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 June 30, 2008




o TRANSITION
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).  Yes oNo  x




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 Filer o Accelerated
Filer o Non-Accelerated
Filer o Smaller
Reporting Company  x




Check
whether the registrant filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.  Yes o No o (not
applicable)




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 August 19, 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 SHEETSASSETSJune
      30,
                
                
                December
      31,2008
                
                
                2007(Audited)TOTAL
      ASSETS
                
                
                -
                
                
                
                -LIABILITIES
      AND STOCKHOLDERS’ DEFICITCURRENT
      LIABILITIESNet
      liabilities of entities discontinued
                
                $
                30,481,346
                
                
                $
                34,412,897Total
      Current Liabilities
                
                
                30,481,346
                
                
                
                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
                
                
                (4,740,625
                )
                
                
                (1,843,600
                )Accumulated
      deficit
                
                
                (30,571,538
                )
                
                
                (37,400,114
                )Total
      Stockholders’ Deficit
                
                
                (30,481,346
                )
                
                
                (34,412,897
                )Total
      Liabilities and Stockholders’ Deficit
                
                $
                -
                
                
                $
                -
 
 
 
 
 
  
 See
accompanying notes to financial statements.
  F-1
  
  AUSTRALIAN
FOREST INDUSTRIES, INC. AND SUBSIDIARY
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
 For
      the Three Months Ended
                
                
                For
      the Six Months EndedJune
      30,
                
                
                June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007DISCONTINUED
      OPERATIONS(Gain)
      loss from discontinued operations(Net
      of income tax expense of $0)
                
                $
                251,642
                
                
                $
                1,827,876
                
                
                $
                455,137
                
                
                $
                4,132,676(Gain)
      on disposal of discontinued assets
                
                
                (7,283,713
                )
                
                
                -
                
                
                
                (7,283,713
                )
                
                
                -(Net
      of income tax expense of $0)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      Discontinued Operations
                
                
                7,032,071
                
                
                
                1,827,867
                
                
                
                6,828,576
                
                
                
                4,132,672NET
      INCOME (LOSS)
                
                $
                7,032,071
                
                
                $
                (1,827,867
                )
                
                $
                6,828,576
                
                
                $
                (4,132,672
                )NET
      GAIN (LOSS) PER SHARE(BASIC
      AND DILUTED)Continuing
      operations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Discontinued
      operations
                
                $
                0.03
                
                
                $
                (0.01
                )
                
                $
                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.
  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
      OPERATIONSGain
      (loss) from discontinued operations
                
                $
                (455,137
                )
                
                $
                (4,132,672
                )Gain
      on sale of land, buildings, and equipment
                
                
                7,283,713
                
                
                
                -(Decrease)
      increase in net liabilities of entities discontinued
                
                
                (3,931,551
                )
                
                
                4,870,286Cash
      provided by (used in) discontinued operations
                
                
                2,897,025
                
                
                
                737,614EFFECT
      OF EXCHANGE RATE ON CASH
                
                
                2,897,025
                
                
                
                (737,614
                )CASH
      END OF YEAR
                
                $
                -
                
                
                $
                -
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 See
accompanying notes to financial statements.
  F-3
  
  AUSTRALIAN
FOREST INDUSTRIES, INC. AND SUBSIDIARY
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2008
 
 
 NOTE A
-                      BASIS
OF PRESENTATION AND NATURE OF BUSINESS
 
 The
accompanying condensed 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 six month periods ended June 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 IndustriesInc. 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 2008, its wholly owned subsidiary in Australia went into receivership and
ultimately into bankruptcy,  and has formerly discontinued its
operations.
 
 Going Concern and
Liquidation
 
 As shown
in the accompanying consolidated financial statements, the Company incurred a
net income of $6,828,576 in 2008 and had an accumulated deficit of $30,571,538
at June 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 is entering into
bankruptcy under Australian laws. The accompanying consolidated financial
statements and discontinued operations of the Australian subsidiary have been
prepared on a liquidation basis.
 
 NOTE B –
LITIGATION
 
 Oz
Investment Corp 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.  The Company is currently negotiating with Oz and
had agreed to provide additional collateral.
 
 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 carrying value of the land on the books and records
of the Company.  An analysis of the gain on sale of discontinued
assets is as follows:
  F-4
 
  AUSTRALIAN
FOREST INDUSTRIES, INC. AND SUBSIDIARY
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 June 30,
2008
 
 
 NOTE D -
GAIN ON SALE OF DISCONTINUED ASSETS (CONTINUED)
 
 Sale
      price of land, buildings, and plant equipment
                
                $
                11,091,600Net
      value of land, buildings, and plant equipment
                
                
                3,414,373Gross
      profit and 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.


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 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.




Background




As shown
in the accompanying consolidated financial statements, the Company incurred a
net income of $6,828,576 in 2008 and had an accumulated deficit of $30,571,538
at June 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 is entering into
bankruptcy under Australian laws. The accompanying consolidated financial
statements and discontinued operations of the Australian subsidiary have been
prepared on a liquidation basis.
 Oz
Investmentcorp Pty Ltd. 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 is currently negotiating with Oz
and had agreed to provide additional collateral.




On
November 14, 2007, the Company was named as a co-defendant in a lawsuit brought
in the High Court of Justice Chancery Division, England by Courical Holding B.V.
(“Plaintiff”) whereby it is alleged that the Plaintiff invested $650,000 in
Zebra Mining Services Limited (“Co-Defendant”) in exchange for 325,000 shares of
Company common stock and 325,000 warrants to purchase Company common stock
pursuant to an agreement between the three parties. The Plaintiff alleges that
it never received any consideration for its investment from either the
Co-Defendant or the Company. This matter was settled in the first quarter of
fiscal year end December 31, 2008.


On July
31, 2007, PricewaterhouseCoopers Australia was appointed Receivers and Managers
of both Integrated Forest Products Pty. Ltd., the Company's 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
entered into contracts to sell the land, plant and equipment of IFP as
individual assets. Settlement of these contracts is currently
pending.
  Timbermans
owned two major assets, a rural property and the shares in the Company.  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 carrying value of the land on the books and records
of the Company.  (See Note D of the Financial Statement). Management's
plans include the dissolution of the business and the liquidation of all
liabilities. It also plans to spin out the bankrupt subsidiary and look for a
merger candidate. The Company’s subsidiary is in bankruptcy under Australian
laws.


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.
  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 income
from discontinued operations for the three months ended June 30,
2008 was $7,032,071 and for the six months ended June 30, 2008 was
$6,828,576.  By comparison, the three months and six months ended June 30,
2008, we had a net loss from discontinued operations of $1,827,867 and
$4,136,672, respectively.  This change over the comparison period is
attributable to a gain on the disposal of discontinued assets in the three
months ended June 30, 2008 of $7,283,713.




Total gain from
discontinued operations for the three-months ended June 30, 2008 aggregated
$7,283,713.  We incurred net income from discontinued operations of
$7,032,071 or $(0.03) per share.





LIQUIDITY
AND CAPITAL RESOURCES





Cash
provided by discounted operations for the six-month period ended June 30,
2007 was $737,614.  Cash provided by discounted operations for the
six-month period ended June 30, 2008 was $2,897,025.




This
change was brought about as a result of a decrease in the loss from discontinued
operations from $4,132,672 to $455,137 over the two periods and a gain on the
sale of land, buildings and equipment of $7,283,713 in the six months ended June
30, 2008, which was partially offset by a decrease in net liabilities from
discontinued operations from $4,876,286 to ($3,931,551) over the two
periods.  The Company realized no net cash provided by either financing or
investing activities the six-month periods ended June 30, 2007 and
2008.





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.





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.





Item
3. Quantitative and Qualitative Disclosure About Market Risk.
 
 Not
applicable
 
 
 Item 4/4T. – Controls and
Procedures
 
 (a)
              Disclosure
      Controls and Procedures.
 As
of the end of the period covering thisForm
10-Q, we evaluated the
effectiveness of the design and operation of our “disclosure controls and
procedures”. Weconducted
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) Limitations on
the Effectiveness of Disclosure Controls and Procedures and Internal
Controls.
 We
recognizethat a system
of disclosure controls and procedures (as well as a system of internal
controls), no matter how well conceived and operated, cannot provide absolute
assurance that the objectives of the system are met. Further, the design of such
a system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented in a number of ways. Because of the
inherent limitations in a cost-effective control system, system failures may
occur and not be detected.
  (iii) 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 inourinternal controls
over financial reportingthat could
significantly affect these controls subsequent to the date of their
evaluation.





PART
II


Item
1. Legal Proceedings




Integrated
and Timbermans were placed under administration in Australia (in the U.S. this
is tantamount to a Chapter 11 Bankruptcy). On July 31, 2007,
PricewaterhouseCoopers Australia was appointed Receivers and Managers of both
Integrated and Timbermans. Also 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 of 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
entered into contracts to sell the land, plant and equipment of Integrated as
individual assets. Settlement of these contracts is currently
pending.
  Timbermans
owned two major assets, a rural property and the shares in the Company.  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 carrying value of the land on the books and records
of the Company.  (See Note D of the Financial Statement).
  Oz
Investmentcorp Pty Ltd. 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 is currently negotiating with Oz and had agreed to provide
additional collateral.
  On
November 14, 2007, the Company was named as a co-defendant in a lawsuit brought
in the High Court of Justice Chancery Division, England by Courical Holding B.V.
(“Plaintiff”) whereby it is alleged that the Plaintiff invested $650,000 in
Zebra Mining Services Limited (“Co-Defendant”) in exchange for 325,000 shares of
Company common stock and 325,000 warrants to purchase Company common stock
pursuant to an agreement between the three parties. The Plaintiff alleges that
it never received any consideration for its investment from either the
Co-Defendant or the Company. This matter was settled in the first quarter of
fiscal year end December 31, 2008.
  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


None





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








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:  August
19, 2008





/s/
Colin Baird


Name:
Colin Baird


Title:
Chief Financial Officer


Date:
August 19, 2008