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, 2006
                         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. Employer
   incorporation 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_______

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 15, 2006 was 257,400,680.


<PAGE>



ITEM 1 FINANCIAL STATEMENTS




Description                                                                 Page
                                                                             No.
FINANCIAL INFORMATION:

Financial Statements

Consolidated Balance Sheets at June 30, 2006 (Unaudited)..................  1

Consolidated Statement of Operations
(Unaudited)...............................................................  2

Consolidated Statements of Cash Flows (Unaudited) ........................  3

Notes to Consolidated Financial Statements (Unaudited)....................  4


<PAGE>



Item 1. Condensed Financial Statements

                          AUSTRALIAN FOREST INDUSTRIES

                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>
                                                           June 30,       December 31,
                                                             2006            2005
                                                         ------------    ------------
                                                         (Unaudited)
CURRENT LIABILITIES
<S>                                                      <C>             <C>
   Bank overdraft                                        $  1,617,446    $    117,772

   Accounts payable                                         3,782,209       2,690,957
   Current portion of capitalized lease obligations         1,076,013       1,076,013
   Due to Timberman shareholders                            5,702,293       3,213,912
   Related party payable                                      592,925         592,844
   Accrued payroll, related taxes and benefits                643,171         599,389
                                                         ------------    ------------

   Total Current Liabilities                               13,414,057       8,290,887

OTHER LIABILITIES
   Capitalized lease obligations                            4,293,539       3,512,882
   Deferred capital gain                                    1,235,554       1,396,481
   Due to National Australian Bank                          4,818,660       4,818,000
                                                         ------------    ------------
          Total Liabilities                                23,761,810      18,018,250
STOCKHOLDERS' EQUITY
   Preferred stock, par value $0.001, 5,000,000 shares
     authorized, none issued and outstanding
   Common stock, par value $0.001, 300,000,000 shares
     authorized, 257,400,680 issued and outstanding           257,400         257,400
   Additional paid-in capital                               4,503,417       4,503,417

   Accumulated other comprehensive income                     256,165         333,619
   Accumulated deficit                                     (6,766,385)     (5,555,688)
                                                         ------------    ------------
          Total Stockholders' Equity                       (1,749,403)       (461,252)
                                                         ------------    ------------

          Total Liabilities and Stockholders' Equity     $ 22,012,407    $ 17,556,998
                                                         ============    ============
</TABLE>

                    See accompanying notes to financial statements.


                                       1
<PAGE>


<TABLE>
<CAPTION>

                          AUSTRALIAN FOREST INDUSTRIES
                  UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


                                          For the Three Months Ended          For the Six Months Ended
                                         ------------------------------    ------------------------------
                                                   June 30,                           June 30,
                                              2006            2005             2006              2005
                                         -------------    -------------    -------------    -------------
                                                            (Restated)                        (Restated)

<S>                                      <C>              <C>              <C>              <C>
REVENUE - SALES                          $   3,892,949    $   3,439,748    $   7,342,061    $   6,746,314

COSTS AND EXPENSES
   Cost of goods sold                        2,315,311          822,929        4,110,147        3,859,151
   Selling, general and administrative       1,970,657        3,208,714        4,030,781        3,941,458
   Provision for Doubtful Accounts                 631          132,495
   Interest expense                            191,986          154,472          393,084          279,733
   Depreciation and amortization               147,119          173,495          287,125          372,254
                                         -------------    -------------    -------------    -------------
          Total Costs and Expenses           4,625,704        4,359,610        8,953,632        8,452,596
                                         -------------    -------------    -------------    -------------

OPERATING LOSS                                (732,755)        (919,862)      (1,611,571)      (1,706,282)

NON-OPERATING INCOME
   Other income                                 40,788           (1,371)         133,288            2,533
   Interest income                              82,406          164,031
   Gain on disposal of assets                      493        1,164,303          103,555        1,164,303
                                         -------------    -------------    -------------    -------------
     Total Non-Operating Income                123,687        1,162,932          400,874        1,166,836

NET INCOME (LOSS)                        $    (609,068)   $     243,070    $  (1,210,697)   $    (539,446)
                                         =============    =============    =============    =============


NET LOSS PER SHARE                       $        0.01    $        0.01    $       (0.01)   $        0.01
                                         =============    =============    =============    =============
</TABLE>



                  See accompanying notes to financial statements.


                                       2
<PAGE>

                          AUSTRALIAN FOREST INDUSTRIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


<TABLE>
<CAPTION>
                                                                      For the Six Months Ended
                                                                              June 30,
                                                                      ------------------------
                                                                         2006          2005
                                                                      ----------    ----------
                                                                                    (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                 <C>            <C>
   Net income (loss)                                                $(1,210,697)   $ (539,446)
   Adjustments to reconcile net income to cash flows used
     in operating activities:
     Depreciation                                                       170,362       372,254
     Amortization of Timber contract                                      3,133
     Amortization of leaseback gain                                    (161,148)

   Changes in operating activities:
     (Increase) decrease in prepaid expenses                            (26,347)      110,021
     (Increase) decrease in inventories                                (537,597)     (197,888)
     (Increase) decrease in receivables                              (1,260,223)     (574,235)
     (Increase) decrease in related party receivable                   (273,175)
     (Increase) decrease in timber contract                              84,998        13,249
     Increase (decrease) in accounts payable and other liabilities    1,091,252     1,082,439
     Increase (decrease) in bank overdraft                            1,499,674      (421,097)
     Increase (decrease) in related party payable                            81        (7,956)
     Increase (decrease) in accrued payroll                              43,782       (27,294)
     Increase (decrease) in taxes payable                                69,437
                                                                      ----------    ----------


          Net Cash (Used in) Provided by Operating Activities          (233,292)     (463,128)

CASH FLOWS FROM INVESTING ACTIVITIES
   Capital additions                                                 (3,232,510)     (906,737)
   Disposition of capital assets                                        237,250
                                                                      ----------    ----------

          Net Cash Used in Investing Activities                      (2,995,260)     (906,737)

CASH FLOWS FROM FINANCING ACTIVITIES
   Loans from shareholders                                            2,488,382        (7,956)
   Capital leases                                                       780,656     1,633,588
   National Australian bank loan                                            660      (160,957)
   Sale leaseback deferred credit                                           221
                                                                      ----------    ----------
          Net Cash Provided by (Used In) Financing Activities         3,269,919     1,464,676

EFFECT OF EXCHANGE RATES ON CASH                                       (168,381)     (181,625)
                                                                      ----------    ----------
(DECREASE) INCREASE IN CASH                                            (127,014)      (86,814)
CASH AT BEGINNING OF PERIOD                                             127,014       225,189
                                                                      ----------    ----------

CASH AT END OF PERIOD                                                 $             $  138,375
                                                                      ==========    ==========
</TABLE>


                 See accompanying notes to financial statements.


                                       3
<PAGE>

                          AUSTRALIAN FOREST INDUSTRIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - 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,
        2006 are not necessarily indicative of the results that may be expected
        for the year ending December 31, 2006. For further information, refer to
        the financial statements and footnotes thereto included in Australian
        Forest Industries' annual report on Form 10-KSB for the year ended
        December 31, 2005.

NOTE 2 - LOAN TO TIMBERMANS GROUP (RELATED PARTY)

        During the six months ended June 30, 2006, the company received an
        additional $2,488,382 from Timberman investors.

NOTE 3 - CAPITALIZED LEASE OBLIGATIONS

        During the six months ended June 30, 2006, the Company purchased
        $3,900,000 in new equipment of which $1,981,000 was financed under
        capitalized leases over a five year period.



                                       4
<PAGE>



      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.

      RESULTS OF OPERATIONS
      We are currently in the third year of operations and have generated
      significant revenues to date. Our activities from inception to date were
      related to our formation, preparation of our business model, arranging and
      planning financing and the acquiring all rights, title and interest to our
      timber rights located in the Canberra region in addition to the
      implementation and construction of our first sawmill also in the Canberra
      region.

      Operating costs for the six-months ended June 30, 2006 aggregated
      $8,953,632. This includes costs incurred in procuring our rights under the
      Bombala Agreement and operating expenses for our Canberra sawmill. We
      incurred an operating loss of $1,611,571 and a total net loss of
      $1,210,697 or $(0.01) per share.

      Operating costs for the three-month period ended June 30, 2006 aggregated
      $4,625,704. This includes an increase in costs of goods sold of $520,475
      which were a result of general costs associated with the growth of our
      business. As a result of the above we realized a loss of $609,068 for the
      three-month period ended June 30, 2006 or $(0.01) per share.

      LIQUIDITY AND CAPITAL RESOURCES
      On June 30, 2005 and 2006 we had current assets of $5,349,783 and
      $3,722,067, respectively.


                                       5
<PAGE>


      Net cash used in operating activities for the period from inception to
      June 30, 2005 was $463,128. Net cash used in operating activities for the
      period from inception to June 30, 2006 was $233,292.


      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 December 2004, the FASB issued SFAS No. 123 (revised 2004), or SFAS
      123R, "Share-Based Payment." This statement replaces SFAS 123, "Accounting
      for Stock-Based Compensation" and supersedes Accounting Principles Board's
      Opinion No. 25 (ABP 25), "Accounting for Stock Issued to Employees." SFAS
      123R will require us to measure the cost our employee stock-based
      compensation awards granted after the effective date based on the grant
      date fair value of those awards and to record that cost as compensation
      expense over the period during which the employee is required to perform
      services in exchange for the award (generally over the vesting period of
      the award). SFAS 123R addresses all forms of share-based payments awards,
      including shares issued under employee stock purchase plans, stock option,
      restricted stock and stock appreciation rights. In addition, we will be
      required to record compensation expense (as previous awards continue to
      vest) for the unvested portion of previously granted awards that remain
      outstanding at the date of adoption. SFAS 123R is effective for fiscal
      periods beginning after June 15, 2005. Therefore, we are required to
      implement the standard no later than our third fiscal quarter which begins
      on July 1, 2005. SFAS 123R permits public companies to adopt its
      requirements using the following methods: (1) a "modified prospective"
      method in which compensation cost is recognized beginning with the
      effective date (a) based on the requirements of SFAS 123R for all
      share-based payments granted after the effective date and (b) based on the
      requirements of SFAS 123 for all awards granted to employees prior to the
      effective date of SFAS 123R that remain unvested on the effective date; or
      (2) a "modified retrospective" method which includes the requirements of
      the modified prospective method described above, but also permits entities
      to restate their financial statements based on the amounts previously
      recognized under SFAS 123 for purposes of pro forma disclosures for either
      (a) all prior periods presented or (b) prior interim periods of the year
      of adoption.


                                       6
<PAGE>


                                     PART II
Item 1. Legal Proceedings
None.

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.


                                   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 15, 2006

/s/ Colin Baird
--------------------------------
Name: Colin Baird
Title: Chief Financial Officer
Date: August 15, 2006


                                       7