|
|

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

FORM 10-Q_______________________________

x 
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly periodended June 30, 2005
  OR

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

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

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

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

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

---

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



Yes xNo o

Indicate by check mark whether the registrant
  is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YesoNo x



---





FORM 10-QTABLE OF CONTENTSPART
			I
			.
			FINANCIAL INFORMATION (Unaudited)
			PageItem
			1
			.
			Condensed Consolidated Statements of Operationsfor the three months ended June 30, 2005 and 2004
			1Item
			1
			.
			Condensed Consolidated Statements of Operations
				for the six months ended June 30, 2005 and 2004
			2Item
			1
			.
			Condensed Consolidated Balance Sheetsat June 30, 2005 and December 31, 2004
			3Item
			1
			.
			Condensed Consolidated Statements of Cash Flowsfor the six months ended June 30, 2005 and 2004
			4Item
			1
			.
			Notes to Condensed Consolidated Financial Statements
			5Item
			2
			.
			Management's Discussion and Analysis of Financial
					Condition and Results of Operations
			11Item
			3
			.
			Quantitative
					and Qualitative Disclosure of Market Risk
			17Item
			4
			.
			Controls and Procedures
			17Part
			II
			
			OTHER INFORMATIONItem
			1
			.
			Legal Proceedings
			18Item
			6
			.
			Exhibits
			20




---



PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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



|                                                                 |  |  |   | Three Months Ended June 30, |  
|---------------------------------------------------------------- |  |  | - | --------------------------- | -
|                                                                 |  |  |   |                             |  
|                                                                 |  |  |   | 2005                        |  
|                                                                 |  |  |   |                             |  
|Revenues (including $93 (2005) and $345 (2004) to affiliates)    |  |  | $ | 4,019                       |  
|Cost of timber harvested                                         |  |  |   | (2,209                      | )
|Cost of timber and property sales                                |  |  |   | (55                         | )
|Depletion, depreciation and road amortization                    |  |  |   | (1,857                      | )
|                                                                 |  |  |   |                             |  
|Gross loss                                                       |  |  |   | (102                        | )
|                                                                
|Management fee                                                   |  |  |   | (500                        | )
|Selling, general and administrative expenses                     |  |  |   | (297                        | )
|Equity in net loss of affiliate                                  |  |  |   | (2,342                      | )
|                                                                 |  |  |   |                             |  
|Operating loss                                                   |  |  |   | (3,241                      | )
|                                                                
|Interest expense                                                 |  |  |   | (5,401                      | )
|Amortization of deferred financing fees                          |  |  |   | (170                        | )
|Other income, net                                                |  |  |   | 30                          |  
|                                                                 |  |  |   |                             |  
|                                                                
|Net loss                                                         |  |  | $ | (8,782                      | )
|                                                                 |  |  |   |                             |  
|                                                                
|                                                                
|See notes to the condensed consolidated
				financial statements



1



---



PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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



|                                                                 |  |  |   | Six Months Ended June 30, |  
|---------------------------------------------------------------- |  |  | - | ------------------------- | -
|                                                                 |  |  |   |                           |  
|                                                                 |  |  |   | 2005                      |  
|                                                                 |  |  |   |                           |  
|Revenues (including $93 (2005) and $345 (2004) to affiliates)    |  |  | $ | 6,183                     |  
|Cost of timber harvested                                         |  |  |   | (3,635                    | )
|Cost of timber and property sales                                |  |  |   | (55                       | )
|Depletion, depreciation and road amortization                    |  |  |   | (2,883                    | )
|                                                                 |  |  |   |                           |  
|Gross loss                                                       |  |  |   | (390                      | )
|                                                                
|Management fee                                                   |  |  |   | (1,000                    | )
|Selling, general and administrative expenses                     |  |  |   | (721                      | )
|Equity in net loss of affiliate                                  |  |  |   | (7,974                    | )
|                                                                 |  |  |   |                           |  
|Operating loss                                                   |  |  |   | (10,085                   | )
|                                                                
|Interest expense                                                 |  |  |   | (10,785                   | )
|Amortization of deferred financing fees                          |  |  |   | (338                      | )
|Other income, net                                                |  |  |   | 40                        |  
|                                                                 |  |  |   |                           |  
|                                                                
|Net loss                                                         |  |  | $ | (21,168                   | )
|                                                                 |  |  |   |                           |  
|                                                                
|                                                                
|See notes to the condensed consolidated
				financial statements



2



---

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

|                                                                            |  |   |  |          |   |             |   |  |          |   |              | 
|--------------------------------------------------------------------------- |  | - |  | -------- | - | ----------- | - |  | -------- | - | ------------ | 
|INLAND FIBER GROUP, LLC AND SUBSIDIARYCONDENSED CONSOLIDATED BALANCE SHEETS
|(IN THOUSANDS)                                                             
|                                                                            |  |   |  |          |   | June 30,    |   |  |          |   | December 31, | 
|                                                                            |  |   |  |          |   | 2005        |   |  |          |   | 2004         | 
|                                                                            |  |   |  |          |   |             |   |  |          |   |              | 
|                                                                            |  |   |  |          |   | (Unaudited) |   |  |          |   | *            | 
|ASSETS                                                                      |  |   |  |          |   |             |   |  |          |  
|Current assets:                                                             |  |   |  |          |   |             |   |  |          |  
|Cash and cash equivalents                                                   |  | $ |  | 638      |   |             | $ |  | 180      |  
|Accounts receivable                                                         |  |   |  | 1,011    |   |             |   |  | 207      |  
|Other receivables                                                           |  |   |  | 331      |   |             |   |  | 592      |  
|Notes receivable                                                            |  |   |  | 265      |   |             |   |  | 139      |  
|Prepaid expenses and other current assets                                   |  |   |  | 75       |   |             |   |  | 134      |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Total current
			assets                                                     |  |   |  | 2,320    |   |             |   |  | 1,252    |  
|                                                                           
|Timber and timberlands, net                                                 |  |   |  | 81,989   |   |             |   |  | 84,247   |  
|Investment in affiliate                                                     |  |   |  | —        |   |             |   |  | 7,975    |  
|Property, plant and equipment, net                                          |  |   |  | 779      |   |             |   |  | 799      |  
|Notes receivable, less current portion                                      |  |   |  | 10       |   |             |   |  | 10       |  
|Other assets                                                                |  |   |  | 150      |   |             |   |  | 150      |  
|Restricted cash                                                             |  |   |  | 123      |   |             |   |  | 104      |  
|Deferred financing fees, net                                                |  |   |  | 1,610    |   |             |   |  | 1,948    |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Total assets                                                                |  | $ |  | 86,981   |   |             | $ |  | 96,485   |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|LIABILITIES AND MEMBERS’ DEFICIENCY                                         |  |   |  |          |   |             |   |  |          |  
|Current liabilities:                                                        |  |   |  |          |   |             |   |  |          |  
|Accounts payable                                                            |  |   |  | 1,944    |   |             |   |  | 760      |  
|Accrued liabilities                                                         |  |   |  | 1,077    |   |             |   |  | 451      |  
|Accrued bond interest                                                       |  |   |  | 13,535   |   |             |   |  | 2,752    |  
|Deferred revenue                                                            |  |   |  | -        |   |             |   |  | 1,041    |  
|Payable to managing member and affiliates                                   |  |   |  | 170      |   |             |   |  | 58       |  
|Long-term debt declared in default by
			trustee                            |  |   |  | 225,000  |   |             |   |  | 225,000  |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Total current
			liabilities                                                |  |   |  | 241,726  |   |             |   |  | 230,062  |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Long-term debt                                                              |  |   |  | —        |   |             |   |  | —        |  
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Members' deficiency                                                         |  |   |  |          |   |             |   |  |          |  
|Managing member's interest                                                  |  |   |  | (1,576   | ) |             |   |  | (1,362   | )
|Nonmanaging members' interest                                               |  |   |  | (153,169 | ) |             |   |  | (132,215 | )
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Total members'
			deficiency                                                |  |   |  | (154,745 | ) |             |   |  | (133,577 | )
|                                                                            |  |   |  |          |   |             |   |  |          |  
|Total liabilities
			and members' deficiency                                |  | $ |  | 89,981   |   |             | $ |  | 96,485   |  
|                                                                            |  |   |  |          |   |             |   |  |          |  

|*      Derived from
			audited Consolidated Balance Sheet as of December 31, 2004
|---------------------------------------------------------------------------------
|See notes
				to unaudited condensed consolidated financial statements           

3



---

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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



|                                                                       |  |  |                           |       |   |  |   |        |  
|---------------------------------------------------------------------- |  |  | ------------------------- | ----- | - |  | - | ------ | -
|                                                                       |  |  | Six Months Ended June 30, |      
|                                                                       |  |  |                           |      
|                                                                       |  |  |                           | 2005  |   |  |   | 2004   |  
|                                                                       |  |  |                           |       |   |  |   |        |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                  |  |  |                           |       |   |  |   |        |  
|Net cash (used in) provided by operating
			activities                 |  |  | $                         | 1,323 |   |  | $ | (185   | )
|                                                                       |  |  |                           |       |   |  |   |        |  
|                                                                      
|CASH FLOWS FROM INVESTING ACTIVITIES:                                  |  |  |                           |       |   |  |   |        |  
|Timber,
			timberlands and road additions                              |  |  |                           | (846  | ) |  |   | (663   | )
|Restricted cash                                                        |  |  |                           | (19   | ) |  |   | —      |  
|Sale
			(purchase) of property, plant and equipment - net              |  |  |                           | —     |   |  |   | (2     | )
|                                                                       |  |  |                           |       |   |  |   |        |  
|Net cash used in investing activities                                  |  |  |                           | (865  | ) |  |   | (665   | )
|                                                                       |  |  |                           |       |   |  |   |        |  
|                                                                      
|Increase (decrease) in cash and cash equivalents                       |  |  |                           | 458   |   |  |   | (850   | )
|Cash and cash equivalents - beginning of
			period                     |  |  |                           | 180   |   |  |   | 1,447  |  
|                                                                       |  |  |                           |       |   |  |   |        |  
|                                                                      
|Cash and cash equivalents - end of period                              |  |  | $                         | 638   |   |  | $ | 597    |  
|                                                                       |  |  |                           |       |   |  |   |        |  
|                                                                      
|Supplemental cash flow information:                                    |  |  |                           |       |   |  |   |        |  
|Cash
			paid for interest expense                                      |  |  | $                         | 2     |   |  | $ | 10,908 |  
|                                                                      
|                                                                      
|See notes to unaudited
				condensed consolidated financial statements

4





---



INLAND FIBER GROUP, LLC AND SUBSIDIARY 
	Notes to Condensed Consolidated Financial Statements

|1. Business and Basis of Presentation
|-------------------------------------

|Business
|--------

The
	unaudited condensed consolidated financial statements include the accounts of Inland Fiber Group, LLC ("IFG"), a Delaware limited
	liability company, and its wholly owned subsidiary, Fiber Finance Corp. ("Finance Corp."), collectively referred to hereafter as
	the Company. Finance Corp. serves as the co-obligor for IFG's 9-5/8% Senior Notes due 2007 (the "Notes"). Finance Corp. has nominal
	assets and does not conduct operations. All intercompany transactions have been eliminated in consolidation. As a result of a Privatization
	Transaction, the Company is an indirect 99% owned subsidiary of American Forest Resources, LLC (AFR) in which the Company owns a
	preferred interest.

The primary activities of the Company are the growing of trees and the sale of logs and standing timber
	to third party wood processors and the sale of timberland. The Company's timber is located principally in Oregon, east of the Cascade
	Range. Logs harvested from the timberlands are sold to unaffiliated domestic conversion facilities. These logs are processed for
	sale as lumber, plywood and other wood products, primarily for use in new residential home construction, home remodeling and repair
	and general industrial applications.

Basis of Presentation

These
	unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of
	the United States Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, certain information and footnotes
	required in financial statements prepared in accordance with accounting principles generally accepted in the United States of America
	have been condensed or omitted from these statements. These unaudited condensed consolidated financial statements were prepared
	on a consistent basis with and should be read in conjunction with the consolidated financial statements included in the Company's
	2004 Annual Report on Form 10-K. Operating results for the quarter and six month period ended June 30, 2005 are not necessarily
	indicative of the results that may be expected for the full year or any other period. In the opinion of management, the accompanying
	unaudited consolidated financial statements include all normal recurring adjustments necessary to present fairly the information
	for such periods.

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

The
	accompanying condensed consolidated statements have been prepared assuming that the Company will continue as a going concern. On
	December 19, 2003, an action was brought in the Court of Chancery of the State of Delaware in and for New Castle County by the Trustee
	under the indenture (the "Indenture") governing the Company's $225,000, 95/8 Senior Notes, due 2007, against the Company and others,
	alleging that the Company violated certain covenants contained in the Indenture. In May 2004, the Company received a Notice of Default
	from the Trustee covering certain of the allegations in the complaint. The Defendants responded to the Notice of Default denying
	the existence of any defaults. On July 29, 2004, the Court of Chancery dismissed the action without prejudice, based on its determination
	that the Trustee under the Indenture lacked standing under the terms of the Indenture to bring an action against the Company and
	other defendants (collectively the "Defendants") because the requisite notice

5

---



INLAND FIBER GROUP, LLC
	AND SUBSIDIARY

of default and opportunity to cure had not been provided to the Company prior to the time the
		action was commenced. The Trustee was granted 30 days to file an amended complaint and on August 27, 2004, the Trustee filed
		its second amended complaint. On October 8, 2004, the Trustee filed a motion for partial summary judgment seeking a declaratory
		judgment that the Company violated certain provisions of the Indenture by permitting its affiliate to grant security interests
		in various timberland properties on various dates prior to September 14, 2001. On October 15, 2004, the Defendants filed a
		motion to dismiss the second amended complaint. On December 23, 2004, the Court of Chancery issued a memorandum opinion granting
		the Trustee's motion for partial summary judgment and declaring that an Event of Default had occurred under the Indenture.
		On January 13, 2005, the Company received a Notice of Default and Acceleration from the Trustee. On January 21, 2005, the
		Defendants filed a motion for leave to pursue an interlocutory appeal of the Chancery Court Order granting partial summary
		judgment. On January 26, 2005, the Court of Chancery granted Defendants' motion for leave to appeal. On February 10, 2005,
		the Supreme Court of the State of Delaware accepted Defendants' appeal. On April 4, 2005, the Trustee filed its third amended
		complaint. On April 22, 2005, the Defendants filed a motion to dismiss certain counts of the third amended complaint. On June
		6, 2005, the Supreme Court of the State of Delaware decided the Defendants interlocutory appeal and issued an order vacating
		the decision of the Court of Chancery granting partial summary judgment to the Trustee and remanding the case to the Court
		of Chancery for a trial on all of the issues. On July 7, 2005, the Court of Chancery granted in part and denied in part the
		Defendants' motion to dismiss certain counts of the third amended complaint. On July 28, 2005, the Trustee issued an Affirmation
		of the Notice of Default referencing among other things the failure to make the semi-annual interest payment on May 15, 2005.
		The trial began on August 1, 2005 and is currently ongoing. The Company and its legal counsel believe the litigation and both
		Notices of Default to be without merit and intend to continue to vigorously defend the litigation.

In the event the trustee prevails in the litigation, the Trustee will have the right to demand repayment
		and accelerate the maturity of the notes. If such event occurs, and the Company is unable to effect an amendment or a restructuring
		of the notes, the Company's ability to continue as a going concern would be in substantial doubt. The consolidated financial
		statements do not include any adjustments that might result from the outcome of this uncertainty.(See Note 5 for a further discussion of the litigation).

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



June 30,
				
				
				
				December 31,2005
				
				
				
				2004Timber and logging roads
				
				$
				253,537
				
				
				$
				252,701Timberlands
				
				
				11,970
				
				
				
				11,970Seed orchard and nursery stock
				
				
				1,143
				
				
				
				1,373266,650
				
				
				
				266,044Less accumulated depletion and road amortization
				
				
				184,661
				
				
				
				181,797$
				81,989
				
				
				$
				84,247






6



---



INLAND FIBER GROUP, LLC
	AND SUBSIDIARY

3.       Investment in Affiliate

Since
	October 1999, the Company has owned a redeemable preferred membership interest ("Preferred LLC Interest") in AFR, an affiliate accounted
	for under the equity method. As mentioned in Note 1 to the Financial Statements, in 2003 the Company became an indirect subsidiary
	of AFR as a result of a series of transactions culminating in the contribution to a subsidiary of AFR of the 99% non-managing member's
	interest in the Company previously owned by the master limited partnership ("MLP").

We
	exclude losses from our preferred interest in our affiliate in our condensed consolidated statements of operations in excess of
	our basis in the preferred interest.  Losses in excess of that amount are not borne by us.  Such amounts for the months
	ended June 30, 2005 were approximately $3,785.  Future earnings of our affiliate, otherwise attributable to our preferred interest,
	will be allocated to us only after future earnings are sufficient to recover the cumulative losses previously not recognized by
	us (approximately $3.8 million at June 30, 2005).

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

|                             |  |   |  |                    |   |  |   |  |                    |   |  |   |  |                  |   |  |   |  |                  |  
|---------------------------- |  | - |  | ------------------ | - |  | - |  | ------------------ | - |  | - |  | ---------------- | - |  | - |  | ---------------- | -
|                             |  |   |  | Three Months Ended |   |  |   |  | Three Months Ended |   |  |   |  | Six Months Ended |   |  |   |  | Six Months Ended |  
|                             |  |   |  | June 30            |   |  |   |  | June 30            |   |  |   |  | June 30          |   |  |   |  | June 30          |  
|                             |  |   |  | 2005               |   |  |   |  | 2004               |   |  |   |  | 2005             |   |  |   |  | 2004             |  
|                             |  |   |  |                    |   |  |   |  |                    |   |  |   |  |                  |   |  |   |  |                  |  
|                            
|Net sales                    |  | $ |  | 2,457              |   |  | $ |  | 2,742              |   |  | $ |  | 4,041            |   |  | $ |  | 4,722            |  
|Gross profit (loss)          |  |   |  | 648                |   |  |   |  | 371                |   |  |   |  | 474              |   |  |   |  | 560              |  
|Loss before equity           |  |   |  |                    |   |  |   |  |                    |   |  |   |  |                  |   |  |   |  |                  |  
|in the Company's Loss        |  |   |  | (4,315             | ) |  |   |  | (2,437             | ) |  |   |  | (7,579           | ) |  |   |  | (5,131           | )
|Equity in Company's Loss (1) |  |   |  | (8,837             | ) |  |   |  | (10,684            | ) |  |   |  | (17,958          | ) |  |   |  | (20,816          | )
|Net loss                     |  |   |  | (13,152            | ) |  |   |  | (13,120            | ) |  |   |  | (25,537          | ) |  |   |  | (25,950          | )

|(1) | Reflects (a) charges of $2,937, $1,920, $4,764
			and $4,140, respectively related to the amortization of $43,287 excess of cost over deficiency in net assets attributable
			to 63.6% acquired interest.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4.       Unit-based Compensation Plans

Prior
	to the Privatization Transaction, the MLP had a Unit Option Plan, which permitted the grant of unit options to employees and directors
	of the Company who perform services for the Company covering 857,749 Common Units. As permitted under SFAS No. 148, Accounting for
	Stock-Based Compensation-Transition and Disclosure, which was issued in December 2002 and amended SFAS No. 123, Accounting for Stock-Based
	Compensation, the Company has elected to follow the intrinsic value method in accounting for its stock-based employee compensation
	arrangements as defined by Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related
	interpretations. There would have been no effect on net loss for the three and six month periods ended June 30, 2005 and 2004 if
	the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

In connection with the Privatization Transaction described in Note 1, each outstanding
	unit option granted under the Unit Option Plan was converted into an option to receive, upon exercise, including payment of the
	exercise price, the $3.00 per unit merger consideration. Because the exercise price for each option was greater than the merger
	consideration, the Company does not expect any options to be exercised in the future.





7

---



INLAND FIBER GROUP,
	LLC AND SUBSIDIARY

5.       Litigation

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

8

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INLAND FIBER GROUP,
	LLC AND SUBSIDIARY

on May 15, 2005. The trial began on August 1, 2005 and is currently ongoing. The Company and its legal counsel
	believe the litigation and both Notices of Default to be without merit and intend to continue to vigorously defend the litigation.

On
	December 7, 2004, the Company, Finance Corp. and AFR brought an action against the Trustee based on the Trustee's failure to remit
	$4.8 million of the funds paid by the Company on November 12, 2004 to the Trustee for the benefit of the holders of the Notes. The
	Company, Finance Corp and AFR have determined not to pursue this action and on August 1, 2005, the action was dismissed.

6. Long Term Debt

The Company's long term debt consists of $225,000 of 9-5/8 % Senior Notes (the
	"Notes") due 2007, which were issued jointly and severally by the Company and Fiber Finance Corp., a wholly owned subsidiary of
	the Company (collectively, the "Issuers"). The Issuers serve as co-obligors of the Notes. The Notes represent unsecured general
	obligations of the Issuers and bear interest at 9-5/8% payable semiannually in arrears on May 15 and November 15, and mature on
	November 15, 2007 unless previously redeemed. The Notes are redeemable at the option of the Issuers in whole or in part at predetermined
	redemption prices plus accrued interest to the redemption date.

Although
	the Company had been approached regarding certain debt restructuring scenarios, the ongoing litigation with the holders of the Notes
	described below has materially interfered with the Company's ability to pursue a number of such scenarios. While the Company is
	still pursuing certain debt restructuring initiatives, discussions have been very preliminary and it is premature to assess the
	likelihood of pursuing any such scenario or other material transaction. A semi-annual interest payment on the Notes was due May
	15, 2005, subject to a 30-day grace period. In light of the partial summary judgment and the pendency of settlement negotiations,
	the Company did not make the interest payment before the due date or during the grace period.

The
	Notes contain certain restrictive covenants, including limiting the ability of the Company and its subsidiaries to make cash distributions,
	incur additional indebtedness, sell assets or harvest timber in excess of certain limitations. Under certain restrictive covenants,
	during 2003 and 2002, the Company was and presently is prohibited from making distributions to its members. Although the Company
	believes it was and is in compliance with the covenants contained in the Notes, the Trustee under the indenture has alleged that
	the Company has violated certain covenants and has commenced litigation and also issued a notice of default, alleging issues already
	covered in its complaint as described in Note 5. On December 23, 2004, the Court of Chancery issued a memorandum opinion granting
	the Trustee's motion for partial summary judgment and declaring that an Event of Default had occurred under the Indenture. On January
	13, 2005, the Company received a Notice of Default and Acceleration from the Trustee. On January 21, 2005, the Defendants filed
	a motion for leave to pursue an interlocutory appeal of the Chancery Court Order granting partial summary judgment. On January 26,
	2005, the Court of Chancery granted Defendants' motion for leave to appeal. On February 10, 2005, the Supreme Court of the State
	of Delaware accepted Defendants' appeal. On April 4, 2005, the Trustee filed its third appeal complaint. On April 22, 2005, the
	Defendants filed a motion to dismiss certain counts of the third amended complaint. On June 6, 2005, The Supreme Court of

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INLAND FIBER GROUP,
	LLC AND SUBSIDIARY

the State of Delaware decided the Defendants' interlocutory appeal and issued an order vacating the decision of
	the Court of Chancery granting partial summary judgment to the Trustee and remanding the case to the Court of Chancery for a trial
	on all of the issues. On July 7, 2005, the Court of Chancery granted in part and denied in part the Defendants' motion to dismiss
	certain counts of the third amended complaint. On July 28, 2005, the Trustee issued an Affirmation of the Notice of Default referencing
	among other things the failure to make the semi-annual interest payment on May 15, 2005. The trial began on August 1, 2005 and is
	currently ongoing. The Company and its legal counsel believe the litigation and both Notices of Default to be without merit and
	intend to continue to vigorously defend the litigation.

7. Management AgreementEffective September 1, 2003, the Company entered
	into a new management agreement with the Manager. The management agreement replaced the prior arrangement under which the Company
	reimbursed the Manager for expenses incurred on the Company's behalf. The management agreement provides for an annual fee of 2%
	of the agreed upon valuation of total timber and timberland assets under management and is payable monthly. In addition, the Company
	established its own Board of Directors to supervise the management of the Company.

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INLAND FIBER GROUP, LLC
	AND SUBSIDIARY

Forward-Looking StatementsCertain
	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, the results of ongoing litigation involving the Company, the Company’s ability to pay the required
	interest on its outstanding debt and limitations on the Company’s ability to harvest its timber due to adverse natural conditions
	or increased governmental restrictions. These and other risks are described in the Company’s other reports and registration
	statements, which are available from the United States Securities and Exchange Commission.

Application of Critical Accounting Policies

Certain
	accounting policies have a significant impact on amounts reported in the financial statements. A summary of those significant accounting
	policies can be found in Note 1 to the Company’s financial statements included in the Company’s 2004 Annual Report on
	Form 10-K.  The Company has not adopted any significant new accounting policies during the six months ended June 30, 2005.

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

Overview

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

11
INLAND FIBER GROUP, LLC AND SUBSIDIARY

Seasonality

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

Current Market ConditionsSecond quarter 2005 prices
	for finished wood products (e.g. lumber plywood and engineered wood products) decreased slightly from first quarter prices. However
	all products remained strong. Dimension prices dropped slightly.

Delivered
	log prices remained strong and some prices increased due to the mills having low inventories. Prices for White Fir and Douglas Fir
	veneer logs increased during the second quarter and are expected to remain strong into next quarter.

Results of Operations

Selected operating
	statistics for the Company:

|                            |  |                      |  |          |  |                            |  |   |  |      |  |          |  |   |  |       |  |       
|--------------------------- |  | -------------------- |  | -------- |  | -------------------------- |  | - |  | ---- |  | -------- |  | - |  | ----- |  | ------
|                            |  | SalesVolume
			(MBF) |  |          |  | Price Realization
			(MBF)
|                           
|                            |  |                      |  |          |  | Timber                     |  |   |  |      |  |          |  |   |  |       |  | Timber
|Period                      |  | Logs                 |  | Stumpage |  | Deeds                      |  |   |  | Logs |  | Stumpage |  |   |  | Deeds
|                           
|2005                        |  |                      |  |          |  |                            |  |   |  |      |  |          |  |   |  |       |  |       
|Three Months Ended June 30  |  | 9,578                |  | -        |  | 2,878                      |  | $ |  | 341  |  | $        |  | - |  | $     |  | 177   
|Three Months Ended March 31 |  | 6,982                |  | -        |  | 348                        |  | $ |  | 277  |  | $        |  | - |  | $     |  | 198   
|                            |  |                      |  |          |  |                            |  |   |  |      |  |          |  |   |  |       |  |       
|2004                        |  |                      |  |          |  |                            |  |   |  |      |  |          |  |   |  |       |  |       
|Three Months Ended June 30  |  | 8,775                |  | -        |  | 26,915                     |  | $ |  | 318  |  | $        |  | - |  | $     |  | 102   
|Three Months Ended March 31 |  | 6,932                |  | -        |  | 1,249                      |  | $ |  | 317  |  | $        |  | - |  | $     |  | 158   







12



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INLAND FIBER GROUP, LLC AND SUBSIDIARY



Quarter Ended June 30, 2005 Compared to Quarter Ended June 30,
	2004

Revenues

Revenues
	for the quarter ended June 30, 2005 were $4.0 million, a decrease of $12.5 million or 76% from revenues of $16.5 million for the
	same period in 2004. The decrease in revenues during the second quarter of 2005 was caused by lower property sales of $9.8 million,
	lower timber deed sales of $2.2 million, and lower other sales of $1.0 million, offset by higher log sales of $0.5 million.

Timber
	deed sales for the second quarter of 2005 were $0.5 million on volume of 2.9 million board feet (“MMBF”), a decrease
	of $2.3 million as compared to the same period in 2004, when timber deed sales were $2.8 million on 26.9 MMBF. The average timber
	deed price was $177 per thousand board feet (“MBF”) during the second quarter of 2005, as compared to $102 per MBF for
	the same period in 2004.

Log
	sales for the quarter ended June 30, 2005 were $3.3 million on volume of 9.6 MMBF, an increase of $0.5 million as compared to the
	same period in 2004 when log sales were $2.8 million on 8.8 MMBF. The average sales price was $341 per MBF for the second quarter
	of 2005, as compared to an average $319 per MBF for the same period in 2004.

In
	addition, property sales for the second quarter of 2005 were $0.0 million, as compared to $9.8 million for the same period in 2004.

Gross Profit

The
	Company had a gross loss of $0.1 million in the second quarter of 2005 as compared to a gross loss of $1.2 million for the same
	period in 2004. As a percentage of sales, the gross loss was 7% and 3% in the 2004 and 2005 quarters.

Selling, General and Administrative Expenses

Selling,
	general and administrative expenses, excluding management fees, decreased by $0.7 million from $1.0 million in the second quarter
	of 2004 to $0.3 million in the second quarter of 2005. The decrease was almost entirely due to the reimbursement by the Company’s
	insurer of previously charged legal expenses. Management fees decreased by $0.5 million from $1.0 million in the second quarter
	of 2004 to $0.5 million in the second quarter of 2005, due to a reduction in the valuation of total timber and timberland assets
	under management upon which the fee is calculated.

Equity in Net Loss of Affiliate

Equityin net loss of affiliate was $2.3 million for the second quarter
	of 2005. This amount reflects the Company’s share of the net loss of an affiliate (AFR) accounted for under the equity method
	including the amortization of the excess of cost over deficiency in net assets acquired in the Privatization Transaction. This compares
	to equity in net loss of affiliate of $4.4 million in the second quarter of 2004.



13

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INLAND FIBER GROUP, LLC
	AND SUBSIDIARY
Six Months Ended June 30, 2005 Compared to Six Moths Ended June 30, 2004

|Revenues
|--------

Revenues for the six months ended June 30, 2005 were $6.2 million, a decrease
	of $12.9 million or 68% from revenues of $19.1 million for the same period in 2004. The decrease in revenues during the first six
	months of 2005 was caused primarily by lower property sales of $9.9 million and lower timber deed sales of $2.4 million.

Timber deed sales for the first six months of 2005 were $0.6 million on volume
	of 3.2 million board feet ("MMBF"), a decrease of $2.4 million as compared to the same period in 2004, when timber deed sales were
	$3.0 million on 28.2 MMBF. The average timber deed price was $179 per thousand board feet ("MBF") during the first six months of
	2005, as compared to $105 per MBF for the same period in 2004.

Log sales for the six months ended June 30, 2005 were $5.2 million on volume
	of 16.6 MMBF, an increase of $0.2 million as compared to the same period in 2004 when log sales were $5.0 million on 15.7 MMBF.
	The average sales price was $314 per MBF for the first six months of 2005, as compared to an average $318 per MBF for the same period
	in 2004.

In addition, property sales for the first six months of 2005 were $0.0 million,
	as compared to $9.9 million for the same period in 2004.

Gross Profit

The Company had a gross loss of $0.4 million in the second half of 2005 as compared
	to a gross loss of $1.4 million for the same period in 2004. As a percentage of sales, the gross loss was 7% and 6% in the 2004
	and 2005 six month periods.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, excluding management fees, decreased
	by $1.5 million from $2.2 million in the first six months of 2004 to $0.7 million in the first six months of 2005. The decrease
	was primarily due to the elimination of expenses related to producing partnership tax returns for the public unit holders, decreased
	use of professional service consultants, and lower legal costs due to the reimbursement by the Company's insurer of previously charged
	legal expenses. Management fees decreased by $1.0 million from $2.0 million in the first six months of 2004 to $1.0 million in the
	first six months of 2005, due to a reduction in the valuation of total timber and timberland assets under management upon which
	the fee is calculated.

|Equity in Net Loss of Affiliate
|-------------------------------

Equity in net loss of affiliate was $8.0 million for the first six months of
	2005. This amount reflects the Company's share of the net loss of an affiliate (AFR) accounted for under the equity method including
	the amortization of the excess of cost over deficiency in net assets acquired in the Privatization Transaction. This compares to
	equity in net loss of affiliate of $9.3 million in the first half of 2004.

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INLAND FIBER GROUP, LLC AND SUBSIDIARY

Financial Condition and Liquidity

Operating Activities

Cash flows provided by operating activities during the six months ended June
	30, 2005 were $1.3 million, as compared to cash used in operating activities of $0.2 million during the same period in 2004. The
	$1.5 million increase is primarily due to the Company's lower selling, general and administrative and management fee expenses.

Investing Activities

Cash flows used in investing activities were $0.9 million during the six months
	ended June 30, 2005, as compared to $0.7 million during the same period in 2004.

|Financing Activities
|--------------------

The agreement governing the Company's 9-5/8% Senior Notes due 2007 (the "Notes")
	contains restrictive covenants, including limitations on harvest levels, land sales, cash distributions and the amount of future
	indebtedness. Under the Notes, the Company's average annual adjusted harvest volume over any period of four consecutive years cannot
	exceed a volume of approximately 147 MMBF as adjusted for timberland sales and purchases. The Notes also limit one-year harvest
	levels and average annual harvest levels for consecutive two-and-three year periods. As of June 30, 2005, the Company believes it
	was in compliance with the covenants contained in the Notes. See the succeeding paragraphs for a discussion of certain litigation
	against the Company, among others, relating to the Notes. As of June 30, 2005, the Company was not permitted to make any distributions,
	as it had not exceeded the requisite Consolidated Fixed Charge Coverage Ratio within the Restricted Payments provisions of the Notes.

Through the first six months of 2005, the Company funded its investing activities
	and met its cash requirements for debt service from operations and cash on hand.

Cash required to meet the Company's debt service will be significant. To meet
	its working capital requirements, the Company for the past several years has been selling logs and making timber sales at a rate
	in excess of the Manager's estimate of the current annual board footage growth on the Company's timberlands. The debt service and,
	prior to April 2001, quarterly cash distributions have been funded from operations and borrowings. Given projected volumes for sales
	of logs and timber, estimated current board footage growth on the timberlands and the harvest restrictions in the Notes, unless
	prices improve, costs are reduced, new markets are developed or the Company makes accretive acquisitions, the Company's ability
	in the future to make distributions will be adversely affected. On May 10, 2001, the Company announced an indefinite suspension
	of distributions. The Company continues to evaluate means to improve cash flows, including the factors mentioned above. There can
	be no assurance that prices will improve or that the Company will be able to take any of these actions and it is unlikely prices
	will improve or any of these actions will take effect within a short-term horizon. The Company will continue to look to log and
	timber deed sales as well as the sale of excess timberlands, and



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INLAND FIBER GROUP, LLC AND SUBSIDIARY

short-term advances from an affiliated lender, to meet its short-term cash needs and meet debt service.

Although
	the Company had been approached regarding certain debt restructuring scenarios, the ongoing litigation with the holders of the Notes
	described below has materially interfered with the Company's ability to pursue a number of such scenarios. While the Company is
	still pursuing certain debt restructuring initiatives, discussions have been very preliminary and it is premature to assess the
	likelihood of pursuing any such scenario or other material transaction. A semi-annual interest payment on the Notes was due May
	15, 2005, subject to a 30-day grace period. In light of the partial summary judgment and the pendency of settlement negotiations,
	the Company did not make the interest payment before the due date or during the grace period.

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



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INLAND FIBER GROUP, LLC AND SUBSIDIARY



Chancery granted Defendants' motion for leave to appeal. On February 10, 2005, the Supreme Court of the State of
	Delaware accepted Defendants' appeal. On April 4, 2005, the Trustee filed its third amended complaint. On April 22, 2005, the Defendants
	filed a motion to dismiss certain counts of the third amended complaint. On June 6, 2005, the Supreme Court of the State of Delaware
	decided the Defendants' interlocutory appeal and issued an order vacating the decision of the Court of Chancery granting partial
	summary judgment to the Trustee and remanding the case to the Court of Chancery for a trial on all of the issues. On July 7, 2005,
	the Court of Chancery granted in part and denied in part the Defendants' motion to dismiss certain counts of the amended complaint.
	On July 28, 2005, the Trustee issued an affirmation of the Notice of Default referencing among other things the failure to make
	the semi-annual interest payment on May 15, 2005. The trial began on August 1, 2005 and is currently ongoing. The Company and its
	legal counsel believe the litigation and both Notices of Default to be without merit and intend to continue to vigorously defend
	the litigation.

On
	December 7, 2004, the Company, Finance Corp. and AFR brought an action against the Trustee based on the Trustee's failure to remit
	$4.8 million of the funds paid by the Company on November 12, 2004 to the Trustee for the benefit of the holders of the Notes. The
	Company, Finance Corp and AFR have determined not to pursue this action and on August 1, 2005, the action was dismissed.

ITEM
	3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
	RISK



The
	Company's management maintains an adequate system of disclosure controls and procedures to promote the timely identification and
	reporting of material, relevant information. The Company's President and Chief Executive Officer and its Vice President and Chief
	Financial Officer meet regularly with members of senior management of the Manager to discuss significant transactions and events
	affecting the Company's operations and consider whether topics discussed represent information that should be disclosed under the
	rules of the SEC. The Company established a Board of Directors in July 2003 and it includes an Audit Committee. The Audit Committee
	reviews all reports on Form 10-Q and 10-K prior to their filing. The Audit Committee is responsible for hiring the Company's external
	auditors and meets with those auditors.

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

As
	of the end of the period covered by this quarterly report, the Company's principal executive officer and principal financial officer
	completed an evaluation of the disclosure controls and procedures and has determined them to be functioning properly and effectively. 
	They did not discover any significant deficiencies or material weaknesses within the controls and procedures that required modifications.
	During the period covered by this report, there have been no significant changes in internal control over financial reporting or
	in other factors that could significantly affect internal control over financial reporting.

17



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INLAND FIBER GROUP, LLC AND SUBSIDIARY

PART II. OTHER INFORMATION

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



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INLAND FIBER GROUP, LLC AND SUBSIDIARY



of Default referencing among other things the failure to make the semi-annual interest payment
	on May 15, 2005. The trial began on August 1, 2005 and is currently ongoing. The Company and its legal counsel believe the litigation
	and both Notices of Default to be without merit and intend to continue to vigorously defend the litigation.

On December 7, 2004, the Company, Finance Corp. and AFR brought an action against
	the Trustee based on the Trustee’s failure to remit $4.8 million of the funds paid by the Company on November 12, 2004 to
	the Trustee for the benefit of the holders of the Notes. The Company, Finance Corp and AFR have determined not to pursue this action
	and on August 1, 2005, the action was dismissed.









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INLAND FIBER GROUP, LLC AND SUBSIDIARY

ITEM 6.    EXHIBITS

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

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



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

|      |  |                 |  |                         |  |                              
|----- |  | --------------- |  | ----------------------- |  | -----------------------------
|Date: |  | August 15, 2005 |  | INLAND FIBER GROUP, LLC
|      |  |                 |  | By:                     |  | /s/ Thomas C. Ludlow         
|      |  |                 |  |                         |  | Thomas C. Ludlow             
|      |  |                 |  |                         |  | Vice President and Treasurer 
|      |  |                 |  |                         |  | (Principal Financial Officer)

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