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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

Form 20-F

|  |  |                                                                                                                                                                   
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|o |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934                                                                    
|  |  | OR                                                                                                                                                              
|ü |  | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended December 31, 2002                                  
|  |  | OR                                                                                                                                                              
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) for the transition period from __________ to __________
|  |  | Commission File Number: 333-7346                                                                                                                                  



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AINSWORTH LUMBER CO. LTD.(Exact name of Registrant as specified in its charter)

British Columbia, Canada(Jurisdiction of Incorporation)

3194 Bentall IV, P.O. Box 49307, 1055 Dunsmuir Street
Vancouver, British Columbia, V7X 1L3
CANADA (604) 661-3200(Address of Registrants principal executive offices)



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Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act 

| |                                                                           | 
| | ------------------------------------------------------------------------- | 
| | 12.5% Senior Secured Notes Due 2007
13.875% Senior Secured Notes Due 2007 | 

Indicate the number of outstanding shares of each class of the issuers classes
of capital or common stock as of the close of the period covered by the annual
report.

As at December 31, 2002, 14,544,800 common shares and 447,500 Class B common
shares were issued and outstanding.

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

|       |  |      
|------ |  | -----
|Yes  ü |  | No  o

Indicate by check mark which financial statement item the registrant has
elected to follow.

|           |  |           
|---------- |  | ----------
|Item 17  o |  | Item 18  ü



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1



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TABLE OF CONTENTS

|         |  |                                                                                 |  |   
|-------- |  | ------------------------------------------------------------------------------- |  | --
|ITEM 1.  |  | Identity of Directors, Senior Management and Advisors                           |  | 3 
|ITEM 2.  |  | Offer Statistics and Expected Timetable                                         |  | 3 
|ITEM 3.  |  | Key Information                                                                 |  | 4 
|ITEM 4.  |  | Information on the Registrant                                                   |  | 10
|ITEM 5.  |  | Operating and Financial Review and Prospects                                    |  | 20
|ITEM 6.  |  | Directors, Senior Management and Employees                                      |  | 27
|ITEM 7.  |  | Major Shareholders and Related Party Transactions                               |  | 33
|ITEM 8.  |  | Financial Information                                                           |  | 34
|ITEM 9.  |  | The Offer and Listing                                                           |  | 35
|ITEM 10. |  | Additional Information                                                          |  | 36
|ITEM 11. |  | Quantitative and Qualitative Disclosures about Market Risk                      |  | 39
|ITEM 12. |  | Description of Securities Other than Equity Securities                          |  | 40
|ITEM 13. |  | Defaults, Dividend Arrearages and Delinquencies                                 |  | 41
|ITEM 14. |  | Material Modifications to the Rights of Security Holders and Use of Proceeds    |  | 41
|ITEM 15. |  | Controls and Procedures                                                         |  | 42
|ITEM 16. |  | Audit Committee Financial Expert; Code of Ethics; Accountants Fees and Services |  | 42
|ITEM 17. |  | FINANCIAL STATEMENTS                                                            |  | 43
|ITEM 18. |  | FINANCIAL STATEMENTS                                                            |  | 43
|ITEM 19. |  | EXHIBITS                                                                        |  | 44

2



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PART I

ITEM 1.   Identity of Directors, Senior Management and Advisors



|A. |  | Directors and Senior Management.                                                                                                                                                              
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Information not required for annual report.                                                                                                                                                   
|  
|B. |  | Advisors.                                                                                                                                                                                     
|  
|   |  | Information not required since we are not required to disclose the
information in a jurisdiction outside of the United States.                                                                
|  
|C. |  | Auditors.                                                                                                                                                                                     
|  
|   |  | Deloitte & Touche LLP, of Vancouver, British Columbia have served as our
auditors since 1993. Deloitte & Touche LLP is a member of the Institute
of Chartered Accountants of British Columbia.

ITEM 2.   Offer Statistics and Expected Timetable



| |  | Information not required for annual report.
| |  | -------------------------------------------

3



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##### 



ITEM 3.   Key Information



|A. |  | Selected Financial Data.
|-- |  | ------------------------

Selected Historical Consolidated Financial Data

You should read the selected historical consolidated financial data set forth
below in conjunction with our consolidated financial statements and the related
notes and Managements Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this annual report. The
consolidated statements of operations data for the years ended December 31,
1998, 1999, 2000, 2001 and 2002 and the consolidated balance sheet data as of
December 31, 1998, 1999, 2000, 2001 and 2002 have been derived from our audited
consolidated financial statements included elsewhere in this annual report.
Certain of the amounts for 1998, 1999, 2000 and 2001 have been restated as
disclosed in notes 13 and 22 to our consolidated financial statements included
elsewhere in this annual report. We prepare our consolidated financial
statements in accordance with Canadian GAAP, which differs in certain respects
from U.S. GAAP. For a discussion of the principal differences between Canadian
GAAP and U.S. GAAP as they pertain to us, see note 21 to our consolidated
financial statements included elsewhere in this annual report. No dividends
were paid in fiscal 1998 through fiscal 2002. The Companys historical results
are not necessarily indicative of the results that may be expected for any
future period.

|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |       |  
|--------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------------------------------------ | ----- | ------------- | - | ------------- | ----- | ------------- | - | ----- | ----- | - | - | ----- | ----- | - | - | ----- | ----- | -
|                                                                                              |                                            |   | Year Ended December 31              
|                                                                                              |                                            |   |                                     
|                                                                                              |                                            |   | (in millions, except per share data)
|                                                                                              |                                            |   | 1998                                 |       | 1999          |   | 2000          |       | 2001(2)       |   | 2002 
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |      
|                                                                                              |                                            |   | (restated)(1)                        |       | (restated)(1) |   | (restated)(1) |       | (restated)(1) |   |       |       |  
|Statement of Operations Data                                                                  |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|Canadian GAAP                                                                                 |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|                                                                                              | Sales                                      |   | $                                    | 283.0 |               |   | $             | 368.6 |               |   | $     | 350.2 |   |   | $     | 326.7 |   |   | $     | 356.1 |  
|                                                                                              | Costs of products sold                     |   |                                      | 209.2 |               |   |               | 224.9 |               |   |       | 229.6 |   |   |       | 244.0 |   |   |       | 264.0 |  
|                                                                                              | Selling and administration                 |   |                                      | 15.4  |               |   |               | 20.5  |               |   |       | 26.3  |   |   |       | 22.7  |   |   |       | 21.9  |  
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|Operating earnings before amortization                                                        |                                            |   | 58.4                                 |       |               |   | 123.2         |       |               |   | 94.3  |       |   |   | 60.0  |       |   |   | 70.2  |      
|Amortization of capital assets                                                                |                                            |   | 24.0                                 |       |               |   | 28.2          |       |               |   | 27.4  |       |   |   | 30.4  |       |   |   | 32.0  |      
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|Operating earnings                                                                            |                                            |   | 34.4                                 |       |               |   | 95.0          |       |               |   | 66.9  |       |   |   | 29.6  |       |   |   | 38.2  |      
|Interest charges(3)(4)                                                                        |                                            |   | 39.9                                 |       |               |   | 44.8          |       |               |   | 35.6  |       |   |   | 51.7  |       |   |   | 57.2  |      
|Amortization of finance charges                                                               |                                            |   | 3.7                                  |       |               |   | 5.2           |       |               |   | 2.1   |       |   |   | 8.3   |       |   |   | 5.3   |      
|Interest and other income                                                                     |                                            |   | (2.9                                 | )     |               |   | (4.4          | )     |               |   | (4.3  | )     |   |   | (2.8  | )     |   |   | (2.9  | )    
|Write-down of capital assets                                                                  |                                            |   |                                     |       |               |   |              |       |               |   | 1.0   |       |   |   | 3.3   |       |   |   | 1.0   |      
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|Income (loss) before income taxes and unrealized
foreign exchange gain (loss); long-term debt |                                            |   | (6.3                                 | )     |               |   | 49.4          |       |               |   | 32.5  |       |   |   | (30.9 | )     |   |   | (22.4 | )    
|Unrealized foreign exchange loss (gain); long term debt                                       |                                            |   | 23.6                                 |       |               |   | (19.3         | )     |               |   | 10.2  |       |   |   | 17.4  |       |   |   | (4.3  | )    
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|Income (loss) before income taxes                                                             |                                            |   | (29.9                                | )     |               |   | 68.7          |       |               |   | 22.3  |       |   |   | (48.3 | )     |   |   | (18.1 | )    
|Income tax expense (recovery)                                                                 |                                            |   | (9.0                                 | )     |               |   | 29.0          |       |               |   | 12.5  |       |   |   | (18.7 | )     |   |   | (0.2  | )    
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|(Loss) income from continuing operations                                                      |                                            |   | (20.9                                | )     |               |   | 39.7          |       |               |   | 9.8   |       |   |   | (29.6 | )     |   |   | (17.9 | )    
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|(Loss) gain from discontinued operations                                                      |                                            |   | (1.0                                 | )     |               |   | (0.7          | )     |               |   | (14.4 | )     |   |   | 4.2   |       |   |   |      |      
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|Net (loss) income                                                                             |                                            | $ | (21.9                                | )     |               | $ | 39.0          |       |               | $ | (4.6  | )     |   | $ | (25.4 | )     |   | $ | (17.9 | )    
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|Weighted average number of shares outstanding                                                 |                                            |   | 14.5                                 |       |               |   | 14.5          |       |               |   | 14.5  |       |   |   | 14.5  |       |   |   | 14.5  |      
|Basic and fully diluted earnings per share (dollars)                                          |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|                                                                                              | Income (loss) from continuing operations   |   | $                                    | (1.44 | )             |   | $             | 2.73  |               |   | $     | 0.68  |   |   | $     | (2.04 | ) |   | $     | (1.23 | )
|                                                                                              | Income (loss) from discontinued operations |   |                                      | (0.07 | )             |   |               | (0.05 | )             |   |       | (0.99 | ) |   |       | 0.29  |   |   |       |      |  
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|                                                                                              | Net (loss) income                          |   | $                                    | (1.51 | )             |   | $             | 2.68  |               |   | $     | (0.31 | ) |   | $     | (1.75 | ) |   | $     | (1.23 | )
|U.S. GAAP                                                                                     |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|                                                                                              | Net (loss) income                          |   | $                                    | (21.3 | )             |   | $             | 39.2  |               |   | $     | (8.0  | ) |   | $     | (25.8 | ) |   | $     | (17.0 | )
|Basic and fully diluted earnings per share (dollars)                                          |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|                                                                                              | Income (loss) from continuing operations   |   | $                                    | (1.40 | )             |   | $             | 2.74  |               |   | $     | 0.48  |   |   | $     | (2.10 | ) |   | $     | (1.17 | )
|                                                                                              | Income (loss) from discontinued operations |   |                                      | (0.06 | )             |   |               | (0.05 | )             |   |       | (1.03 | ) |   |       | 0.32  |   |   |       |      |  
|                                                                                              |                                            |   |                                      |       |               |   |               |       |               |   |       |       |   |   |       |       |   |   |       |      
|                                                                                              | Net (loss) income                          |   | $                                    | (1.46 | )             |   | $             | 2.69  |               |   | $     | (0.55 | ) |   | $     | (1.78 | ) |   | $     | (1.17 | )

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|                                   |                                                 |  |                                                 |       |               |  |               |       |               |  |      |        |   |  |   |       |   |  |   |       |  
|---------------------------------- | ----------------------------------------------- |  | ----------------------------------------------- | ----- | ------------- |  | ------------- | ----- | ------------- |  | ---- | ------ | - |  | - | ----- | - |  | - | ----- | -
|                                   |                                                 |  | Year Ended December 31,                        
|                                   |                                                 |  |                                                
|                                   |                                                 |  | 1998                                            |       | 1999          |  | 2000          |       | 2001(2)       |  | 2002
|                                   |                                                 |  |                                                 |       |               |  |               |       |               |  |     
|                                   |                                                 |  | (restated)(1)                                   |       | (restated)(1) |  | (restated)(1) |       | (restated)(1) |  |      |        |  
|                                   |                                                 |  | (in millions, except ratios and operating data)
|Balance Sheet Data (at period end) |                                                 |  |                                                 |       |               |  |               |       |               |  |      |        |   |  |   |       |   |  |   |      
|Canadian GAAP                      |                                                 |  |                                                 |       |               |  |               |       |               |  |      |        |   |  |   |       |   |  |   |      
|                                   | Cash and cash equivalents                       |  | $                                               | 6.7   |               |  | $             |      |               |  | $    |       |   |  | $ | 87.0  |   |  | $ | 80.2  |  
|                                   | Total assets                                    |  |                                                 | 442.0 |               |  |               | 460.0 |               |  |      | 540.4  |   |  |   | 578.0 |   |  |   | 555.1 |  
|                                   | Total debt, including current maturities(5)     |  |                                                 | 331.3 |               |  |               | 271.5 |               |  |      | 303.7  |   |  |   | 443.7 |   |  |   | 440.4 |  
|                                   | Shareholders equity                            |  |                                                 | 57.0  |               |  |               | 96.1  |               |  |      | 91.6   |   |  |   | 66.2  |   |  |   | 48.4  |  
|U.S. GAAP                          |                                                 |  |                                                 |       |               |  |               |       |               |  |      |        |   |  |   |       |   |  |   |      
|                                   | Total assets                                    |  | $                                               | 434.9 |               |  | $             | 453.8 |               |  | $    | 528.9  |   |  | $ | 566.2 |   |  | $ | 544.7 |  
|                                   | Total debt, including current maturities(5)     |  |                                                 | 331.3 |               |  |               | 271.5 |               |  |      | 303.7  |   |  |   | 443.7 |   |  |   | 440.4 |  
|                                   | Shareholders equity                            |  |                                                 | 52.9  |               |  |               | 92.3  |               |  |      | 84.4   |   |  |   | 58.7  |   |  |   | 41.7  |  
|Other Financial Data               |                                                 |  |                                                 |       |               |  |               |       |               |  |      |        |   |  |   |       |   |  |   |      
|Canadian GAAP                      |                                                 |  |                                                 |       |               |  |               |       |               |  |      |        |   |  |   |       |   |  |   |      
|                                   | EBITDA(6)                                       |  | $                                               | 61.3  |               |  | $             | 127.6 |               |  | $    | 98.6   |   |  | $ | 62.8  |   |  | $ | 73.1  |  
|                                   | Capital expenditures(7)                         |  |                                                 | 36.3  |               |  |               | 36.1  |               |  |      | 133.8  |   |  |   | 20.1  |   |  |   | 14.1  |  
|                                   | Ratio of earnings to fixed charges(8)           |  |                                                 |      |               |  |               | 2.4x  |               |  |      | 1.6x   |   |  |   |      |   |  |   |      |  
|U.S. GAAP                          |                                                 |  |                                                 |       |               |  |               |       |               |  |      |        |   |  |   |       |   |  |   |      
|                                   | EBITDA(6)                                       |  | $                                               | 61.3  |               |  | $             | 127.6 |               |  | $    | 98.6   |   |  | $ | 62.8  |   |  | $ | 73.1  |  
|Canadian and U.S. GAAP             |                                                 |  |                                                 |       |               |  |               |       |               |  |      |        |   |  |   |       |   |  |   |      
|Cash Flows                         |                                                 |  |                                                 |       |               |  |               |       |               |  |      |        |   |  |   |       |   |  |   |      
|                                   | Operating activities                            |  | $                                               | 17.4  |               |  | $             | 82.8  |               |  | $    | 118.1  |   |  | $ | (23.0 | ) |  | $ | 7.4   |  
|                                   | Investing activities                            |  |                                                 | (16.4 | )             |  |               | (41.1 | )             |  |      | (139.1 | ) |  |   | 8.4   |   |  |   | (14.1 | )
|                                   | Financing activities                            |  |                                                 | (50.4 | )             |  |               | (48.4 | )             |  |      | 21.0   |   |  |   | 101.5 |   |  |   | 0.04  |  
|Other Selected Operating Data      |                                                 |  |                                                 |       |               |  |               |       |               |  |      |        |   |  |   |       |   |  |   |      
|                                   | OSB production volume (mmsf 3/8)               |  |                                                 | 828   |               |  |               | 924   |               |  |      | 972    |   |  |   | 1,197 |   |  |   | 1,284 |  
|                                   | Specialty plywood production volume (mmsf 3/8) |  |                                                 | 87    |               |  |               | 115   |               |  |      | 94     |   |  |   | 86    |   |  |   | 98    |  
|                                   | Average OSB price realized ($ per msf 3/8)     |  |                                                 | 241   |               |  |               | 296   |               |  |      | 263    |   |  |   | 205   |   |  |   | 202   |  
|                                   | Average plywood price realized ($ per msf 3/8) |  |                                                 | 646   |               |  |               | 647   |               |  |      | 651    |   |  |   | 683   |   |  |   | 663   |  



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|(1) |  | During 2001, the Canadian Institute of Chartered Accountants (CICA)
approved introduction of CICA Handbook Section 3870, Stock-based
Compensation and Other Stock-Based Payments. As a result, the company
reported compensatory portions of the Companys employee participation
share plan; a variable stock compensation program. The new policy is
consistent with reporting provided in the past for U.S. GAAP purposes. In
addition, in 2001, the Companys Abbotsford lumber operation was included
in discontinued operations reflecting a decision made concurrent with the
decision to sell the Chasm operations. Subsequent to December 31, 2001,
the Company ceased efforts to sell the Abbotsford operation. As a result
of this decision, the Abbotsford portion of amounts previously reported as
discontinued operations have been reclassified to continuing operations
without effect on net earnings.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Operations at the High Level OSB facility commenced in October 2000 with
income contributions being realized commencing in April 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(3) |  | Interest charges includes interest expense for the period, excluding
amortization of deferred financing costs, amortization of deferred debt
discounts, and realized foreign exchange losses upon repayment of
principal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(4) |  | Excludes $1.5 million of interest charges capitalized to the High Level
project during its construction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(5) |  | Net of unamortized deferred debt discount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(6) |  | EBITDA represents operating earnings before amortization, plus interest
and other income. We have included EBITDA in the table above because we
believe that some investors will find it to be a useful tool for measuring
our ability to service our indebtedness. However, EBITDA does not
represent cash flow from operations, as defined by generally accepted
accounting principles, and should not be considered as a substitute for
net earnings as an indicator of our operating performance or cash flow as
a measure of liquidity. EBITDA may not be comparable to similarly titled
measures of other companies. The following table shows a reconciliation of
EBITDA to net income (loss).                                                                                                                                                                                                                       

5



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|                                              |                                         |   |                        |      |      |   |       |       |      |   |      |      |  |   |       |       |   |   |       |      |  
|--------------------------------------------- | --------------------------------------- | - | ---------------------- | ---- | ---- | - | ----- | ----- | ---- | - | ---- | ---- |  | - | ----- | ----- | - | - | ----- | ---- | -
|                                              |                                         |   | Year Ended December 31
|                                              |                                         |   |                       
|                                              |                                         |   | 1998                   |      | 1999 |   | 2000  |       | 2001 |   | 2002
|                                              |                                         |   |                        |      |      |   |       |       |      |   |     
|                                              |                                         |   | (in millions)         
|Net income (loss)                             |                                         | $ | (21.9                  | )    |      | $ | 39.0  |       |      | $ | (4.6 | )    |  | $ | (25.4 | )     |   | $ | (17.9 | )   
|Add: Loss (gain) from discontinued
operations |                                         |   | 1.0                    |      |      |   | 0.7   |       |      |   | 14.4 |      |  |   | (4.2  | )     |   |   |      |     
|                                              | Income tax (recovery) expense           |   |                        | (9.0 | )    |   |       | 29.0  |      |   |      | 12.5 |  |   |       | (18.7 | ) |   |       | (0.2 | )
|                                              | Unrealized foreign exchange (gain) loss |   |                        | 23.6 |      |   |       | (19.3 | )    |   |      | 10.2 |  |   |       | 17.4  |   |   |       | (4.3 | )
|                                              | Amortization of finance charges         |   |                        | 3.7  |      |   |       | 5.2   |      |   |      | 2.1  |  |   |       | 8.3   |   |   |       | 5.3  |  
|                                              | Interest charges                        |   |                        | 39.9 |      |   |       | 44.8  |      |   |      | 35.6 |  |   |       | 51.7  |   |   |       | 57.2 |  
|                                              | Write-down of capital assets            |   |                        |     |      |   |       |      |      |   |      | 1.0  |  |   |       | 3.3   |   |   |       | 1.0  |  
|                                              | Amortization of capital assets          |   |                        | 24.0 |      |   |       | 28.2  |      |   |      | 27.4 |  |   |       | 30.4  |   |   |       | 32.0 |  
|                                              |                                         |   |                        |      |      |   |       |       |      |   |      |      |  |   |       |       |   |   |       |     
|EBITDA                                        |                                         | $ | 61.3                   |      |      | $ | 127.6 |       |      | $ | 98.6 |      |  | $ | 62.8  |       |   | $ | 73.1  |     



---

|(7) |  | Includes capital expenditures of $144.1 million related to the
construction of the High Level OSB facility during the years ended
December 31, 1999, 2000, and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(8) |  | For purposes of calculating the ratio of earnings to fixed charges (i)
earnings consist of earnings (loss) from continuing operations before
income taxes plus fixed charges during the period and (ii) fixed charges
consist of interest expense on all debt, plus the portion of operating
lease rental expense that is representative of the interest factor and
amortization of finance charges. For the fiscal years ended December 31,
2002, 2001 and 1998, pre-tax earnings from continuing operations before
fixed charges were insufficient to cover fixed charges under Canadian GAAP
by $17.6, $48.9 and $29.9 million respectively and under U.S. GAAP by
$18.2, $49.4 and $30.5 million respectively.

EXCHANGE RATE INFORMATION

We publish our consolidated financial statements in Canadian dollars. In this
document, except where otherwise indicated, all dollar amounts are expressed in
Canadian dollars. References to US$ are to United States dollars.

The following table sets forth the high and low exchange rates for each of the
previous six months, and the average rate for each of the five most recently
completed financial years, calculated by using the average of the exchange
rates on the last day of each month during the year, based on the inverse of
the noon buying rate in the city of New York for cable transfers in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York (the Noon Buying Rate):

|               |  |      |        |     |  |             |        |         |  |  |      |  |  |  |        | 
|-------------- |  | ---- | ------ | --- |  | ----------- | ------ | ------- |  |  | ---- |  |  |  | ------ | 
|Monthly Data   |  | High |        | Low |  | Annual Data |        | Average
|               |  |      |        |     |  |             |        |        
|April, 2003    |  |      | 0.6975 |     |  |             | 0.6737 |         |  |  | 2002 |  |  |  | 0.6369 | 
|March, 2003    |  |      | 0.6822 |     |  |             | 0.6709 |         |  |  | 2001 |  |  |  | 0.6442 | 
|February, 2003 |  |      | 0.6720 |     |  |             | 0.6530 |         |  |  | 2000 |  |  |  | 0.6724 | 
|January, 2003  |  |      | 0.6570 |     |  |             | 0.6349 |         |  |  | 1999 |  |  |  | 0.6744 | 
|December, 2002 |  |      | 0.6461 |     |  |             | 0.6329 |         |  |  | 1998 |  |  |  | 0.6714 | 
|November, 2002 |  |      | 0.6440 |     |  |             | 0.6288 |         |  |  |      |  |  |  |        | 

On May 5, 2003, the inverse of the noon buying rate was US$0.7075= $1.00.
Unless otherwise indicated, the exchange rate in this document used to
translate US$ to Canadian dollars is the inverse of the Noon Buying Rate on
such date.



|B. |  | Capitalization and indebtedness.           
|-- |  | -------------------------------------------
|  
|   |  | Information not required for annual report.
|  
|C. |  | Reasons for the offer and use of proceeds. 
|  
|   |  | Information not required for annual report.

6



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|D. |  | Risk factors.
|-- |  | -------------

Significant Indebtedness

At December 31, 2002, our total outstanding indebtedness under our senior
secured notes was $440.4 million (US$281.5 million) and our ratio of total
long-term debt to total capitalization was approximately 87%. Our principal
sources of liquidity are cash flow generated from operations and our available
cash balance. At December 31, 2002 we had $80.2 million in cash available.
Under the indentures governing our senior secured notes, we have virtually no
ability to incur additional debt. We are not permitted to have an operating
credit facility as we have had in the past. We believe that we have sufficient
working capital to fund our operations for the next twelve months. However, our
cash flow is subject to general economic, industry, financial, competitive,
legislative, regulatory and other factors, including the current economic
downturn in North America, that are beyond our control. Our business may not
generate enough cash flow to fund our liquidity needs, which would severely
curtail our ability to continue operations. If our cash and operating cash flow
are insufficient to meet our operational expenses and debt service obligations
we will have to consider several options available to us, including raising
additional equity, sales of assets or seeking consent to incur additional
indebtedness. These options may not be available to us at all or on
satisfactory terms.

Cyclicality and Volatility

We are principally engaged in the production of oriented strand board (OSB)
and specialty overlaid plywood for sale to customers in the United States,
Canada, Asia and Europe. Sales of our products are affected by residential and
commercial construction and repair and remodeling industries in North America,
Asia and Europe. The markets for our products are affected by general economic
conditions, the condition of the real estate market, monetary policy, tax
policy, energy costs, weather conditions and natural disasters, all of which
are beyond our control. In addition, increasing use of just in time
inventory management in the forest products distribution chain has led to
increased volatility due to uneven buying patterns and lower field inventories
held in consuming markets.

Competition

We compete in North America, Asia and Europe with numerous forest products
companies, ranging from very large integrated firms (most of which are larger
than the Company) to smaller firms that manufacture only a few products. We
also compete indirectly with many firms that manufacture substitutes for wood
building materials. The largest markets for OSB are commodity markets in which
manufacturers compete primarily on the basis of price. Our competitive
position is influenced by the availability, quality and cost of raw materials,
energy and labor in British Columbia and Alberta.

We currently face substantial competition in the OSB industry and will face
increased competition in the years to come as new manufacturing facilities are
constructed. As well, OSB capacity continues to increase as a result of
improvements to existing mills. In light of the possibility of future capacity
increases, there can be no assurance that we will be able to maintain our
competitive position in the OSB industry.

Price of and Demand for Oriented Strand Board

Our transformation from a pure lumber producer began in 1987 and we have
repositioned ourselves as a manufacturer of OSB and specialty overlaid plywood.
For the twelve months ended December 31, 2002, we generated approximately 75%
of our revenues from OSB sales. We expect that OSB will continue to account for
most of our sales in the foreseeable future. This product concentration could
increase our exposure to a decline in demand or prices for OSB as a result of
general economic conditions affecting housing starts, renovations and
remodeling or industrial construction activity.

Dependence on Timber Tenures

We are dependent on timber tenures for an economical supply of fiber. Any
disruption of this supply could adversely affect our operations. Under the
terms of forest licenses granted in British Columbia, the amount of commercial
forest land available to the forest industry is periodically assessed. We
cannot predict whether the amount of timber that we are allowed to harvest will
be reduced in the future (See Item 4B  Timber Supply) .

Effect of Government Regulation

Legislation in British Columbia and Alberta empowers provincial regulatory
agencies to develop regulations, set policies and establish and maintain all
aspects of sustainable forest management. Changes to these regulations and
policies could have an effect on our access to fiber

7



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##### 



for our operations or
could increase the cost of our fiber. In addition, we are subject to numerous
and increasingly stringent environmental laws and regulations of general
application relating to air emissions, effluent discharges, ground water
quality, plant and
wildlife protection, landfill sites, employee health and safety, waste
management and the remediation of hazardous materials. The process of obtaining
the required approvals, including the completion of any necessary environmental
impact assessments, can be lengthy, subject to public input, controversial and
expensive. Changes to these laws or regulations, or the implementation of new
laws or regulations, could result in additional expenses, capital expenditures
and restrictions and delays in our activities, which could impair our
competitive position and have a material adverse impact on our operations. In
addition, if we fail to comply with applicable legislation and regulations, our
operations could be interrupted and we could be subject to significant
liabilities, including fines and other penalties or required to install
pollution control equipment or take remedial actions, any of which could entail
significant expenditure.

Exposure to Natural Disasters

The forest products industry is subject to natural events such as forest fires,
adverse weather conditions, insect infestation, disease and other natural
disasters. The occurrence of any of these events could adversely affect our
ability to harvest timber. As a result, we may need to curtail production or
purchase fiber from third parties, which could increase our costs and reduce
our cash from operations.

Off-Shore Sales

Sales outside of North America represented approximately 11.2% of our total
revenue for the fiscal year ended December 31, 2002 and 15.3% of our total
revenue for the fiscal year ended December 31, 2001. We intend to expand our
international sales by targeting other Pacific Rim countries with strong growth
potential, such as China and South Korea. Our plans to expand our
international sales may be adversely affected by a number of risks, including:



| |  |  | difficulties in establishing relationships with foreign companies;                                                                                         
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | import or export licensing requirements;                                                                                                                   
|
| |  |  | fluctuations in foreign currencies;                                                                                                                        
|
| |  |  | longer payment cycles;                                                                                                                                     
|
| |  |  | trade disputes and increases in tariffs, duties, price controls or
other restrictions on foreign currencies or trade barriers imposed by
foreign countries;
|
| |  |  | potential adverse tax consequences; and                                                                                                                    
|
| |  |  | recessionary environments in foreign economies                                                                                                             

Exchange Rate Fluctuations

A significant portion of our products are sold in U.S. dollars. Most of our
costs, other than interest payable on the Notes due July 15, 2007, which are
payable in U.S. dollars, will be payable in Canadian dollars and, therefore,
our financial results are subject to foreign currency exchange rate
fluctuations. A significant appreciation in the value of the Canadian dollar in
terms of the U.S. dollar, while other factors remain constant, will cause a
relative decline in our revenues and our cash flow will be diminished.

Labor Relations

We are party to a collective bargaining agreement with a labor union that is
renegotiated periodically. Our three-year collective agreement with the
Industrial Wood and Allied Workers of Canada (the IWA) covers approximately
530 employees of the Lillooet, Savona, Abbotsford and 100 Mile OSB divisions
and expires on June 30, 2003. The IWA contract is applicable to all
IWA-certified mills in the southern interior of British Columbia. There can be
no assurance that we will not experience significant labor disruptions in
connection with the renegotiation of the IWA contract or that our labor costs
will not significantly increase under the next new contract. Any labor
disruptions and any costs associated with such labor disruptions could have a
material adverse effect on our results of operations.

No Assurance of Adequate Collateral

In July 1997, we issued US$232.0 million of 12-1/2% Senior Secured Notes due
July 15, 2007. We repurchased and cancelled US$45.5 million of these notes in
1998 and 1999 from our cash flow from operations. At December 31, 2002, the
total outstanding indebtedness under those Notes was US$186.5 million. Those
Notes are unconditionally guaranteed by our existing and future subsidiaries,
which guarantees are senior unsecured obligations of the guarantors, and are
secured by:

8



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| |  |  | a first priority fixed charge and security interest on
substantially all the properties and assets related to our 100 Mile
House and Grande Prairie OSB facilities, except inventories,
receivables and other current assets associated with the mills;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a second priority security interest in all of our other
properties and assets, subject in each case to permitted liens; and                                                                                                                            
|
| |  |  | a second priority pledge of all of the issued shares of Steen
River (owner of a 50% interest in the High Level OSB facility).                                                                                                                          

Subject to Steen Rivers obtaining the consent of the co-owner, the 12-1/2%
Senior Secured Notes will be secured by:



| |  |  | a second priority assignment of the interest of Steen River
under the memorandum of agreement for the High Level OSB project; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a second priority security interest in all of the properties
and assets of Steen River related to the High Level OSB facility.   

On December 20, 2001, we issued US$95.0 million of 13-7/8% Senior Secured Notes
due July 15, 2007.

Those Notes are secured by the following two principal security instruments and
agreements in favor of Computershare Trust Company of Canada, as security
trustee:



| |  |  | a first priority pledge of all of the issued shares of our
wholly-owned subsidiary, Steen River Forest Products Ltd.; and                                                                                                                                                                                        
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a security debenture granted by us creating a first priority
security interest in, and mortgage of, our Savona mill and Lillooet
plant; and a first priority security interest in our current assets,
including inventories of raw materials, finished goods and supplies,
receivables, money and similar assets.

Steen River has also entered into the following security instruments with the
security trustee, which will only become effective if Steen River receives from
Grant Forest Products Inc., the other co-owner of the High Level OSB facility,
its consent to the creation of such security interests:



| |  |  | a security debenture granted by Steen River creating, among
other things, a first priority security interest in all of the assets
and properties of Steen River related to the High Level OSB facility;
and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a first priority assignment of the High Level memorandum of
agreement.                                                                                                                                     

Aboriginal Land Claims

Native groups in British Columbia have claimed substantial portions of the
province as land which they own or in which they have a traditional interest
and for which they are seeking compensation from various levels of government.
Some of these portions of the province are within our timber supply areas. A
process is now in place within British Columbia to deal with native land
claims. These negotiations will be ongoing for a number of years, depending on
the commitment of the parties involved and the precedents set by the outcomes
of the first settlement agreements. There can be no assurance that native land
claims will not affect our timber supply areas in the future.

In Alberta, agreements with First Nations are generally in place and our
operations are unencumbered by aboriginal land claims, but there can be no
assurance that future claims will not be made.

Absence of a Liquid Trading Market for the Companys Securities

Our common shares are listed for trading on the Toronto Stock Exchange, but are
not listed on any U.S. stock exchange or quoted on the Nasdaq Stock Market. No
active trading market currently exists for our debt securities.

Enforceability of Judgments

The enforcement by investors of civil liabilities under the federal securities
laws of the United States may be affected adversely by the fact that the
Company is incorporated under the laws of British Columbia that all of its
officers and directors are residents of Canada, that some

9



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or all of the experts
named in this Annual Report are residents of Canada and that the Company and
virtually all of its assets are located outside the United States.

ITEM 4.   Information on the Registrant



|A. |  | History and Development of the Registrant
|-- |  | -----------------------------------------

The Company was formed under the laws of British Columbia on March 31, 1993, by
the amalgamation of Ainsworth Lumber Co. Ltd. and its parent company, Ainsworth
Enterprises Ltd. Ainsworth Lumber Co. Ltd., the amalgamating company, was
previously the result of the amalgamation on December 3, 1970, of Ainsworth
Lumber Co. Ltd. (incorporated in 1956) and Little Bridge Creek Logging Ltd.
(incorporated in 1963). The Company was founded in 1950 by David Ainsworth and
originally consisted of a portable sawmill operation that employed six people.
In 1952, the initial sawmill operation was relocated to 100 Mile House, British
Columbia which is approximately 450 kilometers north of Vancouver. We built a
permanent sawmill at 100 Mile House in 1957 and steadily expanded our
operations over a period of 12 years to include lumber planing and drying
facilities. This original sawmill was permanently shut down in mid-1998.

In 1975, we began construction of a second sawmill near Clinton, British
Columbia and in 1979, added a finger-joining facility at the 100 Mile House
site to add value to our off grade and shorter length lumber products. In
1986, we relocated the finger-joining facility to Abbotsford, British Columbia,
where a milder climate extends the operating season. On April 24, 2001 we
completed the sale of our Clinton lumber operations, including two forest
licenses, to West Fraser Mills Ltd. for net cash proceeds of $29.2 million.

In 1987, we purchased from Evans Forest Products Limited (Evans) a sawmill
and veneer mill at Lillooet, British Columbia, a sawmill and specialty plywood
plant at Savona, British Columbia, and two forest licenses. This acquisition
substantially diversified our product line and initiated our entry into the
composite plywood business. The additional timber supply from the forest
licenses acquired from Evans also permitted us to manage our overall timber
supply more effectively through the implementation of a comprehensive system of
log transfers amongst the facilities to achieve optimal use of the available
timber. We invested approximately $21 million in our Lillooet plant and Savona
mill in the late 1990s to extend our product line and lower our operating
costs.

In 1990, following a public call for tenders by the British Columbia Ministry
of Forests (MOF), we were granted pulpwood harvesting rights for a 25-year
term for the purpose of operating an OSB facility. We subsequently entered
into our PA 16 Pulpwood Agreement with the MOF on April 26, 1990. In May of
1993, we completed an initial public offering of 5.55 million Common Shares at
$10 per share. The $51.4 million net proceeds were used as partial funding for
the construction of the OSB plant at 100 Mile House. The OSB plant was
constructed in 1993-1994 and has been operating since August 1994.

In 1994, the Alberta government submitted a request for proposals for a
Deciduous Timber Allocation (DTA) near Grande Prairie, Alberta. Our proposal
was accepted, and on August 9, 1994, we were granted a deciduous timber
allocation for a renewable 20-year term (formally issued in February 1995).
Construction of our second OSB facility near Grande Prairie began in October
1994, and production of the first OSB panels commenced on December 14, 1995.
In addition to the main facility, equipment was installed for further
processing the OSB and adding further value to the product lines. The
value-added facilities started operating in August 1997. In fiscal 1999 and
2000, the company invested $12.3 million relating to the expansion of the
Grande Prairie operations, the completion of which has been delayed. In 2002,
we invested $9.2 million in the Grande Prairie OSB facility which is
anticipated to increase the production capacity by up to 12%.

In 1996, the Alberta Lands and Forest service issued a call for proposals for a
DTA in the Footner Timber Development Area near High Level, Alberta. We,
together with Grant Forest Products Corp. (Grant Forest Products), an Ontario
based private company involved in the manufacture and sale of OSB, made a joint
proposal through Footner Forest Products Ltd. (Footner Forest Products).
Footner Forest Products is a bare trustee and agent for Grant Forest Products
and Ainsworth. On January 31, 1997, Footner Forest Products submitted a
proposal to construct and operate an OSB plant near High Level, Alberta upon
receipt of a 20 year DTA. In September 1997, the Alberta government announced
that Footner Forest Products proposal had been selected. Construction of the
Footner OSB facility began in August 1999 and operation commenced in October
2000.

The Companys corporate address is Suite 3194 Bentall IV, P.O. Box 49307, 1055
Dunsmuir Street, Vancouver, British Columbia, V7X 1L3. The Companys telephone
number is (604) 661-3200.

10



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|B. |  | Business overview
|-- |  | -----------------

DESCRIPTION OF THE BUSINESS

The Company

Ainsworth Lumber Co. Ltd., a British Columbia corporation, is a Canadian
manufacturer of premium quality forest products with a diverse product line
consisting of oriented strand board (OSB) products, specialty overlaid
plywood, veneer and finger joined stud lumber. During our 50-year history, we
have undergone significant growth and product diversification by pursuing a
strategy focused on achieving efficient, low-cost conversion of our timber into
high valued products. As a result of our strategy, we are a significant
producer of OSB and one of only two full-time producers of specialty overlaid
plywood in North America. In addition, we have a long history of supplying
forest products to Japan and are currently the largest supplier of OSB to
Japan.

Our current operations include three OSB facilities, two 100% owned facilities
in 100 Mile House, BC and Grande Prairie, Alberta, and a facility in High
Level, Alberta in which we have a 50% proportionate interest. We also have a
specialty plywood mill in Savona, BC a veneer plant in Lillooet, BC and a
finger-joined lumber plant in Abbotsford, BC. Our products are marketed and
sold primarily in North America, Japan and Asia and Europe.

Ainsworth has been a public company since 1993 and its common shares trade on
The Toronto Stock Exchange under the symbol ANS.

Oriented Strand Board

Our OSB facility at 100 Mile House, British Columbia was completed in August
1994. We originally built 100 Mile House with a design capacity of 360 mmsf and
currently operate the facility at 425 mmsf, or 18% above original design
capacity. At current capacity, the facility consumes approximately 632,000
cubic meters of fiber annually. The operation occupies approximately 57 acres
of land owned by us and is directly serviced by rail. This facility is our
principal source of value-added OSB products for both our North American and
Japanese customers. For the year ended December 31, 2002, 49% of its production
was value-added OSB products. The facilitys proximity to the port of Vancouver
provides a significant competitive advantage on shipping costs and delivery
time to the growing Japanese market, where we are the market leader. 100 Mile
House was the first OSB facility to use a nine-foot wide forming line and press
that provides significant efficiency advantages over the more traditional
eight-foot wide press and allows us to profitably serve the Japanese market
where three-foot board is the standard. In 2000, we were the first OSB producer
to install an inline panel stress rating machine to meet quality assurance
specifications for Japans premium market. The 100 Mile House facility is
certified by the APAThe Engineered Wood Association, and its products meet all
applicable North American and Japanese Agricultural Standards and building code
specifications.

Our OSB facility at Grande Prairie, Alberta, which was completed in December
1995, is the second-largest single-line OSB facility (after the High Level OSB
facility) in the world. We originally built the Grande Prairie facility with a
design capacity of 540 mmsf and currently operate the facility at 615 mmsf, or
14% above original design capacity. The operation occupies approximately 160
acres of land owned by us and is serviced by rail. The facility utilizes a
12-foot wide forming line and press that provides the flexibility to produce,
on a cost-efficient basis, a variety of panel dimensions and grades to suit
both North American and Japanese markets. At full capacity, the facility will
consume approximately 936,000 cubic meters of fiber annually. This facility has
the same product quality certifications as our 100 Mile House facility. Grande
Prairies low-cost position is supported by an abundant low-cost fiber supply,
economies of scale and superior up-time and on-grade performance. We are
increasing our profitability at Grande Prairie by continuing to maximize
production levels thereby reducing per-unit production costs.

Our wholly-owned subsidiary, Steen River, jointly owns the OSB facility at High
Level, Alberta. This facility, which is designed to be the worlds largest OSB
facility with a design capacity of 860 mmsf per year, is owned by the co-owners
in equal one-half shares. The plant site and log yard occupy approximately 643
acres of lands owned by the co-owners and is directly serviced by rail. The
High Level OSB facility is operated for the co-owners by Footner Forest
Products Ltd. Footner is also jointly-owned in equal shares by Steen River and
the co-owner. Footner is a service company that operates the plant as the agent
for the co-owners and not for its own account. All of the costs incurred by
Footner in so doing are reimbursed by the co-owners and the co-owners take away
their respective one-half shares of production from the plant for sale for
their own account. In Steen Rivers case, it delivers its share of production
to us and we reimburse Steen River for all operating costs. We and the co-owner
have each invested approximately $145 million in the capital assets to
construct the facility. We believe the High Level OSB facility will be the
worlds lowest-cost producer of commodity sheathing OSB once full production is
achieved. At full capacity the plant will consume about 1.35 million cubic
meters of fiber annually. By agreement between the co-owners, the plant
produces commodity sheathing OSB for the North American market. High Level
utilizes the latest technology with a 12-foot wide forming line and continuous
press. High Level has access to low-cost timber supplies through timber
allocations

11



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granted by the government of Alberta and long-term volume supply
agreements that exceed its timber needs at full capacity. The facility, which commenced operations in October 2000, is currently
operating at approximately 65% of its design capacity. High Level contributed
approximately 254 mmsf to our total OSB sales volume for the year ended
December 31, 2002, and we expect our share of production will be 430 mmsf per
year once the facility is operating at design capacity. High Levels products
are certified by the APAThe Engineered Wood Association.

Our 100 Mile House and Grande Prairie facilities were designed to economically
produce three-foot wide panels used in Japanese construction. For example,
Grande Prairie is one of the few plants in the world that utilizes a 12-foot
wide forming line and press, giving it the flexibility to efficiently produce
either three-foot wide panels for the Japanese market or four-foot wide panels
for the North American market. We have the largest installed capacity designed
to serve the growing Japanese OSB market and are currently the Japanese OSB
market leader with 60% market share for the year ended December 31, 2002. We
believe that our ability to effectively compete in Japan is a result of:



| |  |  | our press sizes, which can economically produce three-foot wide panels;
| | - |  | -----------------------------------------------------------------------
|
| |  |  | our proximity to western export terminals;                             
|
| |  |  | the high quality of our products; and                                  
|
| |  |  | our experienced sales force for the market in Japan.                   

Oriented Strand Board Market

OSB is a type of structural panel used in building applications, primarily as a
substitute for plywood where physical properties are more important than
appearance. Up until the late 1980s, plywood was the principal type of
structural panel used in North American construction applications. Since then,
OSB has proven to be a significant alternative to plywood because of its
comparable performance attributes and generally lower cost. OSB is manufactured
by processing logs into strands that are coated with wax and resin. These
strands are then oriented into a mat and permanently bonded under heat and
pressure. Orientation of the core and surface layer strands in perpendicular
directions approximates the alternating wood grain of plywood and is what gives
OSB its structural strength. OSB utilizes lower cost, relatively abundant, fast
growing, deciduous and under-utilized coniferous trees resulting in a
significant cost advantage over plywood. In addition, OSB provides a much
higher fiber recovery rate than plywood. The automated manufacturing process
adds to the cost advantage of OSB over plywood. Conversely, plywood production
requires comparatively high cost, large dimension logs. Shrinking timber supply
and environmental pressures are expected to continue to restrict the
availability of logs suitable for plywood production. In addition to lower wood
costs, OSB has a labor cost advantage over plywood because of the higher level
of automation employed in OSB manufacturing.

The demand for structural panels has historically been correlated to
residential and commercial construction and repair and remodeling industries in
North America, Asia and Europe. According to U.S. government data, from 1991
through 2000, U.S. housing starts grew at a 5% compounded annual growth rate
while residential improvements and repairs expenditures grew at a 3% compounded
annual growth rate. We believe housing starts will be bolstered by a
predominance of single-family construction, as opposed to multi-family homes.
We also believe that repair and remodeling activity will continue to grow,
driven primarily by an aging housing stock.

The demand for OSB is driven by structural panel demand and the substitution of
OSB for higher cost plywood panels. OSB consumption and market share in the
structural panel market has increased over the last decade as a result of
greater acceptance of OSB as a substitute for plywood, increasing production
capacity to meet rising demand, a strong North American economy and growth in
OSB applications. OSB is accepted by all of the major North American building
codes as being structurally equivalent to plywood.

Export-Standard OSB Market

Japan is the worlds second largest market for wood construction materials,
surpassed only by the United States. New building regulations, such as the
Housing Quality Assurance Law, should encourage builders to adopt structural
panels such as OSB for wall sheathing, a previously atypical practice, to
mitigate the adverse effects of earthquakes. Although OSB currently represents
approximately 1.8% of the Japanese panel market, we expect OSB to capture a
5.6% share of the structural panel market by 2004. Other Pacific Rim countries
including China and Korea are expected to show strong growth potential similar
to Japan.

12



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Value-Added Industrial OSB Market

Since its market introduction, OSB has gained acceptance as a low cost
alternative to softwood plywood for use in residential construction as roof,
wall and floor sheathing. Further development of process technology and
advancements, such as greater flexibility in press sizes, has allowed OSB to
penetrate new markets. In addition, higher demand and growing environmental
concerns have
increased pressure on North American timber supplies. More than ever, forest
products manufacturers are developing methods to utilize timber resources as
efficiently as possible. This is particularly evident in the engineered wood
products industry, where producers are employing relatively new technologies to
manufacture higher-valued products as replacements for traditional wood
products. Engineered wood products are manufactured lumber and panel products
in a manner that maximizes physical strength and dimensional stability while
minimizing the amount and cost of wood used as raw material. OSB is now gaining
market share in these applications, which were previously restricted to
materials such as lumber, plywood, medium density fiberboard, particleboard,
lumber and non-wood products. For instance, wood I-beams or I-joists are a
replacement product for lumber joists used in residential and non-residential
construction. Value-added OSB products are generally sold at a premium to
commodity OSB sheathing and tend to exhibit more stable demand characteristics.

Specialty Overlaid Plywood

We own and operate a specialty overlaid plywood mill in Savona, British
Columbia, and an associated veneer plant in Lillooet, British Columbia.

Our Savona mill is currently one of only two full-time producers of specialty
overlaid plywood panels in North America. The plant is located on a 64 acre
site owned by us and is serviced by rail. Specialty overlaid plywood products
command premium prices that are less volatile than conventional plywood
sheathing and we have typically been able to realize premium margins from our
specialty overlaid plywood product line. In addition, we have continued to
focus our efforts on developing new products in order to diversify our
specialty overlaid plywood product lines and to access broader international
markets.

The primary AinsworthEngineeredspecialty overlaid plywood product produced at
Savona is a medium density overlay concrete forming panel called
Pourform-107®,
which is used for industrial concrete forming work, including high rise
construction, dams and highway infrastructure.
Pourform-107® is manufactured
using a resin-impregnated paper overlay that leaves an architectural finish on
the concrete, and enables the panel to be re-used multiple times. The balance
of Savonas production consists of high-density overlaid panels used for
concrete forming, decking material for flat deck trailers, and general purpose
overlaid panels used for paint grade sign material as well as panels designed
specifically for use in flat deck trailers, dry freight vans and intermodal
container systems. Savonas annual capacity is 155 mmsf. Production of plywood
at the Savona mill for the year ended December 31, 2002 was 92 mmsf. All of the
Savona mills veneer requirements come from our veneer plant in Lillooet.

Our Lillooet veneer plant produces primarily high quality veneer, principally
for use in our Savona specialty overlaid plywood mill. Lillooet has the ability
to supply all of our Savona veneer needs, however we will also sell spruce,
pine and fir veneer products to other plywood producers and industrial veneer
users depending on prevailing market conditions. The Lillooet plant site
occupies 89 acres and is serviced directly by rail. The mill site is located on
land forming part of Lillooet Indian Reserve No. 1 and Cayoose Creek Indian
Reserve No. 1. The land is leased under a long-term tenancy agreement with the
Federal Department of Indian Affairs and Northern Development. Under the terms
of our forest license for the Lillooet timber supply area, we are obliged to
operate the Lillooet veneer plant to process an equivalent volume to the volume
harvested under that license per year.

Specialty Overlaid Plywood Market

Specialty overlaid plywood is manufactured with resin impregnated paper sheets
bonded onto one or both surfaces of the specialty engineered plywood panels
under heat and pressure. The resulting product combines the strength of a
heavy-duty wood product with the superior wear characteristics of an overlaid
surface. These features effectively meet the demanding requirements of concrete
forming, equipment decking and paint-grade signs. The principal application is
in the manufacture of concrete forms where the overlaid feature offers a number
of key benefits including a smooth concrete finish without defects or wood
grain patterns, ease of removal from the cured concrete and durability.
Specialty overlaid plywood forms currently account for an estimated 15% of the
total concrete forming market with the bulk of demand met with commodity
non-overlaid wood panels. Specialty overlaid plywood is specified by
contractors and architects in applications requiring smooth visible concrete
surfaces including high rise and sports complex construction, water treatment
facilities and highway infrastructure projects.

Our Savona mill is one of only two full-time overlaid plywood producers in
North America. A limited availability of high quality timber to produce
specialty overlaid plywood products is a barrier to entry for potential new
competitors in these markets. The value-added nature of overlaid plywood
results in premium pricing and more stable demand characteristics versus
standard plywood. Competition is based on structural performance and reuse
cycles that permit multiple applications from a single form, effectively
lowering the end users cost.

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Finger-Joined Lumber

We also own and operate a finger-joined lumber facility in Abbotsford, British
Columbia. This facility converts low-value, off-grade and shorter-length lumber
purchased on the open market into finger-joined stud lumber products. This is
accomplished by removing defects in the purchased lumber and then machining and
gluing the remaining pieces together. Finger-joined lumber typically sells at
premium prices over natural lumber products. In fiscal 2001 the Abbotsford
operation was included in discontinued operations reflecting a decision made
concurrent with the decision to sell the Clinton lumber operations. In
February, 2002 a decision was made to cease efforts to dispose of the
Abbotsford operation, reflecting the Companys improved financial position and
other changes in circumstances. On December 20, 2002 the company temporarily
shut-down the mill due to market conditions.

Timber Supply

Timber Tenure Agreements

The following table presents information about the wood fiber supply at each of
our OSB facilities for the year ended December 31, 2002:

|               |       |  |                  |           |                  |  |             |           |  |  |     |    |  
|-------------- | ----- |  | ---------------- | --------- | ---------------- |  | ----------- | --------- |  |  | --- | -- | -
|               |       |  | Annual           |           | Long-term Supply |  | Percent of 
|               |       |  | Requirement (m3) |           | Agreements (m3)  |  | Requirement
|               |       |  |                  |           |                  |  |            
|100 Mile House |       |  | 632,000          |           |                  |  | 430,000     |           |  |  | 68  | % 
|Grande Prairie |       |  | 936,000          |           |                  |  | 984,000     |           |  |  | 105 | % 
|High Level     |       |  | 1,350,000        |           |                  |  | 1,218,000   |           |  |  | 90  | % 
|               |       |  |                  |           |                  |  |             |           |  |  |     |   
|               | Total |  |                  | 2,918,000 |                  |  |             | 2,632,000 |  |  |     | 90 | %
|               |       |  |                  |           |                  |  |             |           |  |  |     |   

British Columbia

We hold Forest License A18700 in British Columbia. Our forest license covers
the timber supply area of Lillooet, British Columbia. The Lillooet timber
supply area consists of approximately 1.1 million hectares (2.7 million acres)
in the Kamloops, British Columbia forest region and serves as the primary
timber source for our Lillooet veneer plant. The forest license is renewable
and the current term extends until 2013. We are currently entitled to harvest
an allowable annual cut, or AAC, of approximately 350,000 cubic meters under
our forest license. The AAC of our forest license can supply approximately 80%
of the current timber requirements of our veneer and specialty overlaid plywood
operations either directly or through a long-term log trade agreement with West
Fraser Mills Ltd. which supplies 50,000 cubic meters per year. The remaining
percentage, primarily fir peeler logs, can be met through purchases of timber
harvested from government-owned lands by other license holders and through
purchases of logs from private landowners, farmers and woodlot owners.

In March 2003, the British Columbia government introduced the Forestry
Revitalization Plan which will result in significant changes to the provincial
forest management structure. The plan includes a 20% reduction in harvesting
rights for holders of long-term tenures and the introduction of an auction
based timber pricing system. Although, the legislation has been enacted, the
regulations and basis for compensation for the 20% timber reduction have not
been published. The province has indicated that licensees will be fairly
compensated for the return of tenure and related costs such as roads and
bridges. The effect of the timber take-back will result in a reduction of
approximately 29,600 cubic metres of the companys existing allowable annual
cut. The effect of the plan on the companys financial position and results of
operations is not possible to accurately predict at this time. The company will
record the effects of the plan when the amounts to be recorded are
determinable.

We hold Pulpwood Agreement No. 16 to support our OSB operations at 100 Mile
House, British Columbia. The pulpwood agreement stipulates that before we can
harvest any pulpwood under the agreement, every reasonable effort must be made
to obtain the total suitable raw material requirements for the OSB mill from
(A) logging residues produced by us, including the fiber produced by West
Fraser Mills Ltd. in the 100 Mile House area pursuant to the terms of our fiber
supply agreements with West Fraser, and (B) logging residues and pulpwood
timber purchased from other sources within the timber supply areas covered by
the pulpwood agreement. If we are unable to meet our requirements from these
sources, then we are entitled to harvest up to 330,000 cubic meters per year of
the pulpwood stands within the timber supply area covered by the pulpwood
agreement.

For the year ended December 31, 2002, approximately 574,000 cubic meters,
approximately 91% of our 632,000 cubic meter fiber requirements for the 100
Mile House OSB facility, came from purchases of logging residue and pulp
quality timber from within and outside the timber supply area covered by the
pulpwood agreement. We estimate that in the long run, we will use all of our
330,000 cubic meters of harvesting rights within the timber supply area covered
by the pulpwood agreement. Our agreements with West Fraser ensure a long-term
supply of 100,000 cubic meters per year through 2006 and 150,000 cubic meters
starting 2006 through 2011. Our agreements

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with West Fraser may be subject to a reduction as a result of West Frasers 20%
take-back. The balance of our annual requirement, or approximately 200,000
cubic meters, will be derived from market purchases and shorter term
agreements.

Alberta

In 1994, we were granted a deciduous timber allocation, or DTA, in connection
with our Grande Prairie OSB facility. The Grande Prairie DTA is a renewable
20-year certificate allowing for an annual harvest of approximately 790,000
cubic meters of deciduous timber, which expires in 2015. The Alberta Ministry
of Sustainable Resources issues timber licenses that operate in conjunction
with the DTA and specify where timber harvesting will take place within a
five-year period. As the holder of the DTA, we were required to construct and
operate the Grande Prairie OSB facility and must process all timber harvested
under the DTA at these facilities. We are also obligated to initiate a program
of private log purchases and to conduct our operations and forest management
program in accordance with provincial legislation and the requirements of the
Alberta Ministry of Sustainable Resource Development. In addition, as a result
of undercutting of the DTA allowable harvest during the 1995 to 2000 period, we
have rights under our DTA certificate to harvest an additional 200,000 cubic
meters per year through 2006.

Our Grande Prairie DTA is the primary source of fiber for our Grande Prairie
OSB facility, capable of supplying approximately 100% of the plants fiber
requirements at full capacity during the period 2001 to 2006 and 84% in
subsequent years. For the year ended December 31, 2002, the mills fiber
requirement was approximately 936,000 cubic meters of which we harvested
approximately 473,000 cubic meters, or 51%, from our DTA area. The balance of
the Grande Prairie OSB plants requirements of 463,000 cubic meters, or 49%,
was purchased from other low-cost sources, including private land and
government purchases, industrial timber salvage, incidental deciduous volumes
generated by non-DTA harvesting operations of other operators, and volume
gained through modified harvesting practices to increase utilization.

In 1996, the Alberta Lands and Forest Service issued a call for proposals for a
DTA located in the Footner Timber Development Area. We made a joint proposal
with another OSB producer, through Footner Forest Products Ltd., to construct
and operate an OSB plant at High Level, Alberta. Footner was successful in its
proposal. The timber allocation is 828,000 cubic meters of deciduous timber
annually for a period of 20 years and is supplied through a Joint Forest
Management Agreement (FMA) which supplies 677,000m3, and two DTAs which
supply 152,000m3. Footner has also negotiated 20-year volume supply agreements
of approximately 390,000 cubic meters annually with aboriginal groups who hold
DTAs or own their land.

The High Level FMA and DTAs are the primary fiber source for the High Level
OSB plant, supplying up to 62% of the plants anticipated fiber requirements
once it achieves full capacity. The remaining 38% of the fiber requirement at
High Level is expected to be met by existing long-term volume supply
agreements. Other sources of fiber available to us include purchases from
private landowners and government, industrial timber salvage and incidental
deciduous volumes generated by non-DTA harvesting operations of other
operators. For the year ended December 31, 2002, High Levels fiber requirement
was approximately 898,000 cubic meters of which approximately 300,000 cubic
meters, or 33% was met by timber harvested from our FMA and DTA areas and the
remainder from long-term volume supply agreements.

Timber Harvesting and Forest Management

We are committed to responsible harvesting, reforestation and sustainable
forest management practices that are sensitive to environmental and social
considerations as well as the need to preserve a varied forest species mix.
Forest management techniques are in accordance with governmental laws,
regulations and policies and promote the long-term viability of the forest
resource.

British Columbia

We have adopted a strategic timber harvesting plan approved by the Ministry of
Forests that integrates harvesting from our forest license and pulpwood
agreement with timber volume supply agreements with West Fraser Mills Ltd. to
ensure that logs are directed to specific mills and end uses that maximize the
return on the timber resource. We manage these resources on a sustained yield
basis. Rationalization of the flow of logs to our mills reduces our dependence
on purchased logs. Timber harvesting is planned and supervised by our woodlands
staff, while harvesting and log hauling are performed by independent
contractors. Most of these independent contractors have long-standing
relationships with us. At 100 Mile House, the temperate climate allows for
year-round logging, subject to periodic limitations resulting from adverse
weather conditions and other factors.

Our responsibility for reforestation and related silviculture activities in the
timber supply areas covered by our forest license and pulpwood agreement are
governed by the Ministry of Forests. Our costs attributable to compliance with
the Forest Practices Code were significantly

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reduced in 2002 as a result of the
sale of our Clinton, British Columbia mill and its related forest licenses. We
incurred approximately $1.3 million in 2002 in connection with our
reforestation and related silviculture responsibilities in British Columbia.

Alberta

Our DTA at the Grande Prairie facility and the FMA and DTAs at the High Level
facility are managed on a sustained yield basis.

Harvesting under the FMA and DTAs is authorized under:



| |  |  | detailed forest management plans and;                                                                                                                                                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | annual operating plans, which authorize the harvesting of
specific blocks of timber and impose operational requirements
regarding such matters as riparian set-backs and cut-block
boundaries, and;
|
| |  |  | under the DTA, timber licenses, which create a five-year
program of operation                                                                                                                      

Timber licenses under DTAs are issued as a right upon compliance with cut
control and other regulatory requirements.

Logging operations at both the Grande Prairie and the High Level facilities
employ tree-length and cut-to-length roadside logging methods with some
tree-length deliveries. Year-round log deliveries are limited by wet ground
conditions and a lack of gravel for road ballast and construction. Grande
Prairie ground conditions and infrastructure allow an approximate eight-month
logging season. At the High Level OSB facility, the logging season is
compressed into a 100-day period in the winter, with very limited options for
non-frozen ground operating conditions in the remaining part of the year.
Terrain in the FMA and DTA areas is flat to gently rolling, with the main road
systems previously put in place for oil and gas exploration and past coniferous
timber logging operations.

A key component of the FMA and DTAs is the requirement that all areas of
government land logged by us are reforested. Most of this reforestation will
take place naturally through vegetative propagation (Aspen) or coppicing and
seeding (Balsam Poplar).

We have developed a detailed forest management plan for the Grande Prairie DTA
and have committed to a proactive public involvement program in the development
of the plan. The detailed forest management plan has received governmental
approval. We have also completed an independent audit of our operations at
Grande Prairie, the results of which were submitted to the government and
summaries made available to the public. The audit established that we met or
exceeded government requirements. Our woodlands program in Grande Prairie also
received AFPA ForestCare certification in February 1999, and is currently
implementing an Environmental Management System (EMS) as a pre-qualification
requirement for an additional certification system.

In June 2002, Footner, on behalf of Steen River entered in to a Forest
Management Agreement (FMA) with the Province of Alberta and Tolko Industries
Ltd. (Tolko) which provides the company with a long-term agreement to
establish, grow, harvest and remove all deciduous timber on a sustained yield
basis within the Forest Management Area. The effect of the agreement is to
recognize that the primary use of the Forest Management Area is to be for
establishing, growing, harvesting, and removing timber using the principles of
sustainable forest management. Footner jointly submitted a detailed forest
management plan to the Alberta govenment and is awaiting approval. Footner is
making the necessary preparations, through development of an EMS, to pursue
forest certification under a recognized third-party body.

Marketing and Sales

The principal markets for our products are the United States, Canada, Japan and
Asia and Europe. Sales to the North American market and Europe are made through
our Vancouver sales office, to a large network of wholesale distributors,
building materials professionals and other integrated forest products
companies. Sales to Japan and other Asian markets are handled by Interior
Export Lumber Sales Ltd., or Interex, a cooperative sales company owned and
operated by six Western Canadian forest product companies, including us. Within
Interex, we are the sole wood panel producer, providing both OSB and specialty
overlaid plywood products. The combined volume and mix of products provided by
Interex enables the members to more effectively compete against other
large-scale, integrated forest product companies than would be the case if each
member independently employed an export marketing program. Interex maintains
sales offices in Vancouver and Tokyo, Japan, and has local representatives in
other major markets. Interex receives a commission on the sales that it
consummates. Any commission amounts exceeding Interexs operating costs are
refunded to its members on a yearly basis based on volumes shipped. These
arrangements have historically resulted in a net commission paid by us of
approximately 2%. We also have sales agents in a number of overseas markets
that service key OSB and specialty overlaid plywood customers.

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We are continuing to geographically diversify our revenue base to benefit from
the higher return international markets, minimize the impact of
country-specific economic downturns, and minimize our reliance on any
individual geographic region. We place a particular emphasis on Japan, where
product pricing is generally higher and more stable than in North American
markets.

The following table sets out our net sales by region for the fiscal years 2000,
2001, and 2002.

|                             |                            |  |                |         |      |  |      |         |   |  |   |         |  
|---------------------------- | -------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                             |                            |  | 2000           |         | 2001 |  | 2002
|                             |                            |  |                |         |      |  |     
|                             |                            |  | (in thousands)
|Geographic sales information |                            |  |                |         |      |  |      |         |   |  |   |        
|                             | Canada                     |  | $              | 58,683  |      |  | $    | 49,271  |   |  | $ | 69,078  |  
|                             | United States              |  |                | 237,656 |      |  |      | 227,462 |   |  |   | 246,928 |  
|                             | Europe                     |  |                | 10,178  |      |  |      | 11,258  |   |  |   | 6,855   |  
|                             | Japan and other Asia       |  |                | 43,665  |      |  |      | 38,673  |   |  |   | 33,194  |  
|                             |                            |  |                |         |      |  |      |         |   |  |   |        
|                             | Total                      |  | $              | 350,182 |      |  | $    | 326,664 |   |  | $ | 356,055 |  
|                             |                            |  |                |         |      |  |      |         |   |  |   |        
|                             | Non-North American Sales % |  |                | 15.4    | %    |  |      | 15.3    | % |  |   | 11.2    | %

Our operating philosophy is to target higher-end niche marketswhere products
successfully compete on the basis of superior quality and performancewhile
maintaining a low-cost position on commodity sheathing OSB products. To this
end, we have been active in understanding customer needs as they relate to the
growing acceptance of engineered wood systems for the construction of floors.
Additionally, we continue to identify new market opportunities in
non-construction sectors and are responding by developing products with the
required performance attributes. See Research and Development.

Transportation and Distribution

Our finished products are generally marketed on a delivered-price basis and
transported by common carriers. Timely and economical delivery of finished
goods to customers are important factors in our ability to compete effectively.
Virtually all sales are shipped directly to customers.

A significant portion of the delivered cost of our products is transportation
costs. We have entered into various rail, truck and ocean transportation
agreements to provide reliable and competitive transportation services. We have
the ability to load our products onto various types of rail and road equipment,
enabling us to take advantage of the most competitive rates. We also reduce
freight costs by shipping products from the most logistically cost-effective
mill. Our current North American transportation strategy involves shipping
approximately 70% of our total production by rail, with the remainder shipped
by truck. We continually test alternative transportation options to minimize
overall freight costs. Our significantly large shipment volumes provide
considerable leverage for negotiating lower rates and more cost-effective
transport equipment.

Inventory adjustments are regularly required to manage short-term demand
imbalances and to consistently meet delivery schedules. Our practice is to ship
production immediately against an order file, however, our facility warehouses
can accommodate approximately five to seven days production if there is an
interruption in the transportation links.



|C. |  | Organizational Structure
|-- |  | ------------------------

The Companys business and property interests are held either directly or
through wholly owned subsidiaries.

The Companys only significant wholly owned subsidiary is Steen River Forest
Products Ltd., which owns our 50% interest in the High Level OSB Facility.
Steen River was incorporated under the laws of the Province of Alberta.



|D. |  | Property, plant and equipment
|-- |  | -----------------------------

The Company owns and operates three OSB facilities, two 100% owned facilities
in 100 Mile House, British Columbia and Grande Prairie, Alberta, and a 50%
interest in an OSB plant in High Level, Alberta. The company also owns a
specialty plywood plant at Savona, British Columbia, a veneer plant in
Lillooet, British Columbia, and a finger-joining facility in Abbotsford,
British Columbia.

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Facilities

Within the last eight years we have completed the construction of three
state-of-the-art OSB facilities in western Canada including 100 Mile House in
British Columbia (completed in 1994), Grande Prairie in Alberta (completed in
1995) and High Level in Alberta (completed in 2000). We also operate a
specialty overlaid plywood mill and associated veneer plant in British
Columbia. Our facilities represent total annual capacity of 1,470 mmsf of OSB
and 155 mmsf of specialty overlaid plywood. We have some of the most modern,
productive manufacturing facilities in North Americaour manufacturing assets
average less than six years of age and our specialty overlaid plywood assets
underwent a major modernization in 1998. We believe our modern facilities will
require only modest maintenance capital expenditures for the foreseeable
future. In fiscal 2003, we expect to incur capital expenditures of
approximately $10 million to maintain current operations.

In addition to the laws and regulations governing the management and
stewardship of the forests where we harvest timber, we are subject to numerous
environmental laws and regulations of general application, including those
relating to air emissions, effluent discharges and waste management.
Environmental laws and regulations may impose liability and responsibility on
present and former owners, operators or users of facilities and sites for
contamination at such facilities and sites without regard to causation or
knowledge of contamination. Compliance with environmental laws and regulations
can significantly increase the costs of our operations and otherwise result in
significant costs and expenses. Violations of environmental laws and
regulations can subject us to additional costs and expenses, including defense
costs and expenses and civil and criminal penalties. We have obtained, or are
applying for amendments to, the necessary environmental operating permits
required to conduct our business. We believe that all of our operations are in
substantial compliance with all operating permits.

Oriented Strand Board Facilities

High Level

Our wholly-owned subsidiary, Steen River, is a 50% co-owner of the OSB facility
at High Level, Alberta, which is designed to be the worlds largest OSB
facility with a design capacity of 860 mmsf per year. We and the other co-owner
have each invested approximately $145 million in the capital assets to
construct the facility. We believe the High Level OSB facility will be the
worlds lowest cost producer of commodity sheathing OSB once full production is
achieved. High Level utilizes the latest technology with a 12-foot wide forming
line and continuous press. High Level has access to low-cost timber supplies
through timber allocations granted by the government of Alberta and long-term
volume supply agreements that exceed its timber needs at full capacity. The
facility, which commenced operations in October 2000, is still in its initial
ramp-up stage and is currently operating at approximately 65% of its design
capacity. High Level contributed approximately 254 mmsf to our total OSB sales
volume for the year ended December 31, 2002, and we expect our share of
production will be 430 mmsf per year once the facility is operating at design
capacity.

Grande Prairie

We own and operate the worlds second-largest single-line OSB facility (after
the High Level OSB facility) in Grande Prairie, Alberta, which has an annual
production capacity of 615 mmsf. Grande Prairie uses a 12-foot wide forming
line and press that provides the flexibility to produce, on a cost-efficient
basis, a variety of panel dimensions and grades to suit both North American and
Japanese markets. Grande Prairies low-cost position is supported by an
abundant low-cost fiber supply, economies of scale and superior up-time and
on-grade performance. We are increasing our profitability at Grande Prairie by
continuing to maximize production levels thereby reducing per-unit production
costs.

100 Mile House

We own and operate our 100 Mile House, British Columbia facility, which has an
annual production capacity of 425 mmsf. The 100 Mile House facility was the
first OSB facility to use a nine-foot wide forming line and press that provides
significant efficiency advantages over the more traditional eight-foot wide
press and allows us to profitability serve the Japanese market where three-foot
wide OSB is the standard. Our proximity to the port of Vancouver provides a
significant competitive advantage on shipping costs and delivery time to the
growing Japanese market, where we are the market leader. The 100 Mile House
facility is our principal source of value-added OSB products for both our North
American and Japanese customers. For the year ended December 31, 2002, 49% of
production was value-added OSB products.

Specialty Overlaid Plywood Facility

We own and operate a specialty overlaid plywood mill in Savona, British
Columbia, and an associated veneer plant in Lillooet, British Columbia.
Specialty overlaid plywood is a high performance wood product used in concrete
forms, trailer decking and paint-grade signs and earns premium prices over
commodity plywood. We are one of only two full-time North American
manufacturers of specialty overlaid

18



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plywood and our
Pourform®brands of
concrete forming products are recognized for their superior performance
characteristics and longevity. Pourform®products are used in a diverse mix of
concrete forming applications, including residential and high-rise
construction, sports complexes and highway infrastructure projects.

19



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Veneer Facility

Our Lillooet veneer plant produces veneer principally for use in the Savona
mill. The Lillooet plant has the ability to supply all of our Savona veneer
needs; however, we also sell veneer to third parties depending on prevailing
market conditions.

Finger-Joined Lumber Facility

We own and operate a finger-joined lumber facility in Abbotsford, British
Columbia. This facility converts low-value, off-grade and shorter length lumber
purchased on the open market into finger-joined stud lumber products. This is
accomplished by removing defects in the purchased lumber and then machining and
gluing the remaining pieces together. The Companys finger-joined products
exhibit superior resistance to warp and twist over natural lumber products.
Finger-joined lumber is a proven product that is well accepted by the North
American building industry. Finger-joined lumber typically sells at premium
prices over natural lumber products. On December 20, 2002 the company
temporarily shut-down the mill due to market conditions.

ITEM 5.   Operating and Financial Review and Prospects



|A. |  | Operating results
|-- |  | -----------------

Certain statements in Managements Discussion and Analysis constitute
forward-looking statements that involve known business and economic risks,
uncertainties and other factors. These factors may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements and may affect the future results as set forth in
this discussion and analysis.

Overview

We are principally engaged in the production of oriented strand board (OSB)
and specialty overlaid plywood for sale to customers in the United States,
Canada, Asia and Europe. Operating results are affected by prevailing market
conditions, as well as our production volumes and costs of production. Sales
of our products are affected by residential and commercial construction and
repair and remodeling industries in North America, Asia and Europe. The markets
for our products are affected by general economic conditions, the condition of
the real estate market, monetary policy, tax policy, energy costs, weather
conditions, and natural disasters.

The majority of our capital is invested in three OSB facilities, which include
the two 100% owned facilities in 100 Mile House, British Columbia and Grande

Prairie, Alberta, and the High Level facility in which we have a 50%
proportionate interest. High Level is our newest OSB facility. It began
operation in November 2000 and its results were capitalized until March 31,
2001 when the start-up phase was deemed to be complete. Our large and modern
OSB plants with their diversified product lines position us well to compete
with other producers. We sell a significant portion of our production to the
industrial and export market. Our value-added OSB products, including our
export-standard OSB products, typically carry higher prices and generate
greater margins than our commodity sheathing OSB products and tend to be less
affected by fluctuations in the economy. As a result, prices and margins for
these products tend to be higher and more stable through the economic cycle.

The Lillooet veneer plant supplies the Savona specialty overlaid plywood mill
with veneer for making specialty overlaid plywood. Specialty overlaid plywood
is a high performance wood product used in concrete forms, trailer decking and
paint-grade signs and carries premium prices over commodity plywood. The
remaining veneer production is sold to third party plywood producers.

Our lumber facility produces finger-joined lumber. In February 2002, we ceased
our efforts to sell our finger-joined lumber operations located in Abbotsford,
British Columbia.

Our production costs consist primarily of wood fiber, resins, waxes, labour and
energy. Wood fiber from timber is the primary raw material used in our
operations and is the most significant cost of our manufacturing process. In
addition, we use significant amounts of resins and waxes in the OSB and
specialty overlaid plywood manufacturing processes. Our operations also use a
substantial amount of energy, particularly electricity. However, our costs are
reduced by energy generated internally by our wood-waste fired energy systems.

20



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The following table summarizes certain of our results of operations, after
restatement of amounts for 2000 and 2001, as disclosed in notes 13 and 22 to
our consolidated financial statements included elsewhere in this annual report:

|                                                                                              |                            |   |                         |       |      |   |       |       |  |   |       |       | 
|--------------------------------------------------------------------------------------------- | -------------------------- | - | ----------------------- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                                                              |                            |   | Year Ended December 31,
|                                                                                              |                            |   |                        
|                                                                                              |                            |   | 2000                    |       | 2001 |   | 2002 
|                                                                                              |                            |   |                         |       |      |   |      
|                                                                                              |                            |   | (dollars in millions)  
|SALES                                                                                         |                            | $ | 350.2                   |       |      | $ | 326.7 |       |  | $ | 356.1 |      
|COSTS AND EXPENSES                                                                            |                            |   |                         |       |      |   |       |       |  |   |       |      
|                                                                                              | Cost of products sold      |   |                         | 229.6 |      |   |       | 244.0 |  |   |       | 264.0 | 
|                                                                                              | Selling and administration |   |                         | 26.3  |      |   |       | 22.7  |  |   |       | 21.9  | 
|                                                                                              |                            |   |                         |       |      |   |       |       |  |   |       |      
|                                                                                              |                            |   | 255.9                   |       |      |   | 266.7 |       |  |   | 285.9 |      
|                                                                                              |                            |   |                         |       |      |   |       |       |  |   |       |      
|OPERATING EARNINGS BEFORE AMORTIZATION                                                        |                            |   | 94.3                    |       |      |   | 60.0  |       |  |   | 70.2  |      
|AMORTIZATION OF CAPITAL ASSETS                                                                |                            |   | 27.4                    |       |      |   | 30.4  |       |  |   | 32.0  |      
|                                                                                              |                            |   |                         |       |      |   |       |       |  |   |       |      
|OPERATING EARNINGS                                                                            |                            |   | 66.8                    |       |      |   | 29.6  |       |  |   | 38.2  |      
|                                                                                              |                            |   |                         |       |      |   |       |       |  |   |       |      
|FINANCE EXPENSE                                                                               |                            |   | 37.7                    |       |      |   | 60.0  |       |  |   | 62.5  |      
|OTHER INCOME (EXPENSE)                                                                        |                            |   | 3.3                     |       |      |   | (0.5  | )     |  |   | 1.9   |      
|                                                                                              |                            |   |                         |       |      |   |       |       |  |   |       |      
|INCOME (LOSS) BEFORE INCOME TAXES AND UNREALIZED
FOREIGN EXCHANGE GAIN (LOSS); LONG TERM DEBT |                            |   | 32.4                    |       |      |   | (31.0 | )     |  |   | (22.4 | )    
|UNREALIZED FOREIGN EXCHANGE GAIN (LOSS); LONG TERM DEBT                                       |                            |   | (10.2                   | )     |      |   | (17.4 | )     |  |   | 4.3   |      
|                                                                                              |                            |   |                         |       |      |   |       |       |  |   |       |      
|INCOME (LOSS) BEFORE INCOME TAXES                                                             |                            |   | 22.2                    |       |      |   | (48.4 | )     |  |   | (18.1 | )    
|INCOME TAX RECOVERY (EXPENSE)                                                                 |                            |   | 12.5                    |       |      |   | (18.7 | )     |  |   | (0.3  | )    
|                                                                                              |                            |   |                         |       |      |   |       |       |  |   |       |      
|INCOME (LOSS) FROM CONTINUING OPERATIONS                                                      |                            |   | 9.7                     |       |      |   | (29.7 | )     |  |   | (17.9 | )    
|(LOSS) GAIN FROM DISCONTINUED OPERATIONS                                                      |                            |   | (14.4                   | )     |      |   | 4.2   |       |  |   |      |      
|                                                                                              |                            |   |                         |       |      |   |       |       |  |   |       |      
|NET LOSS                                                                                      |                            | $ | (4.6                    | )     |      | $ | (25.4 | )     |  | $ | (17.9 | )    
|                                                                                              |                            |   |                         |       |      |   |       |       |  |   |       |      

We export the majority of our products. Significant portions of such export
sales are denominated in U.S. dollars. As a result, a change in the exchange
rate for the Canadian dollar against the U.S. dollar affects the Canadian
dollar amounts realized. Our geographic distribution of sales was as follows:

|             |                      |  |                         |      |      |  |       |      |   |  |       |      |  
|------------ | -------------------- |  | ----------------------- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|             |                      |  | Year Ended December 31,
|             |                      |  |                        
|             |                      |  | 2000                    |      | 2001 |  | 2002 
|             |                      |  |                         |      |      |  |      
|All Products |                      |  |                         |      |      |  |       |      |   |  |       |     
|             | United States        |  |                         | 67.9 | %    |  |       | 69.6 | % |  |       | 69.4 | %
|             | Canada               |  |                         | 16.8 | %    |  |       | 15.1 | % |  |       | 19.4 | %
|             | Japan and other Asia |  |                         | 12.5 | %    |  |       | 11.8 | % |  |       | 9.3  | %
|             | Europe               |  |                         | 2.8  | %    |  |       | 3.5  | % |  |       | 1.9  | %
|             |                      |  |                         |      |      |  |       |      |   |  |       |     
|             |                      |  | 100.0                   | %    |      |  | 100.0 | %    |   |  | 100.0 | %   

21



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Our Results of Operations

Fiscal Year ended December 31, 2002 Compared to Fiscal Year ended December 31, 2001

Financial Highlights

The net loss for the year ended December 31, 2002 was $17.9 million compared to
$25.4 million in 2001. The decrease in the net loss was attributable to several
factors, including an $8.6 million (29.2%) increase in operating earnings, a
significant reduction in the unrealized foreign exchange loss on US$
denominated debt (from $17.4 million in 2001 to a gain of $4.3 million in
2002). The company recorded an income tax recovery of $0.3 million compared to
$18.7 million in 2001, reflecting underlying business results and the impact of
non-deductible amounts.

Sales for 2002 were $356.1 million compared to $326.7 million in 2001,
representing an increase of $29.4 million or 9.0%.

Sales of OSB represented approximately 75% of our total sales in 2002 and 2001.
OSB sales for 2002 were $262.1 million compared to $242.2 million in 2001. OSB
sales increased by $19.9 million or 8.2% primarily as a result of a 10.1%
increase in shipment volumes. The increase in shipment volumes was partially
offset by a decline in average OSB prices of 1.7%. The High Level OSB facility
generated a significant portion of the increase in total OSB shipment volume as
its results were capitalized until March 31, 2001. Shipment volumes from High
Level increased by 56.8% compared to 2001.

Specialty plywood sales were consistent with those experienced in 2001, while
veneer and lumber sales increased. Veneer sales increased by 45.9% to $12.7
million as shipment volumes increased by 36.8%. A 35.9% increase in lumber
shipment volumes resulted in lumber sales increasing by $4.1 million to $17.9
million.

Cost of products sold was $264.0 million in 2002 compared to $244.0 million in
2001, representing an increase of 8.2%. The increase in cost of products sold
was consistent with the increase in sales and shipment volumes of OSB,
specialty plywood, veneer and lumber.

OSB cost of products sold was $184.1 million compared to $171.0 million in
2001, representing an increase of $13.1 million or 7.7%. The increase in OSB
cost of products sold in 2002 was attributable to a 10.1% increase in shipment
volume and a 2.1% decrease in per unit production costs.

Selling and administration expense in 2002 was $21.9 million compared to $22.7
million in 2001 despite the company incurring $2.4 million in costs related to
the restructuring of its senior management team and the termination of its
aircraft lease.

Amortization of capital assets increased by $1.6 million in 2002 to $32.0
million. Amortization expense increased primarily due to the High Level
facility results being included for the entire year. Increased production at
each of the companys OSB facilities also had an impact on amortization as OSB
facilities are amortized using the units of production method.

Despite a 1.7% decline in average OSB prices in 2002 compared to 2001,
operating earnings increased by $8.6 million or 29.2% to $38.2 million. This
significant improvement in operating earnings was attributable to increased OSB
production and shipment volumes and a resulting reduction in per unit OSB
production costs.

In 2002, finance expense was $62.5 million compared to $60.0 million in 2001.
Finance expense increased by $2.5 million as a result of the increase in total
borrowings upon issuance of the US$95 million 13.875% Senior Secured Notes on
December 20, 2001.

We recorded a $4.3 million unrealized foreign exchange gain on our US$
denominated long-term debt for the year compared to an unrealized loss of $17.4
million in 2001. The gain in 2002 reflects the strengthening of the Canadian
dollar vis-a-vis the US dollar.

We recorded an income tax recovery of $0.3 million compared to $18.7 million in
2001 reflecting underlying business results and the impact of non-deductible
amounts.

Operating Highlights

During the year we increased production at all of our panel mills. In 2002, we
produced 1,299 mmsf of OSB compared to 1,179 mmsf in 2001, representing an
increase of 10.2%. Production volume at the High Level facility increased by
41.8% year over year. The substantial increase at High Level relates primarily
to the fact that the facility was in the start-up phase until March 31, 2001.
Despite taking an extended shut-down in the fourth quarter of 2002 to complete
a series of three high return capital projects, the Grande Prairie OSB facility

22



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increased its production volume by 1.6% compared to 2001. OSB production at the
companys 100 Mile House facility increased by 2.7% during the year. The
substantial improvement in OSB production volume contributed to a 2.1%
reduction in the
companys average per unit production cost.

Specialty plywood production volume increased by 14.0% during the year from 86
mmsf to 98 mmsf while veneer production increased by 20.1% as a result of
improved market conditions. Lumber production increased by 28.7% compared to
2001 primarily as a result of our efforts to increase production volume and
thereby reduce per unit costs.

Results of Discontinued Operations

The gain from discontinued operations was nil in 2002 compared to a gain of
$4.2 million in 2001. Following our decision in February 2002 to cease efforts
to sell our Abbotsford lumber facility, this operation is now included in
continuing operations. The gain from discontinued operations for the year ended
December 31, 2001 has been restated to exclude Abbotsford, and therefore,
reflects the results of the Chasm lumber operation only.

Fiscal Year ended December 31, 2001 Compared to Fiscal Year ended December 31, 2000

Financial Highlights

The net loss for the year ended December 31, 2001 was $25.4 million compared to
$4.6 million in 2000. The increase in the net loss was attributable to several
factors including the significant decline in OSB prices (22.1%), the
significant increase in finance expense, and the increase in the unrealized
foreign exchange loss on US$ denominated debt (from $10.2 million in 2000 to
$17.4 million in 2001), partially offset by the gain from discontinued
operations of $4.2 million in 2001 compared to a loss of $14.4 million in 2000.

Sales for 2001 were $326.7 million compared to $350.2 million in 2000,
representing a decrease of $23.5 million or 6.7%.

OSB sales for 2001 were $242.1 million compared to $254.1 million in 2000,
representing a decrease of $12.0 million or 4.7%. This decrease was due to an
average price decline of 22.1% due to an increasing mix of commodity sheathing
OSB from the High Level OSB facility as well as market oversupply arising from
the combined effect of OSB production capacity additions and the slowing demand
for building products. The events of September 11, 2001 negatively affected
structural panel consumption, causing further market imbalance and lower
prices. This decrease in prices was partially offset by a 21.8% increase in OSB
shipment volumes from 968 mmsf in 2000 to 1,179 mmsf in 2001. The increased
shipment volumes were attributable primarily to the ramp-up of production at
the High Level OSB facility. Incremental production increases at the 100 Mile
House and Grande Prairie facilities also contributed to the increase in
shipment volumes. At December 31, 2001, the High Level OSB facility was running
at approximately 60% of its design capacity.

Specialty overlaid plywood sales were $70.8 million in 2001 compared to $77.5
million in 2000, representing a decrease of $6.7 million or 8.6%. This
decrease was due to a 11.1% decrease in shipment volume of plywood from 99 mmsf
in 2000 to 88 mmsf in 2001. Sales of veneer to third parties declined slightly
compared to the prior year, down from 45 mmsf in 2000 to 43 mmsf in 2001. These
decreases were partially offset by an average price increase of 1.2%. The
decrease in shipment volumes is attributable to reduced demand for specialty
overlaid plywood as a result of the slowing North American economy.

Cost of products sold was $244.0 million in 2001 compared to $229.6 million in
2000, representing an increase of $14.4 million or 6.3%. The increase in costs
of products sold is consistent with the increase in OSB shipment volumes.

OSB cost of products sold was $171.5 million in 2001 compared to $145.2 million
in 2000, representing an increase of $26.3 million or 18.1%. This increase was
due to the continuing ramp-up of production at the High Level OSB facility,
which was partially offset by cost reductions at the 100 Mile House and Grande
Prairie facilities.

Specialty plywood cost of products sold was $59.8 million compared to $66.1
million in 2000, representing a decrease of $6.3 million or 9.5%. This decrease
was attributable to a 11.1% decrease in sales volume of plywood, as well as a
3.2% decrease in sales volume of veneer to third parties.

Selling and administration expense in 2001 was $22.7 million compared to $26.3
million in 2000, representing a decrease of $3.6 million or 13.7%, primarily as
a result of cost-reduction initiatives.

Amortization of capital assets increased by $3.0 million or 10.9% to $30.4
million. This increase was primarily due to additional amortization expense
associated with the High Level OSB facility and, to a lesser degree, the
increased production at the 100 Mile House

23



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##### 



and Grande Prairie facilities. OSB
facilities are amortized on the units of production method based on the
estimated useful life of the assets at normal production levels over 15 years.

Finance expense in 2001 was $60.0 million (including $51.7 million of direct
interest expense) compared to $37.7 million (including $35.6 million of direct
interest expense) in 2000, representing an increase of $22.3 million or 59.2%.
This increase was primarily due to borrowings under our HSBC/B.C. Pacific
Capital Corporation credit facility relating to the High Level OSB facility
start-up, and amortization of note holder consent fees.

We recorded a $17.4 million unrealized foreign exchange loss on US$ denominated
debt in 2001 compared to a loss of $10.2 million in 2000. The increase in the
loss on US$ denominated debt reflects the strengthening of the US$ vis-a-vis
the Canadian dollar.

We recorded an income tax recovery of $18.7 million compared to an expense of
$12.5 million in 2000. The income tax recovery recorded in 2001 reflects
underlying business results and the impact of reduced tax rates in the
provinces of British Columbia and Alberta.

Our income from discontinued operations was $4.2 million in 2001 compared to a
loss of $14.4 million in fiscal 2000. The increase was primarily driven by net
disposition costs associated with the April 2001 completion of the sale of the
Clinton lumber operation being lower than was anticipated at the end of fiscal
2000, as well as improved profitability at the Clinton lumber operation. As at
December 31, 2000, we had formal plans for disposition of our Clinton lumber
operations and the sale was subsequently completed in April 2001.

Outlook

We anticipate that we will continue to benefit from increased production
capacity as the High Level OSB facility continues to ramp-up, and the Grande
Prairie OSB facility realizes the benefits from its recent capital
improvements. Despite the economic uncertainty that exists, we feel that the
strength of the housing market in North America and the continued expansion of
the market for OSB, allows us to remain optimistic about the outlook for OSB.
Our focus on productivity improvements, cost reduction and increasing the
volume of value-added wood products produced and shipped to our customers will
ensure that the company continues to improve its earnings performance.

Market Risk

Market risk is the risk of loss arising from adverse changes in market rates
and prices, such as interest rates and foreign currency exchange rates. Our
senior secured notes are not subject to interest rate fluctuations because the
interest rate is fixed for the term of the debt.

A significant portion of our products are sold in U.S. dollars. Most of our
costs, other than interest payable on our senior secured notes, which are
payable in U.S. dollars, will be payable in Canadian dollars and, therefore,
our financial results are subject to foreign currency exchange rate
fluctuations. A significant appreciation in the value of the Canadian dollar in
terms of the U.S. dollar, while other factors remain constant, will cause a
relative decline in our revenues and our cash flow will be diminished.

Given that the value of the Canadian dollar was US$0.6329 at December 31, 2002,
we estimate that had the value of the Canadian dollar increased by US$0.01 to
US$0.6429, the value of our US dollar denominated long-term debt as at December
31, 2002 would have decreased by approximately $7.0 million. We also estimate
that had the value of the Canadian dollar increased by US$0.01 the annual
interest payment amounts on the long-term debt as at December 31, 2002 would
have decreased by approximately $0.9 million.

We have not used derivative financial instruments to mitigate the influence of
market risk.

Application of Critical Accounting Policies

The Companys accounting policies are in accordance with Canadian GAAP as
applied on a consistent basis. However, in both selecting accounting policies
for which alternative methods exist under Canadian GAAP and applying accounting
policies, management exercises its best judgment. We believe that the policies
outlined below represent our critical accounting policies. These critical
accounting estimates are based on assumptions of management concerning highly
uncertain matters. If accounting estimates used by management turn out to be
incorrect, the impact on our financial condition and results of operations may
be material.

Valuation of Inventories and Assessment of Asset Impairment

Management closely monitors conditions that could impact the valuation of our
inventories or otherwise risk impairment of our assets. Inventories of logs,
lumber and panel products are valued at the lower of average cost and net
realizable value. Management bases its estimate of market value on sales
orders that exist at balance sheet reporting dates. Prices fluctuate over time
and it is probable that
market

24



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##### 



values at the time of eventual sale will differ from managements
estimates. Management believes that inventories were appropriately valued at
the lower of average cost and net realizable value as at December 31, 2002.

Loss Contingencies for Legal Proceedings and Product Warranty Claims

Management estimates relating to appropriate loss contingencies for legal
proceedings and product warranty claims are based on various judgements and
assumptions regarding the potential resolution or disposition of the underlying
claims and associated costs.

Impairment of Long-Lived Assets

On a quarterly basis, management reviews the long-lived assets held and used by
the Company (primarily property, plant, and equipment, construction in progress
and timber and logging roads) to determine whether any impairment has occurred.
Assessing the appropriate valuation of the affected assets requires management
to make judgments, assumptions and estimates. In general, write-downs for
impairment are recognized when the book values exceed our estimate of the
undiscounted future net cash flows associated with the affected assets. During
the fiscal year ended December 31, 2002, we recorded a $1.0 million provision
for impairment of certain capital assets to adjust their respective carrying
values to reflect their estimated net recoverable amount. In 1999 and 2000, we
invested $12.3 million related to a planned expansion of our Grande Prairie OSB
plant. The planned expansion involves the addition of a second manufacturing
line alongside the existing OSB plant to produce a further 400 mmsf of OSB and
specialty products, and the construction of a hardwood sawmill. During 2001 we
determined that this expansion should be put on hold. Due to uncertainty
surrounding incremental fiber supply and project financing, we cannot presently
determine the timing of the expansion. We remain committed to expanding the
Grande Prairie mill and we continue to record the existing investment in the
expansion at its original cost of $12.3 million. Management reviewed the
carrying value of our other capital assets, including construction in progress,
at December 31, 2002, and determined that our reported values are reasonable
based on the current circumstances.

Amortization of Property, Plant and Equipment

Amortization of property, plant and equipment is principally based on the units
of production method where the cost of equipment is amortized over the
estimated units that will be produced during the estimated useful life of the
equipment.

Treatment of Income Tax Assets and Liabilities

We record future income tax assets including the potential tax benefit of
operating loss carry forwards and future income tax liabilities. The amounts
that are recorded for these assets and liabilities are based upon various
judgments, assumptions and estimates, including judgments regarding the tax
rates that will be applicable to the future income tax amounts, the likelihood
that we will generate sufficient taxable income or gain to utilize future
income tax assets. Due to the numerous variables associated with judgments,
assumptions and estimates made by management relating to the valuation of our
future income tax assets and liabilities, and the effects of changes in
circumstances affecting these valuations, both the precision and reliability of
the resulting estimates are subject to uncertainties and, as additional
information becomes known, management may change its estimates.

Changes in Accounting Policies

During 2001, the Canadian Institute of Chartered Accountants (CICA) approved
amendment of CICA Handbook Section 3870, Stock-based Compensation. As a result,
effective January 1, 2002, we reported compensatory portions of our employee
participation share plan, a variable stock compensation program. The new policy
is consistent with reporting provided in the past for U.S. GAAP purposes.

As a result of the change, opening retained earnings, as at January 1, 2002
have been reduced by $346,000 and the net loss for the year ended December 31,
2002 has been increased by $29,000. Both impacts have been offset by
corresponding adjustments to contributed surplus, with no overall impact to
shareholders equity.

U.S. GAAP Reconciliation

Our consolidated financial statements have been prepared in accordance with
Canadian GAAP. To the extent applicable to our consolidated financial
statements, Canadian GAAP conforms in all material respects with U.S. GAAP,
except as described in note 21 to our consolidated financial statements
included elsewhere in this annual report.

25



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|B. |  | Liquidity and Capital Resources
|-- |  | -------------------------------

Cash provided by operations, after changes in non-cash working capital, was
$7.4 million in 2002 compared to cash used by operations of $27.8 million in
2001. The substantial variation in cash provided by operations from 2001 to
2002 can be explained by the increase in operating earnings year over year and
the substantial increase in working capital during 2001. Non-cash working
capital increased by $7.5 million in 2002 compared to an increase of $36.7
million in 2001. The increase in non-cash working capital in 2002 relates
primarily to an increase in log inventories ($3.0 million) and recognition of
higher spare parts inventory levels at two of our facilities ($2.1 million).
The substantial increase in non-cash working capital in 2001 was attributable
to a reduction in accounts payable as the company paid accounts payable related
to the construction of the High Level OSB facility.

Net cash used for investing activities was $14.2 million in 2002 compared to
net cash provided by investing activities of $8.4 million in 2001. Capital
expenditures decreased by $6.0 million compared to 2001, from $20.1 million to
$14.1 million. The majority of our capital expenditures in 2002 were focused
on the Grande Prairie and High Level OSB facilities. Capital expenditures in
2001 were offset by the disposition of the Chasm lumber operation and
associated timber rights for net proceeds of $29.2 million. The majority of the
capital expenditures in 2001 related to the completion of the High Level
facility. In December 2002, we completed a series of three high return capital
projects at our Grande Prairie Facility. At a total cost of $9.2 million, these
projects are anticipated to increase the mills production capacity by up to
12% and lower production costs substantially. In fiscal 2003, we expect to
incur capital expenditures of approximately $10 million to maintain our current
operations.

Cash flows from financing activities totalled $101.5 million in 2001 compared
to $39,000 in 2002. In December 2001, we issued US$95 million of 13.875% Senior
Secured Notes due July 15, 2007. Net proceeds of the offering were used to
repay our credit facilities and to fund our future liquidity needs.

Our annual debt servicing obligation is approximately US$36.5 million. In
addition, the High Level qualified account must be topped up to $10.0 million
every thirty days. At December 31, 2002 we had $80.2 million in cash available
compared to $87.0 million at December 31, 2001. Under the indentures governing
our senior secured notes, we have virtually no ability to incur additional
debt. As a result, our operations are funded solely by cash flow generated from
operations and our available cash balance. Our cash flow is subject to general
economic, industry, and legislative conditions that are beyond our control.

The following table summarizes the timing of payments for which we have
contractual obligations:

|                               |  |       |           |        |  |                                |                       |           |  |         |          |  |  |   |           |       |  |  |    |  
|------------------------------ |  | ----- | --------- | ------ |  | ------------------------------ | --------------------- | --------- |  | ------- | -------- |  |  | - | --------- | ----- |  |  | -- | -
|                               |  |       |           |        |  |                                | Payment due by Period
|                               |  |       |           |        |  |                               
|                               |  |       |           |        |  | Less than                      |                       |           |  |         |          |  |  |   |           | After
|Contractual Obligation         |  | Total |           | 1 year |  | 2-3 years                      |                       | 4-5 years |  | 5 years
|                               |  |       |           |        |  |                                |                       |           |  |        
|                               |  |       |           |        |  | (in thousands of U.S. dollars) |                       |           |  |        
|Senior Secured Notes(1)        |  | $     | 460,760.0 |        |  | $                              | 36,512.0              |           |  | $       | 73,023.0 |  |  | $ | 351,225.0 |       |  |  |   |  
|Capital Lease Obligations(2)   |  |       | 61.5      |        |  |                                | 42.3                  |           |  |         | 19.2     |  |  |   |          |       |  |  |   |  
|Operating Lease Obligations(2) |  |       | 2,833.7   |        |  |                                | 1,194.7               |           |  |         | 1,235.3  |  |  |   | 403.7     |       |  |  | (3 | )



---

|(1) |  | Under the indentures governing our Senior Secured Notes, we are required
to make interest payments in the amount of US$14.96 million each January
15 and July 15 and in the amount of US$3.3 million each April 15 and
October 15. All of our senior secured notes, in the aggregate principal
amount of US$281.5 million, mature on July 15, 2007.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The following are U.S. equivalents using an exchange rate of
US$0.6329=$1.00, the inverse of the noon buying rate on December 31, 2002.                                                                                                                                                                                                            
|   
|(3) |  | We do not calculate operating lease obligations beyond five years in our
financial statements.                                                                                                                                                                                                                                                     

Although we believe our working capital is sufficient to meet our present
requirements, our business may not generate adequate cash flow to fund our
liquidity requirements. If our available cash and operating cash flow is
insufficient to meet our operational requirements and debt service obligations
we would have to consider several alternatives available to us, including
raising additional equity, asset dispositions or seeking consent to incur
additional indebtedness. These options may not be available to us on
satisfactory terms or at all.



|C. |  | Research and Development, Patents and Licenses
|-- |  | ----------------------------------------------

We actively work with our customers to develop engineered wood products that
suit their individual needs. The modern, versatile manufacturing equipment in
place at our 100 Mile House and Grande Prairie facilities and Savona mill
enables us to develop and manufacture value-added OSB and specialty overlaid
plywood products. By actively working with the market, we endeavour to
continually develop engineered wood products, which service its needs. This
focus and our modern, versatile facilities enable Ainsworth

26



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##### 



to develop and
manufacture value-added OSB and specialty overlaid plywood products. Our
research and development efforts have
resulted in several promising new products that are undergoing field-testing,
and we intend to release several new products and brands in the future. In
fiscal 2000, 2001, and 2002, we spent an aggregate of $0.7 million on research
and development.



|D. |  | Trend Information
|-- |  | -----------------

See information provided above in Item 5.A hereof.

ITEM 6.   Directors, Senior Management and Employees



|A. |  | Directors and Senior Management
|-- |  | -------------------------------

The directors and executive officers of the Company are as indicated in the
following table. Each director holds office until the next annual general
meeting of shareholders of the Company or until his or her successor is elected
or appointed, or unless his or her office is earlier vacated under any of the
relevant provisions of the articles of the Company or the Company Act (British
Columbia). Executive Officers are appointed to serve at the pleasure of the
Board of Directors.

|                          |  |     |    |       |  |                                                                                                               
|------------------------- |  | --- | -- | ----- |  | --------------------------------------------------------------------------------------------------------------
|Name                      |  | Age |    | Title
|                          |  |     |    |      
|Brian E. Ainsworth        |  |     | 60 |       |  | Chairman, Chief Executive Officer and Director since May 1993                                                 
|D. Allen Ainsworth        |  |     | 61 |       |  | President and Director since May 1993                                                                         
|Catherine E. Ainsworth(1) |  |     | 44 |       |  | Chief Operating Officer, Secretary since November 2001 and Director since May 1993                            
|James Logan               |  |     | 45 |       |  | Senior Vice-President and Chief Financial Officer since December 2001                                         
|David Ainsworth           |  |     | 82 |       |  | Director since May 1993 and co-founder of Ainsworth                                                           
|Susan Ainsworth           |  |     | 81 |       |  | Director since May 1993 and co-founder of Ainsworth                                                           
|D. Michael Ainsworth      |  |     | 40 |       |  | Executive Vice-President, since May 2002                                                                      
|Kevin Ainsworth           |  |     | 37 |       |  | Senior Vice-President, B.C. Timberlands and Solid Wood Group                                                  
|Douglas Ainsworth         |  |     | 38 |       |  | Senior Vice-President, Marketing                                                                              
|K. Gordon Green(1)(2)     |  |     | 68 |       |  | Director since May 1993. Until October 1993 he was a Vice President and Director, RBC Dominion Securities Inc.
|Morley Koffman(2)         |  |     | 73 |       |  | Director since May 1993. He is a lawyer with the law firm Koffman Kalef                                       
|W. Gordon Lancaster(1)(2) |  |     | 59 |       |  | Director since May 1993. He is Chief Financial Officer of Power Measurement Ltd.                              
|Ron B. Anderson           |  |     | 50 |       |  | Director since May 12, 2003. He is President of North Point Capital Corp.                                     



---

|(1) |  | Member of the Audit Committee and the Compensation Committee.
|--- |  | -------------------------------------------------------------
|   
|(2) |  | Member of the Corporate Governance Committee.                

Brian E. Ainsworthhas served as Chairman of our Board of Directors and Chief
Executive Officer since May 1993. Mr. Ainsworth previously managed the
woodlands operations of Ainsworth Lumber Company, Ainsworths predecessor
corporation, for more than 30 years.

D. Allen Ainsworthhas served as our President since May 1993. He has also been
a Director since May 1993. Mr. Ainsworth served as our Chief Operating Officer
until November 2001. Mr. Ainsworth previously managed the manufacturing and
sales operations of Ainsworth Lumber Company for more than 30 years.

Catherine E. Ainsworthhas served as our Chief Operating Officer since November
2001, and has served as a Director and our Secretary since May 1993.
Previously, Ms. Ainsworth served as our Chief Financial Officer from May 1993
to November 2001.

James Loganhas served as our Senior Vice-President and Chief Financial Officer
since December 2001. From February 2000 to November 2001, Mr. Logan served as
Managing Director of The Jim Pattison Group, a privately held Canadian business
conglomerate. Mr. Logan also served as Senior Vice-President and Chief
Financial Officer of TimberWest Forest Corp., a company operating in the forest
products industry from December 1997 to February 2000. Mr. Logan has a Master
of Business Administration degree, which he earned at the University of Western
Ontario, and a diploma in Technology, which he earned at the British Columbia
Institute of Technology. Mr. Logan is a Certified Management Accountant.

27



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##### 



David Ainsworthco-founded Ainsworth Lumber Company in 1950. He has been a
Director since May 1993. Previously, Mr. Ainsworth served as our President.

Susan Ainsworthco-founded Ainsworth Lumber Company in 1950. She has been a
Director since May 1993.

D. Michael Ainsworthhas served as our Executive Vice-President since May 2002.
Previously, he served as Vice-President, Marketing and Business Development
since November 1996. Mr. Ainsworth holds a Master of Science degree in forest
products marketing and a Bachelor of Science degree in forestry, both of which
he earned at the University of British Columbia.

Kevin Ainsworthhas served as Senior Vice-President, B.C. Timberlands and
Specialty Plywood since November 2002. He has held a number of investor
relations and woodlands management positions with Ainsworth since 1992. Mr.
Ainsworth holds a Master of Business Administration degree and a Bachelor of
Science degree in forestry, both of which he earned at the University of
British Columbia.

Douglas I. Ainsworthhas served as Senior Vice-President, Marketing since
November 2002. Previously, he served as the General Manager, Business
Development where he managed the construction and operational start-up of the
Grande Prairie OSB facility. Mr. Ainsworth has held a number of management
positions with Ainsworth since 1989.

K. Gordon Greenhas been a director since May 1993. Mr. Green is a corporate
director and an independent financial consultant. Until October 1993 he was a
Vice-President and Director of RBC Dominion Securities Inc., a Canadian
financial services company. Mr. Green has a Master of Business Administration
degree, which he earned at Harvard University, and a Bachelor of Science degree
in forestry, which he earned at the University of British Columbia.

Morley Koffmanhas been a director since May 1993. Mr. Koffman is a lawyer with
the Vancouver law firm Koffman Kalef. He has been appointed Queens Counsel.
Mr. Koffman holds a Bachelor of Laws degree and a Bachelor of Arts degree, both
of which he earned at the University of British Columbia.

W. Gordon Lancasterhas been a director since May 1993. Currently he serves as
Chief Financial Officer of Power Measurement Ltd., a British Columbia based
provider of enterprise energy management systems for energy suppliers and
customers. Previously, Mr. Lancaster was a partner at Deloitte & Touche LLP. He
is a chartered accountant.

Ron B. Andersonhas been a director since May 12, 2003. Currently he serves as
President of North Point Capital Corp., a private merchant bank. Previously,
Mr. Anderson served as Senior Vice-President Corporate Development of Parkside
Developments LP, an affiliated company involved in real estate development. He
has a Bachelor of Commerce degree which he earned at the University of British
Columbia, and is a Certified General Accountant.

Brian E. Ainsworth, D. Allen Ainsworth and Catherine E. Ainsworth are the
children of David Ainsworth and Susan Ainsworth. D. Michael Ainsworth and
Douglas Ainsworth are the children of D. Allen Ainsworth and Kevin Ainsworth
is the son of Brian E. Ainsworth.

28



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##### 





|B. |  | Compensation
|-- |  | ------------

The following table provides a summary of compensation for the fiscal year
ended December 31, 2002 paid by us to our Chief Executive Officer and each of
our four other most highly compensated executive officers who were serving as
executive officers as at December 31, 2002, who we refer to in this annual
report as our Named Executive Officers.

Summary Compensation Table

|                            |                          |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  |                     |  |                     |  |   |  |  |  |   |  |  |  |   |  | 
|--------------------------- | ------------------------ | ---- | ---- | --- |  | --- | ------------------- | --- | ---------------------- | --- | --------------- | --- | ------- | --- | ------------ | ------------ | ------------- |  | ------------------- |  | ------------------- |  | - |  |  |  | - |  |  |  | - |  | 
|                            |                          |      |      |     |  |     | Annual Compensation |     | Long-term Compensation
|                            |                          |      |      |     |  |     |                     |     |                       
|                            |                          |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  | Awards              |  | Payouts            
|                            |                          |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  |                     |  |                    
|                            |                          |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  | Securities Under    |  | Restricted Shares   |  |   |  |  |  |   |  | 
|                            |                          |      |      |     |  |     |                     |     |                        |     |                 |     |         |     | Other Annual |              | Options/ SARs |  | or Restricted Share |  | Long-term Incentive |  |   |  | 
|                            |                          |      |      |     |  |     | Salary              |     | Bonus                  |     | Compensation(1) |     | Granted |     | Units        |              | Plan Payouts  |  | All Other          
|Name and Principal Position |                          | Year |      | ($) |  | ($) |                     | ($) |                        | (#) |                 | ($) |         | ($) |              | Compensation
|                            |                          |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |             
|Brian E. Ainsworth          |                          |      | 2002 |     |  |     |                    |     |                        |     |                |     |         |     | 798,000      | (2)          |               |  |                    |  |                     |  |  |  |  |  |  |  |  |  |  | 
|                            | Chairman and Chief       |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  |                     |  |                     |  |   |  |  |  |   |  |  |  |   |  | 
|                            | Executive Officer        |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  |                     |  |                     |  |   |  |  |  |   |  |  |  |   |  | 
|                           
|D. Allen Ainsworth          |                          |      | 2002 |     |  |     | 412,500             |     |                        |     | 385,500         |     |         |     |             |              |               |  |                    |  |                     |  |  |  |  |  |  |  |  |  |  | 
|                            | President                |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  |                     |  |                     |  |   |  |  |  |   |  |  |  |   |  | 
|                           
|Catherine E. Ainsworth      |                          |      | 2002 |     |  |     | 362,500             |     |                        |     | 435,500         |     |         |     |             |              |               |  |                    |  |                     |  |  |  |  |  |  |  |  |  |  | 
|                            | Chief Operating Officer  |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  |                     |  |                     |  |   |  |  |  |   |  |  |  |   |  | 
|                            | and Secretary            |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  |                     |  |                     |  |   |  |  |  |   |  |  |  |   |  | 
|                           
|D. Michael Ainsworth        |                          |      | 2002 |     |  |     | 181,250             |     |                        |     | 300,000         |     |         |     |             |              |               |  |                    |  |                     |  |  |  |  |  |  |  |  |  |  | 
|                            | Executive Vice-President |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  |                     |  |                     |  |   |  |  |  |   |  |  |  |   |  | 
|                           
|Douglas I. Ainsworth        |                          |      | 2002 |     |  |     | 150,000             |     |                        |     | 150,000         |     |         |     |             |              |               |  |                    |  |                     |  |  |  |  |  |  |  |  |  |  | 
|                            | Senior Vice-President,   |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  |                     |  |                     |  |   |  |  |  |   |  |  |  |   |  | 
|                            | Marketing                |      |      |     |  |     |                     |     |                        |     |                 |     |         |     |              |              |               |  |                     |  |                     |  |   |  |  |  |   |  |  |  |   |  | 



---

|(1) |  | The aggregate amount of all perquisites or other personal benefits given
to each of the Named Executive Officers named in the table the listed
financial year did not exceed 10% of his or her total base salary or
compensation and bonus for the year.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents management fees in the amount of $468,750 plus a bonus of
$329,250. See Employment Agreement.                                                                                                                                             

The aggregate compensation paid to our executive officers and related directors
who are not listed above (4 persons), based on 2002 salaries and bonuses,
totaled $707,500.

Compensation of Directors

During the year ended December 31, 2002, our non-employee, non-related
directors were paid a retainer fee of $10,000 per year and a meeting attendance
fee of $1,000 per directors meeting attended. In connection with participation
on committees of our board of directors, non-employee directors were paid a
meeting attendance fee of $1,000 per committee meeting attended and
non-employee directors acting as chair of Board committees were also paid
$2,000 per annum for each such committee chaired. A total of $71,000 was paid
to the non-employee directors as a group for this period in respect of all such
fees. The non-employee directors are reimbursed for transportation and other
out-of-pocket expenses incurred for attendance at meetings Board and committee
meetings.

Pension Benefits

Retirement benefits for the executive officers of the Company are provided
under the Companys pension plan (the Pension Plan) for all salaried
employees. The Pension Plan benefits are based on career average earnings,
accrued at 1.5% of yearly maximum pensionable earnings (YMPE), plus 2% of
gross earnings over YMPE. Benefits for all service accrued to December 31, 1994
are based on this same formula, but using average compensation over the
previous five-year period and the YMPE over the previous three-year period.

29



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##### 



Compensation covered by the plan is the gross earnings as disclosed in the
Summary Compensation Table. The benefits are computed on a guaranteed five-year
life annuity, with no deduction for any other pension benefits received or
other offset amount.

No pension benefits were paid by the Company in the financial year ended
December 31, 2002 to the Named Executive Officers. The actual credited years of
service and estimated annual benefits payable upon retirement at normal
retirement age (65 years) for the Named Executive Officers are as follows:

|                       |  |                           |    |                          |  |   |        | 
|---------------------- |  | ------------------------- | -- | ------------------------ |  | - | ------ | 
|                       |  | Credited Years of Service |    | Estimated Annual Benefit
|                       |  |                           |    |                         
|Brian E. Ainsworth     |  |                           | 43 |                          |  | $ | 82,800 | 
|D. Allen Ainsworth     |  |                           | 43 |                          |  | $ | 80,100 | 
|Catherine E. Ainsworth |  |                           | 23 |                          |  | $ | 74,500 | 
|D. Michael Ainsworth   |  |                           | 14 |                          |  | $ | 67,900 | 
|Douglas I. Ainsworth   |  |                           | 14 |                          |  | $ | 70,300 | 



|C. |  | Board Practices
|-- |  | ---------------

See Item 6A for information on the term of office of the Companys directors
and executive officers and the period served in such offices.

Employment Agreements

We do not have any employment or management contracts or termination
arrangements with any of the officers identified above in Item 6.A, other
members of our administrative, supervisory or management bodies, or our
directors, except as described below.

On April 25, 1999, we entered into a management and consulting agreement with
2468 Holdings Ltd., a company controlled by Brian Ainsworth, our Chairman and
Chief Executive Officer. The management and administrative services under the
agreement are to be performed by Brian Ainsworth or such other individual as we
and 2468 Holdings determine from time to time. In consideration for the
services, we must pay 2468 Holdings an annual fee, currently $468,750, plus
such annual bonus as may be determined by the compensation committee of our
board of directors. The agreement is for an indefinite term, subject to the
right of either party to terminate it in accordance with its provisions. 2468
Holdings may terminate the agreement on 30 days written notice to us. We may
terminate the agreement at any time for cause. We may also terminate the
agreement at any time without cause by payment of a cancellation payment equal
to two times the annual fee for the year in which the termination occurs plus
two times the last bonus payable prior to the termination. In any event, the
agreement is to terminate upon the death of Brian Ainsworth, unless 2468
Holdings is able to provide a replacement representative acceptable to us.

On December 1, 2001 we entered into a executive employment agreement with James
Logan to serve as a Senior Vice-President and our Chief Financial Officer.
Under the terms of the agreement Mr. Logans annual base salary is $225,000,
plus such annual bonus as may be determined by the compensation committee of
the board of directors.

Committees of the Board of Directors

Our board of directors has an audit committee, compensation committee and a
corporate governance committee.

Audit Committee

The members of the audit committee are Catherine Ainsworth, Gordon Green and
Gordon Lancaster. The Audit Committee is responsible for reviewing our
financial reporting obligations, approving our external audit plan and meeting
with our external auditors to review performances. This committee reviews
applicable accounting procedures and appropriate internal controls. The audit
committee meets with the Companys external auditors at least once each fiscal
quarter, and reviews interim results and the annual financial statements prior
to their approval by the Board of Directors. It also meets with the external
auditors independently of management and is ultimately responsible for
retaining and remunerating the external auditors.

30



---



##### 



Compensation Committee

The members of the compensation committee are Catherine Ainsworth, Gordon Green
and Gordon Lancaster. The compensation committee meets and makes
recommendations to the Board of Directors relating to the compensation for
executive officers and for directors.

Corporate Governance Committee

The members of the corporate governance committee are Morley Koffman, Gordon
Green and Gordon Lancaster. None of its members are Company employees and a
majority are unrelated directors. The corporate governance committee is
responsible for making representations to the Board of Directors with respect
to developments in the area of corporate governance and the practices of the
Board of Directors. It is the responsibility of the Corporate Governance
Committee to review, interview and recommend new potential Board members as
well as review, interview and recommend new potential Board members as well as
reviewing on an annual basis the credentials of all nominees for re-election to
the Board. This Committee assesses the effectiveness of the Board as a whole,
the committees of the Board and the contributions of individual directors.



|D. |  | Employees
|-- |  | ---------

We currently employ approximately 900 people. Approximately 530 of our hourly
employees in British Columbia are covered under a collective bargaining
agreement with the Industrial Wood and Allied Workers of Canada. This agreement
expires on June 30, 2003. Our 145 salaried employees in British Columbia
include sales, woodlands, manufacturing, supervisory and administrative
personnel. We employ approximately 205 people in our Alberta operations. In
addition, Footner employs approximately 190 people at the jointly-owned High
Level OSB facility. We also engage independent contractors in British Columbia
and Alberta, who provide logging, trucking and road building services on a
year-round basis.



|E. |  | Share Ownership
|-- |  | ---------------

Share Capital Structure

We have an authorized capital consisting of 201,500,000 shares divided as
follows:



| |  |  | 100,000,000 common shares without par value;                                                                                                                                                                                                         
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 1,500,000 Class B Common Shares without par value, of which 350,000 are
designated as Series 1 Class B Common Shares, 180,000 are designated
Series 2 Class B Common Shares and 187,500 are designated Series 3
Class B Common Shares; and           
|
| |  |  | 100,000,000 preferred shares without par value, of which 300,000 are
designated as Series 1 Preferred Shares (all issued but subsequently
redeemed) and 4,000,000 are designated as Series 2 Preferred Shares
(all issued but subsequently redeemed).

Only the common shares carry voting rights, with each common share carrying the
right to one vote. As of May 5, 2003, 14,563,548 common shares were issued and
outstanding.

31



---



##### 



The following table sets out information as at May 5, 2003 on ownership of our
common shares by our Named Executive Officers, directors and any person who
beneficially owns 5% or more of either class. At December 31, 2002 there were
50,000 outstanding stock options.

|                                                                                        |                                                    |                     |                            |            |  |  |       |   | 
|--------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------- | -------------------------- | ---------- |  |  | ----- | - | 
|                                                                                        |                                                    |                     | Common Shares beneficially |            |  |  |      
|Name and positions                                                                      |                                                    | owned or controlled |                            | % of Class
|                                                                                        |                                                    |                     |                            |           
|Brian E. Ainsworth                                                                      |                                                    |                     | 2,507,186                  | (1)        |  |  | 17.24 | %
|                                                                                        | Chairman, Chief Executive Officer and Director     |                     |                            |            |  |  |       |   | 
|D. Allen Ainsworth                                                                      |                                                    |                     | 2,757,186                  | (2)        |  |  | 18.95 | %
|                                                                                        | President and Director                             |                     |                            |            |  |  |       |   | 
|Catherine E. Ainsworth                                                                  |                                                    |                     | 53,200                     | (3)        |  |  | 0.37  | %
|                                                                                        | Chief Operating Officer,                           |                     |                            |            |  |  |       |   | 
|                                                                                        | Secretary and Director                             |                     |                            |            |  |  |       |   | 
|D. Michael Ainsworth                                                                    |                                                    |                     | 1,177                      |            |  |  | 0.01  | %
|                                                                                        | Vice President, Marketing and Business Development |                     |                            |            |  |  |       |   | 
|Douglas I. Ainsworth                                                                    |                                                    |                     | 150                        |            |  |  | 0.01  | %
|                                                                                        | Senior Vice President, Marketing                   |                     |                            |            |  |  |       |   | 
|David Ainsworth                                                                         |                                                    |                     | 3,128,188                  | (4)        |  |  | 21.51 | %
|                                                                                        | Director                                           |                     |                            |            |  |  |       |   | 
|Susan Ainsworth                                                                         |                                                    |                     |                           |            |  |  |      |  
|                                                                                        | Director                                           |                     |                            |            |  |  |       |   | 
|K. Gordon Green                                                                         |                                                    |                     | 2,252                      |            |  |  | 0.02  | %
|                                                                                        | Director                                           |                     |                            |            |  |  |       |   | 
|Morley Koffman                                                                          |                                                    |                     | 6,252                      |            |  |  | 0.04  | %
|                                                                                        | Director                                           |                     |                            |            |  |  |       |   | 
|W. Gordon Lancaster                                                                     |                                                    |                     | 2,000                      |            |  |  | 0.01  | %
|                                                                                        | Director                                           |                     |                            |            |  |  |       |   | 
|Grant Forest Products Corp.(5)                                                          |                                                    |                     | 4,713,000                  |            |  |  | 32.4  | %
|All directors and executive officers as a group
(12 people) own 8,458,318 common shares |                                                    |                     |                            |            |  |  |       |  



---

|(1) |  | These shares are controlled through 2468 Holdings Ltd.                                                                                                                                                                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | These shares are controlled through 5678 Enterprises Ltd.                                                                                                                                                                                                                                                                         
|   
|(3) |  | Catherine Ainsworth owns 53,200 common shares and also owns 4% of the
outstanding voting shares of 1234 Holdings Ltd., which owns 3,108,188
common shares. The common shares owned by 1234 Holdings Ltd. are to be
voted by Catherine Ainsworth as that companys representative to
proceedings of the Companys shareholders.    
|   
|(4) |  | David Ainsworth owns 20,000 common shares. David Ainsworth owns 94% of
the outstanding voting shares of 1234 Holdings Ltd. which owns 3,108,188
common shares. The common shares owned by 1234 Holdings Ltd. are to be
voted by Catherine Ainsworth as that companys representative to
proceedings of the Companys shareholders.
|   
|(5) |  | Based upon a press release issued by Grant Forest Products Corp. on
December 11, 2001.                                                                                                                                                                                                                                            

Stock Options

We have separate stock option plans for employees and non-employee directors.
The plans provide that the board of directors may grant options to purchase
common shares on terms that the directors may determine, within the limitations
of the plans and subject to the rules of applicable regulatory authorities. The
aggregate number of common shares reserved for issuance under each plan is
fixed at 500,000 common shares for the employees plan and 75,000 common shares
for the directors plan. The exercise price for an option granted under the
plans will be determined by the board of directors but may not be less than the
closing price of our common shares on the stock exchange on which our common
shares principally traded on the day immediately preceding the date of grant.
Options granted under the plans are not assignable, except by will or the laws
of descent and distribution. The options are exercisable as to 20% of the
optioned shares on the date of grant and as to a further 20% of the optioned
shares on each of the first, second, third and fourth anniversaries following
the date of grant. The term of each option is five years, subject to earlier
termination in the event the optionee ceases to be a director or employee by
reason of death or termination of directorship or employment. We do not provide
any financial assistance to optionees in order to facilitate the purchase of
common shares pursuant to the exercise of options granted under the plans. At
December 31, 2002 there were 50,000 outstanding stock options granted under the
plans.

32



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##### 



Employee Participation Share Plan

An aggregate of 1.5 million Class B Common Shares are authorized for issuance
of which 717,500 have been designated for our employee participation share
plan. It provides that the board of directors may permit designated directors
and senior employees to acquire Class B Common Shares on the terms set forth in
the plan. The Class B Common Shares may be issued in series under the plan and
1.5 million common shares have been reserved for issuance to provide for the
conversion of the Class B Common Shares into common shares.

The plan provides that each series of Class B Common Shares will be exchanged
automatically on a date fixed by the board of directors for that number of
common shares that has value on the date of exchange equal to the amount of any
increase in the value from the date fixed by resolution of the board of
directors when authorizing the issuance of the Class B Common Shares of an
equal number of common shares. In the event of termination of the employment
and offices of a holder of Class B Common Shares, the date of exchange will be
accelerated and the number of vested shares held is subject to reduction. We
can redeem Class B Common Shares issued pursuant to the plan at any time upon
payment of the amount paid up and any declared but unpaid dividends.

In 2001, the holders of the Class B Common Shares issued on December 18, 1996
became entitled under the plan to exchange their Class B Common Shares for
common shares. On January 16, 2003 the Company issued 3,162 common shares at a
deemed issue price of $4.99 per common share, in exchange for the Class B
common shares issued on December 18, 1996. On April 29, 2003 the Company
issued 15,586 common shares at a deemed issue price of $3.50 per common share,
in exchange for Class B common shares issued on August 11, 1998. The company
then cancelled the Class B common shares issued pursuant to the plan.

The following table sets out information with respect to the Class B Common
Shares.

|                  |  |              |      |             |  |               |      |               |  |               |         |       |  |  |         |  |  |   |        | 
|----------------- |  | ------------ | ---- | ----------- |  | ------------- | ---- | ------------- |  | ------------- | ------- | ----- |  |  | ------- |  |  | - | ------ | 
|                  |  | Common Share |      |             |  |               |      |               |  |               |         |       |  |  |         |  |  |  
|                  |  | Conversion   |      |             |  |               |      | Number of     |  | Class B       |         | Total
|Date Issued       |  | Base Price   |      | Issue Price |  | Shares Vested |      | Shares Issued |  | Consideration
|                  |  |              |      |             |  |               |      |               |  |              
|December 18, 1996 |  | $            | 6.00 |             |  | $             | 0.15 |               |  |               | 120,000 |       |  |  | 120,000 |  |  | $ | 18,000 | 
|August 11, 1998   |  |              | 3.20 |             |  |               | 0.15 |               |  |               | 105,000 |       |  |  | 157,500 |  |  |   | 24,000 | 
|June 25, 1999     |  |              | 3.00 |             |  |               | 0.15 |               |  |               | 56,667  |       |  |  | 170,000 |  |  |   | 25,000 | 
|                  |  |              |      |             |  |               |      |               |  |               |         |       |  |  |         |  |  |   |        | 
|                  |  |              |      |             |  |               |      |               |  |               | 281,667 |       |  |  | 447,500 |  |  | $ | 67,000 | 

The market value per common share at May 5, 2003 was $3.40 (2002$4.60).

ITEM 7.   Major Shareholders and Related Party Transactions



|A. |  | Major Shareholders
|-- |  | ------------------

We have an authorized capital consisting of 201,500,000 shares divided as
follows:



| |  |  | 100,000,000 common shares without par value;                                                                                                                                                                                                         
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 1,500,000 Class B Common Shares without par value, of which 350,000 are
designated as Series 1 Class B Common Shares, 180,000 are designated
Series 2 Class B Common Shares and 187,500 are designated Series 3
Class B Common Shares; and           
|
| |  |  | 100,000,000 preferred shares without par value, of which 300,000 are
designated as Series 1 Preferred Shares (all issued but subsequently
redeemed) and 4,000,000 are designated as Series 2 Preferred Shares
(all issued but subsequently redeemed).

Only the common shares carry voting rights, with each common share carrying the
right to one vote. As of May 5, 2003, 14,547,962 common shares were issued and
outstanding.

33



---



##### 



To the knowledge of the directors or senior officers of the Company, no person
beneficially owns, directly or indirectly or exercises control or direction
over, common shares carrying more than 5% of the voting rights attached to the
Companys issued and outstanding common shares as at May 5, 2003, except as
follows:

|                               |  |                  |           |                    |  |               |      |  
|------------------------------ |  | ---------------- | --------- | ------------------ |  | ------------- | ---- | -
|                               |  |                  |           |                    |  | Percentage of
|Name                           |  | Number of Shares |           | Outstanding Shares
|                               |  |                  |           |                   
|Grant Forest Products Corp.(1) |  |                  | 4,713,000 |                    |  |               | 32.4 | %
|1234 Holdings Ltd.(2)          |  |                  | 3,108,188 |                    |  |               | 21.4 | %
|5678 Enterprises Ltd.(3)       |  |                  | 2,757,186 |                    |  |               | 19.0 | %
|2468 Holdings Ltd.(4)          |  |                  | 2,507,186 |                    |  |               | 17.2 | %



---

|(1) |  | Based upon a press release issued by Grant Forest Products Corp. on
December 11, 2001.                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | 96% of the outstanding voting
shares of 1234 Holdings Ltd. are owned by David Ainsworth and the remainder are owned by Catherine Ainsworth. The
Common Shares owned by 1234 Holdings Ltd. are voted by Catherine Ainsworth
as that companys representative in relation to proceedings of the
Companys shareholders. David Ainsworth also owns personally an additional
20,000 Common Shares and Catherine Ainsworth owns personally an additional
53,200 Common Shares.
|   
|(3) |  | 98% of the outstanding voting shares of 5678 Enterprises Ltd. are owned
by D. Allen Ainsworth and the remainder are owned by his two sons.                                                                                                                                                                                                                                                                                                                               
|   
|(4) |  | 95% of the outstanding voting shares of 2468 Holdings Ltd. are owned by
Brian E. Ainsworth and the remainder are owned by his son and a family
trust.                                                                                                                                                                                                                                                                                                                    



|B. |  | Related Party Transactions
|-- |  | --------------------------

The following table set outs information on indebtedness since January 1, 2002
to us of any person who served as an officer or director during the year ended
December 31, 2002, including their associates and companies controlled by them.
As at December 31, 2002, the aggregate indebtedness owed to us by these persons
was $466,090.

|                            |  |                |  |                    |         |                    |  |   |         |  |  | 
|--------------------------- |  | -------------- |  | ------------------ | ------- | ------------------ |  | - | ------- |  |  | 
|                            |  | Involvement of |  | Largest Amount     |         | Amount Outstanding
|                            |  | Issuer or      |  | Outstanding During |         | as at December 31,
|Name and Principal Position |  | Subsidiary     |  | 2002               |         | 2002              
|                            |  |                |  |                    |         |                   
|D. Allen Ainsworth(1)       |  | Lender         |  | $                  | 556,062 |                    |  | $ | 466,090 | 
|Brian E. Ainsworth(2)       |  | Lender         |  | $                  | 412,845 |                    |  | $ |        | 



---

|(1) |  | The indebtedness is of Snow Mountain Contracting Ltd., a company owned by
D. Allen Ainsworth. The advances bear interest at the same rate that we
receive on our bankers acceptances and are unsecured and repayable on
demand.                                                                                 
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The indebtedness is of 2468 Holdings Ltd., a company controlled by Brian
E. Ainsworth. The advances were made in United States dollars and bear
interest at the same rate that we receive on our bankers acceptances and
are unsecured and repayable on demand. The outstanding amount was repaid
in March 2002.

During the year, the company paid $120,000 in rental charges, for mobile
forestry and transportation equipment, to a company owned by persons related to
a director of the company. The company also acquired capital assets for $22,000
from a company controlled by a director of the company.



|C. |  | Interests of experts and counsel
|-- |  | --------------------------------

Information not required for annual report.

ITEM 8.   Financial Information



|A. |  | Consolidated Financial Statements and Other Financial Information
|-- |  | -----------------------------------------------------------------

See item 18

34



---



##### 





|B. |  | Significant Changes
|-- |  | -------------------

No significant changes have occurred since the date of the annual financial
statements provided herein.

ITEM 9.   The Offer and Listing



|A. |  | Offer and Listing Details
|-- |  | -------------------------

Senior Secured Notes

There is currently no organized public market for either the 12.50% Senior
Secured Notes or the 13.875% Senior Secured Notes, and the Company does not
intend to apply for a listing of the Senior Secured Notes on any securities
exchange.

The 12.50% Senior Secured Notes were issued under an Indenture dated as of July
10, 1997 between the Company and the Bank of New York, as trustee. The 13.875%
Senior Secured Notes were issued under an Indenture between the Company and the
Bank of Nova Scotia Trust Company of New York as the trustee.

Common Shares

The Companys common shares are traded on The Toronto Stock Exchange under the
symbol ANS.TO. Using information from published sources the following
information shows the high and low trading values of the Companys common
shares for the periods indicated:

Annual Share Price Information

|                   |  |      |       |     |  |   |      | 
|------------------ |  | ---- | ----- | --- |  | - | ---- | 
|For the year ended |  | High |       | Low
|                   |  |      |       |    
|December 31, 2002  |  | $    | 6.00  |     |  | $ | 3.00 | 
|December 31, 2001  |  | $    | 6.25  |     |  | $ | 3.10 | 
|December 31, 2000  |  | $    | 8.30  |     |  | $ | 3.75 | 
|December 31, 1999  |  | $    | 12.85 |     |  | $ | 2.80 | 
|December 31, 1998  |  | $    | 4.85  |     |  | $ | 2.35 | 

Quarterly Share Price Information

|                      |  |      |      |     |  |   |      | 
|--------------------- |  | ---- | ---- | --- |  | - | ---- | 
|For the quarter ended |  | High |      | Low
|                      |  |      |      |    
|March 31, 2003        |  | $    | 4.30 |     |  | $ | 3.35 | 
|December 31, 2002     |  | $    | 4.10 |     |  | $ | 3.00 | 
|September 30, 2002    |  | $    | 4.95 |     |  | $ | 3.26 | 
|June 30, 2002         |  | $    | 5.75 |     |  | $ | 4.00 | 
|March 31, 2002        |  | $    | 6.00 |     |  | $ | 4.80 | 
|December 31, 2001     |  | $    | 6.00 |     |  | $ | 4.16 | 
|September 30, 2001    |  | $    | 5.64 |     |  | $ | 4.25 | 
|June 30, 2001         |  | $    | 6.25 |     |  | $ | 4.25 | 
|March 31, 2001        |  | $    | 5.80 |     |  | $ | 3.10 | 

Monthly Share Price Information

|                    |  |      |      |     |  |   |      | 
|------------------- |  | ---- | ---- | --- |  | - | ---- | 
|For the month ended |  | High |      | Low
|                    |  |      |      |    
|April 30, 2003      |  | $    | 3.80 |     |  | $ | 3.10 | 
|March 31, 2003      |  | $    | 4.25 |     |  | $ | 3.75 | 
|February 28, 2003   |  | $    | 4.30 |     |  | $ | 3.50 | 
|January 31, 2003    |  | $    | 4.25 |     |  | $ | 3.35 | 
|December 31, 2002   |  | $    | 3.50 |     |  | $ | 3.31 | 
|November 30, 2002   |  | $    | 4.10 |     |  | $ | 3.24 | 

35



---



##### 





|B. |  | Plan of Distribution
|-- |  | --------------------

Information not required for annual report.



|C. |  | Markets
|-- |  | -------

The Companys common shares are traded on The Toronto Stock Exchange under the
symbol ANS.TO.



|D. |  | Selling Shareholders
|-- |  | --------------------

Information not required for annual report.



|E. |  | Dilution
|-- |  | --------

Information not required for annual report.



|F. |  | Expenses of the issue
|-- |  | ---------------------

Information not required for annual report.

ITEM 10.   Additional Information

A.     Share Capital

Information not required for annual report.



|B. |  | Memorandum and Articles
|-- |  | -----------------------

Information disclosed in Item 10.B of the annual report on Form 20-F filed by
the Company with the SEC on May 17, 2002 is hereby incorporated by reference
herein.



|C. |  | Material contracts
|-- |  | ------------------



|Contract No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                         
|------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|            
|1.           |  | Memorandum of Agreement (MOU) between Ainsworth and Grant dated December
9, 1999                                                                                                                                                                                                                                                                                                                                    
|            
|             |  | This agreement provides a broad outline for formal agreements
relating to the operation of High Level OSB mill. Among other things,
the MOU states that the operation will be jointly funded by both
parties allowing for an even share of the mills production. The MOU
also details the provision for a shotgun buy-sell provision and the
rights of both parties in the event of such an occurrence.            
|            
|2.           |  | First Supplement Indenture made as of the 14th day of February 2001 among
the Company, Steen River and the Bank of New York, as trustee.                                                                                                                                                                                                                                                                            
|            
|             |  | With the written consent of the holders of the majority of the
Companys 12-1/2% Senior Secured Notes due July 15, 2007, the
Company, Steen River Forest Products Ltd. (Steen River) and The
Bank of New York, as trustee, entered into a First Supplemental
Indenture made as of the 14th day of February 2001 under which the
terms of the Companys Senior Secured Notes were amended to include
the following:



| | (a) |  | to expressly permit the Company and Steen River to
incur up to Cdn $52,000,000 of debt for the High Level OSB
project under a credit agreement (the High Level Credit
Agreement) with HSBC Capital (Canada) Inc. and B.C. Pacific
Capital Corp., and any renewal and replacement of the same
having a term until February 15, 2003;
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | to expressly permit the Company and Steen River to
grant first charge security over the High Level OSB project to
secure borrowings under the High Level Credit Agreements;                                                                                                                                                          

36



---



##### 





| | (c) |  | to expressly permit the Company to sell the issued
shares of Steen River or the Companys interest in the High
Level OSB project and to require the application of proceeds in
certain events to make an offer to purchase Senior Secured Notes
at par plus accrued interest;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (d) |  | to restrict the Company from making capital
expenditures in any fiscal year in excess of Cdn $21,000,000;                                                                                                                                                                    
|
| | (e) |  | to permit the sale of the Clinton Operations to West
Fraser Mills Ltd;                                                                                                                                                                                                       
|
| | (f) |  | to require the Company and Steen River to grant
second charge security over the High Level OSB project as
security for the Senior Secured Notes.                                                                                                                             



|5. |  | Second Supplement Indenture made as of the 20th day of December 2001,
among the Company, Steen River and the Bank of Nova Scotia Trust Company
of New York, as trustee.                                                                                                                                                                                                                                       
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | With the written consent of the holders of the majority of the
Companys 12-1/2% Senior Secured Notes due July 15, 2007, the
Company, Steen River and The Bank of Nova Scotia Trust Company of New
York, as trustee, entered into a Second Supplemental Indenture made
as of the 20th day of December 2001, under which the terms of the
Companys Senior Secured Notes were amended to include the following:



| | (a) |  | to expressly permit the Company to issue up to
US$95,000,000 aggregate principal amount of notes;                                                                        
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | to expressly exclude transactions with Grant pursuant
to the buy/sell option and the right of first refusal from the
Limitation on Transactions with Affiliates covenant;
|
| | (c) |  | to expand the definition of Grant to include any
other party that becomes a party to the High Level project
arrangements; and                                            
|
| | (d) |  | to expressly permit the Company to incorporate
certain subsidiaries and to designate them as Non-Guarantor
Restricted Subsidiaries;                                      



|6. |  | Indenture made as of the 20th day of December 2001, among the Company,
Steen River and the Bank of Nova Scotia Trust Company of New York, as
trustee.                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On December 20, 2001, the Company issued US$95,000,000 aggregate
principal amount of 13.875% Senior Secured Notes due July 15, 2007,
as unconditionally guaranteed by Steen River, in a private placement
in the United States and outside the United States (the Original
Notes), under an indenture dated as of December 20, 2001, among the
Company, Steen River and the Bank of Nova Scotia Trust Company of New
York, as trustee (the Indenture). The Indenture restricts the
Companys ability and the ability of certain of its subsidiaries to:



| | (a) |  | incur additional indebtedness and issue equity; make
investments;
| | --- |  | -----------------------------------------------------------------
|
| | (b) |  | declare or pay dividends or make other distributions;            
|
| | (c) |  | incur payment restrictions that other parties impose;            
|
| | (d) |  | conduct transactions with affiliates;                            
|
| | (e) |  | make asset sales and use proceeds from permitted
asset sales;    
|
| | (f) |  | make capital expenditures;                                       
|
| | (g) |  | incur liens;                                                     



| |  |  | consolidate or merge with or into, or transfer
all or substantially all of the Companys assets to another
person;                                         
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | use the net proceeds from the offering of the
Original Notes; and                                                                                          
|
| |  |  | modify the terms of the relationship with the
co-owner of the High Level OSB facility as expressed in the
memorandum of agreement relating to the facility.



| |  | These covenants are subject to important qualifications and
limitations. For more details, see the section Description of the
Notes  Covenants contained in Amendment No. 2 to the Companys
registration statement on Form F-4 (file no. 333-83230) filed with
the United States Securities and Exchange Commission on April 15,
2002.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

37



---



##### 





|7. |  | Exchange and Registration Rights Agreement made as of the 20th day of
December 2001, among the Company, Steen River and Goldman, Sachs & Co.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Pursuant to an Exchange and Registration Rights Agreement dated
December 20, 2001, among the Company, Steen River and Goldman, Sachs
& Co., (the Registration Rights Agreement), the Company agreed that
holders of the Original Notes would be entitled to exchange the
Original Notes for registered notes (the Exchange Notes) with
substantially identical terms. The Exchange Notes, when issued, will
be governed by the Indenture. The Registration Rights Agreement
provided that the Company would: (i) file a registration statement by
February 19, 2002 regarding the exchange of the Original Notes for
Exchange Notes; (ii) use its best efforts to have the registration
statement declared effective by May 4, 2002; and (iii) complete the
exchange offer within 45 days after the registration statement is
declared effective.

D.     Exchange Controls

The Investment Canada Act generally prohibits implementation of a reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture that is not a Canadian as defined in the
Investment Canada Act (a non-Canadian), unless after review, the minister
responsible for the Investment Canada Act is satisfied that the investment is
likely to be of net benefit to Canada. An investment in common shares of the
Company by a non-Canadian (other than a WTO investor as defined in the
Investment Canada Act) would be reviewable under the Investment Canada Act if
it was an investment to acquire direct control of the Company and the value of
the assets of the Company was $5,000,000 or more.

With regard to an investment in common shares of the Company by a WTO Investor,
it would be reviewable under the Investment Canada Act if it was an investment
to acquire direct control of the Company and the value of the assets of the
Company equals or exceeds a specified amount (the Review Threshold), which is
revised every year. The Review Threshold is $218 million for investments
completed in 2002 and is indexed as of the first of January every year.

A non-Canadian, whether a WTO Investor or otherwise, would acquire control of
the Company for the purposes of the Investment Canada Act if he acquired a
majority of the common shares of the Company. The acquisition of less than a
majority but one-third or more of the common shares of the Company would be
presumed to be an acquisition of control of the Company unless it could be
established the Company was not controlled in fact by the acquirer through the
ownership of common shares.

Certain transactions in relation to the common shares of the Company would be
exempt from the Investment Act, including:



| |  | an acquisition of common shares of the Company by a person in the
ordinary course of that persons business as a trader or dealer in
securities;                                                                                                                     
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | an acquisition of control of the Company in connection with the
realization of a security interest granted for a loan or other
financial assistance and not for any purpose related to the provision
of the Investment Canada Act; and                               
| 
| |  | an acquisition of control of the Company by reason of an amalgamation,
merger, consolidation or corporate reorganization following which the
ultimate direct or indirect control in fact of the Company, though the
ownership of voting interests, remains unchanged.

The Companys ability to declare and pay dividends is significantly restricted
by the covenants in the indentures governing its Senior Secured Notes and in
the documentation relating to its credit facilities.

E.     Taxation

The following paragraphs set forth certain Canadian federal income tax
considerations in connection with the purchase, ownership and disposition of
the Senior Secured Notes. The discussion is restricted to non-residents of
Canada who are residents of the United States and who hold such Senior Secured
Notes as capital property. The tax considerations set forth below are based
upon the provisions of the Income Tax Act(Canada), and on the Convention
between Canada and the United States of America with Respect to Taxes on Income
and on Capital, as well as regulations, rulings, judicial decisions and
administrative and assessing practices now in effect in Canada, all of which
are subject to change. This discussion does not take into account provincial
or territorial laws of Canada, or laws of foreign jurisdictions.

The Company is not required to withhold tax from interest paid by it on Senior
Secured Notes to any non-resident of Canada with whom it is dealing at arms
length within the meaning of the Income Tax Act(Canada). Under such laws and
administrative assessing practices, no other tax on income (including taxable
capital gains) is payable in respect of the purchase, holding, redemption or
disposition of the Senior

38



---



##### 



Secured Notes or the receipt of interest or any
premium thereon by holders with whom the Company deals at arms length and
who are not residents, and who are not deemed to be residents, of Canada in any
taxation year in which they hold the Senior Secured Notes, and who do not use
or hold, and are not deemed to use or hold, the Senior Secured Notes in
connection with carrying on a business in Canada, except that in certain
circumstances holders who are non-resident insurers carrying on an insurance
business in Canada and elsewhere may be subject to such taxes.

The above description of Canadian income tax considerations is of a general
nature only and should not be construed as advice to any particular holder of
Senior Secured Note. Holders should consult with their Canadian tax advisers
with respect to their particular tax position.

F.     Dividends and Paying Agents

Information not required for annual report.

G.     Statements by Experts

Information not required for annual report.

H.     Documents on Display

Any documents referred to in this annual report shall be available for review
at the registered office of the Company located at 19th Floor, 885 West Georgia
Street, Vancouver, B.C., Canada V6C 3H4. The Company is subject to certain of
the informational requirements of the Securities Exchange Act of 1934, as
amended (the Exchange Act), and in accordance therewith, files reports and
other information with the SEC. As a foreign private issuer, the Company is
exempt from the rules under the Exchange Act prescribing the furnishing and
content of proxy statements, and its officers, directors and principal
shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act. As a foreign private
issuer, the Company is not required to publish financial statements as
frequently or as promptly as United States companies. The Companys reports
and other information filed with the SEC may be inspected and copied at the
public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the SECs regional offices at
Northwestern Atrium Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661-2551. Copies of such material can also be obtained from the
principal office of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.

I.     Subsidiary Information

This disclosure item is not applicable.

ITEM 11. Quantitative and Qualitative Disclosures about Market Risk

A.     Quantitative Information About Market Risk

We do not invest in market risk sensitive instruments such as derivative
financial instruments or derivative commodity instruments.

B.     Qualitative Information About Market Risk

We are exposed to changes in foreign currency exchange and are subject to price
risk due to changes in the market value of OSB, lumber, veneer and plywood,
such changes could adversely affect our future sales and carrying values
relating to our finished goods.

Foreign Currency Rate Sensitivity

A significant portion of our products are sold in U.S. dollars. Most of our
costs, other than interest payable on our senior secured notes, which is
payable in U.S. dollars, will be payable in Canadian dollars and, therefore,
our financial results are subject to foreign currency exchange rate
fluctuations. A significant appreciation in the value of the Canadian dollar in
terms of the U.S. dollar, while other factors remain constant, will cause a
relative decline in our revenues and our cash flow will be diminished.

Given that the value of the Canadian dollar was US$0.6329 at December 31, 2002,
we estimate that had the value of the Canadian dollar increased by US$0.01 to
US$0.6329, the value of our US dollar denominated long-term debt as at December
31, 2002 would have

39



---



##### 



decreased by approximately $7.0 million. We also estimate
that had the value of the Canadian dollar increased by US$0.01, the annual
interest payment amounts on our long-term debt as at December 31, 2002 would
have decreased by approximately $0.9 million.

We are not currently a party to any forward foreign currency exchange contract,
or other contract that could serve to hedge our exposure to fluctuations in the
U.S./Canada dollar exchange rate.

Interest Rate Sensitivity

Our U.S. dollar long-term debt is not subject in the near term to interest rate
fluctuations because the interest rate is fixed for the term of the debt.

Commodity Price Sensitivity

The largest markets for OSB are commodity markets in which manufacturers
compete primarily on the basis of price. Our financial performance is dependent
on the selling prices of our OSB products, which have fluctuated significantly
in the past. The markets for these products are highly cyclical and
characterized by (1) periods of excess product supply due to industry capacity
additions, increased production and other factors, and (2) periods of
insufficient demand due to weak general economic conditions. Demand for our OSB
products is primarily driven by the residential and commercial construction and
repair and remodeling industries. These industries in turn are affected by real
estate prices, interest rates, credit availability, tax policy, energy costs,
weather conditions, natural disasters and general economic conditions, all of
which are beyond our control. In addition, an increased use of just in time
inventory management in the forest products distribution chain has led to
increased volatility due to uneven buying patterns and lower field inventories
held in consuming markets. The prices of commodity sheathing OSB and plywood
have historically been unpredictable. For example, during the past five years,
monthly average prices for North Central OSB have ranged from a low of US$122
per msf (7/16 inches) to a high of US$351 per msf (7/16 inches). We are unable
to predict market conditions and selling prices for our commodity sheathing OSB
products, which may decline from current levels. The current economic downturn
in North America has had an adverse affect on demand and prices for our
commodity sheathing OSB products. Continued weakness in the market could reduce
our revenues and profitability and could affect our ability to satisfy our
obligations under our indebtedness.

ITEM 12. Description of Securities Other than Equity Securities

Information not required for annual report.

40



---



##### 



PART II

ITEM 13. Defaults, Dividend Arrearages and Delinquencies

A.     Indebtedness

There has been no material default in the payment of principal or interest on
our outstanding indebtedness since the date of filing of our last annual report
on Form 20-F.

B.     Preferred Shares

We currently have no preferred shares outstanding.

ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds



|A. | 1. | With the written consent of the holders of the majority of the Companys
12 1/2 of Senior Secured Notes due July 15, 2007, the Company, Steen
River and The Bank of New York, as trustee, entered into a First
Supplemental Indenture made as of the 14th day of February 2001 under
which the terms of the Companys Senior Secured Notes were amended to
include the following:
|-- | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | (a)                                                                                                                                                                                                                                                                                                                                                                                                             | to expressly permit the Company and Steen River to incur
up to Cdn $52,000,000 of debt for the High Level OSB project under
a credit agreement (the High Level Credit Agreement) with HSBC
Capital (Canada) Inc. and B.C. Pacific Capital Corp., and any
renewal and replacement of the same having a term until February
15, 2003;
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (b)                                                                                                                                                                                                                                                                                                                                                                                                             | to expressly permit the Company and Steen River to grant
first charge security over the High Level OSB project to secure
borrowings under the High Level Credit Agreements;                                                                                                                                                          
|
| |  | (c)                                                                                                                                                                                                                                                                                                                                                                                                             | to expressly permit the Company to sell the issued shares
of Steen River or the Companys interest in the High Level OSB
project and to require the application of proceeds in certain
events to make an offer to purchase Senior Secured Notes at par
plus accrued interest;                                                        
|
| |  | (d)                                                                                                                                                                                                                                                                                                                                                                                                             | to restrict the Company from making capital expenditures
in any fiscal year in excess of Cdn $21,000,000;                                                                                                                                                                                                                            
|
| |  | (e)                                                                                                                                                                                                                                                                                                                                                                                                             | to permit the sale of the Clinton operations to West
Fraser Mills Ltd;                                                                                                                                                                                                                                                               
|
| |  | (f)                                                                                                                                                                                                                                                                                                                                                                                                             | to require the Company and Steen River to grant second
charge security over the High Level OSB project as security for
the Senior Secured Notes.                                                                                                                                                                                     
|
| |  | With the written consent of the holders of the majority of the
Companys 12 1/2 % Senior Secured Notes due July 15, 2007, the
Company, Steen River and The Bank of Nova Scotia Trust Company of New
York, as trustee, entered into a Second Supplemental Indenture made as
of the 20th day of December 2001, under which the terms of the
Companys Senior Secured Notes were amended to include the following:
|
| |  | (a)                                                                                                                                                                                                                                                                                                                                                                                                             | to expressly permit the Company to issue up to
US$95,000,000 aggregate principal amount of notes;                                                                                                                                                                                                                                    
|
| |  | (b)                                                                                                                                                                                                                                                                                                                                                                                                             | to expressly exclude transactions with Grant pursuant to
the buy/sell option and the right of first refusal from the
Limitation on Transactions with Affiliates covenant;                                                                                                                                                            
|
| |  | (c)                                                                                                                                                                                                                                                                                                                                                                                                             | to expand the definition of Grant to include any other
party that becomes a party to the High Level project arrangements;
and                                                                                                                                                                                                        
|
| |  | (d)                                                                                                                                                                                                                                                                                                                                                                                                             | to expressly permit the Company to incorporate certain
subsidiaries and to designate them as Non-Guarantor Restricted
Subsidiaries.                                                                                                                                                                                                  



|B. |  | This disclosure item is not applicable.
|-- |  | ---------------------------------------

41



---



##### 





|C. |  | By agreement made as the 12th day of February 2001, the Company
transferred to Steen River all of the right, title and interest of the
Company in and to the High Level OSB project in exchange for an assumption
of debt and the issuance of common shares in Steen River.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On April 24, 2001, the Company completed the sale of the Clinton
operations to West Fraser Mills Ltd.                                                                                                                                                                      
|  
|D. |  | This disclosure item is not applicable.                                                                                                                                                                                                                                    
|  
|E. |  | This disclosure item is not applicable.                                                                                                                                                                                                                                    
|  
|F. |  | This disclosure item is not applicable.                                                                                                                                                                                                                                    

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are defined by the Securities and Exchange
Commission as those controls and other procedures that are designed to ensure
that information required to be disclosed by the Company in reports filed or
submitted by it under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms. The Companys Chief
Executive Officer and Chief Financial Officer have evaluated the Companys
disclosure controls and procedures within 90 days prior to filing of this
Annual Report on Form 20-F and have determined that such disclosure controls
and procedures are effective.

Internal Controls

Since the most recent evaluation of the Companys internal controls, there have
not been any significant changes in the Companys internal controls or in other
factors that could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

The design of the Companys system of controls and procedures is based, in
part, upon assumptions about the likelihood of future events. There can be no
assurance that the design of such system of controls and procedures will
succeed in achieving its goals under all potential future conditions,
regardless of how remote.

ITEM 16. AUDIT COMMITTEE FINANCIAL EXPERT; CODE OF ETHICS; ACCOUNTANT FEES AND SERVICES



|A. |  | Audit Committee Financial Expert
|-- |  | --------------------------------

Information not required for annual reports for fiscal years ending prior to
July 15, 2003.



|B. |  | Code of Ethics
|-- |  | --------------

Information not required for annual reports for fiscal years ending prior to
July 15, 2003.



|C. |  | Principal Accountant Fees and Services
|-- |  | --------------------------------------

Information not required for annual reports for fiscal years ending prior to
December 15, 2003.

42



---



##### 



PART III

ITEM 17. FINANCIAL STATEMENTS

The Company has elected to provide financial statements for the financial year
ended December 31, 2002 and the related information pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

The financial statements of the Company have been prepared on the basis of
accounting principles generally accepted in Canada and comply in all material
respects with accounting principles generally accepted in the United States,
except as set forth in Selected Financial Data and Note 21 to the
Consolidated Financial Statements.

|                                                                                                                        |  |      |             | 
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | 
|                                                                                                                        |  | Page
|Ainsworth Lumber Co. Ltd.                                                                                               |  | No. 
|                                                                                                                        |  |     
|Independent Auditors Report                                                                                            |  |      | F-1         | 
|Consolidated Balance Sheets as at December 31, 2002 and 2001                                                            |  |      | F-2         | 
|Consolidated Statements of Income and Retained Earnings (Deficit) for
the years ended December 31, 2002, 2001, and 2000 |  |      | F-3         | 
|Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001, and 2000                             |  |      | F-4         | 
|Notes to the Consolidated Financial Statements                                                                          |  |      | F-5 -- F-18 | 

|                                                                                                                                                   |  |      |              | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------------ | 
|                                                                                                                                                   |  | Page
|Steen River Forest Products Ltd.                                                                                                                   |  | No. 
|                                                                                                                                                   |  |     
|Independent Auditors Report                                                                                                                       |  |      | F-19         | 
|Consolidated Balance Sheets as at December 31, 2002 and December 31, 2001                                                                          |  |      | F-20         | 
|Consolidated Statements of Operations and Deficit for the years ended
December 31, 2002 and the period from February 14, 2001 to December 31,
2001 |  |      | F-21         | 
|Consolidated Statements of Cash Flows for the years ended December 31,
2002 and the period from February 14, 2001 to December 31, 2001             |  |      | F-22         | 
|Notes to the Consolidated Financial Statements                                                                                                     |  |      | F-23 -- F-26 | 

43



---



##### 



ITEM 19. EXHIBITS

|               |  |                                                                                                                                                                                                                                         
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Title                                                                                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                         
|1.1           |  | Articles of Incorporation of Ainsworth Lumber Co. Ltd.                                                                                                                                                                                  
|1.2           |  | By-laws of Ainsworth Lumber Co. Ltd.                                                                                                                                                                                                    
|*2.1           |  | First Supplemental Indenture made as of the 14th day of February 2001 among the Company, Steen River Forest
Products Ltd. (Steen River) and the Bank of New York, as trustee.                                                         
|*2.2           |  | Security Agreement and Floating Charge dated February 12, 2001 between Steen River and the Trust Company of
Bank of Montreal, as trustee (the Security Trustee).                                                                      
|*2.3           |  | Security Pledge Agreement dated February 12, 2001 between the Company and the Security trustee.                                                                                                                                         
|*2.4           |  | Assignment of Agreement dated February 12, 2001 between the Company and Steen River, as borrowers and the
Security Trustee.                                                                                                             
|**2.5          |  | Indenture dated December 20, 2001, among the Company, Steen River and the Bank of Nova Scotia Trust Company of
New York.                                                                                                                
|**2.6          |  | Exchange and Registration Rights Agreement dated December 20, 2001, among the Company, Steen River and Goldman,
Sachs & Co.                                                                                                             
|*4.1           |  | Loan Agreement dated February 12, 2001 between the Company and Steen River, as borrowers, and HSBC Capital
(Canada) Inc. and B.C. Pacific Capital Corporation, as lenders.                                                              
|***4.2         |  | Memorandum of Agreement dated December 9, 1999, between Ainsworth Lumber Co. Ltd. and Grant Forest Products
Corp.                                                                                                                       
|**4.3          |  | Promissory Note in favor of Ainsworth Lumber Co. Ltd. from Snow Mtn. Contracting Ltd. in the amount of
Cdn$554,216 dated February 13, 2002                                                                                              
|**4.4          |  | Promissory Note in favor of Ainsworth Lumber Co. Ltd. from 2468 Holdings Ltd. in the amount of US$259,195 dated
February 12, 2002                                                                                                       
|**4.5          |  | Management and Consulting Agreement between Ainsworth Lumber Co. Ltd. and 2468 Holding Ltd. dated April 25, 1999                                                                                                                        
|4.6           |  | Pulpwood Agreement No. 16, dated April 26, 1990 and made between the Minister of Forests of British Columbia,
on behalf of Her Majesty the Queen in Right of the Province of British Columbia and Ainsworth Lumber Co. Ltd.,
as amended.
|***4.7         |  | Forest Licence A18700 dated March 24, 1998 and made between The Regional Manager, on behalf of Her Majesty the
Queen in Right of the Province of British Columbia and Ainsworth Lumber Co. Ltd.                                         
|**4.8          |  | Letter Agreement with the Province of Alberta, dated July 16, 1999, with respect to High Level Timber Allocation                                                                                                                        
|**4.9          |  | Deciduous Timber Allocation No. DTAF 510001 with respect to High Level                                                                                                                                                                  
|***4.10        |  | Amended Deciduous Timber Allocation No. DTAC 910001 with respect to Grande Prairie                                                                                                                                                      
|**4.11         |  | Deciduous Timber Permit DTPG 910001 with respect to Grande Prairie                                                                                                                                                                      
|4.12          |  | Asset Purchase Agreement with West Fraser Mills Ltd. dated February 8, 2001                                                                                                                                                             
|±4.13          |  | Inter-Creditor Agreement dated December 20, 2001, among the Company, Steen River, the Trust Company of Bank of
Montreal and Computershare Trust Company of Canada                                                                       
|±4.14          |  | Company Security Debenture dated December 20, 2001, between Ainsworth Lumber Co. Ltd. and Computershare Trust
Company of Canada                                                                                                         
|±4.15          |  | Guarantor Security Debenture dated December 20, 2001, between Steen River Forest Products Ltd. and
Computershare Trust Company of Canada                                                                                                
|±4.16          |  | Securities Pledge Agreement dated December 20, 2001, between Ainsworth Lumber Co. Ltd. and Computershare Trust
Company of Canada                                                                                                        
|±4.17          |  | Assignment of Memorandum of Agreement dated December 20, 2001, among the Company, Steen River and Computershare
Trust Company of Canada                                                                                                 
|±4.18          |  | Assignment of Agreement dated February 12, 2001, as amended on December 20, 2001, among the Company, Steen
River and the Trust Company of the Bank of Montreal                                                                          
|±±4.19         |  | Executive Employment Agreement between Ainsworth Lumber Co. Ltd. and James Logan dated December 1, 2001                                                                                                                                 
|99.1           |  | Certification of CEO
and CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                  

44



---



##### 





---

|   |  | Incorporated by reference to Amendment No. 2 to the Registration
Statement on Form F-4 filed by Ainsworth Lumber Co. Ltd. and Ainsworth
Lumber Inc. on October 29, 1997 (No. 333-7346)         
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|*   |  | Incorporated by reference to Form 20-F dated June 8, 2001                                                                                                                                      
|   
|**  |  | Incorporated by reference to the Registration Statement on Form F-4 filed
by Ainsworth Lumber Co. Ltd. and Steen River Forest Products Ltd. on
February 19, 2002 (No. 333-83230)               
|   
|*** |  | Incorporated by reference to Form 20-F filed on May 19, 2000                                                                                                                                   
|   
|   |  | Incorporated by reference to Form 20-F filed on June 8, 2001                                                                                                                                   
|   
|±   |  | Incorporated by reference to Amendment No.1 to the Registration
Statement on Form F-4 filed by Ainsworth Lumber Co. Ltd. and Steen
River Forest Products Ltd. on March 29, 2002 (No. 333-83230)
|   
|±±  |  | Incorporated by reference to Amendment No.2 to the Registration
Statement on Form F-4 filed by Ainsworth Lumber Co. Ltd. and Steen
River Forest Products Ltd. on April 15, 2002 (No. 333-83230)

45



---



##### 



SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.

May 16, 2002

| |                          |                                                                              
| | ------------------------ | -----------------------------------------------------------------------------
| | AINSWORTH LUMBER CO. LTD
|
| | By:                      | /s/ JAMES LOGAN
James Logan
Senior Vice President and Chief Financial Officer

46



---



##### 



Certification of the President and Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Brian Ainsworth, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of Ainsworth Lumber
Co. Ltd.;                                                                                                                                                                                                                                                                                                  
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;                                                       
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;                                                                          
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                                                                         
|  
|   |  | a.                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | b.                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | c.                                                                                                                                                                                                                                                                                                                                                                             
|  
|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):                                                                                                                                 
|  
|   |  | a.                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | b.                                                                                                                                                                                                                                                                                                                                                                             
|  
|6. |  | The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

| |     |                                        
| | --- | ---------------------------------------
| | By: | /s/ Brian Ainsworth                    
| |     | Brian Ainsworth
Chief Executive Officer

47



---



##### 



I, Jim Logan, certify that:



|1. |  | I have reviewed this annual report on 20-F of Ainsworth Lumber Co.
Ltd.;                                                                                                                                                                                                                                                                                                       
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;                                                       
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;                                                                          
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                                                                         
|  
|   |  | a.                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | b.                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | c.                                                                                                                                                                                                                                                                                                                                                                             
|  
|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):                                                                                                                                 
|  
|   |  | a.                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | b.                                                                                                                                                                                                                                                                                                                                                                             
|  
|6. |  | The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

| |     |                                                              
| | --- | -------------------------------------------------------------
| | By: | /s/ James Logan                                              
| |     | James Logan
Senior Vice President and Chief Financial Officer

48



---



##### 



INDEX TO EXHIBITS

|               |  |                                                                                                                                                                                                                                         
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Title                                                                                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                         
|1.1           |  | Articles of Incorporation of Ainsworth Lumber Co. Ltd.                                                                                                                                                                                  
|1.2           |  | By-laws of Ainsworth Lumber Co. Ltd.                                                                                                                                                                                                    
|*2.1           |  | First Supplemental Indenture made as of the 14th day of February 2001 among the Company, Steen River Forest
Products Ltd. (Steen River) and the Bank of New York, as trustee.                                                         
|*2.2           |  | Security Agreement and Floating Charge dated February 12, 2001 between Steen River and the Trust Company of
Bank of Montreal, as trustee (the Security Trustee).                                                                      
|*2.3           |  | Security Pledge Agreement dated February 12, 2001 between the Company and the Security trustee.                                                                                                                                         
|*2.4           |  | Assignment of Agreement dated February 12, 2001 between the Company and Steen River, as borrowers and the
Security Trustee.                                                                                                             
|**2.5          |  | Indenture dated December 20, 2001, among the Company, Steen River and the Bank of Nova Scotia Trust Company of
New York.                                                                                                                
|**2.6          |  | Exchange and Registration Rights Agreement dated December 20, 2001, among the Company, Steen River and Goldman,
Sachs & Co.                                                                                                             
|*4.1           |  | Loan Agreement dated February 12, 2001 between the Company and Steen River, as borrowers, and HSBC Capital
(Canada) Inc. and B.C. Pacific Capital Corporation, as lenders.                                                              
|***4.2         |  | Memorandum of Agreement dated December 9, 1999, between Ainsworth Lumber Co. Ltd. and Grant Forest Products
Corp.                                                                                                                       
|**4.3          |  | Promissory Note in favor of Ainsworth Lumber Co. Ltd. from Snow Mtn. Contracting Ltd. in the amount of
Cdn$554,216 dated February 13, 2002                                                                                              
|**4.4          |  | Promissory Note in favor of Ainsworth Lumber Co. Ltd. from 2468 Holdings Ltd. in the amount of US$259,195 dated
February 12, 2002                                                                                                       
|**4.5          |  | Management and Consulting Agreement between Ainsworth Lumber Co. Ltd. and 2468 Holding Ltd. dated April 25, 1999                                                                                                                        
|4.6           |  | Pulpwood Agreement No. 16, dated April 26, 1990 and made between the Minister of Forests of British Columbia,
on behalf of Her Majesty the Queen in Right of the Province of British Columbia and Ainsworth Lumber Co. Ltd.,
as amended.
|***4.7         |  | Forest Licence A18700 dated March 24, 1998 and made between The Regional Manager, on behalf of Her Majesty the
Queen in Right of the Province of British Columbia and Ainsworth Lumber Co. Ltd.                                         
|**4.8          |  | Letter Agreement with the Province of Alberta, dated July 16, 1999, with respect to High Level Timber Allocation                                                                                                                        
|**4.9          |  | Deciduous Timber Allocation No. DTAF 510001 with respect to High Level                                                                                                                                                                  
|***4.10        |  | Amended Deciduous Timber Allocation No. DTAC 910001 with respect to Grande Prairie                                                                                                                                                      
|**4.11         |  | Deciduous Timber Permit DTPG 910001 with respect to Grande Prairie                                                                                                                                                                      
|4.12          |  | Asset Purchase Agreement with West Fraser Mills Ltd. dated February 8, 2001                                                                                                                                                             
|±4.13          |  | Inter-Creditor Agreement dated December 20, 2001, among the Company, Steen River, the Trust Company of Bank of
Montreal and Computershare Trust Company of Canada                                                                       
|±4.14          |  | Company Security Debenture dated December 20, 2001, between Ainsworth Lumber Co. Ltd. and Computershare Trust
Company of Canada                                                                                                         
|±4.15          |  | Guarantor Security Debenture dated December 20, 2001, between Steen River Forest Products Ltd. and
Computershare Trust Company of Canada                                                                                                
|±4.16          |  | Securities Pledge Agreement dated December 20, 2001, between Ainsworth Lumber Co. Ltd. and Computershare Trust
Company of Canada                                                                                                        
|±4.17          |  | Assignment of Memorandum of Agreement dated December 20, 2001, among the Company, Steen River and Computershare
Trust Company of Canada                                                                                                 
|±4.18          |  | Assignment of Agreement dated February 12, 2001, as amended on December 20, 2001, among the Company, Steen
River and the Trust Company of the Bank of Montreal                                                                          
|±±4.19         |  | Executive Employment Agreement between Ainsworth Lumber Co. Ltd. and James Logan dated December 1, 2001                                                                                                                                 
|99.1           |  | Certification of CEO
and CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                  

49



---



##### 





---

|   |  | Incorporated by reference to Amendment No. 2 to the Registration
Statement on Form F-4 filed by Ainsworth Lumber Co. Ltd. and Ainsworth
Lumber Inc. on October 29, 1997 (No. 333-7346)         
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|*   |  | Incorporated by reference to Form 20-F dated June 8, 2001                                                                                                                                      
|   
|**  |  | Incorporated by reference to the Registration Statement on Form F-4 filed
by Ainsworth Lumber Co. Ltd. and Steen River Forest Products Ltd. on
February 19, 2002 (No. 333-83230)               
|   
|*** |  | Incorporated by reference to Form 20-F filed on May 19, 2000                                                                                                                                   
|   
|   |  | Incorporated by reference to Form 20-F filed on June 8, 2001                                                                                                                                   
|   
|±   |  | Incorporated by reference to Amendment No.1 to the Registration
Statement on Form F-4 filed by Ainsworth Lumber Co. Ltd. and Steen
River Forest Products Ltd. on March 29, 2002 (No. 333-83230)
|   
|±±  |  | Incorporated by reference to Amendment No.2 to the Registration
Statement on Form F-4 filed by Ainsworth Lumber Co. Ltd. and Steen
River Forest Products Ltd. on April 15, 2002 (No. 333-83230)

50



---



##### 



Independent Auditors Report

To the Shareholders of
Ainsworth Lumber Co. Ltd.

We have audited the consolidated balance sheets of Ainsworth Lumber Co. Ltd. as
at December 31, 2001 and 2002 and the consolidated statements of operations and
retained earnings and cash flows for each of the years ended December 31, 2000,
2001 and 2002. These 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 Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform
an audit to obtain reasonable assurance 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 that our audits provide 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 the Company as at
December 31, 2001 and December 31, 2002 and the results of its operations and
its cash flows for the years ended December 31, 2000, 2001 and 2002 in
accordance with Canadian generally accepted accounting principles.

Chartered Accountants
Vancouver, British Columbia
February 17, 2003

F- 1



---



##### 



AINSWORTH LUMBER CO. LTD.
Consolidated Balance Sheets
As at December 31
(Thousands of Canadian dollars)

|                                     |                                                                                  |           |      |   |      |                 |          |        |  |   |         |        | 
|------------------------------------ | -------------------------------------------------------------------------------- | --------- | ---- | - | ---- | --------------- | -------- | ------ |  | - | ------- | ------ | 
|                                     |                                                                                  |           | Note |   | 2001 |                 | 2002    
|                                     |                                                                                  |           |      |   |      |                 |         
|ASSETS                               |                                                                                  |           |      |   |      | (Reclassified - |          |        |  |  
|                                     |                                                                                  |           |      |   |      |                 | Note 13) |        |  |   |        
|CURRENT ASSETS                       |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|                                     | Cash and cash equivalents                                                        |           |      | 2 |      |                 | $        | 86,962 |  |   | $       | 80,195 | 
|                                     | Accounts receivable, net of
allowance for doubtful accounts
of $646 (2001 - $75) |           |      |   |      |                 |          | 23,810 |  |   |         | 25,198 | 
|                                     | Inventories                                                                      |           |      | 3 |      |                 |          | 45,466 |  |   |         | 50,906 | 
|                                     | Income taxes receivable                                                          |           |      |   |      |                 |          |       |  |   |         | 120    | 
|                                     | Prepaid expenses                                                                 |           |      |   |      |                 |          | 1,000  |  |   |         | 2,655  | 
|                                     |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|                                     |                                                                                  |           |      |   |      |                 | 157,238  |        |  |   | 159,074 |       
|CAPITAL ASSETS                       |                                                                                  |           | 4    |   |      |                 | 388,686  |        |  |   | 369,263 |       
|OTHER ASSETS                         |                                                                                  |           | 6    |   |      |                 | 32,042   |        |  |   | 26,715  |       
|                                     |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|                                     |                                                                                  |           |      |   |      | $               | 577,966  |        |  | $ | 555,052 |       
|                                     |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|CURRENT LIABILITIES                  |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|                                     | Accounts payable                                                                 |           |      |   |      |                 | $        | 14,723 |  |   | $       | 17,415 | 
|                                     | Accrued liabilities                                                              |           |      |   |      |                 |          | 36,812 |  |   |         | 36,954 | 
|                                     | Income taxes payable                                                             |           |      |   |      |                 |          | 2,252  |  |   |         |       | 
|                                     | Current portion of long-term debt                                                |           |      | 9 |      |                 |          | 58     |  |   |         | 46     | 
|                                     |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|                                     |                                                                                  |           |      |   |      |                 | 53,845   |        |  |   | 54,415  |       
|REFORESTATION OBLIGATION             |                                                                                  |           | 8    |   |      |                 | 4,851    |        |  |   | 4,634   |       
|LONG-TERM DEBT                       |                                                                                  |           | 9    |   |      |                 | 443,706  |        |  |   | 440,332 |       
|FUTURE INCOME TAXES                  |                                                                                  |           | 11   |   |      |                 | 9,349    |        |  |   | 7,300   |       
|                                     |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|                                     |                                                                                  |           |      |   |      |                 | 511,751  |        |  |   | 506,681 |       
|                                     |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|COMMITMENTS AND CONTINGENCIES        |                                                                                  | 14 and 16 |      |   |      |                 |          |        |  |  
|SHAREHOLDERS EQUITY                 |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|CAPITAL STOCK                        |                                                                                  |           | 10   |   |      |                 | 53,083   |        |  |   | 53,083  |       
|CONTRIBUTED SURPLUS                  |                                                                                  |           | 22   |   |      |                 | 346      |        |  |   | 375     |       
|RETAINED EARNINGS (DEFICIT)          |                                                                                  |           |      |   |      |                 | 12,786   |        |  |   | (5,087  | )     
|                                     |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|                                     |                                                                                  |           |      |   |      |                 | 66,215   |        |  |   | 48,371  |       
|                                     |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       
|                                     |                                                                                  |           |      |   |      | $               | 577,966  |        |  | $ | 555,052 |       
|                                     |                                                                                  |           |      |   |      |                 |          |        |  |   |         |       

See accompanying Notes to the Consolidated Financial Statements

F- 2



---



##### 



AINSWORTH LUMBER CO. LTD.

Consolidated Statements of Operations and Retained Earnings (Deficit)
Years ended December 31
(Thousand of Canadian Dollars, except per share data)

|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |         |  
|--------------------------------------------------------------------------------------------- | ---------------------------- |  | ---- |  | ---- | - | --------------- | ------- | --------------- | - | ---------- | ------- | - | - | ---------- | ------- | -
|                                                                                              |                              |  | Note |  | 2000 |   | 2001            |         | 2002           
|                                                                                              |                              |  |      |  |      |   |                 |         |                
|                                                                                              |                              |  |      |  |      |   | (Reclassified - |         | (Reclassified - |   |            |         |  
|                                                                                              |                              |  |      |  |      |   | Note 13)        |         | Note 13)        |   |            |         |  
|SALES                                                                                         |                              |  |      |  |      | $ | 350,182         |         |                 | $ | 326,664    |         |   | $ | 356,055    |        
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|COSTS AND EXPENSES                                                                            |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|                                                                                              | Costs of products sold       |  |      |  |      |   |                 | 229,616 |                 |   |            | 244,009 |   |   |            | 263,968 |  
|                                                                                              | Selling and administration   |  |      |  |      |   |                 | 26,294  |                 |   |            | 22,698  |   |   |            | 21,908  |  
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|                                                                                              |                              |  |      |  |      |   | 255,910         |         |                 |   | 266,707    |         |   |   | 285,876    |        
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|OPERATING EARNINGS BEFORE AMORTIZATION                                                        |                              |  |      |  |      |   | 94,272          |         |                 |   | 59,957     |         |   |   | 70,179     |        
|AMORTIZATION OF CAPITAL ASSETS                                                                |                              |  |      |  |      |   | 27,431          |         |                 |   | 30,377     |         |   |   | 31,960     |        
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|OPERATING EARNINGS                                                                            |                              |  |      |  |      |   | 66,841          |         |                 |   | 29,580     |         |   |   | 38,219     |        
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|FINANCE EXPENSE                                                                               |                              |  | 11   |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|                                                                                              | Interest charges             |  |      |  |      |   |                 | (35,626 | )               |   |            | (51,729 | ) |   |            | (57,151 | )
|                                                                                              | Amortization Charges         |  |      |  |      |   |                 | (2,078  | )               |   |            | (8,278  | ) |   |            | (5,349  | )
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|                                                                                              |                              |  |      |  |      |   | (37,704         | )       |                 |   | (60,007    | )       |   |   | (62,500    | )      
|OTHER INCOME (EXPENSE)                                                                        |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|                                                                                              | Interest and other income    |  |      |  |      |   |                 | 4,305   |                 |   |            | 2,768   |   |   |            | 2,901   |  
|                                                                                              | Write-down of capital assets |  |      |  |      |   |                 | (1,000  | )               |   |            | (3,306  | ) |   |            | (1,044  | )
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|                                                                                              |                              |  |      |  |      |   | (34,399         | )       |                 |   | (60,545    | )       |   |   | (60,643    | )      
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|INCOME (LOSS) BEFORE INCOME TAXES AND UNREALIZED
FOREIGN EXCHANGE GAIN (LOSS); LONG TERM DEBT |                              |  |      |  |      |   | 32,442          |         |                 |   | (30,965    | )       |   |   | (22,424    | )      
|UNREALIZED FOREIGN EXCHANGE GAIN (LOSS); LONG
TERM DEBT                                       |                              |  |      |  |      |   | (10,197         | )       |                 |   | (17,401    | )       |   |   | 4,279      |        
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|INCOME (LOSS) BEFORE INCOME TAXES                                                             |                              |  |      |  |      |   | 22,245          |         |                 |   | (48,366    | )       |   |   | (18,145    | )      
|INCOME TAX EXPENSE (RECOVERY)                                                                 |                              |  | 12   |  |      |   | 12,499          |         |                 |   | (18,715    | )       |   |   | (272       | )      
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|INCOME (LOSS) FROM CONTINUING OPERATIONS                                                      |                              |  |      |  |      |   | 9,746           |         |                 |   | (29,651    | )       |   |   | (17,873    | )      
|(LOSS) GAIN FROM DISCONTINUED OPERATIONS                                                      |                              |  | 13   |  |      |   | (14,375         | )       |                 |   | 4,227      |         |   |   |           |        
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|NET LOSS                                                                                      |                              |  |      |  |      |   | (4,629          | )       |                 |   | (25,424    | )       |   |   | (17,873    | )      
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|RETAINED EARNINGS, BEGINNING OF YEAR AS REPORTED                                              |                              |  |      |  |      |   | 42,987          |         |                 |   | 38,493     |         |   |   | 13,132     |        
|ADJUSTMENT; CHANGE IN ACCOUNTING POLICY                                                       |                              |  | 22   |  |      |   | (148            | )       |                 |   | (283       | )       |   |   | (346       | )      
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|RETAINED EARNINGS, BEGINNING OF YEAR, RESTATED                                                |                              |  |      |  |      |   | 42,839          |         |                 |   | 38,210     |         |   |   | 12,786     |        
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|RETAINED EARNINGS (DEFICIT), END OF YEAR                                                      |                              |  |      |  |      | $ | 38,210          |         |                 | $ | 12,786     |         |   | $ | (5,087     | )      
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|BASIC AND FULLY DILUTED LOSS
PER SHARE                                                        |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|Income (loss) from continuing operations                                                      |                              |  |      |  |      | $ | 0.68            |         |                 | $ | (2.04      | )       |   | $ | (1.23      | )      
|(Loss) gain from discontinued operations                                                      |                              |  |      |  |      |   | (0.99           | )       |                 |   | 0.29       |         |   |   |           |        
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|Loss per share                                                                                |                              |  |      |  |      | $ | (0.31           | )       |                 | $ | (1.75      | )       |   | $ | (1.23      | )      
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        
|WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING                                                 |                              |  |      |  |      |   | 14,544,800      |         |                 |   | 14,544,800 |         |   |   | 14,544,800 |        
|                                                                                              |                              |  |      |  |      |   |                 |         |                 |   |            |         |   |   |            |        

See accompanying Notes to the Consolidated Financial Statements

F- 3



---



##### 



AINSWORTH LUMBER CO. LTD.
Consolidated Statements of Cash Flows
Years ended December 31
(Thousands of Canadian dollars)

|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |         |  
|--------------------------------------------------------- | ------------------------------------------------------- | ---- | -- | -- |  | - | --------------- | -------- | --------------- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                          |                                                         |      |    |    |  |   | 2000            |          | 2001            |   | 2002   
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |        
|                                                          |                                                         |      |    |    |  |   | (Reclassified - |          | (Reclassified - |   |         |         |  
|                                                          |                                                         |      |    |    |  |   | Note 13)        |          | Note 13)        |   |         |         |  
|                                                          |                                                         | Note |    |    |  |   |                 |          |                 |   |         |         |   |  
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |  
|CASH FLOWS FROM OPERATING ACTIVITIES                      |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|Income (loss) from continuing operations                  |                                                         |      |    |    |  | $ | 9,746           |          |                 | $ | (29,651 | )       |   | $ | (17,873 | )      
|Amounts not requiring an outlay of cash                   |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|                                                          | Amortization of capital assets                          |      |    |    |  |   |                 | 27,431   |                 |   |         | 30,377  |   |   |         | 31,960  |  
|                                                          | Amortization of financing costs                         |      |    |    |  |   |                 | 1,359    |                 |   |         | 1,385   |   |   |         | 2,567   |  
|                                                          | Amortization of debt discount                           |      |    |    |  |   |                 | 719      |                 |   |         | 721     |   |   |         | 854     |  
|                                                          | Unrealized foreign exchange (gain) loss; long-term debt |      |    |    |  |   |                 | 10,197   |                 |   |         | 17,401  |   |   |         | (4,279  | )
|                                                          | Amortization of consent and commitment fees             |      |    |    |  |   |                 |          |                 |   |         | 6,172   |   |   |         | 1,929   |  
|                                                          | Non-cash stock based compensation                       |      |    | 22 |  |   |                 | 135      |                 |   |         | 64      |   |   |         | 29      |  
|                                                          | Loss (gain) on disposal of capital assets               |      |    |    |  |   |                 | (2       | )               |   |         | (26     | ) |   |         | 7       |  
|                                                          | Write-down of capital assets                            |      |    |    |  |   |                 | 1,000    |                 |   |         | 3,306   |   |   |         | 1,044   |  
|                                                          | Write-off of security deposits on lease termination     |      |    |    |  |   |                 |          |                 |   |         |        |   |   |         | 980     |  
|                                                          | Adjustment to deferred pension assets                   |      |    |    |  |   |                 | 853      |                 |   |         | (1,461  | ) |   |         | 9       |  
|                                                          | Change in non-current reforestation obligation          |      |    |    |  |   |                 | 1,501    |                 |   |         | 624     |   |   |         | (218    | )
|                                                          | Future income taxes                                     |      |    |    |  |   |                 | 11,474   |                 |   |         | (19,976 | ) |   |         | (2,049  | )
|Change in non-cash operating working capital              |                                                         |      | 19 |    |  |   | 43,563          |          |                 |   | (36,720 | )       |   |   | (7,530  | )      
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|Cash provided by (used in) operating activities           |                                                         |      |    |    |  |   | 107,976         |          |                 |   | (27,784 | )       |   |   | 7,430   |        
|Cash provided by discontinued operations                  |                                                         |      | 13 |    |  |   | 10,084          |          |                 |   | 4,812   |         |   |   |        |        
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|                                                          |                                                         |      |    |    |  |   | 118,060         |          |                 |   | (22,972 | )       |   |   | 7,430   |        
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES                      |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|                                                          | Additions to capital assets                             |      |    |    |  |   |                 | (133,843 | )               |   |         | (20,110 | ) |   |         | (14,113 | )
|                                                          | Decrease (increase) in other assets                     |      |    |    |  |   |                 | (3,024   | )               |   |         | 723     |   |   |         | (161    | )
|                                                          | Proceeds on disposals of capital assets                 |      |    |    |  |   |                 | 167      |                 |   |         | 201     |   |   |         | 38      |  
|                                                          | Discontinued operations, additions to capital assets    |      |    |    |  |   |                 | (2,361   | )               |   |         | (1,650  | ) |   |         |        |  
|                                                          | Discontinued operations, proceeds on disposal           |      |    |    |  |   |                 |         |                 |   |         | 29,226  |   |   |         |        |  
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|                                                          |                                                         |      |    |    |  |   | (139,061        | )        |                 |   | 8,390   |         |   |   | (14,236 | )      
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES                      |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|                                                          | Proceeds from issue of Senior Secured Notes             |      |    |    |  |   |                 |         |                 |   |         | 151,316 |   |   |         |        |  
|                                                          | Financing costs                                         |      |    |    |  |   |                 |         |                 |   |         | (7,007  | ) |   |         |        |  
|                                                          | Consent and commitment fees                             |      |    |    |  |   |                 | 21,489   |                 |   |         | (14,164 | ) |   |         |        |  
|                                                          | Decrease in bank indebtedness                           |      |    |    |  |   |                 |         |                 |   |         | (28,331 | ) |   |         |        |  
|                                                          | Increase (decrease) in capital lease obligations        |      |    |    |  |   |                 | (488     | )               |   |         | (270    | ) |   |         | 39      |  
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|                                                          |                                                         |      |    |    |  |   | 21,001          |          |                 |   | 101,544 |         |   |   | 39      |        
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|NET CASH INFLOW (OUTFLOW)                                 |                                                         |      |    |    |  |   |                |          |                 |   | 86,962  |         |   |   | (6,767  | )      
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR              |                                                         |      |    |    |  |   |                |          |                 |   |        |         |   |   | 86,962  |        
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|CASH AND CASH EQUIVALENTS, END OF YEAR                    |                                                         |      |    |    |  | $ |                |          |                 | $ | 86,962  |         |   | $ | 80,195  |        
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:         |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|Interest (including commitment, bonus and loan fees) paid |                                                         |      |    |    |  | $ | 32,091          |          |                 | $ | 58,316  |         |   | $ | 57,308  |        
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        
|Income taxes paid                                         |                                                         |      |    |    |  | $ | 1,253           |          |                 | $ | 726     |         |   | $ | 1,891   |        
|                                                          |                                                         |      |    |    |  |   |                 |          |                 |   |         |         |   |   |         |        

See accompanying Notes to the Consolidated Financial Statements

F- 4



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

1. SIGNIFICANT ACCOUNTING POLICIES



| |                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These consolidated financial statements have been prepared in Canadian
dollars in accordance with Canadian generally accepted accounting
principles (''Canadian GAAP) and reflect the following significant
accounting policies. Management has made assumptions and estimates that
affect the reported amounts and other disclosures in these consolidated
financial statements. Actual results may differ from those estimates.
|
| | Canadian GAAP, in the case of the Company, differs in certain respects
from accounting principles generally accepted in the United States (''U.S.
GAAP) as explained in Note 21.                                                                                                                                                                                                                                                 
|
| | The significant accounting policies are:                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (a) Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                         



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These consolidated financial statements include the Companys
proportionate interest in a jointly controlled oriented strand board
facility in High Level, Alberta (Note 5) that is held by a
wholly-owned subsidiary company, Steen River Forest Products Ltd.
(Steen). Steen exists for the sole purpose of holding that
interest. Steen has no operating income as all of its operations are
conducted on behalf of Ainsworth Lumber Co. Ltd. The Senior Secured
Notes (Note 9) are secured in part by priority interests on all of
the shares of Steen.



| |                              
| | -----------------------------
| | (b) Cash and cash equivalents



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and cash equivalents consist of cash balances with banks and
short-term investments with original maturities of less than three
months.



| |                
| | ---------------
| | (c) Inventories



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Logs, lumber and panel products are valued at the lower of average
cost and net realizable value. Materials and supplies are valued at
cost.



| |                                  
| | ---------------------------------
| | (d) Property, plant and equipment



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property, plant and equipment are stated at cost, including
capitalized debt financing costs, interest incurred for major
projects during the period of construction, and start-up costs. The
cost of renewals and betterments that extend the useful life of the
property, plant and equipment is also capitalized. The cost of
repairs and replacements is charged to expense as incurred. Oriented
strand board facilities are amortized on the units-of-production
method based on the estimated useful life of the assets at normal
production levels over 15 years. Other panel product mills, the
lumber remanufacturing plant and other assets are amortized on the
declining balance basis at annual rates based on the estimated useful
lives of the assets as follows:

|                        |  |      |        |  
|----------------------- |  | ---- | ------ | -
|Asset                   |  | Rate
|                        |  |     
|Buildings               |  |      | 5      | %
|Machinery and equipment |  |      | 12%-20 | %
|Office equipment        |  |      | 15     | %



| |                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company reviews the carrying values of its capital assets on a
regular basis, by reference to estimated future operating results and
undiscounted net cash flows. If the carrying value of these assets
exceeds estimated net recoverable amounts, a provision for impairment
will be made for an other than temporary decline in value.



| |                             
| | ----------------------------
| | (e) Timber and logging roads



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Timber rights and logging roads are stated at cost and are amortized
on the basis of the volume of timber cut.



| |                                      
| | -------------------------------------
| | (f) Financing and debt discount costs



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Costs relating to long-term debt are amortized on the straight-line
basis over the term of the related debt.



| |                             
| | ----------------------------
| | (g) Reforestation obligation



| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Timber is harvested under various licenses issued by the Provinces of
British Columbia and Alberta. The future estimated reforestation
obligation is accrued and charged to earnings on the basis of the
volume of timber cut.



| |                                 
| | --------------------------------
| | (h) Foreign currency translation

F- 5



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Transactions denominated in U.S. dollars have been translated into
Canadian dollars at the approximate rate of exchange prevailing at
the time of the transaction. Monetary assets and liabilities
denominated in foreign currencies have been translated into Canadian
dollars at the year-end exchange rate. Exchange gains and losses,
including unrealized foreign exchange gains and loss on long-term
debt, are included in earnings.



| |                       
| | ----------------------
| | (i) Earnings per share



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Earnings per share have been calculated on the weighted average
number of voting common shares outstanding during the periods.



| |                 
| | ----------------
| | (j) Income taxes



| |                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Future income taxes reflect the tax effect, using substantively
enacted tax rates, of differences between the book and tax bases of
assets and liabilities and the anticipated benefit of losses carried
forward for income tax purposes.



| |                        
| | -----------------------
| | (k) Revenue recognition



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue, net of shipping costs, is recognized upon shipment at agreed
prices to credit-approved customers, consistent with common forest
industry terms of trade.



| |                                      
| | -------------------------------------
| | (l) Employee participation share plan



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has an employee participation share plan which is
described in Note 10. The determination of compensatory adjustments
measures the difference between market value of the Companys Common
Shares at the reporting date compared to the market value as at the
dates of issue of Class B shares and options on the Common Shares. To
the extent that these differences are positive, notional compensatory
amounts are measured and amortized over five years, the vesting
period. Any consideration paid by employees on purchase of stock is
credited to share capital.



| |                  
| | -----------------
| | (m) Pension costs



| |                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pension costs are charged to income as they accrue. In determining
pension expense, the unrecognized pension surplus or liability,
adjustments arising from changes in actuarial assumptions, and
experience gains and losses are being amortized on a straight-line
basis over the expected average remaining service life of the
employee group. The assets of the pension plans are valued at market
values.



| |                                
| | -------------------------------
| | (n) Use of Accounting estimates



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.



| |                        
| | -----------------------
| | (o) Comparative figures



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Certain comparative figures have been reclassified to conform to the
current year presentation (Note 13).

2. CASH AND CASH EQUIVALENTS

Cash and cash equivalents are comprised as follows:

|                       |  |      |        |      |  |   |        | 
|---------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                       |  | 2001 |        | 2002
|                       |  |      |        |     
|Cash                   |  | $    | 62,959 |      |  | $ | 29,975 | 
|Short-term investments |  |      | 24,003 |      |  |   | 50,220 | 
|                       |  |      |        |      |  |   |        | 
|                       |  | $    | 86,962 |      |  | $ | 80,195 | 
|                       |  |      |        |      |  |   |        | 

F- 6



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

3. INVENTORIES

|                       |  |      |        |      |  |   |        | 
|---------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                       |  | 2001 |        | 2002
|                       |  |      |        |     
|Logs                   |  | $    | 16,762 |      |  | $ | 19,777 | 
|Panel products         |  |      | 13,518 |      |  |   | 13,312 | 
|Materials and supplies |  |      | 13,892 |      |  |   | 16,451 | 
|Lumber                 |  |      | 1,294  |      |  |   | 1,366  | 
|                       |  |      |        |      |  |   |        | 
|                       |  | $    | 45,466 |      |  | $ | 50,906 | 
|                       |  |      |        |      |  |   |        | 

4. CAPITAL ASSETS

|                                    |  |          |         |      |  |              |         |             |  |          |         |  |  |   |         | 
|----------------------------------- |  | -------- | ------- | ---- |  | ------------ | ------- | ----------- |  | -------- | ------- |  |  | - | ------- | 
|                                    |  | 2001     |         |      |  |              |         | 2002       
|                                    |  |          |         |     
|                                    |  | Net Book |         |      |  |              |         | Accumulated |  | Net Book
|                                    |  | Value    |         | Cost |  | Depreciation |         | Value      
|                                    |  |          |         |      |  |              |         |            
|Property, plant and
equipment       |  |          |         |      |  |              |         |             |  |          |         |  |  |   |         | 
|Panel product mills                 |  | $        | 340,910 |      |  | $            | 500,437 |             |  | $        | 175,565 |  |  | $ | 324,872 | 
|Land                                |  |          | 1,891   |      |  |              | 1,964   |             |  |          |        |  |  |   | 1,964   | 
|Other                               |  |          | 2,456   |      |  |              | 10,401  |             |  |          | 7,751   |  |  |   | 2,650   | 
|Construction in progress            |  |          | 16,504  |      |  |              | 13,201  |             |  |          |        |  |  |   | 13,201  | 
|                                    |  |          |         |      |  |              |         |             |  |          |         |  |  |   |         | 
|                                    |  |          | 361,761 |      |  |              | 526,003 |             |  |          | 183,316 |  |  |   | 342,687 | 
|                                    |  |          |         |      |  |              |         |             |  |          |         |  |  |   |         | 
|Timber and logging roads            |  |          |         |      |  |              |         |             |  |          |         |  |  |   |         | 
|Timber rights and
development costs |  |          | 11,780  |      |  |              | 18,495  |             |  |          | 6,722   |  |  |   | 11,773  | 
|Logging roads                       |  |          | 15,145  |      |  |              | 21,375  |             |  |          | 6,572   |  |  |   | 14,803  | 
|                                    |  |          |         |      |  |              |         |             |  |          |         |  |  |   |         | 
|                                    |  |          | 26,925  |      |  |              | 39,870  |             |  |          | 13,294  |  |  |   | 26,576  | 
|                                    |  |          |         |      |  |              |         |             |  |          |         |  |  |   |         | 
|                                    |  | $        | 388,686 |      |  | $            | 565,873 |             |  | $        | 196,610 |  |  | $ | 369,263 | 
|                                    |  |          |         |      |  |              |         |             |  |          |         |  |  |   |         | 



| |                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Note 13 describes the portion of capital assets relating to discontinued
operations. Included in construction in progress at December 31, 2002 is
$12,300,000 relating to the expansion of the Grande Prairie operations,
the completion of which has been delayed.

|                                  |  |      |        |      |  |      |        |  |  |   |        | 
|--------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|Amortization expense for the year |  | 2000 |        | 2001 |  | 2002
|                                  |  |      |        |      |  |     
|Property, plant and equipment     |  | $    | 24,530 |      |  | $    | 27,832 |  |  | $ | 29,560 | 
|Timber and logging roads          |  |      | 2,901  |      |  |      | 2,545  |  |  |   | 2,400  | 
|                                  |  |      |        |      |  |      |        |  |  |   |        | 
|                                  |  | $    | 27,431 |      |  | $    | 30,377 |  |  | $ | 31,960 | 
|                                  |  |      |        |      |  |      |        |  |  |   |        | 

5. THE HIGH LEVEL PROJECT



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has jointly developed an oriented strand board facility in
High Level, Alberta. The Companys proportionate (50%) share of major
assets including plant and equipment is held by a bare trustee
corporation, on behalf of the Company, together with the 50% interest of a
third party in such assets.
|
| | The Company and the third party also jointly control a company that is
responsible for log harvesting and oriented strand board production. The
Company reflects its investment in the High Level project as an interest
in jointly controlled operations.                                                        
|
| | The following is a summary of the Companys proportionate interest in the
financial position and cash flow of the High Level Project:                                                                                                                                                                             

|                 |  |      |       |      |  |   |       | 
|---------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                 |  | 2001 |       | 2002
|                 |  |      |       |     
|ASSETS           |  |      |       |      |  |   |       | 
|Receivables      |  | $    | 1,208 |      |  | $ | 1,343 | 
|Inventories      |  |      | 6,604 |      |  |   | 5,493 | 
|Prepaid expenses |  |      | 102   |      |  |   | 298   | 

F- 7



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

5. THE HIGH LEVEL PROJECT (Continued)

|                                                              |  |      |         |      |  |  |         | 
|------------------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                                              |  | 2001 |         | 2002
|                                                              |  |      |         |     
|Capital assets                                                |  |      | 131,030 |      |  |  | 128,938 | 
|CURRENT LIABILITIES                                           |  |      |         |      |  |  |         | 
|Excess of cheques issued over cash in bank                    |  |      | 2,100   |      |  |  | 1,470   | 
|Accrued liabilities and accounts payable                      |  |      | 2,927   |      |  |  | 4,800   | 
|CASH FLOWS
Cash provided by (applied to) operating activities |  |      | (20,897 | )    |  |  | 3,992   | 
|Cash used for investing activities                            |  |      | 11,755  |      |  |  | 3,354   | 



| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Operating results to March 31, 2001 were capitalized as start-up costs
pursuant to the Companys accounting policies.



| |                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | By agreement between the Company and its co-venturer, if the co-venturer
does not pay its share of accounts payable and accrued liabilities, the
Company may pay such amounts and recover them from the co-venturers share
of production. The co-venturers share of accounts payable and accrued
liabilities amounted to $4,450,000 as at December 31, 2002 and $2,577,000
as at December 31, 2001.

6. OTHER ASSETS

|                                  |  |      |        |      |  |   |        | 
|--------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                  |  | 2001 |        | 2002
|                                  |  |      |        |     
|Advances and deposits             |  | $    | 5,429  |      |  | $ | 3,787  | 
|Deferred pension assets (Note 15) |  |      | 4,968  |      |  |   | 4,959  | 
|Unamortized financing costs       |  |      | 21,645 |      |  |   | 17,969 | 
|                                  |  |      |        |      |  |   |        | 
|                                  |  | $    | 32,042 |      |  | $ | 26,715 | 
|                                  |  |      |        |      |  |   |        | 

7. BANK LOAN FACILITIES



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As at December 31, 2002, the Company has outstanding letters of credit of
$4,548,500 (2001  $2,430,000) to support the Companys ongoing business
operations.

8. REFORESTATION OBLIGATION

|                                         |  |      |       |      |  |   |       | 
|---------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                         |  | 2001 |       | 2002
|                                         |  |      |       |     
|Balance at beginning of year             |  | $    | 5,148 |      |  | $ | 5,771 | 
|Expense for the year                     |  |      | 1,919 |      |  |   | 1,256 | 
|                                         |  |      |       |      |  |   |       | 
|                                         |  |      | 7,067 |      |  |   | 7,027 | 
|Paid during the year                     |  |      | 1,296 |      |  |   | 1,348 | 
|                                         |  |      |       |      |  |   |       | 
|Balance at end of year                   |  | $    | 5,771 |      |  | $ | 5,679 | 
|                                         |  |      |       |      |  |   |       | 
|Current, included in accrued liabilities |  | $    | 920   |      |  | $ | 1,045 | 
|Long-term                                |  |      | 4,851 |      |  |   | 4,634 | 
|                                         |  |      |       |      |  |   |       | 
|                                         |  | $    | 5,771 |      |  | $ | 5,679 | 
|                                         |  |      |       |      |  |   |       | 

F- 8



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

9. LONG-TERM DEBT

|                                                                                                               |  |      |         |      |  |   |         |  
|-------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                                                                               |  | 2001 |         | 2002
|                                                                                                               |  |      |         |     
|U.S.$186,500,000
Senior Secured Notes due July 15, 2007
With interest payable semi-annually at 12.5% per annum |  | $    | 297,057 |      |  | $ | 294,222 |  
|U.S.$95,000,000
Senior Secured Notes due July 15, 2007
With interest payable quarterly at 13.875% per annum    |  |      | 151,316 |      |  |   | 149,872 |  
|Capital lease obligations                                                                                      |  |      | 58      |      |  |   | 97      |  
|                                                                                                               |  |      |         |      |  |   |         |  
|                                                                                                               |  |      | 448,431 |      |  |   | 444,191 |  
|Unamortized deferred debt discount                                                                             |  |      | (4,667  | )    |  |   | (3,813  | )
|                                                                                                               |  |      |         |      |  |   |         |  
|                                                                                                               |  |      | 443,764 |      |  |   | 440,378 |  
|Current portion                                                                                                |  |      | (58     | )    |  |   | (46     | )
|                                                                                                               |  |      |         |      |  |   |         |  
|                                                                                                               |  | $    | 443,706 |      |  | $ | 440,332 |  
|                                                                                                               |  |      |         |      |  |   |         |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The U.S.$186,500,000 Senior Secured Notes are secured by a first priority
fixed charge on the Companys 100 Mile House and Grande Prairie mills and
a second priority floating charge on the Companys other properties and
assets. The U.S.$95,000,000 Senior Secured Notes are secured by a first
priority pledge of shares of Steen (Note 1(a)) and a first priority
security interest in the Companys Savona and Lillooet mills and the
Companys current assets. The indentures governing the Senior Secured
Notes contain certain restrictions regarding, among other things, the
ability of the Company to incur additional indebtedness and pay cash
dividends. $10,000,000 of the proceeds from the U.S.$95,000,000 Senior
Secured Notes offering were restricted to create the High Level Qualified
Account which is used as an imprest fund for the Companys participation
in the High Level project.

10. CAPITAL STOCK

|                                           |  |               |            |               |  |        |        |        |  |         |         |  |  |   |    |  |  |   |        | 
|------------------------------------------ |  | ------------- | ---------- | ------------- |  | ------ | ------ | ------ |  | ------- | ------- |  |  | - | -- |  |  | - | ------ | 
|                                           |  |               |            |               |  |        |        |        |  | Class B |         |  |  |  
|Issued Share Capital                       |  | Common Shares |            | Common Shares |  |        |        |       
|                                           |  |               |            |               |  | Total 
|                                           |  | Shares        |            | Amount        |  | Shares |        | Amount |  | Amount 
|                                           |  |               |            |               |  |        |        |        |  |        
|Balance at December 31, 2000
2001 and 2002 |  |               | 14,544,800 |               |  | $      | 53,016 |        |  |         | 447,500 |  |  | $ | 67 |  |  | $ | 53,083 | 
|                                           |  |               |            |               |  |        |        |        |  |         |         |  |  |   |    |  |  |   |        | 



|    |                                                       |  | 
|--- | ----------------------------------------------------- |  | 
|(a) | The Companys authorized share capital is as follows:



| | (i)   |  | 100,000,000 common shares without par value                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | 1,500,000 Class B non-voting common shares without par value, of
which 717,500 have been designated for an employee participation
share plan. The designated Class B common shares are
convertible into the number of common shares equivalent to the
ratio of a) the greater of future appreciation in market value
of the common shares from the date the directors resolve to
issue the Class B shares and the issue price of the Class B
shares, divided by b) the market value of the common shares when
the conversion and completion of vesting occurs on the fifth
anniversary. Vesting occurs equally upon the third, fourth and
fifth anniversaries; and
|
| | (iii) |  | 100,000,000 preferred shares without par value, of which 300,000
have been designated Series 1 and 4,000,000 have been designated
Series 2. The Series 1 preferred shares are non-voting,
redeemable at the issue price of $10 and are entitled to a 6%
non-cumulative dividend. The Series 2 preferred shares are
non-voting with a cumulative dividend rate equal to 72% of bank
prime rate and are redeemable by the Company at any time or
retractable by the holder any time after five years from the
date of issue.                                                                                                                                        
|
| |       |  | F- 9                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

10. CAPITAL STOCK (Continued)



| |                                                              
| | -------------------------------------------------------------
| | (b) Employee Participation Share Plan as at December 31, 2002

|                  |  |              |      |        |  |           |      |        |  |               |         |  |  |  |         |  |  |   |    | 
|----------------- |  | ------------ | ---- | ------ |  | --------- | ---- | ------ |  | ------------- | ------- |  |  |  | ------- |  |  | - | -- | 
|                  |  | Common Share |      |        |  |           |      |        |  |               |         |  |  | 
|                  |  |              |      | Number |  | Class B   |      |        |  |              
|                  |  | Conversion   |      | Issue  |  | of Shares |      | Shares |  | Total        
|Date Issued       |  | Base Price   |      | Price  |  | Vested    |      | Issued |  | Consideration
|                  |  |              |      |        |  |           |      |        |  |              
|December 18, 1996 |  | $            | 6.00 |        |  | $         | 0.15 |        |  |               | 120,000 |  |  |  | 120,000 |  |  | $ | 18 | 
|August 11, 1998   |  |              | 3.20 |        |  |           | 0.15 |        |  |               | 105,000 |  |  |  | 157,500 |  |  |   | 24 | 
|June 25, 1999     |  |              | 3.00 |        |  |           | 0.15 |        |  |               | 56,667  |  |  |  | 170,000 |  |  |   | 25 | 
|                  |  |              |      |        |  |           |      |        |  |               |         |  |  |  |         |  |  |   |    | 
|                  |  |              |      |        |  |           |      |        |  |               | 281,667 |  |  |  | 447,500 |  |  | $ | 67 | 
|                  |  |              |      |        |  |           |      |        |  |               |         |  |  |  |         |  |  |   |    | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The market value per common share at December 31, 2002 was $3.50.                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | In 2001, the holders of the Class B common shares issued on December
18, 1996 became entitled under the Employee Participation Share Plan
to receive common shares in exchange for those Class B common shares.
On January 16, 2003 the Company issued 3,162 common shares at a
deemed issue price of $4.99 per common share, in exchange for the
Class B Common shares issued on December 18, 1996. The Company then
cancelled the Class B Common shares issued pursuant to the plan.

11. FINANCE EXPENSE

|               |  |      |        |      |  |      |        |  |  |   |        | 
|-------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|               |  | 2000 |        | 2001 |  | 2002
|               |  |      |        |      |  |     
|Current debt   |  | $    | 1,050  |      |  | $    | 17,362 |  |  | $ | 276    | 
|Long-term debt |  |      | 36,654 |      |  |      | 42,645 |  |  |   | 62,224 | 
|               |  |      |        |      |  |      |        |  |  |   |        | 
|               |  | $    | 37,704 |      |  | $    | 60,007 |  |  | $ | 62,500 | 
|               |  |      |        |      |  |      |        |  |  |   |        | 



| |                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Finance expense on long-term debt includes the amortization of deferred
financing costs and amortization of deferred debt discounts as follows:
$2,566,750 and $853,692, respectively, for the year ended December 31,
2002; $1,384,502 and $791,454, respectively, for the year ended December
31, 2001; and $1,359,308 and $719,082, respectively, for the year ended
December 31, 2000.
|
| | Finance expense is net of interest capitalized by the Company. The
Company capitalized $Nil for the years ended December 31, 2002 and 2001
and $1,480,731 for the year ended December 31, 2000.                                                                                                                                                                                           

F- 10



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

12. INCOME TAXES



| |                                                                          
| | -------------------------------------------------------------------------
| | The adjusted income (loss) for purposes of providing for income taxes is:

|                                         |  |                 |        |                 |  |      |         |   |  |   |         |  
|---------------------------------------- |  | --------------- | ------ | --------------- |  | ---- | ------- | - |  | - | ------- | -
|                                         |  | 2000            |        | 2001            |  | 2002
|                                         |  |                 |        |                 |  |     
|                                         |  | (Reclassified - |        | (Reclassified - |  |      |         |  
|                                         |  | Note 13)        |        | Note 13)        |  |      |         |  
|Income (loss) from continuing operations |  |                 |        |                 |  |      |         |   |  |   |         |  
|Before income taxes                      |  | $               | 22,245 |                 |  | $    | (48,366 | ) |  | $ | (18,145 | )
|Non-deductible items                     |  |                 | 1,284  |                 |  |      | 9,775   |   |  |   | 13,532  |  
|                                         |  |                 |        |                 |  |      |         |   |  |   |         |  
|Adjusted (loss) income                   |  | $               | 23,529 |                 |  | $    | (38,591 | ) |  | $ | (4,613  | )
|                                         |  |                 |        |                 |  |      |         |   |  |   |         |  



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | A reconciliation of the statutory tax rate to the effective tax rate on
adjusted income (loss) is as follows:

|                                              |  |                 |        |   |  |      |      |                 |  |      |         |   |  |  |       |   |  |   |        |   |  |  |       |  
|--------------------------------------------- |  | --------------- | ------ | - |  | ---- | ---- | --------------- |  | ---- | ------- | - |  |  | ----- | - |  | - | ------ | - |  |  | ----- | -
|                                              |  | 2000            |        | % |  | 2001 |      | %               |  | 2002 |         | %
|                                              |  |                 |        |   |  |      |      |                 |  |      |         |  
|                                              |  | (Reclassified - |        |   |  |      |      | (Reclassified - |  |      |         |   |  |  |       |   |  |   |        |  
|                                              |  | Note 13)        |        |   |  |      |      | Note 13)        |  |      |         |   |  |  |       |   |  |   |        |  
|Federal income tax, net                       |  | $               | 5,200  |   |  |      | 22.1 |                 |  | $    | (8,529  | ) |  |  | (22.1 | ) |  | $ | (1,019 | ) |  |  | (22.1 | )
|Provincial taxes, net                         |  |                 | 3,765  |   |  |      | 16.0 |                 |  |      | (6,020  | ) |  |  | (15.6 | ) |  |   | (720   | ) |  |  | (15.6 | )
|                                              |  |                 |        |   |  |      |      |                 |  |      |         |   |  |  |       |   |  |   |        |   |  |  |       |  
|Tax expense (recovery)                        |  |                 | 8,965  |   |  |      | 38.1 |                 |  |      | (14,549 | ) |  |  | (37.7 | ) |  |   | (1,739 | ) |  |  | (37.7 | )
|Large corporation tax                         |  |                 | 1,025  |   |  |      | 4.4  |                 |  |      | 1,261   |   |  |  | 3.2   |   |  |   | 1,777  |   |  |  | 38.5  |  
|Prospective effect of change
of enacted rates |  |                 |       |   |  |      |     |                 |  |      | (3,093  | ) |  |  | (7.9  | ) |  |   |       |   |  |  |      |  
|Other                                         |  |                 | 2,509  |   |  |      | 10.6 |                 |  |      | (2,334  | ) |  |  | (6.0  | ) |  |   | (310   | ) |  |  | (6.7  | )
|                                              |  |                 |        |   |  |      |      |                 |  |      |         |   |  |  |       |   |  |   |        |   |  |  |       |  
|Tax expense (recovery)                        |  | $               | 12,499 |   |  |      | 53.1 |                 |  | $    | (18,715 | ) |  |  | (48.4 | ) |  | $ | (272   | ) |  |  | (5.9  | )
|                                              |  |                 |        |   |  |      |      |                 |  |      |         |   |  |  |       |   |  |   |        |   |  |  |       |  
|Comprised of:                                 |  |                 |        |   |  |      |      |                 |  |      |         |   |  |  |       |   |  |   |        |   |  |  |       |  
|Current taxes                                 |  | $               | 1,025  |   |  |      |      |                 |  | $    | 1,261   |   |  |  |       |   |  | $ | 1,777  |   |  |  |       |  
|Future income taxes                           |  |                 | 11,474 |   |  |      |      |                 |  |      | (19,976 | ) |  |  |       |   |  |   | (2,049 | ) |  |  |       |  
|                                              |  |                 |        |   |  |      |      |                 |  |      |         |   |  |  |       |   |  |   |        |   |  |  |       |  
|                                              |  | $               | 12,499 |   |  |      |      |                 |  | $    | (18,715 | ) |  |  |       |   |  | $ | (272   | ) |  |  |       |  
|                                              |  |                 |        |   |  |      |      |                 |  |      |         |   |  |  |       |   |  |   |        |   |  |  |       |  



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Temporary timing differences and tax loss carryforwards which give rise to
the net future income tax liability are as follows:

|                                                       |  |      |        |      |  |   |         |  
|------------------------------------------------------ |  | ---- | ------ | ---- |  | - | ------- | -
|                                                       |  | 2001 |        | 2002
|                                                       |  |      |        |     
|Future tax liability, net
Temporary timing differences |  |      |        |      |  |   |         |  
|Depreciable capital assets                             |  | $    | 25,751 |      |  | $ | 31,617  |  
|Deferred pension costs                                 |  |      | 1,873  |      |  |   | 1,766   |  
|Financing costs                                        |  |      | (7,143 | )    |  |   | (12,181 | )
|Accruals not currently deductible                      |  |      | (2,176 | )    |  |   | (2,364  | )
|Other                                                  |  |      | 643    |      |  |   | (385    | )
|Tax loss carryforwards                                 |  |      | (9,599 | )    |  |   | (11,153 | )
|                                                       |  |      |        |      |  |   |         |  
|Future income tax liability                            |  | $    | 9,349  |      |  | $ | 7,300   |  
|                                                       |  |      |        |      |  |   |         |  



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Non-capital losses carried forward for income tax purposes of $25,851,651
will expire in 2005 if they are not otherwise utilized. Capital losses of
$10,530,000 can be carried forward indefinitely to be applied against
future capital gains.

F- 11



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

12. INCOME TAXES (Continued)



| |                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has an unclaimed special investment tax credit in respect of
its investment in the Grande Prairie wood processing facilities. Any
future credit realized against federal taxes otherwise payable will be
treated as a reduction in the capital cost of the Grande Prairie assets.

13. DISCONTINUED OPERATIONS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 24, 2001, the Company completed the sale of its Chasm lumber
operations to West Fraser Mills Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | In 2001, the Companys Abbotsford lumber operation was included in
discontinued operations reflecting a decision made concurrent with the
decision to sell the Chasm operations. Subsequent to December 31, 2001,
the Company ceased efforts to sell the Abbotsford operation. This decision
reflected the Companys improved financial position and changes in other
circumstances. As a result of this decision, the Abbotsford portion of
amounts previously reported as discontinued operations amounts have been
reclassified to continuing operations without effect on net earnings.
Abbotsford net earnings were $654,000 for the year ended December 31,
2002, $396,000 for the year ended December 31, 2001 and $3,000 for the
year ended December 31, 2000. In addition, 2001 comparative Abbotsford
balance sheet amounts have been reclassified to continuing operations
balances as follows; current assets of $2,613,000, capital assets of
$858,000 and current liabilities of $1,616,000.
|
| | Results of discontinued operations, including an allocation of applicable
indirect expenses, are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                                                                        |  |      |         |      |  |      |        |   |  |   |   | 
|--------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | - | 
|                                                                                        |  | 2000 |         | 2001 |  | 2002
|                                                                                        |  |      |         |      |  |     
|Sales                                                                                   |  | $    | 52,478  |      |  | $    | 15,402 |   |  | $ |  | 
|Operating expenses                                                                      |  |      | 53,654  |      |  |      | 12,730 |   |  |   |  | 
|Depreciation and amortization                                                           |  |      | 5,820   |      |  |      |       |   |  |   |  | 
|                                                                                        |  |      |         |      |  |      |        |   |  |   |   | 
|Operating (loss) income                                                                 |  |      | (6,996  | )    |  |      | 2,672  |   |  |   |  | 
|                                                                                        |  |      |         |      |  |      |        |   |  |   |   | 
|Administration expenses                                                                 |  |      | (704    | )    |  |      | (123   | ) |  |   |  | 
|Income tax recovery (expense)                                                           |  |      | 3,003   |      |  |      | (908   | ) |  |   |  | 
|                                                                                        |  |      |         |      |  |      |        |   |  |   |   | 
|Net (loss) income                                                                       |  |      | (4,697  | )    |  |      | 1,641  |   |  |   |  | 
|(Loss) gain on disposition, net of
related taxes of $Nil (2001 - $1,430; 2000 - $6,091) |  |      | (9,678  | )    |  |      | 2,586  |   |  |   |  | 
|                                                                                        |  |      |         |      |  |      |        |   |  |   |   | 
|Net (loss) gain from discontinued operations                                            |  | $    | (14,375 | )    |  | $    | 4,227  |   |  | $ |  | 
|                                                                                        |  |      |         |      |  |      |        |   |  |   |   | 

Cash provided by discontinued operations:

|                                                 |  |      |         |      |  |      |        |   |  |   |   | 
|------------------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | - | 
|                                                 |  | 2000 |         | 2001 |  | 2002
|                                                 |  |      |         |      |  |     
|Net (loss) income from discontinued operations   |  | $    | (14,375 | )    |  | $    | 4,227  |   |  | $ |  | 
|Items not requiring an outlay of cash            |  |      |         |      |  |      |        |   |  |   |   | 
|Amortization of capital assets                   |  |      | 5,820   |      |  |      |       |   |  |   |  | 
|Loss (gain) on disposal of assets                |  |      | 15,610  |      |  |      | (4,015 | ) |  |   |  | 
|Reforestation obligation                         |  |      | 95      |      |  |      | 877    |   |  |   |  | 
|Future income taxes                              |  |      | (8,935  | )    |  |      | 2,338  |   |  |   |  | 
|                                                 |  |      |         |      |  |      |        |   |  |   |   | 
|Cash provided by (used in) continuing operations |  |      | (1,785  | )    |  |      | 3,427  |   |  |   |  | 
|Change in non-cash operating working capital     |  |      | 11,869  |      |  |      | 1,385  |   |  |   |  | 
|                                                 |  |      |         |      |  |      |        |   |  |   |   | 
|Cash provided by discontinued operations         |  | $    | 10,084  |      |  | $    | 4,812  |   |  | $ |  | 
|                                                 |  |      |         |      |  |      |        |   |  |   |   | 



| |                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In addition to cash proceeds of $29,226,000 for discontinued operations
disclosed in the consolidated statement of cash flows, long-term
reforestation obligations of $9,200,000 were assumed by the purchaser
without cash effect.

F- 12



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

14. LEASE COMMITMENTS



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | The Company is committed to capital and operating lease payments in
respect of premises and equipment as follows:

|                                               |  |         |     |           |  |   |       | 
|---------------------------------------------- |  | ------- | --- | --------- |  | - | ----- | 
|                                               |  | Capital |     | Operating
|                                               |  | Leases  |     | Leases   
|                                               |  |         |     |          
|2003                                           |  | $       | 40  |           |  | $ | 1,885 | 
|2004                                           |  |         | 35  |           |  |   | 1,274 | 
|2005                                           |  |         | 34  |           |  |   | 675   | 
|2006                                           |  |         |    |           |  |   | 382   | 
|2007                                           |  |         |    |           |  |   | 255   | 
|                                               |  |         |     |           |  |   |       | 
|Total minimum lease payments                   |  |         | 109 |           |  | $ | 4,471 | 
|                                               |  |         |     |           |  |   |       | 
|Imputed interest at a weighted average of 6.2% |  |         | 12  |           |  |   |       | 
|                                               |  |         |     |           |  |   |       | 
|Capital lease obligations                      |  | $       | 97  |           |  |   |       | 
|                                               |  |         |     |           |  |   |       | 



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Rent expense was $5,326,000, $5,125,000 and $5,627,000 for 2000, 2001 and
2002, respectively.

15. PENSION PLANS



| |                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company maintains a defined benefit pension plan for certain salaried
and certain hourly employees.                                                                                                                                                                                                                                                                              
|
| | The Company also participates in a multi-employer pension plan for hourly
employees who are subject to a collective bargaining agreement, sponsors a
Group Registered Retirement Savings Plan (RRSP) at one of its operations,
and contributes to a defined contribution pension plan at the High Level
plant. Contributions to these plans are reflected as part of pension
expense.
|
| | As discussed in Note 13, the Company has disposed of its Chasm operations.
Related pension obligations and a comparable amount of pension assets
have been transferred to new plans as part of the sale.                                                                                                                                                                             
|
| | Pension expense includes multi-employer and Group RRSP contributions of
$1,495,000 for 2000, $2,347,000 for 2001 and $1,155,000 for 2002.                                                                                                                                                                                                                                            

F- 13



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

15. PENSION PLANS (Continued)



| |                                                                            
| | ---------------------------------------------------------------------------
| | Information about the Companys defined benefit pension plan is as
follows:

|                                                                 |  |      |        |      |  |      |         |   |  |   |         |  
|---------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                 |  | 2000 |        | 2001 |  | 2002
|                                                                 |  |      |        |      |  |     
|PLAN ASSETS                                                      |  |      |        |      |  |      |         |   |  |   |         |  
|Fair value at beginning of year                                  |  | $    | 40,643 |      |  | $    | 41,588  |   |  | $ | 27,718  |  
|Return on plan assets                                            |  |      | 3,190  |      |  |      | 2,687   |   |  |   | 1,923   |  
|Employer contributions                                           |  |      | 3      |      |  |      | 1,392   |   |  |   | 1,701   |  
|Transfer of assets due to settlement,
sale of Chasm operations   |  |      |       |      |  |      | (9,716  | ) |  |   |        |  
|Benefits paid                                                    |  |      | (1,551 | )    |  |      | (3,047  | ) |  |   | (2,185  | )
|Experience (loss) gain                                           |  |      | (697   | )    |  |      | (5,186  | ) |  |   | (3,356  | )
|                                                                 |  |      |        |      |  |      |         |   |  |   |         |  
|Fair value at end of year                                        |  |      | 41,588 |      |  |      | 27,718  |   |  |   | 25,801  |  
|                                                                 |  |      |        |      |  |      |         |   |  |   |         |  
|ACCRUED BENEFIT OBLIGATION                                       |  |      |        |      |  |      |         |   |  |   |         |  
|Balance at beginning of year                                     |  |      | 31,902 |      |  |      | 38,553  |   |  |   | 28,934  |  
|Current service cost                                             |  |      | 1,963  |      |  |      | 1,612   |   |  |   | 1,419   |  
|Interest cost                                                    |  |      | 2,316  |      |  |      | 2,219   |   |  |   | 2,048   |  
|Benefits paid                                                    |  |      | (1,551 | )    |  |      | (3,047  | ) |  |   | (2,185  | )
|Experience loss                                                  |  |      | 3,923  |      |  |      |        |   |  |   |        |  
|Plan improvement cost                                            |  |      |       |      |  |      |        |   |  |   | 544     |  
|Liabilities released due to settlement,
sale of Chasm operations |  |      |       |      |  |      | (10,403 | ) |  |   |        |  
|                                                                 |  |      |        |      |  |      |         |   |  |   |         |  
|Balance at end of year                                           |  |      | 38,553 |      |  |      | 28,934  |   |  |   | 30,760  |  
|                                                                 |  |      |        |      |  |      |         |   |  |   |         |  
|NET SURPLUS (DEFICIENCY),
END OF YEAR                            |  | $    | 3,035  |      |  | $    | (1,216  | ) |  | $ | (4,959  | )
|                                                                 |  |      |        |      |  |      |         |   |  |   |         |  
|NET SURPLUS (DEFICIENCY) IS COMPRISED OF:                        |  |      |        |      |  |      |         |   |  |   |         |  
|Deferred Pension Fund Asset                                      |  |      |        |      |  |      |         |   |  |   |         |  
|Balance at beginning of year                                     |  | $    | 5,027  |      |  | $    | 4,173   |   |  | $ | 4,968   |  
|Contributions for the year                                       |  |      | 3      |      |  |      | 1,392   |   |  |   | 1,701   |  
|Expense for the year                                             |  |      | (857   | )    |  |      | (597    | ) |  |   | (1,710  | )
|                                                                 |  |      |        |      |  |      |         |   |  |   |         |  
|Balance at end of year                                           |  |      | 4,173  |      |  |      | 4,968   |   |  |   | 4,959   |  
|Plan improvement cost                                            |  |      |       |      |  |      |        |   |  |   | (544    | )
|Unamortized surplus                                              |  |      |        |      |  |      |         |   |  |   |         |  
|Unamortized net actuarial (loss) gain                            |  |      | (4,620 | )    |  |      | (8,599  | ) |  |   | (11,619 | )
|Unamortized transitional asset                                   |  |      | 3,482  |      |  |      | 2,415   |   |  |   | 2,245   |  
|                                                                 |  |      |        |      |  |      |         |   |  |   |         |  
|Total                                                            |  | $    | 3,035  |      |  | $    | (1,216  | ) |  | $ | (4,959  | )
|                                                                 |  |      |        |      |  |      |         |   |  |   |         |  

F- 14



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

15. PENSION PLANS (Continued)



| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ASSUMPTIONS                                                                                                                                                    
|
| | The significant weighted-average actuarial assumptions adopted in
measuring the Companys accrued benefit obligations as at December 31
included the following:

|                                                 |  |      |     |      |  |      |     |   |  |  |     |  
|------------------------------------------------ |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                                 |  | 2000 |     | 2001 |  | 2002
|                                                 |  |      |     |      |  |     
|Discount rate                                    |  |      | 7.0 | %    |  |      | 7.0 | % |  |  | 7.0 | %
|Expected long-term rate of return on plan
assets |  |      | 8.0 | %    |  |      | 8.0 | % |  |  | 7.0 | %
|Rate of compensation increase                    |  |      | 4.5 | %    |  |      | 4.5 | % |  |  | 4.5 | %

16. CONTINGENCIES



| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consistent with the nature of its business, the Company is involved in
various legal actions. In the opinion of management, any resulting
liability would not have a material adverse effect on the Companys
financial position.

17. RELATED PARTY TRANSACTIONS



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | The Company had transactions with companies owned by or related to its
officers and directors as follows:

|                                                                                                      |  |      |     |      |  |      |     |  |  |   |     | 
|----------------------------------------------------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                                                                                                      |  | 2000 |     | 2001 |  | 2002
|                                                                                                      |  |      |     |      |  |     
|Rental charges for mobile forestry and
Transportation equipment at normal commercial
Terms and prices |  | $    | 132 |      |  | $    | 100 |  |  | $ | 120 | 
|Amounts due from companies with directors in
Common included in accounts receivable                   |  |      | 2   |      |  |      |    |  |  |   |    | 
|Acquisition of capital assets                                                                         |  |      |    |      |  |      |    |  |  |   | 22  | 
|Amounts due from officers and companies with
Directors in common included in other assets             |  |      | 907 |      |  |      | 967 |  |  |   | 466 | 
|Amounts due to companies with directors in
Common included in accounts payable                        |  |      | 12  |      |  |      |    |  |  |   | 2   | 



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | The Companys co-venturer in the High Level project (Note 5) is a
significant shareholder of the Company.

18. SEGMENTED INFORMATION



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Following discontinuance of the Chasm lumber operations, the Company
operates in one business segment, manufacturing wood panel products.
|
| | All capital assets are located in Canada.                                                                                                

|                              |  |      |         |      |  |      |         |  |  |   |         | 
|----------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                              |  | 2000 |         | 2001 |  | 2002
|                              |  |      |         |      |  |     
|Geographic sales information: |  |      |         |      |  |      |         |  |  |   |         | 
|Canada                        |  | $    | 58,683  |      |  | $    | 49,271  |  |  | $ | 69,078  | 
|U.S.A.                        |  |      | 237,656 |      |  |      | 227,462 |  |  |   | 246,928 | 
|Europe                        |  |      | 10,178  |      |  |      | 11,258  |  |  |   | 6,855   | 
|Japan and Other Asia          |  |      | 43,665  |      |  |      | 38,673  |  |  |   | 33,194  | 
|                              |  |      |         |      |  |      |         |  |  |   |         | 
|                              |  | $    | 350,182 |      |  | $    | 326,664 |  |  | $ | 356,055 | 
|                              |  |      |         |      |  |      |         |  |  |   |         | 

F- 15



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

19. CHANGE IN NON-CASH OPERATING WORKING CAPITAL

|                                         |  |      |        |      |  |      |         |   |  |   |        |  
|---------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                         |  | 2000 |        | 2001 |  | 2002
|                                         |  |      |        |      |  |     
|Accounts receivable                      |  | $    | (8,147 | )    |  | $    | 1,221   |   |  | $ | (1,388 | )
|Inventories                              |  |      | 15,214 |      |  |      | 7,400   |   |  |   | (5,440 | )
|Prepaid expenses                         |  |      | (450   | )    |  |      | 322     |   |  |   | (1,655 | )
|Accounts payable and accrued liabilities |  |      | 37,120 |      |  |      | (47,343 | ) |  |   | 3,325  |  
|Income taxes payable                     |  |      | (174   | )    |  |      | 1,680   |   |  |   | (2,372 | )
|                                         |  |      |        |      |  |      |         |   |  |   |        |  
|Total                                    |  | $    | 43,563 |      |  | $    | (36,720 | ) |  | $ | (7,530 | )
|                                         |  |      |        |      |  |      |         |   |  |   |        |  

20. FINANCIAL INSTRUMENTS



|    |                           |                                                                                                                                                                                                                                                                                                                            
|--- | ------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Financial and credit risk
|    |                           |                                                                                                                                                                                                                                                                                                                            
|    |                           | The financial risk is the risk that the value of the Companys
financial instruments will vary due to fluctuations in interest rates
and foreign exchange rates, and the degree of volatility of these
rates. The Company does not use derivative instruments to reduce its
exposure to interest and foreign currency risk.
|   
|    |                           | The Company does not have a significant exposure to any individual
customer or counterparty. Concentrations of credit risk on trade
accounts receivable are with customers in the forestry industry which
are located in Canada and the United States.                                                                     



|    |             |                                                                                                                                                                                                                                                                                                                                                                  
|--- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Fair values
|   
|    |             | The fair value of the Companys accounts receivable, bank indebtedness,
accounts payable and accrued liabilities is estimated to approximate
their carrying value due to the immediate or short term maturity of
these financial instruments.                                                                                                                    
|   
|    |             | The fair value of the long-term debt is estimated using present value
techniques and assumptions concerning the amount and timing of expected
future cash flows and discount rates which reflect the level of risk
for the instrument. The estimated fair value may differ from the
amount which could be realized in an immediate settlement of the
instruments.
|   
|    |             | The carrying value and fair value of the long term debt are as follows:                                                                                                                                                                                                                                                                                          

|               |  |          |         |       |  |          |         |       |  |   |         |  |  |   |         | 
|-------------- |  | -------- | ------- | ----- |  | -------- | ------- | ----- |  | - | ------- |  |  | - | ------- | 
|               |  | 2001     |         | 2002 
|               |  |          |         |      
|               |  | Carrying |         | Fair  |  | Carrying |         | Fair 
|               |  | Value    |         | Value |  | Value    |         | Value
|               |  |          |         |       |  |          |         |      
|LONG-TERM DEBT |  |          |         |       |  |          |         |       |  |   |         |  |  |   |         | 
|Senior notes   |  | $        | 448,373 |       |  | $        | 442,488 |       |  | $ | 444,094 |  |  | $ | 465,333 | 
|Capital leases |  |          | 58      |       |  |          | 58      |       |  |   | 97      |  |  |   | 97      | 
|               |  |          |         |       |  |          |         |       |  |   |         |  |  |   |         | 
|               |  | $        | 448,431 |       |  | $        | 442,546 |       |  | $ | 444,191 |  |  | $ | 465,430 | 
|               |  |          |         |       |  |          |         |       |  |   |         |  |  |   |         | 

F- 16



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

21. U.S. GAAP RECONCILIATION



|                                                                                                                                                                                                                                     |                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------
|As indicated in Note 1, these consolidated financial statements have been
prepared in accordance with Canadian GAAP, which, in the case of the
Company, conforms in all material respects with U.S. GAAP, except as set
forth below:
|                                                                                                                                                                                                                                    
|(a)                                                                                                                                                                                                                                  | Adjustments to assets, liabilities and shareholders equity

|                                                            |  |      |         |      |  |   |         |  
|----------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                            |  | 2001 |         | 2002
|                                                            |  |      |         |     
|Total assets in accordance with Canadian GAAP               |  | $    | 577,966 |      |  | $ | 555,052 |  
|Write-off of capitalized start-up costs (1)                 |  |      | (11,739 | )    |  |   | (10,380 | )
|                                                            |  |      |         |      |  |   |         |  
|Total assets in accordance with U.S. GAAP                   |  | $    | 566,227 |      |  | $ | 544,672 |  
|                                                            |  |      |         |      |  |   |         |  
|Total liabilities in accordance with Canadian GAAP          |  | $    | 511,751 |      |  | $ | 506,681 |  
|Future income taxes relating to:                            |  |      |         |      |  |   |         |  
|Write-off of capitalized start-up costs (1)                 |  |      | (4,185  | )    |  |   | (3,700  | )
|                                                            |  |      |         |      |  |   |         |  
|Total liabilities in accordance with U.S. GAAP              |  | $    | 507,566 |      |  | $ | 502,981 |  
|                                                            |  |      |         |      |  |   |         |  
|Total shareholders equity in accordance with
Canadian GAAP |  | $    | 66,215  |      |  | $ | 48,371  |  
|Change in retained earnings relating to:                    |  |      |         |      |  |   |         |  
|Write-off of capitalized start-up costs (1)                 |  |      | (7,554  | )    |  |   | (6,680  | )
|                                                            |  |      |         |      |  |   |         |  
|Total shareholders equity in accordance with
U.S. GAAP     |  | $    | 58,661  |      |  | $ | 41,691  |  
|                                                            |  |      |         |      |  |   |         |  



|    |                        
|--- | -----------------------
|(b) | Adjustments to earnings

|                                                                                       |  |      |        |      |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                       |  | 2000 |        | 2001 |  | 2002
|                                                                                       |  |      |        |      |  |     
|Net loss in accordance with
Canadian GAAP                                              |  | $    | (4,629 | )    |  | $    | (25,424 | ) |  | $ | (17,873 | )
|Reversal of amortization of capitalized
start-up costs, net of future income taxes (1) |  |      | (3,338 | )    |  |      | (410    | ) |  |   | 874     |  
|Net loss in accordance with U.S. GAAP                                                  |  | $    | (7,967 | )    |  | $    | (25,834 | ) |  | $ | (16,999 | )
|                                                                                       |  |      |        |      |  |      |         |   |  |   |         |  

|                                                              |  |      |       |      |  |      |       |   |  |   |       |  
|------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                              |  | 2000 |       | 2001 |  | 2002
|                                                              |  |      |       |      |  |     
|Basic and diluted loss per share in
accordance with U.S. GAAP |  | $    | (0.55 | )    |  | $    | (1.78 | ) |  | $ | (1.17 | )
|                                                              |  |      |       |      |  |      |       |   |  |   |       |  



---

|(1) |  | Under U.S. GAAP, the direct operating losses arising during the
start-up phase of the oriented strand board facilities, which were
capitalized under Canadian GAAP, are charged against earnings.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|    |                         |                                                                                                                                                                 
|--- | ----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | Discontinued Operations
|   
|    |                         | The loss from discontinued operations (Note 13) would not change if
U.S. GAAP was applied. All adjustments in (a) and (b) above relate to
continuing operations.

F- 17



---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)

21. U.S. GAAP RECONCILIATION (Continued)



| |     |                                       | 
| | --- | ------------------------------------- | 
| | (d) | Other Information Regarding U.S. GAAP



| | (i)    |  | Statement of Financial Accounting
Standards (SFAS) No. 130,
Reporting Comprehensive Income, issued under U.S. GAAP, requires the
reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. SFAS No. 130 does
not currently apply to the Company as there are no items of other
comprehensive income in any period presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)   |  | SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, issued under U.S. GAAP and effective in 2001, establishes
accounting standards for derivatives, and requires the reporting of
derivative instruments information in annual and interim reports to
shareholders. SFAS No. 133 does not have an impact on the Companys
financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (iii)  |  | In accordance with Canadian GAAP, joint ventures are required
to be proportionately consolidated regardless of the legal form of
the entity. Under U.S. GAAP, incorporated joint ventures are required
to be accounted for by the equity method. However, in accordance with
practices prescribed by the SEC, the Company has provided (Note 5)
summary information regarding use of the proportionate consolidation
method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (iv)   |  | In June 2001, the Financial Accounting Standards Board
(FASB) introduced SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
addresses the initial recognition and measurement of goodwill and
other intangible assets acquired in a business combination. SFAS No.
142 addresses the initial recognition of intangible assets acquired
outside of a business combination whether acquired individually or
with a group of other assets. These standards require all future
business combinations to be accounted for using the purchase method
of accounting. Goodwill will no longer be amortized but instead will
be subject to impairment tests at least annually. The Company was
required to adopt SFAS No. 141 on a prospective basis as of July
2001, SFAS No. 142 in January 2002. SFAS No. 141 and 142 does not
have an impact on the Companys financial statements.
|
| | (v)    |  | In August 2001, the FASB issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS No. 144
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets to be held and used, to be disposed of
other than by sale, and to be disposed of by sale. The Company
adopted SFAS No. 144 in the first quarter of 2002 on a prospective
basis and does not have significant impact on the Companys financial
statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (vi)   |  | Under U.S. GAAP, the Company would disclose shipping costs as
part of costs of products as a component of cost of sales, rather
than netted against revenue as per the Companys existing accounting
policy. If the Company had reported shipping costs as costs of
products, revenue would have increased by $50,845,000, $62,000,000,
and $65,625,000, with a corresponding increase in costs of products
sold in 2000, 2001, and 2002 respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (vii)  |  | In April 2002, the FASB issued SFAS No. 145, Rescission of
FASB Statements No 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections.Among other things, SFAS No. 145 rescinds
both SFAS No. 4, SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements.Through this rescission, SFAS No. 145
eliminates the requirement (in both SFAS No. 4 and SFAS No. 64) that
gains and losses from the extinguishment of debt be aggregated and,
if material, classified as an extraordinary item, net of the related
income tax effect. Generally, SFAS No. 145 is effective for
transactions occurring after May 15, 2002. SFAS No. 145 does not have
a material impact on the Companys financial statements.                                                                                                                                                                                    
|
| | (viii) |  | In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal of Activities.SFAS No. 146 requires
that the liability for a cost associated with an exit or disposal
activity be recognized at its fair value when the liability is
incurred. Under previous guidance, a liability for certain exit costs
was recognized at the date that management committed to an exit plan,
which was generally before the actual liability had been incurred. As
SFAS No. 146 is effective only for exit or disposal activities
initiated after December 31, 2002 the Company does not expect the
adoption of this statement to have a material impact on the Companys
financial statements.                                                                                                                                                                                                                  



|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|22. | CHANGE IN ACCOUNTING POLICY                                                                                                                                                                                                                                                                                                                                                                               
|   
|    | During 2001, the CICA approved introduction of CICA Handbook Section 3870,
Stock-based Compensation and Other Stock-based Payments.As a result,
effective January 1, 2002, the Company reported compensatory portions of the
Companys employee participation share plan; a variable stock compensation
program.                                                                                          
|   
|    | The determination of compensatory adjustments measures the difference between
market value of the Companys Common Shares at the reporting date compared to
the market value as at the dates of issue of Class B shares and options on
the Common Shares. To the extent that these differences are positive,
notional compensatory amounts are measured and amortized over five years, the
vesting period.
|   
|    | As a result of this change, opening retained earnings, as at January 1,
2002 have been reduced by $346,000 and the net loss for the year ended
December 31, 2002 has been increased by $29,000. Both impacts have been
offset by corresponding adjustments to contributed surplus, with no overall
impact to shareholders equity.                                                                        

F- 18



---



##### 



Independent Auditors Report

To the Shareholder of
Steen River Forest Products Ltd.

We have audited the consolidated balance sheets of Steen River Forest Products
Ltd. as at December 31, 2002 and 2001 and the consolidated statements of
operations and deficit and cash flows for the period from February 14, 2001 to
December 31, 2001 and the year ended December 31, 2002. These 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 Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform
an audit to obtain reasonable assurance 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 audits provide 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 the Company as at
December 31, 2002 and 2001 and the results of its operations and its cash flows
for the period from February 14, 2001 to December 31, 2001 and for the year
ended December 31, 2002 in accordance with Canadian generally accepted
accounting principles.

Chartered Accountants
Vancouver, British Columbia
February 17, 2003

F- 19



---



##### 



STEEN RIVER FOREST PRODUCTS LTD.
Consolidated Balance Sheets
As at December 31
(Thousands of Canadian Dollars)

|                                           |                            |   |              |                                           |  |        |         |       |  |        |  | 
|------------------------------------------ | -------------------------- | - | ------------ | ----------------------------------------- |  | ------ | ------- | ----- |  | ------ |  | 
|                                           |                            |   |              |                                           |  | 2001   |         | 2002 
|                                           |                            |   |              |                                           |  |        |         |      
|ASSETS                                     |                            |   |              |                                           |  |        |         |      
|CURRENT                                    |                            |   |              |                                           |  |        |         |      
|                                           | Accounts receivable        |   | $            |                                          |  |        | $       | 1,205 | 
|                                           | Inventories (Note 3)       |   |              | 4,163                                     |  |        |         | 5,521 | 
|                                           | Prepaid expenses           |   |              | 102                                       |  |        |         | 298   | 
|                                           |                            |   |              |                                           |  |        |         |      
|TOTAL CURRENT ASSETS                       |                            |   | 4,265        |                                           |  |        | 7,024   |      
|OTHER ASSETS                               |                            |   |             |                                           |  |        | 218     |      
|CAPITAL ASSETS (Note 4)                    |                            |   | 131,030      |                                           |  |        | 128,938 |      
|                                           |                            |   |              |                                           |  |        |         |      
|TOTAL ASSETS                               |                            | $ | 135,295      |                                           |  | $      | 136,180 |      
|                                           |                            |   |              |                                           |  |        |         |      
|LIABILITIES AND SHAREHOLDERS EQUITY       |                            |   |              |                                           |  |        |         |      
|CURRENT                                    |                            |   |              |                                           |  |        |         |      
|                                           | Bank indebtedness (Note 6) |   | $            | 2,100                                     |  |        | $       | 1,470 | 
|                                           | Accounts payable           |   |              | 2,577                                     |  |        |         | 4,450 | 
|                                           | Accrued taxes              |   |              | 350                                       |  |        |         | 350   | 
|                                           |                            |   |              |                                           |  |        |         |      
|TOTAL CURRENT LIABILITIES                  |                            |   | 5,027        |                                           |  |        | 6,270   |      
|FUTURE INCOME TAXES (Note 7)               |                            |   | 993          |                                           |  |        | 993     |      
|DUE TO PARENT COMPANY (Note 8)             |                            |   | 31,069       |                                           |  |        | 31,061  |      
|                                           |                            |   |              |                                           |  |        |         |      
|TOTAL LIABILITIES                          |                            |   | 37,089       |                                           |  |        | 38,324  |      
|                                           |                            |   |              |                                           |  |        |         |      
|COMMITMENTS AND CONTINGENCIES (Note 9)     |                            |   |              |                                           |  |        |         |      
|SHAREHOLDERS EQUITY                       |                            |   |              |                                           |  |        |         |      
|CAPITAL STOCK                              |                            |   |              |                                           |  |        |         |      
|                                           | Authorized                 |   |              |                                           |  |        |         |       | 
|                                           |                            |   |              | Unlimited common shares without par value |  |        |         |       |  |        |  | 
|                                           | Issued (Note 1)            |   |              |                                           |  |        |         |       | 
|                                           |                            |   | 1,000 shares |                                           |  | 96,761 |         |       |  | 96,761 | 
|CONTRIBUTED SURPLUS                        |                            |   | 1,795        |                                           |  |        | 1,795   |      
|DEFICIT                                    |                            |   | (350         | )                                         |  |        | (700    | )    
|                                           |                            |   |              |                                           |  |        |         |      
|TOTAL SHAREHOLDERS EQUITY                 |                            |   | 98,206       |                                           |  |        | 97,856  |      
|                                           |                            |   |              |                                           |  |        |         |      
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |                            | $ | 135,295      |                                           |  | $      | 136,180 |      
|                                           |                            |   |              |                                           |  |        |         |      

See accompanying Notes to the Consolidated Financial Statements.

F- 20



---



##### 



STEEN RIVER FOREST PRODUCTS LTD.
Consolidated Statements of Operations and Deficit
(Thousands of Canadian Dollars)

|                                                                    |                               |   |              |        |              |   |        |        | 
|------------------------------------------------------------------- | ----------------------------- | - | ------------ | ------ | ------------ | - | ------ | ------ | 
|                                                                    |                               |   | Period from  |        |              |   |       
|                                                                    |                               |   | February 14, |        |              |   |       
|                                                                    |                               |   | 2001 to      |        | Year ended  
|                                                                    |                               |   | December 31, |        | December 31,
|                                                                    |                               |   | 2001         |        | 2002        
|                                                                    |                               |   |              |        |             
|TRANSFER OF PRODUCTION AND FINANCE
COSTS TO PARENT COMPANY, at cost |                               | $ | 45,164       |        |              | $ | 46,766 |       
|                                                                    |                               |   |              |        |              |   |        |       
|DIRECT COSTS OF PRODUCTION                                          |                               |   |              |        |              |   |        |       
|                                                                    | Cost of logs                  |   |              | 10,173 |              |   |        | 14,175 | 
|                                                                    | Labour, material and overhead |   |              | 22,991 |              |   |        | 27,362 | 
|                                                                    | Amortization                  |   |              | 3,324  |              |   |        | 5,229  | 
|FINANCE EXPENSE (Note 8)                                            |                               |   | 8,676        |        |              |   |       |       
|                                                                    |                               |   |              |        |              |   |        |       
|                                                                    |                               |   | 45,164       |        |              |   | 46,766 |       
|                                                                    |                               |   |              |        |              |   |        |       
|INCOME BEFORE INCOME TAXES                                          |                               |   |             |        |              |   |       |       
|INCOME TAXES                                                        |                               |   |              |        |              |   |        |       
|                                                                    | Large corporations tax        |   |              | 350    |              |   |        | 350    | 
|                                                                    |                               |   |              |        |              |   |        |       
|NET LOSS                                                            |                               |   | (350         | )      |              |   | (350   | )     
|DEFICIT, BEGINNING OF PERIOD                                        |                               |   |             |        |              |   | (350   | )     
|                                                                    |                               |   |              |        |              |   |        |       
|DEFICIT, END OF PERIOD                                              |                               | $ | (350         | )      |              | $ | (700   | )     
|                                                                    |                               |   |              |        |              |   |        |       

See accompanying Notes to the Consolidated Financial Statements.

F- 21



---



##### 



STEEN RIVER FOREST PRODUCTS LTD.
Consolidated Statements of Cash Flows
(Thousands of Canadian Dollars)

|                                                       |                                          |   |              |         |              |   |        |        |  
|------------------------------------------------------ | ---------------------------------------- | - | ------------ | ------- | ------------ | - | ------ | ------ | -
|                                                       |                                          |   | Period from  |         |              |   |       
|                                                       |                                          |   | February 14, |         |              |   |       
|                                                       |                                          |   | 2001 to      |         | Year ended  
|                                                       |                                          |   | December 31, |         | December 31,
|                                                       |                                          |   | 2001         |         | 2002        
|                                                       |                                          |   |              |         |             
|CASH FLOWS FROM OPERATING ACTIVITIES                   |                                          |   |              |         |              |   |        |       
|Net loss                                               |                                          | $ | (350         | )       |              | $ | (350   | )     
|Amounts not requiring an outlay of cash                |                                          |   |              |         |              |   |        |       
|                                                       | Amortization of capital assets           |   |              | 3,324   |              |   |        | 5,229  |  
|                                                       |                                          |   |              |         |              |   |        |       
|                                                       |                                          |   | 2,974        |         |              |   | 4,879  |       
|Change in non-cash operating working capital (Note 10) |                                          |   | (23,871      | )       |              |   | (886   | )     
|                                                       |                                          |   |              |         |              |   |        |       
|Net cash (applied to) provided by operating activities |                                          |   | (20,897      | )       |              |   | 3,993  |       
|                                                       |                                          |   |              |         |              |   |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES                   |                                          |   |              |         |              |   |        |       
|                                                       | Increase in other assets                 |   |              |        |              |   |        | (218   | )
|                                                       | Additions of capital assets              |   |              | (11,755 | )            |   |        | (3,137 | )
|                                                       |                                          |   |              |         |              |   |        |       
|Net cash applied to investing activities               |                                          |   | (11,755      | )       |              |   | (3,355 | )     
|                                                       |                                          |   |              |         |              |   |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES                   |                                          |   |              |         |              |   |        |       
|                                                       | Increase (decrease) in bank indebtedness |   |              | 2,100   |              |   |        | (630   | )
|                                                       | Repayment of bridge financing            |   |              | (34,020 | )            |   |        |       |  
|                                                       | Advances from (to) parent company        |   |              | 31,069  |              |   |        | (8     | )
|                                                       |                                          |   |              |         |              |   |        |       
|Net cash (applied to) financing activities             |                                          |   | (851         | )       |              |   | (638   | )     
|                                                       |                                          |   |              |         |              |   |        |       
|NET CASH OUTFLOW                                       |                                          |   | (33,503      | )       |              |   |       |       
|CASH, BEGINNING OF PERIOD                              |                                          |   | 33,503       |         |              |   |       |       
|                                                       |                                          |   |              |         |              |   |        |       
|CASH, END OF PERIOD                                    |                                          | $ |             |         |              | $ |       |       
|                                                       |                                          |   |              |         |              |   |        |       

See accompanying Notes to the Consolidated Financial Statements.

F- 22



---



##### 



STEEN RIVER FOREST PRODUCTS LTD.
Notes to the Consolidated Financial Statements
December 31, 2001 and 2003
(Thousands of Canadian dollars, unless otherwise indicated)

1. INCORPORATION AND OPERATING MANDATE



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Steen River Forest Products Ltd. (the Company) was incorporated in
Alberta on February 8, 2001 as a wholly-owned subsidiary of Ainsworth
Lumber Co. Ltd. (Ainsworth or parent company). By February 14, 2001,
Ainsworth had transferred its interest in the High Level Project (Note 5)
to the Company coincident with assumption of liabilities from and issue of
common shares to Ainsworth. Substantially all of the activities of the
Company are carried out through the High Level Project. Under terms of
its agreements with Ainsworth and its creditors, the Companys operations
are restricted to its interest in the High Level Project and it provides
all of its share of High Level oriented strand board production to
Ainsworth at cost. It is not anticipated that the Company will create
significant retained earnings or deficit.

2. SIGNIFICANT ACCOUNTING POLICIES



| |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These consolidated financial statements have been prepared in Canadian
dollars in accordance with Canadian generally accepted accounting
principles (Canadian GAAP) and reflect the following significant
accounting policies. Management has made assumptions and estimates that
affect the reported amounts and other disclosures in these financial
statements. Actual results may differ from those estimates.
|
| | Canadian GAAP, in the case of the Company, does not differ from accounting
principles generally accepted in the United States (U.S. GAAP) as
explained in Note 13.                                                                                                                                                                                                                                                
|
| | The significant policies are:                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (a) Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                          



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These consolidated financial statements include the Companys 50%
proportionate interest in a jointly controlled oriented strand board
facility in High Level, Alberta (Note 5).



| |                
| | ---------------
| | (b) Inventories



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Logs are valued at the lower of average cost and net realizable
value. Materials and supplies are valued at cost.



| |                                  
| | ---------------------------------
| | (c) Property, plant and equipment



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property, plant and equipment are stated at cost, including
capitalized debt financing costs and interest incurred for major
projects during the period of construction. The cost of renewals and
betterments that extend the useful life of the property, plant and
equipment is also capitalized. The cost of repairs and replacements
is charged to expense as incurred. Oriented strand board facilities
are amortized on the units-of-production method based on the
estimated useful life of the assets at normal production levels over
15 years.
|
| | The Company reviews the carrying values of its capital assets on a
regular basis, by reference to estimated future operating results and
undiscounted net cash flows. If the carrying value of these assets
exceeds estimated net recoverable amounts, a provision for impairment
will be made for the other than temporary decline in value.                                                                                                                                                                                                           



| |                        
| | -----------------------
| | (d) Revenue recognition



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Transfer of production is recognized when the risks and rewards pass
to the purchaser, which occurs upon completion of production.



| |                  
| | -----------------
| | (e) Pension costs



| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company makes contributions to a defined contribution pension
plan at the High Level plant. Contributions to this plan are
reflected as expenses (Note 12).



| |                 
| | ----------------
| | (f) Income taxes



| |                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Other than Canadian large corporation tax, which is calculated from a
basis other than net income, the Company, because of the unique
nature of its business (Note 1), generates no profit or loss upon
which to base income taxes.

3. INVENTORIES

|                       |  |              |       |              |  |   |       | 
|---------------------- |  | ------------ | ----- | ------------ |  | - | ----- | 
|                       |  | December 31, |       | December 31,
|                       |  | 2001         |       | 2002        
|                       |  |              |       |             
|Logs                   |  | $            | 3,432 |              |  | $ | 3,183 | 
|Materials and supplies |  |              | 731   |              |  |   | 2,338 | 
|                       |  |              |       |              |  |   |       | 
|                       |  | $            | 4,163 |              |  | $ | 5,521 | 
|                       |  |              |       |              |  |   |       | 

F- 23



---



##### 



STEEN RIVER FOREST PRODUCTS LTD.
Notes to the Consolidated Financial Statements
December 31, 2001 and 2003
(Thousands of Canadian dollars, unless otherwise indicated)



4. CAPITAL ASSETS

|                                                 |                    |  |              |         |      |  |              |         |              |  |          |       |  |  |   |         | 
|------------------------------------------------ | ------------------ |  | ------------ | ------- | ---- |  | ------------ | ------- | ------------ |  | -------- | ----- |  |  | - | ------- | 
|                                                 |                    |  | December 31, |         |      |  |              |         | December 31, |  |          |       | 
|                                                 |                    |  | 2001         |         |      |  |              |         | 2002         |  |          |       | 
|                                                 |                    |  | Net Book     |         |      |  |              |         | Accumulated  |  | Net Book
|                                                 |                    |  | Value        |         | Cost |  | Amortization |         | Value       
|                                                 |                    |  |              |         |      |  |              |         |             
|Property, plant and equipment
Panel product mill |                    |  |              |         |      |  |              |         |              |  |          |       |  |  |   |        
|                                                 | Panel product mill |  | $            | 131,030 |      |  | $            | 137,491 |              |  | $        | 8,553 |  |  | $ | 128,938 | 
|                                                 |                    |  |              |         |      |  |              |         |              |  |          |       |  |  |   |         | 

5. THE HIGH LEVEL PROJECT



| |                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company jointly operates an oriented strand board facility in High
Level, Alberta. The Companys proportionate (50%) share of major assets
including property, plant and equipment is held by a bare trustee
corporation, on behalf of the Company, together with the interest of a
third party.                                                                     
|
| | By agreement between the Company and its co-venturer, if the co-venturer
does not pay its share of accounts payable and accrued liabilities, the
Company may pay such amounts and recover them from the co-venturers share
of production. The co-venturers share of accounts payable and accrued
liabilities as at December 31, 2002 is $4,450,000 (2001 - $2,577,000).

6. BANK INDEBTEDNESS



| |                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The High Level Project does not have autonomous bank credit arrangements.
Bank indebtedness reflects the Company proportionate interest in the
excess of cheques issued for ongoing operational items over cash in bank.
All funding of High Level operations is provided by the co-venturers,
facilitated by a bank by way of demand draws against each co-venturers
independent sources of cash.

7. FUTURE INCOME TAXES



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Future income taxes reflect the tax effect of timing differences between
tax and balance sheet values of property, plant and equipment.

8. DUE TO PARENT COMPANY



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | The amount is unsecured and non-interest bearing and has no formal terms
for repayment.

9. COMMITMENTS AND CONTINGENCIES



| |                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys shares are pledged as a second priority interest for
Ainsworths U.S. $186.5 million 12 1/2% senior secured notes due July 15,
2007, and as a first priority interest for U.S. $95.0 million Ainsworths
13 7/8% senior secured notes due July 15, 2007. The notes are secured by:



| |  |  | a security debenture creating, among other things, a first
priority security interest in all of the assets and properties of
the Company related to the High Level project; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | a first priority assignment of the High Level memorandum of
agreement.                                                                                                         

10. CHANGE IN NON-CASH OPERATING WORKING CAPITAL

|                                   |  |              |         |              |  |   |        |  
|---------------------------------- |  | ------------ | ------- | ------------ |  | - | ------ | -
|                                   |  | Period from  |         |              |  |  
|                                   |  | February 14, |         |              |  |  
|                                   |  | 2001 to      |         | Year ended  
|                                   |  | December 31, |         | December 31,
|                                   |  | 2001         |         | 2002        
|                                   |  |              |         |             
|Accounts receivable                |  | $            |        |              |  | $ | (1,205 | )
|Inventories                        |  |              | 2,992   |              |  |   | (1,358 | )
|Prepaid expenses                   |  |              | (92     | )            |  |   | (196   | )
|Accounts payable and accrued taxes |  |              | (26,771 | )            |  |   | 1,873  |  
|                                   |  |              |         |              |  |   |        |  
|                                   |  | $            | (23,871 | )            |  | $ | (886   | )
|                                   |  |              |         |              |  |   |        |  

F- 24



---



##### 



STEEN RIVER FOREST PRODUCTS LTD.
Notes to the Consolidated Financial Statements
December 31, 2001 and 2003
(Thousands of Canadian dollars, unless otherwise indicated)

11. FINANCIAL INSTRUMENTS



| |                               
| | ------------------------------
| | (a) Financial and credit risks



| |                                                                    
| | -------------------------------------------------------------------
| | Financial and credit risks, if any, have been assumed by Ainsworth.



| |                
| | ---------------
| | (b) Fair values



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair values of the Companys bank indebtedness, accounts payable
and accrued taxes were estimated to approximate their carrying values
due to the immediate or short-term maturity of these instruments. No
fair value has been estimated for the amount due to Ainsworth due to
the unique nature of this amount.

12. PENSION PLAN



| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys proportion of contributions to the defined contribution
pension plan at High Level in 2002 amounted to $523,000 (2001 - $416,325)

13. U.S. GAAP



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As indicated in Note 1, these consolidated financial statements have been
prepared in accordance with Canadian GAAP which, in the case of the
Company, conforms in all material respects with U.S. GAAP.



| |                                                                         
| | ------------------------------------------------------------------------
| | (a) Adjustment to assets, liabilities, earnings and shareholders equity



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | No net adjustment to assets, liabilities and shareholders equity
would be required to comply with U.S. GAAP.



| |                         
| | ------------------------
| | (b) Other considerations



| |  | (i)   | Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive Income, issued under
U.S. GAAP, requires the reporting and display of comprehensive
income and its components in a full set of general purpose
financial statements. SFAS No. 130 does not currently apply to
the Company as there are no items of other comprehensive income
in any period presented.                                                                                                                                                                                                                                           
| |  | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (ii)  | SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, issued under U.S. GAAP and effective in
2001, establishes accounting standards for derivatives, and
requires the reporting of derivative instruments information in
annual and interim reports to shareholders. SFAS No. 133 does
not have an impact on the Companys financial statements.                                                                                                                                                                                                                                                                
|
| |  | (iii) | In accordance with Canadian GAAP, joint ventures are
required to be proportionately consolidated regardless of the
legal form of the entity. Under U.S. GAAP, incorporated joint
ventures are required to be accounted for by the equity method.
However, in accordance with practices prescribed by the SEC, the
Company has provided (Note 5) summary information regarding use
of the proportionate consolidation method.                                                                                                                                                                                                           
|
| |  | (iv)  | In June 2001, the Financial Accounting Standards
Board (FASB) introduced SFAS No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 141 addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business
combination. SFAS No. 142 addresses the initial recognition of
intangible assets acquired outside of a business combination
whether acquired individually or with a group of other assets.
These standards require all future business combinations to be
accounted for using the purchase method of accounting. Goodwill
will no
|
| |  | (v)   | longer be amortized but instead will be subject to
impairment tests at least annually. The Company was required to
adopt SFAS No. 141 on a prospective basis as of July 2001, SFAS
No. 142 in January 2002. SFAS No. 141 and 142 does not have an
impact on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                        
|
| |  | (vi)  | In August 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets to be held and
used, to be disposed of other than by sale, and to be disposed
of by sale. The Company adopted SFAS No. 144 in the first
quarter of 2002 on a prospective basis and does not have
significant impact on the Companys financial statements.                                                                                                                                                 
|
| |  | (vii) | Under U.S. GAAP, the Company would disclose shipping
costs as part of costs of products as a component of cost of
sales, rather than netted against revenue as per the Companys
existing accounting policy. If the Company had reported shipping
costs as costs of products, revenue would have increased by
$50,845,000, $62,000,000, and $65,625,000, with a corresponding
increase in costs of products sold in 2000, 2001, and 2002
respectively.                                                                                                                                                                                 

F- 25



---



##### 



STEEN RIVER FOREST PRODUCTS LTD.
Notes to the Consolidated Financial Statements
December 31, 2001 and 2003
(Thousands of Canadian dollars, unless otherwise indicated)

13. U.S. GAAP (Continued)



| |  | (viii) | In April 2002, the FASB issued SFAS No. 145, Rescission of
FASB Statements No 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections.Among other things, SFAS No.
145 rescinds both SFAS No. 4, SFAS No. 64, Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements.Through this
rescission, SFAS No. 145 eliminates the requirement (in both
SFAS No. 4 and SFAS No. 64) that gains and losses from the
extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income
tax effect. Generally, SFAS No. 145 is effective for
transactions occurring after May 15, 2002. SFAS No. 145 does not
have a material impact on the Companys financial statements.
| |  | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | (ix) | In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal of
Activities.SFAS No. 146 requires that the liability for a cost
associated with an exit or disposal activity be recognized at
its fair value when the liability is incurred. Under previous
guidance, a liability for certain exit costs was recognized at
the date that management committed to an exit plan, which was
generally before the actual liability had been incurred. As SFAS
No. 146 is effective only for exit or disposal activities
initiated after December 31, 2002 the Company does not expect
the adoption of this statement to have a material impact on the
Companys financial statements.
| |  | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F- 26