================================================================================

                                  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, 2000

                                     OR

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

                 Commission file numbers 1-13573-01 and 1-13573


                     U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.
                         U.S. TIMBERLANDS FINANCE CORP.
            (Exact name of co-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)


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

Indicate  by check mark  whether the  co-registrants  (1) have 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
co-registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.


                              Yes [X]   No   [ ]

================================================================================
<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)
<TABLE>
<CAPTION>

                                                                Quarter Ended June 30,
                                                      ------------------------------------------
                                                             2000                   1999
                                                      ------------------     -------------------
<S>                                                            <C>                     <C>
Revenues                                                       $ 23,960                $ 20,296
Cost of timber harvested                                         (2,937)                 (2,774)
Depletion, depreciation and road amortization                    (8,142)                 (5,268)
                                                      ------------------     -------------------
      Gross profit                                               12,881                  12,254
                                                      ------------------     -------------------

Selling, general and administrative                              (2,205)                 (2,489)
                                                      ------------------     -------------------
      Operating income                                           10,676                   9,765
                                                      ------------------     -------------------

Interest expense                                                 (5,402)                 (5,495)
Interest income                                                     108                      99
Financing fees                                                     (168)                   (169)
Other income - net                                                  345                     257
                                                      ------------------     -------------------

      Net income                                                $ 5,559                 $ 4,457
                                                      ==================     ===================
</TABLE>

      See accompanying notes to the condensed consolidated financial statements.




                                    2 of 17
<PAGE>



                       U.S. TIMBERLANDS KLAMATH FALLS, LLC
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In Thousands, Except Per Unit Information)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                              Six Months Ended June 30,
                                                      ------------------------------------------
                                                             2000                   1999
                                                      ------------------     -------------------

<S>                                                            <C>                     <C>
Revenues                                                       $ 35,884                $ 31,425
Cost of timber harvested                                         (6,824)                 (4,796)
Depletion, depreciation and road amortization                   (11,945)                 (9,252)
                                                      ------------------     -------------------
      Gross profit                                               17,115                  17,377
                                                      ------------------     -------------------

Selling, general and administrative                              (4,161)                 (4,839)
Equity in net income of affiliate                                   607                       -
                                                      ------------------     -------------------
      Operating income                                           13,561                  12,538
                                                      ------------------     -------------------

Interest expense                                                (10,856)                (10,965)
Interest income                                                     230                     351
Financing fees                                                     (337)                   (338)
Other income - net                                                1,004                   1,139
                                                      ------------------     -------------------

      Net income                                                $ 3,602                 $ 2,725
                                                      ==================     ===================

</TABLE>


      See accompanying notes to the condensed consolidated financial statements.



                                    3 of 17
<PAGE>

                                     U.S. TIMBERLANDS KLAMATH FALLS, LLC
                                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                               (In Thousands)
<TABLE>
<CAPTION>

                                                                       June 30,            December 31,
                                                                         2000                  1999
                                                                  ------------------    -------------------
                                                                     (Unaudited)                 *
<S>                                                                      <C>                    <C>
ASSETS
Current assets:
    Cash and cash equivalents                                               $ 2,762                $ 2,798
    Accounts and current portion of notes receivable - net                    5,226                  3,140
    Prepaid expenses and other current assets                                    81                    981
                                                                  ------------------    -------------------

       Total current assets                                                   8,069                  6,919

    Timber and timberlands, net                                             284,279                293,828
    Investment in affiliate                                                  19,675                 18,243
    Receivable from affiliate                                                   294                    294
    Property, plant and equipment, net                                          993                  1,038
    Notes receivable - long-term                                                  -                  2,304
    Deferred financing fees                                                   4,986                  5,323
                                                                  ------------------    -------------------

       Total assets                                                       $ 318,296              $ 327,949
                                                                  ==================    ===================

LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
    Accounts payable and accrued liabilities                                $ 4,378                $ 4,472
    Deferred revenue                                                              -                     39
                                                                  ------------------    -------------------

       Total current liabilities                                              4,378                  4,511
                                                                  ------------------    -------------------

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

Members' equity:
    Managing member's equity                                                    890                    984
    Non-managing member's equity                                             88,028                 97,454
                                                                  ------------------    -------------------

                                                                             88,918                 98,438
                                                                  ------------------    -------------------

       Total liabilities and members' equity                              $ 318,296              $ 327,949
                                                                  ==================    ===================

</TABLE>


*   Derived from audited Consolidated Balance Sheet as of December 31, 1999.

    See accompanying notes to the condensed consolidated financial statements.



                                    4 of 17
<PAGE>

                           U.S. TIMBERLANDS KLAMATH FALLS, LLC
                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (In Thousands)
                                       (Unaudited)
<TABLE>

                                                                         Six Months Ended June 30,
                                                                 ------------------------------------------
                                                                        2000                    1999
                                                                 -------------------     ------------------
<S>                                                                      <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities                                  $ 15,235                $ 9,880
                                                                 -------------------     ------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Timber, timberlands and road additions                                 (2,143)                  (541)
      Purchase of property, plant and equipment - net                           (52)                   (36)
      Proceeds from sale of assets                                               46                      -
      Increase in other assets                                                    -                 (1,000)
                                                                 -------------------     ------------------
Net cash used in investing activities                                        (2,149)                (1,577)
                                                                 -------------------     ------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Short-term borrowings                                                       -                  1,000
      Distributions to members                                              (13,122)               (13,122)
                                                                 -------------------     ------------------
Net cash used in financing activities                                       (13,122)               (12,122)
                                                                 -------------------     ------------------

Decrease in cash and cash equivalents                                           (36)                (3,819)
Cash and cash equivalents - beginning of period                               2,798                  4,824
                                                                 -------------------     ------------------

Cash and cash equivalents - end of period                                   $ 2,762                $ 1,005
                                                                 ===================     ==================
</TABLE>


      See accompanying notes to the condensed consolidated financial statements.



                                    5 of 17
<PAGE>




                       U.S. TIMBERLANDS KLAMATH FALLS, LLC
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    (In Thousands, Except Per Unit Amounts or
                             as Otherwise Indicated)
                                   (Unaudited)

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

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

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

BASIS OF PRESENTATION
These  condensed  consolidated  financial  statements  have been prepared by the
Company, without audit by independent public accountants,  pursuant to the rules
and regulations of the United States Securities and Exchange Commission.  In the
opinion of management,  the accompanying  unaudited financial statements include
all normal  recurring  adjustments  necessary to present fairly the  information
required  to be set forth  therein.  Certain  information  and note  disclosures
normally included in financial  statements prepared in accordance with Generally
Accepted  Accounting  Principles  have been  condensed  or  omitted  from  these
statements  pursuant  to such  rules  and  regulations  and,  accordingly  these
condensed  consolidated  financial statements should be read in conjunction with
the  consolidated  financial  statements  included in the Company's  1999 Annual
Report on Form 10-K.  Operating  results for the  quarter and six month  periods
ended June 30, 2000 are not  necessarily  indicative  of the results that may be
expected for the full year or any other period.

There  have  been no  significant  changes  in the  accounting  policies  of the
Company.  There were no  significant  changes in the Company's  commitments  and
contingencies as previously described in the 1999 Annual Report on Form 10-K.

RECLASSIFICATIONS
Certain  amounts  presented for 1999 have been  reclassified  for  comparability
purposes and have no impact on net income.



                                    6 of 17
<PAGE>




2.  TIMBER AND TIMBERLANDS:
Timber and timberlands consisted of the following:

<TABLE>
<CAPTION>

                                                                June 30,           December 31,
                                                                  2000                 1999
                                                           -------------------  --------------------
<S>                                                                <C>                   <C>
        Timber and logging roads                                   $  319,391            $  317,856
        Timberlands                                                    39,691                39,338
        Seed orchard and nursery stock                                  1,551                 1,277
                                                           -------------------  --------------------

                                                                      360,633               358,471
        Less accumulated depletion and road amortization               76,354                64,643
                                                           -------------------  --------------------

                                                                   $  284,279            $  293,828
                                                           ===================  ====================
</TABLE>



3. INVESTMENT IN AFFILIATE:
The following is summarized  financial  information for U.S. Timberlands Yakima,
LLC, the MLP's equity  affiliate.

                                         QUARTER ENDED       SIX MONTHS ENDED
                                         JUNE 30, 2000        JUNE 30, 2000
                                       -------------------  -------------------

        Net sales                                 $ 4,987            $   9,772
        Gross profit                              $ 2,196            $   5,307
        Net income                                  $ 369            $   1,770


There are no  corresponding  amounts for the quarter and six month  period ended
June 30, 1999 as the  Company's  investment  in the  affiliate  began in October
1999.

In June 2000, the Company  purchased timber cutting rights for approximately 4.2
million board feet from U.S.  Timberlands  Yakima,  LLC for $1.3 million.  These
timber cutting rights expire in June 2003.

4. SHORT-TERM DEBT:
The  Company  has a  credit  facility  with an  affiliate  of the  Manager  (the
"Affiliate Credit  Facility")  consisting of a revolving line of credit of up to
$12.0 million.  Borrowings  under the Affiliate Credit Facility bear interest at
the prime lending rate as published in the Wall Street  Journal plus  applicable
margin (1.25% at June 30, 2000), which is based on the Company's leverage ratio.
The prime  lending  rate was 9.50% at June 30, 2000.  There were no  outstanding
borrowings  under the Affiliate  Credit Facility at June 30, 2000. The Affiliate
Credit Facility expires June 30, 2001 and any amounts borrowed  thereunder shall
then be due and payable.



                                    7 of 17
<PAGE>




5.  SUBSEQUENT EVENT:
On July 19, 2000,  the Board of Directors of the Manager  authorized  the MLP to
make a  distribution  of $0.50 per Unit. The total  distribution  will be $6,561
(including  $131  to the  Manager)  and  will  be paid  on  August  14,  2000 to
Unitholders of record on July 31, 2000.

6.  NEW ACCOUNTING PRONOUNCEMENT:
In June of 1998, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities", which establishes accounting for derivative
instruments and hedging activities,  and would require the Company to record all
derivatives  as assets  or  liabilities  at fair  value.  Implementation  of the
statement  was delayed by SFAS No. 137 to all fiscal  quarters  of fiscal  years
beginning  after June 15, 2000.  Consistent  with SFAS No. 137, the Company will
adopt SFAS No. 133 as of January 1, 2001.  Management  believes that adoption of
this statement will not have a material impact on the Company.





                                    8 of 17
<PAGE>




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

FORWARD-LOOKING STATEMENTS
--------------------------

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

OVERVIEW
--------

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

SEASONALITY
-----------

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





                                    9 of 17
<PAGE>




CURRENT MARKET CONDITIONS
-------------------------

     During the second quarter of 2000 prices for finished wood products  (e.g.,
lumber,  plywood, and engineered wood products) declined from prior year levels.
Average prices in the second quarter for Ponderosa Pine #3 shop,  Lodgepole Pine
studs,  White Fir  sheathing,  and Douglas Fir #2 & better green studs were down
5%, 16%, 25%, and 7%  respectively  from the same period in 1999.  Driven by the
decline in finished wood product prices,  log and timber prices started dropping
in late April and  continued  through the beginning of the third quarter of this
year.

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

               1999
Three Months Ended June 30               15,376               -         26,898         $ 455           $ -          $ 484
Three Months Ended March 31              11,996           1,921         17,759         $ 395         $ 440          $ 308

</TABLE>

QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999

     REVENUES  Revenues for the quarter ended June 30, 2000 were $24.0  million,
an increase of $3.7 million or 18% over  revenues of $20.3  million for the same
period in 1999.  This  increase in revenues was  attributable  to a $4.6 million
increase in timber deed sales,  partially  offset by a $1.0 million  decrease in
log sales.

     Timber  deed  sales for the second  quarter  of 2000 were $17.6  million on
volume of 51.0 million  board feet  ("MMBF"),  as compared to the same period in
1999, when timber deed sales were $13.0 million on 26.9 MMBF. The average timber
deed price was $346 per thousand board feet ("MBF") during the second quarter of
2000,  as compared to $484 per MBF for the same period in 1999.  The decrease in
the  average  price  reflects a lower value grade of timber sold from the Ochoco
Timberlands.

     Log sales for the quarter  ended June 30, 2000 were $6.0  million on volume
of 13.9 MMBF,  as  compared  to the same period in 1999 when log sales were $7.0
million on 15.4 MMBF.  The  average  sales price was $432 per MBF for the second
quarter of 2000,  as  compared to an average of $455 per MBF for the same period
in 1999. The decline in log prices reflects a general decrease in log prices and
a slightly  lower value  species  mix sold during the second  quarter of 2000 as
compared to the same period in 1999. The decrease in the average log sales price
was primarily attributable to 16% and 13% decreases in Douglas Fir and Lodgepole
Pine prices, respectively.




                                    10 of 17
<PAGE>




     GROSS PROFIT Gross profit  increased $0.6 million from $12.3 million in the
second  quarter of 1999 to $12.9  million in the  second  quarter of 2000.  As a
percentage of sales,  gross profit  decreased  from 60% in the second quarter of
1999 to 54% in the second quarter of 2000.  The dollar  increase in gross profit
is attributed to a higher  overall sales volume in the second quarter of 2000 as
compared  to the same  period  in  1999.  The  decrease  in  gross  profit  as a
percentage of sales was primarily  from two factors.  First,  contracted log and
haul  costs on a per MBF  basis  were up 37% in the  second  quarter  of 2000 as
compared to the same period in 1999 due to longer hauls for  delivered  logs and
increased  fuel costs.  Second,  the  Company's  timber deed sales in the second
quarter of 2000 were  generally  composed of a lower value grade mix as compared
to the same period in 1999.

     SELLING,   GENERAL  AND  ADMINISTRATIVE   EXPENSES  Selling,   general  and
administrative  expenses  decreased  by $0.3  million  from $2.5  million in the
second  quarter  of 1999 to $2.2  million in the  second  quarter of 2000.  As a
percentage of net sales,  this expense decreased from 12% for the second quarter
of 1999 to 9% in the second  quarter of 2000.  The decrease was primarily due to
$0.7 million of severance expenses from the closure of the Seattle office in the
second  quarter of 1999 offset by an increase of $0.3  million for  professional
services  expenses  during the second  quarter of 2000 as  compared  to the same
period in 1999.



SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999

     REVENUES  Revenues  for the six  months  ended  June 30,  2000  were  $35.9
million,  an increase of $4.5 million or 14% over  revenues of $31.4 million for
the same period in 1999. This increase in revenues was primarily attributable to
a $3.0  million  increase  in log sales as well as a $1.4  million  increase  in
timber deed and stumpage sales.

     Log sales for the six  months  ended June 30,  2000 were  $14.7  million on
volume of 34.5 MMBF,  as compared to the same period in 1999 when log sales were
$11.7  million on 27.4 MMBF.  The  average  sales  price for logs during the six
month period ended June 30, 2000 was  comparable  to the average sales price for
logs during the same period in 1999.  This is due  primarily  to a higher  value
species mix as compared to the six months  ended June 30, 1999.  Ponderosa  Pine
prices have remained relatively stable and the average log sales price for White
fir for the six  months  ended  June 30,  2000 was 8%  higher  than for the same
period in 1999.

     Timber deed and stumpage  sales for the six months ended June 30, 2000 were
$20.7  million on volume of 60.2 MMBF,  as  compared to the same period in 1999,
when timber deed and stumpage  sales were $19.3  million on volume of 46.6 MMBF.
The average  timber deed and stumpage  sales price for the six months ended June
30,  2000 was $343 per MBF,  as  compared to $415 per MBF for the same period in
1999.  The  decrease  in average  timber  deed and  stumpage  sales price can be
attributed  to  a  lower  value  grade  mix  of  timber  sold  from  the  Ochoco
Timberlands.

     GROSS PROFIT Gross profit  decreased $0.3 million from $17.4 million in the
first six months of 1999 to $17.1  million in the first six months of 2000. As a
percentage of sales,  gross profit decreased from 55% in the first six months of
1999 to 48% in the same  period  of 2000.  The  decrease  in  gross  profit  was
primarily  from two factors.  First,  contracted log and haul costs on a per MBF
basis were up 22% in the first six months of 2000 as compared to the same period
in 1999 due to longer hauls for  delivered  logs and higher fuel costs.  Second,
the Company's  timber deed sales were generally  composed of a lower value grade
mix as compared to the same period in 1999.


                                    11 of 17
<PAGE>

     SELLING,   GENERAL  AND  ADMINISTRATIVE   EXPENSES  Selling,   general  and
administrative expenses decreased by $0.6 million from $4.8 million in the first
six  months  of 1999 to $4.2  million  in the first  six  months  of 2000.  As a
percentage  of net sales,  this  expense  decreased  from 15% for the six months
ended June 30,  1999 to 12% in the first six months of 2000.  The  decrease  was
primarily  due to $0.7  million in  severance  expenses  from the closure of the
Seattle office in 1999.

     EQUITY IN NET INCOME OF  AFFILIATE  Equity in net income of  affiliate  was
$0.6  million  for the six  month  period  ended  June  30,  2000.  This  amount
represents  the Company's  recapture of losses on its investment in an affiliate
absorbed by the Company during the fourth quarter of 1999.


FINANCIAL CONDITION AND LIQUIDITY
---------------------------------

     OPERATING ACTIVITIES Cash flows provided by operating activities during the
six months ended June 30, 2000 were $15.2  million,  as compared to $9.9 million
during the same period in 1999. The $5.3 million increase in cash flows provided
by  operating  activities  was  primarily  due to  changes  in  working  capital
components.  The change in working capital was primarily driven by the fact that
the Company  utilized  notes  receivable  for timber deed sales during the first
quarter of 1999 and the Company  received  cash for its timber deed sales during
the first six months of 2000. Timber deed sales during the first quarter of 1999
resulted in notes receivable of $4.3 million,  which reduced operating cash flow
during the first six months of 1999, while a $2.1 million net reduction of notes
receivable  through  collections  during the first six months of 2000  increased
operating cash flow during the first six months of 2000. The increase related to
changes in notes  receivable  is  partially  offset by a $1.3  million  non-cash
increase  in the  Company's  investment  in its  affiliate  from  the  Company's
recapture  of losses on its  investment  in its  affiliate  and the accrual of a
preferred dividend from the Company's preferred investment in its affiliate.

     INVESTING  ACTIVITIES  Cash flows used in  investing  activities  were $2.1
million  during the first six months of 2000, as compared to $1.6 million during
the same period in 1999. The increase is primarily attributable to the Company's
purchase of cutting  rights from its affiliate for  approximately  $1.3 million,
partially offset by a $1.0 million deposit during the first quarter of 1999 that
was subsequently returned to the Company.

     FINANCING  ACTIVITIES  Cash flows used in financing  activities  were $13.1
million for the first six months of 2000,  as compared to $12.1  million  during
the same  period in 1999.  The  increase  is  attributable  to the fact that the
Company had cash provided by net borrowings of approximately $1.0 million during
the first six  months  of 1999 and had no such net  borrowings  in the first six
months of 2000.

     The Company has a credit  agreement  with an  affiliate of the Manager (the
"Affiliate Credit  Facility").  The Affiliate Credit Facility allows the Company
to borrow up to $12.0 million under certain terms and  covenants.  The covenants
include restrictions on the Company's ability to make cash distributions,  incur
certain additional indebtedness or incur certain liens. In addition, the Company
is required to maintain certain financial ratios.  The Affiliate Credit Facility
will expire on June 30, 2001. At that time, any amounts borrowed will be due and
payable.  As of June 30,  2000 there were no  outstanding  borrowings  under the
Affiliate  Credit  Facility.  The Company has the ability to generate  cash flow
through the acceleration of planned log and timber deed sales.




                                    12 of 17
<PAGE>




     The  agreements  governing the Company's  9-5/8% senior notes (the "Notes")
and the Affiliate  Credit  Facility  contain  restrictive  covenants,  including
limitations on harvest levels,  land sales, cash distributions and the amount of
future  indebtedness.  In  addition,  these  agreements  require  the Company to
maintain certain financial ratios. Under the Notes, the Company's average annual
adjusted harvest volume over any period of four consecutive  years cannot exceed
a volume  of  approximately  147  MMBF as  adjusted  for  timberland  sales  and
purchases.  The Notes also limit  one-year  harvest  levels and  average  annual
harvest levels for consecutive  two-and three-year  periods. As of June 30, 2000
the Company was in compliance  with the  covenants and ratios  pertaining to the
Notes and Affiliate Credit Facility.

     Through the first six months of 2000, the Company funded its operations and
met its cash  requirements for distributions to its Unitholders and debt service
from cash on hand, cash generated from current  operations and borrowings  under
its Affiliate Credit Facility.

     Cash required to make  distributions  to all  Unitholders at current levels
and  to  pay  interest  on  the  Notes  is  $26.2  million  and  $21.7  million,
respectively,  per year.  To make these  payments  and meet its working  capital
requirements,  the Company has been  selling logs and timber at a rate in excess
of the  Manager's  estimate of the current  annual board  footage  growth on the
Company's  timberlands.  The Manager expects that the debt service and quarterly
cash  distributions  will  be  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 at current levels may be adversely affected. The Company continues
to evaluate means to improve cash flows,  including the factors mentioned above.
However,  there can be no assurance that prices will improve or that the Company
will be able to take any of these actions.


YEAR 2000 ISSUES
----------------

         The  Company has  completed  its Year 2000  readiness  work and did not
experience  disruption  in its  business  related  to the Year  2000  Issue.  In
addition to  internally  assessing  its systems and business for Year 2000,  the
Company  contacted all major  external  third parties that provide  products and
services to the Company to assess  their  readiness  for Year 2000.  The Company
made certain  investments in systems,  applications  and products to address the
Year  2000  Issue.  The  Company  did not,  however,  track  internal  resources
dedicated to the resolution of the Year 2000 Issue and  therefore,  is unable to
quantify  internal costs incurred to date that are associated with the Year 2000
Issue. The Company believes that direct and indirect expenditures to address the
Year 2000  Issue were  immaterial  to the  Company's  operations.  To date,  the
Company has not experienced any significant, known Year 2000 issues and has been
informed by material third parties that they have also not experienced  material
Year 2000 issues.  The Company will  continue to monitor any on-going  Year 2000
issues.




                                    13 of 17
<PAGE>





PART II.  OTHER INFORMATION




ITEM 1.  LEGAL PROCEEDINGS

     There is no pending litigation and, to the knowledge of the Company,  there
is no threatened  litigation,  the unfavorable  resolution of which could have a
material adverse effect on the business or financial condition of the Company.

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




                                    14 of 17
<PAGE>




ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>


 (A.) EXHIBITS

              <S>               <C>
                +3.1    --       Amended and Restated Agreement of Limited Partnership of U.S. Timberlands Company, LP

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

               +10.2    --       Indenture among U.S. Timberlands Klamath Falls, LLC, U.S. Timberlands Finance Corp.
                                  and State Street Bank and Trust Company, as trustee

               +10.3    --       Contribution, Conveyance and Assumption Agreement among U.S. Timberlands Company, LP
                                 and certain other parties

               *10.4    --       Form of U.S. Timberlands Company, LP 1997 Long-Term Incentive Plan

               *10.5    --       Employment Agreement for Mr. Rudey

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

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

               10.11    --       Agreement with Greg Byrne

                **16    --       Letter from Arthur Andersen, LLP dated December 8, 1998

               *21.1    --       List of Subsidiaries

                27.1    --       Financial Data Schedule
</TABLE>

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

**   Incorporated by reference to Exhibit 1 to the  Registrant's  Form 8-K filed
     on December 8, 1998.

+    Incorporated by reference to the same numbered  Exhibit to the Registrant's
     Current Report on Form 8-K filed January 15, 1998.

++   Incorporated by reference to the same numbered  Exhibit to the Registrant's
     Form 10-Q filed on May 15, 2000.


(B.) REPORTS ON FORM 8-K


         The Company  filed no reports on Form 8-K during the quarter ended June
30, 2000.





                                    15 of 17
<PAGE>




                                   SIGNATURES


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




       DATE: AUGUST 14, 2000     U.S. TIMBERLANDS KLAMATH FALLS, LLC
                                 By:  U.S. Timberlands Services Company, LLC
                                      as Manager



                                 By:                /s/  Thomas C. Ludlow
                                     -------------------------------------------
                                      Thomas C. Ludlow
                                      Chief Financial Officer
                                      (Chief Financial Officer
                                        and Duly Authorized Officer)


                                 By:                /s/  Toby A. Luther
                                     -------------------------------------------
                                      Toby A. Luther
                                      Corporate Controller - Western Operations
                                      (Principal Accounting Officer)


                                 U.S. TIMBERLANDS FINANCE CORP.
                                 By:  U.S. Timberlands Services Company, LLC
                                       as Manager



                                 By:                /s/  Thomas C. Ludlow
                                     -------------------------------------------
                                      Thomas C. Ludlow
                                      Chief Financial Officer
                                      (Chief Financial Officer
                                        and Duly Authorized Officer)


                                 By:                /s/  Toby A. Luther
                                     -------------------------------------------
                                      Toby A. Luther
                                      Corporate Controller - Western Operations
                                      (Principal Accounting Officer)


                                    16 of 17