UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington
D. C. 20549





FORM
10-QSB






x    
QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934




For
the quarterly period ended March 31, 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




APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY


PROCEEDINGS DURING THE PRECEDING FIVE
YEARS




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)




APPLICABLE ONLY TO CORPORATE
ISSUERS




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 May 20, 2008, was 257,600,680.




Transitional
Small Business Disclosure Format (Check one): Yes o No x





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 SHEETSASSETSMarch
      31,
              
              
              December
      31,2008
              
              
              2007(Audited)TOTAL
      ASSETS
              
              
              -
              
              
              
              -LIABILITIES
      AND STOCKHOLDERS’ DEFICITCURRENT
      LIABILITIESNet
      liabilities of entities discontinued
              
              $
              36,229,368
              
              
              $
              34,412,897Total
      Current Liabilities
              
              
              36,229,368
              
              
              
              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
              
              
              (3,456,576
              )
              
              
              (1,843,600
              )Accumulated
      deficit
              
              
              (37,603,609
              )
              
              
              (37,400,114
              )Total
      Stockholders’ Deficit
              
              
              (36,229,368
              )
              
              
              (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 EndedMarch 31,2008
              
              
              2007DISCONTINUED
      OPERATIONSLoss
      from discontinued operations(Net
      of income tax expense of $0)
              
              $
              203,495
              
              
              $
              2,304,805Loss
      on disposal of discontinued operations(Net
      of income tax expense of $0)
              
              
              -
              
              
              
              -Total
      Discontinued Operations
              
              
              203,495
              
              
              
              2,304,805NET
      LOSS
              
              $
              203,495
              
              
              $
              2,304,805NET
      LOSS PER SHARE (BASIC AND DILUTED)Continuing
      operations
              
              
              -
              
              
              
              -Discontinued
      operations
              
              $
              (0.00
              )
              
              $
              (0.01
              )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING
              
              
              257,600,480
              
              
              
              257,600,480
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See
accompanying notes to financial statements.
 
 F-2
 AUSTRALIAN
FOREST INDUSTRIES, INC. AND SUBSIDIARY
 
 
 CONSOLIDATED
      STATEMENTS OF CASH FLOWS (UNAUDITED)For
      the Three Months
      EndedMarch 31,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES
              
              
              -
              
              
              
              -DISCONTINUED
      OPERATIONSLoss
      from discontinued operations
              
              $
              (203,495
              )
              
              $
              (2,304,805
              )Increase
      in net liabilities of entities discontinued
              
              
              1,816,471
              
              
              
              2,536,037Cash
      provided by (used in) discontinued operations
              
              
              1,612,976
              
              
              
              231,232EFFECT
      OF EXCHANGE RATE ON CASH
              
              
              (1,612,976
              )
              
              
              (231,232
              )CASH
      END OF YEAR
              
              $
              -
              
              
              $
              -
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See
accompanying notes to financial statements.
  F-3
  AUSTRALIAN
FOREST INDUSTRIES, INC. AND SUBSIDIARY
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
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 month periods ended March 31, 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 bankruptcy and has
formerly discontinued its operations.
 
 Going Concern and
Liquidation
 
 As shown
in the accompanying consolidated financial statements, the Company incurred a
net loss of $203,495 in 2008 and had an accumulated deficit of $37,603,609 at
March 31, 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 in 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 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 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
Chapter 11 Bankruptcy or receivership in the U.S.  There is no
assurance that the Company’s subsidiary will emerge from the administrative
proceedings.


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.





As
indicated in the accompanying financial statements, the Company incurred a net
loss of $4,730,732 for the nine months ended September 30, 2007, and has a
Stockholders’ Deficit of $12,834,656 at September 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
of 2006, 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. The Company’s wholly owned
subsidiary in Australia, Integrated Forest Products, is currently under
administration in Australia (in the U.S. this is tantamount to a Chapter 11
Bankruptcy).  There is no assurance that the company will emerge from
the administrative proceedings and be self-sufficient and profitable. (See Note
D to the Financial Statement.) 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.





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 and Timbermans. 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. The
rural property was sold by auction on March 14, 2008. The Company has entered
into a contract to sell its land and buildings for $9,556,357 and all of its
manufacturing equipment for $964,403. Settlement of this sale is currently
pending. The sale of the Company’s shares is expected to conclude shortly after
the completion of the audit of Integrated and Timbermans' accounts, and lodgment
of the requisite reports with the authorities in the United
States.





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





Operating
costs for the three-months ended March 31, 2007 aggregated $2,304,805. This
resulted from a loss from discontinued operations of the same
amount.  We incurred an operating loss of $2,304,805 and a total net
loss of $2,304,805 or $(0.01) per share.





Operating
costs for the three-month period ended March 31, 2008 aggregated $203,495.
This resulted from a loss from discontinued operations of the same
amount.  We incurred a net loss of $203,495 for the three-month period
ended March 31, 2008 or $(0.00) per share.





LIQUIDITY
AND CAPITAL RESOURCES





Cash
provided by discounted operations for the three-month period ended March 31,
2007 was $231,232.  Cash provided by discounted operations for the
three-month period ended March 31, 2008 was $1,612,976.




The
loss from discounted operations for the three-month period
ended March 31, 2007 was $(2,304,805).  The loss from discounted
operations for the three-month period ended March 31, 2008 was
$(203,495).  The Company realized no net cash provided by either
financing or investing activities the three-month periods ended March
31, 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. 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




ITEM 3A(T). CONTROLS AND
PROCEDURES




Not
applicable





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. The
rural property was sold by auction on March 14, 2008. Settlement of this sale is
currently pending. The sale of the Company’s shares is expected to conclude
shortly after the completion of the audit of Integrated and Timbermans'
accounts, and lodgment of the requisite reports with the authorities in the
United States.
  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
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




On April
7, 2008, we filed a current report on Form 8-K informing the public that we will
amend our periodic report on Form 10-QSB for the three-month period ended March
31, 2005, our periodic report on Form 10-QSB for the three- and six-month
periods ended June 30, 2005 and our periodic report on Form 10-QSB for the
three- and nine-month periods ended September 30, 2005.
  On April
11, 2008, we filed an amended current report on Form 8-K/A informing the
public that we will amend our periodic report on Form 10-QSB for the three-month
period ended March 31, 2005, our periodic report on Form 10-QSB for the three-
and six-month periods ended June 30, 2005 and our periodic report on Form 10-QSB
for the three- and nine-month periods ended September 30, 2005.
  On April
11, 2008, we filed a second amended current report on Form 8-K/A informing the
public that we will amend our periodic report on Form 10-QSB for the three-month
period ended March 31, 2005, our periodic report on Form 10-QSB for the three-
and six-month periods ended June 30, 2005 and our periodic report on Form 10-QSB
for the three- and nine-month periods ended September 30,
2005.





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:  May
20, 2008





/s/
Colin Baird


Name:
Colin Baird


Title:
Chief Financial Officer


Date:
May 20, 2008