**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington
      D. C. 20549


**FORM
      10-QSB**


**QUARTERLY
      REPORT UNDER SECTION 13 or 15 (d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**


For
      the
      quarterly period ended June 30, 2007


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
            (I.R.S.
                Employerincorporation
                or organization)
            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) has 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




State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date.




The
      number of shares of the issuer’s outstanding common stock, which is the only
      class of its common equity, on June 30, 2007, 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






2


AUSTRALIAN
      FOREST INDUSTRIES AND SUBSIDIARY





CONSOLIDATED
      BALANCE SHEETS





June
                30,
            
            December
                31,2007
            
            2006(Unaudited)ASSETSCURRENT
                ASSETSCash
            
            $
            5,263
            
            $
            4,894Accounts
                receivable, net
            
            
            383,858
            
            
            1,493,473Inventory
            
            
            238,451
            
            
            740,384Prepaid
                expenses and other
            
            
            95,442
            
            
            33,121Total
                Current Assets
            
            
            723,014
            
            
            2,271,872PROPERTY,
                PLANT AND EQUIPMENT, net of accumulateddepreciation
                of $3,746,580 at June 30, 2007 and December 31, 2006respectively
            
            
            19,045,518
            
            
            17,929,297OTHER
                ASSETSLong-term
                timber supply contract, net of amortization of $157,026
                and$124,345
                at June 30, 2007 and December 31, 2006, respectively
            
            
            774,973
            
            
            742,307Total
                Assets
            
            $
            20,543,505
            
            $
            20,943,476LIABILITIES
                AND STOCKHOLDERS’ DEFICITCURRENT
                LIABILITIESBank
                overdraft
            
            $
            98,879
            
            $
            1,899,238Due
                to National Australia Bank
            
            
            5,602,146
            
            
            5,209,380Accounts
                payable
            
            
            7,015,369
            
            
            5,311,101Current
                portion of capitalized lease obligations
            
            
            5,537,021
            
            
            1,977,755Due
                to Timberman shareholders
            
            
            7,046,707
            
            
            6,593,951Related
                party payable
            
            
            641,003
            
            
            641,003Accrued
                payroll, related taxes and benefits
            
            
            724,612
            
            
            1,213,106Total
                Current Liabilities
            
            
            26,665,737
            
            
            22,845,534OTHER
                LIABILITIESCapitalized
                lease obligations
            
            
            4,050,858
            
            
            3,410,322Deferred
                capital gain
            
            
            1,531,380
            
            
            1,521,804Total
                Liabilities
            
            
            32,247,975
            
            
            27,777,660STOCKHOLDERS’
                EQUITYPreferred
                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 issued and outstandingin
                2007 and 2006, respectively
            
            
            257,600
            
            
            257,600Additional
                paid-in capital
            
            
            4,573,217
            
            
            4,573,217Accumulated
                other comprehensive income
            
            
            (435,336
            )
            
            302,278Accumulated
                deficit
            
            
            (16,099,951
            )
            
            (11,967,279
            )Total
                Stockholders’ Deficit
            
            
            (11,704,470
            )
            
            (6,834,184
            )Total
                Liabilities and Stockholders’ Deficit
            
            $
            20,543,505
            
            $
            20,943,476




See
      accompanying notes to financial statements.





F-1


AUSTRALIAN
      FOREST INDUSTRIES





CONSOLIDATED
      STATEMENTS OF OPERATIONS (UNAUDITED)





For
                the Three Months Ended
            
            For
                the Six Months EndedJune
                30,
            
            June
                30,2007
            
            2006
            
            2007
            
            2006REVENUE
                - SALES
            
            $
            1,378,795
            
            $
            3,892,949
            
            $
            2,034,159
            
            $
            7,342,061COSTS
                AND EXPENSESCost
                of goods sold
            
            
            117,573
            
            
            2,315,311
            
            
            611,588
            
            
            4,110,147Selling,
                general and administrative
            
            
            2,385,077
            
            
            1,970,657
            
            
            4,207,720
            
            
            4,030,781Provision
                for doubtful accounts
            
            
            84,879
            
            
            631
            
            
            84,879
            
            
            132,495Interest
                expense
            
            
            487,456
            
            
            191,986
            
            
            986,685
            
            
            393,084Depreciation
                and amortization
            
            
            166,297
            
            
            147,119
            
            
            323,592
            
            
            287,125Total
                Costs and Expenses
            
            
            3,241,282
            
            
            4,625,704
            
            
            6,214,464
            
            
            8,953,632OPERATING
                LOSS
            
            
            (1,862,487
            )
            
            (732,755
            )
            
            (4,180,305
            )
            
            (1,611,571
            )NON-OPERATING
                INCOMEOther
                income
            
            
            20,863
            
            
            40,788
            
            
            20,863
            
            
            133,288Interest
                income
            
            
            
            
            
            82,406
            
            
            
            
            
            164,031Gain
                on disposal of assets
            
            
            13,757
            
            
            493
            
            
            26,770
            
            
            103,555Total
                Non-Operating Income
            
            
            34,620
            
            
            123,687
            
            
            47,633
            
            
            400,874NET
                LOSS
            
            $
            (1,827,867
            )
            $
            (609,068
            )
            $
            (4,132,672
            )
            $
            (1,210,697
            )NET
                LOSS PER SHARE(BASIC
                AND DILUTED)
            
            $
            0.01
            
            $
            0.01
            
            $
            (0.02
            )
            $
            (0.01
            )WEIGHTED
                AVERAGE SHARESOUTSTANDING
            
            
            257,600,680
            
            
            257,400,680
            
            
            257,600,680
            
            
            257,400,680




See
      accompanying notes to financial statements.





F-2




AUSTRALIAN
      FOREST INDUSTRIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS (UNAUDITED)


For
                  the Six Months EndedJune
                  30,2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (4,132,672
              )
              $
              (1,210,697
              )Adjustments
                  to reconcile net loss to cash flows fromoperating
                  activities:Depreciation
                  and amortization
              
              
              323,592
              
              
              173,495Amortization
                  of leaseback gain
              
              
              (26,770
              )
              
              (161,148
              )Changes
                  in operating assets and liabilities:(Increase)
                  decrease in prepaid expenses
              
              
              (62,321
              )
              
              (26,347
              )(Increase)
                  decrease in inventories
              
              
              501,933
              
              
              (537,597
              )(Increase)
                  decrease in receivables
              
              
              1,109,615
              
              
              (1,260,223
              )(Increase)
                  decrease in Timber contract
              
              
              (32,666
              )
              
              84,998Increase
                  (decrease) in accounts payable and other liabilities
              
              
              1,704,268
              
              
              1,091,253Increase
                  (decrease) in bank overdraft
              
              
              (1,800,359
              )
              
              1,499,674Increase
                  (decrease) in related party payable
              
              
              
              
              
              81Increase
                  (decrease) in accrued payroll
              
              
              (488,,494
              )
              
              43,782Increase
                  (decrease) in taxes payable
              
              
              
              
              
              69,437Net
                  Cash Used in Operating Activities
              
              
              (2,903,874
              )
              
              (233,292
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESDisposal
                  costsCapital
                  additions
              
              
              (80,826
              )
              
              (3,232,510
              )Investment
                  in long-term timber supply contractDisposal
                  of capital assets
              
              
              
              
              
              237,250Net
                  Cash Used in Investing Activities
              
              
              (80,826
              )
              
              (2,995,260
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESBank
                  overdraftLoans
                  from shareholders
              
              
              452,756
              
              
              2,488,382Capital
                  leases
              
              
              4,199,802
              
              
              780,656National
                  Australian Bank loan
              
              
              392,766
              
              
              660Sale
                  leaseback deferred credit
              
              
              9,576
              
              
              221Net
                  Cash Provided By (Used In) Financing Activities
              
              
              5,054,900
              
              
              3,269,919EFFECT
                  OF EXCHANGE RATES ON CASH
              
              
              (2,069,831
              )
              
              (168,381
              )INCREASE
                  (DECREASE) IN CASH
              
              
              369
              
              
              (127,014
              )CASH
                  AT BEGINNING OF PERIOD
              
              
              4,894
              
              
              127,014CASH
                  AT END OF PERIOD
              
              $
              5,263
              
              $
              -





See
      accompanying notes to financial statements.





F-3


AUSTRALIAN
      FOREST INDUSTRIES AND SUBSIDIARY





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


June
      30,
      2007




NOTE
      A -
      BASIS OF PRESENTATION




The
      accompanying condensed consolidated 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 six
      months ended June 30, 2007 are not necessarily indicative of the results that
      may be expected for the year ending December 31, 2007. For further
      information, refer to the financial statements and footnotes thereto included
      in
      the Australian Forest Industries annual report on Form 10-KSB for the year
      ended
      December 31, 2006.





NOTE
      B -
      GOING CONCERN





As
      indicated in the accompanying financial statements, the Company incurred a
      net
      loss of $4,132,672 for the six months ended June 30, 2007, and has a
      Stockholders’ Deficit of $11,704,470 at June 30, 2007. Management's plans
      include the raising of capital through the equity markets to fund future
      operations, seeking additional acquisitions, and generating of revenue through
      its business. Additionally, even if the Company does raise sufficient capital
      to
      support its operating expenses and generate adequate revenues, there can be
      no
      assurances that the revenue will be sufficient to enable it to develop business
      to a level where it will generate profits and cash flows from operations.
      Additionally, during the fourth quarter, the Company experienced a severe
      liquidity problem and was having difficulty obtaining logs to operate its
      businesses. Currently, management has entered into a processing contract with
      Weyerhaeuser to process their logs for which the Company is receiving a
      processing fee. These matters raise substantial doubt about the Company's
      ability to continue as a going concern. However, the accompanying consolidated
      financial statements have been prepared on a going concern basis, which
      contemplates the realization of assets and satisfaction of liabilities in the
      normal course of business. These consolidated financial statements do not
      include any adjustments relating to the recovery of the recorded assets or
      the
      classification of the liabilities that might be necessary should the Company
      be
      unable to continue as a going concern.





NOTE
      C -
      APPOINTMENT OF ADMINISTRATOR OF INTEGRATED FOREST PRODUCTS PTY LTD





Our
      majority shareholder, Timbermans Group Pty Ltd (“TG”) has been a defendant in a
      litigation brought by Oz Investmentcorp Pty Ltd (“Oz”), a company owned and
      controlled by Mr. Jeffrey Revelle Reade. TG and OZ were unable to reach
      settlement terms in the calendar quarter ending June 30, 2007. During that
      quarter, we concluded that our subsidiary, Integrated Forest Products Pty Ltd
      (“IFP”) should appoint Romanis Cant as an Administrator.





Immediately
      thereafter, our Board of Directors in conjunction with the National Australia
      Bank appointed PriceWaterhouseCoopers as Receiver Managers of IFP and TG. It
      was
      decided that this course of action was required in order to preserve the
      Company’s assets.





Oz
      and
      Mr. Revelle-Reade foreclosed early on a loan agreement due to repaid in full
      by
      October 2007. TG and AUFI attempted in good faith to settle the matter in the
      interests of all shareholders and believed a settlement was agreed to. However,
      contrary to our perceived settlement terms, Oz & Revelle-Reade proceeded to
      attempt to liquidate TG.





Subsequent
      to the above appointments, the Australian Government has offered a $4 million
      grant, subject to certain conditions, in order to assist the business going
      forward.





F-4


**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
      the Company's 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, including the Company's dependence
      on weather-related factors, introduction and customer acceptance of new
      products, the impact of competition and price erosion, as well as supply and
      manufacturing restraints and other risks and uncertainties. The foregoing list
      should not be construed as exhaustive, and the Company disclaims 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 plans of the Company will be achieved. The Company wishes
      to
      caution readers not to place undue reliance on any such forward-looking
      statements, which speak only as of the date made.





During
      the fourth quarter, the Company experienced a severe liquidity problem and
      was
      having difficulty obtaining logs to operate its businesses. Currently,
      management has entered into a processing contract with Weyerhaeuser to process
      their logs for which the Company is receiving a processing fee.





On
      March
      24, 2007, the Company terminated agreements with each of Simba Mines, Inc.,
      and
      Bongani International Group Limited due to the parties' failure to reach
      agreement on key terms. As a result of the termination, both the Stock Purchase
      Agreement and the Share Sale Agreement were mutually terminated by the parties
      thereto on March 24, 2007.





Oz
      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. The Timbermans Group
      is
      currently negotiating with Oz and has agreed to provide additional
      collateral.





**RESULTS
      OF OPERATIONS**





Operating
      costs for the three-months ended June 30, 2007 aggregated $3,241,282. This
      includes costs incurred in general and administrative selling of $2,385,077.
      We
      incurred an operating loss of $(1,862,487) and a total net loss of $(1,827,867)
      or $(0.01) per share.





Operating
      costs for the six--month period ended June 30, 2007 aggregated $(6,214,464).
      This includes general and administrative selling of $4,207,720 and interest
      expenses of $986,685. As a result of the above we realized a net loss of
      $(4,180,305) for the six-month period ended June 30, 2007 or $(0.01) per
      share.





**LIQUIDITY
      AND CAPITAL RESOURCES**





On
      June
      30, 2007 we had current assets of $20,543,505 and on December 31, 2006 we had
      current assets of $20,943,476.





Net
      cash
      used in operating activities for the six-month period ended June 30, 2007 was
      $(2,903,874). Net cash used in investing activities for the six-month period
      ended June 30, 2007 was $(80,826). Net cash provided by financing activities
      was
      $5,054,900 for this period.





**APPOINTMENT
      OF ADMINISTRATOR OF INTEGRATED FOREST PRODUCTS PTY LTD**





Our
      majority shareholder, Timbermans Group Pty Ltd (“TG”) has been a defendant in a
      litigation brought by Oz Investmentcorp Pty Ltd (“Oz”), a company owned and
      controlled by Mr. Jeffrey Revelle Reade. TG and OZ were unable to reach
      settlement terms in the calendar quarter ending June 30, 2007. During that
      quarter, we concluded that our subsidiary, Integrated Forest Products Pty Ltd
      (“IFP”) should appoint Romanis Cant as an Administrator.




3




Immediately
      thereafter, our Board of Directors in conjunction with the National Australia
      Bank appointed PriceWaterhouseCoopers as Receiver Managers of IFP and TG. It
      was
      decided that this course of action was required in order to preserve the
      Company’s assets.





Oz
      and
      Mr. Revelle-Reade foreclosed early on a loan agreement due to repaid in full
      by
      October 2007. TG and AUFI attempted in good faith to settle the matter in the
      interests of all shareholders and believed a settlement was agreed to. However,
      contrary to our perceived settlement terms, Oz & Revelle-Reade proceeded to
      attempt to liquidate TG.





Subsequent
      to the above appointments, the Australian Government has offered a $4 million
      grant, subject to certain conditions, in order to assist the business going
      forward.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





The
      Company’s 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 the Company 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, the Company evaluates its estimates,
      including those related to bad debts, income taxes and contingencies and
      litigation. The Company bases its 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.





**RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS**





***Recent
      Accounting Pronouncements Affecting The Company:***





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. The Company expects to adopt the provisions of FIN 48
      beginning in the first quarter of 2007. The Company is currently in the process
      of determining the impact, if any, of adopting the provisions of FIN 48 on
      its
      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. The Company expects to adopt the provisions of FIN 48 beginning
      in the first quarter of 2008. The Company is currently evaluating the potential
      impact, if any, that the adoption of SFAS No. 157 will have on its consolidated
      financial statements.





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”).
      SAB No. 108 provides guidance on how prior year misstatements should be
      considered when quantifying misstatements in the current year financial
      statements. SAB No. 108 requires registrants to quantify misstatements using
      both a balance sheet and an income statement approach and evaluate whether
      either approach results in quantifying a misstatement that, when all relevant
      quantitative and qualitative factors are considered, is material. SAB No. 108
      does not change the guidance in SAB No. 99, “Materiality,” when evaluating the
      materiality of misstatements.




4





SAB
      No.
      108 is effective for fiscal years ending after November 15, 2006. Upon initial
      application, SAB No. 108 permits a one-time cumulative effect adjustment to
      beginning retained earnings. The Company adopted SAB No. 108 for the fiscal
      year
      ended December 31, 2006. Adoption of SAB No. 108 did not have a material impact
      on the 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 determined what
      impact, if any, that adoption will have on our results of operations, cash
      flows
      or financial position.




5


**ITEM
      3. CONTROLS AND PROCEDURES**




(a)
      Our
      principal executive officer and principal financial officer have each evaluated
      the effectiveness of our disclosure controls and procedures (as defined in
      Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to
      the
      filing date of this quarterly report and have each concluded that our disclosure
      controls and procedures are adequate.




(b)
      There
      were no significant changes in our internal controls or in other factors that
      could significantly affect these controls subsequent to the date of their
      evaluation, including any corrective actions with regard to significant
      deficiencies and material weaknesses.




(c)
      Not
      applicable




6




**PART
      II**




**Item
      1. Legal Proceedings**





Oz
      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. The Company is currently
      negotiating with Oz and had agreed to provide additional
      collateral.





**Item
      2. Changes in Securities**




None





**Item
      3. Defaults Upon Senior Securities**




None





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




None





**Item
      5. Other Information**




None





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





a.
      Exhibit Index





Exhibit
      31.1 Certification of Chief Executive Officer





Exhibit
      31.2 Certification of Chief Financial Officer





Exhibit
      32.1 Certification of Chief Executive Officer





Exhibit
      32.1 Certification of Chief Financial Officer




b.
      Reports on Form 8-K




None.




7




**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 TimmsName:
                Michael TimmsTitle:
                CEO, President and Chairman of the Board
              Date:
                August 20, 2007




/s/
                Colin BairdName:
                Colin BairdTitle:
                Chief Financial Officer
              Date:
                August 20, 2007






8