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UNITED STATES 
	SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549_______________________________

FORM 10-Q_______________________________

x 
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly periodended March 31, 2006
  OR

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

|Commission File No.: | 1-13573-01
                              1-13573
|-------------------- | ------------------------------------------------

INLAND FIBER GROUP, LLCFIBER FINANCE CORP.(Exact name of registrant
  as specified in its charter)

|DELAWARE                                                                    | 91-1217136                                
|--------------------------------------------------------------------------- | ------------------------------------------
|DELAWARE                                                                    | 91-1851612                                
|(State or other jurisdiction
      
      of incorporation or organization) | (I.R.S. Employer
      Identification No.)
|                                                                            |                                           
|6400 Highway 66
			Klamath Falls, OR 97601                                  | 97601                                     
|(Address of principal
      executive offices)                              | (Zip code)                                

Registrants telephone number, including area code:   
	541-884-2240

---

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 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.

YesþNoo

Indicate by check
          mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
          “accelerated and larger accelerated filer” in Rule 12b-2 of the exchange Act

Large accelerated filer o                
          Accelerated filer  o                
          Non-accelerated filer  þ

Indicate
          by check mark if the registrant is a a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o                  No þ

|
|



|     |    |   | FORM 10-Q                                                                                                                                  |     
|---- | -- | - | ------------------------------------------------------------------------------------------------------------------------------------------ | ----
|     |    |   |                                                                                                                                            |     
|     |    |   | TABLE OF CONTENTS                                                                                                                          |     
|     |    |   |                                                                                                                                            |     
|PART | I  | . | FINANCIAL INFORMATION (Unaudited)                                                                                                          | Page
|     |    |   |                                                                                                                                            |     
|Item | 1  | . | Condensed Consolidated Statements of Operations
                                        for the three months ended March 31, 2006 and 2005 | 1   
|     |    |   |                                                                                                                                            |     
|Item | 1  | . | Condensed Consolidated Balance Sheets
                                        at March 31, 2006 and December 31, 2005                      | 2   
|     |    |   |                                                                                                                                            |     
|Item | 1  | . | Condensed Consolidated Statements of Cash Flows
                                        for the three months ended March 31, 2006 and 2005 | 3   
|     |    |   |                                                                                                                                            |     
|Item | 1  | . | Notes to Condensed Consolidated Financial Statements                                                                                       | 4   
|     |    |   |                                                                                                                                            |     
|Item | 2  | . | Management's Discussion and Analysis of Financial
				Condition and Results of Operations                                                  | 8   
|     |    |   |                                                                                                                                            |     
|Item | 3  | . | Quantitative and
				Qualitative Disclosure of Market Risk                                                                                 | 14  
|     |    |   |                                                                                                                                            |     
|Item | 4  | . | Controls and Procedures                                                                                                                    | 14  
|     |    |   |                                                                                                                                            |     
|     |    |   |                                                                                                                                            |     
|Part | II |   | OTHER INFORMATION                                                                                                                          |     
|     |    |   |                                                                                                                                            |     
|Item | 1  |   | Legal Proceedings                                                                                                                          | 16  
|     |    |   |                                                                                                                                            |     
|Item | 6  | . | Exhibits                                                                                                                                   | 18  
|     |    |   |                                                                                                                                            |     
|     |    |   |                                                                                                                                            |     
|     |    |   |                                                                                                                                            |     
|     |    |   |                                                                                                                                            |     

---



PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INLAND FIBER GROUP, LLC AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(IN THOUSANDS)
	(UNAUDITED)



|                                                                                                     |  |  |   | Three Months Ended March 31, |  
|---------------------------------------------------------------------------------------------------- |  |  | - | ---------------------------- | -
|                                                                                                     |  |  |   |                              |  
|                                                                                                     |  |  |   | 2006                         |  
|                                                                                                     |  |  |   |                              |  
|Revenues (property sales of $3,430 (2006) and $0 (2005))                                             |  |  | $ | 4,662                        |  
|Cost of timber harvested                                                                             |  |  |   | (696                         | )
|Cost of timber and property sales                                                                    |  |  |   | (1,961                       | )
|Depletion, depreciation and road amortization                                                        |  |  |   | (577                         | )
|                                                                                                     |  |  |   |                              |  
|Gross profit (loss)                                                                                  |  |  |   | 1,428                        |  
|                                                                                                    
|Management fee                                                                                       |  |  |   | (500                         | )
|Selling, general and administrative expenses                                                         |  |  |   | (438                         | )
|Equity in net loss of affiliate                                                                      |  |  |   | —                            |  
|                                                                                                     |  |  |   |                              |  
|Operating profit (loss)                                                                              |  |  |   | 490                          |  
|                                                                                                    
|Interest expense                                                                                     |  |  |   | (5,387                       | )
|Amortization of deferred financing fees                                                              |  |  |   | (169                         | )
|Other income, net                                                                                    |  |  |   | 14                           |  
|                                                                                                     |  |  |   |                              |  
|                                                                                                    
|Net loss                                                                                             |  |  | $ | (5,052                       | )
|                                                                                                     |  |  |   |                              |  
|                                                                                                    
|                                                                                                    
|See notes to the condensed consolidated financial
                                        statements



1



---

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

|                                                                            |  |   |  |          |   |             |   |  |          |   |              | 
|--------------------------------------------------------------------------- |  | - |  | -------- | - | ----------- | - |  | -------- | - | ------------ | 
|INLAND FIBER GROUP, LLC AND SUBSIDIARYCONDENSED CONSOLIDATED BALANCE SHEETS
|(IN THOUSANDS)                                                             
|                                                                            |  |   |  |          |   | March 31,   |   |  |          |   | December 31, | 
|                                                                            |  |   |  |          |   | 2006        |   |  |          |   | 2005         | 
|                                                                            |  |   |  |          |   |             |   |  |          |   |              | 
|                                                                            |  |   |  |          |   | (Unaudited) |   |  |          |   | *            | 
|ASSETS                                                                      |  |   |  |          |   |             |   |  |          |  
|Current assets:                                                             |  |   |  |          |   |             |   |  |          |  
|Cash and cash equivalents                                                   |  | $ |  | 254      |   |             | $ |  | 307      |  
|Accounts receivable                                                         |  |   |  | 14       |   |             |   |  | 575      |  
|Other receivables                                                           |  |   |  | –        |   |             |   |  | 485      |  
|Notes receivable                                                            |  |   |  | 92       |   |             |   |  | 150      |  
|Restricted cash                                                             |  |   |  | 1,659    |   |             |   |  | 124      |  
|Prepaid expenses and other current
                              assets     |  |   |  | 75       |   |             |   |  | 72       |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Total
                              current assets                          |  |   |  | 2,094    |   |             |   |  | 1,713    |  
|                                                                           
|Timber and timberlands, net                                                 |  |   |  | 78,481   |   |             |   |  | 80,934   |  
|Property, plant and equipment, net                                          |  |   |  | 795      |   |             |   |  | 770      |  
|Other assets                                                                |  |   |  | 173      |   |             |   |  | 85       |  
|Deferred financing fees, net                                                |  |   |  | 1,105    |   |             |   |  | 1,273    |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Total
                              assets                                  |  | $ |  | 82,648   |   |             | $ |  | 84,775   |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|LIABILITIES AND MEMBERS’ DEFICIENCY                                         |  |   |  |          |   |             |   |  |          |  
|Current liabilities:                                                        |  |   |  |          |   |             |   |  |          |  
|Accounts payable                                                            |  |   |  | 637      |   |             |   |  | 1,015    |  
|Accrued liabilities                                                         |  |   |  | 294      |   |             |   |  | 2,198    |  
|Accrued bond interest                                                       |  |   |  | 29,792   |   |             |   |  | 24,408   |  
|Payable to managing member and affiliates                                   |  |   |  | 673      |   |             |   |  | 850      |  
|Long-term debt declared in default
                              by trustee |  |   |  | 225,000  |   |             |   |  | 225,000  |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Total
                              current liabilities                     |  |   |  | 256,396  |   |             |   |  | 253,471  |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Members’ deficiency                                                         |  |   |  |          |   |             |   |  |          |  
|Managing members’ interest                                                  |  |   |  | (1,755   | ) |             |   |  | (1,704   | )
|Nonmanaging members' interest                                               |  |   |  | (171,993 | ) |             |   |  | (166,992 | )
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Total
                              members' deficiency                     |  |   |  | (173,748 | ) |             |   |  | (168,696 | )
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Total
                              liabilities and members' deficiency     |  | $ |  | 82,648   |   |             | $ |  | 84,775   |  
|                                                                            |  |   |  |          |   |             |   |  |          |  

|*      Derived from
			audited Consolidated Balance Sheet as of December 31, 2005                         
|----------------------------------------------------------------------------------------------------------
|See notes to unaudited condensed
                                        consolidated financial statements

2

---

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INLAND FIBER GROUP, LLC AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(IN THOUSANDS) 
	(UNAUDITED)





|                                                                                                           |  |  |                              |        |   |  |  |   |      |  
|---------------------------------------------------------------------------------------------------------- |  |  | ---------------------------- | ------ | - |  |  | - | ---- | -
|                                                                                                           |  |  | Three Months Ended March 31, |       
|                                                                                                           |  |  |                              |       
|                                                                                                           |  |  |                              | 2006   |   |  |  |   | 2005 |  
|                                                                                                           |  |  |                              |        |   |  |  |   |      |  
|CASH FLOWS FROM OPERATING
                              ACTIVITIES:                                        |  |  |                              |        |   |  |  |   |      |  
|Net cash provided by operating
                              activities                                    |  |  | $                            | 1,584  |   |  |  | $ | 229  |  
|                                                                                                           |  |  |                              |        |   |  |  |   |      |  
|                                                                                                          
|CASH FLOWS FROM INVESTING
                              ACTIVITIES:                                        |  |  |                              |        |   |  |  |   |      |  
|Timber,
                              timberlands and road additions                                       |  |  |                              | (67    | ) |  |  |   | (75  | )
|Restricted
                              cash                                                              |  |  |                              | (1,535 | ) |  |  |   | —    |  
|Purchase
                              of property, plant and equipment - net                              |  |  |                              | (36    | ) |  |  |   | —    |  
|                                                                                                           |  |  |                              |        |   |  |  |   |      |  
|Net cash used in investing activities                                                                      |  |  |                              | (1,638 | ) |  |  |   | (75  | )
|                                                                                                           |  |  |                              |        |   |  |  |   |      |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                     
|Advances
                              from affiliates                                                     |  |  |                              | 1      |   |  |  |   | —    |  
|                                                                                                           |  |  |                              |        |   |  |  |   |      |  
|                                                                                                           |  |  |                              |        |   |  |  |   |      |  
|Increase (decrease) in cash and
                              cash equivalents                             |  |  |                              | (53    | ) |  |  |   | 154  |  
|Cash and cash equivalents - beginning
                              of period                              |  |  |                              | 307    |   |  |  |   | 180  |  
|                                                                                                           |  |  |                              |        |   |  |  |   |      |  
|                                                                                                          
|Cash and cash equivalents - end
                              of period                                    |  |  | $                            | 254    |   |  |  | $ | 334  |  
|                                                                                                           |  |  |                              |        |   |  |  |   |      |  
|                                                                                                          
|Supplemental cash flow
                              information:                                          |  |  |                              |        |   |  |  |   |      |  
|Cash
                              paid for interest expense                                               |  |  | $                            | 2      |   |  |  | $ | —    |  
|                                                                                                           |  |  |                              |        |   |  |  |   |      |  
|                                                                                                          
|                                                                                                          
|See notes to unaudited condensed
                                        consolidated financial statements

3





---



# INLAND FIBER GROUP, LLC AND SUBSIDIARY(in thousands)

# 1.     Business and Basis of Presentation

# Business

The unaudited condensed consolidated
          financial statements include the accounts of Inland Fiber Group, LLC (IFG), a Delaware limited liability company,
          and its wholly owned subsidiary, Fiber Finance Corp. (Finance Corp.), collectively referred to hereafter as the
          Company. Finance Corp. serves as the co-obligor for IFGs $225 million 9-5/8% Senior Notes due 2007 (the Notes).
          Finance Corp. has nominal assets and does not conduct operations. All intercompany transactions have been eliminated in consolidation.

Timber Resource Services, LLC (the
          Manager) provides comprehensive timber management services to the Company pursuant to a fee-based management agreement
          and owns a 1% non-voting membership interest in the Company.

A 99% interest in the Company is
          held by a limited liability company, IFG Holdings, LLC. IFG is wholly owned by American Forest Resources, LLC (AFR)
          The Company holds a preferred equity interest in AFR.

The Companys principal operations
          consist of growing and harvesting timber and selling logs, standing timber and related by-products to third party wood processors
          and related party purchasers as well as the sale of excess timberland.. The Companys timber is located principally in
          Oregon, east of the Cascade Range. Logs harvested from the timberlands are sold to unaffiliated domestic conversion facilities.
          These logs are processed for sale as lumber, plywood and other wood products, primarily for use in new residential home construction,
          home remodeling and repair and general industrial applications

Basis of Presentation

These unaudited condensed consolidated
          financial statements have been prepared by the Company, pursuant to the rules and regulations of the United States Securities
          and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnotes required in financial statements
          prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or
          omitted from these statements. These unaudited condensed consolidated financial statements were prepared on a consistent basis
          with and should be read in conjunction with the consolidated financial statements included in the Companys 2005 Annual
          Report on Form 10-K. Operating results for the quarter ended March 31, 2006 are not necessarily indicative of the results that
          may be expected for the full year or any other period. In the opinion of management, the accompanying unaudited condensed consolidated
          financial statements include all normal recurring adjustments necessary to present fairly the information for such periods.

The  preparation 
          of  condensed   consolidated financial   statements  in conformity with accounting principles
          generally accepted in the United States of America  requires us to make estimates and  assumptions  that affect
          the amounts reported in the financial  statements  and  accompanying  notes.  Actual results could
          differ from these estimates.



4

---



INLAND FIBER GROUP, LLC
	AND SUBSIDIARY (In thousands)

The accompanying financial statements
          have been prepared assuming that the Company will continue as a going concern. The Company received Notices of Default and Acceleration
          from the Trustee under the Indenture governing the Notes pursuant to which the Trustee demanded payment and accelerated the
          Companys obligations under the Notes, which raises substantial doubt about the Companys ability to continue as a
          going concern. After completion of a trial on the related issues in the Delaware Court of Chancery as to whether an event of
          default had occurred under the Indenture and prior to post-trial hearings and a decision being rendered, in February 2006 the
          Company reached a tentative agreement with the Trustee to resolve the outstanding disputes among the parties, subject to certain
          conditions. The settlement would cover the alleged existing defaults and the accrued and unpaid interest, and would include
          the termination of all pending litigation and a release of all the parties. The financial statements do not include any adjustments
          that might result from the outcome of this uncertainty.

2.      
          Timber and Timberlands
                Timber and Timberlands consisted of the following:

| |  |  |                                                  |  |  |   |           |  |  |   |                                           
| |  |  | ------------------------------------------------ |  |  | - | --------- |  |  | - | ------------------------------------------
| |  |  |                                                  |  |  |   | March 31, |  |  |   | December
                              31,
| |  |  |                                                  |  |  |   | 2006      |  |  |   | 2005                                      
| |  |  |                                                  |  |  |   |           |  |  |   |                                           
| |  |  | Timber and logging roads                         |  |  | $ | 254,090   |  |  | $ | 255,690                                   
| |  |  | Timberlands                                      |  |  |   | 11,616    |  |  |   | 11,970                                    
| |  |  | Seed orchard and nursery stock                   |  |  |   | 1,310     |  |  |   | 1,243                                     
| |  |  |                                                  |  |  |   |           |  |  |   |                                           
| |  |  |                                                  |  |  |   | 267,016   |  |  |   | 268,903                                   
| |  |  | Less accumulated depletion and road amortization |  |  |   | 188,535   |  |  |   | 187,969                                   
| |  |  |                                                  |  |  |   |           |  |  |   |                                           
| |  |  |                                                  |  |  | $ | 78,481    |  |  | $ | 80,934                                    
| |  |  |                                                  |  |  |   |           |  |  |   |                                           

# 3.    Investment in Affiliate

Since October 1999, the Company has
          owned a redeemable preferred membership interest (Preferred LLC Interest) in AFR, an affiliate accounted for under
          the equity method. As mentioned in Note 1 to the Financial Statements, the Company is an indirect subsidiary of AFR as a result
          of ownership of a 99% non-managing members interest in the Company.

We exclude losses from our preferred
          interest in our affiliate in our condensed consolidated statements of operations in excess of our basis in
          the preferred interest. Losses in excess of that amount are not borne by us. Such amounts for the three months ended March
          31, 2006 were approximately $6,475. Future earnings of our affiliate, otherwise attributable to our preferred interest,
          will be allocated to us only after future earnings are sufficient to recover the cumulative losses previously not
          recognized by us (approximately $20,400 at March 31, 2006).



5



---



# INLAND FIBER GROUP, LLC AND SUBSIDIARY (In thousands)

The following summarized
                    unaudited financial information for AFR is presented on an AFR stand-alone basis without consolidation of the Companys
                    results of operations to avoid duplication, which would otherwise occur.

|                                                                        |  |                    |  |                    |  |          |  |         
|----------------------------------------------------------------------- |  | ------------------ |  | ------------------ |  | -------- |  | --------
|                                                                        |  | Three Months Ended |  | Three Months Ended
|                                                                        |  | March 31           |  |                    |  | March 31
|                                                                        |  | 2006               |  |                    |  | 2005    
|                                                                        |  |                    |  |                   
|                                                                       
|Net sales                                                               |  | $                  |  | 570                |  | $        |  | 1,585   
|Gross loss                                                              |  |                    |  | (158)              |  |          |  | (174)   
|                                                                       
|Loss before equity                                                      |  |                    |  |                    |  |          |  |         
|in
                                                  the Company's Loss |  |                    |  | (3,984)            |  |          |  | (3,265) 
|Equity in Company's Loss (1)                                            |  |                    |  | (7,543)            |  |          |  | (9,121) 
|Net loss                                                                |  |                    |  | (11,527)           |  |          |  | (12,386)



# 

# 

# 

(1)  Reflects charges of $2,491 and $2,307 respectively related to the amortization
                    of $43,287 excess of cost over deficiency in net assets attributable to 63.6% acquired interest.

# 4.     Litigation

On December
                    19, 2003, an action was brought in the Court of Chancery of the State of Delaware in and for New Castle County by
                    the Trustee under the Indenture against the Company, Finance Corp., the Manager, American Forest Resources, LLC, Cascade
                    Resource Holdings Group, LLC, and all of the directors of the Manager as of January 1, 2003 (collectively, the Defendants).
                    The complaint alleges that the Company violated the provisions of the Indenture by transferring certain assets to
                    its affiliates, the directors of the Company violated their fiduciary duty to the Company and that the transfers of
                    the assets were fraudulent conveyances and subject to rescission. The Trustee seeks a declaration that the Company
                    has violated the terms of the Indenture, an injunction against the transfer of additional assets out of the ordinary
                    course of business, damages and the imposition of a constructive trust on the assets transferred by the Company to
                    its affiliates. On July 28, 2005, the Trustee issued an Affirmation of the Notice of Default referencing among other
                    things the failure to make the semi-annual interest payment on May 15, 2005. The trial was completed in August 2005
                    and in October 2005, the Trustee filed its post-trial brief. The Defendants filed their reply brief in November 2005.
                    On February 27, 2006 the Company announced that it reached a tentative agreement with the Trustee for the Notes to
                    resolve the outstanding disputes among the parties. Under the terms of the tentative agreement, the Company or its
                    nominee would purchase all of the outstanding Notes at a price of 69% of the principal amount of the Notes through
                    a pre-negotiated plan of reorganization. The settlement would include the alleged existing defaults, the accrued and
                    unpaid interest, the termination of all pending litigation, and a release of all the parties. Completion of the contemplated
                    settlement is subject to a number of conditions, including the commitment to support a pre-negotiated plan of reorganization
                    to effectuate the settlement by a sufficient number of Noteholders and holders of a

6

---



# INLAND FIBER GROUP, LLC AND SUBSIDIARY(in thousands)

sufficient face value of Notes to be acceptable to the Company,
                    and the receipt by the Company of financing sufficient to fund the settlement. The Company has agreements in principle
                    for the financing, which are subject to the negotiation and execution of definitive documentation and due diligence.
                    Due to the pending settlement the post-trial hearing has been adjourned. The Company and its legal counsel believe
                    the litigation and both the Notices of Default to be without merit, and to the extent the proposed settlement is not
                    completed and the litigation were to resume, the Company would continue to vigorously defend the litigation.

On December
                    7, 2004, the Company, Finance Corp. and AFR brought an action against the Trustee based on the Trustees failure
                    to remit $4.8 million of the funds paid by the Company on November 12, 2004 to the Trustee for the benefit of the
                    holders of the Notes. On January 13, 2005, the Trustee asserted a counterclaim alleging that IFG, Finance Corp., and
                    AFR are liable for the attorneys fees that the Trustee is and will incur in the Interest Withholding Action
                    and the action filed by the Trustee described above. No proceedings have occurred in the Interest Withholding Action.



# 5.      Long Term Debt Declared in
                    Default

The Companys
                    long term debt, which has been declared in default, consists of the Notes, as defined in Note 1. IFG and Finance Corp.
                    (collectively, the Issuers) serve as co-obligors of the Notes. The Notes represent unsecured general obligations
                    of the Issuers and bear interest at 9-5/8% payable semiannually in arrears on May 15 and November 15, and mature on
                    November 15, 2007 unless previously redeemed. The Notes are redeemable at the option of the Issuers in whole or in
                    part at predetermined redemption prices plus accrued interest to the redemption date. The Notes have been declared
                    in default by the Trustee and, accordingly, the underlying debt is shown on the Companys condensed consolidated
                    balance sheet under current liabilities.

The Company
                    did not make its semi-annual interest payments on the Notes, which were due May 15, 2005 and November 15, 2005 before
                    the due date or during the grace period. It is currently contemplated that, with the parties working to complete the
                    settlement of the litigation described above, the Company will not pay the interest payment due May 15, 2006.

The Notes
                    contain certain restrictive covenants, including limiting the ability of the Company and its subsidiaries to make
                    cash distributions, incur additional indebtedness, sell assets or harvest timber in excess of certain limitations.
                    Under certain restrictive covenants, since 2002, the Company has been prohibited from making distributions to its
                    members. Although the Company believes that, other than its failure to make the payments described above, it was in
                    compliance with the covenants contained in the Notes, the Trustee under the indenture has alleged that the Company
                    has violated certain covenants and has commenced litigation and also issued notices of default, which are described
                    in Note 5.

As required
                    under the indenture governing the Notes (the Indenture), the Company had placed $3.4 million from the
                    sale of timberland in a restricted account only to be used in ways prescribed in the Indenture. Since that time, funds
                    have been used to purchase assets as allowed in the Indenture.  A balance of $1.7 million remained in the restricted
                    account as of March 31, 2006.

7

---



# INLAND FIBER GROUP, LLC AND SUBSIDIARY(in thousands)

# 6.     Management Agreement

The Companys
                    management agreement with the Manager provides for an annual fee of 2% of the agreed upon valuation of total timber
                    and timberland assets under management and is payable monthly.

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

Forward-Looking Statements

Certain information
                    contained in this report may constitute forward-looking statements within the meaning of the federal securities laws.
                    Although the Company believes that expectations reflected in such forward-looking statements are based upon reasonable
                    assumptions, it can give no assurance that its expectations will be achieved. Forward-looking information is subject
                    to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected.
                    Such risks, trends and uncertainties include the Companys ability to consummate the settlement of the litigation
                    with the Trustee for its Notes, the highly cyclical nature of the forest products industry, general economic conditions,
                    competition, price conditions or trends for the Companys products, the possibility that timber supply could
                    increase if governmental, environmental or endangered species policies change, the results of ongoing litigation involving
                    the Company, the Companys ability to pay the required interest
                    on its outstanding debt and limitations on the Companys ability to harvest its timber due to adverse natural
                    conditions or increased governmental restrictions. These and other risks are described in the Companys other
                    reports and registration statements, which are available from the United States Securities and Exchange Commission.

# Application of Critical Accounting Policies and Critical Accounting
                    Estimates

Certain accounting
                    policies have a significant impact on amounts reported in the financial statements. A summary of those significant
                    accounting policies can be found in Note 1 to the Companys consolidated financial statements included in the
                    Companys 2005 Annual Report on Form 10-K. The Company has not adopted any significant new accounting policies
                    during the three months ended March 31, 2006.

Among the
                    significant judgments made by management in the preparation of the Companys financial statements are the determination
                    of the allowance for doubtful accounts and the rates of depletion applicable to the Companys merchantable timber.
                    These determinations are made periodically in the ordinary course of business.

8

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INLAND FIBER GROUP, LLC AND SUBSIDIARY(in thousands)

# Overview

The Companys
                    principal operations consist of growing and harvesting timber and selling logs, standing timber and related by-products
                    to third party wood processors and related party purchasers as well as the sale of excess timberland. These logs and
                    by-products are processed for sale as lumber, molding products, doors, mill work, commodity, specialty and overlaid
                    plywood products, laminated veneer lumber, engineered wood I-beams, particleboard, hardboard, paper and other wood
                    products. These products are used in residential, commercial and industrial construction, home remodeling and repair,
                    general industrial applications and a variety of paper products. The results of the Companys operations and
                    its ability to pay distributions to its members depend upon a number of factors, many of which are beyond its control.
                    These factors include general economic and industry conditions, domestic and export prices, supply and demand for
                    timber logs, seasonality, government regulations affecting the manner in which timber may be harvested, and competition
                    from other supplying regions and substitute products. The Company is currently not permitted to make any distributions
                    to members (see Financial Condition and Liquidity).

# Seasonality

The Companys
                    log and standing timber sales volumes are generally at their lowest levels in the first and second quarters of each
                    year. In the first quarter, heavy snowfalls in higher elevations prevent access to many areas of the Companys
                    timberlands. This limited access, along with spring break-up conditions (when warming weather thaws and softens roadbeds)
                    in March or April, restricts logging operations to lower elevations and areas with rockier soil types.  As a
                    result of these constraints, the Companys sales volumes are typically at their lowest in the first quarter,
                    improving in the second quarter and at their highest during the third and fourth quarters. Most customers in the region
                    react to this seasonality by carrying sufficiently high log inventories at the end of the calendar year to carry them
                    to the second quarter of the following year.

# Current Market Conditions

First quarter
                    2006 prices for finished wood products (e.g. lumber and engineered wood products) increased slightly from fourth quarter
                    2005 prices. Plywood prices remained strong. Pine industrial prices increased with shop prices leading the increase.

Delivered
                    log prices increased for all species except Cedar which remained constant. Demand for veneer logs and saw logs remained
                    strong in part due to poor logging conditions encountered during the first quarter.



9

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# INLAND FIBER GROUP, LLC AND SUBSIDIARY(in thousands)



# Results of Operations

Selected operating
                    statistics for the Company:



|                                                          |                                                 |          |             |                                                       |   |      |          |   |             |   |    
|--------------------------------------------------------- | ----------------------------------------------- | -------- | ----------- | ----------------------------------------------------- | - | ---- | -------- | - | ----------- | - | ---
|                                                          | SalesVolume
                              (MBF) |          |             | Price
                              Realization (MBF)
|                                                         
|Period                                                    | Logs                                            | Stumpage | TimberDeeds |                                                       |   | Logs | Stumpage |   | TimberDeeds
|                                                         
|2006                                                      |                                                 |          |             |                                                       |   |      |          |   |             |   |    
|Three Months Ended
                              March 31 | 3,425                                           | —        | 861         |                                                       | $ | 332  |          | $ | —           | $ | 82 
|                                                         
|2005                                                      |                                                 |          |             |                                                       |   |      |          |   |             |   |    
|Three Months Ended
                              March 31 | 6,982                                           | —        | 348         |                                                       | $ | 277  |          | $ | —           | $ | 198









10



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Quarter Ended March 31, 2006 Compared to Quarter Ended March 31,
	2005

Revenues

Revenues for the quarter ended March
          31, 2006 were $4.7 million, an increase of $2.5 million or 113% from revenues of $2.2 million for the same period in 2005. The
          increase in revenues during the first quarter of 2006 was caused by higher property sales of $3.4 million, offset by lower log
          sales of $0.8 million and lower other sales of $0.1 million.

Timber deed sales for the first quarter
          of 2006 were negligible, less than $0.1 million on 0.9 million board feet (MMBF), as compared to the same period
          in 2005, when timber deed sales were $0.1 million on 0.3 million board feet (MMBF). The average timber deed price
          was $82 per thousand board feet (MBF) during the first quarter of 2006, as compared to $198 per MBF for the same
          period in 2005.

Log sales for the quarter ended March
          31, 2006 were $1.1 million on volume of 3.4 MMBF, a decrease of $0.8 million as compared to the same period in 2005 when log
          sales were $1.9 million on 7.0 MMBF. The average sales price was $332 per MBF for the first quarter of 2006, as compared to
          an average $277 per MBF for the same period in 2005.

Property sales for the first quarter
          of 2006 were $3.4 million, as compared to $0.0 million for the same period in 2005.

# Gross Profit

The Company had a gross profit of
          $1.4 million in the first quarter of 2006 as compared to a gross loss of $0.3 million for the same period in 2005. As a percentage
          of sales, the gross profit was 31% in the 2006 quarter and the gross loss was 13% in the 2005 quarter.

# Selling, General and Administrative Expenses

Selling, general and administrative
          expenses, excluding management fees, remained the same at $0.4 million in the first quarters of 2006 and 2005. An increase in
          legal fees of $0.1 million was offset by a decrease in professional services of $0.1 million. Management fees remained the same
          at $0.5 million in the first quarters of 2006 and 2005.

# Equity in Net Loss of Affiliate

There was no equity in the net loss
          of affiliate recognized during the first quarter of 2006. This amount reflects the Companys share of the net loss of an
          affiliate (AFR) accounted for under the equity method including the amortization of the excess of cost over deficiency in net
          assets acquired in the Privatization Transaction. This compares to equity in net loss of affiliate of $5.6 million in the first
          quarter of 2005.



11

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# INLAND FIBER GROUP, LLC AND SUBSIDIARY(in thousands)

Financial Condition and Liquidity

Operating Activities

Cash flows provided by operating
          activities during the three months ended March 31, 2006 were $1.6 million, as compared to cash provided by operating activities
          of $0.2 million during the same period in 2005. The $1.4 million increase is primarily due to the Companys higher property
          sales and lower harvesting costs.

# Investing Activities

Cash flows used in investing activities
          were $1.6 million during the three months ended March 31, 2006, as compared to $0.1 million during the same period in 2005.

# Financing Activities

The agreement governing the Companys
          9-5/8% Senior Notes due 2007 (the Notes) contains restrictive covenants, including limitations on harvest levels,
          land sales, cash distributions and the amount of future indebtedness. Under the Notes, the Companys average annual adjusted
          harvest volume over any period of four consecutive years cannot exceed a volume of approximately 147 MMBF as adjusted for timberland
          sales and purchases. The Notes also limit one-year harvest levels and average annual harvest levels for consecutive two-and-three
          year periods. See the succeeding paragraphs for a discussion of certain litigation against the Company, among others, relating
          to the Notes. As of March 31, 2006, the Company was not permitted to make any distributions, as it had not exceeded the requisite
          Consolidated Fixed Charge Coverage Ratio within the Restricted Payments provisions of the Notes.

Through the first three months of
          2006, the Company funded its investing activities from operations and cash on hand.

Cash required to meet the Companys
          debt service continues to be significant. To meet its working capital requirements, the Company for the past several years has
          been selling logs and making timber sales at a rate in excess of the Managers estimate of the current annual board footage
          growth on the Companys timberlands. Prior to the May 15, 2005 interest payment on the Notes, the debt service and, prior
          to April 2001, quarterly cash distributions had been funded from operations and borrowings. Since May 15, 2005, the Company
          has not made its interest payments on the Notes. Due to the pendency of the settlement of the litigation relating to the Notes,
          which is described below, the Company does not intend to make interest payments due under the Notes. Given projected volumes
          for sales of logs and timber, estimated current board footage growth on the timberlands and the harvest restrictions in the
          Notes, unless prices improve, costs are reduced, new markets are developed or the Company makes accretive acquisitions, the
          Companys ability in the future to make distributions and interest payments on the Notes will continue to be adversely
          affected. On May 10, 2001, the Company announced an indefinite suspension of distributions. The Company continues to evaluate
          means to improve cash flows, including the factors mentioned above. There can be no assurance that prices will improve or that
          the Company will be able to take any of these actions and it is unlikely prices will improve or any of these actions will take
          effect within a short-term horizon. The Company will continue to look to log and timber deed sales as well as the sale of excess
          timberlands, and short-term advances from an affiliated lender, to meet its short-term cash needs and, if possible, meet debt
          service.

12

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# INLAND FIBER GROUP, LLC AND SUBSIDIARY(in thousands)



On December 19, 2003, an action was
          brought in the Court of Chancery of the State of Delaware in and for New Castle County by the Trustee under the Indenture against
          the Company, Finance Corp., the Manager, American Forest Resources, LLC, Cascade Resource Holdings Group, LLC, and all of the
          directors of the Manager as of January 1, 2003 (collectively, the Defendants). The complaint alleges that the Company
          violated the provisions of the Indenture by transferring certain assets to its affiliates, the directors of the Company violated
          their fiduciary duty to the Company and that the transfers of the assets were fraudulent conveyances and subject to rescission.
          The Trustee seeks a declaration that the Company has violated the terms of the Indenture, an injunction against the transfer
          of additional assets out of the ordinary course of business, damages and the imposition of a constructive trust on the assets
          transferred by the Company to its affiliates. In January 2004, the plaintiffs motion to schedule a preliminary injunction
          hearing with respect to further transfers to affiliates and for expedited discovery was denied. In connection with the denial
          of the plaintiffs motion, the Company agreed that, through the earlier of December 31, 2004 and the resolution of the
          lawsuit, it would provide at least thirty days notice before entering into any transfer of assets to affiliates, other
          than payment of management fees. Discovery began in January 2004 and is ongoing. On February 6, 2004, the Defendants filed a
          motion to dismiss. In May 2004, a hearing was held with respect to Defendants motion to dismiss. On May 17, 2004,
          the Company received a Notice of Default from the Trustee covering certain of the allegations in the complaint.  The Defendants
          responded to the Notice of Default denying the existence of any defaults. On July 29, 2004, the Court of Chancery dismissed
          the action without prejudice, based on its determination that the Trustee under the Indenture lacked standing under the terms
          of the Indenture to bring an action against the Defendants because the requisite notice of default and opportunity to cure had
          not been provided to the Company prior to the time the action was commenced.  The Trustee was granted 30 days to file an
          amended complaint and on August 27, 2004, the Trustee filed its second amended complaint. On October 8, 2004, the Trustee filed
          a motion for partial summary judgment seeking a declaratory judgment that the Company violated certain provisions of the Indenture
          by permitting its affiliate to grant security interests in various timberland properties on various dates prior to September
          14, 2001. On October 15, 2004, the Defendants filed a motion to dismiss the second amended complaint. On December 23, 2004,
          the Court of Chancery issued a memorandum opinion granting the Trustees motion for partial summary judgment and declaring
          that an event of default had occurred under the Indenture. On January 13, 2005, the Company received a Notice of Default and
          Acceleration from the Trustee. On January 21, 2005, the Defendants filed a motion for leave to pursue an interlocutory appeal
          of the Chancery Court Order granting partial summary judgment. On January 26, 2005, the Court of Chancery granted Defendants
          motion for leave to appeal. On February 10, 2005, the Supreme Court of the State of Delaware accepted Defendants appeal.
          On April 4, 2005, the Trustee filed its third amended complaint. On April 22, 2005, the Defendants filed a motion to dismiss
          certain counts of the third amended complaint. On June 6, 2005, the Supreme Court of the State of Delaware decided the Defendants
          interlocutory appeal and issued an order vacating the decision of the Court of Chancery granting partial summary judgment to
          the Trustee and remanding the case to the Court of Chancery for a trial on all of the issues. On July 7, 2005, the Court of
          Chancery granted in part and denied in part the Defendants motion to dismiss certain counts of the third amended complaint.
          On July 28, 2005, the Trustee issued an Affirmation of the Notice of Default referencing among other things the failure to make
          the semi-annual interest

13

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# INLAND FIBER GROUP, LLC AND SUBSIDIARY(in thousands)

payment on May 15, 2005. The trial was completed in August 2005 and in October 2005,
          the Trustee filed its post-trial brief. The Defendants filed their reply brief in November 2005. On February 27, 2006 the Company
          announced that it reached a tentative agreement with the Trustee for the Notes to resolve the outstanding disputes among the
          parties. Under the terms of the tentative agreement, the Company or its nominee would purchase all of the outstanding Notes
          at a price of 69% of the principal amount of the Notes through a pre-negotiated plan of reorganization. The settlement would
          include the alleged existing defaults, the accrued and unpaid interest, the termination of all pending litigation, and a release
          of all the parties. Completion of the contemplated settlement is subject to a number of conditions, including the commitment
          to support a pre-negotiated plan of reorganization to effectuate the settlement by a sufficient number of Noteholders and holders
          of a sufficient face value of Notes to be acceptable to the Company, and the receipt by the Company of financing sufficient
          to fund the settlement. The Company has agreements in principle for the financing, which are subject to the negotiation and
          execution of definitive documentation and due diligence. Due to the pending settlement the post-trial hearing has been adjourned.
          The Company and its legal counsel believe the litigation and both the Notices of Default to be without merit, and to the extent
          the proposed settlement is not completed and the litigation were to resume, the Company would continue to vigorously defend
          the litigation.

# ITEM
          3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

# ITEM
          4.   CONTROLS AND PROCEDURES

The Companys management maintains
          an adequate system of disclosure controls and procedures to promote the timely identification and reporting of material, relevant
          information. The Companys President and Chief Executive Officer and its Vice President and Chief Financial Officer meet
          regularly with members of senior management of the Manager to discuss significant transactions and events affecting the Companys
          operations and consider whether topics discussed represent information that should be disclosed under the rules of the SEC.
          The Audit Committee reviews all reports on Form 10-Q and 10-K prior to their filing. The Audit Committee is responsible for
          hiring the Companys external auditors and meets with those auditors.

The Companys President and
          Chief Executive Officer and its Vice President and Chief Financial Officer are responsible for establishing and maintaining
          disclosure controls and procedures. They have designed such controls to ensure that others make all material information known
          to them within the organization.

As of the end of the period covered
          by this quarterly report, the Companys principal executive officer and principal financial officer completed an evaluation
          of the disclosure controls and procedures and have determined them to be functioning effectively. They did not discover any
          significant deficiencies or material weaknesses within the controls and procedures

14

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# INLAND FIBER GROUP, LLC AND SUBSIDIARY(in thousands)

that required modifications. During the period covered by this report, there has
          been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially
          affect the Companys internal control over financial reporting.







15

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# 

INLAND FIBER GROUP, LLC AND SUBSIDIARY

PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGSOn December 19, 2003,
          an action was brought in the Court of Chancery of the State of Delaware in and for New Castle County by the Trustee under the
          Indenture against the Company, Finance Corp., the Manager, American Forest Resources, LLC, Cascade Resource Holdings Group,
          LLC, and all of the directors of the Manager as of January 1, 2003 (collectively, the Defendants). The complaint
          alleges that the Company violated the provisions of the Indenture by transferring certain assets to its affiliates, the directors
          of the Company violated their fiduciary duty to the Company and that the transfers of the assets were fraudulent conveyances
          and subject to rescission. The Trustee seeks a declaration that the Company has violated the terms of the Indenture, an injunction
          against the transfer of additional assets out of the ordinary course of business, damages and the imposition of a constructive
          trust on the assets transferred by the Company to its affiliates. In January 2004, the plaintiffs motion to schedule a
          preliminary injunction hearing with respect to further transfers to affiliates and for expedited discovery was denied. In connection
          with the denial of the plaintiffs motion, the Company agreed that, through the earlier of December 31, 2004 and the resolution
          of the lawsuit, it would provide at least thirty days notice before entering into any transfer of assets to affiliates,
          other than payment of management fees. Discovery began in January 2004 and is ongoing. On February 6, 2004, the Defendants filed
          a motion to dismiss. In May 2004, a hearing was held with respect to Defendants motion to dismiss. On May 17, 2004,
          the Company received a Notice of Default from the Trustee covering certain of the allegations in the complaint.  The Defendants
          responded to the Notice of Default denying the existence of any defaults. On July 29, 2004, the Court of Chancery dismissed
          the action without prejudice, based on its determination that the Trustee under the Indenture lacked standing under the terms
          of the Indenture to bring an action against the Defendants because the requisite notice of default and opportunity to cure had
          not been provided to the Company prior to the time the action was commenced.  The Trustee was granted 30 days to file an
          amended complaint and on August 27, 2004, the Trustee filed its second amended complaint. On October 8, 2004, the Trustee filed
          a motion for partial summary judgment seeking a declaratory judgment that the Company violated certain provisions of the Indenture
          by permitting its affiliate to grant security interests in various timberland properties on various dates prior to September
          14, 2001. On October 15, 2004, the Defendants filed a motion to dismiss the second amended complaint. On December 23, 2004,
          the Court of Chancery issued a memorandum opinion granting the Trustees motion for partial summary judgment and declaring
          that an event of default had occurred under the Indenture. On January 13, 2005, the Company received a Notice of Default and
          Acceleration from the Trustee. On January 21, 2005, the Defendants filed a motion for leave to pursue an interlocutory appeal
          of the Chancery Court Order granting partial summary judgment. On January 26, 2005, the Court of Chancery granted Defendants
          motion for leave to appeal. On February 10, 2005, the Supreme Court of the State of Delaware accepted Defendants appeal.
          On April 4, 2005, the Trustee filed its third amended complaint. On April 22, 2005, the Defendants filed a motion to dismiss
          certain counts of the third amended complaint. On June 6, 2005, the Supreme Court of the State of Delaware decided the Defendants
          interlocutory appeal and issued an order vacating the decision of the Court of Chancery granting partial summary judgment to
          the Trustee and remanding the case to the Court of Chancery for a trial on all of the issues. On July 7, 2005, the Court of
          Chancery granted in part and denied in part the Defendants motion to dismiss certain counts of the third amended complaint.
          On July 28, 2005, the Trustee issued an Affirmation of

16

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# INLAND FIBER GROUP, LLC AND SUBSIDIARY(in thousands)

the Notice of Default referencing among other things the failure to make the semi-annual
          interest payment on May 15, 2005. The trial was completed in August 2005 and in October 2005, the Trustee filed its post-trial
          brief. The Defendants filed their reply brief in November 2005. On February 27, 2006 the Company announced that it reached a
          tentative agreement with the Trustee for the Notes to resolve the outstanding disputes among the parties. Under the terms of
          the tentative agreement, the Company or its nominee would purchase all of the outstanding Notes at a price of 69% of the principal
          amount of the Notes through a pre-negotiated plan of reorganization. The settlement would cover the alleged existing defaults
          and the accrued and unpaid interest and would include the termination of all pending litigation, and a release of all the parties.
          Completion of the contemplated settlement is subject to a number of conditions, including the commitment to support a pre-negotiated
          plan of reorganization to effectuate the settlement by a sufficient number of Noteholders and holders of a sufficient face value
          of Notes to be acceptable to the Company, and the receipt by the Company of financing sufficient to fund the settlement. The
          Company has agreements in principle for the financing, which are subject to the negotiation and execution of definitive documentation
          and due diligence. Due to the pending settlement the post-trial hearing has been adjourned. The Company and its legal counsel
          believe the litigation and both the Notices of Default to be without merit, and to the extent the proposed settlement is not
          completed and the litigation were to resume, the Company would continue to vigorously defend the litigation.

17

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# INLAND FIBER GROUP, LLC AND SUBSIDIARY

ITEM 6.    EXHIBITS

|(a) | Exhibits
|--- | --------
|   
|    | 31.1    
|   
|    | 31.2    
|   
|    | 32.1    
|   
|    | 32.2    
|   
|   





18



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|SIGNATURES
|----------



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

|      |  |              |  |  |                         |                              
|----- |  | ------------ |  |  | ----------------------- | -----------------------------
|Date: |  | May 12, 2006 |  |  | INLAND FIBER GROUP, LLC
|      |  |              |  |  | By:                     | /s/ Thomas C. Ludlow         
|      |  |              |  |  |                         | Thomas C. Ludlow             
|      |  |              |  |  |                         | Vice President and Treasurer 
|      |  |              |  |  |                         | (Principal Financial Officer)

19



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