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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                      ------------------------------------
                                    FORM 10-Q
                      ------------------------------------

             [X]   QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR
                   15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the quarterly period ended June 30, 1999

                                     OR

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

                 Commission file numbers 1-13573-01 and 1-13573


                     U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
                         U.S. TIMBERLANDS FINANCE CORP.
            (Exact name of co-registrant as specified in its charter)

          Delaware                                     93-1217136
          Delaware                                     91-1851612
--------------------------------------------------------------------------------
    (State or other jurisdiction          (I.R.S. Employer Identification No.)
      of incorporation or
         organization)

      625 Madison Avenue, Suite 10-B, New York, NY          10022
--------------------------------------------------------------------------------
       (Address of principal executive offices)           (Zip Code)


       Co-Registrants telephone number, including area code: 212-755-1100

Indicate  by check mark  whether the  co-registrants  (1) have 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
co-registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.


                              Yes [X]   No   [ ]

<PAGE>


PART l.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS


                     U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         (IN THOUSANDS, EXCEPT PER UNIT)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                      Quarter Ended June 30,
                                                                      -----------------------------------------------
                                                                                  1999                      1998
                                                                      ---------------------     ---------------------

<S>                                                                    <C>                        <C>
Revenues                                                               $           20,296         $           18,622
                                                                          -----------------          ----------------

Costs and expenses:
     Cost of goods sold                                                             2,774                      4,249
     Cost of timberland sales                                                           -                      5,917
     Depletion, depreciation and road amortization                                  5,268                      3,957
     Selling, general and administrative                                            2,489                      1,760
                                                                          -----------------          ----------------
         Total costs and expenses                                                  10,531                     15,883
                                                                          -----------------          ----------------

     Operating income                                                               9,765                      2,739

Interest expense                                                                    5,495                      5,635

Interest income                                                                       (99)                       (94)

Financing fees                                                                        169                        169

Other income - net                                                                   (257)                       (85)
                                                                          -----------------          ----------------

Net income (loss)                                                      $            4,457         $           (2,886)
                                                                          =================          ================


          See accompanying Notes to Consolidated Financial Statements.


                                    2 of 19


<PAGE>


                     U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         (IN THOUSANDS, EXCEPT PER UNIT)
                                   (UNAUDITED)

                                                                                  Six Months Ended June 30,
                                                                      -----------------------------------------------
                                                                                 1999                      1998
                                                                      ---------------------     ---------------------

Revenues                                                               $           31,425         $           26,378
                                                                          -----------------          ----------------

Costs and expenses:
     Cost of goods sold                                                             4,796                      6,899
     Cost of timberland sales                                                           -                      5,917
     Depletion, depreciation and road amortization                                  9,252                      6,716
     Selling, general and administrative                                            4,839                      5,390
                                                                          -----------------          ----------------
         Total costs and expenses                                                  18,887                     24,922
                                                                          -----------------          ----------------

     Operating income                                                              12,538                      1,456

Interest expense                                                                   10,965                     11,098

Interest income                                                                      (351)                      (270)

Financing fees                                                                        338                        338

Other income - net                                                                 (1,139)                     (110)
                                                                          -----------------          ----------------

Net income (loss)                                                      $            2,725         $          (9,600)
                                                                          =================          ================

                            See accompanying Notes to Consolidated Financial Statements.

                                    3 of 19

<PAGE>


                     U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                                                               June 30,                December 31,
                                                                                 1999                      1998
                                                                         ---------------------     ---------------------
                                                                             (UNAUDITED)                    *

ASSETS
Current assets:
     Cash and cash equivalents                                            $            1,005        $            4,824
     Accounts and current portion of notes receivable - net                            4,490                     2,706
     Prepaid expenses and other current assets                                           144                     1,539
                                                                             -----------------         -----------------
         Total current assets                                                          5,639                     9,069
                                                                             -----------------         -----------------

Timber, timberlands and roads - at cost
     Timber                                                                          331,035                   329,520
     Timberlands                                                                      43,118                    43,118
     Logging roads                                                                     1,803                     1,803
     Less accumulated depletion and road amortization                                (50,847)                  (41,848)
                                                                             -----------------         -----------------
         Timber, timberlands and roads - net                                         325,109                   332,593
                                                                             -----------------         -----------------

Seed and nursery stock                                                                   929                     1,883
                                                                             -----------------         -----------------
Property, plant and equipment - at cost
     Equipment                                                                           674                       637
     Building and land improvements                                                      843                       843
     Less accumulated depreciation                                                      (399)                     (326)
                                                                             -----------------         -----------------
         Property, plant and equipment - net                                           1,118                     1,154
                                                                             -----------------         -----------------

Notes receivable                                                                         829                         -
Deferred financing fees                                                                5,661                     5,998
Other assets                                                                           1,000                         -
                                                                             -----------------         -----------------

     Total assets                                                         $          340,285       $           350,697
                                                                             =================         =================

LIABILITIES
Current liabilities:
     Accounts payable and accrued liabilities                             $            4,886        $            6,052
     Deferred revenue                                                                  1,764                     1,614
     Short-term debt                                                                   1,000                         -
                                                                             -----------------         -----------------
         Total current liabilities                                                     7,650                     7,666
                                                                             -----------------         -----------------

Long-term debt                                                                       225,000                   225,000

MEMBERS' EQUITY
Managing member's interest                                                             1,076                     1,180
Non-managing members' interest                                                       106,559                   116,851
                                                                             -----------------         -----------------
           Total managing and non-managing members' interest                         107,635                   118,031
                                                                             -----------------         -----------------
     Total liabilities and members' interest                              $          340,285        $          350,697
                                                                             =================         =================

                     *Derived from audited Consolidated Balance Sheet as of December 31, 1998.
                           See accompanying Notes to Consolidated Financial Statements.


                                    4 of 19

<PAGE>

                     U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


                                                                                Six Months Ended June 30,
                                                                      -----------------------------------------------
                                                                              1999                      1998
                                                                      ---------------------     ---------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                      $            2,725         $           (9,600)
Adjustments to reconcile net loss to net cash provided
   by operating activities:
     Depletion, depreciation, road amortization and cost
       of timberland sold                                                           9,252                     12,633
     Financing fees                                                                   338                        338
     Other non-cash items                                                             150                          -
     Working capital changes - net                                                 (1,756)                      (950)
                                                                          -----------------          ----------------
Net cash provided by operating activities                                          10,709                      2,421
                                                                          -----------------          ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Timber and road additions                                                     (1,516)                      (218)
     Purchase of property, plant and equipment - net                                  (36)                       (28)
     Capitalized seed and nursery costs - net                                         975                        (63)
     (Increase) decrease in notes receivable - net                                   (829)                       177
      Increase in other assets                                                     (1,000)                         -
                                                                          -----------------          ----------------
Net cash used in investing activities                                              (2,406)                      (132)
                                                                          -----------------          ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Short-term borrowing                                                           1,000                          -
     Distributions to members                                                     (13,122)                    (9,580)
                                                                          -----------------          ----------------
Net cash used in financing activities                                             (12,122)                    (9,580)
                                                                          -----------------          ----------------

Decrease in cash and cash equivalents                                              (3,819)                    (7,291)
Cash and cash equivalents - beginning of period                                     4,824                     10,625
                                                                          -----------------          ----------------
Cash and cash equivalents - end of period                              $            1,005         $            3,334
                                                                          =================          ================

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest                                                 $           10,893         $           10,588
                                                                          =================          ================
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                    5 of 19

<PAGE>


                     U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        (In thousands, except per Unit amounts or as otherwise indicated)
                                   (Unaudited)

1. ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Organization

     The accompanying  consolidated financial statements include the accounts of
U.S.  Timberlands Klamath Falls, L.L.C.  ("USTK"),  a Delaware limited liability
company,  and  its  wholly  owed  subsidiary,  U.S.  Timberlands  Finance  Corp.
("Finance Corp."),  collectively  referred to hereafter as the Company.  Finance
Corp.  serves as  co-obligor  with USTK for $225.0  million of senior  unsecured
notes  issued  by the  company  in a public  offering  November  13,  1997  (the
"Notes").  Finance Corp. has nominal assets and does not conduct any operations.
All intercompany transactions have been eliminated in consolidation.

     U.S.  Timberlands  Company,  L.P.  (the  "Master  Partnership")  owns a 99%
non-managing member interest in USTK. The Master Partnership was formed June 27,
1997 to acquire and own  substantially all of the equity interest in USTK and to
acquire and own the business and assets of U.S. Timberlands  Management Company,
L.L.C. U.S. Timberlands Services Company, L.L.C. (the "Managing Member") manages
the business of the Company and owns a 1% managing  member interest in USTK. The
Managing  Member  also  owns  a  1%  general  partner  interest  in  the  Master
Partnership.


Nature of Operations

     The primary  activity of the Company is growing  trees and the sale of logs
and standing timber to third party wood  processors.  The Company's  timberlands
are  located in Oregon,  east of the  Cascade  Range.  Logs  harvested  from the
Company's timberlands are sold to unaffiliated  domestic conversion  facilities.
These logs 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  Company  also owns and  operates  its own seed
orchard and  nursery,  which  produce  approximately  five  million  genetically
selected conifer seedlings each year.  Approximately half of the annual seedling
production  is used by the  Company  for its  own  reforestation  programs;  the
balance is sold to other forest products companies.

Basis of Presentation

     These consolidated  financial statements have been prepared by the Company,
without  audit by  independent  public  accountants,  pursuant  to the rules and
regulations  of the United States  Securities  and Exchange  Commission.  In the
opinion of management,  the consolidated financial statements include all normal
recurring adjustments necessary to present fairly the information required to be
set forth therein. Certain information and note disclosures normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these statements pursuant to such
rules and regulations and,  accordingly,  should be read in conjunction with the
consolidated  financial  statements included in the Company's 1998 Annual Report
on Form  10-K.  Certain  reclassifications  have been  made to the 1998  amounts
presented for comparability purposes and have no impact on net income. Operating


                                    6 of 19

<PAGE>

results  for the  three  and six  month  periods  ended  June  30,  1999 are not
necessarily indicative of the results that may be expected for the full year.

     There have been no significant  changes in the  accounting  policies of the
Company.  There were no  significant  changes in the Company's  commitments  and
contingencies as previously described in the 1998 Annual Report on Form 10-K.

2. SHORT-TERM DEBT

     Please see Management's  Discussion and Analysis - Financial  Condition and
Liquidity for a description of changes in the Company's short-term debt.

3. SUBSEQUENT EVENT

     On July 28, 1999, the Board of Directors of the Managing Member  authorized
the  Master  Partnership  to make a  distribution  of $0.50 per Unit.  The total
distribution  by the  Company  to the  Master  Partnership  will  be  $6,494,751
(including  $64,948 to the Managing  Member) and will be paid on August 13, 1999
to  Unitholders  of record on August 5, 1999.  All of the cash necessary to make
such  distribution  will be  distributed  to the Master  Partnership by USTK. In
addition,  on August  13,  1999 USTK will  distribute  $66,273  to the  Managing
Member.


                                    7 of 19

<PAGE>


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 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, 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.

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. 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  quarterly  distributions  to its
Unitholders  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 logs, seasonality,  government
regulations  affecting  the  manner  in  which  timber  may  be  harvested,  and
competition from other supplying regions and substitute products.

Seasonality

     The Company's log and standing  timber sales volumes are generally at their
lowest  levels  in the first  and  second  quarter  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.


                                    8 of 19

<PAGE>


Current Market Conditions

     Strong lumber and plywood  demand has led to increased  prices for finished
products during the second quarter 1999. A combination of dry spring weather and
increased log prices has led to increased  log and stumpage  volumes in response
to firm mill needs.  Inventories  at most mill locations are high going into the
summer  season.  Continued dry weather and scheduled mill downtime will keep log
inventories high for third quarter.  Log export prices and demand have increased
slightly.

     The strong  lumber and  plywood  markets  have  affected  log and  stumpage
pricing.  The  circumstances  driving  the log pricing  and  shortage  have also
impacted finished product pricing.  Prices for #3 Ponderosa Pine shop are up 17%
from a year ago.  Lodgepole  Pine stud prices are up 39% from the second quarter
of 1998.  Douglas  Fir #2 & Btr.  green  studs are up 54% and White Fir  plywood
sheathing  prices are up 60% from last year at this time.  These price increases
during the second  quarter of 1999 may differ from the Company's  actual results
for the same quarter as the  Company's  pricing is typically  agreed to prior to
actual delivery.

Results of Operations

     Selected operating statistics for the Company:

<TABLE>
<CAPTION>
                                         Sales Volume (MBF)                  Price Realization (MBF)
                                         ------------------                  -----------------------

                                                               Timber                               Timber   Timberland
            Period                   Logs       Stumpage        Deeds       Logs       Stumpage      Deeds    Sales ($000)
            ------                   ----       --------        -----       ----       --------      -----    ------------
             1999
<S>                                <C>            <C>          <C>         <C>            <C>         <C>        <C>
Three Months Ended June 30         15,376             --       26,898       $455             --       $484            --
Three Months Ended March 31        11,996          1,921       17,759       $395           $440       $308            --

             1998
Three Months Ended June 30         23,832          2,506           --       $432           $570         --        $6,276
Three Months Ended March 31        16,409          1,984           --       $418           $447         --            --
</TABLE>

Quarter Ended June 30, 1999 Compared to Quarter Ended June 30, 1998

     REVENUES  Revenues for the quarter ended June 30, 1999 were $20.3  million,
an increase of $1.7 million or 9% over revenues of $18.6 million for the quarter
ended June 30,  1998.  This  increase in revenues was  attributable  to an $11.6
million  increase in timber deed and stumpage sales  partially  offset by a $3.3
million decrease in log sales and a $6.3 million decrease in timberland sales.

     Log sales for the quarter  ended June 30, 1999 were $7.0 million on volumes
of 15.4 million  board feet ("MMBF") as compared to the same period in 1998 when
log sales were $10.3 million on volumes of 23.8 MMBF.  The decrease in log sales
volume was caused by weather. Logging operations were delayed this year due to a
heavy snow pack that prolonged the spring  break-up.  The average second quarter
1999 log sales price was $455 per MBF compared to an average of $432 per MBF for
the first quarter of 1998. The following  explanation of changes in sales prices
may differ from those Current Market Conditions  described  previously,  as most
pricing is agreed to prior to actual  delivery.  The increase in the average log
sales price was  primarily  attributable  to a 30% increase in White Fir prices.
The increase in White Fir log prices was directly  attributable  to increases in
the prices for White Fir  finished  products.  Pine and  Douglas Fir prices were
essentially flat between the second quarter of 1999 and 1998.


                                    9 of 19

<PAGE>

     Timber deed and stumpage sales for the second quarter were $13.0 million on
volumes  of 26.9  MMBF as  compared  to the same  period  in 1998  when deed and
stumpage  sales were $1.4 million on volumes of 2.5 MMBF. The increase in timber
deed and  stumpage  volume was  primarily  the result of a  strategy,  which the
Company  initiated  in the second  quarter of 1998,  to expand its use of timber
deeds and stumpage  sales to meet the needs of its  customers  and improve sales
prices  realized  by the  Company.  In  addition,  due to the  prolonged  spring
break-up,  management  made a decision to expand the timber deed sales volume in
the second quarter of 1999.

     There were no timberland  sales in the second  quarter of 1999, as compared
to a $6.3 million timberland sale in the same period in 1998.

     OPERATING  COSTS  Operating  costs were $10.5 million for the quarter ended
June 30, 1999, a decrease of $5.4 or 34% from  operating  costs of $15.9 million
for the quarter  ended June 30, 1998.  This decrease was primarily due to a $1.5
million decrease in cost of goods sold ("COGS"),  and a $5.9 million decrease in
the cost of timberland  sales.  These reductions were partially offset by a $1.3
million  increase in  depreciation,  depletion  and road  amortization  ("DD&A")
expenses  and a $0.7  million  increase in selling,  general and  administrative
expenses ("SGA").

     COGS for the quarter ended June 30, 1999 were $2.8  million,  a decrease of
$1.5 million or 36% from COGS of $4.2 million for the same period in 1998.  This
decrease  was due to a 35%  decrease  in log  sales  volume  to 15.4 MMBF in the
second quarter of 1999 from 23.8 MMBF in the same period in 1998.

     The Company had no timberland sales during the quarter ended June 30, 1999,
as compared  to a sale of 15,304  acres with a cost of $5.9  million  during the
same period in 1998.

     SG&A  expenses for the quarter  ended June 30, 1999 were $2.5  million,  an
increase of $0.7 or 39% from  comparable  expenses of $1.8  million for the same
period in 1998.  This  increase was  primarily  due to $0.7 million in severance
expenses  related to the  closure of the  Seattle  office.  As a  percentage  of
revenues,  SG&A  increased to 12% in the second  quarter of 1999, as compared to
9% in the second quarter of 1998.

     DD&A  expense  was $5.3  million  for the second  quarter  of 1999,  a $1.3
million or 33% increase over DD&A expense of $4.0 million for the same period in
1998.  This increase was due to a 61% increase in sales volume from log,  timber
deed and stumpage  sales to 42.3 MMBF in the second quarter of 1999, as compared
to 26.3 MMBF for the same  period in 1998.  This  increase  in sales  volume was
partially  offset by a decrease in the Company's  depletion  rate per MBF, which
resulted  from the  annual  recalculation  of the  depletion  rate in the  first
quarter of 1999.

     OTHER INCOME Other income was $0.3 million for the second  quarter of 1999,
an increase of $0.2 million from the same period in 1998.  This increase was due
to income  related to an unrealized  gain, as of June 30, 1999,  from marking to
market an unhedged financial instrument.

     MEMBERS'  EQUITY  During the three  months ended June 30, 1999 the members'
equity in the  Company  declined  $2.1  million  from  $109.7  million to $107.6
million.  This  decline is the result of the  Company's  $4.5 million net income
offset by the Company's $6.6 million of distributions to its members during this
period.  The Company expects to continue to make distributions to its Members in
excess of its operating  earnings.  As a result,  the Company  anticipates  that
members' equity will continue to decline.



                                    10 of 19

<PAGE>



Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998

     REVENUES  Revenues  for the six  months  ended  June 30,  1999  were  $31.4
million,  an increase of $5.0 million or 19% over  revenues of $26.4 million for
the six months ended June 30, 1998.  This increase in revenues was  attributable
to a $17.0 million  increase in timber deed and stumpage sales partially  offset
by a  $5.4  million  decrease  in  log  sales  and a $6.3  million  decrease  in
timberland sales.

     Log sales for the six  months  ended June 30,  1999 were  $11.7  million on
volumes of 27.4 MMBF as  compared to the same period in 1998 when log sales were
$17.2  million on volumes of 40.2 MMBF.  The  decrease  in log sales  volume was
caused by weather. Logging operations were delayed this year due to a heavy snow
pack that  prolonged  the spring  break-up.  The average log sales price for the
first six months of 1999 was $429 per MBF  compared to $426 per MBF for the same
period in 1998. The following  explanation of changes in sales prices may differ
from those Current Market Conditions  described  previously,  as most pricing is
agreed to prior to actual delivery.  The increase in the average log sales price
was primarily  attributable to a 25% increase in White Fir prices.  The increase
in White Fir log prices was directly attributable to increases in the prices for
White Fir finished products.  Pine and Douglas Fir prices were slightly lower in
the first six months of 1999, as compared to the same period in 1998.

     Timber deed and  stumpage  sales for the six months  were $19.3  million on
volumes  of 46.6  MMBF,  as  compared  to the same  period in 1998 when deed and
stumpage  sales were $2.3 million on volumes of 4.5 MMBF. The increase in timber
deed and  stumpage  volume was  primarily  the result of a  strategy,  which the
Company  initiated  in the second  quarter of 1998,  to expand its use of timber
deed and stumpage  sales to meet the needs of its  customers  and improve  sales
prices  realized  by the  Company.  In  addition,  due to the  prolonged  spring
break-up,  management  made a decision  to expand the timber deed sale volume in
the second quarter of 1999.

     There were no timberland sales in the first six months of 1999, as compared
to a $6.3 million timberland sale in the same period in 1998.

     OPERATING COSTS Operating costs were $18.9 million for the six months ended
June 30, 1999, a decrease of $6.0 or 24% from  operating  costs of $24.9 million
for the same period in 1998.  This  decrease was primarily due to a $2.1 million
decrease in COGS, a $5.9 million  decrease in the cost of timberland sales and a
$0.5 million decrease in general and administrative  expenses.  These reductions
were partially offset by a $2.5 million increase in DD&A expenses

     COGS for the six months ended June 30, 1999 were $4.8  million,  a decrease
of $2.1  million or 30% from COGS of $6.9  million  for the same period in 1998.
This  decrease was due to a 32% decrease in log sales volume to 27.4 MMBF in the
first six months of 1999 from 40.2 MMBF in the same period in 1998.

     The Company had no timberland sales during the first six months of 1999, as
compared to a sale of 15,304 acres with a cost of $5.9  million  during the same
period in 1998.

     SG&A expenses for the six months ended June 30, 1999 were $4.8  million,  a
decrease of $0.6 million or 11% from comparable expenses of $5.4 million for the
same period in 1998.  This decrease was  primarily due to a one-time  expense of


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$1.1 million in the first quarter of 1998 for  severance  and the  repurchase of
member  interest in the  Manager.  This  decrease was  partially  offset by $0.7
million in severance  expenses recorded in the second quarter of 1999 related to
the closure of the Seattle office.  As a percentage of revenues,  SG&A decreased
to 15% in the first six months of 1999,  as  compared  to 20% in same  period of
1998.

     DD&A expense was $9.3 million for the six months of 1999, a $2.6 million or
39% increase over DD&A expense of $6.7 million for the same period in 1998. This
increase  was due to an  increase  in sales  volume  from log,  timber  deed and
stumpage sales to 73.9 MMBF in the first six months of 1999, as compared to 44.8
MMBF for the same period in 1998.  The  increase in sales  volume was  partially
offset by a decrease in the Company's  depletion  rate per MBF,  which  resulted
from the annual  recalculation  of the  depletion  rate in the first  quarter of
1999.

     OTHER INCOME  Other income was $1.1 million for the six months of 1999,  an
increase of $1.0 million from the same period in 1998.  This increase was due to
income  related to an  unrealized  gain,  as of June 30,  1999,  from marking to
market an unhedged financial instrument.

     MEMBERS'  EQUITY  During the six months  ended June 30,  1999 the  members'
equity in the Company  declined  $10.4  million  from  $118.0  million to $107.6
million.  This  decline is the result of the  Company's  $2.7 million net income
offset by the Company's  $13.1 million of  distributions  to its Members  during
this  period.  The  Company  expects to continue  to make  distributions  to its
Members in excess of its operating income. As a result, the Company  anticipates
that members' equity will continue to decline.


Financial Condition and Liquidity

     OPERATING ACTIVITIES Cash flows provided by operating activities during the
six months  ended June 30,  1999 were $10.7  million,  as compared to cash flows
provided by operating activities of $2.4 million during the same period in 1998.
The $8.3 million  increase in cash flows  provided by operating  activities  was
primarily  due to a $5.0  million  increase in the proceeds  from sales,  a $2.1
million decrease in COGS and a $0.6 million decrease in SG&A expenses.

     INVESTING  ACTIVITIES  Cash flows used by  investing  activities  were $2.4
million  during the first six months of 1999,  as compared to cash flows used by
investing  activities of $0.1 million during the same period in 1998. During the
first quarter of 1999, $1.0 million of other assets were  established.  The $0.5
million  of net  additions  to  timber,  roads and seed and  nursery  stock were
primarily  capitalized  seedling and nursery costs.  The notes  receivable  from
timber deed sales increased by $0.8 million.

     FINANCING  ACTIVITIES  Cash flows used in financing  activities  were $12.1
million  for the first six  months  1999,  as  compared  to cash  flows  used in
financing  activities  of $9.6  million  during  the same  period in 1998.  This
increase is primarily due to the Company  paying $13.1 million in  distributions
to Members in the six months  ended of 1999 as compared to $9.6  million  during
the same period in 1998.  There were no cash flows from financing  activities in
the first three months of 1998, as the Company's first distribution was not paid
until May 15, 1998.  The Company had $1.0 million of  outstanding  borrowings on
the  Affiliate  Credit  Facility at June 30,  1999.  There was no need to borrow
funds in the first six months of 1998.

     The Company had a $100.0 million  unsecured  revolving credit facility (the
"Bank  Credit  Facility")  with a group of  banks,  which  consisted  of a $75.0
million  acquisition  facility and a $25.0 million working capital  facility and
was subject to restrictions  and covenants that limited the amount available for
borrowing in amounts  which varied from time to time.  Effective  April 6, 1999,


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<PAGE>

the Company terminated the $75.0 million  acquisition  facility.  Effective June
30, 1999, the Company  terminated the $25.0 million working capital facility and
entered into a credit  agreement  with an affiliate of the Managing  Member (the
"Affiliate Credit  Facility").  The Affiliate Credit Facility allows the Company
to borrow up to $12.0 million under terms and covenants substantially consistent
with the former Bank Credit Facility.  The Affiliate Credit Facility will expire
on June 30, 2000. At that time, amounts borrowed will be due and payable.  As of
June 30, 1999, $1.0 million was outstanding under the Affiliate Credit Facility.
The  Company is  currently  in  discussions  with  several  banks to replace the
Affiliate  Credit  Facility.  The Company also has the ability to generate  cash
flow through the acceleration of planned log and timber deed sales. In addition,
the Company's plan is to retain  investment  banks to assist it in raising money
for acquisitions.

     The  agreements  governing the Company's  9-5/8% senior notes (the "Notes")
and the Affiliate  Credit  Facility  contain  restrictive  covenants,  including
limitations on harvest levels,  land sales, cash distributions and the amount of
future  indebtedness.  In  addition,  these  agreements  require  the Company to
maintain certain financial ratios. Under the Notes, the Company's average annual
harvest volume over any period of four consecutive  years cannot exceed 150 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.  As of June 30, 1999 the Company was in compliance with the
covenants and ratios pertaining to the Notes and Affiliate Credit Facility.

     Through the first six months of 1999, the Company funded its operations and
met its cash obligations for  distributions to its Members and debt service from
cash on hand and cash generated from current operations and borrowings under the
Bank Credit  Facility  and  Affiliate  Credit  Facility.  Cash  required to make
distributions  to all Members at current levels and to pay interest on the Notes
is $26.2 million and $21.7 million,  respectively, per year. The Managing Member
expects that cash  distributions  and interest payments will be funded from cash
on hand, cash generated from current operations and borrowings.

     Cash  required  to meet the  Company's  debt  service  and  quarterly  cash
distributions will be significant. To meet its working capital requirements, the
Company has been harvesting and selling logs,  stumpage and timber deed sales at
a rate in excess of the Managing Member's estimate of the long-term  sustainable
annual harvest level for its current  timberlands.  The Managing  Member expects
that the debt  service  and  quarterly  cash  distributions  will be funded from
operations  and  borrowings.  Given  projected  harvest  levels,  the long  term
sustainable  harvest levels of 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 at current levels may be adversely  affected.  The Company
continues  to  evaluate  means to improve  cash  flows,  including  the  factors
mentioned above. However,  there can be no assurance that prices will improve or
that the Company will be able to take any of these actions.


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<PAGE>

Year 2000 Issues

     The  Company  is  aware  of the  "Year  2000"  issue  associated  with  the
programming  code in existing  computer  systems as the  millennium  (year 2000)
approaches.  The Year 2000 issue is  pervasive  and complex as  virtually  every
computer  operation  will be affected in some way by the rollover of a two-digit
year value to 00. The issue is whether computer systems will properly  recognize
date sensitive  information  when the year changes to 2000.  Systems that do not
recognize such  information  could generate  erroneous data or cause a system to
fail.

     Since early 1998, the company has been assessing its computer  hardware and
information systems needs and upgrading its systems as appropriate. In 1998, the
Company  completed  the  installation  of several  major  hardware  and software
upgrades:  general ledger, accounts payable, accounts receivable, log accounting
and  telecommunications.  Along with this assessment and upgrade of its systems,
the  Company  is also  reviewing  its  systems  and  applications  to ensure its
computer  and  information  systems  will  function  properly at Year 2000.  The
Company had substantially  completed this internal review and upgrade as of June
30,  1999.  Due to changing  status and  ongoing  recommended  modifications  by
vendors,  system  assessments and testing will continue  through the end of this
year. At this time, management of the Company believes that the specific cost of
achieving Year 2000  compliance for its current systems will not have a material
effect on the Company's consolidated financial statements.

     Like other companies,  the Company relies on its customers for revenues and
on its vendors for products and services of all kinds;  these third  parties all
face the Year 2000  issue.  An  interruption  in the  ability  of any of them to
provide goods or services, or to pay for goods and services provided to them, or
an  interruption  in the business  operations of customers  causing a decline in
demand for services, could have a material adverse effect on the Company.

     In addition,  there is a risk, the  probability of which the Company is not
in a position  to  estimate,  that the Year 2000 will cause  wholesale,  perhaps
prolonged,  failures of electrical  generation,  banking,  telecommunications or
transportation  systems in the United States or abroad,  disrupting  the general
infrastructure  of the economy.  The effect of such  disruptions  on the Company
could be material.

     The Company is in the process of identifying  and surveying its key vendors
and customers  regarding  their  progress on the Year 2000 issue.  The Company's
efforts to determine the readiness of its key vendors and customers are expected
to be ongoing  through  year-end  1999.  However,  because so many  entities are
exposed to the risk of failure not only of their own systems, but the systems of
other entities,  the ultimate effect of the Year 2000 issue is subject to a high
degree of uncertainty.

     The Company believes that its preparations  currently underway are adequate
to assess and manage the risks  presented  by the Year 2000 issue,  and does not
have a formal contingency plan at this time.

     The  statements  in this section  regarding the Year 2000 and the Company's
responses to it are  forward-looking  statements.  They are based on assumptions
that the Company believes to be reasonable in light of its current knowledge and
experience.  A number of events could cause actual results to differ  materially
from those  described in the  forward-looking  statements  made on behalf of the
Company.


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<PAGE>

SFAS No. 133

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financing  Accounting  Standard  (SFAS)  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities." This Statement  establishes  accounting and
reporting standards for derivative  instruments and for hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  This  Statement is effective  for all fiscal  quarters of fiscal
years  beginning  after June 15, 1999. The Company will adopt SFAS No. 133 as of
July 1, 1999. The Company believes that adoption of this statement will not have
a material impact on the Company.


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PART ll.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     There is no pending litigation and, to the knowledge of the Company,  there
is no threatened  litigation,  the unfavorable  resolution of which could have a
material adverse effect on the business or financial condition of the Company.

ITEMS 2, 3, 4 AND 5 OF PART II are not applicable and have been omitted.


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<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

 (a.) Exhibits

              +3.1   Amended and Restated  Agreement of Limited  Partnership  of
                     U.S. Timberlands Company, L.P.

              +3.2   Second  Amended and  Restated  Operating  Agreement of U.S.
                     Timberlands Klamath Falls, L.L.C.

             **3.3   Amendment  No.  1 to  Amended  and  Restated  Agreement  of
                     Limited Partnership of U.S. Timberlands Company, L.P.

              +10.2  Indenture  among U.S.  Timberlands  Klamath Falls,  L.L.C.,
                     U.S.  Timberlands  Finance Corp.  and State Street Bank and
                     Trust Company, as trustee

              +10.3  Contribution,  Conveyance  and Assumption  Agreement  among
                     U.S. Timberlands Company, L.P. and certain other parties

              *10.4  Form of  U.S.  Timberlands  Company,  L.P.  1997  Long-Term
                     Incentive Plan

              *10.5  Employment Agreement for Mr. Rudey

              *10.9  Supply Agreement  between U.S.  Timberlands  Klamath Falls,
                     L.L.C. and Collins Products LLC

            ***16    Letter from Arthur Andersen, LLP dated December 8, 1998

              *21.1  List of Subsidiaries

               27.1  Financial Data Schedule

*    Incorporated by reference to the same numbered  Exhibit to the Registrant's
     Registration Statement on Form S-1 filed November 13, 1997.
**   Incorporated by reference to the same numbered  Exhibit to the Registrant's
     Quarterly report on Form 10-Q filed May 15, 1998.
***  Incorporated by reference to Exhibit 1 to the  Registrant's  Form 8-K filed
     on December 8, 1998.
+    Incorporated by reference to the same numbered  Exhibit to the Registrant's
     Current Report on Form 8-K filed January 15, 1998.
++   Incorporated by reference to the same numbered  Exhibit to the Registrant's
     Annual Report on Form 10-K filed March 31, 1998.


(b.) Reports on Form 8-K

     No reports on Form 8-K were filed by the Company  during the quarter  ended
June 30, 1998.


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                                   SIGNATURES


         Pursuant to the  requirements  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: August 16, 1999            U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
                                 By:  U.S. Timberlands Services Company, L.L.C.
                                      as Manager

                                 By:  /s/ Greg G. Byrne
                                    --------------------------
                                    Greg G. Byrne
                                    Chief Financial Officer
                                    (Chief Financial Officer,
                                     Principal Accounting Officer
                                     and Duly Authorized Officer)


                                 U.S. TIMBERLANDS FINANCE CORP.


                                 By:  /s/ Greg G. Byrne
                                    --------------------------
                                    Greg G. Byrne
                                    Chief Financial Officer
                                    (Chief Financial Officer,
                                     Principal Accounting Officer
                                     and Duly Authorized Officer)