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


                                  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 September 30, 2002
                                       OR
     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


                         Commission file number 0-23259


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

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

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


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

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


                                                            Yes   X   No
                                                                -----   -----

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


                                    Form 10-Q

                                Table of Contents

Part I.  Financial Information                                              Page

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

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

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

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

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

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

 Item  4.  Controls and Disclosures . . . . . . . . . . . . . . . . . . . . . 15


Part II.  Other Information

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

 Item  2.  Changes in Securities and Use of Proceeds. . . . . . . . . . . . . 16

 Item  3.  Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . 16

 Item  4.  Submission of Matters to a Vote of Security Holders . . . . . . . .16

 Item  5.  Other Information . . . . . . . . . . . . . . . . . . . . . . . . .16

 Item  6.  Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . .17



                                  Page 2 of 22


<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>
                                                                                Three Months Ended September 30,
                                                                            -----------------------------------------
                                                                                  2002                   2001
                                                                            ------------------     ------------------

<S>                                                                            <C>                         <C>
Revenues                                                                       $ 13,323                    $ 24,299
Cost of timber harvested                                                         (5,664)                     (5,935)
Depletion, depreciation and road amortization                                    (5,935)                    (17,600)
Cost of timber and property sales                                                  (863)                          -
Fire loss                                                                          (657)                          -
                                                                               --------                    --------
      Gross profit                                                                  204                         764

Selling, general and administrative expenses                                     (1,723)                     (1,811)
Equity in net loss of affiliate                                                  (2,566)                     (1,884)
                                                                               --------                    --------
      Operating loss                                                             (4,085)                     (2,931)

Interest expense                                                                 (5,414)                     (5,585)
Interest income                                                                       4                           2
Amortization of deferred financing fees                                            (169)                       (169)
Other income, net                                                                     6                          13
                                                                               --------                    --------

      Net loss                                                                 $ (9,658)                   $ (8,670)

</TABLE>

    See accompanying notes to the condensed consolidated financial statements


                                  Page 3 of 22

<PAGE>

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

<TABLE>
<CAPTION>
                                                                               Nine Months Ended September 30,
                                                                           ---------------------------------------
                                                                                2002                  2001
                                                                           ----------------     ------------------

<S>                                                                           <C>                       <C>
Revenues (including $9,900 to an affiliate in 2002)                           $ 30,939                  $ 41,093
Cost of timber harvested                                                        (9,963)                  (12,926)
Depletion, depreciation and road amortization                                  (20,930)                  (27,787)
Cost of timber and property sales                                                 (863)                        0
Fire loss                                                                         (657)                        0
                                                                              --------                  --------
      Gross profit (loss)                                                       (1,474)                      380

Selling, general and administrative expenses                                    (4,619)                   (6,246)
Equity in net loss of affiliate                                                 (8,302)                   (3,575)
                                                                              --------                  --------
      Operating loss                                                           (14,395)                   (9,441)

Interest expense                                                               (16,213)                  (16,532)
Interest income                                                                      9                        85
Amortization of deferred financing fees                                           (506)                     (506)
Other income, net                                                                  112                       133
                                                                              --------                  --------

      Net loss                                                                $(30,993)                 $(26,261)

</TABLE>

    See accompanying notes to the condensed consolidated financial statements


                                  Page 4 of 22


<PAGE>

                       U.S. TIMBERLANDS KLAMATH FALLS, LLC
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                 September 30         December 31
                                                                                    2002                 2001
                                                                              ------------------   ------------------
                                                                                 (Unaudited)               *
<S>                                                                                 <C>                <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                      $     950          $   1,070
     Accounts receivable, net                                                           1,589                311
     Due from managing member                                                              81
     Other receivables                                                                     73                280
     Notes receivable                                                                     459              1,153
     Prepaid expenses and other current assets                                             10                225
                                                                                    ---------          ---------

         Total current assets                                                           3,162              3,039

Timber and timberlands, net                                                           197,978            214,511
Investment in affiliate                                                                23,307             31,609
Property, plant and equipment, net                                                        772                811
Notes receivable, less current portion                                                    130                428
Deferred financing fees, net                                                            3,468              3,973
                                                                                    ---------          ---------

         Total assets                                                               $ 228,817          $ 254,371
                                                                                    =========          =========

LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
     Accounts payable                                                                   1,179              1,334
     Accrued liabilities                                                                8,967              3,331
     Payable to managing member                                                             -                 41
                                                                                    ---------          ---------

         Total current liabilities                                                     10,146              4,706
                                                                                    ---------          ---------

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


Members' equity:
     Managing member's interest                                                          (126)               247
     Nonmanaging member's interest                                                     (6,203)            24,418
                                                                                    ---------          ---------

                                                                                       (6,329)            24,665
                                                                                    ---------          ---------

         Total liabilities and members' equity                                      $ 228,817          $ 254,371
                                                                                    =========          =========

</TABLE>

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

    See accompanying notes to the condensed consolidated financial statements


                                  Page 5 of 22


<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     Nine Months Ended September 30,
                                                                              ---------------------------------------------
                                                                                     2002                     2001
                                                                              --------------------     --------------------

<S>                                                                           <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities                                     $      5,681            $     12,864
                                                                              ------------            ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Timber, timberlands and road additions                                        (5,792)                 (6,864)
      Purchase of property, plant and equipment - net                                   (9)                      -
      Proceeds from sale of assets                                                       -                      15
                                                                              ------------            ------------
Net cash used in investing activities                                               (5,801)                 (6,849)
                                                                              ------------            ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

      Distributions to the members                                                       -                  (6,561)
                                                                              ------------            ------------
Net cash used in financing activities                                                    -                  (6,561)
                                                                              ------------            ------------

Decrease in cash and cash equivalents                                                 (120)                   (546)
Cash and cash equivalents - beginning of period                                      1,070                   3,168
                                                                              ------------            ------------

Cash and cash equivalents - end of period                                     $        950            $      2,622
                                                                              ============            ============

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

Supplemental cash flow information:
      Cash paid for interest expense                                          $ 10,828,125            $ 11,158,300

</TABLE>

    See accompanying notes to the condensed consolidated financial statements


                                  Page 6 of 22

<PAGE>

                         U.S. TIMBERLANDS COMPANY, L.P.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        (In thousands, except per Unit amounts or as otherwise indicated)
                                   (Unaudited)

1.  Business and Basis of Presentation

Business

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

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

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

Basis of Presentation

These  condensed  consolidated  financial  statements  have been prepared by the
Company, without audit by independent public accountants,  pursuant to the rules
and regulations of the United States Securities and Exchange Commission.  In the
opinion of management,  the accompanying  unaudited financial statements include
all normal  recurring  adjustments  necessary to present fairly the  information
required  to be set forth  therein.  Certain  information  and note  disclosures
normally included in financial statements prepared in accordance with accounting
principles  generally  accepted  in the  United  States  of  America  have  been
condensed  or  omitted  from  these  statements   pursuant  to  such  rules  and
regulations and, accordingly these condensed  consolidated  financial statements
should  be  read in  conjunction  with  the  consolidated  financial  statements
included in the Company's 2001 Annual Report on Form 10-K. Operating results for
the  quarter  and the  nine  month  period  ended  September  30,  2002  are not
necessarily  indicative of the results that may be expected for the full year or
any other period.

There  have  been no  significant  changes  in the  accounting  policies  of the
Company.


                                  Page 7 of 22


2.   Timber and Timberlands

Timber and Timberlands consisted of the following:

                                                     September 30,  December 31,
                                                          2002          2001
                                                          ----          ----

Timber and logging roads                               $312,133       $309,759
Timberlands                                              35,165         34,566
Seed orchard and nursery stock                            1,823          1,437
                                                       --------       --------

                                                        349,121        345,762
Less accumulated depletion and road amortization        151,143        131,251
                                                       --------       --------

                                                       $197,978       $214,511
                                                       ========       ========


3.   Investment In Affiliate

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

<TABLE>
<CAPTION>
                                  Quarter Ended         Quarter Ended        Nine Months Ended    Nine Months Ended
                                  September 30          September 30           September 30          September 30
                                      2002                  2001                   2002                  2001
                                      ----                  ----                   ----                  ----

<S>                                 <C>                      <C>              <C>                   <C>
        Net sales                   $ 11,940                 $ 993            $    22,636           $    6,852
        Gross profit (loss)              792                    30                   (372)               3,230
        Net income (loss)             (2,704)               (2,081)                (8,480)              (2,459)

</TABLE>


On June 12, 2002 the Company sold timber cutting rights for  approximately  87.3
million board feet to USTY for $9.9 million.  These timber cutting rights expire
in May 2005. On August 30, 2002 the Company  purchased timber cutting rights for
approximately  12.0 million board feet from USTY for $1.3 million.  These timber
cutting  rights  expire  in August  2003.  On  September  13,  2002 the  Company
purchased timberland for approximately 8.1 million board feet from USTY for $2.6
million.  In addition to the preceding,  on July 15, 2002 the Company  purchased
timber  cutting  rights  for  approximately  7.7  million  board  feet from USTY
Services for $0.8 million. These timber cutting rights expire in July 2005.

4.   Short-Term Debt

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


                                  Page 8 of 22


<PAGE>

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

5.   Long-Term Debt and Distributions

As  of  September  30,  2002,   the  Company  was  not  permitted  to  make  any
distributions  as it had not exceeded the  requisite  Consolidated  Fixed Charge
Coverage  Ratio within the  Restricted  Payments  provisions of the 95/8% Senior
Notes.

6.   Other Matters

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 definitive agreement  contemplates a cash tender offer for 100%
of the  outstanding  common limited  partnership  units not already owned by the
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 entity or its  affiliates  would be
converted into the right to receive $3.00 per unit in cash.  Consummation of the
transaction is subject to receipt of financing and other  customary  conditions,
as  well  as  the  dismissal  or  satisfactory  settlement  of  any  outstanding
litigation.

On April 25,  2002,  the MLP  announced  that  several  purported  class  action
lawsuits  were filed in the Court of Chancery  of the State of Delaware  for the
County of New Castle  against the Company,  the general  partner of the MLP, the
MLP and the board of  directors  of the Manager  alleging,  among other  things,
breach of fiduciary duty and  self-dealing  by the general partner and the board
in connection with the going private transaction.

The lawsuits seek to enjoin the going private transaction,  to rescind the going
private transaction if it is consummated,  and to recover damages and attorneys'
fees.

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

On  October  17,  2002,  the MLP  announced  that  it had  reached  a  tentative
settlement of the purported class action lawsuits, subject to court approval and
other customary conditions.

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


                                  Page 9 of 22


<PAGE>

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


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.

Application of Critical Accounting Policies

The Company's condensed  consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  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  2001 Annual  Report on Form 10-K.  The Company has not adopted
any significant  new accounting  policies during the nine months ended September
30, 2002.

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. These logs and by-products are processed for sale as lumber, molding


                                 Page 10 of 22


<PAGE>

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

Seasonality

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

Current Market Conditions

Third Quarter 2002 prices for finished wood products (e.g.  lumber,  plywood and
engineered wood products) were flat to lower than Second Quarter 2002 prices.

Third  Quarter 2002 prices for finished  wood  products were also lower than the
same period in 2001.

Log prices for the Third  Quarter  2002  remained  fairly  flat.  Some  downward
pressure on prices resulted due to burned logs from the Toolbox Fire.









Results of Operations

Selected operating statistics for the Company:


                                 Page 11 of 22


<PAGE>

<TABLE>
<CAPTION>

                                       Sales Volume (MBF)                  Price Realization (MBF)
                                       ------------------                  -----------------------

                                                              Timber                                Timber
              Period                    Logs     Stumpage      Deeds         Logs      Stumpage      Deeds
              ------                    ----     --------      -----         ----      --------      -----

               2002
<S>                                     <C>                  <C>            <C>            <C>       <C>
Three Months Ended September 30         23,998         -     20,189         $ 329          $ -       $ 186
Three Months Ended June 30              14,575         -     88,480         $ 341          $ -       $ 114
Three Months Ended March 31              5,024         -      2,333         $ 349          $ -       $ 169


               2001
Three Months Ended September 30         27,984         -     83,899         $ 347          $ -       $ 173
Three Months Ended June 30               9,890         -     28,624         $ 313          $ -       $ 138
Three Months Ended March 31             20,939         -     14,744         $ 357          $ -       $ 133

</TABLE>



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

Revenues

Revenues for the quarter ended September 30, 2002 were $13.3 million, a decrease
of $11.0  million or 45% from  revenues of $24.3  million for the same period in
2001. The significant  decrease in revenues during the third quarter of 2002 was
caused by planned lower volumes.

Timber deed sales for the third  quarter of 2002 were $3.8  million on volume of
20.2 million board feet ("MMBF"),  as compared to the same period in 2001,  when
timber deed sales were $14.5 million on 83.9 MMBF. The average timber deed price
was $186 per thousand  board feet ("MBF")  during the third  quarter of 2002, as
compared to $173 per MBF for the same period in 2001.

Log sales for the quarter  ended  September 30, 2002 were $7.9 million on volume
of 24.0 MMBF,  as  compared  to the same period in 2001 when log sales were $9.7
million on 28.0 MMBF.  The  average  sales  price was $329 per MBF for the third
quarter of 2002,  as  compared to an average of $347 per MBF for the same period
in 2001.  The decrease in log prices  reflects a general  decrease in the market
caused by a high volume of fire-damaged logs.

Gross Profit

The Company had a gross profit of $0.2  million in the third  quarter of 2002 as
compared to a gross  profit of $0.8  million  for the same period in 2001.  As a
percentage  of sales the  gross  profit  was 2% as  compared  to a gross  profit
percentage of 3% in the third quarter of 2001. The decrease in gross profit as a
percentage  of sales is a result  of the fire loss of $0.7  million  in 2002 and
higher  logging  costs,  offset by decreases in  depletion  rates and  increased
profits from by-product sales over the same period in 2001.


                                 Page 12 of 22


<PAGE>

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $0.1 million from $1.8
million  in the third  quarter of 2001 to $1.7  million in the third  quarter of
2002. The decrease was  attributable to lower wage and wage related  expenses of
$0.1  million  and  lower  property  taxes of $0.1  million,  offset  by  higher
professional service expenses of $0.1 million.

Equity in Net Loss of Affiliate

Equity in net loss of  affiliate  was  approximately  $2.6 million for the third
quarter of 2002.  This amount reflects the Company's share of the net loss of an
affiliate  accounted for under the equity method. This compares to equity in net
loss of affiliate of $1.9 million in the third quarter of 2001.


Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30,
2001

Revenues

Revenues  for the nine months ended  September  30, 2002 were $30.9  million,  a
decrease of $10.2  million or 25% from  revenues  of $41.1  million for the same
period in 2001.  The  decrease in revenues  during the first nine months of 2002
was caused by planned lower volumes.

Timber deed sales for the first nine months of 2002 were $14.3 million on volume
of 111.0  million board feet  ("MMBF"),  as compared to the same period in 2001,
when timber deed sales were $20.4 million on 127.3 MMBF. The average timber deed
price was $129 per thousand  board feet ("MBF")  during the first nine months of
2002, as compared to $160 per MBF for the same period in 2001.

Log sales for the nine months  ended  September  30, 2002 were $14.6  million on
volume of 43.6 MMBF,  as compared to the same period in 2001 when log sales were
$20.3  million on 58.8 MMBF.  The  average  sales price was $335 per MBF for the
first nine  months of 2002,  as  compared  to an average of $345 per MBF for the
same period in 2001. The decrease in log prices  reflects a general  decrease in
the market.


Gross Profit

The Company had a gross loss of $1.5 million in the first nine months of 2002 as
compared to a gross  profit of $0.4  million  for the same period in 2001.  As a
percentage  of  sales  the  gross  loss  was 5% as  compared  to a gross  profit
percentage of 1% in the first nine months of 2001. The increase in gross loss as
a  percentage  of sales is a result of the fire loss of $0.7 million in 2002 and
higher logging costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $1.6 million from $6.2
million  in the first  nine  months of 2001 to $4.6  million  in the first  nine
months of 2002. The decrease was primarily  attributable  to lower wage and wage
related expenses of $0.3 million and lower professional service expenses of $0.8
million.


                                 Page 13 of 22


<PAGE>

Equity in Net Loss of Affiliate

Equity in net loss of  affiliate  was  approximately  $8.3 million for the first
nine months of 2002. This amount reflects the Company's share of the net loss of
an affiliate  accounted for under the equity method.  This compares to equity in
net loss of affiliate of $3.6 million in the first nine months of 2001.


Financial Condition and Liquidity

Operating Activities

Cash  flows  provided  by  operating  activities  during the nine  months  ended
September 30, 2002 were $5.7 million,  as compared to cash provided by operating
activities  of $12.9  million  during the same period in 2001.  The $7.2 million
decrease  is due  primarily  to the  Company's  decrease  in  sales  revenue  in
comparison to the same period in 2001.

Investing Activities

Cash flows used in investing  activities were $5.8 million during the first nine
months of 2002, as compared to $6.8 million during the same period in 2001.

Financing Activities

Cash flows used in financing  activities  for the first nine months of 2002 were
$0.0  million as compared to cash used in financing  activities  of $6.6 million
for the same period in 2001.  There were no distributions to members in the 2002
period as  compared  to $6.6  million  in  distributions  to members in the 2001
period.

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

The agreement governing the Company's 9-5/8% senior notes (the "Notes") contains
restrictive covenants, including limitations on harvest levels, land sales, cash
distributions  and the  amount of future  indebtedness.  Under  the  Notes,  the
Company's  average  annual  adjusted  harvest  volume  over any  period  of four
consecutive  years cannot exceed a volume of approximately  147 MMBF as adjusted
for  timberlands  sales and  purchased.  The Notes also limit  one-year  harvest
levels and average  annual  harvest levels for  consecutive  two-and-three  year
periods.  As of  September  30,  2002,  the Company was in  compliance  with the
covenants  requirements  pertaining to the Notes.  As of September 30, 2002, the
Company was not permitted to make any  distributions  as it had not exceeded the
requisite  Consolidated  Fixed  Charge  Coverage  Ratio  within  the  Restricted
Payments provisions of the Indenture.


                                 Page 14 of 22


<PAGE>

Through the first nine months of 2002, the Company funded its operations and met
its cash requirements for debt service from cash on hand.

Cash required to meet the Company's debt service and any cash distributions will
be significant.  To meet its working capital  requirements,  the Company for the
past several  years has been  selling logs and making  timber sales at a rate in
excess of the Manager's  estimate of the current  annual board footage growth on
the Company's timberlands.  The debt service and, prior to April 2001, quarterly
cash  distributions  have been  funded from  operations  and  borrowings.  Given
projected volumes for sales of logs and timber,  estimated current board footage
growth on the  timberlands  and the harvest  restrictions  in the Notes,  unless
prices  improve,  costs are  reduced,  new markets are  developed or the Company
makes  accretive  acquisitions,  the  Company's  ability  in the  future to make
distributions will be adversely affected.  On May 10, 2001 the Company announced
an indefinite  suspension of  distributions.  The Company  continues to evaluate
means to 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.



ITEM 4. CONTROLS AND DISCLOSURES

Within 90 days prior to the date of this Form 10-Q,  the Company  carried out an
evaluation under the supervision and with the participation of management of the
Company's  Manager,  including the Manager's Chief  Executive  Officer and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of the
Company's  disclosure  controls  and  procedures  pursuant to Exchange  Act Rule
13a-14.  Based upon that evaluation,  the Manager's Chief Executive  Officer and
Chief Financial  Officer  concluded that the Company's  disclosure  controls and
procedures  are  effective  in  timely  alerting  them to  material  information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic  Securities and Exchange  Commission filings.
There have been no significant  changes in the Company's internal controls or in
other factors which could  significantly  affect internal controls subsequent to
the date that the Company carried out its evaluation.


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On April 25,  2002,  the MLP  announced  that  several  purported  class  action
lawsuits  were filed in the Court of Chancery  of the State of Delaware  for the
County of New Castle  against the Company,  the general  partner of the MLP, the
MLP and the board of  directors  of the Manager  alleging,  among other  things,
breach of fiduciary duty and  self-dealing  by the general partner and the board
in connection with the going private transaction.


                                 Page 15 of 22


<PAGE>

The lawsuits seek to enjoin the going private transaction,  to rescind the going
private transaction if it is consummated,  and to recover damages and attorneys'
fees.

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

On October 17, 2002 the MLP announced that it had reached a tentative settlement
of the  purported  class action  lawsuits,  subject to court  approval and other
customary conditions.

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

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


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


                                 Page 16 of 22


<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a.) Exhibits


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

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


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

         T10.3  -   Contributions,  Conveyance and Assumption  Agreement  among
                    U.S. Timberlands Company, LP and certain other parties

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

         *10.5  -   Employment Agreement for Mr. Rudey

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

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

         *21.1  -   List of Subsidiaries

          99.1  -   Sarbanes-Oxley Certification of CEO

          99.2  -   Sarbanes-Oxley Certification of CFO

*    Incorporated by reference to the same numbered  Exhibit to the Registrant's
     Registration Statement on Form S-1 filed November 13, 1997.
T    Incorporated by reference to the same numbered  Exhibit to the Registrant's
     Current Report on Form 8-K filed January 15, 1998.
++   Incorporated by reference to the same numbered  exhibit to the Registrant's
     Form 10-Q filed on May 15, 2000.


(b.) Reports on Form 8-K

On October 17,  2002,  the Company  filed a Form 8-K  containing  a news release
relating  to  the  execution  of  a  definitive  agreement  with  respect  to  a
privatization  and the tentative  settlement of certain  purported  class action
lawsuits.


                                 Page 17 of 22


<PAGE>

                                   SIGNATURES



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



        Date:  November 14, 2002   U.S. TIMBERLANDS KLAMATH FALLS, LLC
                                   By:  U.S. Timberlands Services Company, LLC
                                        as Managing Member




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


                                 Page 18 of 22


<PAGE>

                                  CERTIFICATION

I, John M. Rudey, certify that:

I have reviewed this quarterly report on Form 10-Q of U.S.  Timberlands  Klamath
Falls, LLC.

1.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

2.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

3.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing  and  maintaining  disclosure  controls  and  procedures  ( as
     defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and we
     have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing of this
          quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

4.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function);

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal control; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

5.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


     Date: November 14, 2002               /s/ John M. Rudey
                                           -----------------
                                           John M.  Rudey
                                           Chairman, Chief Executive Officer
                                            and President


                                 Page 19 of 22


<PAGE>

                                  CERTIFICATION

I, Thomas Ludlow, certify that:

I have reviewed this quarterly report on Form 10-Q of U.S.  Timberlands  Klamath
Falls, LLC.

1.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

2.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

3.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing  and  maintaining  disclosure  controls  and  procedures  ( as
     defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and we
     have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing of this
          quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

4.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function);

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal control; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

5.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


     Date: November 14, 2002                     /S/ Thomas C Ludlow
                                                 -------------------
                                                 Thomas C. Ludlow
                                                 Chief Financial Officer


                                 Page 20 of 22