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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, 2002 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               (I.R.S. Employer Identification No.)
of incorporation or organization)


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


        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


Part I.  Financial Information                                            Page

     Item  1.  Condensed Consolidated Statements of Operations
                  for the three months ended June 30, 2002 and 2001 ........3

     Item  1.  Condensed Consolidated Statements of Operations
                  for the six months ended June 30, 2002 and 2001 ..........4

     Item  1.  Condensed Consolidated Balance Sheets
                  at June 30, 2002 and December 31, 2001 ...................5

     Item  1.  Condensed Consolidated Statements of Cash Flows
                  for the six months ended June 30, 2002 and 2001 ..........6

     Item  1.  Notes to Condensed Consolidated Financial Statements ........7

     Item  2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations .....................10



Part II.  Other Information

     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



                                       2
<PAGE>




PART 1.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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

                                                     Three Months Ended June 30,
                                                     ---------------------------
                                                        2002              2001
                                                     --------          --------

Revenues (including $9,900 to an affiliate in 2002)  $ 15,460          $  7,327
Cost of timber harvested                               (3,263)           (2,299)
Depletion, depreciation and road amortization         (13,928)           (5,280)
                                                     --------          --------
      Gross profit (loss)                              (1,731)             (252)

Selling, general and administrative expenses           (1,515)           (1,882)
Equity in net loss of affiliate                        (3,409)             (275)
                                                     --------          --------
      Operating loss                                   (6,655)           (2,409)

Interest expense                                       (5,415)           (5,544)
Interest income                                             1                 9
Amortization of deferred financing fees                  (169)             (169)
Other income, net                                          62                79
                                                     --------          --------

      Net loss                                       $(12,176)         $ (8,034)
                                                     ========          ========



    See accompanying notes to the condensed consolidated financial statements


                                       3
<PAGE>

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

                                                      Six Months Ended June 30,
                                                     ---------------------------
                                                       2002              2001
                                                     --------          --------

Revenues (including $9,900 to an affiliate in 2002)  $ 17,615          $ 16,794
Cost of timber harvested                               (4,300)           (6,991)
Depletion, depreciation and road amortization         (14,994)          (10,187)
                                                     --------          --------
      Gross profit (loss)                              (1,679)             (384)

Selling, general and administrative expenses           (2,896)           (4,435)
Equity in net loss of affiliate                        (5,736)                0
                                                     --------          --------
      Operating loss                                  (10,311)           (4,819)

Interest expense                                      (10,799)          (10,947)
Interest income                                             4                83
Amortization of deferred financing fees                  (338)             (337)
Other income, net                                         105               120
                                                     --------          --------

      Net loss                                       $(21,339)         $(15,900)
                                                     ========          ========



      See accompanying notes to the condensed consolidated financial statements



                                       4
<PAGE>

                   U.S. TIMBERLANDS KLAMATH FALLS, LLC
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                                          June 30    December 31
                                                            2002        2001
                                                          --------     --------
                                                         (Unaudited)      *
ASSETS
Current assets:
     Cash and cash equivalents                            $    402     $  1,070
     Accounts receivable, net                                1,527          311
     Other receivables                                         247          280
     Notes receivable                                          303        1,153
     Prepaid expenses and other current assets                 120          225
                                                          --------     --------

         Total current assets                                2,599        3,039

Timber and timberlands, net                                200,542      214,511
Investment in affiliate                                     25,873       31,609
Property, plant and equipment, net                             788          811
Notes receivable, less current portion                         340          428
Deferred financing fees, net                                 3,636        3,973
                                                          --------     --------

         Total assets                                     $233,778     $254,371
                                                          ========     ========

LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
     Accounts payable                                          913        1,334
     Accrued liabilities                                     3,176        3,331
     Advances from affiliates                                1,225           --
     Payable to general partner and affiliate                  136           41
                                                          --------     --------

         Total current liabilities                           5,450        4,706
                                                          --------     --------

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

Members' equity:
     Managing member's interest                                 33          248
     Nonmanaging member's interest                           3,295       24,417
                                                          --------     --------

                                                             3,328       24,665
                                                          --------     --------

         Total liabilities and members' equity            $233,778     $254,371
                                                          ========     ========

*    Derived from audited Consolidated Balance Sheet as of December 31, 2001

    See accompanying notes to the condensed consolidated financial statements



                                       5
<PAGE>


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

                                                                            Six Months Ended June 30,
                                                                          ----------------------------
                                                                               2002            2001
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities                       $       (915)   $        156
                                                                          ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Timber, timberlands and road additions                                      (969)         (6,628)
      Purchase of property, plant and equipment - net                               (9)             --
      Proceeds from sale of assets                                                  --              15
                                                                          ------------    ------------
Net cash used in investing activities                                             (978)         (6,613)
                                                                          ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net borrowings under affiliate credit facility                             1,225          10,470
      Distributions to members                                                                  (6,561)
                                                                          ------------    ------------
Net cash provided by financing activities                                        1,225           3,909
                                                                          ------------    ------------

Decrease in cash and cash equivalents                                             (668)         (2,548)
Cash and cash equivalents - beginning of period                                  1,070           3,168
                                                                          ------------    ------------

Cash and cash equivalents - end of period                                 $        402    $        620
                                                                          ============    ============

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

Supplemental cash flow information:
      Cash paid for interest expense                                      $ 10,828,125    $ 11,031,649
</TABLE>



      See accompanying notes to the condensed consolidated financial statements

                                       6
<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 in 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
primarily 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 accounting
principles  generally  accepted  in the  United  States  of  America  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 2001 Annual Report on Form 10-K. Operating results for
the quarter  and the six month  period  ended June 30, 2002 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.


                                       7
<PAGE>

2.  Timber and Timberlands

Timber and Timberlands consisted of the following:

                                                   June 30,     December 31,
                                                      2002            2001
                                                   --------       --------
Timber and logging roads                           $309,412       $309,759
Timberlands                                          34,566         34,566
Seed orchard and nursery stock                        1,719          1,437
                                                   --------       --------

                                                    345,697        345,762
Less accumulated depletion and road amortization    145,155        131,251
                                                   --------       --------

                                                   $200,542       $214,511
                                                   ========       ========



3.       Investment In Affiliate

The following is summarized  financial  information for U.S. Timberlands Yakima,
LLC (USTY), an affiliate of the Company accounted for under the equity method:

<TABLE>
<CAPTION>

                                  Quarter Ended          Quarter Ended        Six Months Ended       Six Months Ended
                                     June 30                June 30               June 30                June 30
                                      2002                   2001                   2002                  2001
                               --------------------   --------------------  ---------------------  --------------------

<S>                                     <C>                    <C>                   <C>                    <C>
         Net sales                      $    5,041             $    1,209            $    10,696            $    5,859
         Gross profit (loss)                  (628)                   263                 (1,163)                3,199
         Net income (loss)                  (3,438)                (1,607)                (5,776)                 (378)

</TABLE>


On June 12, 2002 the Company sold timber cutting rights for  approximately  87.3
million board feet to USTY for $9.9 million.  These timber cutting rights expire
in May 2005.

4.  Short-Term Debt

The Company had a credit  facility with an affiliate of the General Partner (the
"Affiliate Credit  Facility")  consisting of a revolving line of credit of up to
$12.0 million.  Borrowings  under the Affiliate Credit Facility bore interest at
the prime lending rate as published in the Wall Street  Journal plus  applicable

                                       8
<PAGE>

margin,  which was based on the Company's  leverage ratio.  The Affiliate Credit
Facility expired, by its terms, at the end of April 2002. The Company is seeking
to replace the Affiliate Credit Facility with a working capital facility from an
unaffiliated  third party.  However,  there can be no assurance that the Company
will be able to obtain a working capital credit  facility in amounts  sufficient
to fund its working  capital needs from a  traditional  commercial  lender.  The
Company and the affiliated  lender have also initiated  discussions with respect
to a further  extension of the credit facility on terms comparable to those that
would be obtained from an unaffiliated  financing source.  While the Company and
potential  lenders are in negotiations,  affiliated  lenders have agreed to make
short term advances to the Company,  payable on demand to the affiliates,  at an
interest rate of 10%. The Company had $1.225 million in  outstanding  borrowings
with the affiliates at June 30, 2002.

5.  Long-Term Debt and Distributions

As of June 30, 2002, 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 Senior  Notes.  An interest
payment of $10.828  million was due under the Notes on May 15, 2002. The Company
completed a timber deed sale on June 12, 2002 to pay the  interest  due with the
proceeds of such sale, within the 30 day grace period provided in the Notes.


6.  Other Matters

On April 23, 2002, the MLP announced the receipt of a revised offer from a group
led by senior management to take the MLP private. The revised offer contemplates
a cash tender offer for 100% of the outstanding common limited partnership units
of the MLP not already owned by the entity or its  affiliates for $2.75 per unit
in cash.  This offer is subject to receipt of  financing,  the  execution of the
definitive agreements and other customary  conditions,  as well as the dismissal
or satisfactory settlement of any outstanding litigation.

On April 25,  2002,  the MLP  announced  that  several  purported  class  action
lawsuits  were filed  against  the  general  partner of the MLP and the board of
directors of the Manager alleging,  among other things, breach of fiduciary duty
and  self-dealing  by the general  partner and the board in connection  with the
receipt by the MLP of a revised offer, dated April 23, 2002, from a group led by
senior management of the MLP to take the MLP private.

The  lawsuits  were filed in the Court of Chancery of the State of Delaware  for
the County of New Castle.  The lawsuits were filed by the purported  unitholders
of the MLP, on behalf of all other similarly situated  unitholders,  and seek to
have the class certified and the purported unitholders bringing the action named
as a 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. The lawsuits also name
the MLP as a defendant.

On July 12, 2002 the MLP was  notified  that all of the  purported  class action
lawsuits  were  consolidated  into one  class  action  lawsuit  by the  Court of
Chancery of the State of Delaware.

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.

In the opinion of  management,  after  consultation  with outside  counsel,  the
pending class action  lawsuit is not expected to have a material  adverse effect
on the Company's financial position or results of operations. Management and its
counsel  are  reviewing  the facts of the  injury  claims and it is too early to
assess its effect on the Company.



                                       9
<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statement

Certain  information  contained  in this report may  constitute  forward-looking
statements  within the  meaning of the federal  securities  laws.  Although  the
Company believes that expectations reflected in such forward-looking  statements
are  based  upon  reasonable  assumptions,  it can  give no  assurance  that its
expectations will be achieved. Forward-looking information is subject to certain
risks,  trends and  uncertainties  that  could  cause  actual  results to differ
materially from those projected.  Such risks,  trends and uncertainties  include
the highly  cyclical nature of the forest products  industry,  general  economic
conditions,  competition, price conditions or trends for the Company's products,
the possibility that timber supply could increase if governmental, environmental
or endangered  species policies change, and limitations on the Company's ability
to  harvest  its  timber  due  to  adverse   natural   conditions  or  increased
governmental restrictions.  These and other risks are described in the Company's
other reports and registration  statements,  which are available from the United
States Securities and Exchange Commission.

Overview

The Company's principal  operations consist of growing and harvesting timber and
selling  logs,  standing  timber and  related  by-products  to third  party wood
processors. These logs and by-products are processed for sale as lumber, molding
products, doors, mill work, commodity,  specialty and overlaid plywood products,
laminated  veneer lumber,  engineered  wood I-beams,  particleboard,  hardboard,
paper  and  other  wood  products.  These  products  are  used  in  residential,
commercial  and industrial  construction,  home  remodeling and repair,  general
industrial  applications  and a variety of paper  products.  The  results of the
Company's  operations and its ability to pay 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  not  currently
permitted to make any  distributions  to members (see  Financial  Condition  and
Liquidity).



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.


                                       10
<PAGE>

Current Market Conditions

Second quarter 2002 prices for finished wood products (e.g. lumber,  plywood and
engineered  wood products) were lower than first quarter 2002 and lower than the
same period in 2001.

Average log prices for all species with the exception of Ponderosa  Pine were up
in the  second  quarter  2002 over the  first  quarter  2002.  Pine was down 2%,
Douglas Fir was up 5%, White Fir was up 7% and Lodgepole Pine was up 9%. Average
log prices in the second quarter 2002 were up over the same quarter in 2001 with
the exception of White Fir which remained the same.  Pine was up 9%, Douglas Fir
was up 5% and Lodgepole Pine was up 4%.

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

              2002
<S>                                   <C>           <C>     <C>            <C>            <C>       <C>
Three Months Ended June 30            14,575         -      88,480         $ 341          $ -       $ 114
Three Months Ended March 31            5,024         -       2,333         $ 349          $ -       $ 169


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

</TABLE>

Quarter Ended June 30, 2002 Compared to Quarter Ended June 30, 2001

Revenues

Revenues for the quarter ended June 30, 2002 were $15.4 million,  an increase of
$8.1 million or 111% from  revenues of $7.3 million for the same period in 2001.
The  significant  increase  in  revenues  during the second  quarter of 2002 was
caused by higher log prices and log volumes, and higher timber deed sales.

Timber deed sales for the second quarter of 2002 were $10.1 million on volume of
88.5 million board feet ("MMBF"),  as compared to the same period in 2001,  when
timber deed sales were $4.0 million on 28.6 MMBF.  The average timber deed price
was $114 per thousand  board feet ("MBF")  during the second quarter of 2002, as
compared to $138 per MBF for the same period in 2001.



                                       11
<PAGE>



Log sales for the  quarter  ended June 30,  2002 were $5.0  million on volume of
14.6  MMBF,  as  compared  to the same  period in 2001 when log sales  were $3.1
million on 9.9 MMBF.  The  average  sales  price was $341 per MBF for the second
quarter of 2002,  as  compared to an average of $313 per MBF for the same period
in 2001. The increase in log prices reflects a general increase in log prices.

Gross Profit

The  Company had a gross loss of $1.7  million in the second  quarter of 2002 as
compared  to a gross  loss of $0.3  million  for the same  period in 2001.  As a
percentage  of  sales  the  gross  loss  was 11% as  compared  to a  gross  loss
percentage of 3% in the second  quarter of 2001. The increase in gross loss as a
percentage  of sales is a result of increases  in depletion  rates over the same
period in 2001.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $0.4 million from $1.9
million in the second  quarter of 2001 to $1.5 million in the second  quarter of
2002. The decrease was part of the Company's cost reduction plans.

Equity in Net Loss of Affiliate

Equity in net loss of affiliate  was  approximately  $3.4 million for the second
quarter of 2002.  This amount reflects the Company's share of the net loss of an
affiliate  accounted for under the equity method. This compares to equity in net
loss of affiliate of $0.3 million in the second quarter of 2001.


Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Revenues

Revenues for the six months ended June 30, 2002 were $17.6 million,  an increase
of $0.8  million or 5% from  revenues  of $16.8  million  for the same period in
2001.  The  increase  in  revenues  during  the first half of 2002 was caused by
higher timber deed sales.

Timber  deed sales for the first  half of 2002 were  $10.5  million on volume of
90.8 million board feet ("MMBF"),  as compared to the same period in 2001,  when
timber deed sales were $5.9 million on 43.4 MMBF.  The average timber deed price
was $116 per  thousand  board feet  ("MBF")  during  the first half of 2002,  as
compared to $136 per MBF for the same period in 2001.

Log sales for the six months  ended June 30, 2002 were $6.7 million on volume of
19.6  MMBF,  as  compared  to the same  period in 2001 when log sales were $10.6
million on 30.8 MMBF.  The  average  sales  price was $343 per MBF for the first
half of 2002,  as  compared to an average of $343 per MBF for the same period in
2001.


                                       12
<PAGE>

Gross Profit

The  Company  had a gross  loss of $1.7  million  in the  first  half of 2002 as
compared  to a gross  loss of $0.4  million  for the same  period in 2001.  As a
percentage  of  sales  the  gross  loss  was 10% as  compared  to a  gross  loss
percentage  of 2% in the first  half of 2001.  The  increase  in gross loss as a
percentage  of sales is a result of increases  in depletion  rates over the same
period in 2001.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $1.5 million from $4.4
million in the first half of 2001 to $2.9 million in the first half of 2002. The
decrease was primarily  attributable  to decreases in  professional  services of
$0.9 million and wage and wage related  expenses of $0.2 million which were part
of the Company's cost reduction plans.


Equity in Net Loss of Affiliate

Equity in net loss of  affiliate  was  approximately  $5.7 million for the first
half of 2002.  This amount  reflects the  Company's  share of the net loss of an
affiliate  accounted for under the equity method. This compares to equity in net
loss of affiliate of $0.0 million in the first half of 2001.


Financial Condition and Liquidity

Operating Activities

Cash flows used in  operating  activities  during the six months  ended June 30,
2002 were $0.9 million, as compared to cash provided by operating  activities of
$0.2 million  during the same period in 2001.  The $1.1 million  decrease is due
primarily to the Company's decreases in payables and increases in receivables.

Investing Activities

Cash flows used in investing  activities  were $1.0 million during the first six
months of 2002, as compared to $6.6 million, related to the purchase of a timber
deed, during the same period in 2001.

Financing Activities

Cash flows  provided by  financing  activities  for the first six months of 2002
were $1.2 million as compared to cash  provided by financing  activities of $3.9
million for the same period in 2001.  Cash flows were provided by borrowings and
were offset in part by distributions to unitholders in the 2001 period.

                                       13
<PAGE>

The Company had a credit agreement with an affiliate of the General Partner (the
"Affiliate  Credit  Facility"),  which allowed the Company to borrow up to $12.0
million.  The Affiliate  Credit Facility  expired on April 30, 2002. The Company
has  endeavored  to replace  the  Affiliate  Credit  Facility  with a new credit
facility.

The agreement governing the Company's 9-5/8% senior notes (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  timberlands  sales and  purchased.  The Notes also limit  one-year  harvest
levels and average  annual  harvest levels for  consecutive  two-and-three  year
periods.  As of June 30, 2002, the Company was in compliance  with the covenants
requirements  pertaining to the Notes.  As of June 30, 2002, 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 Indenture.

Through the first six months of 2002,  the Company funded its operations and met
its cash requirements for debt service from cash on hand. An interest payment of
$10,828,125  was due under the Notes on May 15,  2002.  The Company  completed a
timber deed sale on June 12, 2002 to pay the  interest due with the proceeds for
such sale, within the 30 day grace period provided in the Notes.

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

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On April 25, 2002 the MLP announced that several purported class action lawsuits
were filed against the general  partner of the MLP and the board of directors of
the  Manager  alleging,  among  other  things,  breach  of  fiduciary  duty  and
self-dealing by the general partner and the board in connection with the receipt
by the MLP of a revised offer,  dated April 23, 2002, from a group led by senior
management of the MLP to take the MLP private.

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<PAGE>

The  lawsuits  were filed in the Court of Chancery of the State of Delaware  for
the County of New Castle.  The lawsuits were filed by purported  unitholders  of
the MLP, on behalf of all other similarly situated unitholders, and seek to have
the class certified and the purported unitholders bringing the action named as a
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 attorney's fees. The lawsuits also name
the MLP as a defendant.

On July 12, 2002 the MLP was  notified  that all of the  purported  class action
lawsuits  were  consolidated  into one  class  action  lawsuit  by the  Court of
Chancery of the State of Deleware.

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.

In the opinion of  management,  after  consultation  with outside  counsel,  the
pending class action  lawsuit is not expected to have a material  adverse effect
on the Company's financial position or results of operations. Management and its
counsel  are  reviewing  the facts of the  injury  claims and it is too early to
assess its effect on the Company.


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



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<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a.) Exhibits


          T3.1 - Amended and Restated  Agreement of Limited  Partnership of U.S.
                 Timberlands Company, LP

          T3.2 - Second  Amended  and  Restated  Operating  Agreement  of  U.S.
                 Timberlands Klamath Falls, LLC

          T10.2- Indenture  among U.S.  Timberlands  Klamath  Falls,  LLC,  U.S.
                 Timberlands  Finance  Corp.  and State Street  Bank  and  Trust
                 Company, as trustee

          T10.3- Contributions,  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

           99.1- Sarbanes-Oxley Certification of CEO

           99.2- Sarbanes-Oxley Certification of CFO

     *    Incorporated  by  reference  to  the  same  numbered  Exhibit  to  the
          Registrant's  Registration  Statement  on Form S-1 filed  November 13,
          1997.

     T    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

     On May 2,  2002,  the  Company  filed a Form  8-K  containing  the  revised
     privatization  offer  and the  related  news  release  as well as the  news
     release relating to the filing of new purported class action lawsuits.


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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 it  behalf  by the
undersigned thereunto duly authorized.



         Date:  August 19, 2002     U.S. TIMBERLANDS KLAMATH FALLS, LLC
                   By: U.S. Timberlands Services Company, LLC
                                                    as Managing Member




                              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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