UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington
D. C. 20549
 
 FORM
10-Q
   x    
QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For the
quarterly period ended September 30, 2008
  oTRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
  For the transition period from
_________________ to ______________
  Commission file number
0-25909
 
 Australian
Forest Industries
 (Exact
name of small business issuer as specified in its charter)
 
 Nevada
                86-0931332(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification No.)
 
 4/95
Salmon Street, Port Melbourne, Victoria
 Australia,
3207
 (Address
of principal executive offices) (Zip Code)
 
 Issuer's
telephone number: 011 61 3 8645 4340
  Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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 o
  Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).  Yesx  Noo
  Indicate
by check mark whether the registrant is a large accelerated filer, a
non-accelerated filer, or a smaller reporting company.  See the
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large Accelerated
FileroAccelerated
FileroNon-Accelerated
FileroSmaller Reporting Companyx
 
 The
number of shares of the issuer’s outstanding common stock, which is the only
class of its common equity, on November 17, 2009, was
257,600,680.
    
  ITEM
1 FINANCIAL STATEMENTS
 
 CONTENTS
 
 Consolidated
      Balance Sheets
              F-1Consolidated
      Statements of Operations
              F-2Consolidated
      Statements of Cash Flows
              F-3Notes
      to Consolidated Financial Statements
              F-4
  
    ITEM 1.
FINANCIAL STATEMENTS
   AUSTRALIAN
FOREST INDUSTRIES, INC. AND SUBSIDIARY
  CONSOLIDATED
      BALANCE SHEETSASSETSSeptember
      30,
                
                
                December
      31,2008
                
                
                2007(Unaudited)TOTAL
      ASSETS
                
                
                -
                
                
                
                -LIABILITIES
      AND STOCKHOLDERS’ DEFICITCURRENT
      LIABILITIESNet
      liabilities of discontinued entities
                
                $
                $25,647,641
                
                
                $
                $34,412,897Total
      Current Liabilities
                
                
                25,647,641
                
                
                
                34,412,897STOCKHOLDERS’
      DEFICITPreferred
      stock, par value $0.001, 5,000,000 sharesauthorized,
      none issued and outstandingCommon
      stock, par value $0.001, 300,000,000 sharesauthorized,
      257,600,680 and 257,600,680 issued andoutstanding
      in 2008 and 2007, respectively
                
                
                257,600
                
                
                
                257,600Additional
      paid-in capital
                
                
                4,573,217
                
                
                
                4,573,217Accumulated
      other comprehensive income
                
                
                204,559
                
                
                
                (1,843,600
                )Accumulated
      deficit
                
                
                (30,683,017
                )
                
                
                (37,400,114
                )Total
      Stockholders’ Deficit
                
                
                (25,647,641
                )
                
                
                (34,412,897
                )Total
      Liabilities and Stockholders’ Deficit
                
                $
                -
                
                
                $
                -
  
 See
accompanying notes to financial statements.
 AUSTRALIAN
FOREST INDUSTRIES AND SUBSIDIARY
  F-1
 AUSTRALIAN
FOREST INDUSTRIES, INC. AND SUBSIDIARY
   CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
  For
      the Three Months Ended
                
                
                For
      the Nine Months EndedSeptember
      30th,
                
                
                September
      30th,2008
                
                
                2007
                
                
                2008
                
                
                2007DISCONTINUED
      OPERATIONSLoss
      from discontinued operations(Net
      of income tax expense of $0)
                
                $
                111,479
                
                
                $
                598,056
                
                
                $
                566,616
                
                
                $
                4,730,732Gain
      on disposal of discontinued assets
                
                
                -
                
                
                
                -
                
                
                
                (7,283,713
                )
                
                
                -(Net
      of income tax expense of $0)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      Discontinued Operations
                
                
                111,479
                
                
                
                598,056
                
                
                
                (6,717,097
                )
                
                
                4,730,732NET
      Income (Loss)
                
                $
                (111,479
                )
                
                $
                ( 598,056
                )
                
                $
                6,717,097
                
                
                $
                (4,730,732
                )NET
      GAIN (LOSS) PER SHARE(BASIC
      AND DILUTED)Continuing
      operations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Discontinued
      operations
                
                $
                -
                
                
                $
                -
                
                
                $
                0.03
                
                
                $
                (0.02
                )WEIGHTED
      AVERAGE COMMON SHARESOUTSTANDING
                
                
                257,600,680
                
                
                
                257,600,680
                
                
                
                257,600,680
                
                
                
                257,600,680
   See
accompanying notes to financial statements.
 AUSTRALIAN
FOREST INDUSTRIES AND SUBSIDIARY
 
 F-2
  
 
  AUSTRALIAN
FOREST INDUSTRIES, INC. AND SUBSIDIARY
   CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
  For
      the Six Months EndedJune
      30,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES
              
              
              -
              
              
              
              -DISCONTINUED
      OPERATIONSLoss
      from discontinued operations
              
              $
              (566,616
              )
              
              $
              (4,730,732
              )Gain
      on sale of land, buildings, and equipment
              
              
              7,283,713
              
              
              
              -(Decrease)
      increase in net liabilities of entities discontinued
              
              
              (8,765,256
              )
              
              
              4,870,286Cash
      provided by (used in) discontinued operations
              
              
              (2,048,159
              )
              
              
              139,554EFFECT
      OF EXCHANGE RATE ON CASH
              
              
              2,048,159
              
              
              
              (139,554
              )CASH
      END OF YEAR
              
              $
              -
              
              
              $
              -
  
  See
accompanying notes to financial statements.





F-3





AUSTRALIAN
FOREST INDUSTRIES AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


September
30, 2008








NOTE A
-                      BASIS
OF PRESENTATION AND NATURE OF BUSINESS





The
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information.  Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary in order to make
the financial statements not misleading have been included.  Results
for the three and nine months ended September 30, 2008 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2008.  For further information, refer to the financial statements and
footnotes thereto included in the Australian Forest Industries annual report on
Form 10-KSB/A for the year ended December 31, 2007.





Nature of
Business





Australian
Forest Industries (“the Company”), through its wholly owned subsidiary
Integrated Forest Products Pty Ltd (“Integrated”), previously operated a saw
mill in Australia which cut pine timber into building products to supply the
commercial and residential industry along the eastern coast of Australia. In
July 2007,  Integrated went into receivership and has formally discontinued
its operations.





Going Concern and
Liquidation





As shown
in the accompanying financial statements, the company had an accumulated
deficit of $30,683,017 at September 30, 2008.  Management plans to
dissolve the business and liquidate the liabilities.  It also plans to
spin out the bankrupt subsidiary and look for a merger candidate for the public
shell.   The Company’s wholly owned subsidiary, Integrated,
 is entering into bankruptcy under Australian laws. The accompanying
consolidated financial statements have been prepared on a liquidation
basis.





NOTE B –
LITIGATION





Oz
Investmentcorp Pty Ltd. has initiated a letter of demand for the $1,578,600
due from the Timbermans Group for full payment of funds lent to the Timbermans
Group. Timbermans Group controls the majority of common stock in the
Company.  The Company had agreed to provide additional collateral
and is currently negotiating with Oz.





NOTE C -
ADMINISTRATION





The
Company’s wholly owned subsidiary in Australia, Integrated Forest Products, is
currently in Administration and is being operated by Court appointed
administrators.  Administration in Australia is  similar to
receivership in the U.S.  The administrators plan to put the
subsidiary into bankruptcy.





NOTE D -
GAIN ON SALE OF DISCONTINUED ASSETS





In
October 2007, the Company’s administrator received a contract of sale for its
land, buildings, and plant equipment which was dependent upon obtaining certain
land use approvals and other related environmental approvals.  At
December 31, 2007, there was no assurance that such approvals would be
obtained.  The Company accordingly, at December 31, 2007, reduced the
value of its plant and equipment to the contract amount of
$964,403.  There was no adjustment for land and buildings since the
contract value exceeded the






F-4





AUSTRALIAN
FOREST INDUSTRIES AND SUBSIDIARY





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


September
30, 2008








NOTE D -
GAIN ON SALE OF DISCONTINUED ASSETS (CONTINUED)





carrying
value of the land on the books and records of the Company.  In 2008,
the sale was completed.  A summary of the gain on sale of
discontinued assets is as follows:




Sale
      price of land, buildings, and plant equipment
              
              $
              11,091,600Net
      value of land, buildings, and plant equipment
              
              
              3,414,373Gross
      profit on sale of assets
              
              
              7,677,227Administrative
      expenses
              
              
              393,514Net
      gain on disposition
              
              $
              7,283,713


The
proceeds of sale will be used principally to liquidate secured debt and pay
administrative expenses.





NOTE E -
PRO-FORMA FINANCIAL STATEMENT-SUBSEQUENT EVENT





The
Company’s wholly owned subsidiary in Australia is Integrated Forest Products,
which was put into receivership during the year 2007.  In connection
with the receivership, the receiver formed a new Australian wholly owned
subsidiary, Australian Forest Industries, LTD., and exchanged all of the shares
of Integrated Forest Products for Australian Forest Industries, LTD.
shares.  On October 15, 2008, the board of Directors of Australian
Forest Industries approved the transfer of all the outstanding shares of
Australian Forest Industries, LTD. to the principal shareholders and Directors,
personally.  Accordingly, the unaudited pro-forma financial statements
as at September 30, 2008 are as follows:


Balance
      Sheet As at September 30th,
      2008
            
            
            Pro-Forma
      Adjustments
            
            
            Pro-Forma
      Balance Sheet September 30th
      2008ASSETSTotal
      Assets
            
            
            -
            
            
            
            -
            
            
            
            -LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      LiabilitiesNet liabilities of discontinued
      entities
            
            $
            25,647,641
            
            
            $
            (25,647,641
            )
      (1)Total
      Current Liabilities
            
            
            25,647,641
            
            
            
            (25,647,641
            )Stockholders’
      DeficitPreferred
      stock, par value $0.001,300,000,000
      shares authorized,257,600,680
      issued and outstandingat
      September 30, 2008
            
            
            257,600
            
            
            
            
            
            
            $
            257,600Additional paid
      -in capital
            
            
            4,573,217
            
            
            
            
            
            
            
            4,573,217Accumulated
      other comprehensive income
            
            
            204,559
            
            
            
            (204,559
            )(2)Accumulated
      deficit
            
            
            
            
            
            
            204,559
            (2)(30,683,017
            )
            
            
            25,647,641
            (1)
            
            
            (4,830,817
            )Total
      Liabilities and Shareholders’ Deficit
            
            $
            (25,647,641
            )
            
            
            25,647,641
            
            
            $
            -


Adjustments


(1) Transfer of Debt to
principal shareholder, personally.


(2) Realization of currency
gains.






F-5





ITEM
2.                      Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.





CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING STATEMENTS





It should
be noted that this Management's Discussion and Analysis of Financial Condition
and Results of Operations may contain "forward-looking statements." The terms
"believe," "anticipate," "intend," "goal," "expect," and similar expressions may
identify forward-looking statements. These forward-looking statements represent
our current expectations or beliefs concerning future events. The matters
covered by these statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those set forth in the
forward-looking statements. The foregoing list should not be construed as
exhaustive, and we disclaim any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date of
such statements, or to reflect the occurrence of anticipated or unanticipated
events. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation that the strategy, objectives or
other of our plans will be achieved. We wish to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made.




Background




As shown
in the accompanying consolidated financial statements, we realized a net income
of $6,828,576 in 2008 but had an accumulated deficit of $30,683,017 at September
30, 2008.  The accompanying consolidated financial statements and
discontinued operations of the Australian subsidiary have been prepared on a
liquidation basis.  Since the end of the quarter covered by the report, we
spun out our wholly owned subsidiary which held all of our total current
liabilities of $25,647,641 as at September 30, 2008.  We have been,
and are still, looking for a merger candidate for the public shell.




On July
31, 2007, PricewaterhouseCoopers Australia was appointed Receivers and Managers
of both Integrated Forest Products Pty. Ltd., our wholly owned subsidary, and
Timbermans Group Pty. Ltd., our major shareholder. On this same date, Deloitte
was appointed Liquidator of Timbermans. Romanis Cant was appointed Liquidator of
Integrated on October 18, 2007.




Business
operations of Integrated were continued until November 30, 2007 when all the
assets of Integrated were offered for sale as a going concern. No offers capable
of acceptance by the Receivers were submitted. As a result, the Receivers sold
the land, plant and equipment of IFP as individual assets.




Timbermans
owned two major assets, a rural property and a majority of our shares.  In
October 2007, our administrator received a contract of sale for its land,
buildings, and plant equipment which was dependent upon obtaining certain land
use approvals and other related environmental approvals.  At December
31, 2007, there was no assurance that such approvals would be
obtained.  Accordingly, at December 31, 2007, we reduced the value of
our plant and equipment to the contract amount of $964,403.  There was
no adjustment for land and buildings since the contract value exceeded the
carrying value of the land on our books and records.  (See Note D of
the Financial Statements).




Our
current business objective is to investigate and, if such investigation
warrants, acquire a target company or business seeking the perceived advantages
of being a publicly held corporation. We will not restrict our potential
candidate target companies to any specific business, industry or geographical
location and, thus, may acquire any type of business.




We do not
currently engage in any business activities that provide us with positive cash
flows. As such, the costs of investigating and analyzing business combinations
will be paid through funds from financing to be obtained.




We
anticipate incurring costs related to filing of Exchange Act reports and costs
relating to consummating an acquisition.






1




We
believe we will be able to meet these costs with amounts to be loaned to or
invested in us by our stockholders or other investors.




We may
consider a business which has recently commenced operations, is a developing
company in need of additional funds for expansion into new products or markets,
is seeking to develop a new product or service, or is an established business
which may be experiencing financial or operating difficulties and is in need of
additional capital. In the alternative, a business combination may involve the
acquisition of, or merger with, a company which does not need substantial
additional capital, but which desires to establish a public trading market for
its shares, while avoiding, among other things, the time delays, significant
expense, and loss of voting control which may occur in a public
offering.




Any
target business that is selected may be a financially unstable company or an
entity in its early stages of development or growth, including entities without
established records of sales or earnings. In that event, we will be subject to
numerous risks inherent in the business and operations of financially unstable
and early stage or potential emerging growth companies. In addition, we may
effect a business combination with an entity in an industry characterized by a
high level of risk, and, although our management will endeavor to evaluate the
risks inherent in a particular target business, there can be no assurance that
we will properly ascertain or assess all significant risks.




RESULTS
OF OPERATIONS





Total loss
from discontinued operations for the three months ended September 30,
2008 was $111,479, and total gain from discontinued operations for the nine
months ended September 30, 2008 was $6,717,097.  By comparison, the three
months and nine months ended September 30, 2007, we had a net loss from
discontinued operations of $598,056 and $4,730,732, respectively.  The
change over the nine-month comparison period is attributable to a gain on the
disposal of discontinued assets in the nine months ended September 30, 2008 of
$7,283,713.  The gain on the disposal of discontinued activities was
brought about by the sale by our administrator of our land, buildings, and plant
equipment.




LIQUIDITY
AND CAPITAL RESOURCES





Cash
provided by discounted operations for the nine-month period ended September
30, 2007 was $139,554.  Cash used in discounted operations for the
nine-month period ended September 30, 2008 was $2,048,159.





This
change was brought about as a result of a decrease in the loss from discontinued
operations from $4,730,732 to $566,616 over the two periods and decrease in net
liabilities from discontinued operations from $4,870,286 to ($8,765,256) over
the two periods which was partially offset by a gain on the sale of land,
buildings and equipment of $7,283,713 in the nine months ended September 30,
2008.  We realized no net cash provided by either financing or
investing activities for the nine-month periods ended September 30,
2007 and 2008.





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





Our
discussion and analysis of its financial condition and results of operations are
based upon its financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.  The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities.  On an on-going basis, we evaluate our estimates,
including those related to bad debts, income taxes and contingencies and
litigation.  We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates under
different assumptions or conditions.






2





RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





Recent
Accounting Pronouncements Affecting Us:





In
June 2006, the Financial Accounting Standards Board (“FASB”) issued
Interpretation 48, “Accounting for Income Tax Uncertainties” (“FIN 48”). FIN 48
defines the threshold for recognizing the benefits of tax return positions in
the financial statements as “more-likely-than-not” to be sustained by the taxing
authority. Recently issued literature also provides guidance on the
derecognition, measurement and classification of income tax uncertainties, along
with any related interest and penalties. FIN 48 also includes guidance
concerning accounting for income tax uncertainties in interim periods and
increases the level of disclosures associated with any recorded income tax
uncertainties. FIN 48 is effective for fiscal years beginning after
December 15, 2006.  We are currently in the process of
determining the impact, if any, of adopting the provisions of FIN 48 on our
financial position, results of operations and liquidity.




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which
defines fair value, establishes a framework for measuring fair value under other
accounting pronouncements that permit or require fair value measurements,
changes the methods used to measure fair value and expands disclosures about
fair value measurements. In particular, disclosures are required to provide
information on the extent to which fair value is used to measure assets and
liabilities; the inputs used to develop measurements; and the effect of certain
of the measurements on earnings (or changes in net assets). SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. Early adoption, as of the beginning of an entity’s
fiscal year, is also permitted, provided interim financial statements have not
yet been issued.  We are currently evaluating the potential impact
that the adoption of SFAS No. 157 will have on our consolidated financial
statements.




In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities(“SFAS 159”).  SFAS 159 allows entities to measure at
fair value many financial instruments and certain other assets and liabilities
that are not otherwise required to be measured at fair value. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. We have
not yet determined what impact, if any, that adoption will have on our
results of operations, cash flows or financial position.




Item
3. Quantitative and Qualitative Disclosure About Market Risk.





Not
applicable






3





Item 4/4T. – Controls and
Procedures





(a)
            Disclosure
      Controls and Procedures.


As of the
end of the period covering this Form 10-Q, we evaluated the effectiveness
of the design and operation of our “disclosure controls and procedures”.
We conducted this evaluation under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer.




(i)
Definition of Disclosure Controls and Procedures.


Disclosure
controls and procedures are controls and other procedures that are designed with
the objective of ensuring that information required to be disclosed in our
periodic reports filed under the Exchange Act, such as this report, is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms. As defined by the SEC, such disclosure controls and
procedures are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, including the
Chief Executive Officer and Chief Financial Officer, in such a manner as to
allow timely disclosure decisions.




(ii)
Conclusions with Respect to Our Evaluation of Disclosure Controls and
Procedures.


Our
Chief  Executive  Officer and Chief Financial  Officer 
determined that, as of the end of the period covered by this report, 
these  controls and  procedures  are adequate and effective in
alerting them in a timely manner to material information relating to us required
to be included in our periodic SEC filings.






(b)
Changes in Internal Controls.


There
have been no changes in our internal controls over financial reporting that
could significantly affect these controls subsequent to the date of their
evaluation.




PART
II


Item
1. Legal Proceedings




No
material changes.




Item
1A Risk Factors





No
material changes.





Item
2. Unregistered Sale of Equity Securities and Use of Proceeds





None





Item
3. Defaults Upon Senior Securities





None





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





Although
we have not submitted any matters to a vote of our security holders, on November
14, 2008, we informed our shareholders in a Preliminary Information Statement
filed on Schedule 14C with the U.S. Securities and Exchange Commission that a
majority of our shareholders have signed a written consent to change our
jurisdiction of incorporation from Nevada to Delaware by merging with a
wholly-owned subsidiary or ours, and we hereby reference the information in that
Preliminary Information Statement.  If we proceed with this
reincorporation, it will become effective approximately twenty days after we
file a Definitive Information Statement on Schedule 14C with the U.S. Securities
and Exchange Commission and we mail a copy of such Definitive Information
Statement to our shareholders.  As a result of the incorporation and
as set out in the Preliminary Information Statement,






4





●
            certain
      of your rights as shareholders will change as we will be governed by
      different laws and different charter
documents,





●
            the
      number of our authorized stock will decrease from three-hundred million
      shares of common stock and five million shares of preferred stock to one
      hundred and forty five million shares of common stock and five million
      shares of preferred stock,





●
            every
      one hundred of our shares currently held by our shareholders will be
      exchanged for one share of our wholly-owned subsidiary’s common stock
      resulting in an increase in the number of authorized but unissued common
      stock,





●
            our
      name will become the name of our wholly-owned subsidiary,
    and





●
            certain
      of our directors and their affiliates will sell their shares of our common
      stock.





Although
we have yet to identify a merger partner, we have previously announced that we
are seeking a merger partner.  Our majority shareholders and
management believe that these actions will make us a more attractive merger
candidate.





Item
5. Other Information





None





Item
6. Exhibits





Exhibit
Index





Exhibit
31.1 Certification of Chief Executive Officer


Exhibit
31.2 Certification of Acting Principal Accounting Officer


Exhibit
32.1 Certification of Chief Executive Officer


Exhibit
32.1 Certification of Acting Principal Accounting Officer





5








SIGNATURES


In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





AUSTRALIAN
FOREST INDUSTRIES





/s/ Michael
Timms


Name:
Michael Timms


Title:
CEO, President and Chairman of the Board


Date:  November
17, 2008





/s/ Colin
Baird


Name:
Colin Baird


Title:
Chief Financial Officer


Date:
November 17, 2008