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|

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

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FORM 10-Q_______________________________

x 
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly periodended March 31, 2004 
  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.)
|                                                                            |                                           
|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

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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



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|FORM 10-QTABLE OF CONTENTS
|--------------------------



PART I.FINANCIAL INFORMATION (Unaudited)

|         |   |   | Form 10-Q                                                                                         |     
|-------- | - | - | ------------------------------------------------------------------------------------------------- | ----
|         |   |   |                                                                                                   |     
|         |   |   | Table of
        Contents                                                                         |     
|         |   |   |                                                                                                   |     
|Part I.  |   |   | Financial
        Information                                                                     | Page
|         |   |   |                                                                                                   |     
|Item     | 1 | . | Condensed Consolidated Statements of Operationsfor the three months ended March 31, 2004 and 2003 | 1   
|         |   |   |                                                                                                   |     
|Item     | 1 | . | Condensed Consolidated Balance Sheetsat March 31, 2004 and December 31, 2003                      | 2   
|         |   |   |                                                                                                   |     
|Item     | 1 | . | Condensed Consolidated Statements of Cash Flowsfor the three months ended March 31, 2004 and 2003 | 3   
|         |   |   |                                                                                                   |     
|Item     | 1 | . | Notes to Condensed Consolidated Financial Statements                                              | 4   
|         |   |   |                                                                                                   |     
|Item     | 2 | . | Management's Discussion and Analysis of Financial
        Condition and Results of Operations     | 9   
|         |   |   |                                                                                                   |     
|Item     | 4 | . | Controls and Procedures                                                                           | 13  
|         |   |   |                                                                                                   |     
|Part II. |   |   | Other Information                                                                                 | 14  
|         |   |   |                                                                                                   |     
|Item     | 1 |   | Legal Proceedings                                                                                 | 14  
|         |   |   |                                                                                                   |     
|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  



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INLAND FIBER GROUP,
  LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  (IN THOUSANDS) 
  (UNAUDITED)



1



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INLAND FIBER GROUP, LLC CONDENSED CONSOLIDATED BALANCE SHEETS
    (IN THOUSANDS)


2





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INLAND FIBER GROUP, LLC

CONDENSED CONSOLIDATED CASH FLOWS
  (IN THOUSANDS) 
  (UNAUDITED)





3





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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)Notes to Condensed Consolidated Financial Statements(In thousands, except as otherwise indicated)

|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 owed subsidiary, Fiber Finance Corp. ("Finance Corp."),
collectively referred to hereafter as the Company. Fiber 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.

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 excess land. 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.

Prior to July 2003, Pacific Fiber Company, LP, a master
  limited partnership (the "MLP") (formerly U.S. Timberlands Company, L.P.), owned
  a 99% non-managing member interest in the Company. The MLP was formed on June
  27, 1997 to acquire and own substantially all of the equity interests in the
  Company. Timber Resource Services, LLC (formerly known as U.S. Timberlands Services
  Company, LLC, the "Manager") manages the business of the Company and owns a
  1% non-voting membership interest in the Company.

On October 17, 2002, the MLP announced that it had signed
  a definitive agreement to be acquired by an acquisition company formed by a
  group led by senior management (the "Privatization Transaction"). The group
  beneficially owned 36.4% of the combined outstanding limited partnership units
  of the MLP consisting of 16% of the common units and 98% of the subordinated
  units. The definitive agreement contemplated a cash tender offer for 100% of
  the outstanding common limited partnership units not already owned by the acquiring
  entity or its affiliates for $3.00 per unit in cash, followed by a merger of
  the acquisition company with and into the MLP, pursuant to which each common
  limited partnership unit not already owned by the acquiring entity or its affiliates
  would be converted into the right to receive $3.00 per unit in cash. The tender
  offer commenced on November 19, 2002 and was completed on March 6, 2003. In
  connection with the tender offer, approximately 71% of the MLP's common units
  were tendered. The remaining common units held by non-affiliates not purchased
  in the tender offer were converted into the right to receive $3.00 per common
  unit in the merger which was completed on June 26, 2003.



4

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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)Notes to Condensed Consolidated Financial Statements (continued)(In thousands, except as otherwise indicated)

Subsequent to the Privatization Transaction, the 99% interest
  in the Company held by the MLP was transferred in a series of transactions to
  a newly-formed limited liability company, IFG Holdings, LLC. IFG Holdings, LLC
  is wholly owned by American Forest Resources, LLC ("AFR") (formerly known as
  US Timberlands Yakima, LLC), in which the Company holds a preferred equity interest.
  As part of this reorganization of the ownership structure of the Company, a
  Board of Directors was elected for the Company to supervise its operations and
  a new management arrangement was established under which the Manager, whose
  interest was converted into a 1% nonvoting interest in the Company, provides
  comprehensive timber management services to the Company pursuant to a fee-based
  management agreement.

As a result of the Privatization Transaction described above, the Company is an indirect 99% owned subsidiary of AFR.

|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 2003 Annual Report on Form 10-K.
  Operating results for the quarter ended March 31, 2004 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 period.

The accompanying condensed consolidated statements have
  been prepared assuming that the Company will continue as a going concern. In
  December 2003, the trustee under the indenture ("the Indenture") governing
  the Company's $225,000 of 9.5% Senior Notes, which mature in 2007 commenced
  litigation against the Company and others alleging, among other matters, that
  the Company has violated certain covenants contained in the Indenture. The Company
  has denied all of the allegations and made a motion to dismiss the complaint.
  In May 2004, the Company received a Notice of Default from the Trustee covering
  certain of the allegations in the complaint. 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.The
  Company and its legal counsel believe the litigation, as well as the Notice
  of Default, to be without merit and the Company intends to vigorously defend
  itself in the lawsuit (See Note 6 for a further discussion of the Litigation).



|5
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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 described 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 MLP.

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. The results of AFR presented below reflect purchase accounting relating
  to the Privatization Transaction for periods subsequent to March 6, 2003.

(1) Reflects (a) charges of $2,221 and $715, respectively related to the amortization
  of $43,287 excess of cost over deficiency in net assets attributable to 63.6%
  acquired interest and (b) benefit of $3,984 representing share of the Comapny's
  net loss for 2003 attributable to 63.6% acquired interest, prior to acquisition.



| | 4. Short-Term
      Debt
| | ------------------------



The Company had 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 which expired, by its terms, at the end of April 2002.
  The Company has sought to replace the Affiliate Credit Facility with a working
  capital facility from an unaffiliated third party but has been unable to obtain
  a working capital credit facility in amounts sufficient to fund its working
  capital needs from a traditional commercial lender. While the Company continues
  to seek a credit facility from an unaffiliatedsource,
  affiliated lenders have made short-term advances to the Company, payable on
  demand, at an annual interest rate of 10%. The affiliate has made no commitment
  to continue lending funds to the Company, and each request is reviewed on a
  case-by-case basis.



6

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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)Notes to Condensed Consolidated Financial Statements (continued)(In thousands, except as otherwise indicated)



| | 5. 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 month periods ended March
  31, 2004 and 2003 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.

| | 6. 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. On March 26,
  2004 a motion to stay discovery pending the outcome of the Defendant's motion
  to dismiss was denied. In May 2004, a hearing was held with respect to defendants'
  motion to dismiss. The defendants expect a decision regarding their motion to
  dismiss within a few months. On May 17, 2004, the Company received a Notice
  of Default from the Trustee covering certain of the allegations in the complaint.
  The Company and its legal counsel believe the litigation, as well as, the Notice
  of Default to be without merit and the Company intends to vigorously defend
  itself in the lawsuit.

7

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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)Notes to Condensed Consolidated Financial Statements (concluded)(In thousands, except as otherwise indicated)



|7. 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 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.

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 6.

|8. Management Agreement
|-----------------------

Effective 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, payable monthly.  In addition,
  the Company established its own Board of Directors to supervise the management
  of the Company.



|8
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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)



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.

In June 2003, a major customer and competitor of the Company,
  Crown Pacific, filed for relief under Chapter 11 of the Bankruptcy Code. There
  was no direct financial impact to the Company. It is not known at this time
  how this bankruptcy will impact the forest products industry in which the Company
  operates although it may lead to increased timber supply in the market.

|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 2003 Annual Report on Form 10-K. The Company has not
  adopted any significant new accounting policies during the three months ended
  March 31, 2004.

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
|--------

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



9

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INLAND FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)





|Seasonality
|-----------

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

Current Market Conditions

First quarter 2004 prices for finished wood products (e.g.
  lumber, plywood and engineered wood products) were higher than the fourth quarter
  2003. Prices continued to rise during the quarter for both panels and lumber
  products.

Delivered log prices for Douglas Fir remained flat during
  the first quarter 2004 due to a long term delivered log agreement. Prices for
  veneer logs improved, as did Ponderosa Pine saw log prices. Incense Cedar prices
  remained flat and did not change from fourth quarter 2003 prices.

|Results of Operations
|---------------------



|10
|--



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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)



Quarter Ended March 31, 2004 Compared to Quarter
  Ended March 31, 2003

|Revenues
|--------

Revenues for the quarter ended March 31, 2004 were $2.6
  million, a decrease of $4.2 million or 62% from revenues of $6.8 million for
  the same period in 2003. The decrease in revenues during the first quarter of
  2004 was caused by lower log sales volume and lower timber deed sales which
  were a direct result of weather related slowdowns.

Timber deed sales for the first quarter of 2004 were $0.2
  million on volume of 1.2 million board feet ("MMBF"), a decrease of $0.5 million
  as compared to the same period in 2003, when timber deed sales were $0.7 million
  on 2.9 MMBF. The average timber deed price was $158 per thousand board feet
  ("MBF") during the first quarter of 2004, as compared to $236 per MBF for the
  same period in 2003.

Log sales for the quarter ended March 31, 2004 were $2.2
  million on volume of 6.9 MMBF, a decrease of $3.1 million as compared to the
  same period in 2003 when log sales were $5.3 million on 17.1 MMBF. The average
  sales price was $317 per MBF for the first quarter of 2004, as compared to an
  average $313 per MBF for the same period in 2003. The increase in log prices
  reflects a general increase in the market.

In addition, property sales for the 2004 first quarter
  were $0.0 million, as compared to $0.6 million for the same period in 2003.

|Gross Profit
|------------

The Company had a gross loss of $0.2 million in the first
  quarter of 2004 as compared to a gross profit of $0.0 million for the same period
  in 2003. As a percentage of sales, the gross loss was 7% as compared to a gross
  profit percentage of 0% in the first quarter of 2003. The gross profit (loss)
  percentage in 2004 was adversely impacted compared to 2003 by higher contracted
  log and haul costs on a per MBF basis.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased
  by $0.5 million from $1.7 million in the first quarter of 2003 to $2.2 million
  in the first quarter of 2004. The increase was attributable to increased management
  company fees offset by overall lower costs.

Equity in Net Loss of Affiliate

Equity in net loss of affiliate was $4.9 million for the
  first quarter of 2004. This amount reflects the Company's share of the net loss
  of an affiliate (AFR) accounted for under the equity method. This compares to
  equity in net loss of affiliate of $2.9 million in the first quarter of 2003.



|11
|--



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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)

|Financial Condition and Liquidity
|---------------------------------



|Operating Activities
|--------------------

Cash flows used in operating activities during the three
  months ended March 31, 2004 were $1.2 million, as compared to cash provided
  by operating activities of $1.1 million during the same period in 2003. The
  $2.3 million decrease is primarily due to the Company's decrease in sales revenue
  in comparison to the same period in 2003.

Investing Activities

Cash flows used in investing activities were $0.1 million
  during the first three months of 2004 and 2003.

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

The Company had a credit agreement with an affiliate of
  the Managing Member (the "Affiliate Credit Facility"), which allowed the Company
  to borrow up to $12.0 million. The Credit Facility expired, by its terms, on
  April 30, 2002. While the Company continues to seek a credit facility from an
  unaffiliated source, affiliated lenders have made short-term advances to the
  Company, payable on demand to the affiliates, at an annual interest rate of
  10%. The affiliate has made no commitment to continue lending funds to the Company,
  and each request is reviewed on a case-by-case basis.

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 March 31, 2004, the Company was in compliance with the covenants
  contained in the Notes. As of March 31, 2004, the Company was not permitted
  to make any distributions, as it had not exceeded the requisite Consolidated
  Fixed Charge Coverage Ratio within the Restricted Payments provisions of the
  Notes.

Through the first three months of 2004, 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 improvecash
  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 orany
  of these actions will take effect within a short-term horizon. The Company will
  continue to look to log and timber deed sales as well as the sale of excess
  timberlands, and short-term advances from an affiliated lender, to meet its
  short-term cash needs.



12

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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)



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.On
  March 26, 2004 a motion to stay discovery pending the outcome of the Defendant's
  motion to dismiss was denied. In May 2004,
  a hearing was held with respect to defendants' motion to dismiss. The defendants
  expect a decision regarding their motion to dismiss within a few months. On
  May 17, 2004, the Company received a Notice of Default from the Trustee covering
  certain of the allegations in the complaint. The Company and its legal counsel
  believe the litigation, as well as the Notice of Default, to be without merit
  and the Company intends to vigorously defend itself in the lawsuit.

|ITEM 4.CONTROLS AND PROCEDURES
|------------------------------

The Company's management maintains an adequate system of
  disclosure controls and procedures to promote the timely identification and
  reporting of material, relevant information. The Company's President and Chief
  Executive Officer and its Vice President and Chief Financial Officer meet regularly
  with members of senior management of the Manager to discuss significant transactions
  and events affecting the Company's operations and consider whether topics discussed
  represent information that should be disclosed under the rules of the SEC. The
  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.



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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)

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. Since the completion
  of that evaluation, 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.

|PART II. OTHER INFORMATION
|--------------------------



|ITEM 1.LEGAL
      PROCEEDINGS
|------------------------------

On June 21, 2002, the Company was notified that it was
  named in a lawsuit filed in State Court in Oregon as a codefendant seeking medical
  expenses and up to $12.0 million in damages for injuries sustained by the minor
  child of an employee of the Manager while riding on equipment owned by the Manager.
  At the time, liability insurance was in place, however, the insurance underwriter
  has since gone bankrupt and coverage is limited and is being administered by
  the Oregon Guarantee Insurance Association. Effective April 5, 2004 this case
  was dismissed with prejudice.

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. The defendants
  expect a decision regarding their motion to dismiss within a few months. On
  March 26, 2004 a motion to stay discovery pending the outcome of the Defendant's
  motion to dismiss was denied. On May 17, 2004, the Company received a Notice
  of Default from the Trustee covering certain of the allegations in the complaint.
  The Company and its legal counsel believe the litigation, as well as the Notice
  of Default to be without merit and the Company intends to vigorously defend
  itself in the lawsuit.



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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

As noted above in Part II, Item 1, the trustee under the
  Indenture has alleged that the Company is in default under the Indenture as
  a result of its violation of certain provisions of the Notes. The Company denies
  the allegations and believes it is in compliance with the covenants under the
  Indenture in all material respects.

|ITEMS 2, 4, AND 5 OF PART II
|----------------------------

| | Are not applicable and have been omitted.
| | -----------------------------------------







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INLAND
  FIBER GROUP, LLC 
  (formerly U.S. Timberlands Klamath Falls, LLC)

ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K

|(a) | Exhibits           
|--- | -------------------
|   
|    | 31.1               
|   
|    | 31.2               
|   
|    | 32.1               
|   
|    | 32.2               
|   
|(b) | Reports on Form 8-K
|   

| | None.
| | -----



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



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

|      |  |              |  |                        |  |                              
|----- |  | ------------ |  | ---------------------- |  | -----------------------------
|Date: |  | May 24, 2004 |  | INLANDFIBER GROUP, LLC
|      |  |              |  | By:                    |  | /s/ Thomas C. Ludlow         
|      |  |              |  |                        |  |                              
|      |  |              |  |                        |  | Thomas C. Ludlow             
|      |  |              |  |                        |  | Vice President and Treasurer 
|      |  |              |  |                        |  | (Principal Financial Officer)



|17
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