**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-KSB**





**x
      ANNUAL REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**




For
      the
      fiscal year ended December 31, 2006





**o
      TRANSITION REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT**  **OF
      1934**





*Commission
      File Number: 000-28195*


**AGFEED
      INDUSTRIES, INC.**


(Name
      of
      small business issuer in its charter)





Nevada
            
            20-2597168State
                or other jurisdiction of incorporation or organization
            
            I.R.S.
                Employer Identification Number





1095
      Qing
      Lan Avenue


Economic
      and Technical Development Zone


Nan
      Chang
      City, Jiangxi Province


China,
      330013


(Address
      of principal executive office)





Issuer's
      telephone number: 86-0791-2189878





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act: None





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of the Registrant's knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act) Yes o No
x





The
      Issuer's revenues for the year ending December 31, 2006 were
      $8,594,876.





As
      of
      March 8, 2007 the number of shares outstanding of the Issuer's common stock
      was
      25,000,003.





As
      of
      March 8, 2007 the aggregate number of shares held by non-affiliates was
      approximately17, 311,924.





As
      of
      March 8, 2007 the aggregate market value of the Issuer's common stock held
      by
      non-affiliates was $84,482,189, based on the average high and low price of
      $4.88
      per share as of March 8, 2006.




**DOCUMENTS
      INCORPORATED BY REFERENCE** None









**FORM
      10-KSB**




**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2006**





**INDEX**





PagePART
                I
            3ITEM
                1. DESCRIPTION OF BUSINESS
            4ITEM
                2. DESCRIPTION OF PROPERTY
            10ITEM
                3. LEGAL PROCEEDINGS
            10ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
            10PART
                II
            11ITEM
                5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
                AND
                SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
            11ITEM
                6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION
            11ITEM
                7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
            16ITEM
                8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE
            17ITEM
                8A. CONTROLS AND PROCEDURES
            17ITEM
                8B. OTHER INFORMATION
            17PART
                III
            18ITEM
                9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
            18ITEM
                10. EXECUTIVE COMPENSATION
            19ITEM
                11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                AND
                RELATED STOCKHOLDER MATTERS
            20ITEM
                12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
            21ITEM
                13. EXHIBITS
            22ITEM
                14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
            23




2








**PART
      I**











*This
      Annual Report on Form 10-KSB, the exhibits hereto and the information
      incorporated by reference herein contain “forward looking statements” within the
      meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”), and such forward looking statements involve risks
      and uncertainties. When used in this report, the words “expects”, “anticipates”,
“estimates”, “believes”, “intends”, “may”, “will”, “should”, “plans”,
“predicts”, “potential”, “continue”, “feels”, “projects” and similar expressions
      are intended to identify forward looking statements. Such statements are subject
      to risks and uncertainties that could cause actual results to differ materially
      from those projected. These risks and uncertainties include those discussed
      in
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations”, “Risk Factors” or incorporated by reference herein. AgFeed
      Industries, Inc. undertakes no obligation to publicly release any revisions
      to
      these forward looking statements to reflect the occurrence of events or
      circumstances after the date this Report is filed with the Securities and
      Exchange Commission or to reflect the occurrence of unanticipated
      events.*








3




ITEM
      1.
      DESCRIPTION OF BUSINESS





**Overview
      of Business**




We
      were
      incorporated as Wallace Mountain Resources Corp. on March 30, 2005 in Nevada.
      Since October 31, 2006, our principal place of business has been based in the
      People’s Republic of China (‘PRC”). Our name was changed to AgFeed Industries,
      Inc. on November 17, 2006. Our headquarters are located at: 1095 Qing Lan
      Avenue, Economic and Technical Development Zone, Nanchang City, Jiangxi
      Province, People's Republic of China.330013, Telephone: +86-0791-2189878. Our
      primary business is the research and development, manufacture, marketing and
      sale of fodder and blended feed for use in the domestic animal husbandry markets
      in the People’s Republic of China.





**Business**


We
      operate through three subsidiaries in the PRC.





Nanchang
      Best Animal Husbandry Co., Ltd ("Nanchang Best,") was incorporated under the
      laws of the People's Republic of China on May 15, 1995, in Jiangxi Province.
      It
      is headquartered in the city of Nanchang, Jiangxi Province, People's Republic
      of
      China. Nanchang Best is in the business of the research and development,
      manufacture, marketing and sale of fodder and blended feed for use in China's
      domestic animal husbandry markets.





Shanghai
      Best Animal Husbandry Co., Ltd. ("Shanghai Best,") was incorporated under the
      laws of the People's Republic of China on July 23, 1999, in Shanghai and is
      headquartered in Shanghai, Peoples Republic of China. Shanghai Best is also
      in
      the business of the manufacture, marketing and sale of fodder and blended feed
      for use in China's domestic animal husbandry markets.





Guangxi
      Huijie Sci. & Tech. Feed Co., LTD., ("Guangxi Huijie") was incorporated
      under the laws of the People's Republic of China on August 2, 2004 in the city
      of Nanning, Guangxi Province, People's Republic of China. Guangxi is engaged
      in
      the research and development, manufacture, marketing, distribution and sale
      of
      pre-mix fodder blended feed and feed additives primarily for use in China’s
      domestic pork husbandry markets.





**History**




From
      incorporation to October 31, 2006, the business of the Company, as Wallace
      Mountain Resources Corp., consisted of 18 unit mineral claims known as
      the South Wallace Mountain Project having a total surface area of approximately
      946 acres. At that time the property was without known reserves and the proposed
      program was exploratory in nature. We paid a $3,000 retainer to the geologist
      to
      commence the Phase 1 exploration work on the claim.





On
      October 31, 2006, the Company entered into and closed a share purchase agreement
      with Nanchang Best, and each of Nanchang Best's shareholders (the "Nanchang
      Purchase Agreement"). Pursuant to the Nanchang Purchase Agreement, the Company
      acquired all of the issued and outstanding capital stock of Nanchang Best from
      the Nanchang Best shareholders in exchange for 5,376,000 shares of common
      stock.




Contemporaneously,
      on October 31, 2006, the Company entered into and closed a share purchase
      agreement with Shanghai Best, and each of Shanghai Best's shareholders (the
      "Shanghai Purchase Agreement"). Pursuant to the Shanghai Purchase Agreement,
      Wallace acquired all of the issued and outstanding capital stock of Shanghai
      Best from the Shanghai Best shareholders in exchange for 1,024,000 shares of
      common stock.




Concurrently
      with the closing of the Nanchang Purchase Agreement and Shanghai Purchase
      Agreement (collectively the "Purchase Agreements" or the "Transaction" as the
      context may require) and as a condition thereof, the Company entered into an
      agreement with Robert Gelfand, its former President and Chief Financial Officer,
      pursuant to which Mr. Gelfand returned 2,600,000 shares of the Company’s common
      stock to the treasury for cancellation. Mr. Gelfand was not compensated in
      any
      way for the cancellation of his shares of the Company’s Common Stock. Upon
      completion of the foregoing transactions, the Company had an aggregate of
      8,000,000 shares of common stock issued and outstanding. The shares of common
      stock issued to the shareholders of Nanchang Best and Shanghai Best were issued
      in reliance upon the exemption from registration provided by Regulation S under
      the Securities Act of 1933, as amended.




Subsequent
      to the acquisition of Nanchang Best and Shanghai Best on October 31, 2006,
      Robert Gelfand resigned as the sole officer of the Company. On November 17,
      2006, the Company declared a stock dividend of two additional shares of common
      stock for each share of common stock outstanding, and changed its name to AgFeed
      Industries, Inc.





Nanchang
        Best and Shanghai Best share a common founder and Chief Executive Officer,
        Xiong
        Junhong. Nanchang Best shares the results of its research and development
        efforts with Shanghai Best. In addition, Nanchang Best provides general
        management and administrative services to Shanghai Best as well as human
        resources services at no expense.
 On
          December 20, 2006, the Company entered into and closed a share purchase
          agreement with Guangxi Huijie Sci. & Tech. Feed Co, Ltd. , a company founded
          in the People’s Republic of China (“Guangxi Huijie”), and the shareholders of
          Guangxi Huijie pursuant to which AgFeed acquired all the outstanding shares
          of
          Guangxi Huijie for a total purchase price of eight million six hundred
          thousand
          Chinese Renminbi (8,600,000 RMB), equivalent to approximately U.S. $1,100,420
          based on exchange rates reported in the Wall Street Journal for December
          20,
          2006.





4





**Products**





Livestock
      producers may directly buy animal feed in finished form, referred to as
      "blended" feed, which already contains the concentrate and the foundational
      grains blended together, or, they may choose to buy the pre-mix and then combine
      it with protein, corn, hay, wheat and other elements readily available in the
      market to make their own blended feed. Additive pre-mix fodder provides the
      essential amino acids and binder necessary for proper absorption of protein
      by
      pigs. Feeding pigs a balanced diet is an essential part of the pork profit
      equation. Feed costs comprise 55-70% of a piggery's expenses; therefore the
      quality of feed and nutrition has a significant effect on piggery
      profits.





The
      Companies are engaged in the manufacturing, distribution, marketing and sale
      of
      two main product lines: additive pre-mix fodder for use in all stages of a
      pig's
      life, and blended feeds designed specifically for the infant stage of a pig's
      life. Nanchang Best and Guangxi Hijie also engage in the research and
      development of new products and improvement of existing formulas. Nanchang
      Best
      shares the results of such work with Shanghai Best. Shanghai Best also
      manufactures and markets pre-mixed chicken feed. Nanchang Best and Guangxi
      Huijie produce substantially all of the Companies' sales of blended
      feed.




In
      combination, the Companies' total feed output in 2006 was approximately 20,300
      metric tons. Together they produced a combined 15,534 metric tons of pre-mix
      fodder; Nanchang Best produced 7,948 metric tons of pre-mix fodder, Shanghai
      Best 5,714 metric tons and Guangxi Huijie 1,872 metric tons. Nanchang Best
      produced 2,610 metric tons of blended feed and Guangxi Huijie 1,517 metric
      tons.
      Shanghai Best and Guangxi Huijie produced approximately 683 metric tons of
      other
      feed product.





*Pork
      pre-mix*


According
      to the different growth stages of a pig, different additives are necessary
      to
      accelerate the growth of the animal and provide safe products for consumption.
      Pre-mix additives are composed mainly of essential amino acids, vitamins,
      minerals, antibiotics and growth promoters. The
      Companies market 21 different brands of pre-mix fodder that are priced from
      standard to premium to satisfy wide ranging customer demand. Within each brand
      there are 7 different mixes that correspond to the different stages of a pig's
      life cycle: newborn to 15 kg, 15-30 kg, 30-60 kg, market ready, over 60 kg
      boar,
      mating/pregnant, and lactating. The Companies attempt to provide superior
      customer service by customizing the pre-mix to the specific needs of each
      customer. Large scale pig farms are typically the biggest consumers of pre-mix.
      The Companies employ veterinarians to work with these large pig farms to
      determine the optimal formulation of feed.




Pre-mix
      sales represent approximately 85% of annual revenues and carry a gross profit
      margin of approximately 40%. The willingness of the Companies to formulate
      customized pre-mix fodder to meet customer specifications allows them to charge
      a premium for their products. The average price of pre-mix is $570/metric ton.
      Competitors charge $500/metric ton on average. The Companies are able to justify
      premium pricing due to their strong brand name recognition, hands-on after
      market support, and superior, more effective products developed as a result
      of a
      strong R&D program. In
      Shanghai City, Shanghai Best controls 40% of the lactating and pregnant sow
      market, according to management estimates. Large scale piggeries are willing
      to
      pay a premium for more effective products as they are concerned with producing
      healthy piglets, controlling disease and marketing profitable pork
      products.




Guangxi
      Huijie has approximately a 6% market share of pre mix fodder category, in its
      home province of Guangxi.




The
      Companies also provide extensive technical and veterinary support free of charge
      to their customers. Overall, the Companies maintain approximately one technical
      support person to every five sales persons while the competitors average one
      technician to every twelve sales persons.





*Piglet
      blended feed*


Nanchang
      Best and Guangxi Huijie produce piglet blended feed. It is designed to both
      nourish and protect newborns and is composed primarily of proteins, such as
      fish
      meal and soy bean (30%), and raw material grains, such as corn and chaff
      (roughly 65%). Local climate and environment also influence the formulation
      of
      the piglet blend.





The
      Company sells blended feed for an average price of $420/metric ton. Blended
      feed
      contributes approximately 15% to its total revenues, and has gross margins
      of
      approximately 15%. As a result of government policies aimed at increasing the
      economic success of the agriculture industry as a whole and greater regulation
      requiring advanced technology to provide safeguards to the country's food
      supply, the smaller pig farms are being forced out of business or to merge
      with
      larger pig raising operations. The large operations increasingly purchase
      pre-mix as opposed to blended feeds in order to realize significant cost savings
      by leveraging their economies of scale. For this reason the Company expects
      the
      blended feed business to diminish over time and was also a factor in Shanghai
      Best's decision not to enter this market. However, it is felt that blended
      feed
      revenue will be replaced by selling more of the profitable pre-mix products
      to
      the increasing number of large scale pig farms.





*Chicken
      pre-mix*


The
      Company also produces three brands of pre-mix for the poultry industry, most
      of
      this production takes at the Shanghai Best production facility. It produces
      approximately 500 metric tons annually and it has a nominal impact on total
      revenues. While there are no current plans to expand the chicken feed product
      line, future expansion remains a possibility.





**Market
      information**





The
      feed
      industry in China, initially developed during the 1980s, was transformed by
      the
      issuance of the feed and feed additives regulations in the early 1990s. These
      regulations emphasized labeling standards for the different grades of product.
      These standards assisted in regulating the feed industry's expansion and aimed
      to eliminate substandard products and fraudulent labeling.




5




China's
      feed manufacturing industry is second only to the United States in volume and
      is
      forecast to surpass the United States within the coming five year period. The
      feed industry grew to approximately 66 million tons in 1998, after growing
      at an
      annual rate of 15% from 1990 to 1998 and in 2005 totaled 73.7 million tons.
      As
      incomes rise in China, annual meat consumption is expected to rise from the
      current 23 kg per person to 32 kg per person in the next five years. Developing
      countries average 24 kg per person annually while developed countries average
      75
      kg per person annually. It is estimated that 4 kg of feed grain are needed
      to
      produce 1 kg of pork, according to USDA Foreign Agricultural
      Services.





The
      animal feed industry in China is highly competitive with many regional players
      and locally recognized brands. The company believes that the initial capital
      requirements with respect to entry into the industry are low and consequently
      there is a great deal of competition between many smaller companies. The animal
      feed sector for pork has three primary markets:




o
      additive pre-mix fodder


o
      proteins


o
      blended
      feed





The
      Company predominantly produces additive pre-mix fodder ("pre-mix") and blended
      feeds and does not compete in the protein market. A nutritionally complete
      feed
      includes three components: energy sources, such as course grains; protein
      sources such as fish and soy meals; and pre-mix consisting of essential amino
      acids, vitamins, minerals and antibiotics. Pre-mix and proteins together are
      often referred to in the industry as "concentrate." Pre-mix fodders require
      greater technology to produce, and are often customized to each customer's
      specifications. As such, pre-mix carries the highest selling price per metric
      ton of all feed components. Livestock producers may directly buy animal feed
      in
      finished form, referred to as "blended feed" or buy the component ingredients
      and mix the blend on their own generating 15-20% cost savings. Typically, large
      scale piggeries will purchase pre-mix fodder, as they have the scale to mix
      their own blended feeds.




The
      hog
      feed manufacturing industry is concentrated in the Yangtze River Basin. In
      the
      past decade, feed mills have become more efficient, with new, high capacity
      mills replacing old, small, inefficient ones. As part of its effort to improve
      agricultural output and improve the economic vitality of China's rural
      industries, the government has adopted favorable tax policies for the industry,
      such as exemption from the value-added tax.





*Blended
      Feed Industry*


According
      to a recent China Animal Feed Industry Development Report, the blended feed
      market for pork was approximately $12 and $14 billion for 2004 and 2005,
      respectively. The largest player in the market has approximately a 7% market
      share, and forty companies share the top 33% of the market. From 2000 to 2005,
      blended feed sales have grown at an average annual rate of 4.5%.





*Pre-mix
      Industry*


In
      2005,
      the pre-mix market in China totaled $1.45 billion and contained over 2,500
      companies. From 2000 to 2005 pre-mix industry sales grew at an average annual
      rate of 14.3%. There is no single dominant market participant, with the largest
      player in the market realizing only 1.2% market share.


Of
      the
      various components that make up blended feed, the pre-mix, while constituting
      the smallest proportion of the total blend at 4%, requires the most
      sophisticated formulas to produce. The research, development and technology
      necessary to produce pre-mix makes it necessary for pre-mix to carry a higher
      price per ton than blended feed.





**Sales
      and Marketing**





Since
      the
      founding of Nanchang Best and the subsequent founding of Shanghai Best, the
      "Best" brand has been aggressively marketed and promoted. Guangxi Huijie markets
      its products under the “Huijie” brand name. None of the Company’s operating
      subsidiaries currently owns any retail outlets. The Companies send their sales
      force and technicians to the pig farms to educate their clients on new product
      developments and improvements to existing products. The Companies conduct
      educational seminars in pig farming regions to explain the benefits of a
      balanced, nutritious diet for pigs in producing a healthy herd and educate
      the
      farmers to properly prepare and mix the various feed components. Although not
      unique among pre-mix manufacturers, management believes its services in this
      area are superior to competitors due to its high ratio of technicians to sales
      people, which allows the sales team to develop a stronger relationship with
      its
      customers. As the Companies market and sell directly to pig farmers they are
      able to collect and analyze data from the farmer which assists in preparation
      and design of new products. The Companies also attend agricultural conventions
      that take place in the market areas where they currently conduct business as
      well as in provinces that they expect to enter. The Companies also place
      advertisements and promotional pieces in agricultural trade
      journals.





The
      Companies sell to distributors and large scale pig farms. Large scale farms
      generally refer to those with over 2,000 pigs and 100 sows annually, however
      it
      is not uncommon to have a single farm raise 20,000 to 30,000 pigs. The
      distributors sell to the smaller privately owned farms. Recent sales data of
      distributors indicates that they tend to be more sensitive to price increases
      than the large-scale piggeries, whereas the piggeries place more emphasis on
      customer service and other ancillary services provided by the
      Companies.




Nanchang
      Best currently sells to approximately 360 customers, consisting of 170 local
      distributors and 190 large scale pig farms.




Shanghai
      Best currently sells to approximately 300 customers, consisting of 90 local
      distributors and 210 large scale pig farms.




Guangxi
      Huijie currently sells to approximately 325 customers, consisting of 140 local
      distributors and 185 large scale pig farms.





6





**Suppliers**





The
      Companies do not have any long term supply contracts. For each raw material
      purchased, they maintain at least two suppliers who offer the same product.
      Management believes that any one of its suppliers could be easily replaced.
      Normally, purchases of raw materials are made on an "as needed" basis each
      month. Orders are managed by both the warehouse and purchasing manager together,
      who are familiar with the on-site inventory levels. China has more than 2,000
      raw material producers involved in supplying the animal feed
      industry.





**Research
      and Development**




To
      maintain a competitive advantage in the marketplace and keep pace with current
      developments, the Companies engage in continuous research and development.
      Nanchang Best and Guangxi Huijie conduct research and development. Historically,
      Nanchang Best has shared its R & D results with Shanghai Best. The Company
      sponsors research alliances with Jiangxi Agricultural University, South China
      Agricultural University, and Nanjing Agricultural University.




In
      addition to sponsoring national and provincial academic research projects at
      various academic institutions, Nanchang Best launched a fund called Best Fund
      contributing RMB 98,000 ($12,250) to sponsor 12 research projects at Jiangxi
      Agricultural University. Nanchang Best retains proprietary rights to any
      research findings.





**Intellectual
      property**





Management
      has registered the "Best" and Huijie trade name used on its products with the
      China Trademark Bureau and their goods are known in the provinces in which
      the
      Companies conduct business.




None
      of
      the Companies hold any patents or intend to apply for patents on proprietary
      technology or formulas. The formulas for the Companies' products are considered
      a trade secret and are protected as such.





**Government
      and Environmental Regulation**





Through
      the laws and regulations of the People's Republic of China and the provincial
      governments of Jiangxi Province, Guangxi Province and the Shanghai City
      government, the Company’s products and services are subject to material
      regulation by governmental agencies responsible for the agricultural and
      commerce industries.




As
      such,
      business and company registrations, production license, and all products are
      certified on a regular basis and must be in compliance with the laws and
      regulations of provincial and other local governments and industry
      agencies.




All
      of
      the Companies' production facilities have received production licenses as
      promulgated by the Ministry of Agriculture with Nanchang Best's license valid
      through February, 2009, Shanghai Best through February, 2010, and Guangxi Juijie
      through April, 2010.




All
      products have earned formal approval pursuant to the National Code of Feed
      and
      Feed Additives as dictated by National State Council of the PRC. Product
      approval includes qualified quality reports from the council's technology and
      supervision bureau prior to engaging in any production of marketing
      activities.




There
      is
      no material cost in obtaining and maintaining these licenses as it is illegal
      to
      do business without them. The issuance of the production licenses and product
      permits is seen as a cost of doing business and associated fees are minimal.
      If
      any production license(s) or product license(s) were lost, production would
      need
      to cease with a minimum time period of 30-45 days to issue a new license and
      the
      possibility of regulatory fines.


The
      Companies are also subject to China's National Environmental Protection Law
      as
      well as a number of other national and local laws and regulations regarding
      pollutant discharge, air, water and noise pollution.




A
      production permit is mandatory for all entities involved in the manufacture
      of
      animal feed and feed components. The Ministry of Agriculture dispatches
      officials at the local level to review staff qualifications, production
      facilities, quality control, and management departments for
      competency.




Nanchang
      Best's production permit was issued in 2004 (#3751) and is valid until
      2009.




Shanghai
      Best's production permit was issued in 2005 (#0216) and is valid until
      2010.




Guangxi
      Huijie’s production permit was issued in 2005 (#4146) and is valid until
      2010.





All
      products must earn a formal approval production number pursuant to Code of
      Premix and Additive, promulgated by China State Council, and qualified products
      reports from Technology and Supervision Bureau, prior to engaging in any
      production or marketing of feeds.





**Competition**




The
      pre-mix market in China is particularly fragmented with many companies and
      locally recognized brands. The largest player in the pre-mix industry commands
      only 1.2% of the national market and no one company has yet taken a sizable
      market lead in terms of service, brand, or technology.


Nanchang
      Best leads the pork pre-mix market in the Jiangxi Province with a 3.5% market
      share and also sells product in neighboring regions such as Hubei, Henan and
      Fujian. Nanchang Best faces price competition from Da Bei Nong in the
      large-scale farm market; however management believes its service is considered
      inferior to Nanchang Best's. Therefore Nanchang Best has been able to maintain
      its lead in sales.




7




Sales
      made by Nanchang Best and Shanghai Best in Fujian province face strong
      competition in the large-scale piggery market from Fuj Minke Biology Company,
      which has well-known service, a flexible credit policy, and whose prices are
      competitive, if not lower. While both Nanchang Best and Shanghai Best are
      working to further develop and strengthen their connections to large-scale
      farms, Fuj Minke does not pose a threat to their distributor sales.




Zheng
      Da,
      a Sino-Thai JV part of Charoen Pokphand, is one of the largest pre-mix producers
      in Fujian province; however its prices tend to be higher, and it focuses only
      on
      the distributor market.




In
      the
      Shanghai area, Xinnong leads the market in sales with 7,800 metric tons,
      competing directly with Shanghai Best on both pricing and service to large
      scale
      piggeries.




Guangxi
      Huijie has approximately a 6% share of the overall feed market and competes
      directly with Guangxi Provimi. Guangxi Provimi sells the same products as
      Guangxi Huijie at similar price points, and is considered by the marketplace
      to
      offer the same quality as Guangxi Huijie. The Company management believes that
      Guangxi Provimi does not provide the same quality of after sale technical
      support to its customers.





**Employees**





Nanchang
      Best has approximately 125 employees, in the following departments: 8
      management, 3 general administration, 2 human resources, 26 production, 3 sales
      administration, 60 marketing, 1 purchasing, 6 finance, 12 technical services,
      4
      quality control.





Shanghai
      Best has approximately 88 employees in the following departments: 6 management,
      5 general administrative, 19 production, 3 sales administration, 39 marketing,
      1
      purchasing, 5 finance, 7 technical services, 3 quality control.





Guangxi
      Huijie has approximately 86 employees, in the following departments: 5
      management, 3 general administration, 6 human resources, 21production, 4 sales
      administration, 31marketing, 1 purchasing, 4 finance, 5 technical services,
      6
      quality control.





It
      is
      management's belief that it has a favorable working relationship with its
      employees. No collective bargaining agreements exist.





ITEM
      1A.
      RISK FACTORS





**Our
      management owns a significant amount of our common stock, giving them influence
      or control in corporate transactions and other matters, and their interests
      could differ from those of other stockholders.**





Our
      principal executive officers and directors, own a majority of our outstanding
      common stock. As a result, they are in a position to significantly influence
      or
      control the outcome of matters requiring a stockholder vote, including the
      election of directors, the adoption of any amendment to our articles of
      incorporation or bylaws, and the approval of significant corporate transactions.
      Their control may delay or prevent a change of control on terms favorable to
      our
      other stockholders and may adversely affect your voting and other stockholders
      rights.





**We
      do not anticipate paying dividends on our common stock.**





We
      do not
      anticipate paying dividends in the foreseeable future. Our management intends
      to
      follow a policy of retaining all of our earnings, if any, to finance the
      development, execution of our strategy and expansion of our business.





**We
      may not be able to adequately protect and maintain our intellectual property,
      trademark, and brand names.**





Our
      success will depend on our ability to continue to develop and market fodder
      and
      blended feed products. We currently have not applied for patents for our
      products or formulas, as our management believes an application for such patents
      would result in public knowledge of our proprietary technology and formulas.





**Our
      success depends on our management team and other key personnel, the loss of
      any
      of whom could disrupt our business operations.**





Our
      future success will depend in substantial part on the continued service of
      our
      senior management and founders. The loss of the services of one or more of
      our
      key personnel could impede implementation and execution of our business strategy
      and result in the failure to reach our goals. We do not carry key person life
      insurance in respect of any of our officers or employees. Our future success
      will also depend on the continued ability to attract, retain and motivate highly
      qualified personnel in many fields of our operations. The rapid growth of the
      economy in the PRC has caused intense competition for qualified personnel.
      The
      Company cannot assure you that we will be able to retain our key personnel
      or
      that we will be able to attract, train or retain qualified personnel in the
      future.





**The
      People's Republic of China's Economic Policies could affect our
      Business.**





Substantially
      all of our assets are located in the People's Republic of China and
      substantially all of our revenue is derived from our operations in the People's
      Republic of China. Accordingly, our results of operations and prospects are
      subject, to a significant extent, to the economic, political and legal
      developments in the People's Republic of China.




8




While
      The
      People's Republic of China's economy has experienced significant growth in
      the
      past twenty years, such growth has been uneven, both geographically and among
      various sectors of the economy. The Chinese government has implemented various
      measures to encourage economic growth and guide the allocation of resources.
      Some of these measures benefit the overall economy of the People's Republic
      of
      China, but they may also have a negative effect on us. For example, operating
      results and financial condition may be adversely affected by the government
      control over capital investments or changes in tax regulations. The economy
      of
      the People's Republic of China has been changing from a planned economy to
      a
      more market-oriented economy. In recent years the Chinese government has
      implemented measures emphasizing the utilization of market forces for economic
      reform and the reduction of state ownership of productive assets, and the
      establishment of corporate governance in business enterprises; however, a
      substantial portion of productive assets in the People's Republic of China
      are
      still owned by the Chinese government. In addition, the Chinese
      government continues to play a significant role in regulating industry
      development by imposing industrial policies. It also exercises significant
      control over the People's Republic of China's economic growth through the
      allocation of resources, the control of payment of foreign currency-denominated
      obligations, the setting of monetary policy and the provision of preferential
      treatment to particular industries or companies.





**Capital
      outflow policies in The People's Republic of China may hamper our ability to
      declare and pay dividends to our shareholders.**





The
      People's Republic of China has adopted currency and capital transfer
      regulations. These regulations may require us to comply with complex regulations
      for the movement of capital. Although our management believes that we will
      be in
      compliance with these regulations, should these regulations or the
      interpretation of them by courts or regulatory agencies change, we may not
      be
      able to pay dividends to our shareholders outside of the PRC.





**The
      admission of The People's Republic of China into the World Trade Organization
      could lead to increased foreign competition for us.**




Domestic
      competition in the animal feed industry is largely fragmented and foreign
      competition is minimal. However, as a result of the People's Republic of China
      becoming a member of the World Trade Organization ("WTO"), import restrictions
      on agricultural products are expected to be reduced. With the lowering of import
      restrictions and the WTO's requirement for a reduction of import tariffs as
      condition of membership, such reduced import restrictions and tariffs may result
      in an increase of foreign products and could in turn lead to increased
      competition in the domestic agricultural market.





**The
      Company may not be able to obtain regulatory approvals for its
      products.**





The
      manufacture and sale of agricultural products in the People's Republic of China
      is regulated by the People's Republic of China and the local provincial
      governments. Although our licenses and regulatory filings are current, the
      uncertain legal environment in the People's Republic of China and its industry
      may be vulnerable to local government agencies or other parties who wish to
      renegotiate the terms and conditions of, or terminate their agreements or other
      understandings with us.





**We
      may face judicial corruption in the People's Republic of
      China.**





Another
      obstacle to foreign investment in The People's Republic of China is corruption.
      There is no assurance that we will be able to obtain recourse, if desired,
      through the People's Republic of China's poorly developed and sometimes corrupt
      judicial systems.





**We
      may face obstacles from the communist system in the People's Republic of
      China.**





Foreign
      companies conducting operations in The People's Republic of China face
      significant political, economic and legal risks. The Communist regime in the
      People's Republic of China, including a cumbersome bureaucracy, may hinder
      Western investment.





**We
      may have difficulty establishing adequate management, legal and financial
      controls in The People's Republic of China.**





The
      People's Republic of China historically has not adopted a Western style of
      management and financial reporting concepts and practices, as well as in modern
      banking, computer and other control systems. We may have difficulty in hiring
      and retaining a sufficient number of qualified employees to work in the People's
      Republic of China. As a result of these factors, we may experience difficulty
      in
      establishing management, legal and financial controls, collecting financial
      data
      and preparing financial statements, books of account and corporate records
      and
      instituting business practices that meet Western standards.





**It
      will be extremely difficult to acquire jurisdiction and enforce liabilities
      against our officers, directors and assets based in the People's Republic of
      China.**





Because
      our Executive Officers and several of our Directors, including, the chairman
      of
      our Board of Directors, are Chinese citizens it may be difficult, if not
      impossible, to acquire jurisdiction over these persons in the event a lawsuit
      is
      initiated against us and/or our officers and directors by a stockholder or
      group
      of stockholders in the United States. Also, because the majority of our assets
      are located in the People's Republic of China it would also be extremely
      difficult to access those assets to satisfy an award entered against us in
      an
      United States court.





9





**RISKS
      RELATED TO OUR SECURITIES**





**THE
      APPLICATION OF THE "PENNY STOCK" RULES COULD ADVERSELY AFFECT THE MARKET PRICE
      OF OUR COMMON STOCK AND INCREASE YOUR TRANSACTION COSTS TO SELL THOSE
      SHARES.**





As
      long
      as the trading price of our common shares is below $5 per share, the open-market
      trading of our common shares will be subject to the "penny stock" rules. The
      "penny stock" rules impose additional sales practice requirements on
      broker-dealers who sell securities to persons other than established customers
      and accredited investors (generally those with assets in excess of $1,000,000
      or
      annual income exceeding $200,000 or $300,000 together with their spouse). For
      transactions covered by these rules, the broker-dealer must make a special
      suitability determination for the purchase of securities and have received
      the
      purchaser's written consent to the transaction before the purchase.
      Additionally, for any transaction involving a penny stock, unless exempt, the
      broker-dealer must deliver, before the transaction, a disclosure schedule
      prescribed by the Securities and Exchange Commission relating to the penny
      stock
      market. The broker-dealer also must disclose the commissions payable to both
      the
      broker-dealer and the registered representative and current quotations for
      the
      securities. Finally, monthly statements must be sent disclosing recent price
      information on the limited market in penny stocks. These additional burdens
      imposed on broker-dealers may restrict the ability or decrease the willingness
      of broker-dealers to sell our common shares, and may result in decreased
      liquidity for our common shares and increased transaction costs for sales and
      purchases of our common shares as compared to other securities.





Shareholders
      should be aware that, according to SEC Release No. 34-29093, the market for
      penny stocks has suffered in recent years from patterns of fraud and abuse.
      Such
      patterns include (1) control of the market for the security by one or a few
      broker-dealers that are often related to the promoter or issuer; (2)
      manipulation of prices through prearranged matching of purchases and sales
      and
      false and misleading press releases; (3) boiler room practices involving
      high-pressure sales tactics and unrealistic price projections by inexperienced
      sales persons; (4) excessive and undisclosed bid-ask differential and markups
      by
      selling broker-dealers; and (5) the wholesale dumping of the same securities
      by
      promoters and broker-dealers after prices have been manipulated to a desired
      level, along with the resulting inevitable collapse of those prices and with
      consequent investor losses. Our management is aware of the abuses that have
      occurred historically in the penny stock market. Although we do not expect
      to be
      in a position to dictate the behavior of the market or of broker-dealers who
      participate in the market, management will strive within the confines of
      practical limitations to prevent the described patterns from being established
      with respect to our securities. The occurrence of these patterns or practices
      could increase the volatility of our share price.





THE
      ELIMINATION OF MONETARY LIABILITY AGAINST OUR DIRECTORS, OFFICERS AND EMPLOYEES
      UNDER NEVADA LAW AND THE EXISTENCE OF INDEMNIFICATION RIGHTS TO OUR DIRECTORS,
      OFFICERS AND EMPLOYEES MAY RESULT IN SUBSTANTIAL EXPENDITURES BY OUR COMPANY
      AND
      MAY DISCOURAGE LAWSUITS AGAINST OUR DIRECTORS, OFFICERS AND
      EMPLOYEES.





Our
      articles of incorporation contain specific provisions that eliminate the
      liability of our directors for monetary damages to our company and shareholders,
      to the extent provided by Nevada law. We may also have or may create contractual
      indemnification obligations under our employment agreements with our officers.
      The foregoing indemnification obligations could result in our company incurring
      substantial expenditures to cover the cost of settlement or damage awards
      against directors and officers, which we may be unable to recoup. These
      provisions and resultant costs may also discourage our company from bringing
      a
      lawsuit against directors and officers for breaches of their fiduciary duties,
      and may similarly discourage the filing of derivative litigation by our
      shareholders against our directors and officers even though such actions, if
      successful, might otherwise benefit our company and shareholders.





ITEM
      2.
      DESCRIPTION OF PROPERTY





Nanchang
      Best is located in Chang Bei District Industrial Park, in Nanchang, Jiangxi
      province. It owns three buildings, one each for the office, manufacturing,
      and a
      worker dormitory. Nanchang Best has been granted the right to use the land
      in
      Nanchang by the Municipal Administration of state-owned land through December,
      2049.





Shanghai
      Best is located in the Nanxiang, Jia Ding district, Shanghai. It rents two
      workshop buildings and office space on which it conducts all manufacturing
      and
      business operations. The annual rent on the Shanghai property is approximately
      $33,000 and the lease runs through September, 2009.




Guangxi
      Huijie Co. is located in Coastal Industrial Park, Liangqin district, Nanning
      city, Guangxi province. Guangxu Huijie owns three buildings, an office building,
      production plant and a worker dormitory. The right to use the land was granted
      by Housing Bureau and Land Administrative Bureau of Langqin District, Nanning
      City through October, 2056.





ITEM
      3.
      LEGAL PROCEEDINGS





From time to time, we may become involved in various lawsuits and legal
      proceedings, which arise in the ordinary course of business. However, litigation
      is subject to inherent uncertainties, and an adverse result in these or other
      matters may arise from time to time that may harm our business. We are currently
      not aware of any such legal proceedings or claims that we believe will have,
      individually or in the aggregate, a material adverse affect on our business,
      financial condition or operating results.




ITEM
      4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.





None




10




**PART
      II**





ITEM
      5.
      MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
      BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.







Our
      common stock is not listed on any stock exchange, it is traded on the
      Over-the-Counter Bulletin Board under the symbol "AGFI." The following table
      sets forth the closing high and low bid prices of our Common Stock for the
      periods indicated. Prior to October 31, 2006 the shares traded very infrequently
      and the actual price information is not readily available. The quotations set
      forth below reflect inter-dealer prices, without retail mark-up, markdown or
      commission and may not represent actual transactions.





**2006****High*******
            
            **Low*******1
                Quarter
            
            $
            N/A
            
            $
            N/A2
                Quarter
            
            
            N/A
            
            
            N/A3
                Quarter
            
            
            N/A
            
            
            N/A4
                Quarter
            
            
            3.00
            
            
            2.01





As
      of
      March 8, 2006, there were approximately 41 holders of record of our common
      stock.





**Dividends**





We
      have
      never paid any dividends on the Common Stock or the Preferred Stock. We
      currently anticipate that any future earnings will be retained for the
      development of our business and do not anticipate paying any dividends on the
      Common Stock or the Preferred Stock in the foreseeable future.





**Recent
      Issuances of Unregistered Securities**





Pursuant
      to the Share Purchase Agreements, the Company issued 6,400,000 shares of the
      common stock (the "Shares") to Shareholders of Nanchang Best and Shanghai Best
      in exchange for 100% of the common stock of Nanchang Best and Shanghai
      Best.




The
      issuance of the Shares was exempt from registration under the Securities Act
      pursuant to Section 4(2) and/or Regulation D thereof and Regulation
      S.





On
      February 28, 2007, in the initial closing of a private placement a total of
      one
      million units, each unit representing one share of our common stock and a three
      year common stock purchase warrant for .08 share were sold. Each unit is priced
      at $3.00 with $3,000,000 in total having been received. The stock purchase
      warrants have a term of three years and are exercisable for one share of common
      stock at an initial exercise price of $5.00. It is intended that the proceeds
      of
      the private placement will be used primarily for working capital.





ITEM
      6.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





**INTRODUCTION**





The
      following discussion should be read in conjunction with the Financial Statements
      and Notes thereto. Our fiscal year ends December 31. ****** This
      document contains certain forward-looking statements including, among others,
      anticipated trends in our financial condition and results of operations and
      our
      business strategy. (See “Factors Which May Affect Future Results”). These
      forward-looking statements are based largely on our current expectations and
      are
      subject to a number of risks and uncertainties. Actual results could differ
      materially from these forward-looking statements. Important factors to consider
      in evaluating such forward-looking statements include (i) changes in external
      factors or in our internal budgeting process which might impact trends in our
      results of operations; (ii) unanticipated working capital or other cash
      requirements; (iii) changes in our business strategy or an inability to execute
      our strategy due to unanticipated changes in the industries in which the Company
      operates; and (iv) various competitive market factors that may prevent us from
      competing successfully in the marketplace.





11




**Overview**





The
      Company is incorporated under the laws of the state of Nevada and its operating
      subsidiaries are all located in the People’s Republic of China: Nanchang Best is
      located in the province of Jiangxi, Shanghai Best is located in Shanghai City,
      and Guangxi Huijie is located in the province of Guangxi. The Companies engage
      in the business of the research and development, manufacture, marketing and
      sale
      of fodder and blended feed for use in China's domestic animal husbandry markets.
      The Companies’ products are sold in approximately ten provinces within the
      People’s Republic of China.




**Critical
        Accounting Policies**
  USE
        OF
        ESTIMATES: Our discussion and analysis of our financial condition and results
        of
        operations are based upon our consolidated financial statements, which have
        been
        prepared in accordance with accounting principles generally accepted in the
        United States of America. The preparation of these consolidated financial
        statements requires us to make estimates and judgments that affect the reported
        amounts of assets, liabilities, revenues and expenses, and related disclosures
        of contingent assets and liabilities. On an ongoing basis, we evaluate our
        estimates, including those related to impairment of long-lived assets, and
        allowance for doubtful accounts. We base our estimates on historical experience
        and on various other assumptions that we believe to be reasonable under the
        circumstances, the results of which form the basis for making judgments about
        the carrying value of assets and liabilities that are not readily apparent
        from
        other sources. Actual results may differ from these estimates under different
        assumptions or conditions; however, we believe that our estimates, including
        those for the above-described items, are reasonable.
  FOREIGN
        CURRENTY TRANSLATION: Our accounts are maintained and our consolidated financial
        statements were expressed in the Chinese Yuan Renminbi (CNY). Such consolidated
        financial statements are translated into U.S. Dollars (USD) in accordance
        with
        Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency
        Translation," with the CNY as the functional currency. According to the
        Statement, all assets and liabilities are translated at the exchange rate
        on the
        balance sheet date, stockholder's equity are translated at the historical
        rates
        and statement of operations items are translated at the weighted average
        exchange rate for the year. The resulting translation adjustments are reported
        under other comprehensive income in accordance with SFAS No. 130, "Reporting
        Comprehensive Income.”


12


REVENUE
          RECOGNITION: Our revenue recognition policies are in compliance with Staff
          accounting bulletin (SAB) 104. Revenue is recognized when services are
          rendered
          to customers when a formal arrangement exists, the price is fixed or
          determinable, the delivery is completed, no other significant obligations
          exist
          and collectibility is reasonably assured. Payments received before all
          of the
          relevant criteria for revenue recognition are satisfied are recorded as
          unearned
          revenue. We are not subject to VAT withholdings. We give volume rebates
          to
          certain customers based on volume achieved. We accrue sales rebates based
          on
          actual sales volume.
  STOCK
          BASED COMPENSATION: We account for stock-based compensation in accordance
          with
          SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement No. 123.” We
          recognize in the statement of operations the grant-date fair value of stock
          options and other equity-based compensation issued to employees and
          non-employees.
  For
          a
          description of these and other generally accepted accounting policies that
          we
          follow, see note 2, *Summary
          of Significant Accounting Policies* ,
          contained in the explanatory notes to our annual consolidated financials
          statements included with this annual report.


13





**Recent
      Accounting Pronouncements**





Accounting
      Changes and Error Corrections




In
      May
      2005, the FASB issued Statement No. 154, “Accounting Changes and Error
      Corrections,” which provides guidance on the accounting for and reporting of
      accounting changes and error corrections. It establishes, unless impracticable,
      retrospective application as the required method for reporting a change in
      accounting principle in the absence of explicit transition requirements specific
      to the newly adopted accounting principle. The reporting of a correction of
      an
      error by restating previously issued financial statements is also addressed
      by
      this statement. This statement became effective, on a prospective basis, for
      fiscal years beginning after December 15, 2005. The implementation of this
      statement has not had a material affect on the Company’s consolidated financial
      statements.





Accounting
      for Certain Hybrid Financial Instruments - an amendment of FASB Statements
      No.
      133 and 140




In
      February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments - an amendment of FASB No. 133 and 140,” which is
      effective for fiscal years beginning after September 15, 2006. The statement
      was
      issued to clarify the application of SFAS No. 133 to beneficial interests in
      securitized financial assets and to improve the consistency of accounting for
      similar financial instruments, regardless of the form of the instruments. This
      statement is effective for the first fiscal year beginning after September
      30,
      2006. The Company does not expect implementation of the Statement in 2007 to
      have a material effect on its consolidated financial statements.





Accounting
      for Servicing of Financial Assets




In
      March
      2006, FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets -
      an amendment to FASB Statement No. 140.” The new standard requires recognition
      of servicing assets in connection with any obligation to service a financial
      asset arising from 1) a servicing contract entered into as part of a transfer
      of
      assets meeting the requirements for sale accounting, 2) the transfer of assets
      to a special purpose entity in a guaranteed mortgage securitization where the
      transferor retains a controlling interest in the securitized asset, or 3) an
      acquisition or assumption of obligations to service financial assets not related
      to the servicer or its consolidated affiliates. The servicing assets and
      liabilities must be measured at fair value initially, if practicable, and the
      assets or liabilities must either be amortized or recorded at fair value at
      each
      reporting date. The statement allows a one-time reclassification for entities
      with servicing rights and subsequently requires separate presentation of
      servicing assets and liabilities at fair value in the statement of financial
      position. This statement is effective for the first fiscal year beginning after
      September 15, 2006, with earlier adoption permitted. The Company does not expect
      this implementation to have a material effect on our consolidated financial
      statements.





Fair
      Value Measurements


In
      September 2006, FASB issued SFAS No. 157, “Fair Value Measurements,” which
      establishes a framework for measuring fair value, and expands disclosures about
      fair value measurements required under the accounting pronouncements, but does
      not change existing guidance as to whether or not an instrument is carried
      at
      fair value. Additionally, it establishes a fair value hierarchy that prioritizes
      the information used to develop those assumptions. SFAS No. 157 is effective
      for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. Earlier application is
      encouraged, provided that the reporting entity has not yet issued financial
      statements for fiscal year, including financial statements for an interim period
      within the fiscal year. The Company is currently evaluating the impact, if
      any,
      that SFAS No. 157 will have on its consolidated financial statements.





Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans, an
      Amendment of FASB Statements No. 87, 88, 106, and 132R


In
      September 2006, the FASB, issued SFAS, No. 158, “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB
      Statements No. 87, 88, 106, and 132R,” which requires employers to recognize the
      underfunded or overfunded status of a defined benefit postretirement plan as
      an
      asset or liability in its statement of financial position and to recognize
      changes in the funded status in the year in which the changes occur through
      accumulated other comprehensive income. Additionally, SFAS No. 158 requires
      employers to measure the funded status of a plan as of the date of its year-end
      statement of financial position. The new reporting requirements and related
      new
      footnote disclosure rules of SFAS No. 158 are effective for fiscal years ending
      after December 15, 2006. We adopted the provisions of SFAS No. 158 for the
      year
      end 2006, and the effect of recognizing the funded status in accumulated other
      comprehensive income was not significant. The new measurement date requirement
      applies for fiscal years ending after December 15, 2008.




14




Other-Than-Temporary
      Impairment


FASB
      Staff Position on FAS No. 115-1 and FAS No. 124-1 (“the FSP”), “The Meaning of
      Other-Than-Temporary Impairment and Its Application to Certain Investments,” was
      issued in November 2005 and addresses the determination of when an investment
      is
      considered impaired, whether the impairment on an investment is
      other-than-temporary and how to measure an impairment loss. The FSP also
      addresses accounting considerations subsequent to the recognition of
      other-than-temporary impairments on a debt security, and requires certain
      disclosures about unrealized losses that have not been recognized as
      other-than-temporary impairments. The FSP replaces the impairment guidance
      on
      Emerging Issues Task Force (EITF) Issue No. 03-1 with references to
      existing authoritative literature concerning other-than-temporary
      determinations. Under the FSP, losses arising from impairment deemed to be
      other-than-temporary, must be recognized in earnings at an amount equal to
      the
      entire difference between the securities cost and its fair value at the
      financial statement date, without considering partial recoveries subsequent
      to
      that date. The FSP also required that an investor recognize other-than-temporary
      impairment losses when a decision to sell a security has been made and the
      investor does not expect the fair value of the security to fully recover prior
      to the expected time of sale. The FSP is effective for reporting periods
      beginning after December 15, 2005. The adoption of this statement will not
      have
      a material impact on our consolidated financial statements.





FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement No.109.”


Interpretation
      48 prescribes a recognition threshold and a measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. Benefits from tax positions should be
      recognized in the financial statements only when it is more likely than not
      that
      the tax position will be sustained upon examination by the appropriate taxing
      authority that would have full knowledge of all relevant information. The amount
      of tax benefits to be recognized for a tax position that meets the
      more-likely-than-not recognition threshold is measured as the largest amount
      of
      benefit that is greater than fifty percent likely of being realized upon
      ultimate settlement. Tax benefits relating to tax positions that previously
      failed to meet the more-likely-than-not recognition threshold should be
      recognized in the first subsequent financial reporting period in which that
      threshold is met or certain other events have occurred. Previously recognized
      tax benefits relating to tax positions that no longer meet the
      more-likely-than-not recognition threshold should be derecognized in the first
      subsequent financial reporting period in which that threshold is no longer
      met.
      Interpretation 48 also provides guidance on the accounting for and disclosure
      of
      tax reserves for unrecognized tax benefits, interest and penalties and
      accounting in interim periods. Interpretation 48 is effective for fiscal years
      beginning after December 15, 2006. The change in net assets as a result of
      applying this pronouncement will be a change in accounting principle with the
      cumulative effect of the change required to be treated as an adjustment to
      the
      opening balance of retained earnings on January 1, 2007, except in certain
      cases
      involving uncertainties relating to income taxes in purchase business
      combinations. In such instances, the impact of the adoption of Interpretation
      48
      will result in an adjustment to goodwill. While the Company analysis of the
      impact of adopting Interpretation 48 is not yet complete, it do not currently
      anticipate it will have a material impact on the Company’s consolidated
      financial statements.




Considering
      the Effects of Prior Year Misstatements in Current Year 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
      108”),which provides interpretive guidance on the consideration of the effects
      of prior year misstatements in quantifying current year misstatements for the
      purpose of a materiality assessment. The Company adopted SAB 108 in the fourth
      quarter of 2006 with no impact on its consolidated financial statements.





*Year
      Ended December 31, 2006 compared to Year Ended December 31,
      2005*





Revenues.
        We generated revenues of $8,594,876 for the twelve months ended December
        31,
        2006, an increase of $983,031 or 12.9%, compared to $7,611,845 for the twelve
        months ended December 31, 2005. The increase in revenue was due to an increase
        in all feed products sold by us. Pre-mix sold for the twelve months ended
        December 31, 2006 was 13,325 metric tons, an increase of 1,147 metric tons
        or
        9.4%, versus 12,178 for the twelve months ended December 31, 2005. Blended
        feed
        sold in the twelve months ended December 31, 2006 was 2,572 metric tons,
        an
        increase of 848 metric tons or 49%, versus 1724 metric tons for the twelve
        months ended December 31, 2005. In addition, other feeds increased from 111
        metric tons for the twelve months ended December 31, 2005 to 534 metric
        tons during the year ended December 31, 2006, an increase of 423 metric
        tons or 381%. While the Company expects sales of blended feed through its
        Nanchang Best and Guangxi Huijie subsidiaries to increase in volume, it is
        anticipated that pre-mix will become the principal segment of total sales
        volume
        in the future.
 
 Gross
        Profit. Gross profit for the year ended December 31, 2006 was $3,148,544,
        an
        increase of $875,766 or 38.5% compared to $2,272,778 for the same period
        ended
        December 31, 2005. Gross margins improved to 36.6% from 29.9% for the same
        period last year. The increase gross margin was attributed to a strategic
        shift
        to focus on the sale of higher margin products, particularly pre-mix. Pre-mix
        typically carries gross margins of approximately 40%, whereas blended feed
        carries gross margins of approximately15%.
 
 Costs
        and
        Expenses. The cost of sales in the period ended December 31, 2006 was
        $5,446,332, an increase of $107,265 or 2% compared to $5,339,067 for the
        same
        period ended December 31, 2005.
 
 Selling,
        General and Administrative Expenses. Our expenses for the twelve month
        period ended December 31, 2006 were $2,114,650 compared to $1,392,007 for
        the
        twelve month period ended December 31, 2005, an increase of $722,643 or 51.9%.
        Our general and administrative expense increased by 98%. We incurred significant
        expenses associated with the share purchase agreement with Nanchang Best,
        and
        Shanghai Best. General and administrative expense includes the overhead expenses
        of our office (rent, management and staff salaries, general insurance,
        marketing, accounting and legal). Selling expenses for the period increased
        by
        32% and is due to the 13% increase in revenues and the costs associated with
        entering markets in neighboring provinces.
 
 Net
        Income. Our net income for the twelve month period ended December 31, 2006
        was
        $1,175,280 compared to $560,706 for the twelve month period ended December
        31,
        2005, an increase of $614,574 or 110%, a result of the approximately 17%
        increase in income from operations and non operating income of $41,000 for
        the
        twelve months ended December 31, 2006, compared to a non operating loss of
        $47,655 during the twelve months ended December 31, 2005. In addition, due
        to an
        investment in us by a British Virgin Island investor we received favorable
        tax
        status and are exempt from income tax in 2006, and a portion of taxes that
        were
        due for 2005. As such we received a tax credit of $100,386 for the twelve
        months
        ended December 31, 2006.
 
 **Liquidity
        and Capital Resources**
  From
        December 31, 2006, we had $1,204,100 cash and cash equivalents on hand. Our
        principal demands for liquidity are to increase capacity, raw materials
        purchase, and sales distribution, as well as general corporate
        purposes.
 
 As
        of
        December 31, 2006, we had total loans payable of $1,793,960, comprised of
        three
        loans. A short term bank loan of $576,630, with an interest rate of 7.02%
        payable monthly, and due May 17, 2007, collateralized by our office building,
        workshop, employee dorms, and use right of land. A short term bank loan of
        $115,326, payable December 4, 2007, and has an interest rate between 5.58%
        and 6.125%, and is payable monthly, is collateralized by our machinery and
        equipment. We also have a short-term bank loan related to the acquisition
        of
        Guangxi Huijie, due June 20, 2007 with an interest rate of 7%. We have the
        ability to extend the maturity of the loan an additional six months upon
        notice
        to the lender. We may repay the loan at any time without penalty.
 
 At
        December 31, 2006 our accounts payable was $809,583 and other payables was
        $56,911. The Company's accounts receivable increased by $312,364 for the
        twelve
        months ended December 31, 2006. Other receivables decreased by $47,323. Advances
        to suppliers increased $28,340 while inventory increased $113,084 during
        the
        period.
 
 Our
        accounts payable decreased $101,564, other payables increased $34,645, due
        to
        related parties decreaseded $182,812, while unearned revenues decreased $17,001
        and accrued expenses increased $90,545. Tax and welfare payable decreased
        $151,976, for the twelve months ended December 31, 2006.
 
 We
        used
        $993,958 in investing activities during the twelve month period ended December
        31, 2006. We received $213,922 in cash in connnection with acquisitions,
        we
        invested $107,460 for the acquisition of property and equipment, and we also
        invested $1,100,420 for the purchase of a subsidiary. During the twelve month
        period ended December 31, 2006 financing activities provided $1,514,398 to
        us,
        largely the result of $1,664,855 received on loan during the
        period.
 
 We
        intend
        to meet our liquidity requirements, including capital expenditures related
        to
        the purchase of equipment, purchase of raw materials, and the expansion of
        our
        business, through cash flow provided by operations and funds raised through
        cash
        investments. On February 28, 2007, in a private placement to an accredited
        investor we sold $3,000,000 of units of our securities, each unit consisting
        of
        one share of common stock and a warrant to purchase .08 share of common
        stock.  Each unit was priced at $3.00. Fees of (i) 8% of the
        securities placed payable in cash, and (ii) a number of common stock purchase
        warrants equal to 8% of the number of units placed were paid to participating
        selected dealers. The stock purchase warrants have a term of three years
        and are
        exercisable at an initial exercise price of $5.00 per share. We believe that
        adequate cash flow will be available to fund our operations, although we
        may
        raise funds in the future
 
 The
        majority of the Company's revenues and expenses were denominated primarily
        in
        Renminbi ("RMB"), the currency of the People's Republic of China.
 
 There
        is
        no assurance that exchange rates between the RMB and the U.S. Dollar will
        remain
        stable. The Company does not engage in currency hedging. Inflation has not
        had a
        material impact on the Company's business.


15


ITEM
        7.
        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 **AgFeed
        Industries, Inc. and Subsidiaries**
 **Consolidated
        Financial Statements**
 **Years
        Ended December 31, 2006 and 2005**
 **Contents**Page**Report
                    of Independent Registered Public Accounting Firm**
                F-1**Financial
                    Statements:**Consolidated
                    Balance Sheet as of December 31, 2006
                F-2Consolidated
                    Statements of Income and Other Comprehensive Incomefor
                    the years ended December 31, 2006 and 2005
                F-3Consolidated
                    Statement of Stockholders' Equityfor
                    the years ended December 31, 2006 and 2005
                F-4Consolidated
                    Statements of Cash Flowsfor
                    the years ended December 31, 2006 and 2005
                F-5Notes
                    to Consolidated Financial Statements
                F-6
                    to F-21
   16
 
 **Report
        of Independent Registered Public Accounting Firm**
  
 
 
 Board
        of
        Directors and Stockholders of
 AgFeed
        Industries, Inc.
 
 We
        have
        audited the accompanying consolidated balance sheet of AgFeed Industries,
        Inc.
        (a Nevada corporation) and subsidiaries as of December 31, 2006, and the
        related
        consolidated statements of income and other comprehensive income, stockholders'
        equity, and cash flows for each of the two years in the period ended December
        31, 2006. These consolidated financial statements are the responsibility
        of the
        Company's management. Our responsibility is to express an opinion on these
        consolidated financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall consolidated financial statement presentation.
        We
        believe that our audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of AgFeed
        Industries, Inc. and Subsidiaries as of December 31, 2006, and the consolidated
        results of their operations and their consolidated cash flows for each
        of
        the two years in the period ended December 31, 2006 ,
        in
        conformity with U.S. generally accepted accounting principles.
 
 
 **Goldman
        & Parks LLP**
 
 Tarzana,
        California
 March
        7,
        2007
 F-1
 
 **AGFEED
                    INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                    BALANCE SHEET****AS
                    OF DECEMBER 31, 2006**
  **December
                    31,****2006****ASSETS****CURRENT
                    ASSETS:**Cash
                    & cash equivalents
                
                $
                1,204,100Accounts
                    receivable, net of allowance for doubtful accounts of $49,845
                
                
                1,796,085Advances
                    to suppliers
                
                
                77,649Other
                    receivable
                
                
                203,051Stock
                    subscription receivable
                
                
                226,083Due
                    from related parties
                
                
                87,018Advances
                    to related parties
                
                
                924,806Inventory
                
                
                802,822Prepaid
                    expense
                
                
                11,885Other
                    current assets
                
                
                2,253Total
                    current assets
                
                
                5,335,752**PROPERTY
                    AND EQUIPMENT, net**
                
                
                1,390,611**INTANGIBLE
                    ASSETS**
                
                
                539,468**TOTAL
                    ASSETS**
                
                $
                7,265,831**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****CURRENT
                    LIABILITIES:**Accounts
                    payable
                
                $
                809,583Other
                    payables
                
                
                56,911Unearned
                    revenue
                
                
                81,541Accrued
                    expenses
                
                
                92,739Accrued
                    payroll
                
                
                37,216Short
                    term loans
                
                
                1,793,960Advance
                    from related party
                
                
                737,846Tax
                    and welfare payable
                
                
                280,208Total
                    current liabilities
                
                
                3,890,004**STOCKHOLDERS'
                    EQUITY:**Common
                    stock, $0.001 per share; 75,000,000 shares authorized;24,000,000
                    shares issued and outstanding
                
                
                24,000Additional
                    paid-in capital
                
                
                1,299,379Other
                    comprehensive income
                
                
                116,846Statutory
                    reserve
                
                
                271,115Retained
                    earnings
                
                
                1,664,487Total
                    stockholders' equity
                
                
                3,375,827**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY**
                
                $
                7,265,831
  The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements
 
 F-2
 
 **AGFEED
                    INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF INCOME AND OTHER COMPREHENSIVE
                    INCOME****FOR
                    THE YEARS ENDED DECEMBER 31, 2006 AND
                    2005**
  **Years
                    Ended December 31,****2006**
                
                **2005****Net
                    Revenue**
                
                $
                8,594,876
                
                $
                7,611,845**Cost
                    of Revenue**
                
                
                5,446,332
                
                
                5,339,067**Gross
                    profit**
                
                
                3,148,544
                
                
                2,272,778Operating
                    expensesSelling
                    expenses
                
                
                1,287,110
                
                
                974,332General
                    and administrative expenses
                
                
                827,540
                
                
                417,675Total
                    operating expenses
                
                
                2,114,650
                
                
                1,392,007**Income
                    from operations**
                
                
                1,033,894
                
                
                880,771Non-operating
                    income (expense):Other
                    income (expense)
                
                
                35,681
                
                
                (27,695
                )Interest
                    income
                
                
                28,851
                
                
                -Interest
                    expense
                
                
                (23,532
                )
                
                (19,960
                )Total
                    non-operating income (expense)
                
                
                41,000
                
                
                (47,655
                )Income
                    before income tax
                
                
                1,074,894
                
                
                833,116Income
                    tax
                
                
                (100,386
                )
                
                272,410**Net
                    income**
                
                $
                1,175,280
                
                $
                560,706Other
                    comprehensive incomeForeign
                    currency translation gain
                
                
                84,382
                
                
                32,457**Comprehensive
                    Income**
                
                $
                1,259,662
                
                $
                593,163**Weighted
                    average shares outstanding :**Basic
                
                
                17,911,296
                
                
                15,006,720Diluted
                
                
                17,911,296
                
                
                15,006,720**Earnings
                    per share:**Basic
                
                $
                0.07
                
                $
                0.04Diluted
                
                $
                0.07
                
                $
                0.04
  The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements
 
 F-3
  **AGFEED
                  INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' EQUITY****FOR
                  THE YEARS ENDED DECEMBER 31, 2006 AND
                  2005**
  **Common
                  Stock**
              
              **Additional
                  Paid**
              
              **Subscription**
              
              **Other**
                      **Comprehensive**
              
              **Statutory**
              
              **Retained**
              
              **Total**
                  **Stockholders'****Shares**
              
              **Amount**
              
              **in
                  Capital**
              
              **Receivable**
              
              **Income**
              
              **Reserve**
              
              **Earnings**
              
              **Equity****Balance
                  January 1, 2005**
              
              
              15,006,720
              
              $
              15,007
              
              $
              722,527
              
              $
              (157,712
              )
              $
              7
              
              $
              33,955
              
              $
              165,661
              
              $
              779,445Cumulative
                  translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              32,457
              
              
              
              
              
              
              
              
              32,457Net
                  income for the year ended December 31, 2005
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              560,706
              
              
              560,706Reduction
                  in subscription receivable
              
              
              
              
              
              
              
              
              
              
              
              157,712
              
              
              
              
              
              
              
              
              -
              
              
              157,712Transfer
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              84,106
              
              
              (84,106
              )
              
              -**Balance
                  December 31, 2005**
              
              
              15,006,720
              
              
              15,007
              
              
              722,527
              
              
              -
              
              
              32,464
              
              
              118,061
              
              
              642,261
              
              
              1,530,320Common
                  Stock Subscribed
              
              
              4,193,280
              
              
              4,193
              
              
              221,890
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              226,083Recapitalization
                  on reverse acquisition
              
              
              4,800,000
              
              
              4,800
              
              
              54,962
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              59,762Capital
                  contribution by stockholders
              
              
              
              
              
              
              
              
              300,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              300,000Change
                  in foreign currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              84,382
              
              
              
              
              
              
              
              
              84,382Net
                  income for the year ended December 31, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,175,280
              
              
              1,175,280Transfer
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              153,054
              
              
              (153,054
              )
              
              -**Balance
                  December 31, 2006**
              
              
              24,000,000
              
              $
              24,000
              
              $
              1,299,379
              
              
              -
              
              $
              116,846
              
              $
              271,115
              
              $
              1,664,487
              
              $
              3,375,827
  The
                  accompanying notes are an integral part of these consolidated financial
                  statements
  F-4


**AGFEED
                    INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENT OF CASH FLOWS****FOR
                    THE YEARS ENDED DECEMBER 31, 2006 AND
                    2005**
  **Years
                    Ended December 31,****2006**
                
                **2005****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    income
                
                $
                1,175,280
                
                $
                560,706Adjustments
                    to reconcile net income to net cashprovided
                    in operating activities:Depreciation
                
                
                100,469
                
                
                79,465Loss
                    on disposal of property and equipment
                
                
                -
                
                
                30,112Amortization
                
                
                5,228
                
                
                4,018(Increase)
                    / decrease in assets:Accounts
                    receivable
                
                
                (312,364
                )
                
                (628,686
                )Other
                    receivable
                
                
                47,323
                
                
                (37,016
                )Inventory
                
                
                (113,084
                )
                
                177,012Due
                    from related party
                
                
                (46,550
                )
                
                (50,962
                )Advances
                    to suppliers
                
                
                (28,340
                )
                
                (16,985
                )Prepaid
                    expense
                
                
                1,725
                
                
                (3,430
                )Other
                    assets
                
                
                (2,205
                )Increase
                    / (decrease) in current liabilities:Accounts
                    payable
                
                
                (101,564
                )
                
                203,235Unearned
                    revenue
                
                
                (17,001
                )
                
                81,284Other
                    payables
                
                
                34,645
                
                
                (45,818
                )Due
                    to related party
                
                
                (182,812
                )
                
                9,889Accrued
                    expenses
                
                
                90,545
                
                
                24,769Accrued
                    payroll
                
                
                20,965Tax
                    and welfare payable
                
                
                (151,976
                )
                
                239,193Net
                    cash provided by operating activities
                
                
                520,284
                
                
                626,786**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Issuance
                    of loan receivable
                
                
                -
                
                
                4,272Cash
                    acquired with acquisitions
                
                
                213,922
                
                
                -Acquisition
                    of property and equipment
                
                
                (107,460
                )
                
                (125,434
                )Acquisition
                    of intangible assets
                
                
                -
                
                
                (8,920
                )Cash
                    paid for purchase of subsidiary
                
                
                (1,100,420
                )
                
                -Net
                    cash used in investing activities
                
                
                (993,958
                )
                
                (130,082
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Advances
                    from shareholders
                
                
                (24,783
                )
                
                61,023Repayment
                    to shareholders
                
                
                -
                
                
                (97,637
                )Advances
                    from related parties
                
                
                -
                
                
                68,423Repayment
                    to related parties
                
                
                -
                
                
                (4,959
                )Advance
                    to related parties
                
                
                (425,674
                )
                
                (788,825
                )Collection
                    from related parties
                
                
                -
                
                
                393,112Proceeds
                    from notes payable
                
                
                1,664,855
                
                
                -Payment
                    on note payable
                
                
                -
                
                
                (433,065
                )Contribution
                    by stockholders to pay for merger expenses
                
                
                300,000
                
                
                -Collection
                    on subscription receivable
                
                
                -
                
                
                157,712Net
                    cash provided by (used in) financing activities
                
                
                1,514,398
                
                
                (644,216
                )Effect
                    of exchange rate changes on cash and cash equivalents
                
                
                26,970
                
                
                18,517**NET
                    INCREASE (DECREASE) IN CASH & CASH
                    EQUIVALENTS**
                
                
                1,067,694
                
                
                (128,995
                )**CASH
                    & CASH EQUIVALENTS, BEGINNING BALANCE**
                
                
                136,406
                
                
                265,401**CASH
                    & CASH EQUIVALENTS, ENDING BALANCE**
                
                $
                1,204,100
                
                $
                136,406**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:**Interest
                    paid
                
                $
                30,213
                
                $
                21,238Income
                    taxes paid
                
                $
                73,339
                
                $
                30,213
  The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements
 F-5
 
 **AgFeed
              Industries, Inc. and Subsidiaries**
 **Notes
              to Consolidated Financial Statements**
 **For
              the Years Ended December 31, 2006 and 2005**
 **Note
        1 - Organization and Basis of Presentation**
 
 Organization
        and Line of Business
  AgFeed
        Industries, Inc. formerly known as Wallace Mountain Resources Corp., a Nevada
        corporation, (hereinafter referred to as the “Company” or “AgFeed”) was
        incorporated in the State of Nevada on March 30, 2005.
 
 On
        October 31, 2006, the Company entered into and closed a share purchase agreement
        with Nanchang Best Animal Husbandry Co., Ltd., a corporation formed under
        the
        laws of the People's Republic of China ("Nanchang Best"), and each of Nanchang
        Best's shareholders (the "Nanchang Purchase Agreement"). Pursuant to the
        Nanchang Purchase Agreement, the Company acquired all of the issued and
        outstanding capital stock of Nanchang Best from the Nanchang Best shareholders
        in exchange for 16,128,000 shares of common stock.
 
 Contemporaneously,
        on October 31, 2006, the Company entered into and closed a share purchase
        agreement with Shanghai Best Animal Husbandry Co., Ltd., a corporation formed
        under the laws of the People's Republic of China ("Shanghai Best"), and each
        of
        Shanghai Best's shareholders (the "Shanghai Purchase Agreement"). Pursuant
        to
        the Shanghai Purchase Agreement, the Company acquired all of the issued and
        outstanding capital stock of Shanghai Best from the Shanghai Best shareholders
        in exchange for 3,072,000 shares of common stock.
 
 The
        exchanges of shares with Nanchang Best and Shanghai Best were accounted for
        as
        reverse acquisition under the purchase method of accounting since the
        stockholders of Nanchang Best and Shanghai Best obtained control of the Company. On
        November 17, 2006, Wallace Mountain Resources Corp. changed its name to AgFeed
        Industries, Inc. Accordingly,
        the merger of Nanchang Best and Shanghai Best into the Company were recorded
        as
        a recapitalization of Nanchang Best and Shanghai Best, with the Nanchang
        Best
        and Shanghai Best being treated as the continuing entities. Nanchang Best
        and
        Shanghai Best had common shareholders and common management. The historical
        financial statements presented are the combined financial statements of both
        Nanchang Best and Shanghai Best. The share exchange agreement has been treated
        as a recapitalization and not as a business combination; therefore, no pro
        forma
        information is disclosed. At the date of this transaction, the net assets
        of the
        legal acquirer were $59,762.
 
 As
        a
        result of the reverse merger transactions described above the historical
        financial statements presented are those of Nanchang Best and Shanghai Best,
        the
        operating entities.
 
 On
        December 20, 2006, the Company entered into and closed a share purchase
        agreement with Guangxi Huijie Sci. & Tech. Feed Co, Ltd., a company formed
        pursuant to the laws of the People's Republic of China (“Guangxi Huijie”), and
        the shareholders of Guangxi Huijie pursuant to which the Company acquired
        all
        the outstanding shares of Guangxi Huijie for a total purchase price of eight
        million six hundred thousand Chinese Renminbi (8,600,000 CNY), equivalent
        to
        approximately U.S. $1,100,420 based on exchange rates reported in the Wall
        Street Journal for December 20, 2006.
  F-6
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
 The
        Company obtained the funds for the acquisition of the Guangxi Huijie shares
        by
        borrowing 8,600,000 CNY from Sunrise Capital International, Inc. The proceeds
        of
        the loan from Sunrise Capital International, Inc. were paid directly to the
        selling shareholders of Guangxi Huijie as consideration and as provided by
        the
        share purchase agreement. The Company's repayment obligation is evidenced
        by a
        promissory note bearing interest at the rate of seven percent per annum (7%)
        and
        maturing in six months. The Company, at its option, may extend the maturity
        of
        the note an additional six months upon notice to the lender. The Company
        may
        also prepay the note at any time without penalty.
 
 The
        Company is engaged in the research & development, manufacture, marketing,
        distribution and sale of pre-mix fodder blended feed and feed additives
        primarily for use in China's domestic pork husbandry market. The Company
        operates a production plants in Nanchang City, Shanghai City and Nanning
        City
        and sells to distributors and large-scale swine farms.
 
 Stock
        Splits
  On
        November 17, 2006, the Company declared a stock dividend of two additional
        shares of common stock for each share of common stock outstanding (effectively
        a
        three for one stock split). All share information for common shares has been
        retroactively restated for this stock split.
  
 Basis
        of Presentation
 
 The
        accompanying consolidated financial statements include the accounts of AgFeed
        Industries, Inc., and its 100% wholly-owned subsidiaries Nanchang Best and
        Shanghai Best (for all periods presented) and
        Guangxi Huijie (from the date of acquisition - for
        convenience of reporting the acquisition for accounting purposes, December
        31,
        2006 has been designated as the acquisition date. Net income for the 11 days
        from December 20, 2006 to December 31, 2006 was approximately
        $31,000).  All
        significant inter-company accounts and transactions have been eliminated
        in
        consolidation.
 
 The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of America.
        The Company’s functional currency is the Chinese Yuan Renminbi (CNY); however
        the accompanying consolidated financial statements have been translated and
        presented in United States Dollars ($).
 
 Foreign
        Currency Translation
 
 As
        of
        December 31, 2006 and 2005, the accounts of the Company were maintained,
        and
        their consolidated financial statements were expressed in the Chinese Yuan
        Renminbi (CNY). Such consolidated financial statements were translated into
        U.S.
        Dollars (USD) in accordance with Statement of Financial Accounts Standards
        ("SFAS") No. 52, "Foreign Currency Translation," with the CNY as the functional
        currency. According to the Statement, all assets and liabilities were translated
        at the exchange rate on the balance sheet date, stockholder's equity are
        translated at the historical rates and statement of operations items are
        translated at the weighted average exchange rate for the year. The resulting
        translation adjustments are reported under other comprehensive income in
        accordance with SFAS No. 130, "Reporting Comprehensive Income”.
 
 F-7
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
 **Note
        2 - Summary of Significant Accounting Policies**
 
 Use
        of
        Estimates
 
 The
        preparation of financial statements in conformity with United States generally
        accepted accounting principles requires management to make estimates and
        assumptions that affect the reported amounts of assets and liabilities and
        disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the
        reporting period. Actual results could differ from those estimates.
 
 Reclassification
 
 Certain
        prior period amounts have been reclassified to conform to the year ended
        December 31, 2006 presentation.
 
 Cash
        and Cash Equivalents
 
 Cash
        and
        cash equivalents include cash in hand and cash in time deposits, certificates
        of
        deposit and all highly liquid debt instruments with original maturities of
        three
        months or less.
 
 Accounts
        Receivable
 
 The
        Company maintains reserves for potential credit losses on accounts receivable.
        Management reviews the composition of accounts receivable and analyzes
        historical bad debts, customer concentrations, customer credit worthiness,
        current economic trends and changes in customer payment patterns to evaluate
        the
        adequacy of these reserves. The allowance for doubtful debts amounted to
        $49,845
        as of December 31, 2006.
 
 Stock
        Subscription Receivable
 
 At
        December 31, 2006, the Company had a stock subscription receivable in the
        amount
        of $226,083 related to an investment by a British Virgin Island (BVI) company.
        The amount was collected in January 2007 and has been presented as a current
        asset in the accompanying consolidated balance sheet.
 
 Advances
        to Suppliers
 
 The
        Company makes advances to certain vendors for purchase of its material. The
        advances to suppliers are interest free and unsecured. At December 31, 2006,
        the
        Company had advances to suppliers in the amount of $77,649.
 
 Inventories
 
 Inventory
        is stated at the lower of cost, as determined by weighted-average method,
        or
        market. Management compares the cost of inventories with the market value,
        and
        allowance is made for writing down the inventories to their market value,
        if
        lower.
  F-8
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
 Property
        & Equipment
 
 Property
        and equipment are stated at cost. Expenditures for maintenance and repairs
        are
        charged to earnings as incurred; additions, renewals and betterments are
        capitalized. When property and equipment are retired or otherwise disposed
        of,
        the related cost and accumulated depreciation are removed from the respective
        accounts, and any gain or loss is included in operations. Depreciation of
        property and equipment is provided using the straight-line method for
        substantially all assets with estimated lives as follows:
 
 Office
                  equipment
              5
                  yearsOperating
                  equipment
              10
                  yearsVehicles
              5
                  yearsBuildings
              20
                  years
 
 The
        following are the details of the property and equipment at December 31,
        2006:
 
 Office
                  equipment
              
              $
              65,412Operating
                  equipment
              
              
              493,011Vehicles
              
              
              235,207Buildings
              
              
              926,162Total
              
              
              1,719,792Less
                  accumulated depreciation
              
              
              (329,181
              )$
              1,390,611
 
 Depreciation
        expense for the years ended December 31, 2006 and 2005 was $100,469 and $79,465,
        respectively.
 
 Long-Lived
        Assets
 
 Effective
        January 1, 2002, the Company adopted Statement of Financial Accounting Standards
        No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
        144”), which addresses financial accounting and reporting for the impairment
        or
        disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
        Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
        Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
        the Results of Operations for a Disposal of a Segment of a Business.” The
        Company periodically evaluates the carrying value of long-lived assets to
        be
        held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
        to be recorded on long-lived assets used in operations when indicators of
        impairment are present and the undiscounted cash flows estimated to be generated
        by those assets are less than the assets’ carrying amounts. In that event, a
        loss is recognized based on the amount by which the carrying amount exceeds
        the
        fair market value of the long-lived assets. Loss on long-lived assets to
        be
        disposed of is determined in a similar manner, except that fair market values
        are reduced for the cost of disposal. Based on its review, the Company believes
        that, as of December 31, 2006 there were no significant impairments of its
        long-lived assets.
  F-9
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
  Intangible
        Assets
 Intangible
        assets consist of the right to use land and computer software. Net
        intangible assets at December 31, 2006 are as follows:
 
 Right
                  to use land
              
              $
              551,012Computer
                  software
              
              
              11,196Total
              
              
              562,208Less
                  Accumulated amortization
              
              
              (22,740
              )Intangibles,
                  net
              
              $
              539,468
 
 
 Per
        the
        People's Republic of China's governmental regulations, the Government owns
        all
        land. The Company leases land per a real estate contract with the government
        of
        the People's Republic of China for a period from November 2006 through October
        2056. The Company obtained possession of the land in July of 2005. Accordingly,
        the Company is amortizing the cost of the right to use land from that
        date.
 
 The
        right
        to use land is amortized over a period of 50 years and the computer software
        is
        amortized over three years.
 
 Amortization
        expense for the Company’s intangible assets for the years ended December 31,
        2006 and 2005 was $5,228 and $4,018, respectively.
 
 Fair
        Value of Financial Instruments
 
 Statement
        of financial accounting standard No. 107, Disclosures about fair value of
        financial instruments, requires that the Company disclose estimated fair
        values
        of financial instruments. The carrying amounts reported in the statements
        of
        financial position for current assets and current liabilities qualifying
        as
        financial instruments are a reasonable estimate of fair value.
 
 Revenue
        Recognition
  The
        Company's revenue recognition policies are in compliance with Staff accounting
        bulletin (SAB) 104. Revenue is recognized when services are rendered to
        customers when a formal arrangement exists, the price is fixed or determinable,
        the delivery is completed, no other significant obligations of the Company
        exist
        and collectibility is reasonably assured. Payments received before all of
        the
        relevant criteria for revenue recognition are satisfied are recorded as unearned
        revenue. The Company is not subject to VAT withholdings.
  The
        Company gives volume rebates to certain customers based on volume achieved.
        The
        Company accrues sales rebates based on actual sales volume.
  Sales
        returns and rebates included in the Company's revenues were $324,218 and
        $137,567 for the years ended December 31, 2006 and 2005,
        respectively.
  F-10
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
  Advertising
          Costs
 The
        Company expenses the cost of advertising as incurred or, as appropriate,
        the
        first time the advertising takes place. Advertising costs for the years ended
        December 31, 2006 and 2005 were $5,995 and $18,776, respectively.
 
 Stock-Based
        Compensation
 
 The
        Company accounts for its stock-based compensation in accordance with SFAS
        No.
        123R, “Share-Based Payment, an Amendment of FASB Statement No. 123.” The Company
        recognizes in the statement of operations the grant-date fair value of stock
        options and other equity-based compensation issued to employees and
        non-employees. No
        options have been granted for the year ended December 31, 2006 or in prior
        years.
 
 Income
        Taxes
 
 The
        Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
        recognition of deferred tax assets and liabilities for the expected future
        tax
        consequences of events that have been included in the financial statements
        or
        tax returns. Under this method, deferred income taxes are recognized for
        the tax
        consequences in future years of differences between the tax bases of assets
        and
        liabilities and their financial reporting amounts at each period end based
        on
        enacted tax laws and statutory tax rates applicable to the periods in which
        the
        differences are expected to affect taxable income. Valuation allowances are
        established, when necessary, to reduce deferred tax assets to the amount
        expected to be realized.
 
 Foreign
        Currency Transactions and Comprehensive Income
 
 Accounting
        principles generally require that recognized revenue, expenses, gains and
        losses
        be included in net income. Certain statements, however, require entities
        to
        report specific changes in assets and liabilities, such as gain or loss on
        foreign currency translation, as a separate component of the equity section
        of
        the balance sheet. Such items, along with net income, are components of
        comprehensive income. The functional currency of the Company is Chinese
        Renminbi. The unit of Renminbi is in Yuan. Translation gains of $116,846
        at
        December 31, 2006 are classified as an item of other comprehensive income
        in the
        stockholders’ equity section of the consolidated balance sheet. During the years
        ended December 31, 2006 and 2005, other comprehensive income in the consolidated
        statements of income and other comprehensive income included translation
        gains
        of $84,382 and $32,457, respectively.
 
 Basic
        and Diluted Earnings Per Share
 
 Earnings
        per share is calculated in accordance with the Statement of financial accounting
        standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
        Accounting Principles Board Opinion No.15 (APB 15). Net earnings per share
        for
        all periods presented has been restated to reflect the adoption of SFAS No.
        128.
        Basic net earnings per share is based upon the weighted average number of
        common
        shares outstanding. Diluted net earnings per share is based on the assumption
        that all dilutive convertible shares and stock options were converted or
        exercised. Dilution is computed by applying the treasury stock method. Under
        this method, options and warrants are assumed to be exercised at the beginning
        of the period (or at the time of issuance, if later), and as if funds obtained
        thereby were used to purchase common stock at the average market price during
        the period. There were no option, warrants or dilutive securities outstanding
        during the years ended December 31, 2006 and 2005; therefore, the basic and
        diluted earnings per shares for both the years ended December 31, 2006 and
        2005
        are the same.
  F-11
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
 Statement
        of Cash Flows
 
 In
        accordance with Statement of Financial Accounting Standards No. 95, “Statement
        of Cash Flows,” cash flows from the Company’s operations are calculated based
        upon the local currencies. As a result, amounts related to assets and
        liabilities reported on the statement of cash flows will not necessarily
        agree
        with changes in the corresponding balances on the balance sheet.
 Cash
          from
          financing activities excludes the effect of common stock subscribed and
          subscription receivable for $226,083.
  Segment
        Reporting
 
 Statement
        of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
        Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
        is based on the way a company’s management organizes segments within the company
        for making operating decisions and assessing performance. Reportable segments
        are based on products and services, geography, legal structure, management
        structure, or any other manner in which management disaggregates a company.
        SFAS
        131 has no effect on the Company’s consolidated financial statements as the
        Company consists of one reportable business segment.
 
 Recent
        Pronouncements
  Accounting
        Changes and Error Corrections
  In
        May
        2005, the FASB issued Statement No. 154, “Accounting Changes and Error
        Corrections,” which provides guidance on the accounting for and reporting of
        accounting changes and error corrections. It establishes, unless impracticable,
        retrospective application as the required method for reporting a change in
        accounting principle in the absence of explicit transition requirements specific
        to the newly adopted accounting principle. The reporting of a correction
        of an
        error by restating previously issued financial statements is also addressed
        by
        this statement. This statement became effective, on a prospective basis,
        for
        fiscal years beginning after December 15, 2005. The implementation of this
        statement has not had a material affect on the Company’s consolidated financial
        statements.
  Accounting
        for Certain Hybrid Financial Instruments - an amendment of FASB Statements
        No.
        133 and 140
  In
        February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments - an amendment of FASB No. 133 and 140,” which is
        effective for fiscal years beginning after September 15, 2006. The statement
        was
        issued to clarify the application of SFAS No. 133 to beneficial interests
        in
        securitized financial assets and to improve the consistency of accounting
        for
        similar financial instruments, regardless of the form of the
        instruments. ** This
        statement is effective for the first fiscal year beginning after September
        30,
        2006. The Company does not expect implementation of the Statement in 2007
        to
        have a material effect on its consolidated financial statements.
  F-12
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
  Accounting
        for Servicing of Financial Assets
  In
        March
        2006, FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets -
        an amendment to FASB Statement No. 140.” The new standard requires recognition
        of servicing assets in connection with any obligation to service a financial
        asset arising from 1) a servicing contract entered into as part of a transfer
        of
        assets meeting the requirements for sale accounting, 2) the transfer of assets
        to a special purpose entity in a guaranteed mortgage securitization where
        the
        transferor retains a controlling interest in the securitized asset, or 3)
        an
        acquisition or assumption of obligations to service financial assets not
        related
        to the servicer or its consolidated affiliates. The servicing assets and
        liabilities must be measured at fair value initially, if practicable, and
        the
        assets or liabilities must either be amortized or recorded at fair value
        at each
        reporting date. The statement allows a one-time reclassification for entities
        with servicing rights and subsequently requires separate presentation of
        servicing assets and liabilities at fair value in the statement of financial
        position. This statement is effective for the first fiscal year beginning
        after
        September 15, 2006, with earlier adoption permitted. The Company does not
        expect
        this implementation to have a material effect on our consolidated financial
        statements.
  Fair
        Value Measurements
  In
        September 2006, FASB issued SFAS No. 157, *“* Fair
        Value Measurements, *”* which ** establishes
        a framework for measuring fair value, and expands disclosures about fair
        value
        measurements required under the accounting pronouncements, but does not change
        existing guidance as to whether or not an instrument is carried at fair value.
        Additionally, it establishes a fair value hierarchy that prioritizes the
        information used to develop those assumptions. SFAS No. 157 is effective
        for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years. Earlier application is
        encouraged, provided that the reporting entity has not yet issued financial
        statements for fiscal year, including financial statements for an interim
        period
        within the fiscal year. The Company is currently evaluating the impact, if
        any,
        that SFAS No. 157 will have on its consolidated financial statements.
  Employers’
        Accounting for Defined Benefit Pension and Other Postretirement Plans, an
        Amendment of FASB Statements No. 87, 88, 106, and 132R
  In
        September 2006, the FASB, issued SFAS, No. 158, “Employers’ Accounting for
        Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB
        Statements No. 87, 88, 106, and 132R,” which requires employers to recognize the
        underfunded or overfunded status of a defined benefit postretirement plan
        as an
        asset or liability in its statement of financial position and to recognize
        changes in the funded status in the year in which the changes occur through
        accumulated other comprehensive income. Additionally, SFAS No. 158 requires
        employers to measure the funded status of a plan as of the date of its year-end
        statement of financial position. The new reporting requirements and related
        new
        footnote disclosure rules of SFAS No. 158 are effective for fiscal years
        ending
        after December 15, 2006. We adopted the provisions of SFAS No. 158 for the
        year
        end 2006, and the effect of recognizing the funded status in accumulated
        other
        comprehensive income was not significant. The new measurement date requirement
        applies for fiscal years ending after December 15, 2008.
  Other-Than-Temporary
        Impairment
  F-13
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
  FASB
        Staff Position on FAS No. 115-1 and FAS No. 124-1 (“the FSP”), “The Meaning of
        Other-Than-Temporary Impairment and Its Application to Certain Investments,” was
        issued in November 2005 and addresses the determination of when an investment
        is
        considered impaired, whether the impairment on an investment is
        other-than-temporary and how to measure an impairment loss. The FSP also
        addresses accounting considerations subsequent to the recognition of
        other-than-temporary impairments on a debt security, and requires certain
        disclosures about unrealized losses that have not been recognized as
        other-than-temporary impairments. The FSP replaces the impairment guidance
        on
        Emerging Issues Task Force (EITF) Issue No. 03-1 with references to
        existing authoritative literature concerning other-than-temporary
        determinations. Under the FSP, losses arising from impairment deemed to be
        other-than-temporary, must be recognized in earnings at an amount equal to
        the
        entire difference between the securities cost and its fair value at the
        financial statement date, without considering partial recoveries subsequent
        to
        that date. The FSP also required that an investor recognize other-than-temporary
        impairment losses when a decision to sell a security has been made and the
        investor does not expect the fair value of the security to fully recover
        prior
        to the expected time of sale. The FSP is effective for reporting periods
        beginning after December 15, 2005. The adoption of this statement will not
        have
        a material impact on our consolidated financial statements.
  FASB
        Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
        interpretation of FASB Statement No.109.”
  Interpretation
        48 prescribes a recognition threshold and a measurement attribute for the
        financial statement recognition and measurement of a tax position taken or
        expected to be taken in a tax return. Benefits from tax positions should
        be
        recognized in the financial statements only when it is more likely than not
        that
        the tax position will be sustained upon examination by the appropriate taxing
        authority that would have full knowledge of all relevant information. The
        amount
        of tax benefits to be recognized for a tax position that meets the
        more-likely-than-not recognition threshold is measured as the largest amount
        of
        benefit that is greater than fifty percent likely of being realized upon
        ultimate settlement. Tax benefits relating to tax positions that previously
        failed to meet the more-likely-than-not recognition threshold should be
        recognized in the first subsequent financial reporting period in which that
        threshold is met or certain other events have occurred. Previously recognized
        tax benefits relating to tax positions that no longer meet the
        more-likely-than-not recognition threshold should be derecognized in the
        first
        subsequent financial reporting period in which that threshold is no longer
        met.
        Interpretation 48 also provides guidance on the accounting for and disclosure
        of
        tax reserves for unrecognized tax benefits, interest and penalties and
        accounting in interim periods. Interpretation 48 is effective for fiscal
        years
        beginning after December 15, 2006. The change in net assets as a result of
        applying this pronouncement will be a change in accounting principle with
        the
        cumulative effect of the change required to be treated as an adjustment to
        the
        opening balance of retained earnings on January 1, 2007, except in certain
        cases
        involving uncertainties relating to income taxes in purchase business
        combinations. In such instances, the impact of the adoption of Interpretation
        48
        will result in an adjustment to goodwill. While the Company analysis of the
        impact of adopting Interpretation 48 is not yet complete, it do not currently
        anticipate it will have a material impact on the Company’s consolidated
        financial statements.
  Considering
        the Effects of Prior Year Misstatements in Current Year 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
        108”),which provides interpretive guidance on the consideration of the effects
        of prior year misstatements in quantifying current year misstatements for
        the
        purpose of a materiality assessment. The Company adopted SAB 108 in the fourth
        quarter of 2006 with no impact on its consolidated financial statements.
  F-14
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
 **Note
        3 - Notes Payable**
 
 Notes
        payable at December 31, 2006 were as follows:
  Short-term
                  bank loan; interest rate of 7.02% payable monthly.
                The
                  term of the loan is from May 18, 2006 to May 17, 2007.
                This
                  loan is collateralized by the Company’s office building,
                workshop,
                  employee dorms and use right of land.
              
              $
              576,630Short-term
                  bank loan; interest rate of 6.12% at December 31,
                2006.
                  The term of the loan is from December 5, 2006 to
                December
                  4, 2007, has an interest rate between 5.58% and
                6.125%,
                  and is payable monthly. This loan is collateralized by
                the
                  Company’s machinery and equipment.
              
              
              115,326Short-term
                  bank loan related to the acquisition of Guangxi
                Huijie.
                  The term of the loan is from December 20, 2006 to
                June
                  20, 2007 with an interest rate of 7%. The Company has
                the
                  ability to extend the maturity of the note an additional six
                months
                  upon notice to the lender. The Company may also
                prepay
                  the note at any time without penalty.
              
              
              1,102,004$
              1,793,960
 
 **Note
        4 - Employee Welfare Plan**
 
 The
        Company has established its own employee welfare plan in accordance with
        Chinese
        law and regulations. The Company makes annual contributions of 14% of all
        employees’ salaries to employee welfare plan. The total expense for the above
        plan was $62,431 and $30,474 for the years ended December 31, 2006 and 2005,
        respectively. The Company has recorded welfare payable of $81,897 at December
        31, 2006 which is included in tax and welfare payable in the accompanying
        consolidated balance sheet.
  F-15
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
  Note
          5 - Statutory Common Welfare
          Fund
 As
        stipulated by the Company Law of the People’s Republic of China (PRC), net
        income after taxation can only be distributed as dividends after appropriation
        has been made for the following:
 
 i.
            Making
                up cumulative prior years’ losses, if any; 
 ii.
            Allocations
                to the “Statutory surplus reserve” of at least 10% of income after tax, as
                determined under PRC accounting rules and regulations, until the
                fund
                amounts to 50% of the Company’s registered capital; 
 iii.
            Allocations
                of 5-10% of income after tax, as determined under PRC accounting
                rules and
                regulations, to the Company’s “Statutory common welfare fund”, which is
                established for the purpose of providing employee facilities and
                other
                collective benefits to the Company’s employees; and 
 iv.
            Allocations
                to the discretionary surplus reserve, if approved in the stockholders’
                general meeting. 
 Pursuant
        to the new Corporate Law effective on January 1, 2006, there is now only
        one
        "Statutory surplus reserve" requirement. The reserve is 10 percent of income
        after tax, not to exceed 50 percent of registered capital.
 
 Pursuant
        to the "Circular of the Ministry of Finance ( MOF) on the Issue of Corporate
        Financial Management after the Corporate Law Enforced" (No.67 [2006]), effective
        on April 1, 2006, issued by the MOF, the companies will transfer the balance
        of
        SCWF as of December. 31, 2005 to Statutory Surplus Reserve. Any deficit in
        the
        SCWF will be charged in turn to Statutory Surplus Reserve, additional paid-in
        capital and undistributed profit of previous years. If a deficit still remains,
        it should be transferred to retained earnings and be reduced to zero by a
        transfer from after tax profit of following years. At December 31, 2006,
        the
        Company did not have a deficit in the SCWF
 
 The
        Company has appropriated $153,054 and $84,106 as reserve for the statutory
        surplus reserve and welfare fund for the years ended December 31, 2006 and
        2005,
        respectively.
 
 **Note
        6 -** **Earnings
        Per Share**
 
 Earnings
        per share for the years ended December 31, 2006 and 2005 were determined
        by
        dividing net income for the periods by the weighted average number of both
        basic
        and diluted shares of common stock and common stock equivalents outstanding.
        At
        December 31, 2006 and 2005, there were no dilutive securities.
 
 **Note
        7 - Related Party Transactions**
 
 During
        the year ended December 31, 2006, certain stockholders contributed $300,000
        to
        the Company to pay for certain merger costs.
  F-16
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
 Due
        to
        related parties and due from related parties represent amounts payable and
        receivable from related arising from purchases and sales
        transactions.
 
 Advances
        to and from related parties and shareholders are non interest bearing and
        are
        payable or receivable on demand.
 
 Sales
        to
        related parties amounted to $170,069 and $82,050 for the years ended
        December 31, 2006 and 2005, respectively.
 
 Due
        from
        related parties amounted to $87,018 as of December 31, 2006,
        respectively.
 
 Purchases
        from related parties amounted to $708 and $1,757 for the years ended December
        31, 2006 and 2005, respectively.
 
 Advance
        to related parties amounted to $924,806 as of December 31, 2006.
  Advance
        from related parties and shareholders amounted to $737,846 as of December
        31,
        2006.
 
 The
        parties are related through one common shareholder who is a majority shareholder
        in all the related entities.
 
 
 **Note
        8 - Taxes**
 
 Local
        PRC
        Income Tax
 
 Pursuant
        to the tax laws of China, general enterprises are subject to income tax at
        an
        effective rate of 33%.
 A
        reconciliation of tax at United States federal statutory rate to provision
        for
        income tax recorded in the financial statements is as follows:
 
 For
                  the YearsEnded
                  December 31,2006
              
              2005Tax
                  provision (credit) at statutory rate
              
              
              34
              %
              
              34
              %Foreign
                  tax rate difference
              
              
              (1
              %)
              
              (1
              %)US
                  NOL for which no benefit is
                Realized
              
              
              (2
              %)
              
              -Effect
                  of tax holiday and waiver ofcurrent
                  and prior year's tax liability
              
              
              (40
              %)
              
              -(9
              %)
              
              33
              %
 
 In
        July
        2006, as a result of an investment by a foreign investor in one of the Company’s
        subsidiaries, the Company became a Sino-Foreign Joint Venture. Pursuant to
        the
        Chinese income tax law, the Company became fully exempt from income tax for
        a
        period of two years from July 14, 2006 to July 14, 2008, followed by a reduced
        tax rate of 15% for the next three years. Concurrent with the exemption,
        the tax
        authorities waived approximately CNY 3,400,000 ($425, 429) in taxes due.
  F-17
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
 The
        effect of the change of tax status has been accounted for in accordance with
        SFAS No. 109, par. 28, which states that the effect of a change in tax status
        is
        computed as of the date of change and is included in the tax provision for
        continuing operations. Management believes that the local tax authorities
        would
        not have waived past taxes had it not been for the change in the Company’s tax
        status.
 
 If
        the
        Company had not been exempt from paying income taxes due to the Sino-Foreign
        Joint Venture described above ,
        income
        tax expense for the year ended December 31, 2006 would have been approximately
        $325,000 and earnings per share would have been reduced to $0.04.
 
 
 **Note
        9 - Acquisition of** **Guangxi
        Huijie Sci. & Tech. Feed Co, Ltd**
 
 On
        December 20, 2006, the Company completed its acquisition of Guangxi
        Huijie .
        The
        Company acquired 100% of Guangxi Huijie’s issued and outstanding shares of
        common stock for $1,100,420 which was paid in cash. Guangxi Huijie is engaged
        in
        the research & development, manufacture, marketing, distribution and sale of
        pre-mix fodder blended feed and feed additives primarily for use in China’s
        domestic pork husbandry market. Guangxi Huijie operates a production plants
        in
        Nanning City and sells to distributors and large-scale swine farms. The Company
        acquired Guangxi Huijie as part of its strategic growth plan.
 
 The
        operating results of Guangxi Huijie are included in the accompanying
        consolidated statements of operations from the acquisition date. For convenience
        of reporting the acquisition for accounting purposes, December 31, 2006 has
        been
        designated as the acquisition date. Net income for the 11 days from December
        20,
        2006 to December 31, 2006 was approximately $31,000.
  The
        following table summarizes the fair values of the assets acquired and
        liabilities assumed at the date of acquisition.  The fair values are
        based on third-party valuation. The
        fair
        value of the net assets acquired exceeded the total consideration for the
        acquisition by approximately $315,000. The excess (negative goodwill) was
        allocated on a pro rata basis to long-lived assets.
  Cash
              
              $
              151,990Accounts
                  receivable
              
              
              473,976Other
                  receivables
              
              
              166,741Inventory
              
              
              290,184Other
                  current assets
              
              
              57,809Property
                  and equipment
              
              
              614,510Intangible
                  assets
              
              
              464,246Accounts
                  payable
              
              
              (218,131
              )Notes
                  payable
              
              
              (115,326
              )Advances
                  from related party
              
              
              (737,827
              )Other
                  current liabilities
              
              
              (47,752
              )Purchase
                  price
              
              $
              1,100,420
  F-18
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
 The
        intangible assets, which is principally land rights, is being amortized over
        50
        years.
 
 The
        pro
        forma financial information that the consolidated operations of the Company
        as
        if the Guangxi Huijie acquisition had occurred as of the beginning of the
        periods presented is presented below.
 
 **For
                  the year ended December 31, 2006****As
                      Reported**by theCompany
              
              **Guangxi**Huijie
              
              **Adjustments**
              
              **Pro
                  forma**Net
                  Revenue
              
              $
              8,594,876
              
              $
              2,574,836
              
              $
              -
              
              $
              11,169,712Cost
                  of Revenue
              
              
              5,446,332
              
              
              1,794,033
              
              
              -
              
              
              7,240,365Gross
                  Profit
              
              
              3,148,544
              
              
              780,803
              
              
              -
              
              
              3,929,347Operating
                  expenses:Selling
                  expenses
              
              
              1,287,110
              
              
              167,393
              
              
              -
              
              
              1,454,503General
                  and administrative expenses
              
              
              827,540
              
              
              110,953
              
              
              5,425
              
              a.
              943,918Total
                  operating expenses
              
              
              2,114,650
              
              
              278,346
              
              
              5,425
              
              
              2,398,421Income
                  from operations
              
              
              1,033,894
              
              
              502,457
              
              
              (5,425
              )
              
              1,530,926Non-operating
                  income (expense):Other
                  income (expense)
              
              
              35,681
              
              
              2,657Interest
                  income
              
              
              28,851
              
              
              265
              
              
              -
              
              
              29,116Interest
                  expense
              
              
              (23,532
              )
              
              (6,684
              )
              
              (77,691
              )
              b.
              (107,907
              )Total
                  non-operating income (expense)
              
              
              41,000
              
              
              (3,762
              )
              
              (77,691
              )
              
              (78,791
              )Income
                  before income tax
              
              
              1,074,894
              
              
              498,695
              
              
              (83,116
              )
              
              1,452,135Income
                  tax
              
              
              (100,386
              )
              
              39,138
              
              
              -
              
              
              (61,248
              )Net
                  income
              
              $
              1,175,280
              
              $
              459,557
              
              $
              (83,116
              )
              $
              1,513,383Earnings
                  per share
              
              $
              0.07
              
              
              
              
              
              
              
              $
              0.08Weighted
                  average shares outstanding
              
              
              17,911,296
              
              
              
              
              
              
              
              
              17,911,296
 
 a.
              to
                  record additional amortization for the increase in basis of the
                  land use
                  rights as a result of the purchase.
  b.
              to
                  record interest expense on the acquisition
                  note.
  F-19
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
 
 **For
                  the year ended December 31, 2005****As
                      Reported**
                    **by
                      the**
                    **Company**
              
              **Guangxi**
                  **Huijie**
              
              **Adjustments**
              
              **Pro
                  forma**Net
                  Revenue
              
              $
              7,611,845
              
              $
              439,880
              
              $
              -
              
              $
              8,051,725Cost
                  of Revenue
              
              
              5,339,067
              
              
              370,812
              
              
              -
              
              
              5,709,879Gross
                  Profit
              
              
              2,272,778
              
              
              69,068
              
              
              -
              
              
              2,341,846Operating
                  expenses:Selling
                  expenses
              
              
              974,332
              
              
              59,829
              
              
              -
              
              
              1,034,161General
                  and administrative expenses
              
              
              417,675
              
              
              70,152
              
              
              5,425
              
              c.
              493,252Total
                  operating expenses
              
              
              1,392,007
              
              
              129,981
              
              
              5,425
              
              
              1,527,413Income
                  from operations
              
              
              880,771
              
              
              (60,913
              )
              
              (5,425
              )
              
              814,433Non-operating
                  income (expense):Other
                  income (expense)
              
              
              (27,695
              )
              
              -Interest
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -Interest
                  expense
              
              
              (19,960
              )
              
              (2,351
              )
              
              (77,691
              )
              d.
              (100,002
              )Total
                  non-operating income (expense)
              
              
              (47,655
              )
              
              (2,351
              )
              
              (77,691
              )
              
              (100,002
              )Income
                  before income tax
              
              
              833,116
              
              
              (63,264
              )
              
              (83,116
              )
              
              714,431Income
                  tax
              
              
              272,410
              
              
              -
              
              
              -
              
              
              272,410Net
                  income
              
              $
              560,706
              
              $
              (63,264
              )
              $
              (83,116
              )
              $
              442,021Earnings
                  per share
              
              $
              0.04
              
              
              
              
              
              
              
              $
              0.03Weighted
                  average shares outstanding
              
              
              15,006,720
              
              
              
              
              
              
              
              
              15,006,720
 
 
 c.
            to
                record additional amortization for the increase in basis of the land
                use
                rights as a result of the purchase. d.
            to
                record interest expense on the acquisition
                note. 
 F-20
 **AgFeed
          Industries, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006 and 2005**
 
 **Note
        10 - Subsequent Event**
 
 On
        February 6, 2007, the Board of Directors approved the sale of 2,750,000 units
        in
        a private placement offering. Each unit consists of one common share and
        warrants to purchase common shares equal to 8% of the number of common shares
        subscribed. The warrants expire in three years and are have an exercise price
        of
        $5.00 per share. On February 28, 2007, the Company received the minimum required
        placement of $3,000,000 USD of units of its securities consisting of shares
        of
        common stock and stock purchase warrants (8% warrant coverage) in a private
        placement exempt from registration under the Securities Act. A total of
        1,000,000 units, each unit representing one share of the Company’s common stock
        and a three year common stock purchase warrant, were sold through the end
        of
        business February 28, 2007. Each unit is priced at $3.00 with $3,000,000
        in
        total having been received. Fees of (i) 8% of the securities placed payable
        in
        cash, and (ii) a number of common stock purchase warrants equal to 8% of
        the
        number of units placed were paid to participating selected dealers. The stock
        purchase warrants have a term of three years and are exercisable for one
        share
        of common stock at an initial exercise price of $5.00. The securities offered
        in
        the private placement have not been registered under the Securities Act,
        or any
        state securities laws, and unless so registered, may not be sold in the United
        States except pursuant to an exemption from, or in a transaction not subject
        to,
        the registration requirements of the Securities Act and applicable state
        securities laws.


F-21




ITEM
      8.
      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





November
      24, 2006, the Company dismissed DeJoya Griffith & Company, LLC as its
      principal independent public accountant, and engaged Goldman & Parks LLP as
      its new principal independent accountant. This decision was approved by the
      Board of Directors of the Company. DeJoya Griffith & Company, LLC audited
      the Company’s financial statements from March 30, 2005 (inception) through March
      31, 2006.





During
      our most recent fiscal year and the interim period ended November 24, 2006,
      there have been no disagreements or reportable events with DeJoya Griffith
&
Company, LLC on any matter of accounting principles, or practices, financial
      statement disclosure or auditing scope or procedure, which disagreements if
      not
      resolved to the satisfaction of DeJoya Griffith & Company, LLC would have
      caused them to make reference thereto in their reports on the financial
      statements for such year. DeJoya Griffith & Company, LLC ‘s report on the
      Company’s financial statements for the most recent fiscal year did not contain
      an adverse opinion or disclaimer of opinion, and was not modified as to
      uncertainty, audit scope, or accounting principles.





During
      the our most recent fiscal year and the interim period ended November 24, 2006,
      the Company did not consult with DeJoya Griffith & Company, LLC regarding
      any matters or reportable events described in Items 304 (a)(2)(i) and (ii)
      of
      Regulation S-B.





ITEM
      8A.
      CONTROLS AND PROCEDURES





**Evaluation
      of Disclosure Controls**





We
      maintain controls and procedures designed to ensure that we are able to collect
      the information that is required to be disclosed in the reports it files with
      the SEC, and to process, summarize and disclose this information within the
      time
      period specified in the rules of the SEC. Our Chief Executive and Chief
      Financial Officers are responsible for establishing, maintaining and enhancing
      these procedures. They are also responsible, as required by the rules
      established by the SEC, for the evaluation of the effectiveness of these
      procedures.





Based
      on
      our management’s evaluation (with participation of our principal executive
      officer and principal financial officer), as of the end of the period covered
      by
      this report, our principal executive officer and principal financial officer
      have concluded that our disclosure controls and procedures are
      effective.





**Changes
      in Internal Controls**





We
      maintain a system of internal controls designed to provide reasonable assurance
      that transactions are executed in accordance with management's general or
      specific authorization; transactions are recorded as necessary to permit
      preparation of financial statements in conformity with Generally Accepted
      Accounting Principles (GAAP) and maintain accountability for assets. Access
      to
      assets is permitted only in accordance with management's general or specific
      authorization.





There
      were no changes in our Internal Controls during Fiscal 2006 that has materially
      affected, or is reasonably likely to materially affect, our Internal
      Controls.





ITEM
      8B.
      OTHER INFORMATION




None.




17




**PART
      III**





ITEM
      9.
      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
      SECTION 16(a) OF THE EXCHANGE ACT.





Below
      are
      the names and certain information regarding our executive officers and
      directors:





**Name**
            **Age**
            **Position**Li
                Songyan
            40
            Director,
                Chairman of the BoardXiong
                Junhong
            36
            Chief
                Executive Officer, President, DirectorYan
                Liang Fan
            53
            Chief
                Financial OfficerZhou
                Feng
            38
            Corporate
                Secretary





Officers
      are elected annually by the Board of Directors, at our annual meeting, to hold
      such office until an officer’s successor has been duly appointed and qualified,
      unless an officer sooner dies, resigns or is removed by the Board.





**Background
      of Executive Officers and Directors**





**Li
      Songyan, Chairman of the Board of Directors**


Mr.
      Li
      was an original founder of Nanchang Best and started as the Manager of the
      Technical Research and Development Department in 1995. In 2004, Mr. Li became
      the Chairman of the Board of Directors of Nanchang Best. Prior to joining
      Nanchang Best he worked at the Guangxi Peter Hand Premix Feed Co., Ltd, as
      the
      Technical Manager from 1991 to 1994. He received his Ph.D. in Animal
      Nutrition from Nanjing Agricultural University in 2004.





**Xiong
      Junhong, Chief Executive Officer, President, Director**


Mr.
      Xiong
      founded Nanchang Best in 1995 and has served as the Chief Executive Officer.
      Mr.
      Xiong was a technician at the Chongming Progressing Farm Company in Shanghai
      from 1992 to 1993. He joined the Guangzhou Huashi Animal Nutrionals Ltd. as
      a
      sales representative in 1993. He graduated from Animal Husbandry &
Veterinary College in Jiangxi Agricultural University and received a Bachelors
      Degree in 1992.





**Yan
      Liang Fan, Chief Financial Officer**


Mr.
      Yan
      served as a financial consultant to Nanchang Best starting in 2003. Mr. Yan
      was
      the senior manager of Chengdu Accounting Firm from 2002 to 2003. From 1996
      to
      2001 Mr. Yan was the section chief of the Audit Inspection Department of the
      New
      Hope Group. Mr. Yan holds the certification of CPA in China and graduated from
      Correspondence College of Economics of Beijing in 1989.





**Zhou
      Feng, Corporate Secretary**


Mr.
      Zhou
      joined Nanchnag Best as one of the original founders in 1995 and served as
      the
      Vice President of Finance. From 1993 to 1995 he was a sales representative
      at
      Guangzhou Huashi Industry. Mr. Zhou worked for Shanghai Daying Industry as
      a
      technician for one year, after graduating from Jiangxi Agricultural University
      with a degree in Animal Feed in 1992. He obtained his EMBA from Tsinghua
      University in 2004.




**Board
      of Directors**





Our
      Directors are elected by the vote of a plurality in interest of the holders
      of
      our voting stock and hold office for a term of one year and until a successor
      has been elected and qualified.





A
      majority of the authorized number of directors constitutes a quorum of the
      Board
      for the transaction of business. The directors must be present at the meeting
      to
      constitute a quorum. However, any action required or permitted to be taken
      by
      the Board may be taken without a meeting if all members of the Board
      individually or collectively consent in writing to the action.





Directors
      may receive compensation for their services and reimbursement for their expenses
      as shall be determined from time to time by the Board.





**Compliance
      with Section 16(a) of the Securities Exchange Act of 1934**





Section
      16(a) of the Securities Exchange Act of 1934 requires the Company's directors
      and executive officers, and persons who own more then 10 percent of the
      Company's Common Stock, to file with the SEC the initial reports of ownership
      and reports of changes in ownership of common stock. Officers, directors and
      greater than 10 percent stockholders are required by SEC regulation to furnish
      the Company with copies of all Section 16(a) forms they file. Based solely
      upon
      our review of the copies of the forms we have received, we believe that all
      such
      reporting persons complied on a timely basis with all filing requirements
      applicable to them with respect to transactions during our fiscal year ended
      December 31, 2006.




18




ITEM
      10. EXECUTIVE COMPENSATION





The
      following table sets forth all compensation paid in respect of our Chief
      Executive Officer and those individuals who received compensation in excess
      of
      $100,000 per year (collectively, the "Named Executive Officers") for our last
      three completed fiscal years.




SUMMARY
      COMPENSATION TABLE




**Long
                Term Compensation****Annual
                Compensation**
            
            **Awards**
            **Payouts**Name
                And
              Principal
              Position
            
            Year
            Salary
              ($)
            Bonus
              ($)
            Other
              Annual
              Compensation
              ($)
            
            Restricted
              Stock
              Compensation
              ($)
            Securities
              Under-
              Lying
              Options/
              SARs
                (#)
            LTIP
              Payouts
              ($)
            All Other
              Compensation
              ($)Xiong
                Junhong, Chief Executive Officer, President, and Director
            
            2006
              2005
              2004
            9,000
              4,000
              4,000
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            
            N/A
              N/A
              N/A
            N/A
              N/A
              N/A
            N/A
              N/A
              N/A
            N/A
              N/A
              N/ARobert
                Gelfand, Former President
            
            2006
              2005
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            
            N/A
              N/A
            N/A
              N/A
            N/A
              N/A
            N/A
              N/A





**Equity
      Compensation Plan Information**





There
      has
      been no common stock authorized for issuance with respect to any equity
      compensation plan as of the fiscal year ended December 31, 2006.




**Employment
      Agreements**





We
      currently have no employment agreements with any of our executive officers,
      nor
      any compensatory plans or arrangements resulting from the resignation,
      retirement or any other termination of any of our executive officers, from
      a
      change-in-control, or from a change in any executive officer's responsibilities
      following a change-in-control.




**Option
      Grants During 2006 Fiscal Year**




None.





**Aggregated
      Option Exercises During 2006 Fiscal Year and Fiscal Year-End Option
      Values**





None.




19




ITEM
      11.
      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





The
      following table sets forth certain information, as of March 8, 2007 with respect
      to the beneficial ownership of the outstanding common stock by (i) any holder
      of
      more than five (5%) percent; (ii) each of our executive officers and directors;
      and (iii) our directors and executive officers as a group. Except as otherwise
      indicated, each of the stockholders listed below has sole voting and investment
      power over the shares beneficially owned.




Name
                of Beneficial Owner (1)
            
            Number
                of
              Shares
              Beneficially
              Owned
            
            Percentage
                of
              Shares
              Beneficially
              Owned
                (2)Xiong
                Junhong
            
            
            4,036,074
            
            
            16.14
            %Zhou
                Feng
            
            
            1,885,674
            
            
            7.54
            %Xiong
                Zhengru
            
            
            1,885,674
            
            
            7.54
            %Zheng
                Yunlin
            
            
            1,885,674
            
            
            7.54
            %Li
                Songyan
            
            
            1,766,328
            
            
            7.07
            %Yan
                Liangfan
            
            
            0
            
            
            0
            %Leader
                Industrial Development, Ltd.
            
            
            2,228,541
            
            
            8.91
            %All
                officers and directors as a group (7 persons)
            
            
            7,688,076
            
            
            30.75
            %





(1)
      Except as otherwise indicated, the address of each beneficial owner is c/o
      Nanchang Best Animal Husbandry Co., Ltd., 1095 Qing Lan Avenue, Economic and
      Technical Development Area, Nan Chang City, Jiangxi Province, China
      330013.





(2)
      The
      address of Zheng Yunlin is Room 408, Dong Keyuan East Area, Building 4, Jiangxi
      Agricultural University, Economic and Technical Development Area, Nan Chang
      City, Jiangxi Province, China 330045.





(3)
      Zhou
      Sheng (neither an officer or director of registrant) has the voting and
      dispositive rights over the shares held by Leader Industrial Development, Ltd.
      The address of Zhou Sheng and Leader Industrial Development, Ltd. is Unit 2309,
      South Tower, World Trade Centre, Huanshi Road East, Guangzhou, China
      510095.





No
      Director, executive officer, affiliate or any owner of record or beneficial
      owner of more than 5% of any class of voting securities of the Company is a
      party adverse to the Company or has a material interest adverse to the
      Company.




20





**Securities
      Authorized for Issuance Under Equity Compensation Plans**




During
      the year ended December 31, 2006,the Company did not have any equity
      compensation plans in effect.





EQUITY
      COMPENSATION PLAN INFORMATION





Plan
                category
            
            **Number
                of securities**
              **to
                be issued upon**
              **exercise
                of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Weighted
                average**
              **exercise
                price of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Number
                of securities**
              **remaining
                available for future issuance under equity compensation plans (excluding
                securities reflected in column (a)****(a)**
            
            **(b)**
            
            **(c)****Equity
                compensation plans approved by security holders**
            
            -0-
            
            N/A
            
            -0-**Equity
                compensation plans not approved by security
                holders**
            
            -0-
            
            N/A
            
            -0-**Total**
            
            -0-
            
            N/A
            
            -0-





ITEM
      12.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





During
      the year ended December 31, 2006, certain shareholders contributed $300,000
      to
      the Company to pay for certain merger costs





There
      are
      sales to related parties aggregating approximately $170,000
      and $82,000 for the years ended December 31, 2006 and 2005, respectively. These
      sales were of raw materials and finished feed goods for resale. Mr.
      Xiong
      Junhong, our chief executive officer, owns a majority interest in the four
      companies we have sold products to during 2006. His respective ownership
      interest in the companies was: 51%, 52%, 78.5% and 87%.





There
      are
      purchases from related parties aggregating approximately $700 and $1,800 for
      the
      years ended December 31, 2006 and 2005, respectively. These purchases were
      of
      raw materials and finished feed goods for resale. Mr.
      Xiong
      Junhong, owns approximately 52% of the company we purchased products from during
      2006.




Advances
      to and from related parties and shareholders are non interest bearing and are
      payable or receivable on demand.


There
      are
      advances to related parties of approximately $925,000 at December 31, 2006.
      Mr.
      Xiong Junhong, owns a majority interest in the five companies we have advanced
      funds to during 2006. His respective ownership interest in the companies was:
      51%, 70%, 73%, 78.5%, and 87%.




There
      are
      advances from related parties and shareholders of approximately $738,000 at
      December 31, 2006. Advances
      are from members of our management and board of directors.




21


ITEM
      13.
      EXHIBITS


3(1)
                Articles
                    of Incorporation (1)3(2)
                By-Laws
                    (1)4
                Specimen
                    common stock certificate10.1
                Share
                    Purchase Agreement dated October 31, 2006 among Registrant, Nanchang
                    Best
                    Animal Husbandry Co., Ltd. and the shareholders of Nanchang Best
                    Animal
                    Husbandry Co., Ltd. (2)10.2
                Share
                    Purchase Agreement dated October 31, 2006 among Registrant, Shanghai
                    Best
                    Animal Husbandry Co., Ltd. and the shareholders of Shanghai Best
                    Animal
                    Husbandry Co., Ltd. (2)10.3
                Share
                    Purchase Agreement dated December 20, 2006 among Registrant,
                    Guangxi
                    Huijie Sci. & Tech. Feed Co., Ltd. and the shareholders of Guangxi
                    Huijie Sci. & Tech. Feed Co., Ltd. (3)21
                Subsidiaries
 
 Name
              Jursidiction
                  of Incorporation
              Percentage
                  Owned by CompanyNanchang
                  Best Animal Husbandry Co. , Ltd
              People
                  Republic of China
              100%Shanghai
                  Best Animal Husbandry Co., Ltd.
              People’s
                  Republic of China
              100
                  %Guangxi
                  Huijie Sci. & Tech. Feed Co. , Ltd
              People’s
                  Republic of China
              100%
  31.1
        Certification of Chief Executive Officer Pursuant to Section 302 of the
        Sarbanes- Oxley Act of 2002.
  31.2
        Certification of Chief Financial Officer Pursuant to Section 302 of the
        Sarbanes- Oxley Act of 2002.
 
 32.1
        Certification of Chief Executive Officer Pursuant to Section 906 of the
        Sarbanes- Oxley Act of 2002.
 
 32.2
        Certification of Chief Financial Officer Pursuant to Section 906 of the
        Sarbanes- Oxley Act of 2002.
  ______
 
 (1)
            Filed
                with the Company’s Registration Statement on Form SB-2 on July 18, 2005
                and incorporated herein by reference. 
 (2)
            Filed
                with the Company’s Report on Form 8K on November 6, 2006 and incorporated
                herein by reference. 
 (3)
            Filed
                with the Company’s Report on Form 8K on December 26, 2006 and incorporated
                herein by reference.




22




ITEM
      14.
      PRINCIPAL ACCOUNTANT FEES AND SERVICES





Audit
      Fees. The aggregate fees billed by our auditors, for professional services
      rendered for the audit of our annual financial statements for the year ended
      December 31, 2006, and for the reviews of the financial statements included
      in
      our Quarterly Reports on Form 10-QSB during the fiscal year were $199,000.
      Prior
      to November 24, 2006 our Fiscal year ended March 31. The aggregate fees billed
      by our auditors, for professional services rendered for the audit of our annual
      financial statements for the fiscal year ended March 31, 2006, and for the
      reviews of the financial statements included in our Quarterly Reports on Form
      10-QSB during the fiscal year were $5,825





Audit
      Related Fees. We incurred fees to auditors of $0, for audit related fees during
      the fiscal year ended December 31, 2006, and for the fiscal year ended March
      31,
      2006 audit related fees were $0.





Tax
      Fees.
      We incurred no fees to auditors for tax compliance, tax advice and tax
      compliance services during the fiscal year ended December 31, 2006 and the
      fiscal year ended March 31, 2006











23







SIGNATURES





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized on March 12, 2007.




AgFeed
                Industries, Inc.By:
            /s/ Xiong
                JunhongXiong
                Junhong
              Chief
                Executive Officer (Principal Executive Officer)By:
            /s/Yan
                Liang FanYan
                Liang Fan
              Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.




SIGNATURE
            
            TITLE
            
            DATE/s/
                Li Songyan
            
            Director,
                Chairman of the Board
            
            March
                12, 2007Li
                Songyan/s/
                Xiong Junhong
            
            Director,
                Chief Executive Officer, President
            
            March
                12, 2007Xiong
                Junhong/s/
                Yan Liang Fan
            
            Chief
                Financial Officer
            
            March
                12, 2007Yan
                Liang Fan




24