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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                     --------------------------------------

                                    FORM 10-Q

                     --------------------------------------


          [X]  QUARTERLY   REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
               SECURITIES  EXCHANGE ACT OF 1934 For the  quarterly  period ended
               June 30, 2001 OR

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


                         Commission file number 0-23259


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

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

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


Registrant's telephone number, including area code: 212-755-1100



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


                     Yes [X]  No [ ]



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<PAGE>



                                    Form 10-Q

                                Table of Contents

                                                                           Page
Part I.  Financial Information

     Condensed Consolidated Statements of Operations

        Condensed Consolidated Statements of Operations
                  for the three months ended June 30, 2001 and 2000 . . . .    3

         Condensed Consolidated Statements of Operations
                  for the six months ended June 30, 2001 and 2000 . . . .      4

         Condensed Consolidated Balance Sheets
                  at June 30, 2001 and December 31, 2000 . . . . . . . . .     5

     Condensed Consolidated Statements of Cash Flows
         for the six months ended June 30, 2001 and 2000 . . . . . . . . .     6

         Notes to Condensed Consolidated Financial Statements  . . . . . .     7

         Management's Discussion and Analysis of Financial
                  Condition  and Results of Operations . . . . . . . . . .    10


Part II.  Other Information

         Item 1.  Legal Proceedings . . . . . . . . . . . . . . . . . . .     15

         Item 2.  Changes in Securities and Use of Proceeds . . . . . . .     15

         Item 3.  Defaults Upon Senior Securities . . . . . . . . . . . .     15

         Item 4.  Submission of Matters to a Vote of Security Holders . .     15

         Item 5. Other Information  . . . . . . . . . . . . . . . . . . .     15

         Item 6.  Exhibits and Reports on Form 8-K  . . . . . . . . . . .     16



                                    2 of 17
<PAGE>


PART l.  FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>


                                           U.S. TIMBERLANDS KLAMATH FALLS, LLC
                                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                       (IN THOUSANDS, EXCEPT PER UNIT INFORMATION)
                                                       (UNAUDITED)

                                                                                        Three Months Ended June 30,
                                                                                 ------------------------------------------
                                                                                        2001                    2000
                                                                                 -------------------     ------------------
<S>                                                                                         <C>                   <C>
Revenues                                                                                    $ 7,327               $ 23,960
Cost of timber harvested                                                                     (2,299)                (2,937)
Depletion, depreciation and road amortization                                                (5,280)                (8,142)
                                                                                 -------------------     ------------------
      Gross profit (loss)                                                                      (252)                12,881
                                                                                 -------------------     ------------------

Selling, general and administrative expenses                                                 (1,882)                (2,205)
Equity in net income (loss) of affiliate                                                       (275)                   275
                                                                                 -------------------     ------------------
      Operating income (loss)                                                                (2,409)                10,951
                                                                                 -------------------     ------------------

Interest expense                                                                             (5,544)                (5,402)
Interest income                                                                                   9                    108
Amortization of deferred financing fees                                                        (169)                  (168)
Other income                                                                                     79                     70
                                                                                 -------------------     ------------------

      Net income (loss)                                                                     $(8,034)              $  5,559
                                                                                 ===================     ==================

      See accompanying notes to the condensed consolidated financial statements.



                                    3 of 17
<PAGE>

                                U.S. TIMBERLANDS KLAMATH FALLS, LLC
                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            (IN THOUSANDS, EXCEPT PER UNIT INFORMATION)
                                            (UNAUDITED)

                                                                       Six Months Ended June 30,
                                                                   ----------------------------------
                                                                        2001               2000
                                                                   ---------------    ---------------

Revenues                                                                 $ 16,794           $ 35,884
Cost of timber harvested                                                   (6,991)            (6,824)
Depletion, depreciation and road amortization                             (10,187)           (11,945)
                                                                   ---------------    ---------------
      Gross profit (loss)                                                    (384)            17,115
                                                                   ---------------    ---------------

Selling, general and administrative                                        (4,435)            (4,161)
Equity in net income of affiliate                                               -              1,432
                                                                   ---------------    ---------------
      Operating income (loss)                                              (4,819)            14,386
                                                                   ---------------    ---------------

Interest expense                                                          (10,947)           (10,856)
Interest income                                                                83                230
Financing fees                                                               (337)              (337)
Other income                                                                  120                179
                                                                   ---------------    ---------------

      Net income (loss)                                                  $(15,900)          $  3,602
                                                                   ===============    ===============





      See accompanying notes to the condensed consolidated financial statements.


                                    4 of 17
<PAGE>



                                           U.S. TIMBERLANDS KLAMATH FALLS, LLC
                                          CONDENSED CONSOLIDATED BALANCE SHEETS
                                                      (IN THOUSANDS)
                                                                                        June 30,            December 31,
                                                                                          2001                  2000
                                                                                   ------------------    ------------------
                                                                                      (Unaudited)                *
ASSETS
Current assets:
     Cash and cash equivalents                                                                 $ 620               $ 3,168
     Accounts and current portion of notes receivable, net                                     1,319                 6,875
     Prepaid expenses and other current assets                                                    36                    35
                                                                                   ------------------    ------------------

          Total current assets                                                                 1,975                10,078

     Timber and timberlands, net                                                             243,885               265,109
     Investment in affiliate                                                                  36,877                20,588
     Property, plant and equipment, net                                                          858                   926
     Notes receivable, less current portion                                                      480                     -
     Deferred financing fees, net                                                              4,311                 4,648
                                                                                   ------------------    ------------------

          Total assets                                                                     $ 288,386             $ 301,349
                                                                                   ==================    ==================

LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
     Borrowings under affiliate credit facility                                             $ 10,470                   $ -
     Accounts payable and accrued liabilities                                                  3,620                 4,548
     Payable to general partner and affiliate                                                  3,495                 2,065
     Deferred revenue                                                                              -                 1,474
                                                                                   ------------------    ------------------

          Total current liabilities                                                           17,585                 8,087
                                                                                   ------------------    ------------------

     Long-term debt                                                                          225,000               225,000
                                                                                   ------------------    ------------------

Members' equity:
     Managing member's interest                                                                  458                   683
     Nonmanaging member's interest                                                            45,343                67,579
                                                                                   ------------------    ------------------

                                                                                              45,801                68,262
                                                                                   ------------------    ------------------

          Total liabilities and members' equity                                            $ 288,386             $ 301,349
                                                                                   ==================    ==================

*    Derived from audited Consolidated Balance Sheet as of December 31, 2000

     See accompanying notes to the condensed consolidated financial statements.


                                    5 of 17
<PAGE>





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

                                                                                        Six Months Ended June 30,
                                                                                ------------------------------------------
                                                                                       2001                   2000
                                                                                ------------------     -------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities                                                   $ 156                $ 15,235
                                                                                ------------------     -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Timber, timberlands and road additions                                               (6,628)                 (2,143)
      Purchase of property, plant and equipment - net                                           -                     (52)
      Proceeds from sale of assets                                                             15                      46
                                                                                ------------------     -------------------
Net cash used in investing activities                                                      (6,613)                 (2,149)
                                                                                ------------------     -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net borrowings under affiliate credit facility                                       10,470                       -
      Distributions to members                                                             (6,561)                (13,122)
                                                                                ------------------     -------------------
Net cash used in financing activities                                                       3,909                 (13,122)
                                                                                ------------------     -------------------

Decrease in cash and cash equivalents                                                      (2,548)                    (36)
Cash and cash equivalents - beginning of period                                             3,168                   2,798
                                                                                ------------------     -------------------

Cash and cash equivalents - end of period                                                   $ 620                 $ 2,762
                                                                                ==================     ===================

Noncash activities:
      Contribution of timber cutting rights for investment in affiliate                  $ 12,987                     $ -
      Contribution of timberlands for investment in affiliate                             $ 3,302                     $ -

</TABLE>


      See accompanying notes to the condensed consolidated financial statements.




                                    6 of 17
<PAGE>
                       U.S. TIMBERLANDS KLAMATH FALLS, LLC
                    NOTES TO CONDENSED CONSOLIDATED FINANCIAL
              STATEMENTS (In thousands, except per Unit amounts or
                             as otherwise indicated)
                                   (Unaudited)

1.  Business and Basis of Presentation:

Business

The accompanying  consolidated financial statements include the accounts of U.S.
Timberlands  Klamath Falls, LLC ("USTK"),  a Delaware limited liability company,
and its wholly  owned  subsidiary,  U.S.  Timberlands  Finance  Corp.  ("Finance
Corp"),  collectively referred to hereafter as the Company. Finance Corp. serves
as the co-obligator for USTK's notes. It has nominal assets and does not conduct
operations. All intercompany transactions have been eliminated in consolidation.

U.S. Timberlands Company, LP (the "MLP") owns a 99% non-managing member interest
in USTK.  The MLP was formed on June 27, 1997 to acquire  and own  substantially
all of the equity  interests  in USTK and to acquire  and own the  business  and
assets of U.S.  Timberlands  Management  Company,  LLC,  formerly  known as U.S.
Timberlands  Services  Company,  LLC.  U.S.  Timberlands  Services  Company (the
"Manager")  manages the  business  of the Company and owns a 1% managing  member
interest in USTK.

The primary activity of the Company is the growing of trees and the sale of logs
and standing  timber to third party wood  processors.  The  Company's  timber is
located  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  condensed  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 accompanying  unaudited 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,  these
condensed  consolidated  financial statements should be read in conjunction with
the  consolidated  financial  statements  included in the Company's  2000 Annual
Report on Form 10-K.  Operating  results for the  quarter  and six month  period
ended June 30, 2001 are not  necessarily  indicative  of the results that may be
expected for the full year or any other period.

There  have  been no  significant  changes  in the  accounting  policies  of the
Company.  There were no  significant  changes in the Company's  commitments  and
contingencies as previously described in the 2000 Annual Report on Form 10-K.


                                    7 of 17
<PAGE>

Reclassifications
Certain  amounts  presented for 2000 have been  reclassified  for  comparability
purposes  and have no impact on net income for the  quarter or six month  period
ended June 30, 2000.


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


<TABLE>
<CAPTION>
                                                                                June 30,           December 31,
                                                                                  2001                 2000
                                                                           -------------------  --------------------

<S>                                                                                <C>                   <C>
        Timber and logging roads                                                   $  307,041            $  317,651
        Timberlands                                                                    38,289                39,111
        Seed orchard and nursery stock                                                  1,641                 1,364
                                                                           -------------------  --------------------

                                                                                      346,971               358,126
        Less accumulated depletion and road amortization                              103,086                93,017
                                                                           -------------------  --------------------

                                                                                   $  243,885            $  265,109
                                                                           ===================  ====================



3.   Investment In Affiliate:

                                 Quarter Ended         Quarter Ended       Six Months Ended      Six Months Ended
                                    June 30,             June 30,              June 30,              June 30,
                                      2001                 2000                  2001                  2000
                               -------------------  --------------------  -------------------   -------------------

        Net sales                         $ 1,209               $ 4,987              $ 5,859               $ 9,772
        Gross profit                          263                 2,196                3,199                 5,307
        Net income (loss)                  (1,607)                  369                 (378)                1,770
</TABLE>



The following is summarized  financial  information for U.S. Timberlands Yakima,
LLC ("USTY"), the MLP's equity basis affiliate:

During the six months  ended June 30, 2001,  the Company  contributed  cutting
rights and  timberland  located in Central  Oregon to its  affiliate,  USTY. The
contributions  have an  aggregate  agreed  upon value of $12.0  million and $6.5
million,  respectively,  and were added to the Company's  Preferred  Interest in
USTY. Terms of the additional  senior preferred  interest  acquired are the same
terms as the senior preferred  interests  previously issued to the Company.  The
Company recorded its additional  preferred interest at its basis for the cutting
rights  and  timberland  of  approximately   $10.9  million  and  $5.2  million,
respectively. All property that has been contributed for the Company's Preferred
Interest  in USTY has been  pledged  as  collateral  by USTY  under  its  credit
facility with its lender.

On March 30, 2001, the Company purchased timber cutting rights for approximately
17.2 million board feet from USTY for $4.5 million. These timber cutting rights
expire in March 2004.


                                    8 of 17
<PAGE>

4.  Short-Term Debt:
The  Company  has a  credit  facility  with an  affiliate  of the  Manager  (the
"Affiliate Credit  Facility")  consisting of a revolving line of credit of up to
$12.0 million.  Borrowings  under the Affiliate Credit Facility bear interest at
the prime lending rate as published in the Wall Street  Journal plus  applicable
margin (1.50% at June 30, 2001), which is based on the Company's leverage ratio.
The  prime-lending  rate was 6.75% at June 30, 2001.  The Company had $10,470 in
outstanding  borrowings under the Affiliate Credit Facility at June 30, 2001. On
June 30,  2001,  the Company  extended its  Affiliate  Credit  Facility  through
September 30, 2001.

5.  Long-Term Debt and Distributions:
As of June 30, 2001 the Company was not authorized to make any  distributions as
it had not exceeded the  requisite  Consolidated  Fixed  Charge  Coverage  Ratio
within the Restricted Payments provisions of the Senior Notes.

6.  Other Items:
On May 10, 2001,  the MLP  announced the receipt of an offer from a group led by
senior  management to take the MLP private.  The offer from an entity controlled
by  management  contemplates  a cash tender offer for  approximately  32% of the
outstanding  common limited  partnership  units of the MLP for $7.75 per unit in
cash.  Unitholders will receive 9.625%,  seven-year senior subordinated notes of
the entity  controlled by management in the principal  amount of $7.75 per unit,
for the remaining common limited partnership units. This offer is subject to the
consummation  of  financing  with respect to which an oral  commitment  has been
received,  the  execution  of the  definitive  agreements  and  other  customary
conditions.

On May 10, 2001,  the Board of Directors of the Manager  announced an indefinite
suspension  of  the  quarterly  distribution  to  members  of  the  Company  and
Unitholders of the MLP due to current conditions in the timber market.


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.



                                    9 of 17
<PAGE>

Overview

The Company's principal  operations consist of growing and harvesting timber and
selling  logs,  standing  timber and  related  by-products  to third  party wood
processors. These logs and by-products are processed for sale as lumber; molding
products; doors; mill work; commodity, specialty, and overlaid plywood products;
laminated  veneer lumber;  engineered  wood I-beams;  particleboard;  hardboard;
paper  and  other  wood  products.  These  products  are  used  in  residential,
commercial,  and industrial  construction;  home remodeling and repair;  general
industrial  applications;  and a variety of paper  products.  The results of the
Company's  operations  and its  ability to pay  quarterly  distributions  to its
Unitholders  depend  upon a number  of  factors,  many of which are  beyond  its
control.  These  factors  include  general  economic  and  industry  conditions,
domestic and export prices, supply and demand for 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.




                                    10 of 17
<PAGE>


Current Market Conditions

     Second  quarter  2001 prices for  finished  wood  products  (e.g.,  lumber,
plywood,  and engineered  wood products) were consistent with first quarter 2001
but were still down significantly from the same periods in 2000. The Company has
experienced significant decreases in log and timber prices for all species, with
White  Fir,  Ponderosa  Pine and  Lodgepole  Pine all being down over 15% in the
second  quarter of 2001 as  compared  to the same  period in 2000.  Declines  in
realization  are also the result of change in the mix of logs.

Results of Operations

     Selected operating statistics for the Company:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                     Sales Volume (MBF)                 Price Realization (MBF)
------------------------------------------------------------------------------------------------------------
                                                             Timber                              Timber
             Period                   Logs      Stumpage      Deeds      Logs       Stumpage      Deeds

              2001
------------------------------------------------------------------------------------------------------------
<S>                                    <C>                     <C>        <C>             <C>       <C>
Three Months Ended June 30             9,890            -      28,624     $ 313           $ -       $ 138
------------------------------------------------------------------------------------------------------------
Three Months Ended March 31           20,939            -      14,744     $ 357           $ -       $ 133
------------------------------------------------------------------------------------------------------------

              2000
------------------------------------------------------------------------------------------------------------
Three Months Ended June 30            13,908            -      51,037     $ 432           $ -       $ 346
------------------------------------------------------------------------------------------------------------
Three Months Ended March 31           20,564          503       8,701     $ 425         $ 379       $ 325
------------------------------------------------------------------------------------------------------------
</TABLE>


Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000

     Revenues Revenues for the quarter ended June 30, 2001 were $7.3 million,  a
decrease of $16.7  million or 70% from  revenues  of $24.0  million for the same
period in 2000.  Revenues  during  the  second  quarter  of 2001 were  below the
Company's expectations due to the continued industry price declines. Pricing for
the majority of the Company's species is still at or near 15-year lows.

     Timber  deed and  stumpage  sales for the second  quarter of 2001 were $4.0
million on volume of 28.6 million board feet  ("MMBF"),  as compared to the same
period in 2000,  when timber deed and stumpage  sales were $17.6 million on 51.0
MMBF.  The average  timber deed and stumpage  price was $138 per thousand  board
feet ("MBF")  during the second quarter of 2001, as compared to $346 per MBF for
the same  period in 2000.  The  decrease  in deed and  stumpage  value  reflects
deteriorating  market  conditions  as well as a change in mix  during the second
quarter of 2001 as compared to the same period in 2000.

     Log sales for the quarter  ended June 30, 2001 were $3.1  million on volume
of 9.9 MMBF,  as  compared  to the same  period in 2000 when log sales were $6.0
million on 13.9 MMBF.  The  average  sales price was $313 per MBF for the second
quarter of 2001,  as  compared to an average of $432 per MBF for the same period
in 2000. The decline in log prices reflects a general decrease in log prices and
a shift to a different  species and grade mix sold during the second  quarter of
2001 as  compared to the same  period in 2000.  The  decrease in the average log
sales price was primarily  attributable to a 30%, 23%, and 16% decrease in sales
realization on Ponderosa Pine, White Fir, and Lodgepole Pine, respectively.  The


                                    11 of 17
<PAGE>

decrease  in  realization  is a  combination  of  pricing  and mix in the second
quarter of 2001 as compared to the second quarter of 2000.

     Gross  Profit  (Loss) The Company  had a gross loss of $0.3  million in the
second  quarter of 2001 as compared to a gross  profit of $12.9  million for the
same period in 2000, a decrease of $13.2  million.  As a percentage of sales the
gross loss was (3.4%) as compared to a gross profit  percentage of 53.8 % in the
second  quarter of 2000. The decrease in gross profit (loss) in dollars and as a
percentage  of sales is a result  of  significant  decreases  in the  amount  of
realization on timber deed sales combined with  deteriorating  market conditions
and  increases in log and haul costs.  Log and haul costs have  increased as the
Company has absorbed increased fuel cost.

     Selling,   General  and  Administrative   Expenses  Selling,   general  and
administrative  expenses  decreased  by $0.3  million  from $2.2  million in the
second  quarter  of 2000 to $1.9  million in the  second  quarter  of 2001.  The
decrease  was  primarily  attributable  to a decrease  in  professional  service
expenses of approximately $0.2 million.

     Equity  in Net  Loss of  Affiliate  Equity  in net  loss of  affiliate  was
approximately  $0.3 million for the second quarter of 2001 compared to equity in
net income from affiliate of $0.3 million for the second quarter of 2000. During
the second quarter of 2001, as a result of losses incurred by the affiliate, the
Company  reversed  an accrual of the  preferred  return  from an  investment  in
affiliate from the first quarter of 2001.  During the second quarter of 2000, as
a result of losses  incurred by the affiliate,  the Company had accrued a return
on its preferred interest in the same affiliate of $0.3 million.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

     Revenues  Revenues  for the six  months  ended  June 30,  2001  were  $16.8
million,  a decrease of $19.1  million or 53% from revenues of $35.9 million for
the same  period in 2000.  This  decrease  in  revenues  was  attributable  to a
continuation of market slumping. The Company experienced a $4.1 million decrease
in log sales as well as a $14.8  million  decrease in timber  deed and  stumpage
sales.

     Log sales for the six  months  ended June 30,  2001 were  $10.6  million on
volume of 30.8 MMBF,  as compared to the same period in 2000 when log sales were
$14.7  million on 34.5 MMBF.  The  average  sales  price for logs during the six
month period ended June 30, 2001 was down  significantly from the same period in
2000 with  Ponderosa  Pine,  White Fir and Lodegpole Pine all down over 15% from
the average sales price for the first six months of 2000.  This is due primarily
to overall market conditions combined with the Company's change in sales mix.

     Timber deed and stumpage  sales for the six months ended June 30, 2001 were
$5.9  million on volume of 43.4 MMBF,  as  compared  to the same period in 2000,
when timber deed and stumpage  sales were $20.7  million on volume of 60.2 MMBF.
The average  timber deed and stumpage  sales price for the six months ended June
30,  2001 was $136 per MBF,  as  compared to $310 per MBF for the same period in
2000.  The  decrease  in average  timber  deed and  stumpage  sales price can be
attributed to lower log prices and market conditions.

     Gross  Profit  (Loss)  Gross loss for the first six months of 2001 was $0.4
million compared to a gross profit of $17.1 million for the same period in 2000,
a decrease $17.5 million.  As a percentage of sales, gross profit decreased from
48% in the first six months of 2000 to a gross loss percentage of 2% in the same
period of 2001.  The  decrease in gross profit was  primarily  from two factors.
First  the  Company  has  continued  to see  significant  declines  in its sales


                                    12 of 17
<PAGE>

realizations.  Second,  contracted  log and haul costs on a per MBF basis are up
significantly  in the first six months of 2001 as compared to the same period in
2000 due to increased fuel costs.

     Selling,   General  and  Administrative   Expenses  Selling,   general  and
administrative expenses increased by $0.3 million from $4.1 million in the first
six months of 2000 to $4.4 million in the first six months of 2001. The increase
is  primarily   attributable  to  an  increase  in   professional   services  of
approximately  $0.4 million and a decrease in wages and wage related expenses of
approximately $0.1 million.

     Equity in Net Income (Loss) of Affiliate The Company did not have equity in
income (loss) of affiliate  during the six months ended June 30, 2001.  This was
due to the fact that the  affiliate  did not have  earnings  to warrant  such an
accrual. During the six months ended June 30, 2000 the Company had equity in net
income of  affiliate  of $1.4  million.  During the first six months of 2000 the
total  equity in net income of  affiliate  of $1.4  million  was a result of the
Company's  $0.6  million  recapture  of 1999 losses  absorbed  on its  preferred
interest in an  affiliate  combined  with its $0.8  million  preferred  interest
return from the same affiliate.


Financial Condition and Liquidity
     Operating Activities Cash flows provided by operating activities during the
six months ended June 30, 2001 were $0.2  million,  as compared to cash provided
by operating  activities  of $15.2 million  during the same period in 2000.  The
$15.0  million  decrease is due  primarily  to the  Company's  net loss of $15.9
million  compared to net income of $3.6  million  during the first six months of
2000, a decrease of $19.5  million.  This decrease was partially  offset with an
increase in cash flows provided due to changes in working capital components.

     Investing  Activities  Cash flows used in  investing  activities  were $6.6
million  during the first six months of 2001, as compared to $2.1 million during
the same period in 2000. The increase is primarily attributable to the Company's
purchase of cutting rights from its affiliate for approximately $4.5 million.

     Financing  Activities  Cash flows provided by financing  activities for the
first six months of 2001 were $3.9 million as compared to cash used in financing
activities  of $13.1  million for the same period in 2000.  The change is due to
the fact that the company did not make its $6.6 million  distribution during the
second  quarter  of 2001  combined  with  the  Company's  borrowings  under  the
Affiliate Credit Facility during the first six months of 2001 of $10.5 million.

     The Company has a credit  agreement  with an  affiliate of the Manager (the
"Affiliate Credit  Facility").  The Affiliate Credit Facility allows the Company
to borrow up to $12.0 million under certain terms and  covenants.  The covenants
include restrictions on the Company's ability to make cash distributions,  incur
certain  additional  indebtedness or incur certain liens.  The Affiliate  Credit
Facility was renewed on June 30, 2001 and will expire on September  30, 2001. As
of June 30, 2001 the Company had $10.5 million in outstanding  borrowings  under
the Affiliate Credit Facility.

     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 target  thresholds.  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,


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<PAGE>

2001 the Company was not authorized to make distributions as it had not exceeded
the requisite  Consolidated  Fixed Charge  Coverage  Ratio within the Restricted
Payments provisions of the Senior Notes.

     Through the first six months of 2001, the Company funded its operations and
met its cash requirements for its first quarter  distribution to its Unitholders
and debt service from cash on hand,  cash generated from current  operations and
borrowings under its Affiliate Credit Facility.

     Cash required to meet the Company's debt service and any cash distributions
will be significant.  To meet its working capital requirements,  the Company 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 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.



PART ll.  OTHER INFORMATION




Item 1.  Legal Proceedings

         In November  2000,  six  purported  class  action  lawsuits  were filed
against the  Manager and the Board of  Directors  of the Manager  (the  "Board")
alleging breach of fiduciary duty and  self-dealing by the Manager and the Board
in  connection  with an  announcement  on  November  2, 2000 that a group led by
senior  management  has begun the process to explore taking the MLP private (the
"Going-Private Transaction").

         All six  lawsuits  were filed in the Court of  Chancery of the State of
Delaware for the County of New Castle. Each lawsuit was filed by a Unitholder of
the  MLP,  on  behalf  of all  other  Unitholders  of the MLP who are  similarly
situated,  and seeks to have the class certified and the Unitholder bringing the
lawsuit named as representative of the class. In addition,  the lawsuits seek to
enjoin the Going-Private  Transaction,  to rescind the Going-Private Transaction
if it is consummated, and to recover damages and attorneys' fees. In addition to
naming the Manager and the Board as defendants, all six lawsuits name the MLP as
a defendant.

         In the opinion of management,  after consultation with outside counsel,
the pending  lawsuits are not expected to have a material  adverse effect on the
Company's financial position or results of operations.





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<PAGE>

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, LP

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

               +10.2    --   Indenture among U.S. Timberlands Klamath Falls, LLC, 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, LP and
                             certain other parties
               *10.4    --   Form of U.S. Timberlands Company, LP 1997 Long-Term Incentive Plan

               *10.5    --   Employment Agreement for Mr. Rudey

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

             ++10.10    --   Operating Agreement of U.S. Timberlands Yakima, LLC

               *21.1    --   List of Subsidiaries
</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
     Current Report on Form 8-K filed January 15, 1998.
++  Incorporated by reference to the same numbered  exhibit to the  Registrant's
Form 10-Q filed on May 15, 2000.



(b.) Reports on Form 8-K


     The Company  filed no reports on Form 8-K during the quarter ended June 30,
2001.



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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: August 20, 2001        U.S. TIMBERLANDS KLAMATH FALLS, LLC
                             By: U.S. Timberlands Services Company, LLC
                                     as General Partner


                             By:  /s/  Thomas C. Ludlow
                                 ---------------------------------------------
                                 Thomas C. Ludlow
                                 Chief Financial Officer
                                 (Chief Financial Officer,
                                  Duly Authorized Officer,
                                  And Principal Accounting Officer)



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