property  taxes,  energy  costs,   population  growth,   weather
conditions and general economic conditions,  all of which are beyond the control
of the Company.

         Demand for the  Company's  products is generally  lower in the fall and
winter quarters when activity in the  construction,  industrial,  and repair and
remodeling  markets  is  slower;  demand is  generally  higher in the spring and
summer quarters, when these markets are more active. Fire danger and excessively
dry or wet  conditions  temporarily  reduce  logging  activity  and may increase
open-market  log  prices.  The  industry is also  affected by timber  management
policies,  which  change  from  time to time  and may  cause  actual  or  feared
shortages  in  some  areas.  These  policies  change  because  of  environmental
concerns, public agency budget issues, and a variety of other reasons.

         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 exports from competing  countries,  such as Canada, or
discourages exports to other countries,  such as Japan. Therefore,  past results
for any given year or quarter are not necessarily  indicative of future results.
The Company believes that period-to-period  comparisons of its financial results
may not be  meaningful  and should not be relied upon as  indications  of future
performance.

Availability of Logs
--------------------

         Raw materials comprise the majority of the cost of products sold by the
Company.  The Company depends primarily on open-market log purchases for its raw
material needs. In the past the Company  generally  purchased logs in sufficient
quantities to match the current operating requirements for its mills. In October
1999 the Company revised it's log procurement strategy to generally increase the
quantity  of logs held in  inventory  to reduce  the risk of  interrupting  mill
production  during periods of inclement  weather and changes in local log market
conditions.  To enable the Company to operate  its  facilities  on a  consistent
basis,  log  inventory  levels  need to be  sufficient  to  reduce  the  risk of
temporary  closures  and reduce or avoid  high-cost  spot log  purchases  during
periods of adverse weather.


                                      -16-
<PAGE>

         The  availability  and  cost of logs are  influenced  by a  variety  of
factors,  including demand by competitors and exporters,  the  environmental and
harvest  policies of federal and state  agencies,  the annual  harvest levels of
commercial  timberland owners, and, in the long term, the quantity of commercial
timberland.  Various factors,  including  environmental  and endangered  species
concerns,  particularly  regulations  relating to the northern  spotted owl, the
marbled  murrelet,  and various species of fish have limited,  and are likely to
continue to limit,  the amount of timber offered for sale by certain  government
agencies,  which historically have been major suppliers of timber to the western
forest products industry.

         State  and  private  timber  supplies  may be  inadequate  to fill  the
shortfall.  Although  the Company  does not rely  significantly  on purchases of
federal timber,  uncertainty  associated with timber supply issues combined with
continued lack of significant public timber sales activity may contribute to log
supply and price  volatility.  The  availability of logs may also be affected by
other  factors,  which  include  damage by fire,  insect  infestation,  disease,
prolonged  drought,  and other  natural  disasters.  Log and lumber  markets may
continue to experience  rapid changes in values  because of actual and perceived
market  conditions  that may  sometimes  result  in  inconsistent  relationships
between log and lumber prices. These changes could result in large swings in the
gross margin  realized by the Company on lumber  produced.  Such swings in gross
margin may be increased by generally  higher log  inventories  maintained by the
Company  during  the  winter  period  pursuant  to  the  Company's  revised  log
procurement and inventory strategy. There can be no assurance that sales of logs
from the Company's  current  sources may not be reduced or that the Company will
be able to procure  sufficient  logs at  favorable  prices in order to  continue
operation of its  manufacturing  facilities in the future.  The inability of the
Company to obtain logs in sufficient  quantities  could have a material  adverse
impact  on  the  Company's  business,   financial  condition,   and  results  of
operations.

Technological Change
--------------------

         Technology and innovation  continually impact the lumber  manufacturing
process.  Changes are continually  being adopted by the industry in general that
cause  mills  to  invest  in  new  capital  equipment  to  remain   competitive.
Depreciation has exceeded capital spending at the Company's core facilities. The
technology  employed at the mills,  generally  lags that of the Company's  major
competitors,  heightening  the risk of  becoming  non-competitive.  The  Company
believes that the technological advances made over the past five years and their
adoption by the Company's  competitors will make TreeSource's mills economically
obsolete if capital spending is not increased.

         If the  Company is not able to increase  capital  spending to keep pace
with the  technological  advances  adopted by the  Company's  competitors,  such
inability  could  have a  material  adverse  impact on the  Company's  business,
financial condition and results of operations.

Manufacturing Risks
-------------------

         The Company manufactures  softwood and hardwood lumber and by-products.
As  a  manufacturer,   the  Company   continually   faces  risks  regarding  the
availability  and  cost of raw  materials  and  labor,  the  potential  need for
additional  capital  equipment,   increases  in  maintenance  costs,  plant  and
equipment  obsolescence,  quality  control,  and excess  capacity.  See  section
titled,  "Industry  Conditions". The Company  curtails  production at


                                      -17-
<PAGE>

facilities from time to time because of conditions that  temporarily  impair log
flow or when  imbalances  between log costs and product prices cause the cost of
operation to exceed the cost of shutdown. See section titled,  "Employees".  The
Company may  permanently  close  facilities  that are  determined to lack future
potential for profit under expected  operating  conditions.  A disruption in the
Company's production or distribution could have a material adverse impact on the
Company's business, financial condition and results of operations.

Federal and State Regulations
-----------------------------

         Laws and regulations dealing with the Company's  operations are subject
to change and new laws and regulations are frequently  introduced concerning the
timber  industry.  From  time  to  time,  bills  are  introduced  in  the  state
legislatures  and the U.S.  Congress that relate to the business of the Company,
including the  protection and  acquisition of old-growth and other  timberlands,
endangered species,  environmental protection, and the restriction,  regulation,
and administration of timber-harvesting  practices. The forest products industry
remains  subject to  potential  state or local ballot  initiatives  and evolving
federal and state case law that could affect timber-harvesting  practices. It is
impossible to assess the effect of such matters on the future operating  results
or  financial  position of the  Company.  The Company is also subject to various
federal,  state,  and local  regulations  regarding waste disposal and pollution
control,  including air, water, and noise pollution.  The cost of remediation at
the Company's sites at Burke,  Vermont;  Philomath,  Oregon;  and Sedro-Woolley,
Washington,  may be more expensive than anticipated and may require the approval
of certain regulators.  See section titled "Environmental  Regulation".  Various
governmental agencies have enacted or are considering  regulations regarding log
yard  management  and  disposal  of log yard  waste  that may  require  material
expenditures  in the  future.  Such  regulations  could have a material  adverse
impact on the Company.



Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial  statements and supplementary  data required by this item
are listed in Item 14 of Part IV of this report, which begins at page 30.



Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

         None.







                                      -18-
<PAGE>

                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The  directors  and  executive  officers  of the Company as of July 12,
2000, are:

Name                      Age    Position
----                      ---    --------

Scott Christie...........  51    Director
Richard W. Detweiler.....  58    Director
Jess R. Drake............  59    Director, President, and Chief Executive
                                    Officer
Robert W. Lockwood.......  39    Vice President-Finance, Chief Financial
                                    Officer, and Secretary
Kevin Murray ............  42    Vice President-Sales and Marketing
William H. Wright........  63    Director

         On July 11, 2000 Larry G. Black, who had been a director of the Company
since October 1997, resigned from the Board of Directors.

         The Company  currently has seven seats on its Board of Directors,  with
three positions vacant because of the resignation in February 1999 of K. Stanley
Martin, a former Class 3 director and the Company's Vice President-Finance,  the
resignation in June 1999 of Robert J. Riecke, also a former Class 3 director and
the Company's General Counsel, Secretary, and Vice President-Administration, and
the resignation of Larry G. Black in July 2000, a Class 2 director.  The Company
intends to leave these seats  vacant for now,  but may elect to fill them in the
future.

         Pursuant to the Company's  Articles of  Incorporation  and Bylaws,  the
Board is divided into three classes of directors, with each class serving a term
of three years or until such time as a valid successor is appointed. As a result
of the Company's  Chapter 11 filing on September  27, 1999,  the Company did not
hold an Annual Meeting of Shareholders in fiscal 2000.  Directors whose terms on
the Board of Directors  would have expired will  continue to serve until a valid
successor  is  appointed.  Mr.  Christie's  term would have  expired at the 1999
annual meeting of  shareholders.  Mr. Drake, a Class 3 director,  was elected by
the Board in November of 1998 to fill a vacancy created by the retirement of the
Company's former president. Mr. Drake's term would also have expired at the 1999
annual meeting of shareholders.  The terms of Class 1 Directors,  Messrs. Wright
and Detweiler, will expire at the 2001 Annual Meeting of Shareholders.

         Subject to certain  conditions,  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 holders
of the Series A Preferred  Stock have the right to obtain voting  control of the
Company's  Board of  Directors  by electing a majority of the Board of Directors
either through replacement of incumbent directors,  or by increasing the size of
the Board.  As of April 30, 2000 the Company was in arrears on five  consecutive
quarterly dividend payments totaling approximately  $2,718,000. In addition, the
Company did not pay a sixth consecutive  quarterly  dividend payment due May 31,
2000.


                                      -19-
<PAGE>

         Scott Christie has been a director of the Company since March 1988. Mr.
Christie is currently  general  partner of Christie  Capital  Management.  Since
1987, Mr. Christie has been engaged as an investment advisor for his own account
and the account of other  individuals.  From 1983 until 1987,  Mr.  Christie was
senior vice  president  of Kidder,  Peabody & Co.  Incorporated,  an  investment
banking firm. Mr. Christie headed Kidder,  Peabody's  underwriting  team for the
Company's initial public offering and 1987 debenture offering.

         Richard W.  Detweiler has been a director of the Company since December
1995.  Mr.  Detweiler  is  currently  a  partner  of  Carlisle  Enterprises,  an
investment  partnership.  From 1990 to 1996, Mr.  Detweiler was chief  executive
officer  of  Precision  Aerotech,  a  diversified   manufacturing  company.  Mr.
Detweiler  has 33 years of  manufacturing  management  experience,  including 16
years in general management.

         Jess R. Drake has been the  Company's  president  and a director  since
November  1998.  From 1987 to 1998,  Mr.  Drake was vice  president  and general
manager of the Northwest  Operations of Simpson  Timber  Company.  Mr. Drake has
experience in  manufacturing,  timberlands,  domestic and  international  sales,
finance,  and  strategic  planning in both the United  States and Canada and has
held  general  management  roles for 20 of his more than 30 years in the  forest
products industry.

         Robert   W.   Lockwood   is   chief   financial    officer   and   vice
president-finance  of the Company,  positions he has held since April 1999,  and
secretary since July 1999. Mr. Lockwood is responsible for all financial affairs
of the  Company.  From  1985 to 1999,  Mr.  Lockwood  was  employed  by  Simpson
Investment Company,  where he held financial and strategic planning roles in the
timber, wood products, and pulp and paper industry sectors and most recently was
the controller of Simpson's Northwest region wood products businesses.

         Kevin P. Murray is vice president-sales and marketing of the Company, a
position he has held since April 2000. Mr. Murray has primary responsibility for
managing all aspects of the Company's lumber sales and transportation.  Prior to
joining the Company,  Mr. Murray was with Western  International Forest Products
for nineteen years, where he managed various lumber sales divisions.

         William H. Wright has been a director of the Company  since April 1992.
Mr.  Wright has held a variety of  management  positions in the forest  products
industry since 1957. He is currently president of Heartwood  Consulting Service,
which advises forest  products  clients.  From 1989 until 1994, he was president
and chief  executive  officer of Dee Forest  Products  Inc., a  manufacturer  of
hardboard  and  related  products.  From 1984 to 1989,  Mr.  Wright was  general
manager of Stevenson Co-Ply Inc., a manufacturer of veneer and plywood.






                                      -20-
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

Section  16(a) of the Securities  Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's officers, directors and persons who
own more than 10% of the  Company's  Common Stock file with the  Securities  and
Exchange  Commission  ("SEC") initial reports of beneficial  ownership on Form 3
and reports of changes in beneficial  ownership of Common Stock and other equity
securities of the Company on Form 4. Officers,  directors,  and greater than 10%
shareholders  of the Company are required by SEC  regulations  to furnish to the
Company  copies of all Section  16(a)  reports that they file.  To the Company's
knowledge,  based solely on reviews of such reports furnished to the Company and
written  representations  that no other reports are required,  all Section 16(a)
filing requirements applicable to its officers,  directors, and greater than 10%
beneficial  owners  were  complied  with  during the fiscal year ended April 30,
2000.


Item 11  EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

         The following table shows the annual and other compensation paid by the
Company  to  its  chief  executive  officer  and  the  four  other  most  highly
compensated  executive  officers who received in excess of $100,000  (the "Named
Executive Officers") for each of the last three fiscal years.
<TABLE>
<CAPTION>
                                                                             Long-Term
                                                                             Compensation
                                                                                Awards
                                           Annual Compensation(1)         --------------------
       Name and Principal            --------------------------------     Number of Securities      All Other
            Position                 Year      Salary($)     Bonus($)     Underlying Options      Compensation ($)
----------------------------------   ----      ---------    ---------     --------------------    ----------------
<S>          <C>                     <C>       <C>          <C>                                       <C>
Jess R. Drake(2)                     2000      $ 350,004    $ 157,500               --                $      --
President and Chief                  1999      $ 166,668    $      --          543,295                $ 132,300
  Executive Officer                  1998      $      --    $      --               --                $      --


Robert W. Lockwood                   2000      $ 150,000    $      --               --                $      --
Vice President-Finance, Chief        1999      $   6,250    $      --          100,000                $      --
  Financial Officer, and Secretary   1998      $      --    $      --               --                $      --


David J. Loftus(3)                   2000      $ 101,935    $      --               --                $      --
Treasurer                            1999      $  80,000    $   9,083               --                $      --
                                     1998      $  80,000    $  21,960               --                $      --

</TABLE>

(1)      Personal benefits for each executive officer named in the table did not
         exceed $50,000 or 10% of such executive  officer's  total annual salary
         and bonus for the fiscal  years  ended April 30,  2000,  1999 and 1998,
         respectively.

(2)      Mr. Drake took office on November 4, 1998; All Other  Compensation  for
         fiscal  1999  includes  a  $100,000   signing  bonus  and  $32,300  for
         consulting services provided prior to November 4, 1998.

(3)      Mr. Loftus resigned from the Company May 12, 2000.



                                      -21-
<PAGE>

                        OPTION GRANTS IN LAST FISCAL YEAR

         The following table provides  information on option grants for the last
fiscal year to the Named Executive Officers:
<TABLE>
<CAPTION>
                                                                                                Potential
                                             Individual Grants                             Realizable Value at
                          --------------------------------------------------------         Assumed Annual Rates
                             # of            % of                                             of Stock Price
                          Securities     Total Options     Exercise                          Appreciation for
                          Underlying      Granted to       or Base                            Option Term(1)
                           Options       Employees in       Price       Expiration    -----------------------------
         Name              Granted        Fiscal Year     ($/Share)        Date        0%($)       5%($)     10%($)
----------------------    ----------    --------------    ---------     ----------    ------      ------     ------
<S>                       <C>                 <C>          <C>          <C>  <C>      <C>         <C>        <C>
Robert W. Lockwood        50,000(2)           83%          $.03825      4/20/2010     $ 338       $1,753     $3,923

</TABLE>

(1)      These assumed appreciation rates are not derived from the historical or
         projected prices of the Company's Common Stock or results of operations
         or financial  condition,  and they should not be viewed as a prediction
         of  possible  prices or value  for the  Company's  Common  Stock in the
         future. These assumed rates of 5% and 10% would result in the Company's
         Common Stock price  increasing from $0.03825 per share to approximately
         $0.0733 per share and $0.1167 per share, respectively.

(2)      Vesting Schedule:  4/20/00 - 33%; 4/20/01 - 67%; 4/20/02 - 100%. Market
         value of the Company's Common Stock on the date of grant was $0.045.


                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

         The following  table provides  information on option  exercises for the
last  fiscal  year by the  Named  Executive  Officers  and the  value  of  their
unexercised options as of April 30, 2000:
<TABLE>
<CAPTION>
                                           Number of Securities                Value of Unexercised
                       Shares            Underlying Unexercised                In-the-Money Options
                      Acquired        Options at April 30, 2000 (#)          at April 30, 2000 ($)(1)
                          or         -------------------------------     -------------------------------
        Name          Exercised      Exercisable       Unexercisable     Exercisable       Unexercisable
-------------------  -----------     -----------       -------------     -----------       -------------
<S>                  <C>             <C>               <C>               <C>               <C>
Jess R. Drake            --            271,648            271,647            0                  0
Robert W. Lockwood       --             62,500             87,500            0                  0
David J. Loftus(2)       --             31,875              6,125            0                  0

</TABLE>


(1)  Based on the fair market value of the Common Stock at April 30, 2000 of
     $.0625 per share.
(2)  Mr. Loftus resigned effective May 12, 2000.







                                      -22-
<PAGE>

         EMPLOYMENT  AGREEMENTS  Effective  November 4, 1998 the Company entered
into a  three-year  Employment  Contract  with  Jess R.  Drake.  The  Employment
Contract  provides for an initial  annual base salary of  $350,000,  with annual
increases if provided to other executive  officers,  or as deemed appropriate by
the Board of Directors.  Additionally, a signing bonus of $100,000 was paid upon
execution of the Employment  Contract.  The Employment  Contract provides for an
annual bonus of up to 180% of the current annual salary if certain financial and
non-financial  goals are met or exceeded.  The Employment Contract also required
the grant of stock  options  according to a formula,  which  resulted in 543,295
options being awarded to Mr. Drake,  with 25% vesting upon grant and 25% vesting
annually  until fully  vested.  These  stock  options,  were issued  outside the
Company's  1996 Option Plan.  Vesting of the options is  accelerated  in certain
events including a change of control, as defined,  termination of employment for
other than cause,  as defined,  or upon  acceleration  of the  Company's  senior
secured debt.  Additionally,  if the Company  terminates Mr. Drake's  employment
without certain identifiable causes, before the end of the Employment Contract's
term,  the Company is obligated to pay an amount equal to two times Mr.  Drake's
last base annual salary and a pro rata share of that year's bonus. The Company's
senior secured  lenders have agreed to  subordinate  their claims to amounts due
Mr. Drake under his Employment  Contract,  up to a maximum of $1.1 million.  See
Exhibits 10.11 and 10.12.

         Effective  April  20,  1999  the  Company  entered  into  a  three-year
Employment Contract with Robert W. Lockwood. The provisions are identical to the
terms of the Employment Contract with Mr. Drake, except that the starting annual
salary  for Mr.  Lockwood  is  $150,000,  there is no signing  bonus,  the bonus
criteria are different,  and the annual bonus may be up to 80% of Mr. Lockwood's
current annual salary. Mr. Lockwood's  Employment Contract also provides for the
award of stock options for 200,000 shares, 100,000 of which were issued on April
20, 1999,  options for the purchase of an additional  50,000 shares were granted
on April 20, 2000, and the remaining  50,000 were granted on May 1, 2000.  These
stock options were issued  outside the Company's 1996 Option Plan. The Company's
senior secured  lenders have agreed to  subordinate  their claims to amounts due
Mr.  Lockwood under his Employment  Contract,  up to a maximum of $500,000.  See
Exhibits 10.13 and 10.14.

         Effective September 8,1999 the Company entered into one-year employment
agreements with eleven corporate and mill managers.  The terms of the employment
agreements vary as to the base salaries, but all include a provision for payment
upon  termination  of twelve  months of severance  pay plus the previous  year's
bonus.  The estimated  cumulative  total potential cost to the Company under the
severance provisions is $813,000.

Benefits
--------

         The Company  maintains an Internal  Revenue Code ("IRC") Section 401(k)
Retirement Savings Plan under which employees, including executive officers, are
permitted  to make salary  deferral  contributions.  Executive  officers are not
entitled to employer matching contributions pursuant to this plan.



                                      -23-
<PAGE>

Compensation  of Directors
--------------------------

         Each of the Company's  outside  directors is paid an annual retainer of
$15,000 for attending up to six Board  meetings,  plus $750 for each  additional
Board  meeting  or  committee  meeting  attended,  and $225  for each  telephone
conference meeting attended or written consent executed.  Directors who are also
employees  of the  Company  do not  receive  additional  compensation  for their
services as directors.  In fiscal 2000,  no outside  directors  received  option
grants.

Executive  Bonuses
------------------

         In the second quarter of fiscal 2000, quarterly  discretionary  bonuses
were paid to the Company's  salaried  management and  administrative  employees,
pursuant to the Company's profit sharing bonus plan. The bonuses were based upon
quarterly  net pretax  profits and were  generally  allocated  according to base
salary level.  No bonus payments were made to executive  officers under the "key
employee"  bonus  program based on fiscal year net profit after tax. Each of the
president and vice president-finance of the Company may receive an annual bonus,
if certain financial and non-financial goals are met, up to a maximum of 180% of
current annual salary for the president,  and up to 80% of current annual salary
for the vice  president-finance.  During the first  quarter of fiscal 2000,  Mr.
Drake received a bonus based upon the terms of Mr. Drake's employment  agreement
and upon his  attainment of certain goals.  Bonuses paid to the Named  Executive
Officers  for services  rendered to the Company  during the year ended April 30,
2000 are included in the amounts shown in the "Summary Compensation Table".

Stock Option Plan
-----------------

         In October  1996 the  Company  implemented  a Stock  Option Plan ("1996
Option Plan") to supersede the 1986 Option Plan,  which terminated in July 1996.
In October 1998,  the Company's  shareholders  approved an amendment to the 1996
Option Plan pursuant to which the number of shares of Common Stock available for
issuance under the 1996 Option Plan was increased to 1,425,000  shares,  subject
to adjustment from time to time as provided in the 1996 Option Plan.

         The purpose of the 1996 Option Plan is to enhance the  long-term  value
of  the  Company  by  offering  opportunities  to  those  employees,  directors,
officers,  consultants,  agents,  advisors and  independent  contractors  of the
Company and its  subsidiaries  who are key to the Company's  growth and success,
and  to  encourage  them  to  remain  in the  service  of the  Company  and  its
subsidiaries and to acquire and maintain stock ownership in the Company.

         Not more than 50,000 shares of Common Stock,  in the aggregate,  may be
granted  under the 1996 Option Plan to any  participant  during any fiscal year,
except that one-time  grants of options for up to 100,000  shares may be made to
newly hired participants.

         Any shares of Common Stock that cease to be subject to an option (other
than by reason of exercise),  including,  without limitation, in connection with
the cancellation of an award,  will be available for issuance in connection with
future grants of awards under the 1996 Option Plan.



                                      -24-
<PAGE>

         Options granted under the 1996 Option Plan will be "nonqualified  stock
options" (that is, options that are not designed to qualify as "incentive  stock
options",  as defined in IRC  Section  422).  The option  price for each  option
granted under the 1996 Option Plan will be determined by the plan administrator,
but will be not less than 85% of the Common  Stock's  fair  market  value on the
date of grant.

         The option term will be fixed by the plan administrator,  but if not so
specified  will be ten years.  Each  option  will be  exercisable  pursuant to a
vesting schedule  determined by the plan  administrator.  If not so established,
the option  will vest over four  years  from the date of grant,  with 20% of the
shares of underlying  Common Stock vesting on the six-month  anniversary  of the
grant  date  and an  additional  20%  of  the  shares  vesting  on the  one-year
anniversary of the option's grant date, and after every  successive  year of the
optionee's  continuous  employment or  relationship  with the Company.  The plan
administrator  will also determine the circumstances  under which an option will
be  exercisable  in the event the  optionee  ceases to provide  services  to the
Company or one of its  subsidiaries.  If not so established,  options  generally
will be  exercisable  for one year after  termination of services as a result of
disability  or death and for one month after all other  terminations.  An option
will not be  exercisable  following an optionee's  termination if the optionee's
services are terminated for cause, as defined in the 1996 Option Plan.

         The 1996  Option Plan is  administered  by the  Company's  Compensation
Committee  with respect to option grants to  employees.  Option grants to others
are administered by the Board of Directors.


Compensation Committee Interlocks
---------------------------------

         The Compensation Committee is composed of two independent  non-employee
directors, Mr. Christie and Mr. Wright.

         The Compensation  Committee is responsible for recommending to the full
Board of Directors,  for its approval,  the base  compensation for all executive
officers.  Executive  officers who serve on the Company's  Board of Directors do
not  participate  in  any   deliberations  or  decisions   regarding  their  own
compensation. The Compensation Committee receives recommendations from the chief
executive  officer  regarding  appropriate  levels of base  compensation for the
other executive officers, including executive officers who are directors.


Board Compensation Committee Report on Executive Compensation
-------------------------------------------------------------

         The Company's executive officer  compensation  policies are designed to
attract,  motivate and retain senior  management by providing an opportunity for
overall  competitive  compensation based on an adequate base compensation amount
and participation in an annual bonus system.



                                      -25-
<PAGE>

         In August  1998,  the Company  changed all salaried  bonus  programs to
incorporate  longer-term  measurement  and pay-out  periods.  At the mill level,
salaried employees,  excluding certain clerical staff, are eligible for a bonus,
to be computed and paid  quarterly,  based in part on the achievement of certain
manufacturing  goals,  such as the  recovery  level of lumber  derived  from raw
material,  and based in part on the mills  exceeding  quarterly  profit targets.
Salaried  employees at the corporate level, other than executive  officers,  may
receive a quarterly bonus based on Company-wide quarterly net profits after tax.
Executive  officers  participate in a "key employee" bonus  program based on the
Company's  fiscal year net profit after tax, with the amount paid into the bonus
pool determined by a preset schedule. See Exhibit 10.4.

         Each of the president and vice  president-finance may receive an annual
bonus, if certain financial and non-financial  goals are met, of up to a maximum
of 180% of current  annual salary for the  president  and 80% of current  annual
salary for the vice president-finance.

         The Company also uses long-term stock-based incentive  opportunities in
the form of options to purchase the Company's Common Stock.  Executive  officers
who  serve  on the  Company's  Board  of  Directors  do not  participate  in any
deliberations  or  decisions  regarding  option  awards to them.  The  Committee
believes that stock-based performance  compensation  arrangements are beneficial
in aligning  management's  and  shareholders'  interests in the  advancement  of
shareholder value.

         During fiscal 2000,  Robert W. Lockwood,  the Company's chief financial
officer and  secretary,  was awarded  options to purchase  50,000  shares of the
Company's  common stock  pursuant to the terms of his employment  agreement.  No
option grants were made to other executive officers during fiscal 2000.

         TreeSource  provides the same group life and health insurance  coverage
to executive  officers as other employees and requires all employees,  including
executive  officers,  to pay approximately  25% of health insurance  premiums by
payroll deduction. The president is not currently enrolled in the insurance plan
but the Company does  provide to the  president a special  disability  policy to
reflect his higher level of annual compensation.

         The Company  allows its executive  officers and all other  employees to
contribute a percentage of their  compensation to the  Company-sponsored  401(k)
Retirement Savings Plan. Executive officers and other salaried employees are not
generally entitled to matching contributions.

         Neither the executive  officers nor other  employees are covered by any
other Company-sponsored retirement plans.

         It is the Company's  practice to participate in and use, as a basis for
comparison,  an analysis of executive  compensation in the Northwest prepared by
the compensation consulting group of Milliman & Robertson, Inc. This analysis is
useful in establishing  base salary levels and monitoring  overall  compensation
levels as compared to other publicly-traded companies of similar size.



                                      -26-
<PAGE>

         Mr. Drake's employment with the Company commenced November 4, 1998. Mr.
Drake's cash  compensation for fiscal 2000 was $507,504,  which includes a bonus
of $157,500. Mr. Drake's annual base salary is $350,000.

         The median annual base salary and bonus for chief executive officers of
comparably  sized  public  companies,  as  published by the Milliman & Robertson
compensation survey for 1999/2000, are $280,000 and $89,325, respectively.


Compensation Committee Members

         Scott Christie
         William H. Wright

Stock Performance Graph
-----------------------

         The  following  line  graph  sets  forth  the  total  cumulative  total
shareholder return on the Company's Common Stock and the cumulative total return
of the  companies  listed on the  Standard  and Poor's  500 Stock  Index and the
Standard and Poor's Paper & Forest  Products  Index,  assuming  reinvestment  of
dividends.  The  comparisons  are not intended to forecast or be  indicative  of
possible future performance of the Company's Common Stock.

                               [GRAPHIC OMITTED]

<TABLE>
<CAPTION>
----------------------------------------- ------------- ------------- ------------ ------------- ------------- ------------
                                          April 1995    April 1996    April 1997   April 1998    April 1999    April 2000
----------------------------------------- ------------- ------------- ------------ ------------- ------------- ------------
<S>  <C>                                        <C>           <C>          <C>           <C>           <C>          <C>
S& P 500 Index                                  100.00        130.21       162.94        229.85        280.01       308.37
----------------------------------------- ------------- ------------- ------------ ------------- ------------- ------------
TreeSource Industries, Inc.                     100.00         39.29       103.57         89.29         25.00         2.57
----------------------------------------- ------------- ------------- ------------ ------------- ------------- ------------
S&P Paper & Forest Products Index               100.00        112.48       112.14        142.63        159.05       130.68
----------------------------------------- ------------- ------------- ------------ ------------- ------------- ------------
</TABLE>









                                      -27-
<PAGE>

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table shows the beneficial  ownership as of July 12, 2000
of the Company's  Common Stock by (i) each director,  (ii) each beneficial owner
of more than 5% of the Common Stock,  (iii) the Named  Executive  Officers,  and
(iv) all  directors  and officers as a group.  Except as otherwise  specifically
noted, each person noted below has sole investment and voting power with respect
to shares indicated.

                                            Amount and Nature of
Name and Address of Beneficial Owner        Beneficial Ownership          %
-----------------------------------------   -----------------------   ---------
Phillip K. Stegemoeller(1)
110 West 6th Street                               1,000,000              9.0%
Aberdeen, WA 98520
Quinault Corporation(3)
P.O. Box C                                        1,921,300             17.2%
Aberdeen, WA 98570


                                            Amount and Nature of
Name of Directors and Executive Officers    Beneficial Ownership (2)      %
-----------------------------------------   -----------------------   ---------
Scott Christie                                       86,250                *
Richard W. Detweiler                                 56,250                *
Jess R. Drake                                       271,648              2.4%
Robert W. Lockwood                                   62,500                *
David J. Loftus                                       1,000                *
William H. Wright                                    86,250                *
All directors and executive officers
  as a group (6 persons)                            563,898              4.8%


----------
*  Less than 1%


(1)  As  determined  by reference to the  beneficial  owner's most recent Form 4
     filing dated December 27, 1999.
(2)  Includes shares reserved for issuance under options  exercisable  within 60
     days of July 6, 2000 as follows: Mr. Christie 86,250; Mr. Detweiler 56,500;
     Mr. Drake 271,648; Mr. Lockwood 62,500; and Mr. Wright 86,500.
(3)  Larry G.  Black,  a director  of the Company  from  October  1997 until his
     resignation  July 11, 2000, is deemed to  beneficially own the shares owned
     by Quinault by virtue of being president and sole director of Quinault.



                                      -28-
<PAGE>

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During fiscal 2000, five of the Company's  subsidiaries  purchased logs
worth  approximately  $8.1 million from Quinault Logging Company.  During fiscal
1999 three of the Company's subsidiaries purchased logs worth approximately $3.9
million from  Quinault  Logging  Company.  Mr.  Larry G. Black,  director of the
Company  from  October 1997 until his  resignation  on July 11,  2000,  is chief
executive officer of Quinault Logging Company and is president and sole director
of  Quinault  Corporation,  beneficial  owner  of  approximately  17.2%  of  the
Company's Common Stock.








                                      -29-
<PAGE>

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1)  Financial Statements                                           Page
                                                                        ----

         The following  consolidated  financial statements of the
         Registrant and its subsidiaries are contained in this report:

         Report of Independent Certified Public Accountants               38

         Consolidated Statements of Operations for the Years
           Ended April 30, 2000, 1999 and 1998                            39

         Consolidated Balance Sheets at April 30, 2000 and 1999           40

         Consolidated Statements of Cash Flows for the Years
           Ended April 30, 2000, 1999 and 1998                            42

         Consolidated Statement of Changes in Stockholders'
           Equity for the Years Ended April 30, 2000,
           1999 and 1998                                                  43

         Notes to Consolidated Financial Statements                       44

(a) (2)  Financial Statement Schedules

         The schedules called for under Regulation S-X are not submitted because
they are not applicable,  are not required,  or because the required information
is not material or is included in the financial statements or notes thereto.

(a) (3)  Exhibit Index                                                  Page
                                                                        ----

2.1      Final form of  Registrant's  Second Amended Joint Plan
         of  Reorganization  dated October 5, 1992,  filed with
         the United  States  Bankruptcy  Court for the  Western
         District of Washington. (1)

3.1      Fourth  Restated  Articles  of  Incorporation  of  the
         Registrant  adopted  November 27, 1992,  as amended on
         October 26, 1998. (21)

3.2      Second  Restated  Bylaws of the  Registrant  effective
         November 27, 1992. (8)




                             -30-
<PAGE>
                                                                        Page
                                                                        ----

4.1      Debtor-in-Possession  Credit  Agreement  dated  as  of
         October  5,  1999  between   Registrant   and  General
         Electric Capital Corporation.

4.2      Credit and Security Agreement dated as of November 30,
         1992,  between  Registrant  and Principal  Mutual Life
         Insurance Company,  Aetna Life Insurance Company,  The
         Northwestern  Mutual Life Insurance Company,  Chemical
         Bank, Seattle-First National Bank, and Bank of America
         Oregon. (2)

4.2.1    Amendment  dated as of October  18, 1994 to Credit and
         Security  Agreement  dated as of  November  30,  1992,
         between Registrant and Principal Mutual Life Insurance
         Company,    Aetna   Life   Insurance   Company,    The
         Northwestern  Mutual Life Insurance Company,  Chemical
         Bank, Seattle-First National Bank, and Bank of America
         Oregon. (9)

4.2.2    Amendment  dated as of January  27, 1995 to Credit and
         Security  Agreement  dated as of  November  30,  1992,
         between Registrant and Principal Mutual Life Insurance
         Company,    Aetna   Life   Insurance   Company,    The
         Northwestern  Mutual Life Insurance Company,  Chemical
         Bank, Seattle-First National Bank, and Bank of America
         Oregon. (11)

4.2.3    Amendment  dated  as of  May 1,  1995  to  Credit  and
         Security  Agreement  dated as of  November  30,  1992,
         between Registrant and Principal Mutual Life Insurance
         Company,    Aetna   Life   Insurance   Company,    The
         Northwestern  Mutual Life Insurance Company,  Chemical
         Bank, Seattle-First National Bank, and Bank of America
         Oregon. (11)

4.2.4    Amendment  dated as of  January  1, 1996 to Credit and
         Security  Agreement  dated as of  November  30,  1992,
         between Registrant and Principal Mutual Life Insurance
         Company,    Aetna   Life   Insurance   Company,    The
         Northwestern  Mutual Life Insurance Company,  Chemical
         Bank, Seattle-First National Bank, and Bank of America
         Oregon. (12)

4.2.5    Amendment  dated  as of  May 1,  1996  to  Credit  and
         Security  Agreement  dated as of  November  30,  1992,
         between Registrant and Principal Mutual Life Insurance
         Company,    Aetna   Life   Insurance   Company,    The
         Northwestern  Mutual Life Insurance Company,  Chemical
         Bank, Seattle-First National Bank, and Bank of America
         Oregon. (13)



                             -31-
<PAGE>
                                                                        Page
                                                                        ----

4.2.6    Amendment  dated as of December 17, 1996 to Credit and
         Security  Agreement  dated as of  November  30,  1992,
         between Registrant and Principal Mutual Life Insurance
         Company,    Aetna   Life   Insurance   Company,    The
         Northwestern  Mutual Life Insurance Company,  Chemical
         Bank, Seattle-First National Bank, and Bank of America
         Oregon. (14)

4.2.7    Amendment  dated as of  October  1, 1997 to Credit and
         Security  Agreement  dated as of  November  30,  1992,
         between Registrant and Principal Mutual Life Insurance
         Company,    Aetna   Life   Insurance   Company,    The
         Northwestern  Mutual Life Insurance Company,  Chemical
         Bank, Seattle-First National Bank, and Bank of America
         Oregon. (17)

4.2.8    Amendment  dated as of  January  1, 1998 to Credit and
         Security  Agreement  dated as of  November  30,  1992,
         between Registrant and Principal Mutual Life Insurance
         Company,    Aetna   Life   Insurance   Company,    The
         Northwestern  Mutual Life Insurance Company,  Chemical
         Bank, Seattle-First National Bank, and Bank of America
         Oregon. (18)

4.2.9    Amendment  dated  as of April 1,  1998 to  Credit  and
         Security  Agreement  dated as of  November  30,  1992,
         between Registrant and Principal Mutual Life Insurance
         Company,    Aetna   Life   Insurance   Company,    The
         Northwestern  Mutual Life Insurance Company,  Chemical
         Bank, Seattle-First National Bank, and Bank of America
         Oregon. (22)

4.3      Indenture  dated  as of  November  30,  1992,  between
         Registrant and State Street Bank and Trust Company, as
         Trustee,  with respect to 8% Senior Subordinated Notes
         due 2005. (3)

10.1     Amended  and  Restated  1986 Stock  Option  Plan dated
         December 30, 1992.* (4)

10.1.2   Form  of  Stock  Option  Agreement  for  directors  of
         Registrant.* (8)

10.1.3   Form of Stock Option Agreement for executive  officers
         of the Registrant.* (8)

10.1.4   1996 Stock Option Plan dated October 21, 1996.* (16)

10.1.5   Form of  Stock  Option  Agreement  for  directors  and
         officers of the Registrant.* (19)

10.1.6   Amendment  dated  August 7, 1998 to 1996 Stock  Option
         Plan.* (24)




                             -32-
<PAGE>
                                                                        Page
                                                                        ----

10.3     Form  of  Indemnification   Agreement  for  directors,
         officers and certain  employees  effective January 30,
         1991.* (8)

10.4     Description  of  Key  Employee   Profit-Sharing  Bonus
         Plan.* (24)

10.61    WTD Industries, Inc. Retirement Savings Plan and Trust
         dated as of May 1, 1989.* (6)

10.62    Amendment  No. 1 to WTD  Industries,  Inc.  Retirement
         Savings Plan and Trust Effective May 1, 1989.* (7)

10.63    Amendment  No. 2 to WTD  Industries,  Inc.  Retirement
         Savings Plan and Trust adopted May 30, 1991.* (7)

10.64    Amendment  No. 3 to WTD  Industries,  Inc.  Retirement
         Savings Plan and Trust adopted June 26, 1992.* (7)

10.65    Amendment  No. 4 to WTD  Industries,  Inc.  Retirement
         Savings Plan and Trust adopted April 30, 1993.* (8)

10.66    Amendment  No. 5 to WTD  Industries,  Inc.  Retirement
         Savings Plan and Trust  adopted  December  28,  1994.*
         (10)

10.67    Amendment  No. 6 to WTD  Industries,  Inc.  Retirement
         Savings Plan and Trust adopted June 10, 1997.* (19)

10.68    Amendment  No. 7 to WTD  Industries,  Inc.  Retirement
         Savings Plan and Trust adopted May 18, 1999.* (24)

10.8     Amended  and  Restated  Rights  Agreement  dated as of
         March 4, 1998,  between the Registrant and ChaseMellon
         Shareholder Services, as Rights Agent. (20)

10.9     Employment Agreement dated May 27, 1998 between Robert
         J. Riecke and Registrant.* *** (22)

10.10    Settlement  Agreement dated May 15, 1998 between Bruce
         L. Engel and Registrant.* (23)

10.11    Employment  Contract  dated October 31, 1998,  between
         Jess R. Drake and Registrant.* (21)

10.12    Stock Option Letter  Agreement  dated November 3, 1998
         between Jess R. Drake and Registrant.* (21)

10.13    Employment  Contract  dated  April  6,  1999,  between
         Robert W. Lockwood and Registrant.* (24)



                             -33-
<PAGE>
                                                                        Page
                                                                        ----


10.14    Non Qualified  Stock Option  Agreement dated April 20,
         1999 between Robert W. Lockwood and Registrant.* (24)

12.2     Computation  of  Registrant's  Net  Income  (Loss)  to
         Average Total Assets.                                            64

12.3     Computation  of  Registrant's  Net  Income  (Loss)  to
         Average Stockholders' Equity.                                    65

12.4     Computation  of  Registrant's  Average   Stockholders'
         Equity to Average Total Assets.                                  66

21.1     Subsidiaries  of the  Registrant  (list  updated as of
         July 12, 1999).                                                  67

23.1     Consent of Independent Certified Public Accountants.             68

27.1     Financial Data Schedule**



         (1)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's report on Form 8-K dated November 23, 1992.

         (2)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  October 31,
1992, previously filed with the Commission.

         (3)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  January 31,
1993, previously filed with the Commission.

         (4)  Incorporated  by  reference  to  Exhibit  6.0 to the  Registrant's
Registration  Statement on Form S-8 (No.  33-62714) filed with the Commission on
May 14, 1993.

         (5)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  Registration  Statement on Form S-1 (No.  33-7389)  filed with the
Commission  on July 21, 1986,  as amended by Amendment  Nos. 1 through 3 thereto
filed with the Commission on September 3, 1986, October 14, 1986 and October 24,
1986, respectively.

         (6)  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,  1989,
previously filed with the Commission.

         (7)  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,  1992,
previously filed with the Commission.


                                      -34-
<PAGE>

         (8)  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.

         (9)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  October 31,
1994, previously filed with the Commission.

         (10)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  January 31,
1995, previously filed with the Commission.

         (11)  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,  1995,
previously filed with the Commission.

         (12)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  January 31,
1996, previously filed with the Commission.

         (13)  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,  1996,
previously filed with the Commission.

         (14)  Incorporated  by reference to Exhibit  4.2.4 to the  Registrant's
quarterly report on Form 10-Q for the quarter ended January 31, 1997, previously
filed with the Commission.

         (15)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's report on Form 8-K filed with the Commission on June 12, 1997.

         (16)  Incorporated  by reference  to Exhibit  99.1 to the  Registrant's
Registration  Statement on Form S-8 (No. 333-15461) filed with the Commission on
November 4, 1996.

         (17)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  October 31,
1997, previously filed with the Commission.

         (18)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  January 31,
1998, previously filed with the Commission.

         (19)  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,  1997,
previously filed with the Commission.

         (20)  Incorporated  by  reference  to Exhibit  2.1 to the  Registrant's
report on Form 8-A filed with the Commission on March 20, 1998.

         (21)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  October 31,
1998, previously filed with the Commission.



                                      -35-
<PAGE>

         (22)  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,  1998,
previously filed with the Commission.

         (23)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  quarterly report on Form 10-Q for the quarter ended July 31, 1998,
previously filed with the Commission.

         (24)  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,  1999,
previously filed with the Commission.

         * Management contract or compensatory plan or arrangement.

         ** This schedule has been submitted in the electronic  form  prescribed
by EDGAR.

         *** A schedule attached to this exhibit  identifies all other documents
not  required to be filed as exhibits  because such  exhibits are  substantially
identical to this exhibit.

         Except for instruments already filed as exhibits to this Form 10-K, the
Registrant  agrees  to  furnish  the  Commission  upon  request  a copy  of each
instrument with respect to long-term debt of the Registrant and its consolidated
subsidiaries, the amount of which does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.

(b)      Reports on Form 8-K

         None.









                                      -36-
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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.

TreeSource Industries, Inc.
(Registrant)



By: /s/ Jess R. Drake
   ----------------------------------
Jess R. Drake
President and Chief Executive Officer
July 21, 2000

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated as of July 21, 2000.



/s/ Jess R. Drake                            /s/ Robert W. Lockwood
-------------------------------------        ----------------------
Jess R. Drake                                Robert W. Lockwood
President, Chief Executive Officer           Vice President-Finance and Chief
and Director                                 Financial Officer (Principal
                                             Financial and Accounting Officer)


/s/ Scott Christie
   ----------------------------------
Scott Christie, Director


/s/ Richard W. Detweiler
   ----------------------------------
Richard W. Detweiler, Director


/s/ William H. Wright
   ----------------------------------
William H. Wright, Director








                                      -37-
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders
TreeSource Industries, Inc.

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
TreeSource  Industries,  Inc. and  subsidiaries  (the "Company") as of April 30,
2000  and  1999,   and  the  related   consolidated   statement  of  operations,
stockholders'  equity  and cash  flows for each of the  years in the  three-year
period ended April 30, 2000.  These  consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material  respects,  the financial position of TreeSource
Industries, Inc. and subsidiaries as of April 30, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended April 30, 2000, in conformity  with generally  accepted  accounting
principles.

         The accompanying  consolidated  financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements,  on September 27, 1999, the Company filed
a petition for relief under Chapter 11 of the U.S. Bankruptcy Code and has since
operated as a  debtor-in-possession.  There can be no assurance that  sufficient
cash will be generated by  operations  and that the Company will be able to gain
acceptance from its creditors and shareholders of a reorganization plan.

         The matters  referred to in the preceding  paragraph raise  substantial
doubt  as  to  the  Company's  ability  to  continue  as a  going  concern.  The
accompanying financial statements do not include all adjustments relating to the
recoverability  and  classification of recorded asset amounts or the amounts and
classification  of liabilities that be necessary should the Company be unable to
continue in existence.


                                                 /s/ Moss Adams LLP
                                                 ------------------
                                                 MOSS ADAMS LLP


Beaverton, Oregon
July 12, 2000



                                      -38-
<PAGE>
<TABLE>
<CAPTION>

                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                    (in Thousands, Except Per-Share Amounts)


                                                          YEAR ENDED APRIL 30,
                                           ---------------------------------------------------
                                               2000               1999               1998
                                           --------------     -------------      -------------
<S>                                        <C>                <C>                <C>
NET SALES                                  $    252,594       $   195,390        $   242,051

COST OF SALES                                   235,800           184,015            231,303

                                           --------------     -------------      -------------
GROSS PROFIT                                     16,794            11,375             10,748

SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES                        10,888            10,738             11,290
REORGANIZATION CHARGES                            2,805                 -                  -
IMPAIRMENT CHARGES                                  223             6,310              4,168

                                           --------------     -------------      -------------
OPERATING INCOME (LOSS)                            2,878           (5,673)            (4,710)

OTHER INCOME (EXPENSE)
     Interest expense                            (2,049)           (4,732)            (4,682)
     Miscellaneous                                  283                63               (394)

                                           --------------     -------------      -------------
                                                     209           (4,669)            (5,076)
                                           --------------     -------------      -------------
INCOME (LOSS) BEFORE INCOME TAXES                  1,112          (10,342)            (9,786)

PROVISIONS FOR INCOME TAXES (BENEFIT)                100              (96)             2,364

                                           --------------     -------------      -------------
NET INCOME (LOSS)                                  1,012          (10,246)           (12,150)

PREFERRED DIVIDENDS                                   -             1,671              2,296

                                           --------------     -------------      -------------
NET INCOME (LOSS) APPLICABLE
  TO COMMON STOCKHOLDERS                   $       1,012      $   (11,917)       $   (14,446)
                                           ==============     =============      =============

NET INCOME (LOSS) PER COMMON SHARE
   - BASIC                                         $0.09           ($1.07)            ($1.30)
                                                   =====           =======            =======

   - DILUTED                                       $0.09           ($1.07)            ($1.30)
                                                   =====           =======            =======
</TABLE>





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


                                      -39-
<PAGE>
<TABLE>
<CAPTION>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                     ASSETS
                                 (in Thousands)


                                                                          APRIL 30,
                                                             -------------------------------------
                                                                 2000                    1999
                                                             -------------           -------------
<S>                                                          <C>                     <C>
CURRENT ASSETS
   Cash and cash equivalents                                 $      1,871            $      2,131
   Restricted cash                                                  1,616                      --
   Accounts receivable, net                                        12,462                  10,210
   Inventories                                                     15,800                  13,716
   Prepaid expenses                                                 2,535                   1,320
   Income tax refund receivable                                        86                      70
   Deferred tax asset                                                  --                     750
   Assets held for sale                                             5,433                   7,749
   Timber, timberlands and timber-related assets                    2,196                   2,190

                                                             -------------           -------------
      Total current assets                                         42,000                  38,136

NOTES AND ACCOUNTS RECEIVABLE                                           5                      27

PROPERTY, PLANT AND EQUIPMENT, at cost
   Land                                                             1,527                   1,527
   Buildings and improvements                                       8,673                   8,287
   Machinery and equipment                                         47,448                  46,521
                                                             -------------           -------------

                                                                   57,648                  56,335

      Less accumulated depreciation                                44,385                  41,116

                                                             -------------           -------------
                                                                   13,263                  15,219
   Construction in progress                                           101                     324

                                                             -------------           -------------
                                                                   13,364                  15,543

DEFERRED TAX ASSET                                                    750                      --
OTHER ASSETS                                                        1,244                   1,281

                                                             -------------           -------------
                                                             $     57,363            $     54,987
                                                             =============           =============







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



                                      -40-
<PAGE>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                    (in Thousands, Except Share Information)


                                                                        April 30,
                                                             ---------------------------------
                                                                2000                1999
                                                             ------------        -------------
CURRENT LIABILITIES
   Accounts payable                                          $    5,476          $    10,830
   Accrued expenses                                               7,902                7,744
   Timber contracts payable                                         147                  428
   Current borrowings                                               499               43,474

                                                             ------------        -------------
      Total current liabilities                                  14,025               62,476

LONG-TERM DEBT, less current maturities                             183                  327

LIABILITIES SUBJECT TO COMPROMISE                                49,959                   --

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  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                           28,761               28,761
  Additional paid-in capital                                         15                   15
  Retained deficit                                              (56,601)             (57,613)

                                                             ------------        -------------
                                                                 (6,804)              (7,816)

                                                             ------------        -------------
                                                             $   57,363          $    54,987
                                                             ============        =============


</TABLE>










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




                                      -41-
<PAGE>
<TABLE>
<CAPTION>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in Thousands)

                                                                              YEAR ENDED APRIL 30,
                                                               ------------------------------------------------
                                                                   2000             1999             1998
                                                               --------------   --------------   --------------
<S>                                                            <C>              <C>              <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
  Net income (loss)                                            $      1,012     $    (10,246)    $    (12,150)
  Adjustments to reconcile net income (loss) to
     cash provided by operating activities:
    Depreciation, depletion and amortization                          4,346            4,176            5,571
    Deferred income tax                                                  --               --              913
    Gain on sale of assets                                              (7)               --               --
    Impairment loss                                                     223            6,310            4,168
    Accounts receivable                                             (2,252)              254            6,366
    Inventories                                                     (2,076)            (205)            3,755
    Prepaid expenses                                                (1,215)            (125)              622
    Timber, timberlands and timber-related assets - current           (287)            2,062              (392)
    Payables and accruals                                             1,045            3,119            (3,645)
    Income taxes                                                       (16)             (70)            1,145

                                                               --------------      -----------   --------------
     Cash provided by operating activities                              773            5,275            6,353
                                                               --------------   --------------   --------------

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
  Notes and accounts receivables                                         22               76               21
  Net reductions of  timber and timberlands                              --               --              629
  Acquisition of property, plant and equipment                       (1,685)          (2,479)          (7,807)
  Net book value of disposed idle assets                                 --              458              176
  Proceeds from the sale of fixed assets                              1,687               --               --
  Other investing activities                                             --              177               51

                                                               --------------   --------------   --------------
     Cash provided by (used for) investing activities                     24          (1,768)          (6,930)
                                                               --------------   --------------   --------------

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
  Proceeds from borrowings                                              598               --            --
  Principal payments on long-term debt                                   --           (1,582)          (3,190)
  Other assets                                                          (39)            (288)             (94)
  Dividends paid on Preferred Stock                                      --           (1,672)          (2,296)
  Issuance of Common Stock                                               --                9              105

                                                               --------------   --------------      -----------
     Cash provided by (used for) financing activities                    559          (3,533)          (5,475)
                                                               --------------   --------------   --------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       1,356             (26)          (6,052)

CASH BALANCE AT BEGINNING OF YEAR                                      2,131            2,157            8,209

                                                               --------------   --------------   --------------
CASH BALANCE AT END OF YEAR                                    $       3,487     $      2,131     $      2,157
                                                               ==============   ==============   ==============

CASH PAID (REFUNDED) DURING THE YEAR FOR:
  Interest                                                              $281           $3,268           $4,696
  Income taxes                                                          $100             ($96)            $305
</TABLE>


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



                                      -42-
<PAGE>
<TABLE>
<CAPTION>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (in Thousands)



                                  SERIES A            SERIES B
                              PREFERRED STOCK     PREFERRED STOCK       COMMON STOCK                   RETAINED      STOCK-
                            ------------------- ------------------- ---------------------   PAID-IN    EARNINGS      HOLDERS'
                             SHARES     AMOUNT   SHARES    AMOUNT     SHARES     AMOUNT     CAPITAL    (DEFICIT)     EQUITY
                            -------- ---------- -------- ---------- --------- ----------- ---------- ------------  -----------
<S>                         <C>      <C>        <C>       <C>       <C>       <C>         <C>        <C>           <C>
Balance at April 30, 1997       270     20,688        6        333    11,083      28,647         15     (31,249)      18,434

Stock options exercised                                                   71         105         --          --          105

Dividends paid                                                            --          --         --      (2,296)      (2,296)

Net income                                                                --          --         --     (12,150)     (12,150)

                            -------- ---------- -------- ---------- --------- ----------- ---------- ------------  -----------
Balance at April 30, 1998       270     20,688        6        333    11,154      28,752         15     (45,695)       4,093

Stock options exercised                                                    9           9         --          --            9

Dividends paid                                                            --          --         --      (1,672)      (1,672)

Net income                                                                --          --         --     (10,246)     (10,246)

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

Balance at April 30, 1999       270     20,688        6        333    11,163      28,761         15     (57,613)      (7,816)

Net income                                                                --          --         --       1,012         1,012

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

Balance at April 30, 2000       270  $  20,688        6   $    333    11,163  $   28,761  $      15   $ (57,613)   $  (6,804)
                            ======== ========== ======== ========== ========= =========== ========== ============  ===========

</TABLE>













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

                                      -43-
<PAGE>

                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - CHAPTER 11 PROCEEDINGS

         During  the  third  quarter  of  fiscal  1998,  demand by Asia for wood
products  declined  dramatically  causing  lumber  prices  in North  America  to
decline.  Lumber markets remained weak through the third quarter of fiscal 1999.
TreeSource Industries,  Inc. and its wholly-owned subsidiaries (the "Company" or
"TreeSource")  incurred significant losses as a result of this protracted period
of weak  lumber  markets,  combined  with the  Company's  high level of debt and
substantial  preferred  stock  dividend  obligations,  and  failed  to  generate
sufficient cash from operations to enable the Company to pay its commitments and
continue operating.

         In response to this situation,  on September 27, 1999 the Company filed
for voluntary  reorganization  under Chapter 11 of the U.S. Bankruptcy Code (the
"Code").    The   Company    continues    to   operate   its   business   as   a
debtor-in-possession.  As a debtor-in-possession  under the Code, the Company is
authorized  to operate its  business  subject to the terms of a cash  collateral
order,  but may not engage in  transactions  outside of the  ordinary  course of
business without Court approval.

         As of the petition date, all pending  litigation and actions to collect
pre-petition  indebtedness are stayed, and other prepetition obligations may not
be enforced  against the Company.  In addition,  TreeSource may assume or reject
executory contracts and lease obligations.  In this context,  "assumption" means
that the  Company  agrees  to  perform  its  obligations  and cure all  existing
defaults under the contract or lease and  "rejection"  means that the Company is
relieved from its obligations to perform further under the contract or lease but
is subject to a claim for damages for the breach thereof.  Any damages resulting
from rejection are treated as general unsecured claims in the reorganization.

         On  April  12,  2000  the  Company  filed  an  Amended  Joint  Plan  of
Reorganization (the "Plan") in U.S. Bankruptcy Court (the "Court") that included
reducing the scope of its operations  through the elimination of mills which, in
the opinion of management,  are not well positioned for future profitability and
restructuring  of its  prepetition  obligations  to provide for a restoration of
equity.  Management  believes  these  measures will allow the Company to restore
liquidity and meet its future cash flow requirements.  The Company's  successful
operation is dependent  upon several  factors  which include (i) a supply of raw
materials at prices which allow for  reasonable  margins to operate  profitably,
(ii) the  continued  ability to utilize the cash  collateral  authorized  by the
Court,  and (iii)  acceptance by the Company's  creditors and  shareholders of a
plan of  reorganization.  The proposed  Plan,  if confirmed by the Court,  would
result in the  cancellation  of the  Company's  current  classes  of common  and
preferred  stock and eliminate any value  remaining in these equity  securities.
The Company's  senior secured lenders have a security  interest in substantially
all the assets of the Company.  Under the proposed  Plan,  these senior  secured
lenders  would  exchange a portion of their  claims  against the Company for new
equity securities to be issued by the Company pursuant to the Plan. The proposed
Plan also sets up a defined pool of funds from which  unsecured  trade creditors
would be paid.  The  percentage  recovery for unsecured  trade  creditors  would
depend on a number of issues, including the resolution of


                                      -44-
<PAGE>

disputed  claims.  Based on the  Company's  estimates of its  unsecured  claims,
unsecured  creditors  would receive up to 90% of their claims under the Plan. On
May 17,  the  Company  successfully  petitioned  the  Court  to  delay  the Plan
confirmation  hearing for 120 days due to current lumber market conditions.  The
Company  may,  at its  option,  further  amend or  withdraw  the Plan.

         The Company is currently  operating as a  debtor-in-possession  under a
cash collateral order approved by the Court, pursuant to a number of conditions.
The cash  collateral  order allows the Company to use funds from  operations and
the revolving line of credit for normal operating purposes.  The cash collateral
order also  grants a security  interest in  substantially  all the assets of the
Company to the  pre-petition  senior secured lenders and  post-petition  secured
debtor-in-possession   lenders.   The  current  cash  collateral  order  expires
September  30,  2000.  If the  Company  is unable  to  either  confirm a plan of
reorganization  or obtain a new cash  collateral  order by October 1, 2000,  the
Company may not be able to meet its short term liquidity needs.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of consolidation and operations - The consolidated financial
statements  include the accounts of TreeSource  Industries,  Inc.  (formerly WTD
Industries,   Inc.)  and  its  wholly  owned   subsidiaries.   All   significant
inter-company accounts and transactions have been eliminated.

         The Company operates in one industry segment,  the manufacture and sale
of softwood and hardwood lumber products, wood chips and other by-products. Most
lumber  products are sold to  distributors  and wholesalers or directly to large
retailers.  The  Company's  products  are used in many  applications,  including
residential and commercial construction, packaging, and industrial uses.

         The Company's  sales are  predominantly  in the United  States;  export
sales are not material. During the year ended April 30, 2000, the Company had no
customers that accounted for 10% or more of net sales.

         Temporary cash investments and trade  receivables  potentially  subject
the Company to  concentrations  of credit risk. The Company places its temporary
cash investments with high credit-quality financial institutions,  and by policy
limits the amount of credit exposure to any one institution. The Company reviews
a customer's  credit history before extending  credit and continually  evaluates
its accounts receivable.  Concentrations of credit risk on trade receivables are
limited due to the Company's  large number of customers and their widely varying
locations.  Generally, the Company does not require collateral or other security
to support its trade receivables.



                                      -45-
<PAGE>

         Cash and cash equivalents - Cash and cash  equivalents  consist of cash
on hand,  deposits  in banks,  financial  instruments  with a maturity  of three
months or less.

         Restricted cash - Restricted cash consists of the net auction  proceeds
from the sale of impaired assets during fiscal 2000.  These funds are being held
in a non-interest  bearing account for payment,  subject to court  approval,  of
certain secured claims.

         Accounts  receivable  - Trade  accounts  receivable  are  shown  net of
allowances for doubtful accounts and discounts of $160,000 and $142,000 at April
30, 2000 and 1999, respectively.

         Inventories  -  Inventories  are valued at the lower of cost or market.
Cost is  determined  using  the  average  cost and  first-in,  first-out  (FIFO)
methods. A summary of inventory by principal product  classification follows (in
thousands):

                                                APRIL 30,
                               ---------------------------------------------
                                     2000                        1999
                               ------------------         ------------------
         Logs                  $           6,571          $           6,649
         Lumber                            8,109                      6,001
         Supplies and Other                1,120                      1,066
                               ------------------         ------------------
                               $          15,800          $          13,716
                               ==================         ==================

         At April 30, 2000 and 1999, $555,000 and $553,000, respectively, of log
inventory was valued at market, which represented a $59,000 reduction from cost.
At April 30, 2000,  $7,532,000 of lumber  inventory was valued at market,  which
represented a $1,111,000  reduction from cost. At April 30, 1999,  $4,893,000 of
lumber inventory was valued at market,  which  represented a $429,000  reduction
from cost.

         Property,  plant and  equipment - Property,  plant and equipment of the
Company's  facilities are stated at cost. For financial reporting purposes,  the
Company uses the units-of-production  method for computing depreciation over the
estimated useful lives of assets, ranging from ten to thirty years for buildings
and  improvements,  and three to ten years for  machinery  and  equipment.  When
assets  are  retired or  disposed  of,  cost and  accumulated  depreciation  are
reversed  from the  related  accounts  and any gain or loss is  included  in the
consolidated statement of operations.

         Timber and timberlands - Timber and timberlands are stated at the lower
of aggregate cost or estimated disposal value, less the amortized cost of timber
harvested.  The portion of the cost  attributable  to standing timber is charged
against  income  as  timber is cut at rates  based on the  relationship  between
unamortized  timber value and the estimated  volume of recoverable  timber.  The
costs of roads and land  improvements  are  capitalized and amortized over their
economic lives.  The carrying costs of timber,  timberlands  and  timber-related
assets  are   expensed  as   incurred.   The  Company   classifies   timber  and
timber-related  assets as current or long-term  based upon expected  harvest and
disposal plans.


                                      -46-
<PAGE>

         Timber-cutting  contracts - The Company  purchases timber under various
types of contracts.  Certain  contracts,  for which the total  purchase price is
fixed,  are  recorded  as assets  along with the related  liability  at the date
acquired. The remaining contracts, for which the total purchase price depends on
the volume of timber  removed,  are  considered  to be  commitments  and are not
recorded  until the timber is  removed.  See Note 12 to  Consolidated  Financial
Statements.

         Income taxes - Income taxes are provided for  transactions  in the year
in which they are  reflected in  earnings,  even though they may be reported for
tax purposes in a different year. The resulting difference between taxes charged
to operations and taxes paid is reported as deferred  income taxes.  Tax credits
are recognized in the year utilized,  using the flow-through  method. See Note 8
to Consolidated Financial Statements.

         Accrued  expenses - The  following  is a summary of the  components  of
accrued expenses (in thousands):

                                                       APRIL 30,
                                          ----------------------------------
                                                2000                1999
                                          ---------------      -------------
    Payroll and related items             $        3,100       $      3,995
    Freight payable                                1,018              1,366
    Accrued Chapter 11 professional fees             877                 --
    Other                                          2,907              2,383
                                          ---------------      -------------
                                          $        7,902       $      7,744
                                          ===============      =============

         Since the Court reviews and approves the Chapter 11  professional  fees
prior to  payment,  the  related  accrued  amount is  management's  estimate  of
professional  services  performed but not billed through April 30, 2000. Because
the Court has the ability to adjust  these  fees,  the actual  amounts  owed may
differ from management's estimates.

         Reserves  for  self-insurance  -  workers'  compensation  -  Under  its
self-insurance  plan,  the  Company  accrues  the  estimated  cost  of  workers'
compensation  claims  based on prior  years'  open  claims.  An  accrual of $1.6
million and $2.0  million is included in the  accompanying  fiscal 2000 and 1999
financial statements,  respectively. Payments based on actual fiscal 2000 claims
ultimately filed could differ from these statements.

         Use of  estimates - The  preparation  of the  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying  notes.  Actual results could differ  materially
from those estimates.







                                      -47-
<PAGE>

NOTE 3 - IMPAIRMENT CHARGES

         The Company classified certain property, plant and equipment related to
three  facilities  as Assets Held for Sale during  fiscal 1999. A total of three
facilities  and land parcels  related to two former  facilities are currently so
classified.  In accordance with Statement of Financial  Accounting Standards No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed of," the Company  recorded an impairment  loss  associated
with two  facilities  in fiscal 1998 and three  facilities  in fiscal 1999.  The
resulting  adjustments  of  approximately  $6.1  million in fiscal 1999 and $4.2
million in fiscal 1998 were recorded to reduce the book value of these assets to
their  estimated fair value.  An additional  charge of $0.2 million was taken to
adjust the value of  inventories  and  supplies  at closed  operations  to their
estimated net realizable value. The Company considers continued operating losses
and significant and long-term  changes in industry  conditions to be its primary
indicators of potential impairment. An impairment was recognized when the future
undiscounted  cash flows of each facility were estimated to be  insufficient  to
recover their related  carrying  values.  As such, the carrying  values of these
assets were written down to the  Company's  estimates of fair value.  Fair value
was based on  appraisal  values.  The  Company  initially  elected  to  continue
operating  one  of  these  facilities  but in  July  2000  curtailed  production
indefinitely  due to the  deterioration  of the  lumber  market.  The other four
facilities did not operate during fiscal 2000 and are for sale.

          During fiscal 2000,  substantially  all of the machinery and equipment
at two of these  locations  were sold at auction.  The loss on the sale of these
impaired  assets of $0.2 million was recorded as additional  impairment  loss in
fiscal 2000. The proceeds from these sales are held by the Company as restricted
cash. See Note 2 to Consolidated  Financial  Statements.  At April 30, 2000, the
impaired  assets have a remaining  carrying  amount of $5.4  million.  Together,
these five  facilities  recorded net sales of $7.3 million,  $12.0 million,  and
$74.6  million,  and  contributed  net operating  losses of $1.4  million,  $5.5
million,  and $4.0 million for the years ended April 30, 2000,  1999,  and 1998,
respectively,  excluding the  impairment  charges  recognized in fiscal 1998 and
1999.

         The  Company  continually   considers  market  conditions  and  changes
occurring  in the  forest  products  industry  to  evaluate  the  status  of its
individual  mill  facilities,   and  management   believes  that  all  necessary
impairment adjustments have been made at April 30, 2000.


NOTE 4 - NET INCOME (LOSS) PER SHARE

         This computation is based on net income (loss) less preferred dividends
paid  during the period,  divided by the  weighted  average  number of shares of
Common  Stock and  equivalents  assumed to be  outstanding  during  the  period.
Anti-dilutive  Common Stock  equivalents  consisting of certain  employee  stock
options  and  certain  convertible   Preferred  Stock,  are  excluded  from  the
calculation.




                                      -48-
<PAGE>

         The  calculations  of net income  (loss) per share for the years  ended
April  30,  2000,  1999 and 1998 are  summarized  below  (in  thousands,  except
per-share data):
<TABLE>
<CAPTION>
                                                                      Year Ended April 30,
                                                       -------------------------------------------------
                                                            2000             1999              1998
                                                       --------------    --------------    --------------
<S>                                                    <C>               <C>               <C>
Net income (loss)                                      $        1,012    $     (10,246)    $     (12,150)
Preferred dividends                                                --            1,671             2,296
                                                       --------------    --------------    --------------

Net income (loss) applicable to common shareholders    $        1,012    $     (11,917)    $     (14,446)
                                                       ==============    ==============    ==============

Weighted average shares outstanding
     - Basic                                                   11,163           11,161            11,130

Additional shares assumed from:
     - Conversion of Series B Preferred Stock                      --               --                --
     - Exercise of stock options                                   --               --                --
                                                       --------------    --------------    --------------

Average number of shares and equivalents outstanding
     - Diluted                                                 11,163           11,161            11,130
                                                       ==============    ==============    ==============

Net income (loss) per common share
     - Basic                                           $         0.09    $       (1.07)    $       (1.30)
                                                       ==============    ==============    ==============

     - Diluted                                         $         0.09    $       (1.07)    $       (1.30)
                                                       ==============    ==============    ==============
</TABLE>


NOTE 5 - TIMBER, TIMBERLANDS AND TIMBER-RELATED ASSETS

         The following  summarizes  the  components of timber,  timberlands  and
timber-related assets (in thousands):

                                                            APRIL 30,
                                                  ----------------------------
                                                      2000            1999
                                                  ------------    ------------
         Timber held under contract               $       984     $       889
         Timber, timberlands, and timber deposits       1,049           1,131
         Logging roads (at amortized cost)                163             170
                                                  ------------    ------------
                                                  $     2,196     $     2,190
                                                  ============    ============

         Timber held under  contract  is composed of various  public and private
timber  contracts  representing  approximately  2.7 million board feet (MMBF) at
April 30, 2000 and 3.4 MMBF at April 30, 1999. Outstanding  obligations relating
to these  contracts  at April 30, 2000 and 1999,  were  $147,000  and  $428,000,
respectively.




                                      -49-
<PAGE>

NOTE 6 - LIABILITIES SUBJECT TO COMPROMISE

         Under the Code,  a claim is treated  as  secured  only to the extent of
such  creditor's  collateral,  and  the  balance  of the  claim  is  treated  as
unsecured.  Generally, unsecured and under-secured debt does not accrue interest
after the filing,  while a fully  secured  claim  continues to accrue  interest.
Accordingly,  interest  expense  totaling  approximately  $2.7  million  was not
accrued during the year ended April 30, 2000 as management  believes these debts
are  under-secured.  Amounts included under the caption "Current  borrowings" at
April 30,  2000  represent  draws on a line of credit  that was  established  to
provide additional  liquidity during the reorganization  process.  See Note 7 to
the  Consolidated  Financial  Statements.  These  amounts  are  not  subject  to
compromise.

         Amounts included under the caption  "Liabilities Subject to Compromise"
represent claims that are unsecured or where, in the opinion of management,  the
value of the corresponding collateral is estimated to be less than the amount of
the debt.  Included  under this caption at April 30, 2000 are the  following (in
thousands):
                                                         April 30,
                                                           2000
                                                      ----------------
         Trade, interest and other miscellaneous
              claims to unsecured creditors           $         6,242
         Secured notes                                            261
         Unsecured notes                                        1,007
         Senior secured debt                                   42,449
                                                      ----------------

                                                      $        49,959
                                                      ================



         Unsecured and under-secured  claims may be liquidated and discharged at
less than their face value.  It is impossible at this time to predict the actual
amount of recovery  that each  creditor may realize,  since the valuation of the
Company's  assets and its claims  may be  subject to  adjustment  as part of the
bankruptcy proceedings.

         As a result of the Chapter 11 proceedings,  TreeSource Industries, Inc.
and its subsidiaries are in default on substantially  all of their  pre-petition
debt  agreements.  Acceleration of this debt is stayed subject to the Chapter 11
proceedings.  Such debt cannot be paid or  restructured  until the conclusion of
the proceedings, unless ordered by the Court.








                                      -50-
<PAGE>

NOTE 7 -          BORROWINGS
<TABLE>
<CAPTION>

         Long term debt consists of the following (in thousands):
                                                                              Year Ended April 30,
                                                                           ------------------------------
                                                                                2000             1999
                                                                           ------------      ------------
<S>                                                                        <C>               <C>
         Senior  secured  debt,  bearing  interest  at 10%;  principal
         payable in  quarterly  installments  of $1 million  beginning
         March 15, 1999, and a final payment in December 2004; secured
         by substantially all assets of
         the Company.                                                      $    42,449       $    42,449

         Secured notes, interest at 9% and 10%; payable on
         various dates; secured by various assets.                                 261               359

         Unsecured senior  subordinated notes, net of discount of $264
         and $278 at April 30, 2000 and April 30, 1999,  respectively;
         8%  coupon,  effective  interest  rate of 13.3%;  semi-annual
         interest payments due each June 30 and
         December 31; principal due in full June 30, 2005.                       1,007               993

         Obligations under capital lease, effective interest rate of 4.9%          243                --
                                                                           ------------      ------------
                                                                                43,960            43,801

         Less current maturities                                               (43,777)          (43,474)
                                                                           ------------      ------------
                                                                           $       183       $       327
                                                                           ============      ============
</TABLE>

         As discussed in Note 6, the Company is in default on substantially  all
of its  pre-petition  debt  agreements as a result of the  Company's  Chapter 11
filing.  Acceleration  of these  debts  is  stayed  subject  to the  Chapter  11
proceedings.  Such debt cannot be paid or  restructured  until the conclusion of
the Chapter 11  proceedings,  unless ordered by the Court.  All of the Company's
borrowings,    with   the    exception   of   any    borrowings    against   the
debtor-in-possession,   have  been  reclassified  to  "Liabilities   Subject  to
Compromise."

         The Company obtained a $16 million debtor-in-possession working capital
secured  revolving  line of credit (the "Line of Credit") in October  which will
mature upon the earliest of April 5, 2001 or the effective date of a final order
of reorganization.  Borrowings under the Line of Credit fluctuate daily based on
cash needs and are subject to customary covenants and collateral  reserves.  The
weighted  average rate of interest on outstanding  short term  borrowings on the
Line of Credit is 9.0%.  The Line of Credit  allows the  Company to borrow  from
time to time up to $14 million (the  remaining $2 million must remain in reserve
pursuant  to the terms of the Line of  Credit),  including  up to $5  million of
letters of credit. As of April 30, 2000 there were $438,000 in borrowings on the
Line of Credit and $2,935,000 in letters of credit outstanding.




                                 -51-
<PAGE>

NOTE 8 - PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
         The federal and state income tax  provision  consists of the  following
(in thousands):

                                                             Year Ended April 30,
                                          -----------------------------------------------------------
                                                2000                  1999                 1998
                                          ---------------       ---------------      ----------------
<S>                                       <C>                   <C>                  <C>
Income (loss) before income taxes         $         1,012       $       (10,342)     $         (9,786)
                                          ===============       ===============      ================
Provision for income taxes (benefit):
   Federal                                $           100       $           (96)     $          2,115
   State                                                0                     0                   249
                                          ---------------       ---------------      ----------------
                                          $           100       $           (96)     $          2,364
                                          ===============       ===============      ================

   Current                                $           100       $           (96)     $          1,451
   Deferred                                             0                     0                   913
                                          ---------------       ---------------      ----------------
                                          $           100       $           (96)     $          2,364
                                          ===============       ===============      ================
</TABLE>

         The  difference  between the actual income tax provision  (benefit) and
the tax provision  (benefit) computed by applying the statutory federal tax rate
to income (loss) before taxes is attributable to the following (in thousands):
<TABLE>
<CAPTION>

                                                                  Year Ended April 30,
                                        --------------------------------------------------------------------------
                                                 2000                      1999                      1998
                                        ----------------------    ----------------------    ----------------------
                                          Amount         %          Amount         %          Amount         %
                                        ---------     --------    ----------    --------    ----------    --------
<S>                                     <C>           <C>         <C>           <C>         <C>           <C>
Federal statutory income tax
  Provision (benefit)                        $344         34%      $(3,516)       (34%)      $(3,327)       (34%)
State statutory income tax provision
  (benefit)                                    40          4          (414)        (4)          (391)        (4)
Change in valuation allowance for
  Deferred tax assets                      (4,385)      (433)        3,492         34          7,282         74
Adjustment to available net operating
  loss carry-forward                        4,101        405
Carry-back (establishment) of net
  Operating losses (NOL) in years with
  Rates different than statutory rates         --         --            --         --         (1,200)       (12)
Other                                          --         --           342          3             --         --
                                        ---------     --------    ----------    --------    ----------    --------
Actual income tax provision (benefit)   $     100         10%       $  (96)         1%      $  2,364         24%
                                        =========     ========    ==========    ========    ==========    ========
</TABLE>










                                 -52-
<PAGE>

         At April 30, 2000 and 1999,  deferred tax assets and  liabilities  were
composed of the following (in thousands):

                                                      Year Ended April 30,
                                                   -------------------------
                                                      2000           1999
                                                   ----------     ----------
Deferred tax assets:
    Vacation accruals                              $     241     $      183
    Insurance accruals                                   672            670
    Professional fee amortization and accruals           575            188
    Depreciation and capitalization differences
      between financial and tax accounting                64            722
    Tax benefit of NOL carryforward and
      tax credits carryforward                        16,602         12,010
    Bad debts,  discounts and other                      255            251
                                                   ----------     ----------
Net deferred tax assets                               18,409         14,024

Valuation allowance                                  (17,659)       (13,274)
                                                   ----------     ----------

Net deferred tax asset reported                    $     750      $     750
                                                   ==========     ==========

         Because of the difficult  operating  environment and the likely delayed
or decreased use of the Company's  deferred tax assets to offset future  income,
management  has elected to record no income tax expense  during the current year
related  to the  income  generated,  but  instead  adjusted  the  reserve on the
deferred  tax  assets.  This,  coupled  with an  adjustment  to the  usable  net
operating   loss,   resulted  in  an  increase  to  the  valuation   reserve  of
approximately  $4.3 million for the year ended April 30, 2000.  The current year
income tax expense of $100,000 is solely  attributable  to federal  income taxes
paid for income that cannot be offset with usable net operating  losses in their
entirety.  Management  periodically reviews the above factors and may change the
amount of valuation allowance as facts and circumstances change.

         As of April 30,  2000,  the  Company has  approximately  $40 million of
federal  NOL and  approximately  $28  million of state NOL  available  to offset
future taxable income. These carry-forwards expire in 2007 and 2012.


NOTE 9 -          STOCKHOLDERS' EQUITY

         Stockholders' equity at April 30, 2000 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 any accrued dividends at the option of the Board of Directors, in the
form of cash or in  exchange  for senior  unsecured  debt with 12%


                                 -53-
<PAGE>

coupon.  The  holders of the Series A  Preferred  Stock have the right to obtain
voting  control 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 is  currently  in arrears on six  consecutive  quarterly
dividend payments as of May 31, 2000 totaling $3,359,000.

         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.

         Common Stock, no par value;  40,000,000 shares  authorized;  11,162,874
shares issued and  outstanding for both years ended April 30, 2000 and April 30,
1999.  Before giving  effect to any shares that might be issued  pursuant to the
management  incentive  Stock Option Plan or conversion of any Series A Preferred
Stock, the total number of common shares would increase to 11,375,567  shares if
the remaining outstanding Series B Preferred Stock is converted to Common Stock.

         The Company's  current  classes of common and  preferred  stock will be
cancelled and any value remaining in these equity  securities will be eliminated
if the proposed Plan is confirmed by the Court.

         On March 4, 1998, the Board of Directors  adopted a Shareholder  Rights
Plan  ("Plan").  Under  the Plan,  the  Board  declared  a  distribution  of one
Preferred  Share  Purchase  Right  ("Right") for each  outstanding  share of the
Company's  Common Stock.  The  distribution  was payable on March 4, 1998 to the
shareholders   of  record  on  that  day.   The  Rights  are  attached  to,  and
automatically trade with, the outstanding shares of the Company's Common Stock.

         The  Rights  will  become  exercisable  in the event that any person or
group of  affiliated  persons  becomes a holder of 15% or more of the  Company's
outstanding  shares of Common Stock or any person or group of affiliated persons
who at the date of the Rights Agreement,  beneficially  owned 15% or more of the
then-outstanding  shares of Common Stock, has acquired  beneficial  ownership of
31% or more of the outstanding  shares of Common Stock. In addition,  the Rights
will become exercisable in the event of the commencement of a tender or exchange
offer that, if  consummated,  would result in that person or group of affiliated
persons meeting the  above-listed  requirements as to ownership of the Company's
outstanding  shares of Common Stock.  Once the Rights become  exercisable,  each
Right entitles its holder to purchase, by payment of a $7.50 exercise price, one
one-hundredth  of a share  of  Series C Junior  Participating  Preferred  Stock,

                                      -54-
<PAGE>

subject  to  adjustment.  In  addition,  at any time  after the above  mentioned
criteria have been met and prior to the acquisition of a 50% position, the Board
of Directors may require each outstanding Right to be exchanged for one share of
Common Stock.  In general,  none of the benefits of the Rights will be available
to a holder of the  Common  Stock who meets the  above-mentioned  criteria.  The
Rights may be  redeemed by the Company at a price of $0.01 per Right at any time
prior to the  above-mentioned  criteria being met and to the expiration  date of
such Rights on March 4, 2008.


NOTE 10 - STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS

         The  Company  has in  effect  a  Stock  Option  Plan  ("Option  Plan").
Non-qualified   stock   options  may  be  granted  to   directors,   independent
contractors,  consultants  and  employees to acquire up to  1,425,000  shares of
Common  Stock.  Options may be granted for a term not to exceed 10 years and are
not transferable other than by will or the laws of descent and distribution. The
Option Plan provides for incremental vesting based upon the optionee's period of
service with the Company,  and is administered by the Board of Directors.  Stock
options  outstanding at April 30, 2000,  1999 and 1998 related only to employees
and directors.

                                                        Stock Options
                                                 ---------------------------
                                                                    Weighted
                                                                     Average
                                                    Number of       Exercise
                                                     Shares           Price
                                                 -------------      --------

         Shares under option at April 30, 1998      1,065,300       $   1.75

               Options granted                        643,295           0.72

               Options exercised                       (8,500)          0.99

               Options canceled                      (185,775)          1.62
                                                 -------------

         Shares under option at April 30, 1999      1,514,320       $   1.34

               Options granted                         60,000           0.09

               Options exercised                            0           0.00

               Options canceled                      (131,000)          1.61
                                                 -------------

         Shares under option at April 30, 2000      1,443,320       $   1.26
                                                 =============

         Options exercisable at April 30, 2000      1,032,170       $   1.47
                                                 =============




                                      -55-
<PAGE>

         Exercise  prices for  options  outstanding  as of April 30, 2000 ranged
from $0.03825 to $3.00. The weighted average remaining contractual life of those
options is 5.7 years and the weighted average exercise price is $1.26
<TABLE>
<CAPTION>

                        Employee Options Outstanding                                       Options Exercisable
   ---------------------------------------------------------------------------      ----------------------------------
                                            Weighted Avg.
                           Number             Remaining         Weighted Avg.           Number          Weighted Avg.
      Range of            Outstanding       Contractual           Exercise            Exercisable        Exercise
   Exercise Price        at 4/30/00             Life               Price              at 4/30/00           Price
   --------------       --------------    -----------------    ---------------      --------------    ----------------
<S>                     <C>                <C>                 <C>                  <C>               <C>
    $ 0.95625                15,400             2.7              $ 0.95625                15,400         $ 0.95625
      1.50000               340,350             1.8                1.50000               340,350           1.50000
      1.51500               218,625             6.0                1.51500               174,122           1.51500
      3.00000               165,650             2.3                3.00000               165,650           3.00000
      0.79690               543,295             8.5                0.79690               271,648           0.79690
      0.31880               100,000             9.0                0.31880                50,000           0.31880
      0.37190                10,000             9.1                0.37190                 2,500           0.37190
      0.03825                50,000            10.0                0.03825                12,500           0.03825
   $0.31880-$3.00         1,443,320             5.7              $ 1.26367             1,032,170         $ 1.47245
                        ==============                                              ==============
</TABLE>




         Options for 1,046,375  shares remain available for grant under the 1996
Stock Option Plan.  These  options will have an exercise  price of an amount per
share  determined by the Company's Board of Directors,  but not less than 85% of
the fair market value of the Company's Common Stock on the date of grant.

         The  Company  granted  stock  options  for the  purchase of 543,295 and
200,000  shares of the  Company's  Common  Stock to Jess R.  Drake and Robert W.
Lockwood, respectively, pursuant to the terms of their employment contracts. The
term of these  options  is ten  years  from  the date of grant  and they are not
transferable  other than by will or the laws of descent  and  distribution.  The
options will vest over a three-year period. The options granted Mr. Drake are in
addition to and not a part of the 1996 Stock Option Plan.

         The Company maintains a weekly discretionary bonus program for its mill
employees based on the performance of each production shift at individual mills.
The bonus program for mill employees is designed to reward safety, productivity,
and regular attendance. This bonus program is open-ended but designed to attract
good operating  employees by providing them the reasonable  opportunity to reach
high-end pay levels for similar work in the  industry  when average  bonuses are
added to base wages. It is also designed so that manufacturing  labor costs, per
unit of lumber produced, go down as the average bonus level goes up.

         The Company also has two additional  bonus  programs.  The first covers
most salaried employees except for senior  management,  and is a quarterly bonus
program based on pre-tax profits. The second is an annual bonus program covering
senior  executives and


                                      -56-
<PAGE>

is also based on pre-tax profits.  These programs,  which automatically move the
Company's  total  general  and  administrative  expense  up or down in  cyclical
earnings  periods,  are vital to the  Company's  ability  to  attract  desirable
salaried employees at lower than industry average  compensation and benefits and
to retain such employees through cyclical down-turn in earnings.

         The following  summarizes  the amounts paid during fiscal 2000 pursuant
to the Company's bonus programs (in thousands):

                                          Year Ended April 30,
                                    --------------------------------
                                      2000        1999        1998
                                    --------    --------    --------
         Hourly employee bonus      $ 5,300     $ 4,100     $ 5,200
         Salaried employee bonus        600         900       1,200
                                    --------    --------    --------
                                    $ 5,900     $ 5,000     $ 6,400
                                    ========    ========    ========

         The Company maintains a 401(k) Retirement Savings Plan. Under the plan,
eligible participants may contribute 2 to 20% of their compensation. The Company
matches     contributions     of     employees      participating     in     the
Safety/Production/Attendance  Bonus  program on a monthly  basis in an amount as
determined from time to time by the Board of Directors.  Salaried  employees are
not generally entitled to matching  contributions.  During the years ended April
30,  2000,   1999  and  1998,  the  Company   incurred   expenses  for  matching
contributions  and plan  administration  of  $291,000;  $261,000;  and  $289,000
respectively. Company contributions to this plan are funded on a current basis.


NOTE 11 -  RELATED PARTY TRANSACTIONS

         During fiscal 2000, five of the Company's  subsidiaries  purchased logs
worth  approximately  $8.1 million from Quinault Logging Company.  During fiscal
1999 three of the Company's subsidiaries purchased logs worth approximately $3.9
million from Quinault Logging Company. Mr. Larry G. Black, who was a director of
the Company from October 1997 until his  resignation  effective July 7, 2000, is
chief  executive  officer of Quinault  Logging Company and is president and sole
director of Quinault  Corporation,  and the  beneficial  owner of  approximately
17.2% of the Company's Common Stock.











                                      -57-
<PAGE>

NOTE 12 -  COMMITMENTS AND CONTINGENCIES

         (a) Timber  commitments - At April 30, 2000,  the Company had contracts
to purchase  approximately  25.4 MMBF of timber from the Oregon State Department
of Forestry and others for an estimated  stumpage cost of  $6,868,000.  Deposits
were made on these  contracts and additional  payments are required as timber is
removed. The expiration dates of the contracts are as follows:


         Year Ending        Stumpage
          April 30,           MMBF             Cost
         -----------        --------       -----------
             2001              3.9           $ 959,000
             2002              9.0           1,883,000
             2003              0.0                   0
             2004              5.0           1,608,000
             2005              7.5           2,418,000
                            --------       -----------
                              25.4          $6,868,000
                            ========       ===========



         (b) Leases - At April 30, 2000, the Company had future  minimum  rental
commitments for operating leases as follows:  2001 - $940,000;  2002 - $386,000;
2003 -  $286,000;  2004 -  $124,000;  2005 - $34,000;  thereafter  - $5,000.  In
bankruptcy,  the Company may elect to reject  certain leases causing a reduction
in the future minimum rental commitments for operating leases.

         Total  rental  expense  for all leases was  $1,447,000, $1,613,000  and
$1,348,000  for the years ended  April 30,  2000,  1999 and 1998,  respectively.
Actual rental expense  includes  short-term  rentals and leases shorter than one
year, which are not included in the commitments.

         (c) Litigation - On September 27, 1999, the Company filed for voluntary
reorganization  under Chapter 11 of the Code.  Due to the  Company's  Chapter 11
filing,  all action  against the  Company is stayed.  The Company is involved in
certain  litigation  primarily arising in the normal course of its business.  In
the opinion of management,  the Company's liability,  if any, under such pending
litigation,  excluding the Company's Chapter 11 filing, will not have a material
impact  upon the  Company's  consolidated  financial  condition  or  results  of
operations. A proposed Plan of Reorganization was deferred for consideration for
120 days at the Company's request due to adverse market conditions. Confirmation
by the Court of the Plan or any other potential plan is uncertain.

         (d)  Environmental  compliance  - The  Company  is  subject  to various
federal,  state and local  regulations  regarding  waste  disposal and pollution
control.  Various  governmental  agencies  have  enacted,  or  are  considering,
regulations regarding a number of environmental issues that may require material
expenditures  in the  future.  These  include  regulations  regarding  log  yard
management,  disposal of log yard  waste,  kiln  process  waste  water,  and air
emissions from hog fuel fired boilers. The potential  expenditures  required for


                                      -58-
<PAGE>

the Company to comply with any such  regulations  could have a material  adverse
impact on its  consolidated  financial  condition  and/or results of operations.
However,  management  believes  that the  Company  will be able to  comply  with
existing  regulations  without a material impact on its  consolidated  financial
condition or results of operations.


NOTE 13 -  UNAUDITED QUARTERLY FINANCIAL INFORMATION

         The following quarterly  information for the years ended April 30, 2000
and 1999 is unaudited,  but includes all  adjustments  (including the impairment
charges  recognized  in the fourth  quarter of 1999) that  management  considers
necessary for a fair  presentation  of such  information  (in thousands,  except
per-share amounts):
<TABLE>
<CAPTION>
                                                       Year Ended April 30, 2000
                          -------------------------------------------------------------------------------------
                                                                Quarter
                          -------------------------------------------------------------------------------------
                              First            Second            Third            Fourth             Total
                          -------------    -------------     -------------    --------------    ---------------
<S>                       <C>              <C>               <C>              <C>               <C>
Net sales                 $     67,633     $     59,534      $     60,090     $     65,338      $      252,594
Gross profit (loss)       $     10,616     $      3,560      $      2,002     $        617      $       16,794
Net income (loss)         $      6,346     $       (725)     $     (1,539)    $     (3,070)     $        1,012
Net income (loss) per
  diluted common share    $       0.57     $      (0.07)     $      (0.14)    $      (0.27)     $         0.09


                                                       Year Ended April 30, 1999
                          -------------------------------------------------------------------------------------
                                                                Quarter
                          -------------------------------------------------------------------------------------
                             First            Second            Third            Fourth             Total
                          -------------    -------------     -------------    --------------    ---------------
Net sales                 $     47,661     $     51,240      $     44,257     $      52,232     $      195,390
Gross profit (loss)       $      3,486     $      3,381      $        984     $       3,524     $       11,375
Net income (loss)         $       (619)    $       (324)     $     (2,682)    $      (6,621)    $      (10,246)
Net income (loss) per
  diluted common share    $      (0.11)    $      (0.08)     $      (0.29)    $       (0.59)    $        (1.07)

</TABLE>







                                      -59-
<PAGE>

NOTE 14 -         VALUATION AND QUALIFYING RESERVES

         The  following  table  summarizes  the  activity  associated  with  the
Company's  allowance  for doubtful  accounts and allowance for discounts for the
years ended April 30, 1999, 1998 and 1997 (in thousands):

           Allowance for doubtful accounts -
                  deducted from accounts receivable in the balance sheet

                                            Year Ended April 30,
                                   --------------------------------------
                                     2000           1999           1998
                                   --------       --------       --------
Balance at beginning of year       $    55        $    39        $    49
Charged to costs and expenses           82             35              5
Deductions (1)                         (77)           (19)           (15)
                                   --------       --------       --------
Balance at end of year             $    60        $    55        $    39
                                   ========       ========       ========


           Allowance for discounts -
                  deducted from accounts receivable in the balance sheet

                                            Year Ended April 30,
                                   --------------------------------------
                                     2000           1999           1998
                                   --------       --------       --------
Balance at beginning of year       $    87        $    89        $   146
Charged to costs and expenses        2,344          1,814          2,296
Deductions(2)                       (2,331)        (1,816)        (2,353)
                                   --------       --------       --------
Balance at end of year             $   100        $    87        $    89
                                   ========       ========       ========


(1) Uncollected receivables written off, net of recoveries.
(2) Discounts taken by customers.


NOTE 15 - REORGANIZATION CHARGES

           As a result of the Chapter 11  proceedings,  the company has incurred
legal accounting and other professional fees. The following table summarizes the
amounts charged to income through April 30, 2000.

                                     April 30,
                                       2000
                                    -----------
         Legal                      $     1,806
         Consulting                         458
         Accounting                         291
         Other                              250
                                    -----------

                                    $     2,805
                                    ===========


                                      -60-
<PAGE>

CORPORATE INFORMATION
---------------------

Annual Meeting
To be announced.

Investor Contact
TreeSource Industries, Inc.
Investor Relations Department
P.O. Box 5805
Portland, Oregon  97228-5805
10260 S.W. Greenburg Road, Suite 900
Portland, Oregon 97223-5519
Phone:     (503) 246-3440
Fax:       (503) 205-7605
Web:     http://www.treesource.com

Common Stock
TreeSource Industries, Inc.
Common stock is traded on the Bulletin Board (Symbol TRES)

Transfer Agent for Common Stock
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
Phone:     (800) 522-6645
Fax:       (206) 292-3196
Web:     http://www.chasemellon.com

Transfer Agent for Series A Preferred Stock and Series B Preferred Stock
TreeSource Industries, Inc.
Stock Transfer Department
P.O. Box 5805
Portland, Oregon 97228-5805
10260 S.W. Greenburg Road, Suite 900
Portland, Oregon 97223-5519
Phone:       (503) 246-3440
Fax:         (503) 205-7605

Change of address  information and questions regarding transfers and conversions
should be directed to the transfer agent.

Trustee for 8% Senior Subordinated Notes due 2005
State Street Bank & Trust Company
Corporate Trust Department
P.O. Box 778
Boston, Massachusetts 02110
Two International Place
Boston, Massachusetts 02110
Phone:     (617) 662-1753
Fax:       (617) 662-1456

Counsel
Perkins Coie
Portland, Oregon

Auditors
Moss Adams LLP
Beaverton, Oregon





                                      -61-
<PAGE>

BOARD OF DIRECTORS, HEADQUARTERS, AND MILL LOCATIONS

Board of Directors                      Headquarters

Scott Christie (2)                      TreeSource Industries, Inc.
General Partner                         P.O. Box 5805
Christie Capital Management             Portland, Oregon  97228-5805
San Francisco, California               10260 S.W. Greenburg Road, Suite 900
Elected 1988                            Portland, Oregon 97223-5519
                                        Phone:       (503) 246-3440
Richard W. Detweiler (1)                Fax:         (503) 205-7605
Principal                               Web:  http://www.treesource.com
Carlisle Enterprises
LaJolla, California
Elected 1995                            Sales and Marketing

William H. Wright (1)(2)                TreeSource, Inc.
President                               P.O. Box 6316
Heartwood Consulting Service            Portland, Oregon 97228-6316
Gresham, Oregon                         10260 S.W. Greenburg Road, Suite 900
Elected 1992                            Portland, Oregon 97223-5519
                                        Phone:       (503) 246-8600
Jess R. Drake (3)                       Toll free outside Oregon: 1-800-843-5254
President                               Fax:         (503) 245-1483
TreeSource Industries, Inc.             Web:  http://www.treesource.com
Portland, Oregon
Elected 1998
                                        Timber

(1) Audit Committee                     Western Timber Co.
(2) Compensation Committee              P.O. Box 5805
(3) Executive Committee                 Portland, Oregon  97228-5805
                                        10260 S.W. Greenburg Road, Suite 900
                                        Portland, Oregon 97223-5519
                                        Phone:       (503) 246-3440
                                        Fax:         (503) 205-7605
                                        Web:  http://www.treesource.com


                                        Operation Locations

                                        Burke Lumber Co.
                                        P.O. Box 210
                                        Route 5
                                        West Burke, Vermont 05871-0210
                                        Phone:       (802) 467-3609
                                        Fax:         (802) 467-3051




                                      -62-
<PAGE>

Central Point Lumber Co.                Pacific Softwoods Co.
P.O. Box 5360                           P.O. Box 370
Central Point, Oregon 97502-0054        Philomath, Oregon 97370-0370
594 South Front Street                  950 Clemens Mill Road
Central Point, Oregon 97502-2723        Philomath, Oregon 97370
Phone:     (541) 664-2646               Phone:     (541) 929-2902
Fax:       (541) 664-3690               Fax:       (541) 929-2916

Glide Lumber Products Co.               Philomath Forest Products Co.
P.O. Box 370                            P.O. Box 218
Glide, Oregon 97443-0370                Philomath, Oregon 97370-0218
1577 Glide Loop Road                    1701 Chapel Road
Glide, Oregon 97443-9711                Philomath, Oregon 97370-9557
Phone:     (541) 496-3571
Fax:       (541) 496-0373               Sedro-Woolley Lumber Co.
                                        P.O. Box 639
Midway Engineered Wood Products, Inc.   Sedro-Woolley, Washington 98284-0639
5700 S.W. Reservoir Avenue              109 Jameson Avenue
Corvallis, Oregon 97333-2936            Sedro-Woolley, Washington 98284-1572

Morton Forest Products Co.              Spanaway Lumber Co.
P.O. Box I                              19111 38th Avenue East
Morton, Washington 98356-0049           Tacoma, Washington  98446-1189
247 Priest Road                         Phone:     (253) 847-1935
Morton, Washington 98356-9404           Fax:       (253) 847-2023
Phone:     (360) 496-6666
Fax:       (360) 496-6667               Trask River Lumber Co.
                                        5900 Moffett Road
North Powder Lumber Co.                 Tillamook, Oregon 97141-9621
P.O. Box 169                            Phone:     (503) 842-4007
North Powder, Oregon 97867-0169         Fax:       (503) 842-3178
105 Second Street
North Powder, Oregon 97867              Tumwater Lumber Co.
Phone:     (541) 898-2149               P.O. Box 4158
Fax:       (541) 898-2817               Tumwater, Washington 98501-0158
                                        8277 Center Street, S.W.
Pacific Hardwoods-South Bend Co.        Tumwater, Washington 98501-7227
P.O. Box 185                            Phone:     (360) 352-1548
South Bend, Washington 98586-0185       Fax:       (360) 943-4091
819 Ocean Street
Raymond, Washington 98577-2905
Phone:     (360) 942-5525
Fax:       (360) 942-5529


                                      -63-