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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 September 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-Registrant's 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 I.  FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS


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

                                                               QUARTER ENDED
                                                               SEPTEMBER 30,
                                                         -----------------------
                                                            1999          1998
                                                         ----------   ----------

Revenues                                                  $ 26,175     $ 24,528
                                                          --------     --------

Costs and expenses:
     Cost of goods sold                                      6,322        5,024
     Depletion, depreciation and road amortization           8,077        7,774
     Silviculture                                              387          200
     Selling, general and administrative                     1,801        2,026
                                                          --------     --------
         Total costs and expenses                           16,587       15,024
                                                          --------     --------

     Operating income                                        9,588        9,504

Interest expense                                             5,495        5,587

Interest income                                                (55)         (70)

Financing fees                                                 169          169

Other (income) expense - net                                    (2)       1,248
                                                          --------     --------

  Net income                                              $  3,981     $  2,570
                                                          ========     ========


          See accompanying Notes to Consolidated Financial Statements.

                                    2 of 17

<PAGE>


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

                                                             NINE MONTHS ENDED
                                                               SEPTEMBER 30,
                                                         -----------------------
                                                            1999          1998
                                                         ----------   ----------

Revenues                                                  $ 57,601     $ 50,907
                                                          --------     --------

Costs and expenses:
     Cost of goods sold                                     10,981       11,712
     Cost of timberland sales                                 --          5,917
     Depletion, depreciation and road amortization          17,329       14,490
     Silviculture                                              524          412
     Selling, general and administrative                     6,641        7,416
                                                          --------     --------
         Total costs and expenses                           35,475       39,947
                                                          --------     --------

     Operating income                                       22,126       10,960

Interest expense                                            16,461       16,685

Interest income                                               (405)        (339)

Financing fees                                                 506          506

Other (income) expense - net                                (1,143)       1,138
                                                          --------     --------

Net income (loss)                                         $  6,707     $ (7,030)
                                                          ========     ========


          See accompanying Notes to Consolidated Financial Statements.


                                    3 of 17

<PAGE>



                      U.S. TIMBERLAND KLAMATH FALLS, L.L.C.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,   DECEMBER 31,
                                                               1999            1998
                                                          --------------   -------------
                                                            (UNAUDITED)         *
<S>                                                           <C>          <C>
ASSETS
Current assets:
     Cash and cash equivalents                                $   5,743    $   4,824
     Accounts and current portion of notes receivable - net       8,189        2,706
     Prepaid expenses and other current assets                       72        1,539
                                                              ---------    ---------
         Total current assets                                    14,004        9,069
                                                              ---------    ---------

Timber, timberlands and roads - at cost
     Timber                                                     331,112      330,244
     Timberlands                                                 43,118       43,118
     Logging roads                                                1,828        1,803
     Less accumulated depletion and road amortization           (58,804)     (41,848)
                                                              ---------    ---------
         Timber, timberlands and roads - net                    317,254      333,317
                                                              ---------    ---------

Seed and nursery stock                                            1,068        1,159
                                                              ---------    ---------
Property, plant and equipment - at cost
     Equipment                                                      674          637
     Building and land improvements                                 843          843
     Less accumulated depreciation                                 (439)        (326)
                                                              ---------    ---------
         Property, plant and equipment - net                      1,078        1,154
                                                              ---------    ---------

Notes receivable                                                  2,547         --
Deferred financing fees                                           5,492        5,998
                                                              ---------    ---------

     Total assets                                             $ 341,443    $ 350,697
                                                              =========    =========

LIABILITIES
Current liabilities:
     Accounts payable and accrued liabilities                 $  11,130    $   6,052
     Deferred revenue                                               257        1,614
                                                              ---------    ---------
         Total current liabilities                               11,387        7,666
                                                              ---------    ---------

Long-term debt                                                  225,000      225,000

MEMBERS' EQUITY
Managing member's interest                                        1,051        1,180
Non-managing members' interest                                  104,005      116,851
                                                              ---------    ---------
      Total managing and non-managing members interest          105,056      118,031
                                                              ---------    ---------
      Total liabilities and members' capital                  $ 341,443    $ 350,697
                                                              =========    =========
</TABLE>

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

                                    4 of 17

<PAGE>




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

<TABLE>
<CAPTION>

                                                                       NINE MONTHS ENDED
                                                                         SEPTEMBER 30,
                                                                    -----------------------
                                                                       1999          1998
                                                                    ----------   ----------
<S>                                                                   <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                     $  6,707    $ (7,030)
Adjustments to reconcile net loss to net cash provided by operating
activities:
     Depletion, depreciation, road amortization                         17,329      14,490
     Cost of timberlands sold                                               --       5,917
     Financing fees                                                        506         506
     Other non-cash items                                                   --       1,270
     Working capital changes - net                                        (587)        598
                                                                      --------    --------
Net cash provided by operating activities                               23,955      15,751
                                                                      --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Timber and road additions                                            (894)       (530)
     Purchase of property, plant and equipment - net                       (36)        (32)
     Capitalized seed and nursery costs - net                              123          92
     (Increase) decrease in notes receivable - net                      (2,547)      1,170
                                                                      --------    --------
Net cash used in investing activities                                   (3,354)        700
                                                                      --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Distributions to Members                                          (19,682)    (16,140)
                                                                      --------    --------
Net cash used in financing activities                                  (19,682)    (16,140)
                                                                      --------    --------

Increase in cash and cash equivalents                                      919         311
Cash and cash equivalents - beginning of period                          4,824      10,625
                                                                      --------    --------
Cash and cash equivalents - end of period                             $  5,743    $ 10,936
                                                                      ========    ========

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest                                                $ 10,916    $ 10,589
                                                                      ========    ========
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.


                                    5 of 17

<PAGE>



                      U.S. TIMBERLAND 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  on  November  13, 1997 (the
"Notes").  Finance Corp. has nominal assets and does not conduct any operations.
All intercompany transactions have been eliminated an 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
to  Members.  Certain  reclassifications  have  been  made to the  1998  amounts
presented for comparability purposes and have no impact on net income. Operating
results for the three,  and nine month periods


                                    6 of 17

<PAGE>



ended September 30, 1999 are not necessarily  indicative of the results that may
be expected for the full year.

1.   SHORT-TERM DEBT

     The Company has a credit  facility with an affiliate of the General Partner
(the "Affiliate Credit Facility") which allows the Company to borrow up to $12.0
million. The Company's obligations under the Affiliate Credit Facility represent
unsecured  general  obligations.  Borrowings under the Affiliate Credit Facility
bear interest at the prime lending rate as published in the Wall Street  Journal
plus  1.25%.  The  prime  lending  rate was 8.25% at  September  30,  1999.  The
Affiliate  Credit  Facility  expires on June 30, 2000 and all  amounts  borrowed
thereunder shall then be due and payable.  There were no outstanding  borrowings
under the Affiliate Credit Facility on September 30, 1999.

     The Affiliate  Credit  Facility  contains  certain  restrictive  covenants,
including limiting the ability of the Company to make cash distributions,  incur
certain  additional  indebtedness  or incur  certain  liens.  In  addition,  the
Affiliate  Credit Facility  requires the Company to maintain  certain  financial
ratios.  The Company was in  compliance  with these  covenants at September  30,
1999.

     The  Affiliate  Credit  Facility  replaced an  unsecured  revolving  credit
facility  (The "Bank  Credit  Facility")  with a group of banks that the Company
terminated  on June 30,  1999.  The Bank Credit  Facility  consisted  of a $75.0
million acquisition facility and a $25.0 million Working Capital Facility.

2.   SUBSEQUENT EVENT

     On  October  19,  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
will be (including  $64,948 to the Managing Member) and will be paid on November
15, 1999 to Members of record on October 29, 1999.  All of the cash necessary to
make such distribution will be distributed to the Master Partnership by USTK. In
addition,  on November  15, 1999 USTK will  distribute  $66,273 to the  Managing
Member.

3.   NEW ACCOUNTING PRONOUNCEMENT

     In June of 1998, the Financial  Accounting Standards Board issued Statement
of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting for derivative
instruments  and hedging  activities.  The statement was to be effective for all
fiscal  quarters  of fiscal  years  beginning  after June 15,  1999 but has been
delayed by SFAS No. 137,  "Accounting  for  Derivative  Instruments  and Hedging
Activities--Deferral  of the  Effective  Date  of  FASB  Statement  No.  133--an
amendment of FASB  Statement 133. SFAS No. 137 delays the effective date of SFAS
No. 133 to all fiscal  quarters of fiscal years  beginning  after June 15, 2000.
Consistent  with SFAS No. 137, the Company will adopt SFAS No. 133 as of January
1, 2001.  The Company  believes that adoption of this  statement will not have a
material impact on the Company.


                                    7 of 17

<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
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 and 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 17

<PAGE>



CURRENT MARKET CONDITIONS

     Prices for  finished  wood  products  such as lumber and plywood  increased
significantly  during the first six months of 1999,  remained strong in July and
early August, then declined dramatically in late August and September.  However,
log and  timber  prices  remained  strong in the third  quarter  due to  several
factors.  Late in the third  quarter,  a U.S.  District  Court  judge  issued an
injunction against the U.S. Forest Service (USFS),  requiring the USFS to put on
hold planned timber sales  totaling to 217 million board feet. In addition,  dry
weather  created extreme fire  conditions,  resulting in reduced wood deliveries
for most of the summer.

     Average lumber and plywood prices during the third quarter of 1999 remained
at levels  well  above  prices  during  the same  period in 1998.  Prices for #3
ponderosa pine shop were up 19%, lodgepole pine stud prices were up 19%, Douglas
fir #2 and Better green studs were up 29%, and white fir  sheathing  prices were
up 2% from the same period in 1998.  These changes may differ from the Company's
actual results for the same quarter as the Company's pricing is typically agreed
to prior to actual deliveries.

RESULTS OF OPERATIONS
<TABLE>
<CAPTION>

     Selected operating statistics for the Company:

                                              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>
Nine Months Ended September 30         66,380           2,665      70,254       $437         $430       $385             --
Three Months Ended September 30        39,008             744      25,597       $444         $404       $334             --
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
Nine Months Ended September 30         69,258          27,107          --       $429         $512         --         $6,276
Three Months Ended September 30        29,017          22,617          --       $431         $511         --             --
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 SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998

     REVENUES  Revenues  for the  quarter  ended  September  30, 1999 were $26.2
million,  an increase of $1.7 million or 7% over  revenues of $24.5  million for
the same period in 1998.  This increase in revenues was  attributable  to a $4.8
million  increase in log sales  partially  offset by a $2.7 million  decrease in
timber deed and stumpage sales and a $0.5 million  decrease in chip,  by-product
and seedling sales.

     Log sales for the quarter  ended  September  30, 1999 were $17.3 million on
volume of 39.0  million  board feet  ("MMBF")  as compared to the same period in
1998 when log sales were $12.5  million on volume of 29.0 MMBF.  The increase in
log sales volume  reflects a late start for logging in the second quarter of the
current year due to a heavy snow pack that prolonged the spring  break-up.  As a
result,  some of the planned  second  quarter log sales  volume  occurred in the
third quarter of 1999.  The average log sales price was $444 per thousand  board
feet  ("MBF") for the third  quarter of 1999,  as compared to an average of $431
per MBF for the same  period in 1998.  This  reflects a general  increase in log
prices,  as  the  species  mix  remained  relatively  unchanged.  The  following
explanation  of changes in log sales prices may differ from those Current Market
Conditions  described  previously,  as most pricing is agreed to prior to


                                   9 of 17

<PAGE>



actual  delivery.  The  increase in the  average  log sales price was  primarily
attributable  to a 4% increase in pine prices and a 10% increase in  Douglas-fir
prices, partially offset by a 7% decline in white fir prices.

     Timber deed and stumpage  sales for the third  quarter were $8.9 million on
volume of 26.3 MMBF as  compared to the same period in 1998 when timber deed and
stumpage  sales were $11.6  million on volume of 22.6 MMBF.  The average  timber
deed and stumpage  sales price was $338 per MBF for the third quarter of 1999 as
compared  to $511  per MBF for the same  period  in 1998.  This  price  decrease
reflects a change in the sales mix.  Substantially all of the 1998 third quarter
timber deed and stumpage sales came from older,  more valuable  timber stands on
the Ochoco  tract.  There were no timber deed or stumpage  sales from the Ochoco
tract in the third quarter of 1999.

     OPERATING  COSTS  Operating  costs was $16.6  million for the quarter ended
September 30, 1999, an increase of $1.6 million or 11% from  operating  costs of
$15.0 million for the same period in 1998.  This increase was  attributable to a
$1.3  million  increase  in cost of  goods  sold  ("COGS"),  and a $0.3  million
increase in depreciation, depletion and amortization ("DD&A) expenses.

     COGS for the quarter ended September 30, 1999 was $6.3 million, an increase
of $1.3  million or 26% from COGS of $5.0  million  for the same period in 1998.
This  increase was due to a 34% increase in log sales volume to 39.0 MMBF in the
third quarter of 1999 from 29.0 MMBF in the same period in 1998.

     SG&A expenses for the quarter ended September 30, 1999 were $1.8 million, a
decrease of $0.2  million or 10% from $2.0  million for the same period in 1998.
The  decrease  was  primarily  due to savings  from the closure of the  Managing
Member's  Seattle  office in January of 1999. As a percentage of revenues,  SG&A
decreased  to 7% in the third  quarter of 1999,  as  compared to 8% in the third
quarter of 1998.

     DD&A expense was $8.1 million for the third quarter of 1999, a $0.3 million
or 4% increase  over DD&A  expense of $7.8  million for the same period in 1998.
This  increase was due to a 27%  increase in sales volume from log,  timber deed
and  stumpage  sales to 65.3 MMBF in the third  quarter of 1999,  as compared to
51.6  MMBF for the same  period  in 1998.  This  increase  in sales  volume  was
partially  offset by a decrease in the Company's  timber  depletion rate to $121
per MBF in the third  quarter of 1999 as  compared  to $148 per MBF for the same
period in 1998. The timber depletion rate per MBF is recomputed  annually in the
first  quarter,  and  the  computation  takes  into  account  that  timber  is a
regenerating asset.

     OTHER INCOME & EXPENSE  There was no other  income in the third  quarter of
1999, as compared with a $1.3 million  expense  recorded in the third quarter of
1998 to mark-to-market an unhedged financial instrument.

     MEMBERS'  EQUITY  During the three  months  ended  September  30,  1999 the
members'  equity in the Company  declined  $2.6 million  from $107.6  million to
$105.0  million.  This  decline is the result of the  Company's  $4.0 net income
offset by The Company's  $6.6 million  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.


                                   10 of 17

<PAGE>



NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998

     REVENUES  Revenues for the nine months ended  September 30, 1999 were $57.6
million,  an increase of $6.7 million or 13% over  revenues of $50.9 million for
the same period in 1998.  This increase in revenues was  attributable to a $14.3
million  increase in timber deed and stumpage sales  partially  offset by a $0.7
million decrease in log sales, a $6.3 million decrease in timberland sales and a
$0.7 million decrease in chip, by-product and seedling sales.

     Log sales for the nine months ended  September  30, 1999 were $29.0 million
on  volume of 66.4 MMBF as  compared  to the same  period in 1998 when log sales
were $29.7 million on volume of 69.3 MMBF.  The decrease in log sales volume was
caused by weather in the second quarter of 1999; logging operations were delayed
due to a heavy snow pack that  prolonged  the spring  break-up.  The average log
sales price for the first nine months of 1999 was $437 per MBF  compared to $429
per MBF for the same  period in 1998.  This  reflects a general  increase in log
prices, as the species mix remained relatively unchanged from the same period in
1998.  The following  explanation of changes in log 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 2% increase in Douglas-fir prices and a 7% increase
in white fir prices. Pine log prices were essentially unchanged.

     Timber deed and stumpage  sales for the third quarter were $28.2 million on
volume of 72.9 MMBF as  compared to the same period in 1998 when timber deed and
stumpage sales were $13.9 million on volume of 27.1 MMBF. The increase in timber
deed and stumpage  volume was primarily the result of a strategy  initiated 1998
to expand the Company's  use of timber deed and stumpage  sales to meet customer
needs and improve margins.  The average timber deed and stumpage sales price was
$387 per MBF for the third  quarter of 1999 as  compared to $512 per MBF for the
same period in 1998.  This price decrease  reflects a substantial  change in the
sales mix.  Substantially  all of the 1998 timber deed and stumpage sales volume
came from older,  more  valuable  timber  stands on the Ochoco  tract.  In 1999,
approximately 37% of the timber deed and stumpage sales came from similar timber
stands on the Ochoco tract.

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

     OPERATING  COSTS  Operating  costs were $35.5  million  for the nine months
ended September 30, 1999, a decrease of $4.4 million or 11% from operating costs
of $39.9 million for the same period in 1998. This decrease was primarily due to
a $0.7  million  decrease  in  COGS,  a $5.9  million  decrease  in the  cost of
timberland  sales and a $0.8  million  decrease  in general  and  administrative
expenses.  These  reductions were partially offset by a $2.8 million increase in
DD&A expenses

     COGS for the nine months  ended  September  30, 1999 was $11.0  million,  a
decrease of $0.7 million or 6% from COGS of $11.7 million for the same period in
1998. This decrease was due to a 4% decrease in log sales volume to 66.4 MMBF in
the first nine months of 1999 from 69.3 MMBF in the same period in 1998.

     The Company had no  timberland  sales during the first nine 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 nine  months  ended  September  30,  1999 were $6.6
million,  a decrease of $0.8 million or 11%  decrease  from $7.4 million for the
same period in 1998.  This decrease was  primarily due to a one-time  expense of
$1.1 million in the first quarter of 1998 for  severance  and the  repurchase of
member interests in the General  Partner.  This decrease was


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<PAGE>



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 12% in the first nine months of 1999, as compared to
15% in same period of 1998.

     DD&A expense was $17.3  million for the nine months of 1999, a $2.8 million
or 19% increase  over DD&A expense of $14.5 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 139.3 MMBF in the first nine  months of 1999,  as compared to
96.4 MMBF for the same period in 1998.  This  increase  due to sales  volume was
partially  offset by a decrease in the Company's  depletion rate to $121 per MBF
in the first nine months of 1999 as compared to $148 per MBF for the same period
in  1998.   The  decrease  in  the  depletion  rate  resulted  from  the  annual
recalculation  of the depletion rate in the first quarter,  and the  computation
takes into account that timber is a regenerating asset.

     OTHER  INCOME & EXPENSE  Other  income was $1.1  million for the first nine
months of 1999,  an increase of $2.3 million from the same period in 1998.  This
increase  was due to a gain  in  1999  from a  mark-to-market  adjustment  on an
unhedged financial instrument. In 1998 the mark-to-market adjustment on the same
unhedged financial instrument was an expense.

     MEMBERS'  EQUITY  During  the nine  months  ended  September  30,  1999 the
members'  equity in the Company  declined  $13.0 million from $118.0  million to
$105.0  million.  This decline is the result of the  Company's  $6.7 million net
income offset by the Company's  $19.7  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
nine months ended  September  30, 1999 were $24.0  million,  as compared to cash
flows  provided by operating  activities of $15.8 million during the same period
in  1998.  The  $8.2  million  increase  in cash  flows  provided  by  operating
activities  was primarily  due to a $14.3 million  increase in timber deed sales
and a $0.8 million decrease in SG&A expenses, partially offset by a $6.3 million
reduction in timberland sales.

     INVESTING  ACTIVITIES  Cash flows used by  investing  activities  were $3.4
million during the first nine months of 1999, as compared to cash flows provided
by  investing  activities  of $0.7  million  during  the  same  period  in 1998.
Substantially  all of this  difference is tied to the Company's  expanded use of
timber  deed sales in 1999.  In the first nine  months of 1999 notes  receivable
from the sale of timber deeds increased $2.5 million. During the same nine month
period in 1998, notes receivable decreased $1.2 million, a source of cash.

     FINANCING  ACTIVITIES  Cash flows used in financing  activities  were $19.7
million for the first nine months of 1999, as compared to $16.1  million  during
the same  period in 1998.  These  amounts  represent  the  Company's  payment of
distributions  to Members in the first nine  months of 1999.  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.


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     The Company has a credit agreement with an affiliate of the General Partner
(the  "Affiliate  Credit  Facility").  The Affiliate  Credit Facility allows the
Company to borrow up to $12.0 million under  certain  terms and  covenants.  The
convenants   include   restrictions  on  the  Company's  ability  to  make  cash
distributions,  incur certain additional indebtedness or incur certain liens. In
addition,  the Company is required to maintain  certain  financial  ratios.  The
Affiliate  Credit  Facility will expire on June 30, 2000. At that time,  amounts
borrowed  will be due and  payable.  As of  September  30,  1999  there  were no
outstanding borrowings under the Affiliate Credit Facility. The Company's intent
is to replace the Affiliate Credit Facility with a bank facility, but management
does not expect  this  replacement  to occur  until the first half of 2000.  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 and commercial banks to assist it in raising funds 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 September 30, 1999 the Company was in compliance with
the covenants and ratios pertaining to the Notes and Affiliate Credit Facility.

     Through the first nine 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, cash generated from current  operations and borrowings  under
its former bank credit facility and the 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.

     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 General Partner's estimate of the long-term  sustainable
annual harvest level for its existing merchantable  timberlands,  which excludes
the Company's  approximately  180,000 acres of plantations.  The General Partner
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
September 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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PART II.  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
<TABLE>
<CAPTION>
<S>                   <C>

        +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
</TABLE>


*    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

     The Company filed no reports on Form 8-K during the quarter ended September
30, 1999.


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<PAGE>



                                   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: November 15, 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)

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