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, 2001                              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.)

529 S.E. Grand Ave, Suite 300               Registrant's telephone number,
Portland, Oregon 97214                      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, 2001: $111,629.

         Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of July 12, 2001: 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                                                      8
Item 3.        LEGAL PROCEEDINGS                                               9
Item 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS             9

PART II                                                                       10

Item 5.        MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS                                            10
Item 6.        SELECTED FINANCIAL DATA                                        11
Item 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS                            12
Item 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                    20
Item 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE                            20

PART III                                                                      21

Item 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT             21
Item 11.       EXECUTIVE COMPENSATION                                         23
Item 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT                                                     31
Item 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                 32

PART IV                                                                       33

Item 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
               FORM 8-K                                                       33
(a) (1)        Financial Statements                                           33
(a) (2)        Financial Statement Schedules                                  33
(a) (3)        Exhibit Index                                                  33
(b)            Reports on Form 8-K                                            39

                                      -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.

         In April 2000 the Company filed a plan of reorganization with the U.S.
Bankruptcy Court (the "Court"). Due to the downturn in the lumber market, the
Company successfully petitioned the Court to delay consideration of and then to
withdraw the plan of reorganization. On March 31, 2001 the period of exclusivity
(the time in which the Company has the sole right to present a plan of
reorganization) expired, which will allow other interested parties an
opportunity to submit a plan of reorganization. No alternative plan of
reorganization has been proposed. In July 2001, the Company's pre-petition
senior secured debt securities were purchased by an investment group. This sale,
in itself, may not affect the status of the Company's bankruptcy proceedings. In
an effort to maximize value for all parties, the Company is evaluating its
strategic alternatives, which include a sale of the Company's operations. The
Company's senior secured lenders have a security interest in substantially all
the assets of the Company. Regardless of which alternative the Company
ultimately pursues it is unlikely that the Company's current classes of common
and preferred stock will have any value upon conclusion of the bankruptcy
proceedings.

         During fiscal 2001 the Company sold at auction the machinery and
equipment at its facilities in Burke, Vermont, Central Point, Oregon, Midway,
Oregon, and curtailed



                                      -3-
<PAGE>
production indefinitely at its mills in Morton, Washington, South Bend,
Washington, and North Powder, Oregon. All of the mill assets, except for the
assets of the Glide, Spanaway, Trask, and Tumwater mills, are classified as
"Assets held for sale" and are carried at management's estimate of their net
realizable value, including any estimated remediation costs that have not been
separately classified as environmental liabilities.


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 86% of net sales in fiscal 2001, 89% of net sales in fiscal 2000,
and 87% of net sales in fiscal 1999.

         The Company sells softwood lumber to a large number of customers, but
the majority of sales are made to 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 8% of net sales in
fiscal 2001, 7% of net sales in fiscal 2000, and 8% of net sales in fiscal 1999.

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

         The Company markets, distributes, and arranges transportation for its
lumber products through 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 April 30, 2001 and 2000 was $4 million and $8
million, respectively. Backlog on any particular date may not be indicative of
the Company's average backlog, net sales, or the backlog for any succeeding
period.



                                      -4-
<PAGE>
         No single customer accounted for as much as 10% of the Company's net
sales during fiscal 2001. 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.

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, 2001, 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
         ----------   ------   ---------   ------    ------------
           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
           2001         89%        11%        --     163,001 MBF

MBF - Thousand Board Feet

         During fiscal years 1996 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. During the
last quarter of fiscal 2000 and continuing through fiscal 2001, however, the
production at five of the Company's nine operating mills was curtailed due to
the relatively low lumber market prices, which dramatically reduced the
Company's annual log requirements. 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 timberland. For
further discussion of current industry



                                      -5-
<PAGE>
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 500 employees at
July 12, 2001. The Company uses bonus programs to motivate its employees. See
Note 10 to Consolidated Financial Statements.

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 2001, the Company incurred expenditures of
approximately $134,000 for environmental protection measures. Expenditures are
projected to be approximately $1,130,000 for fiscal 2002.
<TABLE>
<CAPTION>

                                                           Budgeted
                                           Accrued        Fiscal 2000       Budgeted
                                        Environmental     Operational     Fiscal 2002     Total Budgeted
                                         Remediation     Environmental        Site       for Fiscal 2002
                                         Costs as of      Compliance      Remediation     Environmental
               Facility                April 30, 2001        Costs           Costs         Expenditures
-----------------------------------    --------------    -------------    -----------    ----------------
<S>                                    <C>               <C>              <C>            <C>
Burke Lumber Co.(1)(2)                      $ 20,000        $    --         $ 20,000         $ 20,000
Central Point Lumber Co.(1)(2)                93,000           4,000         200,000          204,000
Glide Lumber Products Co.(2)                  30,000          35,000              --           35,000
Morton Forest Products Co.(1)(2)             116,000           8,000         103,000          111,000
North Powder Lumber Co.(1)                        --          13,000              --           13,000
Pacific Hardwoods-South Bend Co.(1)               --           2,000          86,000           88,000
Pacific Softwoods Co.(1)                          --          19,000          15,000           34,000
Philomath Forest Products Co(1)(2)           150,000           1,000         150,000          151,000
Sedro-Woolley Lumber Co. (1)(2)              200,000              --         200,000          200,000
Spanaway Lumber Co.                               --          22,000              --           22,000
Trask River Lumber Co.                            --          81,000          67,000          148,000
Tumwater Lumber Co.                               --         104,000              --          104,000
TreeSource Industries, Inc.                  132,000              --              --               --
-----------------------------------    ---------------  --------------    -----------    ----------------
Total                                       $741,000        $289,000        $841,000       $1,130,000
                                       ===============  ==============    ===========    ================
</TABLE>

         1.   These facilities are classified as "Assets Held for Sale" and,
              because they were determined to be impaired, are carried at
              estimated fair values. The fair values were based upon appraisal
              values and include estimated remediation costs to prepare the site
              for sale if such costs are not separately classified as an
              environmental liability.

         2.   Environmental remediation is anticipated to be required and the
              cost for the known issues have been estimated and accrued.

The Company recognizes and accrues for environmental remediation costs when they
are probable and the costs can be estimated. Generally, environmental
remediation costs may be higher than budgeted if sawmill operations at a site
cease, the equipment is



                                      -6-
<PAGE>
auctioned, and the land is placed for sale. Since all of the assets of the
Company are for sale and the outcome of such a sale is uncertain, the extent, if
any, of any additional required environmental remediation at many of the
Company's mill sites is unknown. Additional expenditures may be necessary to
remediate the sites in preparation for sale. Such amounts cannot be estimated at
this time and may be material. Changes in 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.

         The lumber market experienced difficult conditions throughout fiscal
2001 due to an over supply of lumber. North American housing starts and lumber
production reached their highest levels for the decade in calendar 1999: 1.77
million housing starts and 65.6 billion board feet of production respectively.
As interest rates increased in calendar 2000, housing starts declined 4% to 1.70
million. This decline in demand relative to the lumber industry's production
capacity caused lumber prices for many products to fall to their lowest levels
since 1992. This over-capacity situation persisted throughout fiscal 2001
causing mills to either curtail production or close permanently.

         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 the first three quarters of fiscal 2001, demand for pulp and
paper products improved as compared to fiscal 2000. However, starting in
December 2000 and continuing throughout the last quarter of fiscal 2001, demand
fell off sharply due to the overall slowdown in the U.S. economy. By April 2001,
this drop in the quantity demanded triggered a decline in unit prices of several
key paper grades by more than 10% as compared to the previous year. Decreased
paper prices forced many producers to begin curtailing production, which
ultimately put substantial downward pressure on wood chip prices as the quantity
of chips available exceeded the quantity needed by the paper industry. See
"Factors Affecting Forward-Looking Statements."

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 fluctuations in log prices and gives them an advantage over
the



                                      -7-
<PAGE>
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. Due
to the recent expiration of the North American Softwood Lumber Agreement between
the U.S. and Canada, the industry could be negatively impacted if substantial
amounts of Canadian lumber flow into U.S. markets. A countervailing duty suit,
filed by the Coalition for Fair Lumber Imports on April 2, 2001, initiated a
review of the issue by both the U.S. Department of Commerce and the U.S.
International Trade Commission. However, because of the number of complex legal
and economic questions remaining to be answered, the ultimate resolution of this
issue is uncertain.

       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
                                                                    2001       Production
Softwood Lumber                                                  Production    Capacity(2)
---------------                                                  ----------    -----------
<S>                                                              <C>           <C>
Burke Lumber Co., West Burke, Vermont(3)                               --             --
Central Point Lumber Co., Central Point, Oregon(3)                 10,000             --
Glide Lumber Products Co., Glide, Oregon                          130,000        160,000
Morton Forest Products Co., Morton, Washington(4)                  28,000        110,000
North Powder Lumber Co., North Powder, Oregon(4)                    8,000         90,000
Pacific Softwoods Co., Philomath, Oregon(5)                            --             --
Philomath Forest Products Co., Philomath, Oregon(3)                    --             --
Sedro-Woolley Lumber Co., Sedro-Woolley, Washington(3)                 --             --
Spanaway Lumber Co., Spanaway, Washington(6)                       91,000        130,000
Trask River Lumber Co., Tillamook, Oregon(6)                       62,000        140,000
Tumwater Lumber Co., Tumwater, Washington(6)                       82,000        100,000

Hardwood Lumber
---------------

Pacific Hardwoods-South Bend Co., South Bend, Washington(4) (6)    10,000         24,000
</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)  The equipment at these facilities has been auctioned and the land is being
     prepared for sale.
(4)  Facility operated during fiscal 2001 and has subsequently ceased operating
     and is for sale.
(5)  This facility is currently operating as a custom drying operation and is
     for sale.
(6)  These subsidiaries lease the real property on which the mill is located
     pursuant to ground leases.

         During fiscal 2001 the equipment at the Burke and Central Point
facilities was auctioned and the land is currently being prepared for sale. In
addition, production at the Morton, North Powder, and South Bend facilities was
curtailed indefinitely and these facilities are being held for sale. The Company
continues to hold for sale the remaining assets of Burke Lumber Co., Midway
Engineered Wood Products, Inc., Morton Forest Products Co., North Powder Lumber
Co., Pacific Hardwoods-South Bend Co., Pacific



                                      -8-
<PAGE>
Softwoods Co., and Sedro-Woolley Lumber Co. These assets are classified as
"Assets Held for Sale" and are carried at management's estimate of their net
realizable value.

Corporate Headquarters
----------------------

         The Company relocated its corporate headquarters on April 2, 2001 upon
expiration of the lease for its former location and to reduce expenses. The
Company's new corporate headquarters are located in an industrial area at 529 SE
Grand Avenue in Portland, Oregon.

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 U.S.
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
U.S. District Court certified a class and the parties have agreed to a
settlement of the class members' wage claims. The Court has allowed claims for
penalties and attorney fees. Allowed claims will be treated in accordance with
the terms of the Company's Chapter 11 plan of reorganization.


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

         None.




















                                      -9-
<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 June 8, 2001 was 572. The
Company estimates that the total number of its direct and beneficial
shareholders is approximately 2,050.

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, 2001:

         Fiscal Year Ended
            April 30, 2001            Low               High
         ---------------------      -------           -------

         First Quarter              $0.0156           $0.0625
         Second Quarter             $0.0156           $0.0625
         Third Quarter              $0.0050           $0.0420
         Fourth Quarter             $0.0100           $0.0300

         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

         The high and low bid quotations shown are those quoted on the OTC
Bulletin Board. 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. It is likely that any value
remaining in the Company's equity securities will be eliminated as a result of
the Company's Chapter 11 proceedings.

         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.







                                      -10-
<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,
                                                           ---------------------------------------------------------------
                                                             2001         2000         1999          1998          1997
                                                           ---------    ---------    ----------    ----------     --------
<S>                                                        <C>          <C>           <C>           <C>           <C>
NET SALES                                                  $151,201     $252,594      $195,390      $242,051      $284,086
COST OF SALES                                               152,387      235,800       184,015       231,303       255,068
                                                           ---------    ---------    ----------    ----------     --------
GROSS PROFIT                                                 (1,186)      16,794        11,375        10,748        29,018
GENERAL, SELLING AND ADMINISTRATIVE EXPENSES                 10,134       10,888        10,738        11,290        12,529
IMPAIRMENT AND REORGANIZATION  CHARGES                        6,189        3,028         6,310         4,168             -
                                                           ---------    ---------    ----------    ----------     --------
OPERATING INCOME (LOSS)                                     (17,509)       2,878        (5,673)       (4,710)       16,489

INTEREST EXPENSE                                               (149)      (2,049)       (4,732)       (4,682)       (5,029)
OTHER INCOME (EXPENSE)                                          261          283            63          (394)          630
                                                           ---------    ---------    ----------    ----------     --------
INCOME (LOSS) BEFORE INCOME TAXES                           (17,397)       1,112       (10,342)       (9,786)       12,090

PROVISION FOR INCOME TAXES (BENEFIT)                            669          100           (96)        2,364         3,120
                                                           ---------    ---------    ----------    ----------     --------
NET INCOME (LOSS)                                           (18,066)       1,012       (10,246)      (12,150)        8,970

PREFERRED DIVIDENDS                                             ---          ---         1,671         2,290         2,228
                                                           ---------    ---------    ----------    ----------     --------
NET INCOME (LOSS) APPLICABLE TO                            ($18,066)      $1,012      ($11,917)     ($14,440)       $6,742
  COMMON SHAREHOLDERS                                      =========    =========    ==========    ==========     ========

NET INCOME (LOSS) PER COMMON SHARE, BASIC
  - net income (loss)                                        ($1.62)       $0.09        ($1.07)       ($1.30)        $0.61
    Average shares outstanding                               11,163       11,163        11,161        11,130        11,078

NET INCOME (LOSS) PER COMMON SHARE, DILUTED
  - net income (loss)                                        ($1.62)       $0.09        ($1.07)       ($1.30)        $0.59
    Average shares outstanding                               11,163       11,163        11,161        11,130        11,385

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

PERIOD END BALANCES
  Working capital                                           $16,967      $27,975      ($24,340)      $15,158       $29,475
  Total assets                                              $35,623      $57,363       $54,987       $65,311       $86,486
  Long-term debt, excluding current maturities                 $183         $183          $324       $36,868       $46,086
  Stockholders' equity                                     ($24,870)     ($6,804)      ($7,816)       $4,093       $18,434

SELECTED FINANCIAL RATIOS
  Net income (loss) to average:
    Total assets                                              (38.9) %      1.80  %      (17.0) %      (16.0) %       10.9 %
    Stockholders' equity                                      114.1  %     (13.8) %      550.4  %     (107.9) %       59.6 %
    Average stockholders' equity to average total assets      (34.1) %     (13.0) %       (3.1) %      (14.8) %       18.4 %
</TABLE>



                                      -11-
<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 2001 remained generally weak due to
the oversupply of lumber in the North American market. The average unit price
for the benchmark Douglas fir 2x4 standard and better decreased from $385 per
unit for fiscal 2000 to an average of $294 per unit for fiscal 2001, a 24%
reduction. During the same period, the unit cost of the #2 Douglas fir sawlog, a
benchmark for the Company's raw materials costs, also decreased from an average
of $634 to $566 per unit, an 11% reduction. Because lumber prices decreased more
than log costs, industry margins and the Company's profits were reduced. In
response to the deterioration of the market, the Company has sold at auction the
assets at its facilities in Burke, Vermont and Central Point, Oregon, and has
curtailed production indefinitely at its mills in Morton, Washington, South
Bend, Washington, and North Powder, Oregon. These idle mills are currently held
for sale along with the assets of Burke Lumber Co., Midway Engineered Wood
Products, Inc., Pacific Softwoods Co., Philomath Forest Products Co. and
Sedro-Woolley Lumber Co.

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.

         In April 2000 the Company filed a plan of reorganization with the U.S.
Bankruptcy Court (the "Court"). Due to the downturn in the lumber market, the
Company successfully petitioned the Court to delay consideration of and then to
withdraw the plan of reorganization. On March 31, 2001 the period of exclusivity
(the time in which the Company has the sole right to present a plan of
reorganization) expired, which will allow


                                      -12-
<PAGE>
other interested parties an opportunity to submit a plan of reorganization. In
July 2001, the Company's pre-petition senior secured debt securities were
purchased by an investment group. This sale, in itself, may not affect the
status of the Company's bankruptcy proceedings. In an effort to maximize value
for all parties, the Company is evaluating its strategic alternatives, which
include a sale of the Company's operations. The Company's senior secured lenders
have a security interest in substantially all the assets of the Company.
Regardless of which alternative the Company ultimately pursues it is unlikely
that the Company's current classes of common and preferred stock will have any
value upon conclusion of the bankruptcy proceedings.

         The costs associated with the reorganization totaled $1,287,000 for
fiscal 2001. Interest expense for the year was approximately $4,300,000 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.

         In July 2001, all of the Company's outstanding pre-petition senior
secured debt securities were purchased by an investment group. This sale may not
affect the Company's bankruptcy proceedings.

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)
                                            ---------------------------------------------     ----------------------------
                                                        Year Ended April 30,                      2001           2000
                                            ---------------------------------------------          vs             vs
                                               2001              2000           1999              2000           1999
                                            ------------     ------------    ------------     -------------  -------------
<S>                                         <C>              <C>             <C>              <C>            <C>
Net sales                                      100.0 %          100.0 %         100.0 %           (40.1) %        29.3%
Cost of sales                                  100.8             93.4            94.2             (35.4)          28.1
                                            ----------       ----------      ----------
  Gross profit                                  (0.8)             6.6             5.8            (107.1)          47.6

Selling, general and administrative expense      6.7              4.3             5.5              (6.9)           1.4
Reorganization charges                           0.9              1.2             0.0             (54.1)            NM
Impairment loss                                  3.2              0.0             3.2                NM          (52.0)
                                            ----------       ----------      ----------
  Operating income (loss)                      (11.6)             1.1            (2.9)               NM             NM

Interest expense                                (0.1)            (0.8)           (2.4)            (92.7)         (56.7)
Miscellaneous                                    0.2              0.1             0.0              (7.8)         349.2
                                            ---------        ----------      ----------
  Income (loss) before income taxes            (11.5)             0.4            (5.3)               NM             NM

Provision for income taxes (benefit)             0.4              0.0            (0.0)               NM             NM
                                            ---------        ----------      ----------
  Net income (loss)                            (11.9)%            0.4%           (5.2)%              NM             NM
                                            =========        ==========      ==========
NM - Not Meaningful
Note - percentages may not add due to rounding.
</TABLE>



                                      -13-
<PAGE>
Comparison of 2001 to 2000
--------------------------

         Net sales for the year ended April 30, 2001 decreased $101.4 million
(40.1%) from the year ended April 30, 2000. This decrease was principally caused
by a 34% decrease in lumber sales volume and a 10% decrease in the net sales
average. The decrease in lumber shipments in fiscal 2001 as compared to fiscal
2000 reflects the Company's curtailment of operations at its facilities in
Burke, Vermont, Central Point, Oregon, Morton, Washington, North Powder, Oregon,
and South Bend Washington. In addition the Company took downtime at the
remaining mills when market conditions did not justify continuing operations.

         Gross profit for the year ended April 30, 2001 was 0.8% of net sales,
compared to 6.6% of net sales for the year ended April 30, 2000. Lumber sales
average and volume decreased by 19% and 26%, respectively, from the year ended
April 30, 2000, while the Company's average log costs decreased by only 6%. Unit
manufacturing costs in fiscal 2001 decreased by 2% from costs in fiscal 2000,
primarily due to a curtailment of operations at relatively higher cost
production facilities.

         Selling, general and administrative expenses in the year ended April
30, 2001, excluding reorganization and impairment charges, decreased by $0.8
million (6.9%) as compared to the year ended April 30, 2000. Impairment charges
for the year ended April 30, 2001 were $4.9 million as compared to $0.2 million
for fiscal 2000. The increase in impairment charges was primarily a result of
curtailing operations and placing for sale Morton Forest Products Co., North
Powder Lumber Co., and Pacific Hardwoods-South Bend Co. Reorganization charges
related to the Company's Chapter 11 filing were $1.3 million in fiscal 2001 and
$2.8 million in fiscal 2000. The decrease in reorganization charges reflects the
Company's efforts to reduce bankruptcy related activities and costs.

         During fiscal 2001 the equipment at the Burke, Central Point, and
Midway facilities was sold at auction. Based on the proceeds of these sales, the
impairment reserve was adjusted to reflect the Company's revised estimate of the
net realizable value of the remaining assets held for sale. Four facilities are
currently being held for sale: Morton Forest Products Co., North Powder Lumber
Co., Pacific Hardwoods-South Bend Co. and Pacific Softwoods Co., along with
the parcels of land associated with Burke Lumber Co., Central Point Lumber Co.,
Midway Engineered Wood Products, Inc., Philomath Forest Products Co., and
Sedro-Woolley Lumber Co. See Note 3 to Consolidated Financial Statements.

         As of April 30, 2001, the Company had available approximately $48
million and $36 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 utilize these NOLs. As a result, the
Company fully reserved for the NOLs generated during the twelve months ended
April 30 for 2000 and 2001. The Company periodically reviews the above factors
and may change the amount of valuation allowance as facts and circumstances
dictate.

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


                                      -14-
<PAGE>
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.

         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 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 Engineered Wood Products, Inc.,
Pacific Softwoods Co., along with the parcels of land associated with Philomath
Forest Products Co., 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.

LIQUIDITY AND CAPITAL RESOURCES

         At April 30, 2001, the Company had net working capital of $17 million
as compared to a net working capital of $28 million at April 30, 2000. This
decrease of $11 million primarily resulted from reductions in accounts
receivable, inventories, accounts payable and accrued expenses due to the
curtailment of operations at the Central Point, Morton, North Powder, and
Pacific Hardwoods facilities. See Notes 1 and 6 to Consolidated Financial
Statements. The Company currently holds in an escrow account $1.8 million in
cash, from the sale of the equipment at Burke, Philomath and Sedro-Woolley.

         Cash and cash equivalents decreased by approximately $0.7 million
during the year ended April 30, 2001, to $1.2 million, excluding $1.8 million in
restricted cash generated from the sale of certain assets. Although the
Company's operating losses



                                      -15-
<PAGE>
exceeded $18 million, approximately $0.8 million of cash was generated from
operations due to the curtailment of operations at several facilities which
resulted in a $5.2 million reduction in receivables, a $8.3 million decrease in
inventories, a $1.1 million reduction in prepaid assets and a $3.2 million
decrease in accounts payable and accrued expenses. In addition, the Company
generated $0.9 million through the sale at auction of some of the equipment at
certain non-operating mills.

         The Company historically has not had a line of credit or working
capital financing available to it, and, therefore, had relied on cash provided
by its operations to fund its working capital needs. In early October 1999, 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. 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 August
5, 2001. If the Company is unable to either confirm a plan of reorganization or
obtain a new cash collateral order by August 6, 2001, 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. As of April 30, 2001 there was a $0.4
million loan balance on the Company's line of credit and $1.35 million in
letters of credit outstanding.

         For the year ending April 30, 2001, the Company also spent $1 million
for capital improvements to its facilities. The Company had no material
commitments for capital spending at April 30, 2001.

         After receiving approval from the Court, the Company paid $0.7 million
out of restricted cash to the pre-petition secured lenders in July 2000 for the
reduction of pre-petition long-term debt.

         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.







                                      -16-
<PAGE>
Uncertain Outcome of Company's Chapter 11 Filing
------------------------------------------------

         On September 27, 1999, the Company filed for voluntary reorganization
under Chapter 11 of the Code. The Company's continued existence will depend on
the outcome of the Company's Chapter 11 filing. The Company is pursuing
strategic alternatives that include the sale of its operations. The outcome of
such a sale is uncertain. To be successful any plan of reorganization must
sufficiently restructure the Company's pre-petition debt to reduce debt
servicing costs and allow the Company to restore its liquidity and meet its
future cash requirements. If the Company is unable to confirm a plan of
reorganization the Company may be unable to continue operating. Confirmation of
any plan depends on the support of the Company's creditors and the Court. If the
Company is unable to demonstrate that it is viable as a going concern,
confirmation of a plan of reorganization is unlikely. To demonstrate its
viability, the Company must show that it is worth more as an operating entity
than liquidated.

         The Company's worth is based on a number of factors including: past
financial performance, the value of its assets, projected future market
conditions and operating configuration, and projected capital expenditures,
among other items. The Company and its creditors may have differing opinions
regarding the Company's worth that could 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 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 fails 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
---------------------------------------------------------------

         Modest decreases in the unusually robust domestic demand for lumber in
an environment of slowing economic growth 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. Such adverse operating conditions
have and may again cause the Company to take such actions as curtailing
operations at some or all facilities.

         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


                                      -17-
<PAGE>
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. Although
in October 1999 the Company revised its 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.  The historically weak lumber market during fiscal
2001 caused management to modify that strategy and adopted a breakeven approach
for log procurement at most facilities. 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.

         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.




                                      -18-
<PAGE>
         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 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.





                                      -19-
<PAGE>
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 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 33.

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

         None.











                                      -20-
<PAGE>
                                    PART III

Item 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The directors and executive officers of the Company as of July 12,
2001, are:

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

Scott Christie..............    52      Director
Richard W. Detweiler........    59      Director
Jess R. Drake...............    60      Director, President, and Chief Executive
                                           Officer
Robert W. Lockwood..........    40      Vice President-Finance, Chief Financial
                                           Officer, Treasurer, and Secretary
Kevin Murray ...............    43      Vice President-Sales and Marketing
William H. Wright...........    64      Director

         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, a Class 2 director, in July 2000. 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, 2001 the Company was in arrears on nine consecutive
quarterly dividend payments totaling approximately $5,587,000. In addition, the
Company did not pay a tenth consecutive quarterly dividend payment due May 31,
2001.

         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

                                      -21-
<PAGE>
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, treasurer 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.

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


                                      -22-
<PAGE>
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, 2001.

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 $100,000 (the "Named
Executive Officers") for each of the last three fiscal years.
<TABLE>
<CAPTION>
                                                                       Long-Term
                                                                     Compensation
                                                                        Awards
                                      Annual Compensation(1)      --------------------     All Other
   Name and Principal              ----------------------------   Number of Securities   Compensation
      Position                     Year    Salary($)   Bonus($)    Underlying Options         ($)
-----------------------------      ----    ---------   --------   --------------------   ------------
<S>                                <C>     <C>         <C>        <C>                    <C>
Jess R. Drake(2) (3) (4) (5)       2001    $ 350,004   $     --              --              $ 62,465
President and Chief                2000    $ 350,004   $681,884              --              $  8,339
  Executive Officer                1999    $ 166,668   $157,500         543,295              $140,639

Robert W. Lockwood(6) (7) (8)      2001    $ 150,000   $     --          50,000              $ 43,824
Vice President-Finance, Chief      2000    $ 150,000   $129,883          50,000              $     --
   Financial Officer,              1999    $   6,250         --         100,000              $     --
   Treasurer, and Secretary

Kevin P. Murray(9)                 2001    $ 125,040   $     --              --              $     --
                                   2000    $   5,210   $     --              --              $     --
                                   1999    $      --   $     --              --              $     --
</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 and 1999,
         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)      In addition to his base salary, Mr. Drake received $53,918 as a local
         housing expense reimbursement during the fiscal year ended April 30,
         2001. This amount is included in All Other Compensation.
(4)      Mr. Drake's bonus for fiscal 2000 was $630,000 plus $51,884 in
         interest. This amount was approved by the Company's Board of Directors
         on July 11, 2000, but remained unpaid until June 29, 2001. The bonus
         for fiscal year 2001 has not been calculated or approved by the Board;
         however, management specifically accrued a liability of $210,000 during
         the year in anticipation of Mr. Drake's fiscal 2001 bonus compensation.
(5)      The Company also paid additional disability insurance, separate from
         the Company's regular benefit plan, on behalf of Mr. Drake in the
         amounts of $7,088, $8,339, and $8,339 during the fiscal years ended
         April 30, 2001, 2000, and 1999, respectively. These amounts are
         included in the All Other Compensation category by year.
(6)      In addition to the base salary, Mr. Lockwood received $41,793 as a
         local housing expense reimbursement during the fiscal year ended April
         30, 2001. This amount is included in All Other Compensation.
(7)      Mr. Lockwood's bonus for fiscal 2000 was $120,000 plus $9,883 in
         interest. The bonus amount was approved by the Company's Board of
         Directors on July 11, 2000, but remained unpaid until June 29, 2001.
         The bonus for fiscal 2001 has not been calculated or approved by the
         Board; however, management specifically accrued a liability of $60,000
         in anticipation of Mr. Lockwood's fiscal 2001 bonus compensation.
(8)      The Company also paid additional disability insurance, separate from
         the Company's regular benefit plan, on behalf of Mr. Lockwood in the
         amount of $780 during the fiscal 2001. This amount is included in All
         Other Compensation.
(9)      Mr. Murray took office on April 17, 2000.

                                      -23-
<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>
Robert W. Lockwood        50,000(2)          100%           $.0425      5/01/2010     $ 375       $1,947     $4,359
</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 $0.05 per share to approximately
         $0.0814 per share and $0.1297 per share, respectively.

(2)      Vesting Schedule: 5/1/00 - 33%; 5/1/01 - 67%; 5/1/02 - 100%. Market
         value of the Company's Common Stock on the date of grant was $0.05.


                 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, 2001:
<TABLE>
<CAPTION>
                                                  Number of Securities                  Value of Unexercised
                                          ------------------------------------  ----------------------------------
                        Shares Acquired          Underlying Unexercised                 In-the-Money Options
           Name          or Exercised        Options at April 30, 2001 (#)            at April 30, 2001 ($)(1)
                                             Exercisable       Unexercisable       Exercisable       Unexercisable
-------------------     ---------------   ----------------- ------------------  ----------------- ----------------
<S>                     <C>               <C>               <C>                 <C>               <C>
Jess R. Drake                 --               407,471            135,824              0                  0
Robert W. Lockwood            --               125,000             75,000              0                  0
</TABLE>


(1) Based on the fair market value of the Common Stock at April 30, 2001 of $.01
per share as reported on the OTC Bulletin Board for that date.















                                      -24-
<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.

         On September 8, 1999 the Company entered into one year employment
agreements with eleven corporate and mill managers. The terms of these contracts
varied 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.
These contracts were renewed on substantially the same terms on October 27,
2000. The estimated cumulative total potential cost to the Company under the
severance provision is $813,000. Effective June 20, 2001 the Company entered
into new employment agreements with ten of the original eleven corporate and
mill managers as well as with seven additional employees. The terms of the
employment agreements vary as to the base salaries and duration of severance
pay, but all include a provision for payment upon termination of severance pay
plus an amount equivalent to the previous year's



                                      -25-
<PAGE>
bonus. These employment agreements expire April 30, 2002. The estimated
cumulative total potential cost to the Company under the severance provisions is
$1,224,000.

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. All participants including
executive officers are entitled to employer matching contributions pursuant to
this plan.

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 2001, no outside directors received option
grants.

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

         During fiscal 2001 no bonus payments were made to either employees or
executive officers under the "key employee" bonus program based on fiscal year
net profit after tax. The president and vice president-finance of the
Company may each 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. Although the Company has accrued $1,020,000 in bonus expense
related to their employment contracts, no bonus amount was paid to either Mr.
Drake, president, or Mr. Lockwood, vice president-finance during fiscal 2001. On
June 29, 2001 both Mr. Drake and Mr. Lockwood were paid their fiscal 2000
bonuses plus interest that was otherwise due on July 30, 2000. Mr. Drake and Mr.
Lockwood received bonus plus interest of $681,884 and $129,883 respectively for
fiscal 2000.

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.



                                      -26-
<PAGE>
         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.

         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.




                                      -27-
<PAGE>
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.

         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.

         The president and vice president-finance may each 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 2001, Robert W. Lockwood, the Company's chief financial
officer, treasurer, 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 2001.

         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. In November of 2000 the Company amended its 401(k)
Retirement Savings Plan allowing all hourly and salaried employees, including
executive officers, to receive matching contributions.

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



                                      -28-
<PAGE>
         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.

         Mr. Drake's employment with the Company commenced November 4, 1998. Mr.
Drake's cash compensation for fiscal 2001 was $403,922 and excludes any earned
bonus. Payment of Mr. Drake's fiscal 2000 bonus, which normally would have been
paid in fiscal 2001, was delayed until June 2001. Mr. Drake's bonus for fiscal
2001 has yet to be determined. 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 $289,325, respectively.

Compensation Committee Members

         Scott Christie
         William H. Wright





























                                      -29-
<PAGE>
Stock Performance Graph

         The following line graph sets forth the 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.

                                [GRAPH OMITTED]


                                  Apr96   Apr97   Apr98   Apr99   Apr00   Apr01

S&P 500 Index                      100   125.13  176.52  215.04  236.82  206.10
TreeSource Industries Inc.         100   263.64  227.27   63.64    6.55    0.00
S&P Paper & Forest Products Index  100    99.70  126.81  141.41  116.18  126.22




                                      -30-
<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)                           1,000,000             9.0%
110 West 6th Street
Aberdeen, WA 98520

Quinault Corporation
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                                          90,000               *
Richard W. Detweiler                                    60,000               *
Jess R. Drake                                          407,471             3.5%
Robert W. Lockwood                                     125,000             1.1%
William H. Wright                                       90,000               *
All directors and executive officers as a
  group (6 persons)                                    772,471             6.5%

===============================================================================
*  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 12, 2001 as follows: Mr. Christie 90,000; Mr. Detweiler
         60,000; Mr. Drake 407,471; Mr. Lockwood 125,000; and Mr. Wright 90,000.











                                      -31-
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During fiscal 2001, four of the Company's subsidiaries purchased logs
worth approximately $2.5 million from Quinault Logging Company. During fiscal
2000 five of the Company's subsidiaries purchased logs worth approximately $8.1
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.


































                                      -32-
<PAGE>

                                     PART IV

Item 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
               FORM 8-K
                                                                           Page
                                                                           ----
(a) (1)  Financial Statements

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

         Report of Independent Certified Public Accountants                 41

         Consolidated Statements of Operations for the Years
           Ended April 30, 2001, 2000 and 1999                              42

         Consolidated Balance Sheets at April 30, 2001 and 2000             43

         Consolidated Statements of Cash Flows for the Years
           Ended April 30, 2001, 2000 and 1999                              45

         Consolidated Statement of Changes in Stockholders'
           Equity for the Years Ended April 30, 2001,
           2000 and 1999                                                    46

         Notes to Consolidated Financial Statements                         47

(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.

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

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)





                               -33-
<PAGE>
                                                                            Page
                                                                            ----

4.1      Debtor-in-Possession Credit Agreement dated as of October
         5, 1999 between Registrant and General Electric Capital
         Corporation. (25)

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)





                               -34-
<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)


                               -35-
<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)



                               -36-
<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.                                                       68

12.3     Computation of Registrant's Net Income (Loss) to Average
         Stockholders' Equity.                                               69

12.4     Computation of Registrant's Average Stockholders' Equity
         to Average Total Assets.                                            70

21.1     Subsidiaries of the Registrant (list updated as of July
         12, 1999).                                                          71

23.1     Consent of Independent Certified Public Accountants.                72


         (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.



                                      -37-
<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.



                                      -38-
<PAGE>
         (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.

         (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.

         (25) 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,
1999, previously filed with the Commission.

         * Management contract or compensatory plan or arrangement.

         ** 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.






















                                      -39-
<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 24, 2001

         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 24, 2001.



/s/ Jess R. Drake                   /s/ Robert W. Lockwood
----------------------------------- ---------------------------------------
Jess R. Drake                       Robert W. Lockwood
President, Chief Executive Officer  Vice President-Finance, Secretary,
and Director                        Treasurer and Chief 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












                                      -40-
<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,
2001 and 2000, 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, 2001. 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 auditing standards generally
accepted in the United States of America. 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, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended April 30, 2001, in conformity with accounting principles generally
accepted in the United States of America.

         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 may be necessary should the Company be
unable to continue in existence.

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

Beaverton, Oregon
June 15, 2001




                                      -41-
<PAGE>
<TABLE>
<CAPTION>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                    (in Thousands, Except Per-Share Amounts)


                                                            YEAR ENDED APRIL 30,
                                             ---------------------------------------------------
                                                 2001               2000               1999
                                             --------------     -------------      -------------
<S>                                          <C>                <C>                <C>
NET SALES                                    $    151,201       $   252,594        $   195,390

COST OF SALES                                     152,387           235,800            184,015

                                             --------------     -------------      -------------
GROSS PROFIT                                       (1,186)           16,794             11,375

SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES                          10,134            10,888             10,738
REORGANIZATION CHARGES                              1,287             2,805                  -
IMPAIRMENT CHARGES                                  4,902               223              6,310

                                             --------------     -------------      -------------
OPERATING INCOME (LOSS)                           (17,509)            2,878             (5,673)

OTHER INCOME (EXPENSE)
     Interest expense                                (149)           (2,049)            (4,732)
     Miscellaneous                                    261               283                 63

                                             --------------     -------------      -------------
                                                      112               209             (4,669)
                                             --------------     -------------      -------------
INCOME (LOSS) BEFORE INCOME TAXES                 (17,397)            1,112            (10,342)

PROVISIONS FOR INCOME TAXES (BENEFIT)                 669               100                (96)

                                             --------------     -------------      -------------
NET INCOME (LOSS)                                 (18,066)            1,012            (10,246)

PREFERRED DIVIDENDS                                     -                 -              1,671

                                             --------------     -------------      -------------
NET INCOME (LOSS) APPLICABLE
  TO COMMON STOCKHOLDERS                     $    (18,066)      $     1,012        $   (11,917)
                                             ==============     =============      =============

NET INCOME (LOSS) PER COMMON SHARE
   - BASIC                                         ($1.62)            $0.09             ($1.07)
                                                   =======            =====             =======

   - DILUTED                                       ($1.62)            $0.09             ($1.07)
                                                   =======            =====             =======

</TABLE>







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

                                      -42-
<PAGE>
<TABLE>
<CAPTION>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                     ASSETS
                                 (in Thousands)


                                                                          APRIL 30,
                                                             -------------------------------------
                                                                 2001                    2000
                                                             -------------           -------------
<S>                                                          <C>                     <C>
CURRENT ASSETS
   Cash and cash equivalents                                 $      1,210            $      1,871
   Restricted cash                                                  1,755                   1,616
   Accounts receivable, net                                         7,869                  12,462
   Inventories                                                      6,840                  15,800
   Prepaid expenses                                                 1,429                   2,535
   Income tax refund receivable                                        --                      86
   Assets held for sale                                             6,008                   5,433
   Timber, timberlands and timber-related assets                    3,087                   2,196

                                                             -------------           -------------
      Total current assets                                         28,198                  42,000

NOTES AND ACCOUNTS RECEIVABLE                                           3                       5

PROPERTY, PLANT AND EQUIPMENT, at cost
   Land                                                               510                   1,527
   Buildings and improvements                                       4,579                   8,673
   Machinery and equipment                                         26,555                  47,448
                                                             -------------           -------------

                                                                   31,644                  57,648

      Less accumulated depreciation                                26,126                  44,385

                                                             -------------           -------------
                                                                    5,518                  13,263

   Construction in progress                                           175                     101

                                                             -------------           -------------
                                                                    5,693                  13,364

DEFERRED TAX ASSET                                                     --                     750
OTHER ASSETS                                                        1,729                   1,244

                                                             -------------           -------------
                                                             $     35,623            $     57,363
                                                             =============           =============
</TABLE>








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





                                      -43-
<PAGE>
<TABLE>
<CAPTION>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                    (in Thousands, Except Share Information)


                                                                        April 30,
                                                             ---------------------------------
                                                                2001                2000
                                                             ------------        -------------
<S>                                                          <C>                 <C>
CURRENT LIABILITIES
   Accounts payable                                          $    4,151          $     5,476
   Accrued expenses                                               6,147                7,902
   Timber contracts payable                                         448                  147
   Current borrowings                                               485                  499

                                                             ------------        -------------
      Total current liabilities                                  11,231               14,025

LONG-TERM DEBT, less current maturities                             120                  183

LIABILITIES SUBJECT TO COMPROMISE                                49,112               49,959

COMMITMENTS AND CONTINGENCIES                                        30                   --

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                                              (74,667)             (56,601)

                                                             ------------        -------------
                                                                (24,870)              (6,804)

                                                             ------------        -------------
                                                             $   35,623          $    57,363
                                                             ============        =============
</TABLE>

















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



                                      -44-
<PAGE>
<TABLE>
<CAPTION>
                  TREESOURCE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in Thousands)

                                                                            YEAR ENDED APRIL 30,
                                                             ------------------------------------------------
                                                                 2001             2000             1999
                                                             --------------   --------------   --------------
<S>                                                          <C>              <C>              <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
  Net income (loss)                                          $     (18,066)   $       1,012    $     (10,246)
  Adjustments to reconcile net income (loss) to
     cash provided by operating activities:
    Restricted Cash                                                   (139)          (1,616)
    Depreciation, depletion and amortization                         2,210            4,346            4,176
    Deferred income tax                                                750               --               --
    Gain on sale of assets                                             (23)              (7)              --
    Impairment loss                                                  4,902              223            6,310
    Accounts receivable                                              4,593           (2,252)             254
    Inventories                                                      8,960           (2,076)            (205)
    Prepaid expenses                                                 1,106           (1,215)            (125)
    Timber, timberlands and timber-related assets - current           (590)            (287)           2,062
    Payables and accruals                                           (3,181)           1,045            3,119
    Income taxes                                                        86              (16)             (70)
    Commitments                                                         30               --               --
                                                             --------------   --------------   --------------
     Cash provided by operating activities                             638             (843)           5,275
                                                             --------------   --------------   --------------

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
  Notes and accounts receivables                                         2               22               76
  Acquisition of property, plant and equipment                      (1,028)          (1,685)          (2,479)
  Net book value of disposed idle assets                                --               --              458
  Proceeds from the sale of fixed assets                               921            1,687               --
  Other investing activities                                            --               --              177
                                                             --------------   --------------   --------------
     Cash provided by (used for) investing activities                 (105)              24           (1,768)
                                                             --------------   --------------   --------------

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
  Proceeds from borrowings                                              --              598               --
  Principal payments on debt                                          (814)              --           (1,582)
  Other assets                                                        (380)             (39)            (288)
  Dividends paid on Preferred Stock                                     --               --           (1,672)
  Issuance of Common Stock                                              --               --                9
                                                             --------------   --------------   --------------
     Cash provided by (used for) financing activities               (1,194)             559           (3,533)
                                                             --------------   --------------   --------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      (661)           1,356              (26)

CASH BALANCE AT BEGINNING OF YEAR                                    1,871            2,131            2,157
                                                             --------------   --------------   --------------
CASH BALANCE AT END OF YEAR                                  $       1,210    $       1,871    $       2,131
                                                             ==============   ==============   ==============
CASH PAID (REFUNDED) DURING THE YEAR FOR:
  Interest                                                            $113             $281           $3,268
  Income taxes                                                        ($82)            $100             ($96)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                      -45-
<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, 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     (56,601)      (6,804)

Net income                                                          --          --      --     (18,066)     (18,066)

                          ------- ---------- ------ -------- ---------- ----------- ------- ------------  -----------
Balance at April 30, 2001    270  $  20,688      6  $    333    11,163  $   28,761  $   15  $  (74,667)   $ (24,870)
                          ======= ========== ====== ======== ========== =========== ======= ============  ===========


</TABLE>


















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


                                      -46-
<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.
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.

         In April 2000 the Company filed a plan of reorganization with the U.S.
Bankruptcy Court (the "Court"). Due to the downturn in the lumber market, the
Company successfully petitioned the Court to delay consideration of and then to
withdraw the plan of reorganization. On March 31, 2001 the period of exclusivity
(the time in which the Company has the sole right to present a plan of
reorganization) expired, which will allow other interested parties an
opportunity to submit a plan of reorganization. In July 2001, the Company's
outstanding pre-petition senior secured debt securities were purchased by an
investment group. This sale, in itself, may not affect the status of the
Company's bankruptcy proceedings. In an effort to maximize value for all
parties, the Company is evaluating its strategic alternatives, which include a
sale of the Company's operations. The Company's senior secured lenders have a
security interest in substantially all the assets of the Company. Regardless of
which alternative the Company ultimately pursues, it is unlikely that the
Company's current classes of common and preferred stock will have any value upon
conclusion of the bankruptcy proceedings.

         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 August
5, 2001. If the Company is unable to either confirm a plan of reorganization or
obtain a new cash collateral order by August 6, 2001, the Company may not be
able to meet its short term liquidity needs.



                                      -47-
<PAGE>
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, 2001, 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.

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

         Restricted cash - Restricted cash consists of the net auction proceeds
from the sale of certain impaired assets during fiscal 2001. 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 $175,000 and $160,000 at April
30, 2001 and 2000, 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):



                                      -48-
<PAGE>
                                                APRIL 30,
                                -----------------------------------------
                                       2001                     2000
                                ----------------         ----------------
         Logs                   $         2,510          $         6,571
         Lumber                           3,888                    8,109
         Supplies and Other                 442                    1,120
                                ----------------         ----------------
                                $         6,840          $        15,800
                                ================         ================

         At April 30, 2001 and 2000, $338,000 and $555,000, respectively, of log
inventory was valued at market, which represented a $3,000 reduction from cost.
At April 30, 2001, $3,526,000 of lumber inventory was valued at market, which
represented a $228,000 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.

         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.

         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.




                                      -49-
<PAGE>

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

                                                         APRIL 30,
                                            --------------------------------
                                                  2001              2000
                                            --------------      ------------
    Payroll and related items               $       4,077       $     3,100
    Freight payable                                   607             1,018
    Accrued Chapter 11 professional fees              186               877
    Environmental liabilities                         747                --
    Other                                             530             2,907
                                            --------------      ------------
                                            $       6,147       $     7,902
                                            ==============      ============

         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, 2001. 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 $1.5
million and $1.6 million is included in the accompanying fiscal 2001 and 2000
financial statements, respectively. Payments based on actual fiscal 2000 claims
ultimately filed could differ from these statements.

         Shipping costs - The Company classifies shipping and handling expenses
as part of cost of goods sold.

         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.

NOTE 3 -       IMPAIRMENT CHARGES

         The Company classified certain property, plant and equipment related to
four facilities as Assets Held for Sale during fiscal 2001. A total of seven
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, three facilities in fiscal 1999 and four
facilities in fiscal 2001. The resulting adjustments of approximately $4.4
million in fiscal 2001, $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. 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 is recognized if the future undiscounted
cash flows of each facility is estimated to be insufficient to recover its
related carrying value. As such, the carrying values of these


                                      -50-
<PAGE>
assets were written down to the Company's estimates of fair value. Fair value is
based on appraisal values and may consider remediation costs if they are not, in
management's opinion, probable and estimable and as such separately classified
as environmental liabilities. Environmental remediation costs are recognized and
classified as accrued expense when they are probable and estimable.

         During fiscal 2001, machinery and equipment at three of these locations
were sold at auction. The proceeds from the sales at two of the locations are
held by the Company as restricted cash. The proceeds from the sale at the third
location were used for general corporate purposes. See Note 2 to Consolidated
Financial Statements. At April 30, 2001, the impaired assets have a remaining
carrying amount of $6.0 million. Together, these nine facilities recorded net
sales of $23.6 million, $85.1 million, and $75.8 million, and contributed net
operating losses of $6.3 million, $2.9 million, and $8.9 million for the years
ended April 30, 2001, 2000, and 1999, respectively, excluding the impairment
charges recognized in fiscal 1999 and 2001.

         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, 2001.






















                                      -51-
<PAGE>

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.

         The calculations of net income (loss) per share for the years ended
April 30, 2001, 2000 and 1999 are summarized below (in thousands, except
per-share data):
<TABLE>
<CAPTION>
                                                                Year Ended April 30,
                                                       ---------------------------------------
                                                          2001          2000          1999
                                                       ----------    ----------    -----------
<S>                                                    <C>           <C>           <C>
Net income (loss)                                      $  (18,066)   $    1,012    $   (10,246)
Preferred dividends                                            --            --          1,671
                                                       ----------    ----------    -----------

Net income (loss) applicable to common shareholders    $  (18,066)   $    1,012    $   (11,917)
                                                       ==========    ==========    ===========

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

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

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

Net income (loss) per common share
     - Basic                                           $    (1.62)   $     0.09    $     (1.07)
                                                       ==========    ==========    ===========

     - Diluted                                         $    (1.62)   $     0.09    $     (1.07)
                                                       ==========    ==========    ===========
</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,
                                                    -----------------------
                                                      2001           2000
                                                    --------       --------
         Timber held under contract                 $ 1,376        $   984
         Timber, timberlands, and timber deposits     1,376          1,049
         Logging roads (at amortized cost)              335            163
                                                    --------       --------
                                                    $ 3,087        $ 2,196
                                                    ========       ========



                                      -52-
<PAGE>
         Timber held under contract is composed of various public and private
timber contracts representing approximately 4.2 million board feet (MMBF) at
April 30, 2001 and 2.7 MMBF at April 30, 2000. Outstanding obligations relating
to these contracts at April 30, 2001 and 2000 were $447,878 and $147,000,
respectively.

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 $4.3 million was not
accrued during the year ended April 30, 2001 as management believes these debts
are under-secured. Amounts included under the caption "Current borrowings" at
April 30, 2001 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, 2001 are the following (in
thousands):


                                                         April 30,
                                                           2001
                                                       -----------
         Trade, interest and other miscellaneous
              claims to unsecured creditors            $     6,133
         Secured notes                                         261
         Unsecured notes                                     1,007
         Senior secured debt                                41,711
                                                       -----------

                                                       $    49,112
                                                       ===========

         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. During fiscal 2001, pursuant to a
Court order, the Company paid $738,000 in principal on its pre-petition secured
debt due to the sale of assets of Sedro-Woolley Lumber Co.



                                      -53-
<PAGE>
NOTE 7 -       BORROWINGS
<TABLE>
<CAPTION>
         Long term debt consists of the following (in thousands):
                                                                                            Year Ended April 30,
                                                                                       ------------------------------
                                                                                            2001            2000
                                                                                       --------------  --------------
<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.                                                                  $     41,711     $    42,449

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

         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           1,007

         Obligations under capital lease, effective interest rate of 4.9%                       187             243
                                                                                       --------------  --------------
                                                                                             43,166          43,960
         Less current maturities                                                            (43,046)        (43,777)
                                                                                       --------------  --------------
                                                                                       $        120    $        183
                                                                                       ==============  ==============
</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 Line of Credit in October 1999 that
matures upon the earliest of August 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, 2001 there were $418,000 in
borrowings on the Line of Credit and $1,350,000 in letters of credit
outstanding.







                                      -54-
<PAGE>
NOTE 8 -       PROVISION FOR INCOME TAXES

         The federal and state income tax provision consists of the following
(in thousands):

                                                 Year Ended April 30,
                                        --------------------------------------
                                            2001          2000         1999
                                        -----------   -----------  -----------
Income (loss) before income taxes       $   (17,398)  $     1,012  $   (10,342)
                                        ===========   ===========  ===========
Provision for income taxes (benefit):
   Federal                              $       669   $       100  $       (96)
   State                                          0             0            0
                                        -----------   -----------  -----------
                                        $       669   $       100  $       (96)
                                        ===========   ===========  ===========

   Current                              $       (81)  $      100   $       (96)
   Deferred                                     750             0            0
                                        -----------   -----------  -----------
                                        $       669   $       100  $       (96)
                                        ===========   ===========  ===========

         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,
                                              ---------------------------------------------------------------------------
                                                        2001                       2000                    1999
                                              -----------------------    ----------------------    ----------------------
                                                 Amount         %          Amount          %         Amount        %
                                              -----------    --------    ----------    --------    ----------    --------
<S>                                           <C>            <C>         <C>           <C>         <C>           <C>
Federal statutory income tax
  provision (benefit)                           $ (5,915)       (34%)        $ 344         34%     $  (3,516)       (34%)
State statutory income tax provision
  (benefit)                                         (696)        (4)            40          4           (414)        (4)
Change in valuation allowance for
  deferred tax assets                              6,476         37         (4,385)      (433)         3,492         34
Adjustment to available net operating loss
  carry-forward                                      804          5          4,101        405             --         --
Other                                                 --         --             --         --            342          3
                                              -----------    --------    ----------    --------    ----------    ------
Actual income tax provision (benefit)          $     669         (4%)        $ 100         10%       $   (96)         1%
                                              ===========    ========    ==========    ========    ==========    ======
</TABLE>












                                      -55-
<PAGE>
         At April 30, 2001 and 2000, deferred tax assets and liabilities were
composed of the following (in thousands):

                                                        Year Ended April 30,
                                                   --------------------------
                                                       2001          2000
                                                   -----------   -----------
Deferred tax assets:
    Vacation accruals                              $      180    $      241
    Insurance accruals                                    538           672
    Professional fee amortization and accruals            587           575
    Depreciation and capitalization differences
      between financial and tax accounting                515            64
    Tax benefit of NOL carryforward and
      tax credits carryforward                         20,038        16,602
    Bad debts, discounts and other                        939           255
                                                   -----------   -----------
Net deferred tax assets                                22,797        18,409

Valuation allowance                                   (22,797)      (17,659)
                                                   -----------   -----------

Net deferred tax asset reported                    $        0    $      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 $5.1 million for the year ended April 30, 2001. The current year
income tax expense of $669,000 is attributable to the Company's decision to
fully reserve for any deferred tax assets and the refund of income taxes paid in
the prior year. Management periodically reviews the above factors and may change
the amount of valuation allowance as facts and circumstances change.

         As of April 30, 2001, the Company has approximately $48 million of
federal NOL and approximately $36 million of state NOL available to offset
future taxable income. These carryforwards begin to expire in 2007 and 2012.

NOTE 9 -       STOCKHOLDERS' EQUITY

         Stockholders' equity at April 30, 2001 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


                                      -56-
<PAGE>
Board of Directors, in the form of cash or in exchange for senior unsecured debt
with 12% 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 ten consecutive
quarterly dividend payments as of May 31, 2001 totaling $5,587,000.

         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, 2001 and April 30,
2000. 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 shares of Series B Preferred Stock remaining outstanding at May 31, 2001
were converted to Common Stock.

         It is unlikely, in any event, that the Company's current classes of
common and preferred stock will have any value upon conclusion of the bankruptcy
proceedings.

         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


                                      -57-
<PAGE>
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, 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, 2001, 2000 and 1999 related only to employees
and directors.

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

         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 granted                         50,000           0.04
               Options exercised                            0           0.00
               Options canceled                      (391,625)          1.82
                                                  ------------

         Shares under option at April 30, 2001      1,101,695       $   1.01
                                                  ============

         Options exercisable at April 30, 2001        888,371       $   1.12
                                                  ============











                                      -58-
<PAGE>
         Exercise prices for options outstanding as of April 30, 2001 ranged
from $0.03825 to $3.00. The weighted average remaining contractual life of those
options is 6.6 years and the weighted average exercise price is $1.01.
<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 4/30/01         Life            Price        at 4/30/01        Price
----------------    -----------    -------------    ------------    -----------    -------------
<S>                     <C>            <C>          <C>                <C>          <C>
 $0.95625               8,400          1.7          $ 0.95625          8,400        $ 0.95625
  1.50000             105,000          2.6            1.50000        105,000          1.50000
  1.51500             155,000          5.5            1.51500        155,000          1.51500
  3.00000              80,000          3.3            3.00000         80,000          3.00000
  0.79690             543,295          7.5            0.79690        407,471          0.79690
  0.31880             100,000          8.0            0.31880         75,000          0.31880
  0.37190              10,000          8.0            0.37190          7,500          0.37190
  0.03825              50,000          9.0            0.03825         33,333          0.03825
  0.04250              50,000          9.0            0.03825         16,667          0.03825
 $0.03825-$3.00     1,101,695          6.6          $ 1.01021        888,371        $ 1.11862
                   ============                                     ===========
</TABLE>

         Options for 1,060,000 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.

         During fiscal 2001 the Company granted stock options for the purchase
of 50,000 shares of the Company's Common Stock to Robert W. Lockwood pursuant to
the terms of his employment contract. 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 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
employees with a competitive compensation package 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 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.



                                      -59-
<PAGE>
         The following summarizes the amounts paid pursuant to the Company's
bonus programs (in thousands) during the fiscal years ended:

                                         Year Ended April 30,
                                    -----------------------------
                                      2001       2000       1999
                                    -------    -------    -------
         Hourly employee bonus      $ 3,500    $ 5,300    $ 4,100
         Salaried employee bonus        150        600        900
                                    -------    -------    -------
                                    $ 3,650    $ 5,900    $ 5,000
                                    =======    =======    =======

         The Company maintains a 401(k) Retirement Savings Plan. Under the plan,
eligible participants may contribute a maximum of 20% of their compensation. The
Company matches 50% of the first 5% contributed by the employee. During the
years ended April 30, 2001, 2000 and 1999, the Company incurred expenses for
matching contributions and plan administration of $299,000; $291,000; and
$261,000 respectively. Company contributions to this plan are funded on a
current basis.

NOTE 11 -      RELATED PARTY TRANSACTIONS

         During fiscal 2001, four of the Company's subsidiaries purchased logs
worth approximately $2.5 million from Quinault Logging Company. During fiscal
2000 five of the Company's subsidiaries purchased logs worth approximately $8.1
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.

NOTE 12 -      COMMITMENTS AND CONTINGENCIES

         (a) Timber commitments - At April 30, 2001, the Company had contracts
to purchase approximately 11.7 MMBF of timber from the Oregon State Department
of Forestry and others for an estimated stumpage cost of $3,703,000. 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
         -----------     --------     ------------
            2002            2.2       $   582,000
            2003            0.0                 0
            2004            9.2         2,982,000
            2005            0.0                 0
            2006            0.3           139,000
                         --------     ------------
                           11.7       $ 3,703,000
                         ========     ============






                                      -60-
<PAGE>
         (b)Leases - At April 30, 2001, the Company had future minimum rental
commitments for operating leases as follows: 2001 - $939,000; 2002 - $306,000;
2003 - $197,000; 2004 - $172,000; 2005 - $169,000; thereafter - $332,000. 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 $1,204,000, $1,447,000 and
$1,613,000 for the years ended April 30, 2001, 2000 and 1999, 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.

         (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
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. The following table summarizes not only the
amount of environmental expenses that are accrued at April 30, 2001, but also,
the amount the Company estimates will be paid out during fiscal 2002.


















                                      -61-
<PAGE>
<TABLE>
<CAPTION>

                                                 Accrued                                   Budgeted
                                              Environmental       Budgeted Fiscal         Fiscal 2002         Total Budgeted
                                               Remediation        2002 Operational           Site             for Fiscal 2002
                                               Costs as of         Environmental          Remediation          Environmental
               Facility                      April 30, 2001       Compliance Costs           Costs             Expenditures
----------------------------------------    ------------------   -------------------    ---------------    -------------------
<S>                                         <C>                  <C>                    <C>                <C>
Burke Lumber Co.(1)(2)                      $         20,000     $               --     $       20,000     $           20,000
Central Point Lumber Co.(1)(2)                        93,000                  4,000            200,000                204,000
Glide Lumber Products Co.(2)                          30,000                 35,000                 --                 35,000
Morton Forest Products Co.(1)(2)                     116,000                  8,000            103,000                111,000
North Powder Lumber Co.(1)                                --                 13,000                 --                 13,000
Pacific Hardwoods-South Bend Co.(1)                       --                  2,000             86,000                 88,000
Pacific Softwoods Co.(1)                                  --                 19,000             15,000                 34,000
Philomath Forest Products Co(1)(2)                   150,000                  1,000            150,000                151,000
Sedro-Woolley Lumber Co. (1)(2)                      200,000                     --            200,000                200,000
Spanaway Lumber Co.                                       --                 22,000                 --                 22,000
Trask River Lumber Co.                                    --                 81,000             67,000                148,000
Tumwater Lumber Co.                                       --                104,000                 --                104,000
TreeSource Industries, Inc.                          132,000                     --                 --                     --
----------------------------------------    ------------------   -------------------    ---------------    -------------------
Total                                       $        741,000     $          289,000     $      841,000     $        1,130,000
                                            ==================   ===================    ===============    ===================
</TABLE>

         1.    These facilities are classified as "Assets Held for Sale" and,
               because they were determined to be impaired, are carried at
               estimated fair values. The fair values were based upon appraisal
               values and include estimated remediation costs to prepare the
               site for sale if such costs are not separately classified as an
               environmental liability.
         2.    Environmental remediation is anticipated to be required and the
               cost for the known issues have been estimated and accrued.

NOTE 13 -      UNAUDITED QUARTERLY FINANCIAL INFORMATION

         The following quarterly information for the years ended April 30, 2001
and 2000 is unaudited, but includes all adjustments (including the impairment
charges recognized in the fourth quarter of 2001) that management considers
necessary for a fair presentation of such information (in thousands, except
per-share amounts):
<TABLE>
<CAPTION>
                                                       Year Ended April 30, 2001
                          -------------------------------------------------------------------------------------
                                                                Quarter
                          -------------------------------------------------------------------------------------
                              First            Second            Third            Fourth             Total
                          -------------    -------------     -------------    --------------    ---------------
<S>                       <C>              <C>               <C>              <C>               <C>
Net sales                 $     46,133     $     40,041      $     30,934     $      34,093     $      151,201
Gross profit (loss)       $     (1,886)    $        694      $       (532)    $         538     $       (1,186)
Net income (loss)         $     (5,348)    $     (2,448)     $     (8,562)    $      (1,708)    $      (18,066)
Net income (loss) per
  diluted common share    $      (0.48)    $      (0.22)     $      (0.77)    $       (0.15)     $       (1.62)





                                      -62-
<PAGE>
                                                       Year Ended April 30, 2000
                          -------------------------------------------------------------------------------------
                                                                Quarter
                          -------------------------------------------------------------------------------------
                             First            Second            Third            Fourth             Total
                          -------------    -------------     -------------    --------------    ---------------
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
</TABLE>

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, 2001, 2000 and 1999 (in thousands):

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

                                           Year Ended April 30,
                                 -----------------------------------------
                                    2001            2000            1999
                                 ---------       ---------       ---------
Balance at beginning of year     $     60        $     55        $     39
Charged to costs and expenses          76              82              35
Deductions (1)                        (21)            (77)            (19)
                                  --------        --------        --------
Balance at end of year           $    115        $     60        $     55
                                 =========       =========       =========


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

                                           Year Ended April 30,
                                 -----------------------------------------
                                    2001            2000            1999
                                 ---------       ---------       ---------
Balance at beginning of year     $    100        $     87        $     89
Charged to costs and expenses       1,356           2,344           1,814
Deductions(2)                      (1,396)         (2,331)         (1,816)
                                 ---------       ---------        --------
Balance at end of year           $     60        $    100        $     87
                                 =========       =========       =========


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







                                      -63-
<PAGE>
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, 2001 (in thousands).

                                              April 30,
                                                2001
                                            ------------
           Legal                            $        653
           Consulting                                256
           Accounting                                 23
           Other                                     355
                                            ------------
                                            $      1,287
                                            ============































                                      -64-
<PAGE>
CORPORATE INFORMATION
---------------------


Annual Meeting                            Transfer Agent for Series A Preferred
To be announced                           Stock and Series B Preferred Stock
                                          TreeSource Industries, Inc.
529 SE Grand Avenue, Suite 300            Stock Transfer Department
Portland, Oregon 97214-2232               P.O. Box 5805
Phone:     (503) 246-3440                 Portland, Oregon 97228-5805
Fax:       (503) 205-7605                 529 SE Grand Avenue, Suite 300
Web:     http://www.treesource.com        Portland, Oregon 97214-2232
                                          Phone:       (503) 246-3440
Common Stock                              Fax:         (503) 205-7605
TreeSource Industries, Inc.
Common stock is traded on the Bulletin    Change of address information and
Board (Symbol TRES)                       questions regarding transfers and
                                          conversions should be directed to the
Transfer Agent for Common Stock           transfer agent.
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre                           Trustee for 8% Senior Subordinated
85 Challenger Road                        Notes due 2005
Ridgefield Park, New Jersey 07660         State Street Bank & Trust Company
Phone:     (800) 522-6645                 Corporate Trust Department
Fax:       (206) 292-3196                 P.O. Box 778
Web:     http://www.chasemellon.com       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











                                      -65-
<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
Novato, California                     529 SE Grand Avenue, Suite 300
Elected 1988                           Portland, Oregon 97214-2232
                                       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 5805
Heartwood Consulting Service           Portland, Oregon 97228-5805
Gresham, Oregon                        529 SE Grand Avenue, Suite 300
Elected 1992                           Portland, Oregon 97214-2232
                                       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

                                       Western Timber Co.
                                       P.O. Box 5805
                                       Portland, Oregon  97228-5805
                                       529 SE Grand Avenue, Suite 300
                                       Portland, Oregon 97214-2232
                                       Phone:       (503) 246-3440
                                       Fax:         (503) 205-7605
                                       Web:  http://www.treesource.com





(1) Audit Committee
(2) Compensation Committee
(3) Executive Committee

                                      -66-
<PAGE>
Operating Locations

Glide Lumber Products Co.                 Pacific Softwoods Co.
P.O. Box 370                              P.O. Box 370
Glide, Oregon 97443-0370                  Philomath, Oregon 97370-0370
1577 Glide Loop Road                      950 Clemens Mill Road
Glide, Oregon 97443-9711                  Philomath, Oregon 97370
Phone:     (541) 496-3571                 Phone:     (541) 929-2902
Fax:       (541) 496-0373                 Fax:       (541) 929-2916

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

North Powder Lumber Co.                   Trask River Lumber Co.
P.O. Box 169                              5900 Moffett Road
North Powder, Oregon 97867-0169           Tillamook, Oregon 97141-9621
105 Second Street                         Phone:     (503) 842-4007
North Powder, Oregon 97867                Fax:       (503) 842-3178
Phone:     (541) 898-2149
Fax:       (541) 898-2817

Pacific Hardwoods-South Bend Co.          Tumwater Lumber Co.
P.O. Box 185                              P.O. Box 4158
South Bend, Washington 98586-0185         Tumwater, Washington 98501-0158
819 Ocean Street                          8277 Center Street, S.W.
Raymond, Washington 98577-2905            Tumwater, Washington 98501-7227
Phone:     (360) 942-5525                 Phone:     (360) 352-1548
Fax:       (360) 942-5529                 Fax:       (360) 943-4091
















                                      -67-