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

FORM 10-Q_______________________________

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

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

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

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

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

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

---

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



Yes xNo o

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

YesoNo x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YesoNo x

FORM 10-Q

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FORM 10-QTABLE OF CONTENTSPART
			I
			.
			FINANCIAL INFORMATION (Unaudited)
			PageItem
			1
			.
			Condensed Consolidated Statements of Operationsfor the three months ended September 30, 2005 and 2004
			1Item
			1
			.
			Condensed Consolidated Statements of Operations
                                        for the nine months ended September 30, 2005 and 2004
			2Item
			1
			.
			Condensed Consolidated Balance Sheetsat September 30, 2005 and December 31, 2004
			3Item
			1
			.
			Condensed Consolidated Statements of Cash Flowsfor the nine months ended September 30, 2005 and 2004
			4Item
			1
			.
			Notes to Condensed Consolidated Financial Statements
			5Item
			2
			.
			Management's Discussion and Analysis of Financial
					Condition and Results of Operations
			13Item
			3
			.
			Quantitative
					and Qualitative Disclosure of Market Risk
			20Item
			4
			.
			Controls and Procedures
			20Part
			II
			
			OTHER INFORMATIONItem
			1
			.
			Legal Proceedings
			22Item
			6
			.
			Exhibits
			24




---



PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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



|                                                                 |  |  |   | Three Months Ended September 30, |  
|---------------------------------------------------------------- |  |  | - | -------------------------------- | -
|                                                                 |  |  |   |                                  |  
|                                                                 |  |  |   | 2005                             |  
|                                                                 |  |  |   |                                  |  
|Revenues                                                         |  |  | $ | 4,163                            |  
|Cost of timber harvested                                         |  |  |   | (2,484                           | )
|Cost of timber and property sales                                |  |  |   | (5                               | )
|Depletion, depreciation and road amortization                    |  |  |   | (1,920                           | )
|                                                                 |  |  |   |                                  |  
|Gross loss                                                       |  |  |   | (246                             | )
|                                                                
|Management fee                                                   |  |  |   | (500                             | )
|Selling, general and administrative expenses                     |  |  |   | (943                             | )
|Equity in net loss of affiliate                                  |  |  |   | —                                |  
|                                                                 |  |  |   |                                  |  
|Operating loss                                                   |  |  |   | (1,689                           | )
|                                                                
|Interest expense                                                 |  |  |   | (5,414                           | )
|Amortization of deferred financing fees                          |  |  |   | (168                             | )
|Other income, net                                                |  |  |   | 12                               |  
|                                                                 |  |  |   |                                  |  
|                                                                
|Net loss                                                         |  |  | $ | (7,259                           | )
|                                                                 |  |  |   |                                  |  
|                                                                
|                                                                
|See notes to the condensed consolidated
				financial statements



1



---



PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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



|                                                                 |  |  |   | Nine Months Ended September 30, |  
|---------------------------------------------------------------- |  |  | - | ------------------------------- | -
|                                                                 |  |  |   |                                 |  
|                                                                 |  |  |   | 2005                            |  
|                                                                 |  |  |   |                                 |  
|Revenues (including $93 (2005) and $345 (2004) to affiliates)    |  |  | $ | 10,346                          |  
|Cost of timber harvested                                         |  |  |   | (6,119                          | )
|Cost of timber and property sales                                |  |  |   | (60                             | )
|Depletion, depreciation and road amortization                    |  |  |   | (4,803                          | )
|                                                                 |  |  |   |                                 |  
|Gross loss                                                       |  |  |   | (636                            | )
|                                                                
|Management fee                                                   |  |  |   | (1,500                          | )
|Selling, general and administrative expenses                     |  |  |   | (1,664                          | )
|Equity in net loss of affiliate                                  |  |  |   | (7,974                          | )
|                                                                 |  |  |   |                                 |  
|Operating loss                                                   |  |  |   | (11,774                         | )
|                                                                
|Interest expense                                                 |  |  |   | (16,199                         | )
|Amortization of deferred financing fees                          |  |  |   | (506                            | )
|Other income, net                                                |  |  |   | 52                              |  
|                                                                 |  |  |   |                                 |  
|                                                                
|Net loss                                                         |  |  | $ | (28,427                         | )
|                                                                 |  |  |   |                                 |  
|                                                                
|                                                                
|See notes to the condensed consolidated
				financial statements



2



---

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

|                                                                            |  |   |  |          |   |               |   |  |          |   |              | 
|--------------------------------------------------------------------------- |  | - |  | -------- | - | ------------- | - |  | -------- | - | ------------ | 
|INLAND FIBER GROUP, LLC AND SUBSIDIARYCONDENSED CONSOLIDATED BALANCE SHEETS
|(IN THOUSANDS)                                                             
|                                                                            |  |   |  |          |   | September 30, |   |  |          |   | December 31, | 
|                                                                            |  |   |  |          |   | 2005          |   |  |          |   | 2004         | 
|                                                                            |  |   |  |          |   |               |   |  |          |   |              | 
|                                                                            |  |   |  |          |   | (Unaudited)   |   |  |          |   | *            | 
|ASSETS                                                                      |  |   |  |          |   |               |   |  |          |  
|Current assets:                                                             |  |   |  |          |   |               |   |  |          |  
|Cash and cash equivalents                                                   |  | $ |  | 348      |   |               | $ |  | 180      |  
|Accounts receivable                                                         |  |   |  | 797      |   |               |   |  | 207      |  
|Other receivables                                                           |  |   |  | 394      |   |               |   |  | 592      |  
|Notes receivable                                                            |  |   |  | 223      |   |               |   |  | 139      |  
|Prepaid expenses and other current assets                                   |  |   |  | —        |   |               |   |  | 134      |  
|                                                                            |  |   |  |          |   |               |   |  |          |  
|Total current
			assets                                                     |  |   |  | 1,762    |   |               |   |  | 1,252    |  
|                                                                           
|Timber and timberlands, net                                                 |  |   |  | 80,158   |   |               |   |  | 84,247   |  
|Investment in affiliate                                                     |  |   |  | —        |   |               |   |  | 7,975    |  
|Property, plant and equipment, net                                          |  |   |  | 769      |   |               |   |  | 799      |  
|Notes receivable, less current portion                                      |  |   |  | —        |   |               |   |  | 10       |  
|Other assets                                                                |  |   |  | 85       |   |               |   |  | 150      |  
|Restricted cash                                                             |  |   |  | 123      |   |               |   |  | 104      |  
|Deferred financing fees, net                                                |  |   |  | 1,442    |   |               |   |  | 1,948    |  
|                                                                            |  |   |  |          |   |               |   |  |          |  
|Total assets                                                                |  | $ |  | 84,339   |   |               | $ |  | 96,485   |  
|                                                                            |  |   |  |          |   |               |   |  |          |  
|LIABILITIES AND MEMBERS’ DEFICIENCY                                         |  |   |  |          |   |               |   |  |          |  
|Current liabilities:                                                        |  |   |  |          |   |               |   |  |          |  
|Accounts payable                                                            |  |   |  | 1,256    |   |               |   |  | 760      |  
|Accrued liabilities                                                         |  |   |  | 1,138    |   |               |   |  | 451      |  
|Accrued bond interest                                                       |  |   |  | 18,949   |   |               |   |  | 2,752    |  
|Deferred revenue                                                            |  |   |  | —        |   |               |   |  | 1,041    |  
|Payable to managing member and affiliates                                   |  |   |  | —        |   |               |   |  | 58       |  
|Long-term debt declared in default by
			trustee                            |  |   |  | 225,000  |   |               |   |  | 225,000  |  
|                                                                            |  |   |  |          |   |               |   |  |          |  
|Total current
			liabilities                                                |  |   |  | 246,343  |   |               |   |  | 230,062  |  
|                                                                            |  |   |  |          |   |               |   |  |          |  
|Long-term debt                                                              |  |   |  | —        |   |               |   |  | —        |  
|                                                                            |  |   |  |          |   |               |   |  |          |  
|Members' deficiency                                                         |  |   |  |          |   |               |   |  |          |  
|Managing member's interest                                                  |  |   |  | (1,636   | ) |               |   |  | (1,362   | )
|Nonmanaging members' interest                                               |  |   |  | (160,369 | ) |               |   |  | (132,215 | )
|                                                                            |  |   |  |          |   |               |   |  |          |  
|Total members'
			deficiency                                                |  |   |  | (162,004 | ) |               |   |  | (133,577 | )
|                                                                            |  |   |  |          |   |               |   |  |          |  
|Total liabilities
			and members' deficiency                                |  | $ |  | 84,339   |   |               | $ |  | 96,485   |  
|                                                                            |  |   |  |          |   |               |   |  |          |  

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

3



---

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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



|                                                                                     |  |  |                                 |       |   |  |   |        |  
|------------------------------------------------------------------------------------ |  |  | ------------------------------- | ----- | - |  | - | ------ | -
|                                                                                     |  |  | Nine Months Ended September 30, |      
|                                                                                     |  |  |                                 |      
|                                                                                     |  |  |                                 | 2005  |   |  |   | 2004   |  
|                                                                                     |  |  |                                 |       |   |  |   |        |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                |  |  |                                 |       |   |  |   |        |  
|Net cash (used in) provided by operating
			activities                               |  |  | $                               | 1,112 |   |  | $ | (362   | )
|                                                                                     |  |  |                                 |       |   |  |   |        |  
|                                                                                    
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                |  |  |                                 |       |   |  |   |        |  
|Timber,
			timberlands and road additions                                            |  |  |                                 | (925  | ) |  |   | (740   | )
|Restricted cash                                                                      |  |  |                                 | (19   | ) |  |   | —      |  
|Sale (purchase)
                              of property, plant and equipment - net |  |  |                                 | —     |   |  |   | (20    | )
|                                                                                     |  |  |                                 |       |   |  |   |        |  
|Net cash used in investing activities                                                |  |  |                                 | (944  | ) |  |   | (760   | )
|                                                                                     |  |  |                                 |       |   |  |   |        |  
|                                                                                    
|Increase (decrease) in cash and cash equivalents                                     |  |  |                                 | 168   |   |  |   | (1,122 | )
|Cash and cash equivalents - beginning of
			period                                   |  |  |                                 | 180   |   |  |   | 1,447  |  
|                                                                                     |  |  |                                 |       |   |  |   |        |  
|                                                                                    
|Cash and cash equivalents - end of period                                            |  |  | $                               | 348   |   |  | $ | 325    |  
|                                                                                     |  |  |                                 |       |   |  |   |        |  
|                                                                                    
|Supplemental cash flow information:                                                  |  |  |                                 |       |   |  |   |        |  
|Cash
			paid for interest expense                                                    |  |  | $                               | 2     |   |  | $ | 10,908 |  
|                                                                                    
|                                                                                    
|See notes to unaudited
				condensed consolidated financial statements              

4





---



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

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

|Business
|--------

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

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.

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% non-voting 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. 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..
          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



5

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INLAND
          FIBER GROUP, LLC AND SUBSIDIARY

sale as lumber, plywood and other wood products,
          primarily for use in new residential home construction, home remodeling and repair and general industrial applications.

Basis of Presentation

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

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

The accompanying condensed consolidated statements have been prepared assuming that the Company will continue
          as a going concern. On December 19, 2003, an action was brought in the Court of Chancery of the State of Delaware in and for
          New Castle County by the Trustee under the indenture (the "Indenture") governing the Notes, against the Company and others,
          alleging that the Company violated certain covenants contained in the Indenture. In May 2004, the Company received a Notice
          of Default from the Trustee covering certain of the allegations in the complaint. The Defendants responded to the Notice of
          Default denying the existence of any defaults. On July 29, 2004, the Court of Chancery dismissed the action without prejudice,
          based on its determination that the Trustee under the Indenture lacked standing under the terms of the Indenture to bring an
          action against the Company and other defendants (collectively the "Defendants") because the requisite notice of default and
          opportunity to cure had not been provided to the Company prior to the time the action was commenced. The Trustee was granted
          30 days to file an amended complaint and on August 27, 2004, the Trustee filed its second amended complaint. On October 8, 2004,
          the Trustee filed a motion for partial summary judgment seeking a declaratory judgment that the Company violated certain provisions
          of the Indenture by permitting its affiliate to grant security interests in various timberland properties on various dates prior
          to September 14, 2001. On October 15, 2004, the Defendants filed a motion to dismiss the second amended complaint. On December
          23, 2004, the Court of Chancery issued a memorandum opinion granting the Trustee's motion for partial summary judgment and declaring
          that an Event of Default had occurred under the Indenture. On January 13, 2005, the Company received a Notice of Default and
          Acceleration from the Trustee. On January 21, 2005, the Defendants filed a motion for leave to pursue an interlocutory appeal
          of the Chancery Court Order granting partial summary judgment. On January 26, 2005, the Court of Chancery granted Defendants'
          motion for leave to appeal. On February 10, 2005, the Supreme Court of the State of Delaware accepted Defendants' appeal. On
          April 4, 2005, the Trustee filed its third amended complaint. On April 22, 2005, the Defendants filed a motion to dismiss certain
          counts of the

6



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INLAND FIBER GROUP, LLC AND SUBSIDIARY

third amended complaint. On June 6, 2005, the Supreme Court of the State of Delaware decided the Defendants interlocutory
          appeal and issued an order vacating the decision of the Court of Chancery granting partial summary judgment to the Trustee and
          remanding the case to the Court of Chancery for a trial on all of the issues. The Company failed to make its interest payment
          within the grace period for such payment which ended on June 14, 2005. On July 7, 2005, the Court of Chancery granted in part
          and denied in part the Defendants' motion to dismiss certain counts of the third amended complaint. On July 28, 2005, the Trustee
          issued an Affirmation of the Notice of Default referencing among other things the failure to make the semi-annual interest payment
          on May 15, 2005. The trial was held in August 2005. In October 2005, the Trustee filed its post-trial brief. The Defendants
          expect to file their reply brief in November 2005 and a decision in the case is expected in the first quarter of 2006. The Company
          and its legal counsel believe the litigation and the Notices of Default to be without merit and intend to continue to vigorously
          defend the litigation. While the Trustee and the Defendants have engaged in settlement discussions, at the current time there
          are no settlement proposals that appear probable to resolve the litigation.

In connection with the settlement discussions, in June 2005, the Company entered into confidentiality agreements
          with, and provided certain confidential, non-public information to, the members of an ad hoc committee of holders of the Notes,
          comprised of GoldenTree Asset Management LP, OppenheimerFunds, Inc., QVT Financial, LP, and Turnberry Capital Management, L.P.
          The confidentiality agreements provided for the disclosure by the Company to the public of all material non-public information
          that had been provided to the members of the committee upon the termination of such agreements. The confidentiality agreements
          terminated in July 2005. As the Company and the members of the ad hoc committee were unable to reach agreement regarding the
          information that was required to be disclosed, the members of the ad hoc committee established an internet website,http://www.inlandfiberinformation.comand disclosed all of the information provided to them on such website.

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





7



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INLAND FIBER GROUP, LLC
          AND SUBSIDIARY



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



September 30,
				
				
				
				December 31,2005
				
				
				
				2004Timber and logging roads
				
				$
				253,580
				
				
				$
				252,701Timberlands
				
				
				11,970
				
				
				
				11,970Seed orchard and nursery stock
				
				
				                    1,179
				
				
				
				1,373266,729
				
				
				
				266,044Less accumulated depletion and road amortization
				
				
				                    186,571
				
				
				
				181,797$
				                    80,158
				
				
				$
				84,247




3.       Investment in Affiliate

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

We exclude losses from our preferred interest in our affiliate in our condensed consolidated statements of operations
          in excess of our basis in the preferred interest. Losses in excess of that amount are not borne by us. Such amounts for the
          nine months ended September 30, 2005 were approximately $9,226. Future earnings of our affiliate, otherwise attributable to
          our preferred interest, will be allocated to us only after future earnings are sufficient to recover the cumulative losses previously
          not recognized by us (approximately $9.2 million at September 30, 2005).





8



---





INLAND FIBER GROUP, LLC
          AND SUBSIDIARY



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

|                             |  |   |  |                    |   |  |   |  |                    |   |  |   |  |                   |   |  |   |  |                   |  
|---------------------------- |  | - |  | ------------------ | - |  | - |  | ------------------ | - |  | - |  | ----------------- | - |  | - |  | ----------------- | -
|                             |  |   |  | Three Months Ended |   |  |   |  | Three Months Ended |   |  |   |  | Nine Months Ended |   |  |   |  | Nine Months Ended |  
|                             |  |   |  | September 30       |   |  |   |  | September 30       |   |  |   |  | September 30      |   |  |   |  | September 30      |  
|                             |  |   |  | 2005               |   |  |   |  | 2004               |   |  |   |  | 2005              |   |  |   |  | 2004              |  
|                             |  |   |  |                    |   |  |   |  |                    |   |  |   |  |                   |   |  |   |  |                   |  
|                            
|Net sales                    |  | $ |  | 516                |   |  | $ |  | 2,666              |   |  | $ |  | 7,602             |   |  | $ |  | 7,407             |  
|Gross profit (loss)          |  |   |  | 41                 |   |  |   |  | 64                 |   |  |   |  | 1,806             |   |  |   |  | 633               |  
|Loss before equity           |  |   |  |                    |   |  |   |  |                    |   |  |   |  |                   |   |  |   |  |                   |  
|in the Company's Loss        |  |   |  | (1,371             | ) |  |   |  | (2,932             | ) |  |   |  | (10,112           | ) |  |   |  | (8,053            | )
|Equity in Company's Loss (1) |  |   |  | (9,688             | ) |  |   |  | (9,625             | ) |  |   |  | (27,646           | ) |  |   |  | (30,454           | )
|Net loss                     |  |   |  | (11,059            | ) |  |   |  | (12,557            | ) |  |   |  | (37,758           | ) |  |   |  | (38,507           | )

|(1) | Reflects (a) charges of$2,429,
                              $2,307, $7,193 and $6,447, respectively related to the amortization of $43,287 excess of cost over deficiency
                              in net assets attributable to 63.6% acquired interest.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4.       Unit-based Compensation Plans

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

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

5.       Litigation

On
          December 19, 2003, an action was brought in the Court of Chancery of the State of Delaware in and for New Castle County by the
          Trustee under the Indenture against the Company, Finance Corp., the Manager, American Forest Resources, LLC, Cascade Resource
          Holdings Group, LLC, and all of the directors of the Manager as of January 1, 2003 (collectively, the "Defendants"). The complaint
          alleges that the Company violated the provisions of the Indenture by transferring certain assets to its affiliates, the directors
          of the Company violated their fiduciary duty to the Company and that the transfers of the assets were fraudulent conveyances
          and subject to rescission. The Trustee seeks a declaration that the Company has



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INLAND FIBER GROUP,
          LLC AND SUBSIDIARY

violated the terms of the Indenture, an injunction against the transfer of additional assets out of the ordinary
          course of business, damages and the imposition of a constructive trust on the assets transferred by the Company to its affiliates.
          In January 2004, the plaintiff's motion to schedule a preliminary injunction hearing with respect to further transfers to affiliates
          and for expedited discovery was denied. In connection with the denial of the plaintiff's motion, the Company agreed that, through
          the earlier of December 31, 2004 and the resolution of the lawsuit, it would provide at least thirty days' notice before entering
          into any transfer of assets to affiliates, other than payment of management fees. Discovery began in January 2004 and is ongoing.
          On February 6, 2004, the Defendants filed a motion to dismiss. In May 2004, a hearing was held with respect to Defendants' motion
          to dismiss. On May 17, 2004, the Company received a Notice of Default from the Trustee covering certain of the allegations in
          the complaint. The Defendants responded to the Notice of Default denying the existence of any defaults. On July 29, 2004, the
          Court of Chancery dismissed the action without prejudice, based on its determination that the Trustee under the Indenture lacked
          standing under the terms of the Indenture to bring an action against the Defendants because the requisite notice of default
          and opportunity to cure had not been provided to the Company prior to the time the action was commenced. The Trustee was granted
          30 days to file an amended complaint and on August 27, 2004, the Trustee filed its second amended complaint. On October 8, 2004,
          the Trustee filed a motion for partial summary judgment seeking a declaratory judgment that the Company violated certain provisions
          of the Indenture by permitting its affiliate to grant security interests in various timberland properties on various dates prior
          to September 14, 2001. On October 15, 2004, the Defendants filed a motion to dismiss the second amended complaint. On December
          23, 2004, the Court of Chancery issued a memorandum opinion granting the Trustee's motion for partial summary judgment and declaring
          that an Event of Default had occurred under the Indenture. On January 13, 2005, the Company received a Notice of Default and
          Acceleration from the Trustee. On January 21, 2005, the Defendants filed a motion for leave to pursue an interlocutory appeal
          of the Chancery Court Order granting partial summary judgment. On January 26, 2005, the Court of Chancery granted Defendants'
          motion for leave to appeal. On February 10, 2005, the Supreme Court of the State of Delaware accepted Defendants' appeal. On
          April 4, 2005, the Trustee filed its third amended complaint. On April 22, 2005, the Defendants filed a motion to dismiss certain
          counts of the third amended complaint. On June 6, 2005, the Supreme Court of the State of Delaware decided the Defendants' interlocutory
          appeal and issued an order vacating the decision of the Court of Chancery granting partial summary judgment to the Trustee and
          remanding the case to the Court of Chancery for a trial on all of the issues. On July 7, 2005, the Court of Chancery granted
          in part and denied in part the Defendants' motion to dismiss certain counts of the third amended complaint. On July 28, 2005,
          the Trustee issued an Affirmation of the Notice of Default referencing among other things the failure to make the semi-annual
          interest payment on May 15, 2005. The trial was held in August 2005. In October 2005, the Trustee filed its post-trial brief.
          The Defendants expect to file their reply brief in November 2005 and a decision in the case is expected in the first quarter
          of 2006. The Company and its legal counsel believe the litigation and the Notices of Default to be without merit and intend
          to continue to vigorously defend the litigation. While the Trustee and the Defendants have engaged in settlement discussions,
          at the current time there are no settlement proposals that appear probable to resolve the litigation.

In connection with the settlement discussions, in June 2005, the Company entered
          into confidentiality agreements with, and provided certain confidential, non-public information to, the members of an ad hoc
          committee of holders of the Notes, comprised of GoldenTree Asset Management LP, OppenheimerFunds, Inc., QVT Financial, LP, and
          Turnberry Capital



10

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INLAND FIBER GROUP,
          LLC AND SUBSIDIARY

Management, L.P. The confidentiality agreements provided for the disclosure by the Company to the public
          of all material non-public information that had been provided to the members of the committee upon the termination of such agreements.
          The confidentiality agreements terminated in July 2005. As the Company and the members of the ad hoc committee were unable to
          reach agreement regarding the information that was required to be disclosed, the members of the ad hoc committee established
          an internet website, http://www.inlandfiberinformation.com and disclosed all of the information provided to them on such website.On December 7, 2004, the Company, Finance Corp. and AFR brought an action against the Trustee based on the Trustee’s
          failure to remit $4.8 million of the funds paid by the Company on November 12, 2000 to the Trustee for the benefit of the holders
          of the Notes. The Company Finance Corp and AFR have determined not to pursue this action and on August 1, 2005, the action was
          dismissed.

6. Long Term Debt

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

Although the Company had been approached regarding certain debt restructuring scenarios,
          the ongoing litigation with the Trustee under the Indenture has materially interfered with the Company's ability to pursue a
          number of such scenarios. While the Company is still pursuing certain debt restructuring initiatives, the discussions to date
          have not led to any proposals. While the Company continues to contact various parties that may have an interest in providing
          financing to, or acquiring assets from the Company, it is premature to assess the likelihood of pursuing any such scenario or
          other material transaction. The Company did not make its semi-annual interest payment on the Notes, which was due May 15, 2005
          before the due date or during the grace period. It is currently contemplated that the Company will not pay the interest payment
          due November 15, 2005.

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

11

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INLAND FIBER GROUP,
	LLC AND SUBSIDIARY

dismiss certain counts of the third amended complaint. On June 6, 2005, The Supreme Court of the State of Delaware
          decided the Defendants' interlocutory appeal and issued an order vacating the decision of the Court of Chancery granting partial
          summary judgment to the Trustee and remanding the case to the Court of Chancery for a trial on all of the issues. On July 7,
          2005, the Court of Chancery granted in part and denied in part the Defendants' motion to dismiss certain counts of the third
          amended complaint. On July 28, 2005, the Trustee issued an Affirmation of the Notice of Default referencing among other things
          the failure to make the semi-annual interest payment on May 15, 2005. The trial was held in August 2005. In October 2005, the
          Trustee filed its post-trial brief. The Defendants expect to file their reply brief in November 2005 and a decision in the case
          is expected in the first quarter of 2006. The Company and its legal counsel believe the litigation and the Notices of Default
          to be without merit and intend to continue to vigorously defend the litigation. While the Trustee and the Defendants have engaged
          in settlement discussions, at the current time there are no settlement proposals that appear probable to resolve the litigation.

In connection with the settlement discussions, in June 2005, the Company entered
          into confidentiality agreements with, and provided certain confidential, non-public information to, the members of an ad hoc
          committee of holders of the Notes, comprised of GoldenTree Asset Management LP, OppenheimerFunds, Inc., QVT Financial, LP, and
          Turnberry Capital Management, L.P. The confidentiality agreements provided for the disclosure by the Company to the public of
          all material non-public information that had been provided to the members of the committee upon the termination of such agreements.
          The confidentiality agreements terminated in July 2005. As the Company and the members of the ad hoc committee were unable to
          reach agreement regarding the information that was required to be disclosed, the members of the ad hoc committee established
          an internet website, http://www.inlandfiberinformation.com and disclosed all of the information provided to them on such website.

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

12

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INLAND FIBER GROUP, LLC
	AND SUBSIDIARY

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

Application of Critical Accounting Policies

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

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

Overview

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 a variety
          of paper products. The results of the Company's operations and its ability to pay distributions to its members depend upon a
          number of factors, many of which are beyond its control. These factors include general economic and industry conditions, domestic
          and export prices, supply and demand for timber logs, seasonality, government regulations affecting the manner in which timber
          may be harvested, and competition from other supplying regions and substitute products. The Company is currently not permitted
          to make any distributions to members (see Financial Condition and Liquidity).

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INLAND FIBER GROUP, LLC AND SUBSIDIARY

Seasonality

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

Current Market ConditionsThird quarter 2005 prices for finished wood
          products (e.g. lumber and engineered wood products) increased slightly from second quarter prices. Plywood prices remained strong.
          Pine industrial prices decreased with millwork quality 2 and 3 shop leading the decline.

Delivered log prices remained constant for all species. Price remained constant for pine veneer and saw logs with
          some upward movement for white fir veneer logs. Cedar prices remained constant with second quarter 2005 prices. Demand for veneer
          and saw logs should remain strong with winter approaching.

Results of Operations

Selected operating
	statistics for the Company:

|                                |  |                                                 |  |          |  |                                                       |  |   |  |      |  |          |  |   |  |       |  |       
|------------------------------- |  | ----------------------------------------------- |  | -------- |  | ----------------------------------------------------- |  | - |  | ---- |  | -------- |  | - |  | ----- |  | ------
|                                |  | SalesVolume
                              (MBF) |  |          |  | Price
                              Realization (MBF)
|                               
|                                |  |                                                 |  |          |  | Timber                                                |  |   |  |      |  |          |  |   |  |       |  | Timber
|Period                          |  | Logs                                            |  | Stumpage |  | Deeds                                                 |  |   |  | Logs |  | Stumpage |  |   |  | Deeds
|                               
|2005                            |  |                                                 |  |          |  |                                                       |  |   |  |      |  |          |  |   |  |       |  |       
|Three Months Ended September 30 |  | 4,064                                           |  | —        |  | 36                                                    |  | $ |  | 303  |  | $        |  | — |  | $     |  | 97    
|Three Months EndedJune 30       |  | 9,578                                           |  | —        |  | 2,878                                                 |  |   |  | 341  |  | $        |  | — |  | $     |  | 177   
|Three Months Ended March 31     |  | 6,982                                           |  | —        |  | 348                                                   |  | $ |  | 277  |  | $        |  | — |  | $     |  | 198   
|                                |  |                                                 |  |          |  |                                                       |  |   |  |      |  |          |  |   |  |       |  |       
|2004                            |  |                                                 |  |          |  |                                                       |  |   |  |      |  |          |  |   |  |       |  |       
|Three Months Ended September 30 |  | 7,369                                           |  | —        |  | 872                                                   |  | $ |  | 332  |  | $        |  | — |  | $     |  | 215   
|Three Months EndedJune 30       |  | 8,775                                           |  | —        |  | 26,915                                                |  | $ |  | 318  |  | $        |  | — |  | $     |  | 102   
|Three Months Ended March 31     |  | 6,932                                           |  | —        |  | 1,249                                                 |  | $ |  | 317  |  | $        |  | — |  | $     |  | 158   







14



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INLAND FIBER GROUP, LLC AND SUBSIDIARY



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

Revenues

Revenues for the quarter ended September
          30, 2005 were $4.2 million, an increase of $0.6 million or 17% from revenues of $3.6 million for the same period in 2004. The
          increase in revenues during the third quarter of 2005 was caused by higher log sales of $1.6 million, offset by lower timber
          deed sales of $0.1 million, lower property sales of $0.1 million, and lower other sales of $0.8 million.

Timber deed sales for the third quarter of 2005 were negligible, less than $0.1 million as compared to the same
          period in 2004, when timber deed sales were $0.2 million on 0.9 million board feet ("MMBF"). The average timber deed price was
          $97 per thousand board feet ("MBF") during the third quarter of 2005, as compared to $215 per MBF for the same period in 2004.

Log sales for the quarter ended September 30, 2005 were $4.1 million on volume of 13.4 MMBF, an increase of $1.6
          million as compared to the same period in 2004 when log sales were $2.4 million on 7.4 MMBF. The average sales price was $303
          per MBF for the third quarter of 2005, as compared to an average $332 per MBF for the same period in 2004.

In addition, property sales for the third quarter of 2005 were $0.0 million, as compared to $0.1 million for the
          same period in 2004.

Gross Profit

The
          Company had a gross loss of $0.2 million in the third quarter of 2005 as compared to a gross loss of $0.4 million for the same
          period in 2004. As a percentage of sales, the gross loss was 12% and 6% in the 2004 and 2005 quarters.

Selling, General and Administrative Expenses

Selling,
          general and administrative expenses, excluding management fees, increased by $0.4 million from $0.5 million in the third quarter
          of 2004 to $0.9 million in the third quarter of 2005. The increase was primarily due to legal expenses. Management fees decreased
          by $0.5 million from $1.0 million in the third quarter of 2004 to $0.5 million in the third quarter of 2005, due to a reduction
          in the valuation of total timber and timberland assets under management upon which the fee is calculated.

Equity in Net Loss of Affiliate

Equity
          in net loss of affiliate was $0.0 million for the third quarter of 2005. This amount reflects the Company's share of the net
          loss of an affiliate (AFR) accounted for under the equity method including the amortization of the excess of cost over deficiency
          in net assets acquired in the Privatization Transaction. This compares to equity in net loss of affiliate of $5.2 million in
          the third quarter of 2004.



15

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INLAND FIBER GROUP, LLC
	AND SUBSIDIARY
Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

|Revenues
|--------

Revenues
          for the nine months ended September 30, 2005 were $10.3 million, a decrease of $12.3 million or 54% from revenues of $22.6 million
          for the same period in 2004. The decrease in revenues during the first nine months of 2005 was caused primarily by lower property
          sales of $9.9 million, lower timber deed sales of $2.5 million, and lower other sales of $1.7 million, offset by higher log
          sales of $1.8 million. The decrease in revenues also related to the Company's determination not to make the interest payment
          on the Notes due May 15, 2005, which, in turn, decreased Company's need to sell property or timber deeds to generate the cash
          necessary to make such interest payment.

Timber deed sales for the first nine months of 2005 were $0.6 million on volume of 3.6 million board feet ("MMBF"),
          a decrease of $2.5 million as compared to the same period in 2004, when timber deed sales were $3.1 million on 29.0 MMBF. The
          average timber deed price was $171 per thousand board feet ("MBF") during the first nine months of 2005, as compared to $108
          per MBF for the same period in 2004.

Log sales for the nine months ended September 30, 2005 were $9.3 million on volume of 30.0 MMBF, an increase of
          $1.8 million as compared to the same period in 2004 when log sales were $7.4 million on 23.1 MMBF. The average sales price was
          $309 per MBF for the first nine months of 2005, as compared to an average $322 per MBF for the same period in 2004.

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

Gross Profit

The
          Company had a gross loss of $0.6 million in the first nine months of 2005 as compared to a gross loss of $1.8 million for the
          same period in 2004. As a percentage of sales, the gross loss was 8% and 6% in the 2004 and 2005 nine month periods.

Selling, General and Administrative Expenses

Selling,
          general and administrative expenses, excluding management fees, decreased by $1.0 million from $2.7 million in the first nine
          months of 2004 to $1.7 million in the first nine months of 2005. The decrease was primarily due to the elimination of expenses
          related to producing partnership tax returns for the public unit holders, decreased use of professional service consultants,
          lower insurance and property tax expenses, and lower legal costs due to the reimbursement by the Company's insurer of previously
          charged legal expenses. Management fees decreased by $1.5 million from $3.0 million in the first nine months of 2004 to $1.5
          million in the first nine months of 2005, due to a reduction in the valuation of total timber and timberland assets under management
          upon which the fee is calculated.



16



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INLAND FIBER GROUP, LLC AND SUBSIDIARY

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

Equity in net loss of affiliate was $8.0 million for the first nine months
          of 2005. This amount reflects the Company's share of the net loss of an affiliate (AFR) accounted for under the equity method
          including the amortization of the excess of cost over deficiency in net assets acquired in the Privatization Transaction. This
          compares to equity in net loss of affiliate of $14.5 million in the first nine months of 2004.



17



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INLAND FIBER GROUP, LLC AND SUBSIDIARY



Financial Condition and Liquidity

Operating Activities

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

Investing Activities

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

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

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

Through the first nine months of 2005, the Company funded its investing activities from operations and cash on
          hand.

Cash required to meet the Company's debt service continues to 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. Prior to the May 15, 2005 interest payment on the Notes,
          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 and interest payments on the Notes will continue to 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 and, if possible, meet debt service.



18



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INLAND FIBER GROUP, LLC AND SUBSIDIARY



Although the Company had been approached regarding certain debt restructuring scenarios, the ongoing litigation
          with the holders of the Notes described below has materially interfered with the Company's ability to pursue a number of such
          scenarios. While the Company is still pursuing certain debt restructuring initiatives, discussions to date have not led to any
          proposals. While the Company continues to contact various parties that may have an interest in providing financing to, or acquiring
          assets from the Company, it is premature to assess the likelihood of pursuing any such scenario or other material transaction.
          The Company did not make its semi-annual interest payment on the Notes, which was due May 15, 2005 before the due date or during
          the grace period. It is currently contemplated that the Company will not pay the interest payment due November 15, 2005.

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



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INLAND FIBER GROUP, LLC AND SUBSIDIARY

counts of the third amended complaint. On June 6, 2005, the Supreme Court of the State of Delaware decided the Defendants'
          interlocutory appeal and issued an order vacating the decision of the Court of Chancery granting partial summary judgment to
          the Trustee and remanding the case to the Court of Chancery for a trial on all of the issues. On July 7, 2005, the Court of
          Chancery granted in part and denied in part the Defendants' motion to dismiss certain counts of the amended complaint. On July
          28, 2005, the Trustee issued an affirmation of the Notice of Default referencing among other things the failure to make the
          semi-annual interest payment on May 15, 2005. The trial was held in August 2005. In October 2005, the Trustee filed its post-trial
          brief. The Defendants expect to file their reply brief in November 2005 and a decision in the case is expected in the first
          quarter of 2006. The Company and its legal counsel believe the litigation and the Notices of Default to be without merit and
          intend to continue to vigorously defend the litigation. While the Trustee and the Defendants have engaged in settlement discussions,
          at the current time there are no settlement proposals that appear probable to resolve the litigation.

In connection with the settlement discussions, in June 2005, the Company entered
          into confidentiality agreements with, and provided certain confidential, non-public information to, the members of an ad hoc
          committee of holders of the Notes, comprised of GoldenTree Asset Management LP, OppenheimerFunds, Inc., QVT Financial, LP, and
          Turnberry Capital Management, L.P. The confidentiality agreements provided for the disclosure by the Company to the public of
          all material non-public information that had been provided to the members of the committee upon the termination of such agreements.
          The confidentiality agreements terminated in July 2005. As the Company and the members of the ad hoc committee were unable to
          reach agreement regarding the information that was required to be disclosed, the members of the ad hoc committee established
          an internet website, http://www.inlandfiberinformation.com and disclosed all of the information provided to them on such website.

On December 7, 2004, the Company, Finance Corp. and AFR brought an action against the Trustee based on the Trustee’s failure
          to remit $4.8 million of the funds paid by the Company on November 12, 2000 to the Trustee for the benefit of the holders of
          the Notes. The Company Finance Corp and AFR have determined not to pursue this action and on August 1, 2005, the action was
          dismissed.

ITEM
          3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
          RISK



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

The Company's President and Chief Executive Officer and its Vice President and Chief Financial Officer are responsible
          for establishing and maintaining disclosure controls and



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INLAND FIBER GROUP, LLC AND SUBSIDIARY

procedures. They have designed such controls to ensure that others make all material information known to them within
          the organization.

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

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INLAND FIBER GROUP, LLC AND SUBSIDIARY

PART II. OTHER INFORMATION

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



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INLAND FIBER GROUP, LLC AND SUBSIDIARY

on May 15, 2005. The trial was held in August 2005. In October 2005,
          the Trustee filed its post-trial brief. The Defendants expect to file their reply brief in November 2005 and a decision in the
          case is expected in the first quarter of 2006.. The Company and its legal counsel believe the litigation and the Notices of
          Default to be without merit and intend to continue to vigorously defend the litigation. While the Trustee and the Defendants
          have engaged in settlement discussions, at the current time there are no settlement proposals that appear probable to resolve
          the litigation.

In connection with the settlement discussions, in June 2005, the Company entered into confidentiality agreements
          with, and provided certain confidential, non-public information to, the members of an ad hoc committee of holders of the Notes,
          comprised of GoldenTree Asset Management LP, OppenheimerFunds, Inc., QVT Financial, LP, and Turnberry Capital Management, L.P.
          The confidentiality agreements provided for the disclosure by the Company to the public of all material non-public information
          that had been provided to the members of the committee upon the termination of such agreements. The confidentiality agreements
          terminated in July 2005. As the Company and the members of the ad hoc committee were unable to reach agreement regarding the
          information that was required to be disclosed, the members of the ad hoc committee established an internet website, http://www.inlandfiberinformation.com
          and disclosed all of the information provided to them on such website.

On December 7, 2004, the Company, Finance Corp. and AFR brought an action against the Trustee based on the Trustee’s failure
          to remit $4.8 million of the funds paid by the Company on November 12, 2000 to the Trustee for the benefit of the holders of
          the Notes. The Company Finance Corp and AFR have determined not to pursue this action and on August 1, 2005, the action was
          dismissed.





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INLAND FIBER GROUP, LLC AND SUBSIDIARY

ITEM 6.    EXHIBITS

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

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



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

|      |  |                   |  |                         |  |                              
|----- |  | ----------------- |  | ----------------------- |  | -----------------------------
|Date: |  | November 14, 2005 |  | INLAND FIBER GROUP, LLC
|      |  |                   |  | By:                     |  | /s/ Thomas C. Ludlow         
|      |  |                   |  |                         |  | Thomas C. Ludlow             
|      |  |                   |  |                         |  | Vice President and Treasurer 
|      |  |                   |  |                         |  | (Principal Financial Officer)

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