UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549




FORM
10-K





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


For the
fiscal year ended December 31, 2009





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


For the
transition period from  ___________ to _____________





Commission
File No. 001-33674





AGFEED
INDUSTRIES, INC.


(Exact
Name of Registrant as Specified in Its Charter)





Nevada
              
              20-2597168(State
      or Other Jurisdiction
                of Incorporation
      or Organization)
              
              (I.R.S.
      Employer Identification No.)





Rm.
A1001-1002, Tower 16


Hengmao
Int'l Center, 333 S. Guangchang Rd.


Nanchang, Jiangxi Province,
China 330003


(Address
of Principal Executive Offices, including zip code)





011-86-0791-6669093


(Registrant’s
Telephone Number, Including Area Code)





Securities
registered under Section 12(b) of the Exchange Act:


Common
      Stock, $0.001 par value
              
              The
      Nasdaq Stock Market LLC(Title
      of each class)
              
              (Name
      of each exchange on which
registered)





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





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes o    
No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes o    
No x





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.    
Yes x No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such period that the registrant was required to submit and
post such files).    Yes o No o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o





Indicate
by check mark whether the registrant is a large accelerated filer, accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions
of  “large accelerated filer," "accelerated filer” and "smaller reporting
company" in Rule 12b-2 of the Exchange Act (check one):




Large
      accelerated filer o
              
              Accelerated
      filer xNon-accelerated
      filer o(Do not check if a smaller
      reporting company)
              
              Smaller
      reporting company  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
aggregate market value of the voting stock held by non-affiliates as of June 30,
2009 was approximately $170,424,980.





The
number of shares of Common Stock outstanding as of March 3, 2010 was
44,903,263.


Documents Incorporated by
Reference: Portions of
the registrant’s proxy statement for its 2010 annual meeting of shareholders,
which the registrant expects to file with the Securities and Exchange Commission
("SEC") within 120 days after December 31, 2009 are incorporated by reference
into Part III of this annual report.









TABLE
OF CONTENTS





PagePART
      I
                                                                                  1Item
      1.
                                                                                  Business
                                                                                  1Item
      1A.
                                                                                  Risk
      Factors
                                                                                  20Item
      1B.
                                                                                  Unresolved
      Staff Comments.
                                                                                  33Item
      2.
                                                                                  Properties
                                                                                  33Item
      3.
                                                                                  Legal
      Proceedings
                                                                                  33Item
      4.
                                                                                  Submission
      of Matters to a Vote of Security Holders
                                                                                  33PART
      II
                                                                                  34Item
      5.
                                                                                  Market
      for Registrant’s Common Equity, Related Shareholder Matters and Issuer
      Purchases of Equity Securities
                                                                                  34Item
      6.
                                                                                  Selected
      Financial Data
                                                                                  37Item
      7.
                                                                                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                                                  38Item
      7A.
                                                                                  Quantitative
      and Qualitative Disclosures About Market Risk
                                                                                  48Item
      8.
                                                                                  Financial
      Statements and Supplementary Data
                                                                                  48Item
      9.
                                                                                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                                                  48Item
      9A.
                                                                                  Controls
      and Procedures
                                                                                  49Item
      9B.
                                                                                  Other
      Information
                                                                                  50PART
      III
                                                                                  51Item
      10.
                                                                                  Directors
      and Executive Officers of the Registrant
                                                                                  51Item
      11.
                                                                                  Executive
      Compensation
                                                                                  51Item
      12.
                                                                                  Security
      Ownership of Certain Beneficial Owners and Management and Related
      Shareholder Matters
                                                                                  51Item
      13.
                                                                                  Certain
      Relationships and Related Transactions
                                                                                  51Item
      14.
                                                                                  Principal
      Accountant Fees and Services
                                                                                  51PART
      IV
                                                                                  51Item
      15.
                                                                                  Exhibits
      and Financial Statement Schedules
                                                                                  51SIGNATURESEXHIBITS









The
statements contained in this annual report that are not historical facts are
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to our financial condition, results
of operations and business, which can be identified by the use of
forward-looking terminology, such as “estimates,” “projects,” “plans,”
“believes,” “expects,” “anticipates,” “intends,” or the negative thereof or
other variations thereon, or by discussions of strategy that involve risks and
uncertainties.  Management wishes to caution the reader of the
forward-looking statements that such statements, which are contained in this
annual report, reflect our current beliefs with respect to future events and
involve known and unknown risks, uncertainties and other factors, including, but
not limited to, economic, competitive, regulatory, technological, key employee,
and general business factors affecting our operations, markets, growth,
services, products, licenses and other factors discussed in our other filings
with the Securities and Exchange Commission ("SEC"), and that these statements
are only estimates or predictions.  No assurances can be given
regarding the achievement of future results, as actual results may differ
materially as a result of risks facing us, and actual events may differ from the
assumptions underlying the statements that have been made regarding anticipated
events.




These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results to be materially different from
any future results expressed or implied by us in those statements. Some of these
risks are described in “Risk Factors” in Item 1A of this annual
report.




These
risk factors should be considered in connection with any subsequent written or
oral forward-looking statements that we or persons acting on our behalf may
issue. All written and oral forward-looking statements made in connection with
this annual report that are attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these cautionary
statements.  Given these uncertainties, we caution investors not to
unduly rely on our forward-looking statements. We do not undertake any
obligation to review or confirm analysts’ expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this document or to reflect the
occurrence of unanticipated events. Further, the information about our
intentions contained in this document is a statement of our intention as of the
date of this document and is based upon, among other things, the existing
regulatory environment, industry conditions, market conditions and prices, the
economy in general and our assumptions as of such date. We may change our
intentions, at any time and without notice, based upon any changes in such
factors, in our assumptions or otherwise.




PART
I




In this
Annual Report on Form 10-K, we will refer to AgFeed Industries, Inc., a Nevada
corporation, as "AgFeed," "our company," "we," "us," and "our."




Item
1.  Business.




OVERVIEW




We are a
Nevada corporation engaged in the animal nutrition and commercial hog producing
businesses in the People's Republic of China ("China") through our indirect
operating subsidiaries. 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 China.  As a result of a merger
into a wholly-owned subsidiary, we changed our name to AgFeed Industries, Inc.
on November 17, 2006.  Our principal executive offices are located
atRm. A1001-1002,
Tower 16, Hengmao Int'l Center, 333 S. Guangchang Rd., Nanchang, Jiangxi
Province, China 330003. Our telephone number is +86-0791-6669093. Our website is http://www.agfeedinc.com .




Our
animal nutrition business consists of the research and development, manufacture,
marketing and sale of additive premix ('premix"), concentrates and complete feed
for use in the domestic animal husbandry markets, primarily for hog production
in China.  Premix is an animal feed additive that is broadly used in
commercial animal production worldwide. The use of premix feed can significantly
reduce an animal’s growth cycle, enabling the animal to reach market size
sooner. We have been in the premix feed business since 1995 and now operate five
premix feed manufacturing facilities located in the cities of Nanchang,
Shandong, Shanghai, Nanning, and Hainan.




1




We
entered the hog breeding and production business in November 2007.  In
this business, we mainly produce hogs for slaughter and sell breeding
stock.  From November 2007 through late 2008 we acquired one breeder
farm and 29 meat hog producing farms in the Jiangxi, Shanghai, Hainan, Guangxi
and Fujian provinces.  In November 2009, we opened our first farm
based on Western hog production technology in the city of Da Hua, Guangxi
Province.  In December 2009 we began stocking a second breeder farm in
the city of Gangda, Guangxi Province.  We also completed the
construction of a nucleus farm in the city of Wuning, Jiangxi Province in
November 2009.  This farm will be developed and operated by Hypor
AgFeed Breeding Company Inc., a joint venture with Hypor, B.V., a Hendrix
Genetics Company, entered into in December 2009.  We own two breeder
farms and 29 meat hog producing farms in the Jiangxi, Shanghai, Hainan, Guangxi
and Fujian provinces.




On April
15, 2009 we formed a strategic alliance with Hypor. The alliance has four
phases: (1) upgrading the genetic base of our existing herds; (2) creating a sow
farrow-to -finish nucleus facility to supply superior breeding stock to be
utilized in our production systems and for sale to outside commercial hog farms;
(3) establishing high health, top quality genetics to the farms being developed
by AgFeed International Protein; and (4) developing gene transfer centers to
maximize the use of the top performing boars in China across our production
system.  On December 17, 2009, we formed Hypor AgFeed Breeding Company
with Hypor to develop, operate and market a genetic nucleus farm in Wuning,
China.  Hypor AgFeed Breeding is owned 85% indirectly by us and 15% by
Hypor.




On July
13, 2009, we formed a joint venture with M2P2 LLC. AgFeed International Protein
Technology Corp. focuses on enhancing hog production systems for Chinese and
other Pan Asian clients based on modern western standards to increase
productivity and ensure the highest bio-security health standards in the Pan
Asian hog industry.  The joint venture was formed to take advantage of
the commercialization and consolidation of the hog industry being fostered by
the Chinese central and local governments.  We are the joint venture's
first client.  AgFeed International Protein is owned 80.1% indirectly
by us and certain affiliates and 19.9% by M2P2.




Core
Strategic Concept




Our core
strategic concept is: AgFeed, Government & Farmer.  These are the
three principal market participants that lead and drive our business discussions
and which together must find common ground and benefit in order for our business
plan to be successful.  Our business plan calls for introducing modern
western standards and methods to greatly improve the efficiency and yields in
our operations.  In order to successfully implement these methods and
apply these standards we require the cooperation of the Government and the
Farmers.  We need to continually educate each of these constituencies
and demonstrate the benefits of our methods and standards for food safety,
yields, returns and employment.




Market
Dynamics




We expect
that both of our core businesses, animal nutrition and hog production, will
witness significant consolidation going forward due to the convergence of
government policies and natural market forces.  Investment opportunities
will expand as the mode of operation in both animal husbandry and animal feed
production evolve from traditional modes to modern, industrial scale and highly
professional enterprises. This will lead to a much smaller number of larger
integrated market participants.  Scale will become increasingly important
in both the hog and feed businesses.




The dual
imperatives of government regulation to assure food safety and the security of
the food chain together with heightened consumer demand for high quality and
reliably safe food will act to drive consolidation and market growth for those
producers that are positioned to comply with the evolving regulatory and
consumer market.   The growing urbanization of China will further
consolidate markets and will require industrial scale market participants in
order to efficiently and effectively serve a much more concentrated distribution
system of supermarkets.




2




Falling
provincial barriers and value added tax reforms will aid the consolidation
within our industry.  Pork remains not only a staple of the Chinese
diet but also the primary source of protein.  We have strategically
positioned our business units both operationally and financially to take
advantage of these market dynamics and to assure the quality and safety of the
pork supplied to the Chinese consumer.




ANIMAL
NUTRITION BUSINESS




We
manufacture, distribute, market and sell three main product lines - premix,
concentrates and complete feeds for use in all stages of a pig’s life. We
conduct these operations through our indirect subsidiaries Nanchang Best Animal
Husbandry Co., Ltd. (“Nanchang Best”), Shanghai Best Animal Husbandry Co., Ltd.
(“Shanghai Best”), Guangxi Huijie Sci. & Tech. Feed Co., Ltd., (“Guangxi
Huijie”), Shandong AgFeed Agribusiness Co., Ltd. ("Shandong Feed"), and Hainan
HopeJia Feed Co., Ltd. ("HopeJia"). We also provide educational, technical and
veterinary support to our customers.




Nanchang
Best, Shanghai Best, Guangxi Huijie, Shandong Feed and HopeJia are collectively
referred to as our "feed operating companies."  They operate
manufacturing facilities in Nanchang, Shanghai, Nanning, Shandong, and Hainan
provinces, respectively, primarily serving the hog industry.  Each
subsidiary independently conducts local marketing and sales
efforts.  We share sales referrals and leads among subsidiaries, but
our subsidiaries do not compete against each other for new
sales.  Nanchang Best and Guangxi Huijie are primarily responsible for
our ongoing research and development efforts and share their expertise in this
area with all of our manufacturing operations.  There are no formal
written agreements relating to these services, as each of these companies are
our wholly owned subsidiaries.




The
Ministry of Agriculture of China has granted Agfeed “Green Certification” status
for our premix products under the brand label “BEST.”  This means that
these products are safe, environmentally friendly, and can effectively promote
the healthy growth of pigs. According to current government regulations, pork
cannot be accredited by the government as “green” unless it is produced using
government certified green feed. Having our feed certified as green requires us
to adhere to strict operational controls and procedures. This green
certification laid the foundation for our hog farms to produce hogs that result
in high quality “Green” pork products. It is also an incentive for other
commercial hog farms to enter into sales contracts with our feed
operations.




Livestock
producers may directly buy animal feed in finished form, referred to as
“complete” feed, which contains a concentrate of additive premix and the
foundational grains in one complete package, or, they may choose to buy the
premix and then combine it with protein, corn, hay, wheat and other elements
readily available in the market to make their own complete feed. Premix 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 and the quality of feed and nutrition has a significant effect on
profits.  Management estimates that in 2009 feed costs comprise
approximately 75% of AgFeed’s production expenses.




Our total
combined feed output in 2009 was approximately 117,000 metric tons (75,000 in
2008), consisting of 33,000 metric tons of premix, 23,000 metric tons of
concentrates and 61,000 metric tons of complete feed.




It is
typical for a feed company to pass on ingredient price increases or decreases to
the customer that materially influence revenues and cost of goods sold without
materially impacting the net gross margin of the business.




3




Additive
Premix




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.
Premix is composed mainly of essential amino acids, vitamins, minerals,
antibiotics and growth promoters. We market 30 different brands of premix that
are priced from standard to premium to satisfy wide ranging customer demand.
Within each brand there are 8 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, replacement gilt, mating/pregnant and lactating. We
provide superior customer service by customizing the premix to the specific
needs of each customer. Large scale pig farms are typically the biggest
consumers of our premix. Our veterinarians work with these large pig farms to
determine the optimal formulation of feed.




Premix
sales represent approximately 29% of our annual feed revenues, including sales
to our hog farms, and carry a gross profit margin of approximately 32%. Our
ability to formulate customized premix fodder to meet customer specifications
enables us to charge a premium for our products. The average price of our premix
is $672/metric ton. We are also able to justify premium pricing due to the
strong brand name recognition of our operating companies, hands-on after market
support, and superior, more effective products developed as a result of a strong
R&D program. 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.




Concentrate
Feed




Concentrates,
mainly composed of high protein, vitamin, amino acid, mineral and antibiotics,
are designed to supply nutrition necessary for pigs, including piglets weaned to
15 kg and lactating pigs. We produce different brands of concentrates with
different formulation catering to different customer needs and
climate.




Concentrate
feeds include premix and the protein for all phases of a pigs life cycle. The
farmer adds the carbohydrate (corn) to make a complete ration. This allows the
farmer the ability to use his own grown corn or carbohydrate
source.




Concentrate
sales represent approximately 30% of our annual feed revenues, including sales
to our hog farms, and carry a gross profit margin of approximately 15%. We have
the ability to formulate concentrate feeds to meet various nutrient
specifications. The average price of our concentrate is $990/metric
ton.




Complete
Feed




Complete
feed consists of premix, protein and carbohydrates providing a total feed ration
for the animal. Commercial farmers favor the utilization of complete feeds in
order to better provide the nutrient needs for the various life cycle of the
animal. Complete feeds offer consistent particle size, guarantee proper mixing
distribution of ingredients and eliminate the need for commercial farmers to
maintain inventory of corn and soybean meal.




We
produce piglet complete feed designed to both nourish and protect newborns and
is composed primarily of proteins, such as fish meal and soybean (30%), and raw
material grains, such as corn and chaff (roughly 65%). Local climate and
environment also influence the formulation of the piglet blend. We intend to
expand our product offerings to meet the growing demand for complete feed for
all stages of a pig's life cycle as more and more small farms and mid-size farms
are moving to purchase complete feed (ready-made feed with balanced diet) from
large animal nutrition companies with stringent quality control on raw
materials, cutting-edge feed processing technique, and low cost of raw materials
benefiting from scale of economies.




4




Complete
feed sales represent approximately 41% of our annual feed revenues, including
sales to our hog farms, and carry a gross profit margin of approximately 12%. We
have the ability to formulate complete feeds to meet various nutrient
specifications, including piglet feeds. The average price of our complete feed
is $519/metric ton.




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.




A safe,
highly efficient feed industry producing high quality animal nutrition products
is the foundation for the sustainable and healthy development of the animal
breeding industry as well as a fundamental component of providing safe animal
feeds which affect the security and health of the people.




China’s
feed manufacturing industry is second only to the United States in volume. The
feed industry grew from 96 million tons in 2004 to 140 million tons in 2009. In
the same period the market for the Chinese feed industry has growth from $36
billion to $58 billion.  As incomes rise in China, annual meat
consumption is expected to rise from the current 53 kg per person to around
70 kg per person in the coming years. The country's annual pork consumption
almost doubled from 20kg per person in 1990 to 40kg per person in
2006.  According to a report by the USDA Foreign Agricultural
Services, 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.




The
animal feed industry in China is highly fragmented with over 10,000 producers,
each with an annual production of less than 10,000
tons.  Consolidation is a central theme in the government’s efforts to
restructure the industry and promote industrial modernization in the coming
years. Based on management's international experience it is expected that the
consolidation of the feed industry will result in there being less than 1,000
larger scale feed enterprises in China by 2015.




The
Chinese feed industry, after many years of development, has set up a complete
feed industrial system integrated with feed processing, additive, raw material,
and machinery manufacturing industries as well as feed research, education,
standardization and government examination.  Chinese industrial feed
production was approximately 137 million tons in 2008, with production by
product type as follows:




·
            Additive
      premix was approximately 5.46 million tons, or
  4%


·
            Concentrate
      feed was approximately 25.3 million tons, or
18%


·
            Complete
      feed was approximately 105 million tons, or
77%




Pork feed
represented 34% of the total market in 2008.




Sales and
Marketing




Nanchang
Best and Shanghai Best have aggressively marketed and promoted the “Best” brand
since their inception. Guangxi Huijie markets its products under the “Huijie”
brand name. HopeJia’s feed products are marketed under the brand name “HeJie”
and Shandong markets its products under the “AgFeed” brand name.  Our
feed operating companies send their sales force and technicians to the pig farms
to educate their clients on new product developments and improvements to
existing products. They also conduct educational seminars in pig farming regions
to explain the benefits of a balanced, nutritious diet for pigs in producing a
healthy herd and to educate farmers to properly prepare and mix feed components.
While these services are not unique among premix manufacturers, we believe our
services in this area are superior to our competitors as we have a highly
responsive and experienced technical services team while our sales persons, most
of whom majored in animal or veterinary science, are equipped with general
service capabilities.  As we market and sell directly to pig farmers,
we are able to collect and analyze data which assists in the preparation and
design of new products. We attend agricultural conventions that take place in
the market areas where we conduct business as well as in provinces that we
expect to enter. We also place advertisements and promotional pieces in
agricultural trade journals.




5




We sell
our products directly to over 781 large commercial hog farms.  On
average, each large commercial farm to whom we sell our products, purchases
approximately three metric tons of premix, two metric tons of concentrates and
one metric ton of complete feed per month.




Additionally,
we work with independently-owned and operated feed distribution chain stores
that exclusively distribute AgFeed brand premix feed products throughout China.
This program allows us to cost-effectively sell our products to the individual
“mom and pop” farmer that may raise only a few hogs per year for personal
consumption or for sale in the marketplace as an additional source of income.
These distribution stores generally sell approximately two metric tons of
premix, one metric ton of concentrates and one metric ton of complete feed per
month.  As of December 31, 2009, feed distribution chain stores in
more than 1,302 locations were open and operating using the AgFeed brand
name.  The sales data of distributors indicates that smaller farms
tend to be more sensitive to price increases than the large-scale piggeries,
with large-scale hog farms placing more emphasis on customer service and other
ancillary services we provide.




These
distributors do not pay an initiation fee to become exclusive distributors of
our products but do receive marketing and technical training from our staff.
Each distributor signs an exclusive agreement with us, agreeing not to sell any
other brand of animal feed products and to decorate its store with approved
AgFeed marketing materials and signage.  Additionally, these
distributors are encouraged to buy animal health care products, such as quality
vaccines and veterinary drugs that we sell as agent, benefiting from a
diversified product structure.




In
addition, each distributor must: (i) during a three month probationary period
pass a screening process based on performance benchmarks, (ii) abide by our
rules and receive ongoing training from our sales and technical staff, (iii)
support the sales of new AgFeed products when launched in the distributor’s
territory, and (iv) remain within our guidelines for payment of products
purchased from us.




Distributors
receive discounted prices from the regular wholesale listed prices and have
payment terms that are typically 15 days from the date of sale. These discounted
prices earn the distributors an increased gross profit margin of approximately
5-10%. They build a relationship with the small farmers that in many cases are
illiterate and continue to do business as they have always done. As part of the
distribution arrangement, they have a specified territory that entitles them to
the exclusive right to sell AgFeed products to small farm owners in that
territory.




As of
December 31, 2009, each of the feed operating companies had the following
customers for their respective feed products:




Local
                    Distributors
                  
                  
                  Large Scale
                    Pig Farm
                  
                  
                  Distribution
                    Chain Stores
                  
                  
                  TotalNanchang
      Best
                  
                  
                  152
                  
                  
                  
                  228
                  
                  
                  
                  280
                  
                  
                  
                  660Shanghai
      Best
                  
                  
                  148
                  
                  
                  
                  221
                  
                  
                  
                  330
                  
                  
                  
                  699Guangxi
      Huijie
                  
                  
                  81
                  
                  
                  
                  75
                  
                  
                  
                  139
                  
                  
                  
                  295Shandong
      Feed
                  
                  
                  110
                  
                  
                  
                  42
                  
                  
                  
                  183
                  
                  
                  
                  335HopeJia
                  
                  
                  120
                  
                  
                  
                  215
                  
                  
                  
                  370
                  
                  
                  
                  705




6




Suppliers




Normally,
purchases of raw materials are made on an “as needed” basis each
month. Orders are managed by both our warehouse and purchasing managers
together, each of whom is familiar with on-site inventory levels. We sign
long-term contracts with leading soybean meal suppliers when our purchasing
specialists deem it appropriate.  We have also established long-term
relationships with “accredited key suppliers” by setting up five supply bases in
China’s largest corn production areas which centralize our purchasing and
logistics resources, and reduce and remove agent commissions.




We have
implemented a "supplier accreditation system."  Regularly, suppliers
of raw materials are jointly selected and rated by our purchasing center and
technical center according to the quality of their supplies, price and credit
record. Generally, all of our purchases are made from qualified suppliers. Raw
materials are generally purchased by our purchasing center to take advantage of
the economies of scale associated with our size.




Research and
Development




We engage
in continuous research and development to maintain a competitive advantage in
the marketplace and keep pace with current developments.  We conduct
these activities primarily through Nanchang Best and Guangxi Huijie. Their
research and development results are shared with each of the feed operating
companies. We also sponsor research alliances with Jiangxi Agricultural
University, South China Agricultural University, Nanjing Agricultural University
and Zhejiang Agricultural University. As a result of our R&D we were among
the first in China to test an antibiotics-free production technology and apply a
low-protein diet formulation, which may prove to be effective and could reduce
the cost of hog production.




In
addition to sponsoring national and provincial academic research projects at
various academic institutions, in November 2004, Nanchang Best launched a fund
called Best Fund contributing RMB 98,000 (US$12,250) to sponsor 12 research
projects at Jiangxi Agricultural University. Nanchang Best retains proprietary
rights to any research findings from these projects.. In 2009, Nanchang Best was
designated as the sole research base for post graduates from Jiangxi
Agricultural University. The University and Jiangxi Provincial Government plan
to invest $100,000 on updating lab equipment and post graduate subject study at
AgFeed.




Intellectual
Property




We have
registered the "AgFeed," "Best," "Huijie, " "HeJie," "Block," and "Best King"
trade names used on our products with the China Trademark Bureau and these names
are known in the provinces in which we conduct business.  We do not
hold any patents or intend to apply for patents on proprietary technology or
formulas relating to our feed products. The formulas for our feed products are
considered trade secrets and are protected as such.




Government and Environmental
Regulation




Our feed
products and services are subject to substantial regulation by governmental
agencies responsible for the agricultural and commerce industries.  We
are required to obtain business and company registrations and production
licenses under the laws and regulations of China, the provincial governments of
Jiangxi, Shanghai, Hainan, Shandong, and Guangxi provinces and the Shanghai City
government.  All of our feed 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.




Prior to
engaging in any production or marketing of feed products, all products must
receive a earned formal approval production number pursuant to the National Code
of Feed and Feed Additives, promulgated by the National State Council of China
and qualified products reports from the Technology and Supervision
Bureau.  All of our feed products have earned these formal approvals,
which are valid for five years from the date of issuance.




7




There is
no material cost in obtaining and maintaining these licenses, but it is
illegal to do business without them.  If any production license or
product permit were lost, production would need to cease until a new license or
permit was obtained, which would likely take a minimum of 30 to 45 days to
receive, and the loss of which would result in the possibility of regulatory
fines.




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




The
central government, through the Ministry of Agriculture, issues production
licenses. The Ministry of Agriculture dispatches officials at the local level to
review staff qualifications, production facilities, quality control, and
management departments for competency.  These licenses are valid for
five years from the date of issuance.




Provincial
production permits are also required for all entities involved in the
manufacture of animal feed and feed components.  Provincial permits
are issued for all products manufactured at each facility. Each facility has the
necessary permits for all products produced at each of our operating facilities.
These permits are valid for five years from the date of issuance.




Competition




There is
a broad market for animal feed and a large gap between the overall quality of
animal feed enterprises and the growing demand for high quality feed products
driven by the industrialization of animal husbandry. Most of our competitors
operate on a small scale and are weak scientifically with low technological
development capabilities.  Due to the highly fragmented nature of the
industry we experience varying degrees and types of competition from region to
region. Our local competitors include Da Bei Nong in Jiangxi province, Fuj Minke
Biology Company in Fujian province, Zheng Da in various provinces, Xinnong
located in the Shanghai area and Provimi in Guangxi.  Larger domestic
competitors include Sichuan, New Hope Agribusiness, Tongwei Company Limited,
Ning Bo Tech Bank Company Limited and Zhengbang Group. These larger domestic
companies are listed on the Shenzhen Stock Exchange.




Animal
feed can be a low margin business thus competitors depend on scale to generate
sufficient returns. There is also a degree of product homogeneity, which leads
competitors to concentrate on price and brand competition.




Employees




As of
December 31, 2009, our feed operating companies had a total of 527 employees.
The breakdown of our employees by location and department is:




Nanchang
                  Best
                
                
                Shanghai
                  Best
                
                
                Guangxi
                  Huijie
                
                
                Shandong
                  Feed
                
                
                HopeJiaManagement
                
                
                4
                
                
                
                2
                
                
                
                4
                
                
                
                1
                
                
                
                3General
      Administration and Human Resources
                
                
                9
                
                
                
                11
                
                
                
                8
                
                
                
                3
                
                
                
                9Production
                
                
                42
                
                
                
                23
                
                
                
                47
                
                
                
                12
                
                
                
                45Sales
                
                
                53
                
                
                
                32
                
                
                
                34
                
                
                
                36
                
                
                
                43Purchasing
                
                
                1
                
                
                
                1
                
                
                
                3
                
                
                
                3
                
                
                
                2Finance
                
                
                8
                
                
                
                6
                
                
                
                5
                
                
                
                4
                
                
                
                5Technical
      Services
                
                
                7
                
                
                
                3
                
                
                
                2
                
                
                
                2
                
                
                
                5Quality
      Control
                
                
                3
                
                
                
                2
                
                
                
                10
                
                
                
                5
                
                
                
                8Research
      and Development
                
                
                4
                
                
                
                0
                
                
                
                1
                
                
                
                0
                
                
                
                5Customer
      Service
                
                
                4
                
                
                
                0
                
                
                
                7
                
                
                
                0
                
                
                
                0




8




Facilities




Nanchang
Best is located in Chang Bei District Industrial Park, in Nanchang, Jiangxi
Province.  It owns three buildings consisting of an office building, a
factory and a 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.  Nanchang Best also leases a feed manufacturing
facility at No. 4 Chuangye Street, East New Area, in the city of Taian, Shandong
Province.  The facility consists of four buildings, one each for
manufacturing, offices, warehouse and dormitory facilities. Nanchang Best has
been granted the right to use the land in Shandong by the Shandong Provisional
Government through July 2052.




Shanghai
Best is located in Qingcun Town, Fengxian District, Shanghai.  It has
two  workshop buildings and two office buildings in which it conducts
all manufacturing and business operations.  The annual rent on the
land Shanghai leases is approximately $80,000 and the lease runs through
December 2017.




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




Shandong
Feed is located at No. 4 Chuangye Street, East New Area, in the city of Taian,
Shandong Province.  This facility consists of four buildings, one each
for manufacturing, offices, warehouse and dormitory facilities. Shandong Feed
has been granted the right to use this land by the Shandong Provisional
Government through July 2052.




HopeJia
is located on South Wuting Road, Laocheng Development Zone, Chengmai County,
Hainan Province. HopeJia 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 Administration Bureau of Hainan Province through January
2056.




Commercial
Hog Production Business




We raise,
breed and sell hogs for use in China's pork production and hog breeding
markets.  We own two breeder farms and 29 meat hog producing farms
located in Jiangxi, Shanghai, Hainan, Guangxi, and Fujian provinces, which are
strategically located in or near the largest pork consumption areas in
China.




We
entered the hog farming business on November 9, 2007 as a result of our
acquisition of ninety percent (90%) of the capital stock of Lushan Breeder Pig
Farm Co., Ltd. ("Lushan"). Lushan owns and operates a breeder hog farm occupying
258,000 square meters located in the town of Hualin in Xingzi County, Jiangxi
Province. Lushan is a mid-scale hog farm engaged in the business of raising,
breeding and selling hogs in China for use in the pork production market in
China. Lushan operates as a majority-owned subsidiary of Nanchang Best. In 2008,
we acquired at least a majority interest in 29 meat hog producing farms in the
Jiangxi, Shanghai, Hainan, Guangxi, and Fujian provinces through our indirect
subsidiaries - Nanchang Best, Shanghai Best, Guangxi Huijie and Jiangxi Best
Swine Development Co. ("Best Swine").




In 2009,
we initiated a strategic plan to modernize our existing hog production
facilities and introduced western hog production technologies and a science
based genetic program. Our goal is the development of a platform for the
production and sale of approximately 2.5 million hogs into the Chinese market
during the three years ending on December 31, 2011. Our plan also calls for
investment in reporting and cash management systems and the training of our
employees, and the development of enhanced environmental and health safety
programs including upgraded bio security measures. These actions are part of our
effort to improve on the standards of the new China Food Safety Law that was
implemented on June 1, 2009 and to ensure the production of consistently high
quality, healthy pork.




9


We took
several key steps in connection with the implementation of our strategic plan in
2009.  We restocked Guangxi Guigang Gangda Hog Farm (“Gangda”), a
breeder farm in Gangda, China (Guangxi Province) beginning in December
2009.




On April
15, 2009 we formed a strategic alliance with Hypor.  The alliance has
four phases: (1) upgrading the genetic base of our existing herds; (2) creating
a sow farrow-to-finish genetic nucleus facility (Wuning Farms) to supply
superior breeding stock to be utilized in our production systems and for sale to
outside commercial hog farms; (3) establishing high health, top quality genetics
to stock farms being developed by AgFeed International Protein Technology Corp.;
and (4) developing gene transfer centers to maximize the use of the top
performing boars in China across our production system.  On December
17, 2009, we formed Hypor AgFeed Breeding with Hypor to develop, operate and
market Wuning Farms.  AgFeed owns 85% of Hypor AgFeed Breeding and
Hypor owns the remaining 15%.  Construction of Wuning Farms has been
completed and we have initiated the process of stocking it with superior
pure-line animals and genetic material imported from Hypor's purebred facilities
in France for cross-breeding purposes. This facility will supply our multiplier
breeding farms in Lushan and Gangda with genetically superior hogs that are bred
to be productive and efficient, allowing us to maximize our hog production and
improve feed conversions at these facilities. Additionally, any excess capacity
produced by Wuning Farms will be marketed to other hog farmers, allowing the
joint venture to maximize its profit potential.




On July
13, 2009, we formed a joint venture with M2P2. AgFeed International Protein is
focused on enhancing hog production systems for Chinese and other Pan Asian
clients based on modern western standards to increase productivity and ensure
the highest bio-security health standards in the Pan Asian hog
industry.  The joint venture was formed to take advantage of the
commercialization and consolidation of the hog industry being fostered by the
Chinese central and local governments.  We are the joint venture's
first client.  AgFeed owns 65% of AgFeed International Protein, with
the remaining 35% being owned 15.1% by certain affiliates and 19.9% by M2P2. On
November 9, 2009, we began construction of our first large western model farm in
Da Hua, China (Jiangxi Province). This is the first of six new farms that we
will construct in southern China. AgFeed International Protein has completed all
phases of design and blueprints for each of these farms and has been working
with international and local construction firms to ensure success.




Hog
Production




The 29
meat hog producing farms we own generate revenue primarily from the sale of meat
hogs to processing plants. Our meat hogs are sold primarily in Jiangxi,
Shanghai, Hainan, Guangxi, Fujian, Guangdong and other neighboring
provinces.  Our breeder farms generate revenue primarily from the sale
of breeder hogs to commercial hog farms and, to a lesser extent, the sale of
meat hogs to processing plants.  Customers of Lushan and Gangda
include large-scale hog farms, mid-scale hog farms and small-scale
farms.  Our breeder hogs are sold throughout China, primarily in
southeastern China.




Breeder
hogs are either purebred hogs or crossbred hogs that have the genetic trait for
mating.  We use hogs that contain this trait for breeding and also
sell them to commercial meat hog farms throughout China so that the commercial
farms may use the hogs in their own reproduction programs.  Commercial
sows (parent stock) are used for gestating and producing
piglets.




Among the
purebred hogs, our primary varieties are the Yorkshire, the Landrace and the
Duroc.  The Yorkshire, which originated in England, is known for its
rapid growth, high rate of lean meat and its reproductive
capacity.  The Landrace, originated in Denmark, is also known for its
rapid growth and its high rate of lean meat.  The Duroc, which
originated in the United States, is considered a highly-successful male parent
in crossbreeding.




10


Market
Description




General




After 30
years of development, China's hog industry is rapidly maturing. At this stage
disease control, price risk management and meticulous management are the
foundation of competiveness. The ideal development is to form a fully integrated
chain with feed, cultivation, breeding, processing and sale. In the next ten
years the hog industry is expected to develop into a stage of industrial scale
and branding.




China is
the world’s biggest hog producer and pork consumer; the global pig meat market
is dominated by China. According to statistics from the US Department of
Agriculture, China produces 50% of all the pig meat production in the world. For
2009, China is expected to produce close to 47.0 million metric tons of an
estimated world production of approximately 95.0 million metric
tons.




According
to the China Feed Industry Association, China has the world's largest and most
profitable market for hog production, which processed 625 million hogs in 2009,
compared to approximately 100 million in the US.  More than 1.2
billion Chinese consume pork as their primary source of meat.  62% of
all meat consumed in China is pork. Chinese consumers consume more pork each
year than the rest of the world combined. China’s pork consumption is forecast
to increase to 47.0 million metric tons in 2010 up from 44.9 million metric tons
in 2008, an increase of about 5%. Projected pork demand by 2015 is estimated to
approach 68.0 million metric tons, an increase of 51%.




Urbanization
and the growth of the middle class (250 million people in 2008) along with
China's policies protecting the swine industry reflect the importance of hog
production as a social, economic and security issue for the consumer market in
China. Since the early 1990’s per capita pork consumption in China has increased
from 10kg/year to 40kg/year. Demand for freshly slaughtered pork remains high in
most Chinese market segments. Urbanization also gives rise to supermarket chains
that contribute to the shaping of consumer demand for food safety and the
evolution of the pork supply value chain.




China
instituted a number of laws to induce swine production. On January 1, 2008, the
State Council announced a new regulation exempting companies involved in hog
rearing from corporate income tax. Additionally, the Food Safety Law, which
became effective on June 1, 2009, allows the government to take affirmative
action that will strengthen food safety control “from the production line to the
dining table”. The Chinese Government created a hog futures exchange to permit
hedging of contracts that became operational in 2009.  Further, the
Chinese Government has developed a "Strategic Meat Reserve" that is stocked
predominantly with pork reserves and a live herd of 500,000
pigs.  These policies and programs stress the value the central
Chinese Government places on hog production.




Meat
Hogs




According
to the Foreign Agricultural Services, China is the world’s largest producer of
pork and pork is the most widely-consumed meat in China.  The Foreign
Agricultural Services determined that pork accounted for 65% of the total meat
production in China in 2008. A 2008 Agricultural Report published by Purdue
University forecasts that China’s pork imports in 2009 may increase by nine
percent to 555,000 million metric tons slightly up from 505,000 million metric
tons in 2008. Strong demand and short supply are forecast to drive imports,
although it appears the recent downturn in the global economic picture will
curtail the Chinese import of both frozen and live swine.  There are
over 160 local pig breeds in China.  Chinese farms are looking to
import foreign breeds that may improve the genetic profile of China's hog
population, with the result being healthier animals and lower production
costs.




Meat hog
production in China is dominated by backyard farms (those that sell 5-10 hogs
annually) and small farms (those that sell less than 100 hogs
annually).  These farms accounted for an estimated 75% of all China
hog production during 2008.  These farms sell their products to local
rural markets.  The remaining 25% of China's hog production comes from
larger farms - those that sell between 100 and 500 head a year account for 21%
of the production, those that sell between 500 and 10,000 head account for an
additional 3% and those that sell between 10,000 and 50,000 hogs account for the
remaining 2% of the annual production.  Agfeed is one of the largest
of the hog production businesses in China, selling over 680,000 hogs in
2009.




11




Suppliers




Feed is
the most significant cost of operating a hog farm.  Historically, our
hog farms purchased feed products and raw materials such as corn and soybeans
from several feed suppliers under short-term contracts.  Under our
ownership, the hog farms primarily use our premix as the base of their feed
supply and enter into long-term contracts with the suppliers of feed additives
in order to meet their feed requirements.  The use of our premix laid
the groundwork for our hog farms to produce hogs that are accredited as "green"
pork.




Research and
Development




We have a
seven member research and development team devoted to hog
farming.  Two members of the team have doctorate degrees and three
have masters degrees in veterinary science and/or animal breeding and
genetics.  We are participants in two ongoing research
programs.  We have been selected into the National Hog Production
System, where individuals from China's top 52 hog farms share their expertise
and research and development results.  We are also a member of the
National Pig Genetics Association which focuses on the selection of high-lean
meat breeder hogs and the other program focuses on improving the reproductive
traits of breeder hogs.




Intellectual
Property




Lushan
has developed advanced mating technologies that are designed for foreign and
domestic breeder hogs.  It employs proprietary techniques to manage
mating patterns.  We do not hold any patents covering these
technologies and have no present intention to apply for patents on
them.




Government
Regulation




Hog
breeding is subject to substantial licensing requirements and
regulation.  In order to sell breeder hogs in China a breeder hog farm
must be awarded a breeder’s license by the local government
authorities.  Only those breeder hog farms that have qualified staff,
specialized equipment and are in segregated locations to avoid the spread of
disease are eligible for licensing.  Meat hog farms do not require a
license. The Agricultural Departments of Jiangxi and Guangxi Provinces issued
Breeder Hog Farm Licenses to Lushan and Gangda




Competition




The hog
production business in China is highly segmented.  As we discussed
above, about 75% of the hogs produced in the country are produced by smaller
farms, who sell their inventory to rural markets.  The remaining 25%
of hog producers are spread throughout the entirety of China and the market for
their inventory tends to be within their geographic territory.  We
primarily market our products within Jiangxi, Shanghai, Hainan, Guangxi and
Fujian provinces and the territory of the surrounding provinces that is close in
proximity to our hog farms.  As a result, we compete broadly with the
producers in these geographic regions.  Our hog production business
occupies the whole of southeastern China, including the metropolitan areas of
Shanghai and Hong Kong.




12




Employees




As of
December 31, 2009, our hog farms had a total of 1,290 employees. The breakdown
of our employees by location and department is:




Breeder Farms
                  
                  
                  Meat
      Hog Producing
    FarmsGeneral
      Management
                  
                  
                  6
                  
                  
                  
                  64Production
      Administration and Technicians
                  
                  
                  22
                  
                  
                  
                  265Research
      and Development
                  
                  
                  2
                  
                  
                  
                  0Farm
      Labor
                  
                  
                  55
                  
                  
                  
                  609




Facilities




Breeder
Farms




Lushan’s
primary facility is a breeder hog farm located in the town of Hualin, Jiangxi
Province.  The facility, which is situated on 258,000 square meters of
developed land, is leased from the Chinese government for a period of 29 years
and is scheduled to expire on April 13, 2034. Lushan’s breeder hog farm contains
two separated areas, one for sows and the other for boars and gilts, with a
total of 15,800 square meters of buildings.  Lushan pays a nominal
annual rent under the terms of the lease.




Gangda, a
wholly owned subsidiary of Guangxi Huijie, is a breeder farm located in Guigang,
Guangxi Province. Guangxi Huijie acquired all of the rights to the land, pig
houses, office buildings, heating system, power and water supply system in our
acquisition of Gangda. Gangda contains two separated areas, one for sows and one
for boars and gilts, with a total of 34,000 square meters of buildings. The
right to use the land was granted by Housing Bureau and Land Administration
Bureau of Guangxi Province through March 31, 2025.




Meat
Hog Producing Farms




Wannian
Xiandai Animal Husbandry Limited Liability Co. (“Wannian”), a wholly owned
subsidiary of Nanchang Best, is located in Jiangxi Province.  Wannian
subleases the property from the former shareholders and includes the land,
pig houses, office buildings, heating system, power and water supply
system.   The lease runs for 10 years from January 3,
2008.




Jiangxi
Huyun Livestock Co., Ltd. (“Huyun”), a majority owned subsidiary of Nanchang
Best, is located in Jiangxi Province. Huyun subleases the property from
the other shareholders of Huyun and includes the land, pig houses, office
buildings, heating system, power and water supply system.  The lease
runs for 10 years from January 3, 2008.




Ganzhou
Green Animal Husbandry Develop. Co., Ltd. (“Ganzhou”), a majority owned
subsidiary of Nanchang Best, is located in Jiangxi Province.  Ganzhou
subleases the property from the other shareholders of Ganzhou and includes
the land, pig houses, office buildings, heating system, power and water supply
system.   The lease runs for 10 years from January 4,
2008.




Gang Feng
Animal Husbandry Co., Ltd. (“Gang Feng”), a wholly owned subsidiary of Nanchang
Best, is located in the town of Jiangxi Province. Gang Feng subleases the
property from the former shareholders and includes the land, pig houses, office
buildings, heating system, power and water supply system.  The lease
runs for 6 and 1/2 years from January 7, 2008.




Yichun
Tianpeng Domestic Livestock Farm, Ltd. ("Yichun"), a majority owned subsidiary
of Nanchang Best, is located in Jiangxi Province.  Yichun subleases
the property from the other shareholders of Yichun and includes the land,
pig houses, office buildings, heating system, power and water supply
system.  The lease runs for 10 years from January 9,
2008.




13




Zhejiang
Pinghu Yongxin Hog Farm (“Zhejiang Yongxin”), a wholly owned subsidiary of
Nanchang Best, is located in Zhejiang Province.  Zhejiang Yongxin
subleases the property from the former shareholders and includes the land, pig
houses, office buildings, heating system, power and water supply
system.  The lease runs for 12 years from April 18, 2008.




Shanghai
Fengxian Hog Farm (“Shanghai Fengxian”), a wholly owned subsidiary of Nanchang
Best, is located in Shanghai.  Shanghai Fengxian subleases the
property from the former shareholders and includes the land, pig houses, office
buildings, heating system, power and water supply system.  The lease
runs for 14 years from May 1, 2008.




Shanghai
Tuanxi Hog Farm (“Shanghai Tuanxi”), a wholly owned subsidiary of Nanchang Best,
is located in Shanghai.  Shanghai Tuanxi subleases the property from
the former shareholders and includes the land, pig houses, office buildings,
heating system, power and water supply system. The lease runs for 10 years from
May 1, 2008.




Shanghai
Senrong Hog Farm (“Shanghai Senrong”), a wholly owned subsidiary of Nanchang
Best, is located in Shanghai.  Shanghai Senrong subleases the property
from the former shareholders and includes the land, pig houses, office
buildings, heating system, power and water supply system.  The lease
runs for 15 years from May 1, 2008.




Fujian
Xiamen Muxin Hog Farm (“Fujian Muxin”), a wholly owned subsidiary of Nanchang
Best, is located in Fujian Province.  Fujian Muxin subleases the
property from the former shareholders and includes the land, pig houses, office
buildings, heating system, power and water supply system.   The lease
runs for 10 years from April 30, 2008.




Xiamen
Yuanshengtai Food Co., Ltd. (“Fujian Yuanshengtai”), a wholly owned subsidiary
of Nanchang Best, is located in Fujian Province.  Fujian Yuanshengtai
subleases the property from the former shareholders and includes the land, pig
houses, office buildings, heating system, power and water supply
system.  The lease runs for 10 years from April 30, 2008.




Jiangxi
Zhiliang Hog Farm (Jiangxi Zhiliang”), a wholly owned subsidiary of Nanchang
Best, is located in Jiangxi Province. Jiangxi Zhiliang subleases the property
from the former shareholders and includes the land, pig houses, office
buildings, heating system, power and water supply system.   The lease
runs for 22 years from April 30, 2008.




Shanghai
WeiSheng Hog Raising Co., Ltd.(“Shanghai Weisheng”), a wholly owned subsidiary
of Nanchang Best, is located in Shanghai.  Shanghai Weisheng subleases
the property from the former shareholders and includes the land, pig houses,
office buildings, heating system, power and water supply system.  The
lease runs for 30 years from June 1, 2008.




Nanping
Minkang Hog Farm (“Nanping Minkang”), a wholly owned subsidiary of Shanghai
Best, is located in Fujian Province.  Nanping Minkang subleases the
property from the former shareholders and includes the land, pig houses, office
buildings, heating system, power and water supply system.  The lease runs
for 15 years from September 17, 2008.




Guangdong
Lianjiang Xinfa Hog Farm (“Guangdong Xinfa”), a majority owned subsidiary of
Guangxi Huijie, is located in Guangdong Province.  Guangdong Xinfa
subleases the property from the other shareholders and includes the land, pig
houses, office buildings, heating system, power and water supply
system.   The lease runs for 12 years from May 30, 2008.




Guangxi
Nanning Wanghua Hog Farm (“Guangxi Wanghua”), a wholly owned subsidiary of
Guangxi Huijie, is located in Guangxi Province.  Guangxi Wanghua
subleases the property from the former shareholders and includes the land, pig
houses, office buildings, heating system, power and water supply
system.   The lease runs for 10 years from May 30, 2008.




14




Guangxi
Linxing Hog Farm (“Guangxi Linxing”), a wholly owned subsidiary of Guangxi
Wanghua, is located in Guangxi Province.  Guangxi Linxing subleases
the property from the former shareholders and includes the land, pig houses,
office buildings, heating system, power and water supply system.  The
lease runs for 10 years from September 20, 2008.




Nanning
Shunhua Hog Farm Co., Ltd. (“Nanning Shunhua”), a wholly owned subsidiary of
Guangxi Wanghua, is located in Guangxi Province.  Nanning Shunhua
subleases the property from the former shareholders and includes the land, pig
houses, office buildings, heating system, power and water supply
system.  The lease runs for 10 years from October 28,
2008.




Nanning
Shunan Hog Farm Co., Ltd.(“Nanning Shunan”), a wholly owned subsidiary of
Guangxi Wanghua, is located in Guangxi Province.  Nanning Shunan
subleases the property from the former shareholders and includes the land, pig
houses, office buildings, heating system, power and water supply
system.  The lease runs for 10 years from October 29,
2008.




Guangxi
Gangxuan Hog Farm Co., Ltd. (“Guangxi Gangxuan”), a wholly owned subsidiary of
Gangda, is located in Guangxi Province.  Guangxi Gangxuan subleases
the property from the former shareholders and includes the land, pig houses,
office buildings, heating system, power and water supply system. The lease runs
for 11 years from September 20, 2008.




Guangxi
Xingye Guihong Hog Farm (“Guangxi Guihong”), a wholly owned subsidiary of
Guangxi Huijie, is located in Guangxi Province.  Guangxi Huijie
acquired all of the rights to the land, pig houses, office buildings, heating
system, power and water supply system in our acquisition of Guangxi Guihong. The
right to use the land was granted by Housing Bureau and Land Administration
Bureau of Guangxi Province through May 30,2025.




Hainan
Haikou Meilan Hog Farm (“Hainan Meilan”), a wholly owned subsidiary of Guangxi
Huijie, is located in Hainan Province.  Guangxi Huijie acquired all of
the rights to the land, pig houses, office buildings, heating system, power and
water supply system in our acquisition of Hainan Meilan.  The right to
use the land was granted by Housing Bureau and Land Administration Bureau of
Guangxi Province through April 12, 2033.




Hainan
Haikou Wohao Hog Farm (“Hainan Wohao”), a wholly owned subsidiary of Guangxi
Huijie, is located in Hainan Province.  Guangxi Huijie acquired all of
the rights to the land, pig houses, office buildings, heating system, power and
water supply system in our acquisition of Hainan Wohao. The right to use the
land was granted by Housing Bureau and Land Administration Bureau of Guangxi
Province through April 18, 2038.




Guangxi
Guilin Fuzhi Hog Farm (“Guangxi Fuzhi”), a majority owned subsidiary of Guangxi
Huijie, is located in Guangxi Province.  Guangxi Fuzhi subleases the
property from the other shareholders and includes the land, pig houses, office
buildings, heating system, power and water supply system.  The lease
runs for 20 years from May 30, 2008.




Fujian
Jianhua Hog Farm (“Fujian Jianhua”), a wholly owned subsidiary of Best Swine, is
located in Fujian Province.  Fujian Jianhua subleases the property
from the former shareholders and includes the land, pig houses, office
buildings, heating system, power and water supply system.  The lease
runs for 15 years from April 22, 2008.




Fujian
Fengxiang Agribusiness Co., Ltd. (“Fujian Fengxiang”), a wholly owned subsidiary
of Best Swine, is located in Fujian Province.  Fujian Fengxiang
subleases the property from the former shareholders and includes the land, pig
houses, office buildings, heating system, power and water supply system. 
The lease runs for 15 years from April 30, 2008.




15




Nanping
Kangda Animal Husbandry Co., Ltd. (“Nanping Kangda”), a wholly owned subsidiary
of Best Swine, is located in Fujian Province.  Nanping Kangda
subleases the property from the former shareholders and includes the land, pig
houses, office buildings, heating system, power and water supply system. 
The lease runs for 15 years from May 27, 2008.




Fujian
Jianxi Breeder Hog Farm Co., Ltd. (“Fujian Jianxi”), a wholly owned subsidiary
of Best Swine, is located in Fujian Province.  Fujian Jianxi subleases
the property from the former shareholders and includes the land, pig houses,
office buildings, heating system, power and water supply system.  The
lease runs for 15 years from May 25, 2008.




Da Hua
AgFeed Animal Husbandry Co., Ltd. (“Da Hua”) is located in Guangxi
Province.  Da Hua leases the property from local
farmers.  The property contains 387,000 square meters of
land.  The lease runs for 30 years from October 2009.




Wuning
Farm is located on land situated in Wuning County, Jiangxi
Province.  Wuning Farm leases land from local village
committee.  The lease runs for 30 years expiring in April
2038.  Wuning Farm contains two separated areas, one for sows and the
other for boars and gilts, with a total of 23,675 square meters of
buildings.  This farm is not yet stocked with livestock.




History




From
incorporation to October 31, 2006, the business of our company, then known 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, we entered into and closed a share purchase agreement with
Nanchang Best and each of Nanchang Best’s shareholders. Pursuant to this
agreement, we 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, we entered into and closed a share purchase agreement with
Shanghai Best, and each of Shanghai Best’s shareholders. Pursuant to this
agreement, we acquire 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 these transactions and as a condition thereof, we entered
into an agreement with Robert Gelfand, our former President and Chief Financial
Officer, pursuant to which Mr. Gelfand returned 2,600,000 shares of our common
stock to the treasury for cancellation. Mr. Gelfand was not compensated in any
way for the cancellation of his shares of our common stock. Upon completion of
the foregoing transactions, we 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 our sole officer and Dr. Songyan Li was appointed as
a director. On November 17, 2006, we declared a stock dividend of two additional
shares of common stock for each share of common stock outstanding, and changed
our name to AgFeed Industries, Inc.




16




On
December 20, 2006, we acquired all the outstanding shares of Guangxi Huijie for
a total purchase price of 8,600,000 Chinese yuan renminbi ("RMB") (approximately
US$1.1 million). We obtained the funds needed to complete this acquisition by
borrowing RMB8,600,000 from Sunrise Capital International, Inc. This loan
accrued interest at the rate of seven percent per annum and all accrued interest
and the principal amount of this loan was due and payable on June 20, 2007. We
were permitted to prepay this note without penalty and did so in March 2007. Mr.
Sheng Zhou, the brother of our corporate secretary and treasurer, Feng Zhou, is
a director of Sunrise Capital, which is owned by his sister-in-law, Ms. Chun Mei
Chang.




On June
24, 2008, we completed the acquisition of premix feed company HopeJia for a
negotiated purchase price of RMB28,600,000 (approximately US$4.2
million).




On
November 9, 2007, we acquired 90% of the issued and outstanding capital stock of
Lushan, a hog breeding operation. The aggregate purchase price was
RMB20,112,020, equivalent to approximately US$2.7 million on the date of the
transaction. In connection with this transaction, we also assumed and satisfied
at closing RMB4,919,980 (approximately US$660,400) of indebtedness owed by
Lushan.  The acquisition of Lushan marked our entrance into the hog
production business.  Since November 2007, we have acquired 30
operating meat hog producing farms.




In
January 2008, we acquired at least a majority interest in five additional hog
farms.  Specifically:




·
            we
      acquired 70% of the issued and outstanding capital stock of Wannian on
      January 3rd for RMB12,250,000 (approximately US$1.7 million); we acquired
      the remaining 30% equity interest in Wannian on September 8th for
      RMB6,012,500 (approximately US$0.9
million);




·
            we
      acquired 70% of the issued and outstanding capital stock of Huyun on
      January 3rd for RMB6,482,000 (approximately US$0.9
    million);




·
            we
      acquired 60% of the issued and outstanding capital stock of Ganzhou on
      January 4th for RMB6,480,000 (approximately US$0.9
    million);




·
            we
      acquired all of the hogs and stock of Gang Feng on January 7th for
      RMB4,820,000 (approximately US$0.7 million);
and




·
            we
      acquired 55% of the issued and outstanding capital stock of Yichun on
      January 9th for RMB8,855,000 (approximately US$1.2
    million).




On March
19, 2008, Best Swine was formed as a wholly-owned subsidiary of
AgFeed.  Best Swine was incorporated under the laws of China on March
19, 2008 and is situated in Futian Township, Wuning County, Jiangxi Province,
China and is in the business of raising, breeding and selling hogs for use in
China’s pork production and hog breeding markets.




17




On April
30, 2008, we acquired all of the equity interest in an additional 16 hog
farms.  Specifically, we acquired:




Name of Hog Farm
                              
                              Purchase Price in RMB
                              
                              Purchase Price in US$(1)Guangxi
      Wanghua
                              
                              
                              26,030,000
                              
                              $3.7
      millionGangda
                              
                              
                              14,520,000
                              
                              $2.1
      millionGuangxi
      Guihong
                              
                              
                              42,500,000
                              
                              $6.1
      millionHainan
      Meilan
                              
                              
                              14,700,000
                              
                              $2.1
      millionHainan
      Wohao
                              
                              
                              15,200,000
                              
                              $2.2
      millionGuangxi
      Fuzhi
                              
                              
                              12,000,000
                              
                              $1.7
      millionGuangdong
      Xinfa
                              
                              
                              11,000,000
                              
                              $1.6
      millionZhejiang
      Yongxin
                              
                              
                              10,480,000
                              
                              $1.5
      millionShanghai
      Fengxian
                              
                              
                              35,000,000
                              
                              $5.0
      millionShanghai
      Tuanxi
                              
                              
                              7,000,000
                              
                              $1.0
      millionShanghai
      Senrong
                              
                              
                              30,000,000
                              
                              $4.3
      millionFujian
      Muxin
                              
                              
                              29,320,000
                              
                              $4.2
      millionFujian
      Yuanshengtai
                              
                              
                              26,200,000
                              
                              $3.7
      millionFujian
      Jianhua
                              
                              
                              32,000,000
                              
                              $4.6
      millionFujian
      Fengxiang
                              
                              
                              8,100,000
                              
                              $1.2
      millionJiangxi
      Zhiliang
                              
                              
                              8,000,000
                              
                              $1.1
      million(1) based
      on then-current conversion
rate




On May
28, 2008, we acquired all of the equity interest in Nanping Kangda for
RMB5,821,000 (approximately US$0.9 million) and all of the equity interest in
Fujian Jianxi for RMB16,338,166 (approximately US$2.4 million).




On June
25, 2008, we acquired all of the equity interest in Shanghai Weisheng for
RMB12,820,000 (approximately US$1.9 million).




In
September 2008, we acquired all of the equity interest in three additional hog
farms.  Specifically:




·
            we
      purchased Nanping Minkang for RMB9,865,000 (approximately US$1.4 million)
      on September 8th; and




·
            we
      purchased Nanning Shunan for RMB9,256,000 (approximately US$1.4 million)
      and Guangxi Gangxuan for RMB8,569,000 (approximately US$1.3 million) on
      September 10th.




In
October 2008, we acquired all of the equity interest in two more hog
farms.  Specifically:




·
            on
      October 28th, we purchased Guangxi Linxing for RMB7,850,000 (approximately
      US$1.2 million); and




·
            on
      October 29th, we purchased Nanning Shunhua for RMB8,260,000 (approximately
      US$1.2 million).




On April
15, 2009 we formed a strategic alliance with Hypor and on December 17, 2009, we
formed Hypor AgFeed Breeding with Hypor to develop, operate and market Wuning
Farms in Wuning, China.  Hypor AgFeed Breeding is owned 85% by AgFeed
and 15% by Hypor.




18




On July
13, 2009, we formed AgFeed International Protein, a joint venture with M2P2
which is focused on enhancing hog production systems for Chinese and other Pan
Asian clients based on modern western standards to increase productivity and
ensure the highest bio-security health standards in the Pan Asian hog
industry.  We are the joint venture's first client.  AgFeed
International Protein is owned 80.1% by AgFeed and certain affiliates and 19.9%
by M2P2.




In
December 2009, we began stocking the Gangda breeder farm, having completed the
conversion of this farm from a meat producing hog farm to a breeder
farm.  On November 10, 2009, we broke ground on the construction of Da
Hua, the first of six currently planned Western-model farms to be built in the
short term.  We also completed construction of Wuning Farms in
November 2009 and anticipate commencing stocking of this facility
shortly.




We own
two breeder farms, 29 meat producing hog farms and five feed production
operations.




19


Item
1A.  Risk Factors




RISK
FACTORS




Investment
in our securities is subject to various risks, including risks and uncertainties
inherent in our business.  The following sets forth factors related to
our business, operations, financial position or future financial performance or
cash flows which could cause an investment in our securities to decline and
result in a loss.




General Risks Related to Our
Business




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 for 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 the diverse areas required for continuing our operations. The rapid
growth of the economy in the PRC has caused intense competition for qualified
personnel. We 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.




We
need to successfully integrate our acquired businesses.




We have
made 30 acquisitions since entering the hog farm business in November 2007.
Prior to that time, we had limited experience in growth through acquisition. Our
future financial results depend upon our ability to successfully integrate the
acquired businesses.  We also face pressure to adequately conduct our
ongoing operations while working toward the integration of these businesses.
While we are pleased with the progress of our integration efforts to date, there
is no assurance that we will be able to complete the integration of the acquired
businesses as projected or without disrupting other areas of our business that
could have a negative effect on our future financial results.




Our
acquisition strategy involves a number of risks. Even when an acquisition is
completed, we may have integration issues that may not produce results as
positive as management may have projected.




While we
are taking a break from our acquisition program as we focus on integrating the
companies we have acquired and increasing the efficiencies of our existing
businesses,  we intend to grow through additional acquisitions in the
future. Acquisitions involve a number of special risks, including:




·
            failure
      of the acquired business to achieve expected
  results;




·
            diversion
      of management’s attention;




·
            failure
      to retain key personnel of the acquired
  business;




·
            additional
      financing, if necessary and available, could increase leverage, dilute
      equity, or both;




·
            the
      potential negative effect on our financial statements from the increase in
      goodwill and other intangibles; and




·
            the
      high cost and expenses of completing acquisitions and risks associated
      with unanticipated events or
liabilities.




20




These
risks could have a material adverse effect on our business, results of
operations and financial condition.  In addition, our ability to
further expand our operations through acquisitions may be dependent on our
ability to obtain sufficient working capital, either through cash flows
generated through operations or financing activities or both.  There
can be no assurance that we will be able to obtain any additional financing on
terms that are acceptable to us, or at all.




Even
though we have curtailed our aggressive acquisition of established farms, we
expect to face increased competition for acquisition candidates. We cannot
guarantee that we will be able to identify, acquire, or manage profitably
additional businessesin the event that we resume
our acquisition program. In future acquisitions, we also could incur
additional indebtedness or pay consideration in excess of fair value, which
could have a material adverse effect on our business, results of operations and
financial condition. In addition, we may inadvertently assume unknown
liabilities in acquisitions that we complete. Assumption of unknown liabilities
in acquisitions may harm our financial condition and operating results.
Acquisitions may be structured in such a manner that would result in the
assumption of unknown liabilities not disclosed by the seller or uncovered
during pre-acquisition due diligence. These obligations and liabilities could
harm our financial condition and operating results.




Volatile
energy prices could adversely affect our operating results.




In the
last few years, energy prices have risen dramatically and are now volatile,
which has resulted in increased and unpredictable costs for our businesses and
raw materials costs for our branded feed products. Rising energy prices could
adversely affect demand for our feed products and increase our operating costs,
both of which would reduce our sales and operating income.




We
face risks associated with currency exchange rate fluctuations; any adverse
fluctuation may adversely affect our operating margins




Almost
allof our
revenues are denominated in Renminbi. Conducting business in currencies other
than US dollars subjects us to fluctuations in currency exchange rates that
could have a negative impact on our reported operating results. Fluctuations in
the value of the US dollar relative to other currencies impact our revenues,
cost of revenues and operating margins and result in foreign currency
translation gains and losses. If the exchange rate of the Renminbi is affected
by lowering its value as against the US dollar, our reported profitability when
stated in US dollars will decrease. Historically, we have not engaged in
exchange rate hedging activities and have no current intention of doing
so.




Risks Related to Our Animal
Nutrition Business




We
cannot be certain that our feed product innovations and marketing successes will
continue.




We
believe that our past performance has been based on, and our future success will
depend upon, in part, our ability to continue to improve our existing feed
products through product innovation and to develop, market and produce new feed
products. We cannot assure you that we will be successful in introducing,
marketing and producing any new feed products or feed product innovations, or
that we will develop and introduce in a timely manner innovations to our
existing feed products which satisfy customer needs or achieve market
acceptance. Our failure to develop new feed products and introduce them
successfully and in a timely manner could harm our ability to grow our business
and could have a material adverse effect on our business, results of operations
and financial condition.




We
rely on independently owned wholesale distributors who do not exclusively offer
our feed products to their customers.




The loss
of, or significant adverse change in, our relationship with any of our key
wholesale distributors of our feed products could cause our net sales, income
from operations and cash flow to decline. The loss of, or reduction in, orders
from any significant customer, losses arising from customer disputes regarding
shipments, fees, merchandise condition or related matters, or our inability to
collect accounts receivable from any major customer could reduce our income from
operations and cash flow.




21




We
may not be able to reach our revenue and net income targets due to unpredictable
market conditions.




The
primary end-user customers for our feed products are commercial hog farms,
individual farmers and slaughterhouses. Although hog prices in the PRC reached
multi-year highs last year, hog prices declined during the last six months of
2008 as China substantially increased its imports of pork products. In addition,
the price for corn, an important element in feed, has been volatile. A
combination of lower hog sale prices and higher feed costs could constrain
demand for our feed products.




We
are a major purchaser of many commodities that we use for raw materials and
packaging, and price changes for the commodities we depend on may adversely
affect our profitability.




We enter
into contracts for the purchase of raw materials at fixed prices, which are
designed to protect us against raw material price increases during their term.
However, when necessary, we attempt to recover our commodity cost increases by
increasing prices, promoting a higher-margin product mix and creating additional
operating efficiencies. Nevertheless, the raw materials used in our feed
business are largely commodities that experience price fluctuations caused by
external conditions and changes in governmental agricultural
programs.  We also use paper products, such as corrugated cardboard,
aluminum products, films and plastics to package our feed products. Substantial
increases in the prices of packaging materials or higher prices of our raw
materials could adversely affect our operating performance and financial
results. Commodity price changes may result in unexpected increases in raw
material and packaging costs, and we may be unable to increase our prices to
offset these increased costs without suffering reduced volume, revenue and
income. Any substantial fluctuation in the prices of raw materials, if not
offset by increases in our sales prices, could adversely affect our
profitability.




Outbreaks
of livestock disease can adversely affect sales of our products.




Outbreaks
of livestock diseases can significantly affect demand for our feed products. An
outbreak of disease could result in governmental restrictions on the sale of
livestock products to or from customers, or require our customers to destroy
their flocks. This could result in the cancellation of orders of feed products
by our customers and create adverse publicity that may have a material adverse
effect on the agricultural products industry and our ability to market our
products successfully.




Our
products and processes can expose us to product liability claims.




Product
liability claims or product recalls can adversely affect our business reputation
and expose us to increased scrutiny by local, provincial, and central
governmental regulators. The packaging, marketing and distribution of
agricultural feed products entail an inherent risk of product liability and
product recall and the resultant adverse publicity. We may be subject to
significant liability if the consumption of any of our products causes injury,
illness or death of livestock, other animals or humans. We could be required to
recall certain of our feed products in the event of contamination or damage to
the products. In addition to the risks of product liability or product recall
due to deficiencies caused by our production or processing operations, we may
encounter the same risks if any third party tampers with our feed products. We
cannot assure you that we will not be required to perform product recalls, or
that product liability claims will not be asserted against us in the future. Any
claims that may be made may create adverse publicity that would have a material
adverse effect on our ability to market our feed products successfully or on our
business, reputation, prospects, financial condition and results of operations.
A successful product liability claim in excess of our insurance coverage could
have a material adverse effect on us and could prevent us from obtaining
adequate product liability insurance in the future on commercially reasonable
terms.




22




We
may not be able to obtain regulatory approvals for our feed
products.




The
manufacture and sale of agricultural products in the PRC is regulated by the
central government and the local provincial governments. Although our licenses
and regulatory filings are current, the uncertain legal environment in the PRC
and within our industry may make us 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
require various licenses and permits to operate our business, and the loss of or
failure to renew any or all of those licenses and permits could require us to
suspend some or all of our production or distribution operations.




In
accordance with the laws and regulations of the PRC, we are required to maintain
various licenses and permits in order to operate our feed business. We are
required to comply with applicable hygiene and food safety standards in relation
to our feed production processes. Our premises and transportation vehicles are
subject to regular inspections by the regulatory authorities for compliance with
applicable regulations. Failure to pass these inspections, or the loss of or
failure to renew our licenses and permits, could require us to temporarily or
permanently suspend some or all of our feed production or distribution
operations, which could disrupt our operations and adversely affect our revenues
and profitability.




We face significant competition in the sales of our agricultural
feed products.




Competition
in the agricultural feed industry, especially with companies with greater
resources, may make us unable to compete successfully in these industries, which
could adversely affect our business.




In
general, the competitive factors in the agricultural feed industry in the PRC
include:




·
            price;


·
            product
      quality;


·
            brand
      identification;


·
            breadth
      of product line; and


·
            customer
      service.




To the
extent that our products and services do not exhibit these qualities, our
ability to compete will be hindered.




Concerns
with the safety and quality of agricultural feed products could cause customers
to avoid our products.




We could
be adversely affected if our customers and the ultimate consumers of our feed
products lose confidence in the safety and quality of various feed products.
Adverse publicity about these types of concerns, such as the recent publicity
concerning the use of the substance melamine in milk and infant formula, may
discourage our customers from buying our products or cause production and
delivery disruptions. Any negative change in customer perceptions about the
safety and quality of our feed products could adversely affect our business and
financial condition.




23




If
our feed products become adulterated or misbranded, we would need to recall
those items and may experience product liability claims if consumers are injured
as a result.




Animal
feed products occasionally contain contaminants due to inherent defects in those
products or improper storage or handling. Under adverse circumstances, animal
feed manufacturers may need to recall some of their products if they become
adulterated or misbranded, and may also be liable if the consumption of any of
their products causes injury. While we have never been required to recall any of
our feed products and we maintain insurance that we believe is adequate to cover
this type of loss, a widespread product recall could result in changes to one or
more of our business processes, product shortages, loss of customer confidence
in our food or other adverse effects on our business. If we are required to
defend against a product liability claim, whether or not we are found liable
under the claim, we could incur substantial costs, our reputation could suffer
and our customers might substantially reduce their existing or future orders
from us.




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




Our
continued success will depend on our ability to continue to develop and market
additive premix, concentrates and complete feeds 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. Since we do not have patent protection for our
technology or formulas, we may not be able to protect our rights to this
intellectual property if our competitors discover or illegally obtain this
technology or formulas. Our inability to protect our rights to this intellectual
property may adversely affect our ability to prevent competitors from using our
products and developments.




Some
of our significant customer and supplier contracts are short-term.




Some of
our feed customers and suppliers operate through purchase orders or short-term
contracts. Although we have long-term business relationships with many of our
feed customers and suppliers and alternative sources of supply for key items, we
cannot be sure that any of these customers or suppliers will continue to do
business with us on the same basis. Additionally, although we will try to renew
these contracts as they expire, there can be no assurance that these customers
or suppliers will renew these contracts on terms that are favorable to us, if at
all. The termination of or modification to any number of these contracts may
adversely affect our business and prospects, including our financial performance
and results of operations.




Risks Related to Our
Commercial Hog Production Business




Our
limited operating history in hog production makes it difficult to evaluate our
future prospects and results of operations.




We have a
limited operating history in the hog production business. While we are a leader
in the feed product industry, the current management team does not have the same
depth of experience in the hog farming business. Accordingly, you should
consider our future prospects in light of the risks and uncertainties
experienced by early stage companies in evolving markets such as the market for
breeding and selling hogs in the PRC. Some of these risks and uncertainties
relate to our ability to:




·
            attract
      additional customers and increase spending per
  customer;


·
            increase
      awareness of our brand and continue to develop customer loyalty in the hog
      farming line of business;


·
            respond
      to competitive market conditions;


·
            respond
      to changes in our regulatory
environment;


·
            maintain
      effective control of our costs and
expenses;


·
            raise
      sufficient capital to sustain and expand our business;
  and


·
            attract,
      retain and motivate qualified
personnel.




If we are
unsuccessful in addressing any of these risks and uncertainties, our business
may be materially and adversely affected.




24




Health
risks to hogs and quality concerns could adversely affect production and our
business.




We take
precautions to ensure that our hogs are healthy. Nevertheless, we are subject to
risks relating to our ability to maintain animal health and control
diseases.  Disease can reduce the number of offspring produced, hamper
the growth of the hogs to finished size and require in some cases the
destruction of infected hogs, all of which could adversely affect our ability
sell our hogs.  Adverse publicity concerning any disease or heath
concern could also cause customers to lose confidence in the safety and quality
of our hogs.  For example, blue ear disease, or PRRS, could result in
significant loss in production of hogs.  The PRC lost over 10 million
pigs to PRRS in 2006 and 2007.  Additionally, since our hogs will be
fed almost exclusively with our feed products, safety and quality concerns over
our feed products will also adversely affect the sales of our hogs.




We
may not be able to maintain the necessary hog farming licenses.




Hog
breeding is subject to substantial licensing requirements and
regulation.  In order to sell breeder hogs in the PRC a breeder hog
farm must be awarded a breeder’s license by the local government
authorities.  Only those breeder hog farms that have qualified staff,
specialized equipment and are in segregated locations to avoid the spread of
disease are eligible for licensing.  Meat hog farms do not require a
license.  Currently, we have obtained licenses to own and operate
Lushan and Gangda, our breeder hog farms.  We need to maintain the
licenses we have and, if we pursue acquisitions of other breeder hog farms, we
will need to obtain additional licenses to operate those farms. Our future
success in the hog farming industry depends on our ability to acquire such
licenses and permits to expand our business.




Our
hog production business could be adversely affected by fluctuations in porkand commodity prices.




The price
at which we sell our hogs is directly affected by the supply and demand for pork
products and other proteins in the PRC, all of which are determined by the
constantly changing market forces of supply and demand as well as other factors
over which we have little or no control.  A downward fluctuation in
the demand for pork may adversely impact our quarterly and annual results of
operations for the hog farming business. Although
hog prices in the PRC reached multi-year highs last year, hog prices declined
during the last six months of 2008 as China substantially increased its imports
of pork products. In addition, the price for corn, an important element in feed,
has been volatile. Lower hog sale prices, higher feed costs, or both would have
a negative effect on our results of operations.




Risks Related to Conducting
Our Business in China




We
are subject to economic and political risks in China over which we have little
or no control, and may be unable to alter our business practice in time to avoid
the possibility of reduced revenues.




All of
our business is conducted in China. Doing business outside the United States,
and particularly in China, subjects us to various risks and uncertainties,
including changing economic and political conditions, major work stoppages,
exchange rate controls, currency fluctuations, armed conflicts and unexpected
changes in United States and foreign laws relating to tariffs, trade
restrictions, transportation regulations, foreign investments and taxation. We
have no control over most of these risks and may be unable to anticipate changes
in international economic and political conditions. Therefore, we may be unable
to alter our business practice in time to avoid the possibility of reduced
revenues.




25




China’s
economic policies could affect our business.




All of
our assets are located in China and all of our revenue is derived from our
operations in China. Accordingly, our results of operations and prospects are
subject, to a significant extent, to the economic, political and legal
developments in China.  While 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 PRC, but they may also have a negative effect on us. For example, our
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 PRC 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 PRC 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 PRC’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.




If the Chinese
government finds that the structure for operating our Chinese businesses do not
comply with Chinese governmental restrictions on foreign investment, or if these
regulations or the interpretation of existing regulations change in the future,
we could be subject to severe penalties or be forced to relinquish our interests
in those operations.




All of
our operations are conducted through our subsidiaries in China. If we, our
subsidiaries, or our corporate structure is found to be in violation of any
existing or future PRC laws or regulations (for example, if we are deemed to be
holding equity interests in an entity in which direct foreign ownership is
restricted) the relevant PRC regulatory authorities, including the
administration of industry and commerce, the administration of foreign exchange
and relevant agencies of the Ministry of Commerce, would have broad discretion
in dealing with such violations, including:




·
            revoking
      business and operating licenses


·
            confiscating
      income and imposing fines and other
penalties


·
            requiring
      us to restructure our corporate structure or
  operations


·
            restricting
      or prohibiting our use of proceeds from our financings to finance our
      business and operations in China


·
            imposing
      conditions with which we or our subsidiaries may not be able to
      comply


·
            forcing
      us to relinquish our interests in our
  subsidiaries




The
imposition of any of these penalties could result in a material and adverse
effect on our ability to conduct our business.




We
may have difficulty establishing adequate management, legal and financial
controls in China.




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




Our
bank accounts are not insured or protected against loss.




We
maintain our cash with various banks and trust companies located in China. Our
cash accounts are not insured or otherwise protected. Should any bank or trust
company holding our cash deposits become insolvent, or if we are otherwise
unable to withdraw funds, we would lose the cash on deposit with that particular
bank or trust company.




26




As
we have limited business insurance coverage in China, any loss which we suffer
may not be insured or may be insured to only a limited extent.




The
insurance industry in China is still in an early stage of development and
insurance companies located in China offer limited business insurance products.
In the event of damage or loss to our properties, our insurance may not provide
as much coverage as if we were insured by insurance companies in the United
States.




Tax laws and regulations in China are subject to
substantial revision, some of which may adversely affect our
profitability




The Chinese tax system is in a state of flux, and it is
anticipated that China's tax regime will be altered in the coming years. Tax
benefits that we presently enjoy may not be available in the wake of these
changes, and we could incur tax obligations to our government that are
significantly higher than anticipated. These increased tax obligations could
negatively impact our financial condition and our revenues, gross margins,
profitability and results of operations may be adversely affected as a
result.




We
may face judicial corruption in China.




Another
obstacle to foreign investment in China is corruption. There is no assurance
that we will be able to obtain recourse in any legal disputes with suppliers,
customers or other parties with whom we conduct business, if desired, through
China’s poorly developed and sometimes corrupt judicial systems.




We
may face obstacles from the communist system in China.




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




If
relations between the United States and China worsen, investors may be unwilling
to hold or buy our stock and our stock price may decrease.




At
various times during recent years, the United States and China have had
significant disagreements over political and economic issues. Controversies may
arise in the future between these two countries. Any political or trade
controversies between the United States and China, whether or not directly
related to our business, could reduce the price of our common
stock.




The
government of China could change its policies toward private enterprise or even
nationalize or expropriate private enterprises, which could result in the total
loss of our and your investment.




Our
business is subject to significant political and economic uncertainties and may
be affected by political, economic and social developments in China. Over the
past several years, the government of China has pursued economic reform policies
including the encouragement of private economic activity and greater economic
decentralization. The government of China may not continue to pursue these
policies or may significantly alter them to our detriment from time to time with
little, if any, prior notice.




Changes
in policies, laws and regulations or in their interpretations or the imposition
of confiscatory taxation, restrictions on currency conversion, restrictions or
prohibitions on dividend payments to shareholders, or devaluations of currency
could cause a decline in the price of our common stock, should a market for our
common stock ever develop. Nationalization or expropriation could even result in
the total loss of your investment.




27




The
nature and application of many laws of China create an uncertain environment for
business operations and they could have a negative effect on us.




The legal
system in China is a civil law system. Unlike the common law system, the civil
law system is based on written statutes where decided legal cases have little
value as precedents. In 1979, China began to promulgate a comprehensive system
of laws and has since introduced many laws and regulations to provide general
guidance on economic and business practices in China and to regulate foreign
investment. Progress has been made in the promulgation of laws and regulations
dealing with economic matters such as corporate organization and governance,
foreign investment, commerce, taxation and trade. The promulgation of new laws,
changes of existing laws and the abrogation of local regulations by national
laws could cause a decline in the price of our common stock. In addition, as
these laws, regulations and legal requirements are relatively recent, their
interpretation and enforcement involve significant uncertainty.




Limitations on the ability of our operating
subsidiaries to make payments to us could have a material adverse effect on our
ability to conduct our business and fund our operations




We are a
holding company and conduct substantially all of our business through our
operating subsidiaries in China. We will of necessity rely on dividends paid by
our subsidiaries for our cash needs, including the funds necessary to pay
dividends and other cash distributions to our shareholders, to service any debt
we may incur and to pay our operating expenses. The payment of dividends by
entities organized in China is subject to limitations. In particular,
regulations in China currently permit payment of dividends only out of
accumulated profits as determined in accordance with Chinese accounting
standards and regulations. Our Chinese subsidiaries are also required to set
aside at least 10% of their after-tax profit based on Chinese accounting
standards each year to its general reserves until the accumulative amount of
such reserves reaches 50% of their registered capital. These reserves are not
distributable as cash dividends. In addition, they are required to allocate a
portion of its after-tax profit to its staff welfare and bonus fund at the
discretion of its board of directors. Moreover, if our subsidiaries incur debt
on their own behalf in the future, the instruments governing the debt may
restrict their ability to pay dividends or make other distributions to us. Any
limitation on the ability of our subsidiaries to distribute dividends and other
distributions to us could materially and adversely limit our ability to make
investments or acquisitions that could be beneficial to our businesses, pay
dividends or otherwise fund and conduct our business.




Chinese
regulations relating to the establishment of offshore special purpose companies
by Chinese residents and registration requirements for employee stock ownership
plans or share option plans may subject our China resident shareholders to
personal liability and limit our ability to acquire Chinese companies or to
inject capital into our operating subsidiaries in China, limit our subsidiaries’
ability to distribute profits to us, or otherwise materially and adversely
affect us.




The State
Administration of Foreign Exchange (SAFE) issued a public notice in October
2005, requiring PRC residents, including both legal persons and natural persons,
to register with the competent local SAFE branch before establishing or
controlling any company outside of China, referred to as an “offshore special
purpose company,” for the purpose of acquiring any assets of or equity interest
in PRC companies and raising funds from overseas. In addition, any PRC resident
that is the shareholder of an offshore special purpose company is required to
amend his or her SAFE registration with the local SAFE branch, with respect to
that offshore special purpose company in connection with any increase or
decrease of capital, transfer of shares, merger, division, equity investment or
creation of any security interest over any assets located in China. To further
clarify the implementation of Circular 75, the SAFE issued Circular 124 and
Circular 106 on November 24, 2005 and May 29, 2007, respectively. Under Circular
106, PRC subsidiaries of an offshore special purpose company are required to
coordinate and supervise the filing of SAFE registrations by the offshore
holding company’s shareholders who are PRC residents in a timely manner. If
these shareholders fail to comply, the PRC subsidiaries are required to report
to the local SAFE authorities. If the PRC subsidiaries of the offshore parent
company do not report to the local SAFE authorities, they may be prohibited from
distributing their profits and proceeds from any reduction in capital, share
transfer or liquidation to their offshore parent company and the offshore parent
company may be restricted in its ability to contribute additional capital into
its PRC subsidiaries. Moreover, failure to comply with the above SAFE
registration requirements could result in liabilities under PRC laws for evasion
of foreign exchange restrictions. Some of our PRC resident beneficial owners
have not registered with the local SAFE branch as required under SAFE
regulations. The failure or inability of these PRC resident beneficial owners to
comply with the applicable SAFE registration requirements may subject these
beneficial owners or us to fines, legal sanctions and restrictions described
above.




28




On March 28, 2007, SAFE released detailed
registration procedures for employee stock ownership plans or share option plans
to be established by overseas listed companies and for individual plan
participants. Any failure to comply with the relevant registration procedures
may affect the effectiveness of our employee stock ownership plans or share
option plans and subject the plan participants, the companies offering the plans
or the relevant intermediaries, as the case may be, to penalties under PRC
foreign exchange regime. These penalties may subject us to fines and legal
sanctions, prevent us from being able to make distributions or pay dividends, as
a result of which our business operations and our ability to distribute profits
to you could be materially and adversely affected.




In
addition, the National Development and Reform Commission ("NDRC") promulgated a
rule in October 2004, or the NDRC Rule, which requires NDRC approvals for
overseas investment projects made by PRC entities. The NDRC Rule also provides
that approval procedures for overseas investment projects of PRC individuals
must be implemented with reference to this rule. However, there exist extensive
uncertainties in terms of interpretation of the NDRC Rule with respect to its
application to a PRC individual’s overseas investment, and in practice, we are
not aware of any precedents that a PRC individual’s overseas investment has been
approved by the NDRC or challenged by the NDRC based on the absence of NDRC
approval. Our current beneficial owners who are PRC individuals did not apply
for NDRC approval for investment in us. We cannot predict how and to what extent
this will affect our business operations or future strategy. For example, the
failure of our shareholders who are PRC individuals to comply with the NDRC Rule
may subject these persons or our PRC subsidiary to certain liabilities under PRC
laws, which could adversely affect our business.




Restrictions on
currency exchange may limit our ability to utilize our revenues
effectively.




The
Chinese government imposes controls on the convertibility of RMB into foreign
currencies and, in certain cases, the remittance of currency out of China. We
receive all of our revenues in RMB. Under our current structure, our income is
primarily derived from dividend payments from our subsidiaries. Shortages in the
availability of foreign currency may restrict the ability of our subsidiaries to
remit sufficient foreign currency to pay dividends or other payments to us, or
otherwise satisfy their foreign currency denominated obligations. Under existing
PRC foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and expenditures from trade-related
transactions, can be made in foreign currencies without prior approval from SAFE
by complying with certain procedural requirements. However, approval from
appropriate government authorities is required where RMB are to be converted
into foreign currency and remitted out of China to pay capital expenses such as
the repayment of bank loans denominated in foreign currencies. The Chinese
government may also, at its discretion, restrict access in the future to foreign
currencies for current account transactions. Since our revenues are denominated
in RMB, any existing and future restrictions on currency exchange may limit our
ability to utilize revenues to fund business activities outside of China that
require foreign currencies.




Changes
in China’s currency policies may cause a target business’s ability to succeed in
the international markets to be diminished.




Historically,
China “pegged” its currency to the U.S. dollar. This meant that each unit of PRC
currency had a set ratio for which it could be exchanged for United States
currency, as opposed to having a floating value like other countries’
currencies. Many countries argued that this system of keeping China currency low
when compared to other countries gave PRC companies an unfair price advantage
over foreign companies. Due to mounting pressure from outside countries, China
recently reformed its economic policies to establish a floating value. As a
result of this policy reform, we may be adversely affected since the competitive
advantages that existed as a result of the former policies will cease. We cannot
assure you that we will be able to compete effectively with the new policies in
place.




29


If
any dividend is declared in the future and paid in a foreign currency, you may
be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you
will actually ultimately receive.




If you
are a United States holder, you will be taxed on the U.S. dollar value of your
dividends, if any, at the time you receive them, even if you actually receive a
smaller amount of U.S. dollars when the payment is in fact converted into U.S.
dollars. Specifically, if a dividend is declared and paid in a foreign currency,
the amount of the dividend distribution that you must include in your income as
a U.S. holder will be the U.S. dollar value of the payments made in the foreign
currency, determined at the spot rate of the foreign currency to the U.S. dollar
on the date the dividend distribution is includible in your income, regardless
of whether the payment is in fact converted into U.S. dollars. Thus, if the
value of the foreign currency decreases before you actually convert the currency
into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the
U.S. dollar amount that you will actually ultimately receive.




The
admission 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 China becoming a member of the
World Trade Organization (“WTO”), import restrictions on agricultural products
are expected to be reduced. The lowering of import restrictions and the WTO’s
requirement for a reduction of import tariffs as a condition of membership may
result in an increase of foreign products, and could in turn lead to increased
competition in the domestic agricultural market.




Risks Related to Our
Securities




It
will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers, directors and assets based in China.




As 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 shareholder or group
of shareholders in the United States. Also, because our operating subsidiaries
and assets are located in China, it may be extremely difficult or impossible for
investors to access those assets to enforce judgments rendered against us or our
directors or executive officers by United States courts. In addition, the courts
in China may not permit the enforcement of judgments arising out of United
States federal and state corporate, securities or similar laws. Accordingly,
United States investors may not be able to enforce judgments against us for
violation of United States securities laws.




Our
common stock price is subject to significant volatility, which could result in
substantial losses for investors.




During
the eight month period ended August 28, 2007, the high and low bid prices of our
common stock on the Over-The-Counter Bulletin Board (“OTCBB”) were $8.25 per
share and $1.85 per share, respectively. Since our commencement of trading on
the Nasdaq Stock Market on August 29, 2007 through March 3, 2010, the high and
low sales prices of our common stock were $21.31 and $0.90. Prices for our
shares are determined in the marketplace and may accordingly be influenced by
many factors, including, but not limited to:




·
            the
      depth and liquidity of the market for the
  shares;


·
            quarter-to-quarter
      variations in our operating
results;


·
            announcements
      about our performance as well as the announcements of our competitors
      about the performance of their
businesses;


30


·
            investors’
      evaluations of our future prospects and the food industry
      generally;


·
            changes
      in earnings estimates by, or failure to meet the expectations of,
      securities analysts;


·
            our
      dividend policy; and


·
            general
      economic and market conditions.




In
addition, the stock market often experiences significant price fluctuations that
are unrelated to the operating performance of the specific companies whose stock
is traded. These market fluctuations could adversely affect the trading price of
our shares.




The price
at which investors purchase shares of our common stock may not be indicative of
the price that will prevail in the trading market. Investors may be unable to
sell their shares of common stock at or above their purchase price, which may
result in substantial losses.




Future
sales of shares of our common stock by our shareholders could cause our stock
price to decline.




We cannot
predict the effect, if any, that market sales of shares of our common stock or
the availability of shares of common stock for sale will have on the market
price prevailing from time to time. As of March 3, 2010, we had 44,903,263
shares of common stock issued and outstanding, 760,000 of which shares are
subject to the lapsing of certain restrictions. An aggregate of 2,807,638 shares
of our common stock are issuable upon conversion of our outstanding convertible
notes or upon exercise of our outstanding warrants and an aggregate of 180,000
shares of our common stock are issuable upon exercise of our outstanding
options. Sales of shares of our common stock in the public market covered under
an effective registration statement, or pursuant to Rule 144, or the perception
that those sales may occur, could cause the trading price of our common stock to
decrease or to be lower than it might be in the absence of those sales or
perceptions.




We
may issue additional shares of our capital stock or debt securities to raise
capital or complete acquisitions, which would reduce the percentage equity
interest of our shareholders.




Our
certificate of incorporation authorizes the issuance of up to 75,000,000 shares
of common stock, par value $0.001 per share. As of March 3, 2010, there were
approximately 27,109,099 authorized and unissued shares of our common stock
which have not been reserved and accordingly, are available for future issuance.
We entered into an Equity Credit Agreement in September 2009 with an
institutional investor pursuant to which we have the right, but not the
obligation, to require the investor to purchase shares of our common stock from
time to time. The maximum aggregate value of the shares that may be issued under
the Equity Credit Agreement is $50 million. Based on the closing price of our
common stock on March 3, 2010, assuming the maximum takedown under the Equity
Credit Agreement, approximately 10.4 million additional shares could be issued.
We are not obligated to issue any shares. Although we have not entered into any
other agreements as of this date to issue our unreserved shares of common stock,
we may issue a substantial number of additional shares of our common stock to
complete a business combination or to raise capital in the private or public
markets. The issuance of additional shares of our common stock:




·
            may
      significantly reduce the equity interest of investors in this offering;
      and




·
            may
      adversely affect prevailing market prices for our common
      stock.




31


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 cause us to incur substantial expenditures 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.




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 shareholders.




Our
principal executive officers and directors beneficially own approximately 26% of
our outstanding common stock. As a result, they are in a position to
significantly influence the outcome of matters requiring a shareholder 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 shareholders and may adversely affect your voting and
other shareholders rights.




Our
articles of incorporation, our bylaws and provisions of Nevada law could make it
more difficult for a third party to acquire us, even if doing so could be in our
shareholders’ best interest.




Provisions
of our articles of incorporation and bylaws could make it more difficult for a
third party to acquire us, even if doing so might be in the best interest of our
shareholders. It could be difficult for a potential bidder to acquire us because
our articles of incorporation and bylaws contain provisions that may discourage
takeover attempts. These provisions may limit shareholders’ ability to approve a
transaction that shareholders may think is in their best interests. These
provisions include a requirement that certain procedures must be followed before
matters can be proposed for consideration at meetings of our
shareholders.




Provisions
of Nevada’s business combinations statute also restrict certain business
combinations with interested shareholders. We have elected not to be governed by
these provisions in our amended and restated articles of incorporation. However,
this election may not be effective unless we meet certain conditions under the
Nevada statute.




Capital
outflow policies in China may hamper our ability to declare and pay dividends to
our shareholders.




The PRC
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 China. In addition, under current Chinese law, we must
retain a reserve equal to 10 percent of net income after taxes, not to exceed 50
percent of registered capital. Accordingly, this reserve will not be available
to be distributed as dividends to our shareholders. We presently do not intend
to pay dividends in the foreseeable future. Our management intends to follow a
policy of retaining all of our earnings to finance the development and execution
of our strategy and the expansion of our business.




Risk Associated with the
Global Economy




Deterioration of economic conditions
could negatively impact our business.




Our
business may be adversely affected by changes in global economic conditions,
including inflation, interest rates, availability of capital markets, consumer
spending rates, energy availability and costs (including fuel surcharges) and
the effects of governmental initiatives to manage economic conditions. Any such
changes could adversely affect the demand for our products or the cost and
availability of our needed raw materials, thereby negatively affecting our
financial results.




32


The
recent disruptions in credit and other financial markets and deterioration of
global economic conditions, could, among other things:




·
            make
      it more difficult or costly for us to obtain financing for our operations
      or investments or to finance debt in the
future;




·
            impair
      the financial condition of some of our customers, suppliers or
      counterparties to our derivative instruments, thereby increasing bad debts
      or non-performance by suppliers;
and




·
            negatively
      impact demand for pre-mix feed or hog products, which could result in a
      reduction of sales, operating income and cash
  flows.




Item
1B. Unresolved Staff Comments.




None




Item
2. Properties.




We lease
our headquarters office, located at atRm. A1001-1002, Tower 16,
Hengmao Int'l Center, 333 S. Guangchang Rd., Nanchang, Jiangxi Province, PRC
330003. The annual rent on this space is approximately $28,000 and the lease
runs for two years through April 28, 2010. A full description of our feed
facilities is set forth under "Item 1. Business, Animal Nutrition Business,
Facilities" on pages 8 and 9 and a full description of our hog farm facilities
is set forth under "Item 1. Business, Commercial Hog Production Business,
Facilities" on pages 12 through 16.




Item
3. Legal Proceedings.




From time
to time, we may become involved in various lawsuits and legal proceedings that
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 Security Holders.




No
matters were submitted to a vote of our security holders during the fourth
quarter of our fiscal year ended December 31, 2009.




33


PART
II




Item
      5.
              Market
      for Registrant’s Common Equity, Related Shareholder Matters and Issuer
      Purchases of Equity
Securities.




Market
Information




Through
August 28, 2007 our common stock was quoted on the Over-the-Counter Bulletin
Board under the symbol "AGFI.OB."  Our common stock is currently
traded on the Nasdaq Global Market under the symbol "FEED."  The
following table sets forth, for the periods indicated, the quarterly high and
low selling prices for our common stock as reported by Nasdaq.




For
      the Year Ended December 31,2009
                
                
                2008High
                
                
                Low
                
                
                High
                
                
                LowFirst
      Quarter
                
                $
                2.95
                
                
                $
                0.90
                
                
                $
                13.75
                
                
                $
                8.40Second
      Quarter
                
                $
                7.96
                
                
                $
                2.11
                
                
                $
                21.31
                
                
                $
                11.61Third
      Quarter
                
                $
                6.80
                
                
                $
                4.10
                
                
                $
                14.95
                
                
                $
                7.55Fourth
      Quarter
                
                $
                5.70
                
                
                $
                4.00
                
                
                $
                8.09
                
                
                $
                1.10





The
closing price for our common stock on March 3, 2010 was $4.60.




Holders




The
number of record holders of our common stock as of March 3, 2010 was
79.




Dividend
Policy




We have
not paid any cash dividends on our common stock to date, and we have no
intention of paying cash dividends in the foreseeable future. Whether we will
declare and pay dividends in the future will be determined by our board of
directors at their discretion, subject to certain limitations imposed under
Nevada corporate law. In addition, our ability to pay dividends may be affected
by the foreign exchange controls in the PRC. The timing, amount and form of
dividends, if any, will depend on, among other things, our results of
operations, financial condition, cash requirements and other factors deemed
relevant by our board of directors.




Securities Authorized for Issuance Under Equity
Compensation Plans




We
adopted the AgFeed Industries, Inc. 2008 Long-Term Incentive Plan at our 2008
Annual Meeting of Shareholders.  Prior to that time, we did not have a
formal equity compensation plan in effect for employees or
directors.




34


The
following table provides information as of December 31, 2009 about our
common stock that may be issued upon the exercise of options and rights granted
to employees or members of our Board of Directors:




Equity Compensation Plan InformationPlan Category
                              
                              (a)
                                Number of
                                securities
                                to be issueduponexercise ofoutstandingoptions,warrantsand rights
                              
                              
                              (b)
                                Weighted-
                                average
                                exercise
                                price
                                of
                                outstanding
                                options,
                                warrants
                                and rights
                              
                              
                              (c)
                                Number of
                                securities
                                remaining
                                available
                                for future
                                issuanceunderequitycompensation
                                plans
                                (excluding
                                securities
                                reflected
                                in column (a))Equity
      compensation plans approved by security holders
                              
                              
                              190,000
                              
                              
                              $
                              8.3695
                              
                              
                              
                              50,000Equity
      compensation plans not approved by security holders (1)
                              
                              
                              20,000
                              
                              
                              $
                              8.85
                              
                              
                              
                              -0-Total
                              
                              
                              210,000
                              
                              
                              $
                              8.4152
                              
                              
                              
                              50,000





(1)
            Includes
      options granted to two of our independent directors in 2007 outside any
      plan.




35


Stock
Price Performance Graph





A
five-year comparison of the performance of our common stock with a broad equity
market index and a peer group is set forth below.  The broad equity market
index used is the Nasdaq Composite Index and the peer group is the Russell 2000
Index(1).
 The below comparison assumes $100 was invested on November 17, 2006 and
dividends are reinvested for all years ending December 31.










11/17/2006
                  
                  
                  12/31/2006
                  
                  
                  12/31/2007
                  
                  
                  12/31/2008
                  
                  
                  12/31/2009Agfeed
      Industries, Inc
                  
                  $
                  100
                  
                  
                  $
                  67
                  
                  
                  $
                  282
                  
                  
                  $
                  54
                  
                  
                  $
                  167Nasdaq
      Composite Index
                  
                  $
                  100
                  
                  
                  $
                  99
                  
                  
                  $
                  108
                  
                  
                  $
                  63
                  
                  
                  $
                  93New
      Peer Group - Russell 2000 Index
                  
                  $
                  100
                  
                  
                  $
                  100
                  
                  
                  $
                  97
                  
                  
                  $
                  63
                  
                  
                  $
                  79Old
      Peer Group - CBOE China Index
                  
                  $
                  100
                  
                  
                  $
                  114
                  
                  
                  $
                  152
                  
                  
                  $
                  88
                  
                  
                  $
                  142





(1)
            Commencing
      with this Annual Report, we have elected to change our peer group to the
      Russell 2000 Index (New Peer Group). This peer group consists of the
      smallest securities based on a combination of their market cap and current
      index membership.  The top ten companies included in the Russell
      2000 Index are Human Genome Sciences, Inc., 3Com Corp., Assured Guaranty,
      Ltd., Tupperware Corp., E*Trade Financial Corp., Solera Holdings, Inc.,
      Bally Technologies, Inc., Highwoods Properties, Inc., Skyworks Solutions,
      Inc. and Informatica Corp.





In 2008,
our peer group (Old Peer Group) was the CBOE China Index, which is comprised of
Aluminum Corp of China Ltd., Baidu.com - Spon ADR, Cnooc Ltd., China Telecom
Corp Ltd., China Mobile Ltd., China Unicom Ltd., Ctrip.com International, China
Yuchai International Ltd., Focus Media Holding Limited, Huaneng Power
International Inc., China Life Insurance, Nam Tai Electronics Inc., Netease.com,
Inc., Petrochina Co Ltd., Sina Corp., Semiconductor Manufacturing International
Corp., Shanda Interactive Entertainment Ltd., China Petroleum & Chemical
Corp., Sohu.com Inc., and Suntech Power Holdings Co.





We
believe that the companies included in the New Peer Group are more reflective of
our position within the marketplace, and therefore will provide a more
meaningful comparison of stock performance.  We have included the New Peer
Group in the graph to show what the comparison to those companies would have
been if the New Peer Group had been in place during the period shown in the
graph.





Purchases
of Equity Securities


We did
not purchase any shares of our common stock during the fourth quarter of
2009.




36


Item
6.  Selected Financial Data.




For
      the Year Ended December 31,2009
                
                
                2008
                
                
                2007Net
      Revenue
                
                $
                173,203,271
                
                
                $
                143,661,485
                
                
                $
                36,163,339Cost
      of Revenue
                
                
                146,568,116
                
                
                
                109,224,565
                
                
                
                25,763,479Gross
      profit
                
                
                26,635,155
                
                
                
                34,436,920
                
                
                
                10,399,860Operating
      expenses
                
                
                14,043,067
                
                
                
                9,695,989
                
                
                
                4,079,089Income
      from operations
                
                
                12,592,088
                
                
                
                24,740,931
                
                
                
                6,320,771Non-operating
      income (expense)
                
                
                (1,270,186
                )
                
                
                (6,783,375
                )
                
                
                148,921Income
      before provision for income taxes
                
                
                11,321,902
                
                
                
                17,957,556
                
                
                
                6,469,692Provision
      (benefit) for income taxes
                
                
                1,142,105
                
                
                
                587,222
                
                
                
                (193,203
                )Net
      income including noncontrolling interest
                
                
                10,179,797
                
                
                
                17,370,334
                
                
                
                6,662,895Net
      income (loss) attributed to noncontrolling interest
                
                
                (168,569
                )
                
                
                421,519
                
                
                
                -Net
      income attributed to AgFeed
                
                $
                10,348,366
                
                
                $
                16,948,815
                
                
                $
                6,662,895Weighted
      average shares outstanding :Basic
                
                
                40,978,457
                
                
                
                31,557,742
                
                
                
                26,093,376Diluted
                
                
                41,214,070
                
                
                
                31,713,977
                
                
                
                26,174,973Earnings
      per share:Basic
                
                $
                0.25
                
                
                $
                0.54
                
                
                $
                0.26Diluted
                
                $
                0.25
                
                
                $
                0.53
                
                
                $
                0.25


We
believe that "adjusted net income," "adjusted earnings per share" and "earnings
per share based on income from operations," when taken in conjunction with
reported results, provide a useful measure of financial performance since they
eliminate the impact of certain non-recurring, non-cash charges. These non-GAAP
measures should not be considered in isolation or as a substitute for the most
comparable GAAP measures. Additionally, the non-GAAP financial measures used by
AgFeed may not be comparable to non-GAAP financial measures used by other
companies.




Adjusted
      Net Income and Earnings Per Share
                
                For
      the Year Ended December 31,2009
                
                
                2008
                
                
                2007Net
      Income attributed to AgFeed Adjustments
                
                $
                10,348,366
                
                
                $
                16,948,815
                
                
                $
                6,662,895Interest
      and financing costs related to conversion of convertible
      debentures
                
                $
                1,022,626
                
                
                $
                5,704,358
                
                
                
                -Foreign
      currency loss
                
                
                17,943
                
                
                $
                559,299
                
                
                
                -Adjusted
      Net Income
                
                $
                11,388,935
                
                
                $
                23,212,472
                
                
                $
                6,662,895Basic
      Weighted Shares Outstanding
                
                
                40,978,457
                
                
                
                31,557,742
                
                
                
                26,093,376Adjusted
      Earnings per Share
                
                $
                0.28
                
                
                $
                0.74
                
                
                $
                0.26Earnings
      per share based on income from operations
                
                $
                0.31
                
                
                $
                0.78
                
                
                $
                0.24




37


Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.




The
information contained in this section has been derived from the consolidated
financial statements of AgFeed. Information contained herein should be read
together with AgFeed’s financial statements and related notes included elsewhere
in this annual report.




Dollar
amounts set forth in this Item 7 "Management’s Discussion and Analysis of
Financial Condition and Results of Operations" are in thousands (000s) unless
otherwise indicated.




Overview




We are
engaged in the animal nutrition premix, concentrate and complete feeds) business
and commercial hog production business in China through our operating
subsidiaries.




Our
animal nutrition business consists of the research and development, manufacture,
marketing and sale of premix, concentrate and complete feed for use in the
domestic animal husbandry markets almost exclusively for hog production in
China. Premix is an animal feed additive that is broadly used in commercial
animal production worldwide. We have been almost exclusively in the premix feed
business since 1995 and now operate five premix, concentrate and complete feed
manufacturing facilities located in the cities of Nanchang, Shandong, Shanghai,
Nanning, and Hainan. We are aggressively expanding our concentrate and complete
feed lines to meet the growing demand of commercial producers as they modernize
their production technology and focus on the requirements of the food safety
laws.




We
entered the hog breeding and production business in November 2007. In this
business, we mainly produce hogs for processing and sell breeding stock. We
currently have two breeder farms and 29 meat hog producing farms in the Jiangxi,
Shanghai, Hainan, Guangxi and Fujian provinces.




We have
developed a system of centralized raw material purchases, accounting and
internal control management, corporate marketing strategies and brand building.
We have created, and centrally manage, an animal disease control response team.
This team consists of experienced Chinese and international hog industry
professionals that are used by each of our subsidiaries across both of our lines
of business. Our increased size and economies of scale benefit us greatly in
both raw materials cost savings and administrative efforts.




We had
revenues of $173.20 million for the year ended December 31, 2009 compared to
revenues of $143.66 million for the year ended December 31, 2008. The increase
(20.6%) was the result of expanding market share in our feed business and the
hog farm acquisitions and expansions we made beginning in late 2007 and
throughout 2008.




Animal
Nutrition Business




We
manufacture, distribute, market and sell three main product lines - premix,
concentrate and complete feeds for use in all stages of a pig’s life. We conduct
these operations through our subsidiaries Nanchang Best, Shanghai Best, Guangxi
Huijie, Shandong Feed, and HopeJia. We also provide educational, technical and
veterinary support to our customer base




Our feed
operating companies operate manufacturing facilities in Nanchang, Shanghai,
Nanning, Shandong, and Hainan provinces, primarily serving the hog industry.
Each subsidiary independently conducts local marketing and sales efforts under
the direction of a central executive management team. Nanchang Best and Guangxi
Huijie are primarily responsible for our ongoing research and development
efforts and share their expertise in this area with all of our manufacturing
operations.




During
2009, we added 282 independent owned feed distribution chain stores now totaling
1,302 that sell our products exclusively. During the year we added 120
commercial farms now totaling 780. 75% of China’s total annual hog production is
supplied by backyard and small farms that raise less than 100 hogs per year per
family. Through our network of distributors and direct sales, we are able to
market our premix feed to the producers of more than 65% of China’s annual hog
production.




38


We are
one of a handful of companies that received “Green Certification” from the
Minister of Agriculture of PRC for our premix products under the brand label
“BEST.” This means that these products are safe, environmentally friendly, and
can effectively promote the healthy growth of pigs. According to current
government regulations, pork cannot be accredited by the government as “green”
unless it is produced using government certified green feed. Having our feed
certified as green requires us to adhere to strict operational controls and
procedures. This green certification laid the foundation for our hog farms to
produce hogs providing high quality “Green” pork products. It is also an
incentive for other commercial hog farms to enter into sales contracts with our
feed operations.




We invest
capital in research and development to maintain and improve on a superior
quality product while experimenting with environmentally sensitive premix
formulas. We will continue to invest up to 1% of our revenues to increasing our
long-term profitability and competitiveness.




Revenue
increased to $63.65 million in 2009 from $51.75 million in 2008 fully
recognizing sales from the feed division to the hog division. This is driven by
our aggressive expansion into concentrate and complete feed lines.




According
to the Access Asia Limited 2008 market analysis in their study titled “Fresh
& Processed Meat in China 2009,” food preferences are changing rapidly in
China. Chinese people now eat much more meat than previously. But there is also
a growing diversity in the average diet. The fresh meat market is expected to
grow over 23% from 2009 to 2013. This market value is estimated to be over $70.0
billion by 2013. Pork will continue to be 62.5% of all fresh meat sold. Poultry,
lamb, veal, mutton and beef will constitute 36% of the growth. In view of this
we decided to explore the expansion and funding to serve the animal nutrition
products needed for this growing market.




Hog
Production Business




In our
hog production business, we have grown our business through strategic
acquisitions of current producing commercial hog farms and organic growth. We
own two breeder hog farms and 29 meat producing hog farms located in Jiangxi,
Shanghai, Hainan, Guangxi, and Fujian provinces, which are strategically located
in or near the largest pork consumption areas in the PRC.




We
entered the hog farming business on November 9, 2007 as a result of our
acquisition of ninety percent (90%) of the capital stock of Lushan. Lushan owns
and operates a breeder hog farm in Jiangxi Province. Lushan is a mid-scale hog
farm engaged in the business of raising, breeding and selling hogs in the PRC
for use in the pork production market in the PRC. In 2008, we acquired at least
a majority interest in 29 meat hog producing farms in the Jiangxi, Shanghai,
Hainan, Guangxi, and Fujian provinces through our subsidiaries - Nanchang Best,
Shanghai Best, Guangxi Huijie and Best Swine. Our meat hog producing farms
generate revenue primarily from the sale of meat hogs to processors. Our meat
hogs are sold primarily in Jiangxi, Shanghai, Hainan, Guangxi, Fujian, Guangdong
and other neighboring provinces. In November 2009, we opened our first
"Western-model" farm in the city of Da Hua, Guangxi Province. In December 2009
we began stocking a second breeder farm in the city of Gangda, Guangxi Province.
We also completed the construction of a nucleus farm in the city of Wuning,
Jiangxi Province in November 2009. This farm will be developed and operated by
Hypor AgFeed Breeding.




Our
breeder farms generate revenue primarily from the sale of breeder hogs to
commercial hog farms and, to a lesser extent, the sale of meat hogs to hog
slaughterhouses. They also generate revenue by providing consulting services to
hog farmers in the areas of feed production, feed formulation and veterinary
services. Our customers include large-scale hog farms, mid-scale hog farms and
small-scale farms. Our breeder hogs are sold throughout the PRC, primarily in
southeastern China.




39


Capital
spending for 2009 consisted of approximately $4.9 million on building
renovations and $2.61 million on equipment purchases and environmental
expenditures. Our current capital spending plans over the next two years include
an estimated $4.2 million for bio security, $4.0 million for environmental
compliance and projects and $8.3 million for genetics programs. In 2009, we sold
approximately 681,000 head with an average selling price of $161 per head at an
average weight of 87.9kg (193 lbs.) as compared to sales of 410,000 hogs with an
average selling price of $219 per head for 2008 at an average weight of 92.5kg
(218.2 lbs.), a difference of $25.00 less per hog this year.




On April
15, 2009 we formed a strategic alliance with Hypor. The alliance has four
phases: (1) upgrading the genetic base of our existing herds; (2) creating a sow
farrow-to-finish nucleus facility (Wuning Farms) to supply superior breeding
stock to be utilized in our production systems and for sale to outside
commercial hog farms; (3) establishing high health, top quality genetics to the
farms being developed by AgFeed International Protein; and (4) developing gene
transfer centers to maximize the use of the top performing boars in China across
AgFeed's production system. On December 17, 2009, we formed Hypor AgFeed
Breeding Company with Hypor to develop, operate and market a genetic nucleus
farm in Wuning, China. Hypor AgFeed Breeding is owned 85% by us and 15% by
Hypor.




On July
13, 2009, we formed AgFeed International Protein with M2P2, a joint venture
focused on enhancing hog production systems for Chinese and other Pan Asian
clients based on modern western standards to increase productivity and ensure
the highest bio-security health standards in the Pan Asian hog industry. The
joint venture was formed to take advantage of the commercialization and
consolidation of the hog industry being fostered by the Chinese central and
local governments. We are AgFeed International Protein's first client. We own
65% of AgFeed International Protein, certain affiliates own an additional 15.1%
and M2P2 owns the remaining 19.9%. On November 9, 2009, construction began on of
our first large western model farm in Da Hua, China (Jiangxi Province). This is
the first of six farms that will be constructed in South China that will house
an additional 20,000 genetically superior sows and 400 boars. When fully
operational, we anticipate that these farms will produce 500,000 pigs per year.
It is anticipated that the cost to build the six farms will be approximately $50
million over the next two years. AgFeed International Protein has completed all
phases of design and blueprints for these farms and has been working with
international and local construction firms to ensure success.




Our
current strategic plan calls for development of a platform for the production
and sale of approximately 2.5 million hogs into the Chinese market between 2009
and the end of 2011. The key element to this future growth is scientific
breeding, which is underscored by our arrangement with Hypor. In April 2009 we
began this by stocking the 1,200 sow farrow-to-finish Lushan Breeding Farm with
the Hypor Large White Pureline Sows, the Hypor Landrace Pureline Boars and the
Duroc Terminal Sire. In November 2009, we began stocking our second breeder
farm, Gangda Farm, with like genetics




Our
investment plans also include modernization of our existing pork production
facilities, investment in reporting and cash management systems and the training
of our employees, and the development of enhanced environmental and health
safety programs including upgraded bio security measures. These actions are part
of our effort to improve on the standards of the new China Food Safety Law that
was implemented on June 1, 2009 and to ensure the production of consistently
high quality, safe pork.




According
to the China Feed Industry Association, China has the world's largest and most
profitable market for hog production, which processed 625 million hogs in 2009,
compared to approximately 100 million in the US. More than 1.2 billion Chinese
consume pork as their primary source of meat. 62% of all meat consumed in China
is pork. Chinese consumers consume more pork each year than the rest of the
world combined. China’s pork consumption is forecast to increase to 47.0 million
metric tons in 2010 up from 44.9 million metric tons in 2008, an increase of
about 5%. Projected pork demand by 2015 is estimated to approach 68.0 million
metric tons, an increase of 51%




The
Chinese government supports hog producers with favorable tax status and
subsidies, insurance, vaccines, caps on feed costs and land use grants. Hog
production is exempt from all taxes and sow owners receive government grants and
subsidies. The Food Safety Law, which went into effect on June 1, 2009, provides
a legal basis for the government to strengthen food safety control “from the
production line to the dining table.”




40


The
importance the PRC puts on hog production is exemplified by the adoption of new
policies and enactment of new laws benefiting hog producers. In January 2008,
the Chinese central government instituted a set of measures that could prevent
large declines in hog prices with the view of stabilizing hog production and hog
prices in order to protect the interest of hog farms. In July 2008, the NDRC
announced that they were channeling $5.6 billion RMB for livestock farm
construction and another $2.8 billion RMB to support live pig
production.




Critical
Accounting Policies




In presenting our financial statements in conformity with
accounting principles generally accepted in the United States, we are required
to make certain estimates and assumptions that affect the amounts reported
therein.  Several of the estimates and assumptions we are required to
make relate to matters that are inherently uncertain as they pertain to future
events.  However, events that are outside of our control cannot be
predicted and, as such, they cannot be contemplated in evaluating such estimates
and assumptions.  If there is a significant unfavorable change to
current conditions, it will likely result in a material adverse impact to our
consolidated results of operations, financial position and liquidity. We believe
that the estimates and assumptions we used when preparing our financial
statements were the most appropriate at that time.  Presented below
are those accounting policies that we believe require subjective and complex
judgments that could potentially affect reported results.




Use of
Estimates.  Our discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial
statements, which were 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.




Areas
that require estimates and assumptions include valuation of accounts receivable
and inventory, determination of useful lives of property and equipment,
estimation of certain liabilities and sales returns.




Allowance
For Doubtful Accounts.  We continually monitor customer
payments and maintain a reserve for estimated losses resulting from our
customers’ inability to make required payments. In determining the reserve, we
evaluate the collectability of our accounts receivable based upon a variety of
factors. In cases where we become aware of circumstances that may impair a
specific customer’s ability to meet its financial obligations, we record a
specific allowance against amounts due. For all other customers, we recognize
allowances for doubtful accounts based on our historical write-off experience in
conjunction with the length of time the receivables are past due, customer
credit worthiness, geographic risk and the current business environment. Actual
future losses from uncollectible accounts may differ from our estimates.





Inventories.  Inventories
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method. We evaluate our ending inventories for estimated
excess quantities and obsolescence. Our evaluation includes the analysis of
future sales demand by product, within specific time horizons. Inventories in
excess of projected future demand are written down to net realizable value. In
addition, we assess the impact of changing technology on inventory balances and
writes-down inventories that are considered obsolete. Inventory obsolescence and
excess quantities have historically been minimal.




41


Long-Lived
Assets. We periodically assess potential impairments to our long-lived
assets in accordance with the provisions of SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires, among other
things, that an entity perform an impairment review whenever events or changes
in circumstances indicate that the carrying value may not be fully recoverable.
Factors we considered include, but are not limited to: significant
underperformance relative to expected historical or projected future operating
results; significant changes in the manner of use of the acquired assets or the
strategy for our overall business; and significant negative industry or economic
trends. When we determine that the carrying value of a long-lived asset may not
be recoverable based upon the existence of one or more of the above indicators
of impairment, we estimate the future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition. If the sum of the
expected future undiscounted cash flows and eventual disposition is less than
the carrying amount of the asset, we recognize an impairment loss. An impairment
loss is reflected as the amount by which the carrying amount of the asset
exceeds the fair market value of the asset, based on the fair market value if
available, or discounted cash flows. To date, there has been no impairment of
long-lived assets.




Property
and Equipment. Useful lives of property and equipment is based on
historical experience and industry norms. Changes in useful lives due to changes
in technology or other factors can affect future depreciation
estimates.




Revenue
Recognition. Our revenue recognition policies are in compliance with SEC
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
AgFeed exist and collectability 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 make
estimates and judgments when determining whether the collectability of revenue
from customers is reasonably assured. Management estimates regarding
collectability impact the actual revenues recognized each period and the timing
of the recognition of revenues. Our assumptions and judgments regarding future
collectability could differ from actual events, thus materially impacting our
financial position and results of operations.




Sales
returns and allowances have historically been
insignificant.  Accordingly, estimating returns is not
critical.  However, if circumstances change, returns and allowance may
impact the company’s earnings. There are no differences in our arrangements with
our different types of customers.  Accordingly, we do not have
different revenue recognition policies for different types of
customers.   We offer credit terms ranging from 30 to 90 days for
most customers.  From some large customers, we may extend these terms
beyond 90 days.





Recent
Accounting Pronouncements




On July
1, 2009, we adopted Accounting Standards Update (“ASU”) No. 2009-01, “Topic
105 - Generally Accepted Accounting Principles - amendments based on Statement
of Financial Accounting Standards No. 168, “The FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting Principles”
(“ASU No. 2009-01”).  ASU No. 2009-01 re-defines authoritative GAAP
for nongovernmental entities to be only comprised of the FASB Accounting
Standards CodificationTM (“Codification”) and, for SEC registrants, guidance
issued by the SEC.  The Codification is a reorganization and
compilation of all then-existing authoritative GAAP for nongovernmental
entities, except for guidance issued by the SEC.  The Codification is
amended to effect non-SEC changes to authoritative GAAP.  Adoption of
ASU No. 2009-01 only changed the referencing convention of GAAP in Notes to
the Consolidated Financial Statements.




42


In
October 2009, the FASB issued an ASU regarding accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other financing.
This ASU requires that at the date of issuance of the shares in a share-lending
arrangement entered into in contemplation of a convertible debt offering or
other financing, the shares issued shall be measured at fair value and be
recognized as an issuance cost, with an offset to additional paid-in capital.
Further, loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the loaned
shares would be included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning on or after
December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. We are
currently evaluating the impact of this ASU on our consolidated financial
statements.




On
December 15, 2009, the FASB issued ASU No. 2010-06 Fair Value Measurements and
Disclosures Topic 820 “Improving Disclosures about Fair Value
Measurements”.  This ASU requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial
reporting.  The adoption of this ASU will not have a material impact
on our consolidated financial statements





Results
of Operations




Comparison
of Years Ended December 31, 2009 and December 31, 2008




Years
      Ended December 31,
                    
                    
                    $
                    
                    
                    %2009
                    
                    
                    2008
                    
                    
                    Change
                    
                    
                    ChangeRevenues
                    
                    $
                    173,203,271
                    
                    
                    $
                    143,661,485
                    
                    
                    $
                    29,541,786
                    
                    
                    
                    20.56Cost
      of goods sold
                    
                    
                    146,568,116
                    
                    
                    
                    109,224,565
                    
                    
                    
                    37,343,551
                    
                    
                    
                    34.19Gross
      profit
                    
                    
                    26,635,155
                    
                    
                    
                    34,436,920
                    
                    
                    
                    (7,801,765
                    )
                    
                    
                    (22.66
                    )Operating
      expenses
                    
                    
                    14,043,067
                    
                    
                    
                    9,695,989
                    
                    
                    
                    4,347,078
                    
                    
                    
                    44.83Interest
      and financing costs
                    
                    
                    1,022,626
                    
                    
                    
                    5,704,358
                    
                    
                    
                    (4,681,732
                    )
                    
                    
                    (82.07
                    )Net
      income
                    
                    
                    10,348,366
                    
                    
                    
                    16,948,815
                    
                    
                    
                    (6,600,449
                    )
                    
                    
                    (38.94
                    )




Revenues.The increase was
due to volume sales of both hogs and animal feed products. Hog sales of 681,000
for year ended December 31, 2009 exceeded total hog sales of 410,000 hogs for
the year ended December 31, 2008. Animal feed sales volume for year ended
December 31, 2009 exceeded 117,000 metric tons representing a 56% increase in
volume over the comparative period of 2008. However, the increase in revenue
described above was offset by lower sales prices, an increase in ingredient
costs, consumer reaction to the H1N1A scare and the country wide
drought.




Cost of Goods Sold. We
experienced increases in the unit cost of goods sold for our two business lines
during the year ended December 31, 2009 compared to the same period in 2008.
These raw materials constitute approximately 60 - 75% of our raw material costs.
Corn and soybean meal cost rose 0.2% and 4%, respectively, versus the year ended
December 31, 2008. China has implemented programs to mitigate additional price
increases in order to stabilize these markets.




In order
to provide excellent customer service and differentiate ourselves from our
competition, at our customers’ request, we supply them with customized
formulations of our products. In any given month, the cost of various additives
used in our production fluctuates, which can result in temporary increases in
the unit cost of goods sold. These increased costs offset our increases in
revenues. Even though this may have an adverse effect on our short term profits,
we take the long-term view that this practice results in increased customer
loyalty, builds the AgFeed brand and will ultimately lead to increased sales and
gross profits. In addition, we are presently experiencing more stable pricing in
these additives, which we anticipate will stabilize our cost of goods
sold.




43


Gross Profit.Gross margins
decreased to 15.4% from 24.0% during the year ended December 31, 2009 as
compared to the same period in 2008. The decrease in gross margin can be
attributed to the increase in the cost of hog feed that began in the last half
of 2008 and continued into 2009 and a reduction in the selling price for our
hogs. The increase in the cost of hog feed was offset somewhat by actions taken
in the first quarter of 2009, including expansion of our product distribution
channels, and our entry into long-term contracts for key product ingredients
which locked in favorable cost savings.




Selling, General and Administrative
Expenses. Selling, general and administrative expense includes overhead
expenses such as rent, management and staff salaries, general insurance,
marketing, accounting, legal and offices expenses. Our selling expenses for the
year ended December 31, 2009 were only slightly less than the corresponding
period in 2008. General and administrative expenses for our feed segment
increased by approximately $301,000 or approximately 14% from the corresponding
period in 2008 principally due to the overall expansion of our feed business and
the increase of our allowance for doubtful accounts. Our corporate expenses also
increased by approximately $1,315,000 due to higher professional fees. General
and administrative expenses for our hog farms for the year ended December 31,
2009 increased by approximately $2,739,000 for 108% over the corresponding
period in 2008 to due to more hog farms being in operations in
2009.




Interest and Financing Costs.
We incurred interest and financing costs of $1.02 million and $5.70 million
during the year ended December 31, 2009 and 2008, respectively, principally as a
result of the issuance of $19 million principal amount of convertible notes
issued during February 2008. During the year ended December 31, 2009 and 2008,
$2.8 million and $15.2 million, respectively, of the convertible notes were
converted into shares of common stock which resulted in accelerated amortization
of the debt discounts and debt issue costs associated with the convertible
debt.




Due to
appreciation in RMB against the USD in 2008, we incurred a loss on foreign
translation of $0.56 million during the year ended December 31, 2008, as we
could not timely convert USD deposits into RMB as a result of bank policies and
banking rules in the PRC. This was a one time, non-recurring charge. Foreign
currency translation losses in 2009 were not significant




Income Taxes.Hog production
is an income tax exempt sector in China and sow owners receive government grants
and subsidies. Some of our feed manufacturing companies benefit from exemption
from value-added tax.




Net Income. The decrease in
our net income was due to the increase in cost of goods sold and higher
operating expenses. We continued to benefit from the tax-exempt status for our
hog production business. The higher sales and the benefits from economies of
scale in our business resulting in a modest increase in operating efficiency was
offset by higher cost of sales and a charge to earnings to reflect the increase
in our derivative liability. We continued to benefit from the tax-exempt status
for our hog production business.




44


Comparison
of Years Ended December 31, 2008 and December 31, 2007





Years Ended December 31,
                  
                  
                  $
                  
                  
                  %2008
                  
                  
                  2007
                  
                  
                  Change
                  
                  
                  ChangeRevenues
                  
                  $
                  143,661,485
                  
                  
                  $
                  36,163,339
                  
                  
                  $
                  107,498,146
                  
                  
                  
                  297.26Cost
      of goods sold
                  
                  
                  109,224,565
                  
                  
                  
                  25,763,479
                  
                  
                  
                  83,461,086
                  
                  
                  
                  323.95Gross
      profit
                  
                  
                  34,436,920
                  
                  
                  
                  10,399,860
                  
                  
                  
                  24,037,060
                  
                  
                  
                  231.13Operating
      expenses
                  
                  
                  9,695,989
                  
                  
                  
                  4,079,089
                  
                  
                  
                  5,616,900
                  
                  
                  
                  137.70Interest
      and financing costs
                  
                  
                  5,704,358
                  
                  
                  
                  153,723
                  
                  
                  
                  5,550,635
                  
                  
                  
                  3,610.80Net
      income
                  
                  
                  16,948,815
                  
                  
                  
                  6,662,895
                  
                  
                  
                  10,285,920
                  
                  
                  
                  154.38





Revenues.Compared to the
same period in 2007, the increase in revenues was due to an increase in the
volume of feed products that we sold and the acquisition of our hog farms. The
increase in feed product sales was a result of expanding our distribution
channels by the opening of additional exclusive distribution stores for our
products. We experienced favorable market conditions that increased the demand
for our feed products. A stronger “AgFeed” brand name allowed us to successfully
increase our price twice in the second quarter of 2008. Due to softening in the
market for hog prices, we experienced a decrease in the selling price for our
hogs during the second half of 2008. However, as a result of economies of scale,
we were able to cut hog production cost through centralized raw materials
purchases, sales and marketing channels, and finance and internal control
management.




Cost of Goods Sold . We
experienced increases in the unit cost of goods sold for our two business lines
during the year ended December 31, 2008 compared to the same period in 2007. The
cost of goods sold included costs in both premix feed and hog production. These
raw materials constitute approximately 60 - 75% of our raw material costs.




Gross Profit.Gross margins
decreased to 23.97% from 28.76% during the year ended December 31, 2008 as
compared to the same period last year. The decrease in gross margin can be
attributed to the increase in the cost of hog feed during the 2008 last two
quarters, and a substantial general sell-off of swine inventory resulting in
falling prices after the 2008 Olympics ended. This was modified somewhat by
actions taken in the first half of 2008, including expansion of our product
distribution channels, and our entry into long-term contracts for key product
ingredients which locked in favorable cost savings.




Selling, General and Administrative
Expenses. General and administrative expense includes overhead expenses
such as rent, management and staff salaries, general insurance, marketing,
accounting, legal and offices expenses. The increase in our selling, general and
administrative expense also reflects the addition of our new subsidiaries, which
had a total of approximately $9.7 million in selling, general and administrative
expenses during 2008. Selling expenses for the period increased by 46.32% due to
costs associated with the aggressive expansion into markets in neighboring
provinces, and the costs associated with the absorption of our new subsidiaries.




Interest and Financing Costs.
We incurred interest and financing costs of approximately $5.7 million during
2008, principally as a result of the issuance of $19 million principal amount of
convertible notes issued during February 2008. $15.2 million of the convertible
notes were converted into shares of common stock, resulting in the non-recurring
accelerated amortization of the debt issuance costs and debts discounts
amounting to approximately $5.8 million.




Due to
foreign exchange appreciation in RMB against the USD, we incurred a one-time,
non-recurring loss on foreign translation of $559,299 during 2008, as it is
hard to timely convert USD deposits into RMB to implement these procedures
due to SAFE regulations.


45





Hog
production is an income tax exempt sector in China and sow owners receive
government grants and subsidies. Our feed manufacturing companies benefit from
exemption from value-added tax.




Net Income. The increase in
our net income was due to higher sales and the benefits from economies of scale
in our business resulting in a modest increase in operating efficiency. This was
offset by one time, non-operational related charges and interest expenses
associated with the conversion of a portion of the $19 million of convertible
notes by investors during 2008. We continued to benefit from the tax exempt
status for our hog production business.




Off-Balance Sheet
Arrangements




There
were no off-balance sheet arrangements during the year ended December 31, 2009
that have, or are reasonably likely to have, a current or future effect on our
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to our
interests.




Liquidity
and Capital Resources




At
December 31, 2009, we had $36.6 million in cash and cash equivalents on
hand.




During first quarter of 2008, we completed two
financings.  We received aggregate gross proceeds of $22 million
through the sale of 2,444,448 shares of common stock at $9 per
share.  We received aggregate proceeds of $19 million through the
issuance of three year convertible notes bearing interest at 7% and convertible
into common stock at $10 per share.  In connection with the
convertible notes, we issued 380,000 warrants which are exercisable immediately
and have a $10 strike price.  The exercise price on the warrants was
subsequently reduced to $5 per share.  We paid offering costs of
$3,432,670 related to the sale of shares and $1,716,666 related to the issuance
of the convertible notes.




On April
16, 2008, we entered into a Securities Purchase Agreement with institutional
investors in connection with a registered direct offering of securities
providing for the issuance of 625,000 shares of our common stock at price
of $16.00 per share for aggregate gross proceeds of $10,000,000.  We
paid $703,472 in costs related to this offering.




On April
22, 2008, we entered into Securities Purchase Agreements with institutional
investors in connection with a registered direct offering of securities
providing for the issuance of 1,322,836 shares of the Company’s Common
Stock at $19.05 per share for aggregate gross proceeds of $25.2
million.  We paid $1,772,752 in costs related to this
offering.





On
December 29, 2008, we completed a financing and raised gross proceeds of $8.75
million through the sale to institutional investors of 5 million newly issued
common stock units at $1.75 per unit under an effective Form S-3 Registration
Statement. Each unit consists of one share of newly issued common stock and a
warrant to purchase 0.7 of a share of common stock for $2.50 a share, which is
exercisable over a five-year period.  We paid costs related to this
offering of $1,227,616.




From
October 6, 2008 through October 31, 2008, the Company repurchased 367,295 shares
of our common stock for $1,811,746. No additional shares have been
repurchased.




On May 8,
2009, we closed a private placement by issuing 2,329,645 shares of common stock
for gross proceeds of $10 million to certain institutional
investors.  We also issued 1,164,822 common stock purchase warrants to
the investors and 244,613 common stock purchase warrants to the placement agent
for the transaction.  The warrants are exercisable immediately have an
exercise price of $4.50 per share and expire on May 8, 2014. We paid costs
related to this offering of $1.1 million.





On
September 9, 2009, we entered into an Equity Credit Agreement with an
institutional investor, which was amended and restated as of November 9, 2009,
providing for, among other things, the issuance of shares of its common stock at
any time and from time to time during the next two years for gross proceeds of
up to $50,000,000. In connection with the closing of the transaction, we also
issued warrants to purchase an additional 400,000 shares of its common stock
during a five year period at an exercise price of $5.75 per
share.  This transaction closed on September 9, 2009.  No
shares have been issued under the terms of the Equity Credit
Agreement.




46


During
2009, certain warrant holders exercised 3,225,004 warrants that resulted in
gross proceeds of $8,062,510.




As of
December 31, 2009, we had short-term loans outstanding of $4,401,000. The loan
was entered into during the second quarter of 2009 and is due in May
2010.




During the year ended December 31, 2009, we generated $3,880,910
of cash from our operating activities. The cash generated was generated
primarily through the net income including noncontrolling interest, a decrease
in other receivables and an increase in accounts payable offset by an increase
in accounts receivable and inventory and a decrease in other
payables.




We used
approximately $10.0 million in investing activities during the year ended
December 31, 2009; of which $9.8 million was for the acquisition of property and
equipment. We also sold our interest in two subsidiaries for
$835,770.




We
generated $17.8 million in cash from financing activities as a result of the
sale of 2,329,645 shares of our common stock for gross proceeds of $10 million
and the exercise of 3,225,004 warrants for proceeds of $8.1
million.    We generated cash of $4.5 million from issued
short-term loans and used cash of $2.5 million was for the purchase of the
noncontrolling interest in four subsidiaries.




At
December 31, 2009, our accounts receivable balance was approximately $14.4
million, an increase of $4.9 million from December 31, 2008.




Our
principal demands for liquidity are to increase capacity, purchase raw
materials, distribute our products, consolidate our existing farm operations and
make strategic acquisitions or investments in our industry as opportunities
present themselves, as well as general corporate purposes.   We intend
to use the net proceeds from the latest PIPE for the development of our genetics
program and other growth initiatives. We may seek additional funds from the
capital markets to further support our genetics program to increase hog
production and profitability.  We expect our genetics program to be
accretive to earnings in the near future.





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.





The
majority of our revenues and expenses were denominated in RMB, the currency of
the PRC.  There is no assurance that exchange rates between the RMB
and the USD will remain stable.




Contractual
Obligations




No
contractual obligation occurred during the year ended December 31, 2009 and
therefore it is not expected to have any effect on our liquidity and cash flow
in future periods.




Inflation
and Seasonality




Demand
for our products remains fairly consistent throughout the year and we do not
believe our operations have been materially affected by inflation or
seasonality.




47


Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk.




Disclosures
About Market Risk




We may be
exposed to changes in financial market conditions in the normal course of
business.  Market risk generally represents the risk that losses may
occur as a result of movements in interest rates and equity
prices.  We currently do not use financial instruments in the normal
course of business that are subject to changes in financial market
conditions.




Currency
Fluctuations and Foreign Currency Risk




Substantially
all of our operations are conducted in the PRC, with the exception of our
limited export business and overseas purchases of raw materials.  Most
of our sales and purchases are conducted within the PRC in RMB, which is the
official currency of the PRC.  The effect of the fluctuations of
exchange rates is considered minimal to our business operations.




Substantially
all of our revenues and expenses are denominated in RMB.  However, we
use US dollars for financial reporting purposes.  Conversion of RMB
into foreign currencies is regulated by the People’s Bank of China through a
unified floating exchange rate system.  Exchange rate fluctuations may
adversely affect the value, in U.S. dollar terms, of our net assets and income
derived from its operations in the PRC.




Interest
Rate Risk




We have
interest rate risk related to the short-term notes entered into during the
quarter ended September 30, 2009; however, we do not believe this interest risk
is significant.




Credit
Risk




We have
not experienced significant credit risk, as most of our customers are long-term
customers with superior payment records.  Our receivables are
monitored regularly by our credit managers.




Item
8.  Financial Statements and Supplementary Data.




INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




PageReport
      of Independent Registered Public Accounting Firm
                F-1Consolidated
      Balance Sheet at December 31, 2009 and 2008
                F-2Consolidated
      Statements of Income and Other Comprehensive Income for the
      Years Ended December 31, 2009, 2008 and
2007
                F-3Consolidated
      Statement of Shareholders' Equity for the Years Ended
      December 31, 2009, 2008 and 2007
                F-4Consolidated
      Statements of Cash Flows for the Years Ended
      December 31, 2009, 2008 and 2007
                F-5Notes
      to Consolidated Financial Statements
                F-6 to F-29




Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.




None.




48


Item
9A. Controls and Procedures




Disclosure Controls and
Procedures.




Our
management, under the supervision and with the participation of our chief
executive officer and chief financial officer, has performed an evaluation of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this report, as required by Rule 13a-15(b) under the Exchange
Act. Disclosure controls and procedures are those controls and procedures
designed to provide reasonable assurance that the information required to be
disclosed in our Exchange Act filings is (1) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and (2)
accumulated and communicated to management, including our chief executive
officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosure. Based on that evaluation, our chief executive
officer and chief financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this Annual
Report on Form 10K.




Management’s
Report on Internal Control Over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act). Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles (“GAAP”). Internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and or the Board of Directors of AgFeed; and (3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of AgFeed’s assets that could have
a material effect on the interim or annual consolidated financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with policies or procedures may deteriorate.




Under the
supervision and with the participation of our chief executive officer and chief
financial officer, management conducted an evaluation of the effectiveness of
AgFeed’s internal control over financial reporting as of December 31, 2009,
using the criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.




Based on
this evaluation, our management concluded that our internal control over
financial reporting was effective and that there was no material weakness or
significant deficiency discovered as of December 31, 2009.




Management’s
evaluation of the effectiveness of AgFeed’s internal control over financial
reporting as of December 31, 2009 has been audited by Goldman Parks Kurland
Mohidin LLP, an independent registered public accounting firm, as stated in
their report included on page F-1.




49


Changes
in Internal Control Over Financial Reporting




There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Report that has materially affected, or is
reasonably likely to materially affect, our internal control over-financial
reporting.





Item
9B.  Other Information.




None.




50


PART
III




Item
10.  Directors, Executive Officers and Corporate
Governance.




The information required by this Item
is incorporated by reference to the information contained in our Proxy Statement
for our 2010 Annual Meeting of Shareholders, which we will file with the SEC
within 120 days after the end of 2009.




Item
11.  Executive Compensation.




The information required by this Item
is incorporated by reference to the information contained in our Proxy Statement
for our 2010 Annual Meeting of Shareholders, which we will file with the SEC
within 120 days after the end of 2009.




Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters.




The
information required by this Item is incorporated by reference to the
information contained in our Proxy Statement for our 2010 Annual Meeting of
Shareholders, which we will file with the SEC within 120 days after the end of
2009.




Item
13.  Certain Relationships and Related Transactions, and Director
Independence.




The information required by this Item
is incorporated by reference to the information contained in our Proxy Statement
for our 2010 Annual Meeting of Shareholders, which we will file with the SEC
within 120 days after the end of 2009.




Item
14.  Principal Accounting Fees and Services.




The information required by this Item
is incorporated by reference to the information contained in our Proxy Statement
for our 2010 Annual Meeting of Shareholders, which we will file with the SEC
within 120 days after the end of fiscal 2009.




PART
IV




Item
15.  Exhibit, Financial Statement Schedules.




(a)(1)
Financial Statements




See Item
8, "Financial Statements and Supplementary Data."




(a)(2)
Financial Statement Schedules




All
financial statement schedules for AgFeed and its subsidiaries have been included
in the consolidated financial statements or the related notes or they are either
inapplicable or not required.




(a)(3)
Exhibits




The
exhibits required by this item are set forth on the Exhibit Index attached
hereto.




51


AgFeed
Industries, Inc. and Subsidiaries


Consolidated
Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Contents





PageReport
      of Independent Registered Public Accounting Firm
                F-1Financial
      Statements:Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                F-2Consolidated
      Statements of Income and Other Comprehensive Income for the years ended
      December 31, 2009, 2008 and 2007
                F-3Consolidated
      Statement of Stockholders' Equity for the years ended December 31, 2009,
      2008 and 2007
                F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2009, 2008, and
      2007
                F-5Notes
      to Consolidated Financial Statements
                F-6
      to F-29







Report of Independent
Registered Public Accounting Firm





Board of
Directors and Stockholders of


AgFeed
Industries, Inc




We have
audited the accompanying consolidated balance sheets of AgFeed Industries, Inc.
and subsidiaries (Company) as of December 31, 2009 and 2008, and the related
consolidated statements of income and other comprehensive income, stockholders’
equity, and cash flows for the years ended December 31, 2009, 2008 and 2007. Our
audits of the basic consolidated financial statements included the financial
statement schedule listed in the Note 15 to the financial statements. We have
audited AgFeed Industries, Inc.’s internal control over financial reporting as
of December 31, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). AgFeed Industries, Inc.‘s management is
responsible for these financial statements, financial statement schedule, for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting.
Management’s Report on Internal Control is included in item 9A of AgFeed
Industries, Inc.’s Form 10-K for the year ended December 31, 2009. Our
responsibility is to express an opinion on these financial statements, financial
statement schedule and an opinion on the Company’s internal control over
financial reporting based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards required that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding on internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our audits.




A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




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, 2009, and 2008, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2009 , 2008 and 2007, in conformity with accounting
principles generally accepted in the United States of America. In our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).




F-1


Management
excluded certain newly acquired entities from its assessment of internal control
over financial reporting. These entities constitute 6% of total assets as of
December 31, 2009 and 0% and (7%) of revenue and net income, respectively, for
the year ended December 31, 2009. Our opinion on internal control over financial
reporting also excludes these entities.





Goldman
Parks Kurland Mohidin LLP


Encino,
California


March 3,
2010




F-2


AgFeed
Industries, Inc. and Subsidiaries


Consolidated
Balance Sheet


as
of December 31, 2009 and 2008




2009
                              
                              
                              2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                              
                              $
                              36,578,457
                              
                              
                              $
                              24,839,378Restricted
      cash
                              
                              
                              1,001,697
                              
                              
                              
                              -Accounts
      receivable, net of allowance for doubtful accounts of $415,765 and
      $520,413
                              
                              
                              14,397,793
                              
                              
                              
                              9,462,380Advances
      to suppliers
                              
                              
                              1,173,941
                              
                              
                              
                              518,829Other
      receivables
                              
                              
                              2,186,643
                              
                              
                              
                              2,066,030Inventory
                              
                              
                              23,835,412
                              
                              
                              
                              20,616,560Prepaid
      expenses
                              
                              
                              1,325,150
                              
                              
                              
                              1,166,646Debt
      issue costs
                              
                              
                              34,706
                              
                              
                              
                              246,223Total
      current assets
                              
                              
                              80,533,799
                              
                              
                              
                              58,916,046PROPERTY
      AND EQUIPMENT, net
                              
                              
                              26,991,851
                              
                              
                              
                              20,810,094CONSTRUCTION-IN-PROCESS
                              
                              
                              7,615,132
                              
                              
                              
                              10,853,389INTANGIBLE
      ASSETS
                              
                              
                              43,808,499
                              
                              
                              
                              43,833,705OTHER
      ASSETS
                              
                              
                              3,998,739
                              
                              
                              
                              2,641,902TOTAL
      ASSETS
                              
                              $
                              162,948,020
                              
                              
                              $
                              137,055,136LIABILITIES AND EQUITYCURRENT
      LIABILITIES:Short-term
      loan
                              
                              $
                              4,401,000
                              
                              
                              $
                              -Accounts
      payable
                              
                              
                              6,162,385
                              
                              
                              
                              5,214,596Other
      payables
                              
                              
                              1,892,858
                              
                              
                              
                              5,766,741Unearned
      revenue
                              
                              
                              582,266
                              
                              
                              
                              321,664Accrued
      expenses
                              
                              
                              83,649
                              
                              
                              
                              164,558Accrued
      payroll
                              
                              
                              975,485
                              
                              
                              
                              818,052Tax
      and welfare payable
                              
                              
                              396,370
                              
                              
                              
                              465,875Interest
      payable
                              
                              
                              120,419
                              
                              
                              
                              121,139Total
      current liabilities
                              
                              
                              14,614,432
                              
                              
                              
                              12,872,625CONVERTIBLE
      NOTES, net of debt discount of $81,675 and $579,444
                              
                              
                              918,325
                              
                              
                              
                              3,220,556TOTAL
      LIABILITIES
                              
                              
                              15,532,757
                              
                              
                              
                              16,093,181COMMITMENTS
      AND CONTINGENCIES (Note 11)
                              
                              
                              -
                              
                              
                              
                              -EQUITY:AgFeed
      stockholders' equity:Common
      stock, $0.001 per share; 75,000,000 shares authorized; 44,510,558 issued
      and 44,143,263 outstanding at December 31, 2009 38,300,436 issued and
      37,933,141 outstanding at December 31, 2008
                              
                              
                              44,511
                              
                              
                              
                              38,300Additional
      paid-in capital
                              
                              
                              109,281,086
                              
                              
                              
                              90,903,261Other
      comprehensive income
                              
                              
                              4,176,450
                              
                              
                              
                              4,167,217Statutory
      reserve
                              
                              
                              4,685,115
                              
                              
                              
                              3,236,054Treasury
      stock (367,295 shares)
                              
                              
                              (1,811,746
                              )
                              
                              
                              (1,811,746
                              )Retained
      earnings
                              
                              
                              31,210,563
                              
                              
                              
                              22,311,258Total
      AgFeed stockholders' equity
                              
                              
                              147,585,979
                              
                              
                              
                              118,844,344Noncontrolling
      interest (deficit)
                              
                              
                              (170,716
                              )
                              
                              
                              2,117,611Total
      equity
                              
                              
                              147,415,263
                              
                              
                              
                              120,961,955TOTAL LIABILITIES AND
      EQUITY $
                              
                              
                              162,948,020
                              
                              
                              $
                              137,055,136





The
accompanying notes are an integral part of these consolidated financial
statements.


F-3


AgFeed
Industries, Inc. and Subsidiaries


Consolidated
Statements of Income and Comprehensive Income


For
the Years Ended December 31, 2009, 2008 and 2007




2009
                      
                      
                      2008
                      
                      
                      2007Revenues
                      
                      $
                      173,203,271
                      
                      
                      $
                      143,661,485
                      
                      
                      $
                      36,163,339Cost
      of goods sold
                      
                      
                      146,568,116
                      
                      
                      
                      109,224,565
                      
                      
                      
                      25,763,479Gross
      profit
                      
                      
                      26,635,155
                      
                      
                      
                      34,436,920
                      
                      
                      
                      10,399,860Operating
      expensesSelling
      expenses
                      
                      
                      3,934,047
                      
                      
                      
                      3,941,247
                      
                      
                      
                      2,693,613General
      and administrative expenses
                      
                      
                      10,109,020
                      
                      
                      
                      5,754,742
                      
                      
                      
                      1,385,476Total
      operating expenses
                      
                      
                      14,043,067
                      
                      
                      
                      9,695,989
                      
                      
                      
                      4,079,089Income
      from operations
                      
                      
                      12,592,088
                      
                      
                      
                      24,740,931
                      
                      
                      
                      6,320,771Non-operating
      income (expense):Other
      expense
                      
                      
                      (442,635
                      )
                      
                      
                      (710,683
                      )
                      
                      
                      160,496Interest
      income
                      
                      
                      213,018
                      
                      
                      
                      190,965
                      
                      
                      
                      142,148Interest
      and financing costs
                      
                      
                      (1,022,626
                      )
                      
                      
                      (5,704,358
                      )
                      
                      
                      (153,723
                      )Foreign
      currency transaction loss
                      
                      
                      (17,943
                      )
                      
                      
                      (559,299
                      )
                      
                      
                      -Total
      non-operating income (expense)
                      
                      
                      (1,270,186
                      )
                      
                      
                      (6,783,375
                      )
                      
                      
                      148,921Income
      before provision for income taxes
                      
                      
                      11,321,902
                      
                      
                      
                      17,957,556
                      
                      
                      
                      6,469,692Provision
      (benefit) for income taxes
                      
                      
                      1,142,105
                      
                      
                      
                      587,222
                      
                      
                      
                      (193,203
                      )Net
      income including noncontrolling interest
                      
                      
                      10,179,797
                      
                      
                      
                      17,370,334
                      
                      
                      
                      6,662,895Less:
      Net income (loss) attributed to noncontrolling interest
                      
                      
                      (168,569
                      )
                      
                      
                      421,519
                      
                      
                      
                      -Net
      income attributed to AgFeed
                      
                      
                      10,348,366
                      
                      
                      
                      16,948,815
                      
                      
                      
                      6,662,895Other
      comprehensive incomeForeign
      currency translation gain (loss)
                      
                      
                      9,233
                      
                      
                      
                      3,386,310
                      
                      
                      
                      664,061Comprehensive
      Income
                      
                      $
                      10,357,599
                      
                      
                      $
                      20,335,125
                      
                      
                      $
                      7,326,956Weighted
      average shares outstanding :Basic
                      
                      
                      40,978,457
                      
                      
                      
                      31,557,742
                      
                      
                      
                      26,093,376Diluted
                      
                      
                      41,214,070
                      
                      
                      
                      31,713,977
                      
                      
                      
                      26,174,973Earnings
      per share attributed to AgFeed common stockholders:Basic
                      
                      $
                      0.25
                      
                      
                      $
                      0.54
                      
                      
                      $
                      0.26Diluted
                      
                      $
                      0.25
                      
                      
                      $
                      0.53
                      
                      
                      $
                      0.25





The
accompanying notes are an integral part of these consolidated financial
statements.


F-4


AgFeed
Industries, Inc. and Subsidiaries


Consolidated
Statement of Shareholders' Equity


For
The Years Ended December 31, 2009, 2008, and 2007




Other
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      TotalCommon Stock
                      
                      
                      Additional Paid
                      
                      
                      Comprehensive
                      
                      
                      Statutory
                      
                      
                      Treasury
                      
                      
                      Retained
                      
                      
                      Stockholders'Shares
                      
                      
                      Amount
                      
                      
                      in Capital
                      
                      
                      Income
                      
                      
                      Reserve
                      
                      
                      Stock
                      
                      
                      Earnings
                      
                      
                      EquityBalance
      December 31, 2006
                      
                      
                      24,000,003
                      
                      
                      $
                      24,000
                      
                      
                      $
                      1,299,379
                      
                      
                      $
                      116,846
                      
                      
                      $
                      271,115
                      
                      
                      $
                      -
                      
                      
                      $
                      1,664,487
                      
                      
                      $
                      3,375,827Issuance
      of common stock for cash
                      
                      
                      3,026,753
                      
                      
                      
                      3,027
                      
                      
                      
                      8,764,476
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      8,767,503Chinese
      government subsidy
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      16,451
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      16,451Stock
      compensation expense for options issued to employees
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      13,789
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      13,789Change
      in foreign currency translation gain
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      664,061
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      664,061Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      6,662,895
                      
                      
                      
                      6,662,895Transfer
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      481,110
                      
                      
                      
                      
                      
                      
                      
                      (481,110
                      )
                      
                      
                      -Balance
      December 31, 2007
                      
                      
                      27,026,756
                      
                      
                      
                      27,027
                      
                      
                      
                      10,094,095
                      
                      
                      
                      780,907
                      
                      
                      
                      752,225
                      
                      
                      
                      -
                      
                      
                      
                      7,846,272
                      
                      
                      
                      19,500,526Issuance
      of common stock for cash
                      
                      
                      9,392,290
                      
                      
                      
                      9,392
                      
                      
                      
                      65,940,677
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      65,950,069Payment
      of offering costs
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (7,030,261
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (7,030,261
                      )Value
      of warrants issued with convertible debt
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,269,442
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,269,442Beneficial
      conversion feature associated with convertible debt
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,770,443
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,770,443Cashless
      exercise of warrants (199,131 warrants exercised)
                      
                      
                      91,934
                      
                      
                      
                      92
                      
                      
                      
                      (92
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -Exercise
      of warrants for cash
                      
                      
                      269,456
                      
                      
                      
                      269
                      
                      
                      
                      2,138,579
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,138,848Conversion
      of convertible debentures
                      
                      
                      1,520,000
                      
                      
                      
                      1,520
                      
                      
                      
                      15,198,480
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      15,200,000Stock
      compensation expense for options issued to employees
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      231,368
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      231,368Value
      of re-priced warrants
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      22,782
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      22,782Value
      of change in conversion price of convertible notes
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      267,748
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      267,748Purchase
      of treasury shares (367,295 shares)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,811,746
                      )
                      
                      
                      
                      
                      
                      
                      (1,811,746
                      )Change
      in foreign currency translation gain
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3,386,310
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3,386,310Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      16,948,815
                      
                      
                      
                      16,948,815Transfer
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,483,829
                      
                      
                      
                      
                      
                      
                      
                      (2,483,829
                      )
                      
                      
                      -Balance
      December 31, 2008
                      
                      
                      38,300,436
                      
                      
                      
                      38,300
                      
                      
                      
                      90,903,261
                      
                      
                      
                      4,167,217
                      
                      
                      
                      3,236,054
                      
                      
                      
                      (1,811,746
                      )
                      
                      
                      22,311,258
                      
                      
                      
                      118,844,344Proceeds
      from the issuance of common stock
                      
                      
                      2,329,645
                      
                      
                      
                      2,330
                      
                      
                      
                      9,997,670
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      10,000,000Payment
      of offering costs
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,740,072
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,740,072
                      )Conversion
      of convertible debt to equity
                      
                      
                      560,000
                      
                      
                      
                      560
                      
                      
                      
                      2,799,440
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,800,000Stock
      compensation expense for options issued to employees
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      572,605
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      572,605Cashless
      exercise of warrants (300,000 warrants)
                      
                      
                      95,473
                      
                      
                      
                      96
                      
                      
                      
                      (96
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -Exercise
      of warrants
                      
                      
                      3,225,004
                      
                      
                      
                      3,225
                      
                      
                      
                      8,059,285
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      8,062,510Excess
      of cost over fair value of noncontrolling interests
    acquired
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,311,007
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,311,007
                      )Change
      in foreign currency translation gain
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      9,233
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      9,233Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      10,348,366
                      
                      
                      
                      10,348,366Transfer
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,449,061
                      
                      
                      
                      
                      
                      
                      
                      (1,449,061
                      )
                      
                      
                      -Balance,
      December 31, 2009
                      
                      
                      44,510,558
                      
                      
                      $
                      44,511
                      
                      
                      $
                      109,281,086
                      
                      
                      $
                      4,176,450
                      
                      
                      $
                      4,685,115
                      
                      
                      $
                      (1,811,746
                      )
                      
                      $
                      31,210,563
                      
                      
                      $
                      147,585,979




The
accompanying notes are an integral part of these consolidated financial
statements.


F-5


AgFeed
Industries, Inc.  and Subsidiaries


Consolidated
Statements of Cash Flows


For
The Years Ended December 31, 2008, 2007 and 2006




2009
                            
                            
                            2008
                            
                            
                            2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income including noncontrolling interest
                            
                            $
                            10,179,797
                            
                            
                            $
                            17,370,334
                            
                            
                            $
                            6,662,895Adjustments
      to reconcile net income including noncontrolling interest to net cash
      provided by operating activities:Depreciation
                            
                            
                            2,596,689
                            
                            
                            
                            1,580,843
                            
                            
                            
                            140,510Amortization
                            
                            
                            92,740
                            
                            
                            
                            86,543
                            
                            
                            
                            14,316Loss
      on disposal of assets
                            
                            
                            1,292,480
                            
                            
                            
                            17,248
                            
                            
                            
                            37,345Stock
      based compensation
                            
                            
                            572,605
                            
                            
                            
                            231,368
                            
                            
                            
                            13,789Value
      of re-priced warrants
                            
                            
                            -
                            
                            
                            
                            22,782
                            
                            
                            
                            -Value
      of change in conversion price of convertible notes
                            
                            
                            -
                            
                            
                            
                            267,748
                            
                            
                            
                            -Amortization
      of debt issuance costs
                            
                            
                            211,517
                            
                            
                            
                            1,470,443
                            
                            
                            
                            -Amortization
      of discount on convertible debt
                            
                            
                            497,769
                            
                            
                            
                            3,460,441
                            
                            
                            
                            -(Increase)
      / decrease in assets:Accounts
      receivable
                            
                            
                            (4,936,388
                            )
                            
                            
                            (2,324,978
                            )
                            
                            
                            (4,022,786
                            )Other
      receivables
                            
                            
                            (2,110,081
                            )
                            
                            
                            (5,464,327
                            )
                            
                            
                            (220,979
                            )Inventory
                            
                            
                            (3,592,137
                            )
                            
                            
                            (8,815,870
                            )
                            
                            
                            (915,874
                            )Due
      from related party
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            102,280Advances
      to suppliers
                            
                            
                            (679,134
                            )
                            
                            
                            (44,147
                            )
                            
                            
                            (345,646
                            )Prepaid
      expenses
                            
                            
                            (159,176
                            )
                            
                            
                            (499,047
                            )
                            
                            
                            (628,446
                            )Other
      assets
                            
                            
                            (1,356,005
                            )
                            
                            
                            (2,239,491
                            )
                            
                            
                            2,316Increase
      / (decrease) in current liabilities:Accounts
      payable
                            
                            
                            1,048,356
                            
                            
                            
                            3,300,773
                            
                            
                            
                            465,573Other
      payables
                            
                            
                            (44,890
                            )
                            
                            
                            8,509,638
                            
                            
                            
                            32,597Unearned
      revenue
                            
                            
                            260,441
                            
                            
                            
                            211,081
                            
                            
                            
                            4,791Accrued
      expenses
                            
                            
                            (80,828
                            )
                            
                            
                            119,325
                            
                            
                            
                            (77,717
                            )Accrued
      payroll
                            
                            
                            157,338
                            
                            
                            
                            626,587
                            
                            
                            
                            123,689Tax
      and welfare payable
                            
                            
                            (69,463
                            )
                            
                            
                            447,753
                            
                            
                            
                            (281,837
                            )Interest
      payable
                            
                            
                            (720
                            )
                            
                            
                            121,139
                            
                            
                            
                            -Net
      cash provided by operating activities
                            
                            
                            3,880,910
                            
                            
                            
                            18,456,186
                            
                            
                            
                            1,106,816CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property and equipment
                            
                            
                            (9,810,142
                            )
                            
                            
                            (10,696,569
                            )
                            
                            
                            (291,294
                            )Purchase
      of intangible assets
                            
                            
                            (67,551
                            )
                            
                            
                            (140,580
                            )
                            
                            
                            (264,196
                            )Purchase
      of subsidiaries
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (3,360,000
                            )Proceeds
      from the sale of subsidary
                            
                            
                            835,770
                            
                            
                            
                            -
                            
                            
                            
                            -Purchase
      of hog farms, net of cash acquired
                            
                            
                            -
                            
                            
                            
                            (67,490,049
                            )
                            
                            
                            -Cash
      acquired with acquisition
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            661,216Increase
      in restricted cash
                            
                            
                            (1,001,082
                            )
                            
                            
                            -
                            
                            
                            
                            -Net
      cash used in investing activities
                            
                            
                            (10,043,005
                            )
                            
                            
                            (78,327,198
                            )
                            
                            
                            (3,254,274
                            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the sale of common stock
                            
                            
                            10,000,000
                            
                            
                            
                            65,950,069
                            
                            
                            
                            9,830,259Offering
      costs paid
                            
                            
                            (1,740,072
                            )
                            
                            
                            (7,030,261
                            )
                            
                            
                            (1,062,756
                            )Proceeds
      from exercise of warrants
                            
                            
                            8,062,510
                            
                            
                            
                            2,138,848
                            
                            
                            
                            -Collection
      of subscription receivable
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            226,083Proceeds
      from notes payable
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            977,008Proceeds
      from short-term loans
                            
                            
                            4,541,500
                            
                            
                            
                            -
                            
                            
                            
                            -Proceeds
      from issuance of convertible notes
                            
                            
                            -
                            
                            
                            
                            19,000,000
                            
                            
                            
                            -Issuance
      costs for convertible notes
                            
                            
                            -
                            
                            
                            
                            (1,716,666
                            )
                            
                            
                            -Collection
      from related parties
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            950,707Repayment
      to shareholders
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (758,343
                            )Payment
      on note payable
                            
                            
                            -
                            
                            
                            
                            (1,161,297
                            )
                            
                            
                            (1,723,414
                            )Government
      subsidy received
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            16,451Purchase
      of treasury shares
                            
                            
                            -
                            
                            
                            
                            (1,811,746
                            )
                            
                            
                            -Capital
      contributed by noncontrolling interest holders
                            
                            
                            118,664
                            
                            
                            
                            1,097,690
                            
                            
                            
                            -Purchase
      of noncontrolling interest in majority owed hog farms
                            
                            
                            (2,518,089
                            )
                            
                            
                            -
                            
                            
                            
                            -Repayment
      of contribution of noncontrolling interest holder
                            
                            
                            (586,800
                            )
                            
                            
                            -
                            
                            
                            
                            -Net
      cash provided by financing activities
                            
                            
                            17,877,713
                            
                            
                            
                            76,466,637
                            
                            
                            
                            8,455,995Effect
      of exchange rate changes on cash and cash equivalents
                            
                            
                            23,461
                            
                            
                            
                            547,544
                            
                            
                            
                            183,572NET
      INCREASE IN CASH & CASH EQUIVALENTS
                            
                            
                            11,739,079
                            
                            
                            
                            17,143,169
                            
                            
                            
                            6,492,109CASH
      & CASH EQUIVALENTS, BEGINNING BALANCE
                            
                            
                            24,839,378
                            
                            
                            
                            7,696,209
                            
                            
                            
                            1,204,100CASH
      & CASH EQUIVALENTS, ENDING BALANCE
                            
                            $
                            36,578,457
                            
                            
                            $
                            24,839,378
                            
                            
                            $
                            7,696,209SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
                            
                            $
                            312,620
                            
                            
                            $
                            363,191
                            
                            
                            $
                            99,445Income
      taxes paid
                            
                            $
                            1,211,610
                            
                            
                            $
                            408,435
                            
                            
                            $
                            -





The
accompanying notes are an integral part of these consolidated financial
statements.


F-6





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Note 1 - Organization and Basis of Presentation





Organization and Lines of
Business





AgFeed
Industries, Inc. formerly known as Wallace Mountain Resources Corp.,
(hereinafter referred to as the “Company” or “AgFeed”) was incorporated in the
State of Nevada on March 30, 2005.





The
Company is engaged in the research and development, manufacturing, 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 production plants in Nanchang, Shanghai, Nanning, Shandong, and Hainan
provinces.  The Company sells to distributors and large-scale swine
farms.  The Company is also engaged in the business of raising,
breeding and selling hogs for use in China's pork production and hog breeding
markets through one breeder farm and 29 meat hog producing farms located in
Jiangxi, Shanghai, Hainan, Guangxi, and Fujian provinces.





Basis of
Presentation





The
accompanying consolidated financial statements include the accounts of AgFeed
Industries, Inc. and its wholly-owned and majority-owned subsidiaries.  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
(“US GAAP”). The Company’s functional currency is the Chinese Yuan Renminbi
(“RMB”); however the accompanying consolidated financial statements have been
translated and presented in United States Dollars ("USD").




Noncontrolling
Interest





In 2008,
the Company purchased interests in 29 producing hog farms and one feed
company ranging from 55% to 100% (The Company has subsequently purchased the
noncontrolling interest in certain of these hog farms).




Certain
amounts presented for prior periods previously designated as minority interest
have been reclassified to conform to the current year presentation. Effective
January 1, 2009, the Company adopted Financial Accounting Standards
(“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,”
which established new standards governing the accounting for and reporting of
noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and
the loss of control of subsidiaries. Certain provisions of this standard
indicate, among other things, that NCIs (previously referred to as minority
interests) be treated as a separate component of equity, not as a liability (as
was previously the case), that increases and decreases in the parent’s ownership
interest that leave control intact be treated as equity transactions rather than
as step acquisitions or dilution gains or losses, and that losses of a partially
owned consolidated subsidiary be allocated to the NCI even when such allocation
might result in a deficit balance. This standard also required changes to
certain presentation and disclosure requirements. The provisions of the standard
were applied to all NCIs prospectively, except for the presentation and
disclosure requirements, which were applied retrospectively to all periods
presented. As a result, upon adoption, the Company retroactively reclassified
the “Minority interest” balance previously included in the “Other liabilities”
section of the consolidated balance sheets to a new component of equity with
respect to NCIs in consolidated subsidiaries. The adoption also impacted certain
captions previously used on the consolidated statements of income and other
comprehensive income, largely identifying net income including NCI and net
income attributable to AgFeed.




The net
income (loss) attributed to the NCI has been separately designated in the
accompanying statements of income and other comprehensive income. Losses
attributable to the NCI in a subsidiary may exceed the NCI’s interests in the
subsidiary’s equity. The excess attributable to the NCI is attributed to those
interests. The NCI shall continue to be attributed its share of losses even if
that attribution results in a deficit NCI balance.




F-7





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Foreign Currency
Translation




The
accounts of the Company’s Chinese subsidiaries are maintained in the RMB and the
accounts of the U.S. parent company are maintained in the USD. The accounts of
the Chinese subsidiaries were translated into USD in accordance with Accounting
Standards Codification (“ASC”) Topic 830 “Foreign Currency Matters,” with the
RMB as the functional currency for the Chinese subsidiaries. According to Topic
830, all assets and liabilities were translated at the exchange rate on the
balance sheet date, stockholders’ equity is translated at historical rates and
statement of income items are translated at the weighted average exchange rate
for the period. The resulting translation adjustments are reported under other
comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.”
Gains and losses resulting from the translations of foreign currency
transactions and balances are reflected in the statements of
income.





Note
2 – Summary of Significant Accounting Policies





Use of
Estimates





The
preparation of financial statements in conformity with US GAAP 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 were reclassified to conform to the current 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.





Advances to
Suppliers





The
Company makes advances to certain vendors for purchases of material. The
advances to suppliers are interest free and unsecured.





Inventory





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. Costs of raised animals include proportionate costs of breeding,
including depreciation of the breeding herd, plus the costs of maintenance
through the balance sheet date. Purchased pigs are carried at purchase cost plus
costs of maintenance through the balance sheet date.




F-8


AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Inventory
consisted of the following at December 31, 2009 and 2008:





2009
                  
                  
                  2008Raw
      material
                  
                  $
                  7,638,999
                  
                  
                  $
                  5,625,122Work
      in process
                  
                  
                  84,494
                  
                  
                  
                  103,262Finished
      goods – feed
                  
                  
                  460,349
                  
                  
                  
                  575,064Finished
      goods - hogs
                  
                  
                  15,703,127
                  
                  
                  
                  14,325,42923,886,969
                  
                  
                  
                  20,628,877Less:
      reserve for obsolescence
                  
                  
                  (51,557
                  )
                  
                  
                  (12,317
                  )Total
                  
                  $
                  23,835,412
                  
                  
                  $
                  20,616,560





Property and
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
      yearsSwine
      for reproduction
              3.5 yearsBuildings
              20
      years





The
following are the details of property and equipment at December 31, 2009 and
2008:





2009
                    
                    
                    2008Office
      equipment
                    
                    $
                    525,991
                    
                    
                    $
                    433,157Operating
      equipment
                    
                    
                    4,655,298
                    
                    
                    
                    2,042,522Vehicles
                    
                    
                    871,058
                    
                    
                    
                    655,853Swines
      for reproduction
                    
                    
                    13,432,353
                    
                    
                    
                    13,137,425Buildings
                    
                    
                    11,659,693
                    
                    
                    
                    6,673,822Total
                    
                    
                    31,144,393
                    
                    
                    
                    22,942,779Less
      accumulated depreciation
                    
                    
                    (4,152,542
                    )
                    
                    
                    (2,132,685
                    )$
                    26,991,851
                    
                    
                    $
                    20,810,094





Construction-in-Process





Construction-in-process
consists of amounts expended for building construction. Once building
construction is completed, the cost accumulated in construction-in-process is
transferred to property and equipment.




F-9





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Long-Lived
Assets





The
Company applies the provisions of ASC Topic 360, “Property, Plant, and
Equipment,” which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. ASC 360 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 value of the long-lived assets. Loss on long-lived assets to be disposed of
is determined in a similar manner, except that fair values are reduced for the
cost of disposal. Based on its review, the Company believes that as of December
31, 2009 and 2008, there was no significant impairment of its long-lived
assets.





Intangible
Assets





The
following are the details of intangible assets at December 31, 2009 and
2008:





2009
                  
                  
                  2008Right
      to use land
                  
                  $
                  825,007
                  
                  
                  $
                  809,174Customer
      list
                  
                  
                  293,400
                  
                  
                  
                  293,400Computer
      software
                  
                  
                  159,894
                  
                  
                  
                  108,135Intangible
      related to hog farm acquisitions
                  
                  
                  42,744,247
                  
                  
                  
                  42,744,247Total
                  
                  
                  44,022,548
                  
                  
                  
                  43,954,956Less
      Accumulated amortization
                  
                  
                  (214,049
                  )
                  
                  
                  (121,251
                  )Intangibles,
      net
                  
                  $
                  43,808,499
                  
                  
                  $
                  43,833,705




Per the
People's Republic of China's (“PRC”) governmental regulations, the PRC
Government owns all land. The Company leases land per real estate contracts with
the government of the PRC for periods ranging from 30 years to 50 years.
Accordingly, the right to use land for these feed companies is amortized over 50
years or the lease term, if shorter, and the computer software is amortized over
three to nine years. For hog farms, the Company generally signed land leases
with original owners of the farms.




Revenue
Recognition




The
Company's revenue recognition policies are in compliance with SEC 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 collectability 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.




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, 2009, 2008 and 2007 were not significant.




Research and
Development




The
Company expenses its research and development costs as incurred. Research and
development costs for the years ended December 31, 2009, 2008 and 2007 were not
significant.




F-10





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Stock-Based
Compensation




The
Company records stock-based compensation in accordance with ASC Topic 718,
“Compensation – Stock Compensation.” ASC 718 requires companies to measure
compensation cost for stock-based employee compensation at fair value at the
grant date and recognize the expense over the employee’s requisite service
period. 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. There were 210,000 options outstanding as of
December 31, 2009.




Income
Taxes




The
Company accounts for income taxes in accordance with ASC Topic 740, “Income
Taxes.” ASC 740 requires a company to use the asset and liability method of
accounting for income taxes, whereby deferred tax assets are recognized for
deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion, or all of, the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.




Under ASC
740, a tax position is recognized as a benefit only if it is “more likely than
not” that the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the “more likely than not” test, no tax benefit is
recorded. The adoption had no effect on the Company’s consolidated financial
statements.




Foreign Currency
Transactions and Comprehensive Income




US GAAP
requires 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’s Chinese subsidiaries is the RMB. The unit of Renminbi
is in Yuan. Translation gains are classified as an item of other comprehensive
income in the stockholders’ equity section of the consolidated balance sheet.




Basic and Diluted Earnings
Per Share




Earnings
per share is calculated in accordance with the ASC Topic 260, “Earnings Per
Share.” Basic earnings per share is based upon the weighted average number of
common shares outstanding. Diluted earnings per share is based on the assumption
that all dilutive convertible shares and stock warrants were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, 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


.


The
following is a reconciliation of the number of shares (denominator) used in the
basic and diluted earnings per share computations for the years ended December
31, 2009, 2008 and 2007:





2009
                
                
                2008
                
                
                2007Per
                  Share
                
                
                
                
                
                Per
                  Share
                
                
                
                
                
                Per ShareShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Shares
                
                
                AmountBasic
      earnings per share
                
                
                40,978,457
                
                
                $
                0.25
                
                
                
                31,557,742
                
                
                $
                0.54
                
                
                $
                26,093,376
                
                
                $
                0.26Effect
      of dilutive stock options
                
                
                235,613
                
                
                
                -
                
                
                
                156,235
                
                
                
                (0.01
                )
                
                
                81,597
                
                
                
                (0.01
                )Diluted
      earnings per share
                
                
                41,214,070
                
                
                $
                0.25
                
                
                
                31,713,977
                
                
                $
                0.53
                
                
                $
                26,174,973
                
                
                $
                0.25




F-11





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Statement of Cash
Flows




In
accordance ASC Topic 230, “Statement of Cash Flows,” cash flows from the
Company’s operations are calculated based upon the local currencies using the
average translation rates. As a result, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not
necessarily agree with changes in the corresponding balances on the consolidated
balance sheets.





Segment
Reporting





ASC Topic
280, “Segment Report,” 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.  The Company determined it has two
reportable segments (See Note 10).  The Company had previously
reported its feed operations as three separate segments since the three
operations were located in different Provinces.  The Company has
determined that its feed operations should be reported as one
segment.





Fair Value of Financial
Instruments





For
certain of the Company’s financial instruments, including cash and cash
equivalents, restricted cash, accounts receivable, accounts payable, accrued
liabilities and short-term debt, the carrying amounts approximate their fair
values due to their short maturities. In addition, the Company has long-term
debt with financial institutions. The carrying amounts of the line of credit and
other long-term liabilities approximate their fair values based on current rates
of interest for instruments with similar characteristics.





ASC Topic 820, “Fair Value Measurements and Disclosures,”
requires disclosure of the fair value of financial instruments held by the
Company. ASC Topic 825, “Financial Instruments,” defines fair value, and
establishes a three-level valuation hierarchy for disclosures of fair value
measurement that enhances disclosure requirements for fair value
measures.  The carrying amounts reported in the consolidated balance
sheets for receivables and current liabilities each qualify as financial
instruments and are a reasonable estimate of their fair values because of the
short period of time between the origination of such instruments and their
expected realization and their current market rate of interest. The three levels
of valuation hierarchy are defined as follows:





·
            Level
      1 inputs to the valuation methodology are quoted prices for identical
      assets or liabilities in active
markets.





·
            Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.





·
            Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.




The
Company analyzes all financial instruments with features of both liabilities and
equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC
815.




F-12





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





As of
December 31, 2009, the Company did not identify any assets and liabilities that
are required to be presented on the balance sheet at fair value.




Joint Venture /
Alliance




On April
15, 2009 a strategic alliance was signed between the Company and Hypor, a
Hendrix Genetics company, to complement the Company’s growth strategy through
genetics. Hypor will provide top line breeding stock to the Company’s existing
base of breeding sows and gilts and will provide genetically superior animals to
a new to- be-constructed sows farrow-to-finish nucleus unit known as the Wuning
Farm. Hypor will join AgFeed International Protein (defined below) in
establishing a western style of production taking the role as a long-term
supplier of high health top quality genetics. This arrangement could lead to a
multi level joint venture serving the Pan Asian market.




On July
13, 2009, the Company formed a joint venture with M2P2, LLC, a leading U.S. hog
production and industry management consulting company. The new company, AgFeed
International Protein Technology Corp. (“AgFeed International Protein”) will
focus on enhancing hog production systems for Chinese and other Pan Asian
clients based on modern western standards to increase productivity and ensure
the highest bio-security health standards in the Pan Asian hog industry. AgFeed
International Protein was formed to take advantage of the coming
commercialization and consolidation of the hog industry being fostered by the
Chinese central and local governments. The Company will be the joint venture's
first client. AgFeed International Protein is owned 65.1% by the Company, 15% by
certain affiliates and 19.9% by M2P2.




Recent Accounting
Pronouncements




On July
1, 2009, the Company adopted Accounting Standards Update (“ASU”) No. 2009-01,
“Topic 105 - Generally Accepted Accounting Principles - amendments based on
Statement of Financial Accounting Standards No. 168, “The FASB Accounting
Standards CodificationTM and the Hierarchy of Generally Accepted Accounting
Principles” (“ASU No. 2009-01”). ASU No. 2009-01 re-defines authoritative GAAP
for nongovernmental entities to be only comprised of the FASB Accounting
Standards CodificationTM (“Codification”) and, for SEC registrants, guidance
issued by the SEC. The Codification is a reorganization and compilation of all
then-existing authoritative GAAP for nongovernmental entities, except for
guidance issued by the SEC. The Codification is amended to effect non-SEC
changes to authoritative GAAP. Adoption of ASU No. 2009-01 only changed the
referencing convention of GAAP in Notes to the Consolidated Financial
Statements.




In
October 2009, the FASB issued an Accounting Standards Update ("ASU") regarding
accounting for own-share lending arrangements in contemplation of convertible
debt issuance or other financing. This ASU requires that at the date of issuance
of the shares in a share-lending arrangement entered into in contemplation of a
convertible debt offering or other financing, the shares issued shall be
measured at fair value and be recognized as an issuance cost, with an offset to
additional paid-in capital. Further, loaned shares are excluded from basic and
diluted earnings per share unless default of the share-lending arrangement
occurs, at which time the loaned shares would be included in the basic and
diluted earnings-per-share calculation. This ASU is effective for fiscal years
beginning on or after December 15, 2009, and interim periods within those fiscal
years for arrangements outstanding as of the beginning of those fiscal years.
The Company is currently evaluating the impact of this ASU on its consolidated
financial statements.




On
December 15, 2009, the FASB issued ASU No. 2010-06 Fair Value Measurements and
Disclosures Topic 820 “Improving Disclosures about Fair Value
Measurements”.  This ASU requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial
reporting.  The adoption of this ASU will not have a material impact
on the Company’s consolidated financial statements.





F-13





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Note
3 – Convertible Notes and Warrants




On
February 25, 2008, the Company entered into a Securities Purchase Agreement with
Apollo Asia Opportunity Master Fund, L.P., Jabcap Multi-Strategy Master Fund
Limited, J-Invest Ltd., and Deutsche Bank AG London Branch (the “Investors”) in
connection with a private placement transaction providing for, among other
things, the issuance of senior convertible notes for aggregate gross proceeds of
$19 million (the “Notes”) and warrants to purchase up to an aggregate of 380,000
shares (the “Warrants”) of the Company’s $0.001 par value per share common
stock. The notes mature on the third anniversary of the issuance date, bear
interest at 7% per annum and are convertible into shares of the Company’s common
stock at an initial conversion price of $10.00 per share. The conversion price
is subject to a “weighted average ratchet” anti-dilution adjustment. The
conversion price is also subject to adjustment on a proportional basis, to the
extent that the Company’s audited net income for the fiscal years ending 2008
and 2009 is less than $30 million and $40 million, respectively; subject to a
per share floor price of $5.00. Due to the Company not generating $30 million
net income for the year ended December 31, 2008, the conversion price on the
convertible notes was reduced to $5.00. Due to the re-pricing of the conversion
price, the Company recorded financing cost of $267,748 during the year ended
December 31, 2008 which represents the difference between the fair value of the
conversion feature at a $5.00 conversion price and the original $10.00
conversion price. The fair value was determined by using the Black-Scholes
pricing model with the following assumptions: expected life of 2.2 years, a risk
free interest rate of 2.0%, a dividend yield of 0% and volatility of
102%.




The Notes
impose penalties on the Company for any failure to timely deliver any shares of
its common stock issuable upon conversion.




In
connection with the issuance of the Notes and the Warrants issued to the
Investors on February 25, 2008, the Company paid $1,716,666 in debt issuance
cost which is amortized over the life of the Notes. For the years ended December
31, 2009 and 2008, the Company amortized $211,517 and $1,470,443, respectively,
of the aforesaid issuance costs as interest and financing costs in the
accompanying consolidated statements of operations.




The Notes
contain certain limitations on conversion. For example, they provide no
conversion may be made if, after giving effect to the conversion, the Investor
would own in excess of 9.99% of the Company’s outstanding shares of common
stock. In addition, the Notes provide no conversion may be made if the
conversion would cause the Company to breach of its obligations under the rules
and regulations of the Nasdaq Global Market, unless the Company obtains
stockholder approval for such issuances as required by such rules and
regulations.




The
Warrants are immediately exercisable, expire on February 25, 2011 and entitle
their holders, in the aggregate, to purchase up to $3,800,000 worth of shares of
common stock at an initial exercise price of $10.00 per share.




The
exercise price of the Warrants is subject to a “weighted average ratchet”
anti-dilution adjustment. The exercise price is also subject to adjustment, on a
proportional basis, to the extent that the Company’s audited net income for the
fiscal years ending 2008 and 2009 is less than $30 million and $40 million,
respectively; subject to a per share floor price of $5.00. Due to the Company
not generating $30 million net income for the year ended December 31, 2008, the
exercise price on the Warrants was reduced to $5.00. Due to the re-pricing of
the exercise price, the Company recorded financing cost of $22,782 in 2008 which
represents the difference between the fair value of the $5.00 exercise price and
the original $10.00 exercise price. The fair value was determined by using the
Black-Scholes pricing model with the following assumptions: expected life of 2.2
years, a risk free interest rate of 2.0%, a dividend yield of 0% and volatility
of 102%.





The
Warrants contain certain limitations on exercise. For example, they provide that
no exercise may be made if, after giving effect to the exercise, the Investor
would own in excess of 9.99% of the Company’s outstanding shares of common
stock. In addition, the Warrants provide that no exercise may be made if it
would cause the Company to be in breach of its obligations under the rules and
regulations of the Nasdaq Global Market, unless the Company obtains stockholder
approval for such issuances as required by such rules and
regulations.




F-14


AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





The
Warrants granted to the Investor on February 25, 2008 and conversion feature in
the above Notes are not considered derivative instruments that need to be
bifurcated from the original security since the Warrants and the conversion
price of the Notes have a floor of $5.00, which means the Company can determine
the maximum shares that could be issued upon conversion. The Company determined
the fair value of the detachable warrants issued in connection with the Notes to
be $1,269,442, using the Black-Scholes option pricing model and the following
assumptions:  expected life of 1 year, a risk free interest rate
of 2.10%, a dividend yield of 0% and volatility of 70%. In addition,
the Company determined the value of the beneficial conversion feature to be
$2,770,442. The combined total discount for the Notes is $4,039,885 and is
being amortized over the term of the Notes. For the years ended December 31,
2009 and 2008, the Company amortized $497,769 and $3,460,411, respectively, of
the aforesaid discounts as interest and financing costs in the accompanying
consolidated statements of operations.





During
the years ended December 31, 2009 and 2008, $2,800,000 and $15,200,000,
respectively, of the Notes were converted into 560,000 and 1,520,000,
respectively, shares of common stock.





Note
4 – Short-Term Loan





Short
term loan at December 31, 2009 is as follows:





Short
      term bank loan payable to Shanghai Pudong Development Bank.  The
      loan accrues interest at 5.84% and is due May 24, 2010.  The
      loan is collateralized by buildings and land use rights.
                  
                  $
                  4,401,000$
                  4,401,000





Note
5 – Stockholders’ Equity





Treasury
Stock





During
the year ended December 31, 2008, the Company purchased 367,295 shares of its
common stock on the open market (treasury shares) for $1,811,746.  The
Company accounted for the purchase of these treasury shares using the cost
method.





2009
Transactions





On May 8,
2009, the Company closed a private placement offering by issuing 2,329,645
shares of common stock for gross proceeds of $10 million.  The Company
paid $1,103,835 in costs related to this offering which was offset against the
offering proceeds.  The Company also issued 1,164,822 common stock
purchase warrants to the investors and 244,613 common stock purchase warrants to
the placement agent.  The warrants are exercisable immediately; have
an exercise price of $4.50 per share and expire on May 8, 2014. The Company
determined the fair value of the 1,409,435 warrants issued in connection with
this private placement offering to be $4,379,181, using the Black-Scholes option
pricing model and the following assumptions:  expected life of 5
year, a risk free interest rate of 2.50%, a dividend yield of 0% and
volatility of 109%.  The value of the warrants was recorded
directly to additional paid in capital as these warrants were issued in
connection with the sale of the Company’s equity securities.





During
the year ended December 31, 2009, certain warrants holders exercised 300,000
warrants in connection with a cashless exercise provision in the warrant
agreement that resulted in the issuance of 95,473 shares of the Company’s common
stock.  In addition, during the year ended December 31, 2009, certain
warrant holders exercised 3,225,004 warrants that resulted in gross proceeds to
the Company of $8,062,510.


F-15





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





On
September 9, 2009, the Company entered into an Equity Credit Agreement with an
institutional investor, which was amended and restated as of November 9, 2009,
providing for, among other things, the issuance of shares of its common stock at
any time and from time to time during the next two years for gross proceeds of
up to $50,000,000. In connection with the closing of the transaction, the
Company also issued warrants to purchase an additional 400,000 shares of its
common stock during a five year period at an exercise price of $5.75 per share.
The fair value of these warrants of $1,594,338 was charged to additional paid in
capital as they were issued in connection with an equity instrument. The Company
determined the fair value of the warrants using the Black-Scholes option pricing
model and the following assumptions: expected life of 5 year, a risk free
interest rate of 2.25%, a dividend yield of 0% and volatility of 108%. This
transaction closed on September 9, 2009. No shares have been issued under the
terms of the Equity Credit Agreement.




2008
Transactions




In
February 2008, the Company entered into a Securities Purchase Agreement with
Focus Trading Investments Limited, Advantage Consultants Limited, and CD Capital
Investments, Ltd. In connection with a registered direct offering of securities
providing for the issuance of 2,444,448 shares of the Company’s common stock at
a price of $9.00 per share for aggregate gross proceeds of $22,000,032. The
Company paid commissions and expenses associated with this offering of
$3,432,670. The Common Stock for the registered offering was issued pursuant to
a prospectus supplement filed with the Commission on February 26, 2008, in
connection with a shelf takedown from the Company’s Registration Statement on
Form S-3 (File No. 333-144386) which was declared effective by the Commission on
January 11, 2008.




On April
16, 2008, the Company entered into a Securities Purchase Agreement with two
institutional investors in connection with a registered direct offering of
securities providing for the issuance of 625,000 shares of the Company’s Common
Stock at price of $16.00 per share for aggregate gross proceeds of $10,000,000.
The Common Stock for the registered offering was issued pursuant to a prospectus
supplement filed with the Commission on April 21, 2008, in connection with a
shelf takedown from the Company’s Registration Statement on Form S-3 (File No.
333-148386) which was declared effective by the Commission on January 11, 2008.
The closing under the Securities Purchase Agreement took place on April 21,
2008. The placement agent for this transaction was Rodman & Renshaw, LLC,
which received a fee of six percent (6%) of the gross proceeds, or $600,000. The
Securities Purchase Agreement contains representations, warranties, and
covenants of the Company and the Investors which are typical for transactions of
this type.




On April
22, 2008, the Company entered into Securities Purchase Agreements with a group
of 14 institutional investors in connection with a registered direct offering of
securities providing for the issuance of 1,322,836 shares of the Company’s
common stock at price of $19.05 per share for aggregate gross proceeds of
$25,200,026. The Common Stock for the registered offering was issued pursuant to
a prospectus supplement filed with the Commission on April 24, 2008, in
connection with a shelf takedown from the Company’s Registration Statement on
Form S-3 (File No. 333-148386) which was declared effective by the Commission on
January 11, 2008. The closing under the Securities Purchase Agreements took
place on April 24, 2008. The placement agent for the sale of 797,901 shares of
Common Stock at an aggregate purchase price of $15,200,014 was Rodman &
Renshaw, LLC, which received a fee of $638,401 (4.2% of the gross proceeds).
Additionally, the Company paid a finder’s fee of $350,000 to Advantage
Consultants Limited in connection with the offering.




F-16





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





On
December 28, 2008, the Company entered into Securities Purchase Agreements with
four institutional investors in connection with a registered direct offering of
securities providing for the issuance of 5,000,006 units (the "Units"), each
consisting of one share of the Company’s common stock, par value $0.001 and a
warrant to purchase seven-tenths of one share of common stock at a purchase
price of $1.75 per unit for aggregate gross proceeds of $8,750,010. The
securities for the registered offering were issued pursuant to a prospectus
supplement filed with the Securities and Exchange Commission on December 31,
2008, in connection with a shelf takedown from the Company’s Registration
Statement on Form S-3 (File No. 333-144386) which was declared effective by the
Commission on January 11, 2008. The closing under the Securities Purchase
Agreement took place on December 31, 2008. The placement agent for this
transaction was Rodman & Renshaw, LLC, which received a cash fee of six
percent (6%) of the gross proceeds, or $525,000, and warrants to purchase up to
300,000 shares of the Company's Common Stock. The warrants issued to Rodman
& Renshaw, LLC have the same terms and are subject to the same limitations
as the Warrants. The Warrants are exercisable in whole or in part beginning on
June 30, 2009 and remain exercisable until June 30, 2014. The exercise price of
the Warrants is $2.50 per share of the Company's common stock, subject to
adjustment in certain circumstances, including merger, consolidation, sale of
subsidiaries or significant assets, or recapitalization as set forth in the
Warrant.




During
the year ended December 31, 2008 the Company issued 91,934 shares upon the
cashless exercise of 197,500 warrants. In addition, the Company received
proceeds of $2,138,848 upon the exercise of 269,456 warrants.




2007
Transactions




On
February 6, 2007, the Company’s Board of Directors approved the sale of
2,750,000 units in a private placement offering. Each unit consisted 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 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 was 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 were not registered under the
Securities Act, or any state securities laws, and until so registered, could 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. In connection with the above mentioned
private placement offering, the Company paid commissions and fees totaling
$276,335.




On April
6, 2007, the Company sold an additional 712,753 units for $3.00 per unit for
total proceeds of $2,138,259. Each unit represents one share of the Company’s
common stock and a three year common stock purchase warrant 8% coverage or
(57,020 warrants). 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 and a finder. 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 were not registered under the Securities Act, or any state
securities laws, and unless so registered, could 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.




On April
29, 2007, the Company sold an additional 564,000 units for $3.00 per unit for
total proceeds of $1,692,000. Each unit represents one share of the Company’s
common stock and a three year common stock purchase warrant 8% coverage or
45,120 warrants). 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 and a finder. 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 were not registered under the Securities Act, or any state
securities laws, and unless so registered, could 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-17





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





The value
of the 364,280 warrants mentioned above of $664,717 was determined using the
Black-Scholes pricing model with the following assumptions: discount rate -
5.0%; dividend yield - 0%; expected volatility - 50% and term of 3 years. The
recording of the value of these warrants had no impact in the financial
statements as the entry was to debit and credit additional paid in capital for
the value of the warrants.




On June
22, 2007, the Company completed a private placement offering of units pursuant
to which it sold 750,000 units at an offering price of $4.00 per unit for
aggregate gross proceeds of $3,000,000. Each unit consisted of one share of
common stock and a warrant to purchase 25% of one share of common stock
(187,500). The warrants are exercisable for a period of three years at an
exercise price of $5.60 per share. The Company compensated Four Tong
Investments, Ltd. for assisting it in the sale of securities in this private
placement offering by (i) paying them $240,000, plus (ii) issuing them warrants
to purchase 60,000 shares of its common stock on the same terms and conditions
as the warrants granted in the offering.




The value
of the 247,500 warrants mentioned above of $546,511 was determined using the
Black-Scholes pricing model with the following assumptions: discount rate -
5.0%; dividend yield - 0%; expected volatility - 50% and term of 3 years. The
recording of the value of these warrants had no impact in the financial
statements as the entry was to debit and credit additional paid in capital for
the value of the warrants.




In
connection with the private placement, the Company gave the investors
registration rights whereby the Company was obligated to file a registration
statement within 60 days of the final closing of the offering or be subject to
non-registration penalties equal to 2% per month. The Company has filed the
registration statement within 60 days of the closing and does not expect to
incur any non-registration penalties. In addition, there were penalties if the
registration statement was not effective within 180 days. The registration
statement was declared effective by the Securities and Exchange Commission on
October 25, 2007.




During
the year ended December 31, 2007, one of the Company’s subsidiaries received a
$16,451 subsidy from the Chinese government which has been recorded directly to
additional paid in capital.





Note
6 – Employee Common Welfare





The total
expense for the employee common welfare was $768,963, $207,709 and $62,431 for
the years ended December 31, 2009, 2008 and 2007, respectively.  The
Company has recorded welfare payable of $1,940 and $3,336 at December 31, 2009
and 2008, respectively, which is included in tax and welfare payable in the
accompanying consolidated balance sheet.  The Chinese government
abolished the 14% welfare plan policy at the beginning of 2007.  The
Company is not required to establish welfare and common welfare reserves. The
balance of welfare payable is remaining amount due under the welfare plan
provided for prior to 2007.





Note
7 – Statutory Common Welfare Fund





As
stipulated by the Company Law of the 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;




F-18


AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





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.





The
Company appropriated $1,449,061, $2,483,829 and $481,110 as reserve for the
statutory surplus reserve and welfare fund for the years ended December 31,
2009, 2008 and 2007, respectively.





Note
8 – Stock Options and Warrants





Stock
Options





Following
is a summary of stock option activity:





Options
                    outstanding
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Weighted
                    average
                    remaining
                    contractual life
                  
                  
                  Aggregate
                    Intrinsic ValueOutstanding, December 31,
      2006
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  $
                  -Granted
                  
                  
                  42,000
                  
                  
                  $
                  7.00Forfeited
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  
                  -Outstanding,
      December 31, 2007
                  
                  
                  42,000
                  
                  
                  $
                  7.00
                  
                  
                  
                  4.62
                  
                  
                  $
                  80,620Granted
                  
                  
                  185,000
                  
                  
                  $
                  9.32Forfeited
                  
                  
                  (47,000
                  )
                  
                  $
                  7.43Exercised
                  
                  
                  -
                  
                  
                  
                  -Outstanding,
      December 31, 2008
                  
                  
                  180,000
                  
                  
                  $
                  9.27
                  
                  
                  
                  4.65
                  
                  
                  $
                  -Granted
                  
                  
                  30,000
                  
                  
                  
                  3.30Forfeited
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  
                  -Outstanding,
      December 31, 2009
                  
                  
                  210,000
                  
                  
                  $
                  8.42
                  
                  
                  
                  3.74
                  
                  
                  $
                  51,000Exercisable,
      December 31, 2009
                  
                  
                  53,332
                  
                  
                  $
                  9.20
                  
                  
                  
                  3.53
                  
                  
                  $
                  -





The assumptions used in
calculating the fair value of options granted using the Black-Scholes option-
pricing model for options granted during the years ended December 31, 2009, 2008
and 2007 are as follows:





2009
                  
                  
                  2008
                  
                  
                  2007Risk-free
      interest rate
                  
                  
                  2.5
                  %
                  
                  
                  3.0
                  %
                  
                  
                  5.0
                  %Expected
      life of the options
                  
                  5 years
                  
                  
                  5 years
                  
                  
                  5 yearsExpected
      volatility
                  
                  
                  109
                  %
                  
                  
                  76
                  %
                  
                  
                  34
                  %Expected
      dividend yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %
                  
                  
                  0
                  %




F-19


AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





The
exercise price for options outstanding at December 31, 2009 is as
follows:





Number of
                              Options
                            
                            Exercise
                              Price30,000
                            
                            $
                            3.3020,000
                            
                            $
                            8.85160,000
                            
                            $
                            9.32210,000





For
options granted during the year ended December 31, 2008 where the
exercise price equaled the stock price at the date of the grant, the
weighted-average fair value of such options was $5.81 and the
weighted-average exercise price of such options was $9.32.  No
options were granted during the year ended December 31, 2008, where
the exercise price was less than the stock price at the date of the grant or the
exercise price was greater than the stock price at the date of
grant.





For
options granted during the year ended December 31, 2009 where the exercise
price equaled the stock price at the date of the grant, the weighted-average
fair value of such options was $2.61 and the weighted-average exercise
price of such options was $3.30.  No options were granted
during the year ended December 31, 2009, where the exercise price was less
than the stock price at the date of the grant or the exercise price was greater
than the stock price at the date of grant.  At December 31, 2009, the
unamortized compensation costs related to nonvested options amounted to
$328,083, which will be expensed through the second quarter of
2012.





Warrants





Following
is a summary of the warrant activity:





Outstanding,
      December 31, 2006
                  
                  
                  -Granted
                  
                  
                  611,787Forfeited
                  
                  
                  -Exercised
                  
                  
                  -Outstanding,
      December 31, 2007
                  
                  
                  611,787Granted
                  
                  
                  4,180,004Forfeited
                  
                  
                  -Exercised
                  
                  
                  (468,587
                  )Outstanding,
      December 31, 2008
                  
                  
                  4,323,204Granted
                  
                  
                  1,809,435Forfeited
                  
                  
                  -Exercised
                  
                  
                  (3,525,004
                  )Outstanding,
      December 31, 2009
                  
                  
                  2,607,635




All of
the warrants outstanding at December 31, 2009 are fully vested.


The
exercise price for warrants outstanding at December 31, 2009 is as
follows:





Number of
                              Warrants
                            
                            Exercise
                              Price575,000
                            
                            $
                            2.501,409,435
                            
                            $
                            4.503,200
                            
                            $
                            5.00400,000
                            
                            $
                            5.75220,000
                            
                            $
                            10.002,607,635





F-20


AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Note
9 – Taxes





Local PRC
Income Tax





Pursuant
to the tax laws of China, general enterprises are subject to income tax at an
effective rate of 25%.





On June
5, 2007, Shanghai Best received a tax exemption certificate from the local tax
bureau and is exempt from income tax from January 1, 2007 to December 31, 2008,
followed by a reduced tax rate of 15% for the next three years.





Hog
production is an income tax exempt sector in China and sow owners receive
government grants and subsidies.





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 years
ended December 31:





2009
                    
                    
                    2008
                    
                    
                    2007Tax
      provision at statutory rate
                    
                    
                    34
                    %
                    
                    
                    34
                    %
                    
                    
                    34
                    %Foreign
      tax rate difference
                    
                    
                    (9
                    )%
                    
                    
                    (9
                    )%
                    
                    
                    (1
                    )%US
      NOL for which no benefit isrealized
                    
                    
                    2
                    %
                    
                    
                    1
                    %
                    
                    
                    -Effective
      of tax holiday/tax exemption
                    
                    
                    (17
                    )%
                    
                    
                    (23
                    )%
                    
                    
                    (36
                    )%10
                    %
                    
                    
                    3
                    %
                    
                    
                    (3
                    )%





The
effect of the change of tax status was recorded in accordance with ASC Topic
740-10, 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 the local tax authorities would not have waived
past taxes had it not been for the change in the Company’s subsidiary’s tax
status.





If the
Company had not been exempt from paying income taxes, income tax expense for the
years ended December 31, 2009, 2008 and 2007 would have been approximately
$3,463,000, $4,384,000 and $2,255,000 and earnings per share would have been
reduced by $0.06, $0.12 and $0.09, respectively.





Foreign
pretax earnings approximated $15,000,000, $24,200,000 and $6,800,000 for the
years ended December 31, 2009, 2008 and 2007, respectively. Pretax earnings of a
foreign subsidiary are subject to U.S. taxation when effectively repatriated.
The Company provides income taxes on the undistributed earnings of non-U.S.
subsidiaries except to the extent that such earnings are indefinitely invested
outside the United States. At December 31, 2009, approximately $42,100,000 of
accumulated undistributed earnings of non-U.S. subsidiaries was indefinitely
invested. At the existing U.S. federal income tax rate, additional taxes of
$3,800,000 would have to be provided if such earnings were remitted
currently.





Note 10 – Segment
Information





The
Company’s predominant businesses are the research and development, manufacture,
marketing, distribution, and sale of pre-mix, concentrates and complete feeds
and feed additives primarily for use in China’s domestic pork husbandry market
and the raising, breeding, and selling of pigs.  The Company operates
in two segments:  animal feed nutrition and hog
production.




F-21





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





The
Company’s feed company in Shanghai is located in the Qingcun Town, Fengxian
district, Shanghai and sells its products to approximately 660 customers,
consisting of 432 distributors and 228 large scale pig farms. Its feed company
in Guangxi is located in Coastal Industrial Park, Liangqin district, Nanning
city, Guangxi Province and sells its products to approximately 699 customers,
consisting of 478 distributors and 221 large scale pig farms. Its feed company
in Nanchang is located in Chang Bei District Industrial Park, in Nanchang,
Jiangxi province and sells its products to approximately 705 customers,
consisting of 490 distributors and 215 large scale pig farms. The hog farms are
engaged mainly in raising, breeding, and sale of pigs all over the country and
are located in the PRC provinces of Jiangxi, Shanghai, Hainan, Guangxi and
Fujian.




The following tables summarize
segment information for the years ended December 31, 2009, 2008 and 2007:





Years
      Ended December 31,2009
                      
                      
                      2008
                      
                      
                      2007Revenues
      from unrelated entitiesAnimal
      feed nutrition
                      
                      $
                      63,647,643
                      
                      
                      $
                      51,745,344
                      
                      
                      $
                      36,074,793Hog
      production
                      
                      
                      109,555,628
                      
                      
                      
                      91,916,141
                      
                      
                      
                      88,546$
                      173,203,271
                      
                      
                      $
                      143,661,485
                      
                      
                      $
                      36,163,339Intersegment
      revenuesAnimal
      feed nutrition
                      
                      $
                      14,376,100
                      
                      
                      $
                      8,174,546
                      
                      
                      $
                      2,280,320Hog
      production
                      
                      
                      729,713
                      
                      
                      
                      1,518,230
                      
                      
                      
                      -$
                      15,105,813
                      
                      
                      $
                      9,692,776
                      
                      
                      $
                      2,280,320Total
      RevenuesAnimal
      feed nutrition
                      
                      $
                      78,023,743
                      
                      
                      $
                      59,919,890
                      
                      
                      $
                      38,355,113Hog
      production
                      
                      
                      110,285,341
                      
                      
                      
                      93,434,371
                      
                      
                      
                      88,546Less
      Intersegment revenues
                      
                      
                      (15,105,813
                      )
                      
                      
                      (9,692,776
                      )
                      
                      
                      (2,280,320
                      )$
                      173,203,271
                      
                      
                      $
                      143,661,485
                      
                      
                      $
                      36,163,339Income
      from operationsAnimal
      feed nutrition
                      
                      $
                      7,996,936
                      
                      
                      $
                      7,780,477
                      
                      
                      $
                      6,769,846Hog
      production
                      
                      
                      6,991,019
                      
                      
                      
                      18,041,498
                      
                      
                      
                      847Holding
      Company
                      
                      
                      (2,395,867
                      )
                      
                      
                      (1,081,044
                      )
                      
                      
                      (449,922
                      )$
                      12,592,088
                      
                      
                      $
                      24,740,931
                      
                      
                      $
                      6,320,771Interest
      incomeAnimal
      feed nutrition
                      
                      $
                      57,414
                      
                      
                      $
                      90,986
                      
                      
                      $
                      26,470Hog
      production
                      
                      
                      30,053
                      
                      
                      
                      20,405
                      
                      
                      
                      56Holding
      Company
                      
                      
                      125,551
                      
                      
                      
                      79,574
                      
                      
                      
                      115,622$
                      213,018
                      
                      
                      $
                      190,965
                      
                      
                      $
                      142,148Interest
      and financing costsAnimal
      feed nutrition
                      
                      $
                      92,666
                      
                      
                      $
                      39,861
                      
                      
                      $
                      94,675Hog
      production
                      
                      
                      88,394
                      
                      
                      
                      22
                      
                      
                      
                      28,468Holding
      Company
                      
                      
                      841,566
                      
                      
                      
                      5,664,475
                      
                      
                      
                      30,580$
                      1,022,626
                      
                      
                      $
                      5,704,358
                      
                      
                      $
                      153,723Income
      tax expense (benefit)Animal
      feed nutrition
                      
                      $
                      1,142,105
                      
                      
                      $
                      587,222
                      
                      
                      $
                      (193,203
                      )Hog
      production
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Holding
      Company
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -$
                      1,142,105
                      
                      
                      $
                      587,222
                      
                      
                      $
                      (193,203
                      )Net
      IncomeAnimal
      feed nutrition
                      
                      $
                      7,079,391
                      
                      
                      $
                      6,690,248
                      
                      
                      $
                      7,055,690Hog
      production
                      
                      
                      6,380,687
                      
                      
                      
                      16,923,585
                      
                      
                      
                      (27,915
                      )Holding
      Company
                      
                      
                      (3,111,712
                      )
                      
                      
                      (6,664,018
                      )
                      
                      
                      (364,880
                      )$
                      10,348,366
                      
                      
                      $
                      16,949,815
                      
                      
                      $
                      6,662,895Provision
      for depreciationAnimal
      feed nutrition
                      
                      $
                      345,342
                      
                      
                      $
                      121,813
                      
                      
                      $
                      127,690Hog
      production
                      
                      
                      2,251,347
                      
                      
                      
                      1,459,030
                      
                      
                      
                      12,820$
                      2,596,689
                      
                      
                      $
                      1,580,843
                      
                      
                      $
                      140,510




F-22





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





As
      of December 31,2009
                                                                  
                                                                  
                                                                  2008Total
      assetsAnimal
      feed nutrition
                                                                  
                                                                  $
                                                                  38,142,821
                                                                  
                                                                  
                                                                  $
                                                                  31,076,964Hog
      production
                                                                  
                                                                  
                                                                  110,718,199
                                                                  
                                                                  
                                                                  
                                                                  96,454,117Holding
      Company
                                                                  
                                                                  
                                                                  14,087,000
                                                                  
                                                                  
                                                                  
                                                                  9,524,055$
                                                                  162,948,020
                                                                  
                                                                  
                                                                  $
                                                                  137,055,136Intangible
      assetsAnimal
      feed nutrition
                                                                  
                                                                  $
                                                                  3,419,141
                                                                  
                                                                  
                                                                  $
                                                                  3,444,740Hog
      production
                                                                  
                                                                  
                                                                  40,389,358
                                                                  
                                                                  
                                                                  
                                                                  40,388,965Holding
      Company
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -$
                                                                  43,808,499
                                                                  
                                                                  
                                                                  $
                                                                  43,833,705





Note
11 – Commitments and Contingencies





At
December 31, 2009, the Company had commitments to expend approximately
$3,600,000 in connection to building construction currently in
process.




The
Company leases certain office space, hog facilities and equipment under
operating leases.
 
 Future
minimum lease payments under non-cancelable operating leases with initial or
remaining terms of one year or more are as follows:
  Operating
      LeasesYear
      ending December 31,2010
                    
                    $
                    3,202,1232011
                    
                    
                    4,162,2202012
                    
                    
                    3,177,9502013
                    
                    
                    3,288,5062014
                    
                    
                    3,315,470Thereafter
                    
                    
                    21,296,550$
                    38,442,819
  The
Company incurred rent expense of $3,180,984, $3,108,764 and $2,113 for the years
ended December 31, 2009, 2008 and 2007, respectively.




F-23





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Note
12 – Acquisition and Dispositions




During
the year ended December 31, 2009, the Company purchased the non-controlling
interest of 30% and 45% in two hog farms for $370,026 and $896,348,
respectively. As a result of the purchase of the non-controlling interest, the
excess of the purchase price over the carrying value of the non-controlling
interest of $159,249 and $263,291, respectively, was recorded against additional
paid in capital. Also, the Company purchased the non-controlling interest of 40%
and 40% in two hog farms for $987,655 and $264,060, respectively. As a result of
the purchase of the non-controlling interest, the excess of the purchase price
over the carrying value of the non-controlling interest of $639,754 and
$248,713, respectively was recorded against additional paid in capital. In
addition, the Company sold its 70% interest in a subsidiary for $307,650 and
recognized a gain on disposition of $9,965. This subsidiary had not commenced
operations. The Company also sold its 60% interest in a subsidiary for $528,120
and recognized a gain on disposition of $54,382.




Purchases of Hog
Farms




On
January 3, 2008, the Company acquired 70% of the issued and outstanding capital
stock of Wannian Xiandai Animal Husbandry Limited Liability Co., a PRC company
located in Jiangxi Province. The aggregate purchase price was 12,250,000 RMB,
equivalent to $1,666,666 based on the exchange rate at the time of the
acquisition. Under the terms of the transaction documents, the master lease
position for the facilities remains with the shareholders of the selling party
and the Company will lease the underlying facilities under a 10-year lease
agreement. The lease agreement calls for semi-annual rent payments totaling
900,000 RMB (approximately $122,450) per year in exchange for use of the
facilities.




On
January 3, 2008, the Company acquired 70% of the issued and outstanding capital
stock of Jiangxi Huyun Livestock Co., Ltd., a PRC company located in Jiangxi
Province. The aggregate purchase price was 6,482,000 RMB, equivalent to $881,905
based on the exchange rate at the time of the acquisition. Under the terms of
the transaction documents, the master lease position for the facilities remains
with the shareholders of the selling party and the Company will lease the
underlying facilities under a 10-year lease agreement. The lease agreement calls
for semi-annual rent payments totaling 900,000 RMB (approximately $122,450) for
the first year and 450,000 RMB (approximately $61,225) for every 10,000 hogs
sold beginning in the second year and thereafter in exchange for use of the
facilities.




On
January 4, 2008, the Company acquired 60% of the issued and outstanding capital
stock of Ganzhou Green Animal Husbandry Development Co., Ltd., a PRC company
located in Jiangxi Province. The aggregate purchase price was 6,480,000 RMB,
equivalent to $881,633 based on the exchange rate at the time of the
acquisition. Under the terms of the transaction, the master lease position for
the facilities remains with the shareholders of the selling party and the
Company will lease the underlying facilities under a 10-year lease agreement.
The lease agreement calls for semi-annual rent payments totaling 700,000 RMB
(approximately $97,000) per year in exchange for use of the
facilities.




On
January 7, 2008, the Company acquired 100% of the hogs and stock of Gang Feng
Animal Husbandry Co., Ltd., a PRC company located in Jiangxi Province. The
aggregate purchase price was 4,820,000 RMB, equivalent to $655,782 based on the
exchange rate at the time of the acquisition, Under the terms of the
transaction, the master lease position for the facilities remains with the
shareholders of the selling party and the Company will lease the underlying
facilities under a 6.5-year lease agreement. The lease agreement calls for
semi-annual rent payments totaling 450,000 RMB (approximately $61,225) per year
in exchange for use of the facilities.




On
January 9, 2008, the Company acquired 55% of the issued and outstanding capital
stock of Yichun Tianpeng Domestic Livestock Farm, Ltd., a PRC company located in
Jiangxi Province. The aggregate purchase price was 8,855,000 RMB, equivalent to
$1,204,761 based on the exchange rate at the time of the acquisition. Under the
terms of the transaction, the master lease position for the facilities remains
with the shareholders of the selling party and the Company will lease the
underlying facilities under a 10-year lease agreement. The lease agreement calls
for semi-annual rent payments totaling 800,000 RMB (approximately $108,844) per
year in exchange for use of the facilities.


F-24





AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007




In April
2008, the Company acquired all of the equity interest, as well as the inventory
of hogs, feed and veterinary drugs, in the Guangxi Nanning Wanghua Hog Farm,
located in Guangxi Province, PRC from Fan Xianfang and Wu Yuhua for a purchase
price of RMB26,030,000 ($3,722,300 based on the exchange rate at the time of the
acquisition). Guangxi Nanning Wanghua Hog Farm has annual hog production
capability of 36,000 hogs.




In April
2008, the Company acquired all of the equity interest, together with all of
their assets, including existing rights for land use, pig houses, office
buildings, power and water supply facilities, existing inventory of hogs, feed
and veterinary drugs, in the Guangxi Guigang Gangda Hog Farm, located in Guangxi
Province, PRC for a purchase price of RMB14,520,000 ($2,076,400 based on the
exchange rate at the time of the acquisition). Guangxi Guigang Gangda Hog Farm
has annual hog production capability of approximately 12,000 hogs.




In April
2008, the Company acquired all of the equity interest, together with all of
their assets, including existing rights for land use, pig houses, office
buildings, power and water supply facilities, existing inventory of hogs, feed
and veterinary drugs, in the Guangxi Xingye Guihong Hog Farm, located in Guangxi
Province, PRC, for a purchase price of RMB42,500,000 ($6,077,500 based on the
exchange rate at the time of the acquisition). Guangxi Xinye Guihong Hog Farm
has annual hog production capability of approximately 50,000 hogs.




In April
2008, the Company acquired all of the equity interest, together with all of
their assets, including existing rights for land use, pig houses, office
buildings, power and water supply facilities, existing inventory of hogs, feed
and veterinary drugs, in the Hainan Haikou Meilan Hog Farm, located in Hainan
Province, PRC, for a purchase price of RMB14,700,000 ($2,102,100 based on the
exchange rate at the time of the acquisition). Hainan Haikou Meilan Hog Farm has
annual hog production capability of approximately 21,500 hogs.




In April
2008, the Company acquired all of the equity interest, together with all of
their assets, including existing rights for land use, pig houses, office
buildings, power and water supply facilities, existing inventory of hogs, feed
and veterinary drugs, in the Hainan Haikou Wohao Hog Farm, located in Hainan
Province, PRC, for a purchase price of RMB15,200,000 ($2,173,600 based on the
exchange rate at the time of the acquisition). Hainan Haikou Wohao Hog Farm has
annual hog production capability of approximately 20,000 hogs.




In April
2008, the Company acquired ninety percent (60%) of the equity interest, as well
as the inventory of hogs, feed and veterinary drugs, in the Guangxi Guilin Fuzhi
Hog Farm, located in Guangxi Province, PRC, for a purchase price of
RMB12,000,000 ($1,716,000 based on the exchange rate at the time of the
acquisition). Guangxi Guilin Fuzhi Hog Farm has annual hog production capability
of approximately 20,000 hogs.




In April
2008, the Company acquired eighty percent (80%) of the equity interest, as well
as the inventory of hogs, feed and veterinary drugs, in the Guangdong Lianjiang
Xinfa Hog Farm, located in Guangdong Province, PRC, for a purchase price of
RMB11,000,000 ($1,573,000 based on the exchange rate at the time of the
acquisition). Guangdong Lianjiang Xinfa Hog Farm has annual hog production
capability of approximately 22,000 hogs.




In April
2008, the Company acquired all of the equity interest, as well as the inventory
of hogs, feed and veterinary drugs, in the Zhejiang Pinghu Yongxin Hog Farm,
located in Zhejiang Province, PRC for a purchase price of RMB10,480,000
($1,498,600 based on the exchange rate at the time of the acquisition). Zhejiang
Pinghu Yongxin Hog Farm has annual hog production capability of approximately
11,000 hogs.


F-25




AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007




In April
2008, the Company acquired all of the equity interest, as well as the inventory
of hogs, feed and veterinary drugs, in the Shanghai Fengxian Hog Farm, located
in Shanghai City, PRC, for a purchase price of RMB35,000,000 ($5,005,000 based
on the exchange rate at the time of the acquisition). Shanghai Fengxian Hog Farm
has annual hog production capability of approximately 32,000 hogs.




In April
2008, the Company acquired all of the equity interest, as well as the inventory
of hogs, feed and veterinary drugs, in the Shanghai Tuanxi Hog Farm, located in
Shanghai, PRC, for a purchase price of RMB7,000,000 ($1,001,000 based on the
exchange rate at the time of the acquisition). Shanghai Tuanxi Hog Farm has
annual hog production capability of approximately 8,500 hogs.




In April
2008, the Company acquired all of the equity interest, as well as the inventory
of hogs, feed and veterinary drugs, in the Shanghai Senrong Hog Farm, located in
Shanghai, PRC, for a purchase price of RMB30,000,000 ($4,290,000 based on the
exchange rate at the time of the acquisition). Shanghai Senrong Hog Farm has
annual hog production capability of approximately 30,000 hogs.




In April
2008, the Company acquired all of the equity interest, as well as the inventory
of hogs, feed and veterinary drugs, in the Fujian Xiamen Muxin Hog Farm, located
in Xiamen City, PRC, for a purchase price of RMB29,320,000 ($4,192,800 based on
the exchange rate at the time of the acquisition). Fujian Xiamen Muxin Hog Farm
has annual hog production capability of approximately 50,000 hogs.




In April
2008, the Company acquired all of the equity interest, as well as the inventory
of hogs, feed and veterinary drugs, in the Xiamen Yuanshengtai Food Co.,Ltd., a
hog farm located in Fujian Province, PRC, for a purchase price of RMB26,200,000
($3,746,600 based on the exchange rate at the time of the acquisition). Xiamen
Yuanshengtai Food Co. has annual hog production capability of approximately
38,000 hogs.




In April
2008, the Company acquired all of the equity interest, as well as the inventory
of hogs, feed and veterinary drugs, in the Fujian Jianhua Hog Farm, located in
Fujian Province, PRC, for a purchase price of RMB32,000,000 ($4,576,000 based on
the exchange rate at the time of the acquisition). Fujian Jianhua Hog Farm has
annual hog production capability of approximately 34,000 hogs.




In April
2008, the Company acquired all of the equity interest, as well as the inventory
of hogs, feed and veterinary drugs, in Fujian Fengxiang Agribusiness Co., Ltd.,
a hog farm located in Fujian Province, PRC, for a purchase price of RMB8,100,000
($1,158,300 based on the exchange rate at the time of the acquisition). Fujian
Fengxiang Agribusiness has annual hog production capability of approximately
10,000.




In April
2008, the Company acquired all of the equity interest, as well as the inventory
of hogs, feed and veterinary drugs, in the Jiangxi Zhiliang Hog Farm, located in
Jiangxi Province, PRC, for a purchase price of RMB8,000,000 ($1,144,000 based on
the exchange rate at the time of the acquisition). Jiangxi Zhiliang Hog Farm has
annual hog production capability of approximately 10,000 hogs.




In May
2008, the Company acquired all of the equity interest in Nanping Kangda Animal
Husbandry Co., Ltd., a hog farm located in Fujian Province, PRC, for a purchase
price of RMB5,821,000 ($838,664 based on the exchange rate at the time of the
acquisition). Nanping Kangda Animal Husbandry Co., Ltd. has annual hog
production capability of approximately 12,000 hogs.




In May
2008, the Company acquired all of the equity interest in Fujian Jianxi Breeder
Hog Farm Co., Ltd., a breeder hog farm located in Fujian Province, PRC, for a
purchase price of RMB16,338,166 ($2,353,931 based on the exchange rate at the
time of the acquisition). Fujian Jianxi Breeder Hog Farm Co., Ltd. has annual
hog production capability of approximately 8,000 breeder hogs and 13,000 meat
hogs.




In June
2008, the Company acquired all of the equity interest in Shanghai WeiSheng Hog
Raising Co., Ltd.(“Shanghai Weisheng”), a hog farm located in Shanghai City,
PRC, for a purchase price of RMB12,820,000 ($1.87 million based on the exchange
rate at the time of the acquisition). Shanghai Weisheng has annual hog
production capability of approximately 15,000 hogs.




F-26




AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





On
September 8, 2008, the Company acquired all of the equity interest in a hog farm
located in the Fujian Province, PRC, for a purchase price of RMB9,865,000
($1,441,451 based on the exchange rate at the time of the acquisition). The
acquired farm has annual hog production capability of approximately 13,500 hogs,
with existing facilities for additional expansion.




In
addition on September 8, 2008, the Company acquired the remaining 30% equity
interest in Wannian Xiandai Animal Husbandry Limited Liability Co. for a
purchase price of RMB6,012,500 ($878,532 based on the exchange rate at the time
of the acquisition).




On
September 10, 2008, the Company acquired of all of the equity interest in a hog
farm located in the Guangxi Province, PRC, for a purchase price of RMB9,256,000
($1,354,206 based on the exchange rate at the time of the acquisition). This
farm has annual hog production capability of approximately 12,500 hogs, with
existing facilities for additional expansion.




On
September 10, 2008, the Company acquired of all of the equity interest in a hog
farm located in the Guangxi Province, PRC, for a purchase price of RMB8,569,000
($1,253,694 based on the exchange rate at the time of the acquisition). This
farm has annual hog production capability of approximately 11,000 hogs, with
existing facilities for additional expansion.




On
October 28, 2008, the Company, completed the acquisition of all of the equity
interest in a commercial producing hog farm located in the Guangxi Province, PRC
for a purchase price of RMB7,850,000 ($1,147,913 based on the exchange rate
based on the exchange rate at the time of the acquisition).




On
October 29, 2008, the Company completed the acquisition of all of the equity
interest in a second commercial producing hog farm located in the Guangxi
Province, PRC for a purchase price of RMB8,260,000 ($1,207,777 based on the
exchange rate on October 29, 2008). These two farms have an aggregate annual hog
production capability of approximately 29,000 hogs, with existing facilities for
additional expansion.




Acquisition of Feed
Company




In June
2008, the Company acquired all of the equity interest in Hainan HopeJia Feed
Co., Ltd. ("HopeJia"), located in the Hainan province of the PRC. for a
negotiated purchase price of RMB28,600,000 or approximately $4.16 million based
on the exchange rate at the time of the acquisition.




The hog
farms and feed company were purchased as part of the Company’s strategic growth
plan.




The
following table summarizes the fair values of the assets acquired and
liabilities assumed at the exchange rates at the date of
acquisition.





Cash
                  
                  $
                  95,573Accounts
      receivable
                  
                  
                  388,384Other
      receivables
                  
                  
                  20,795Inventory
                  
                  
                  9,300,800Other
      assets
                  
                  
                  353,753Property
      and equipment
                  
                  
                  16,102,598Construction
      in process
                  
                  
                  1,375,372Intangible
      assets
                  
                  
                  41,164,296Accounts
      payable
                  
                  
                  (318,197
                  )Other
      payables
                  
                  
                  (389,602
                  )Minority
      Interest
                  
                  
                  (508,150
                  )$
                  67,585,622




F-27


AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





Acquisition ofLushan Breeder Pig Farm Co.,
Ltd.





On
November 6, 2007, the Company entered into a Stock Purchase Agreement with
Lushan Breeder Pig Farm Co., Ltd. (“Lushan”), a Peoples Republic of China
company located in HuaLin Town of XingZi County in Jiangxi Province, Peoples
Republic of China, Huaping Yang and Hongyun Luo, the holders of ninety percent
(90%) of the issued and outstanding capital stock of Lushan. Under the terms of
the Stock Purchase Agreement, the Company agreed to purchase 90% of the issued
and outstanding capital stock of Lushan from Hongyun Luo for an aggregate
purchase price of RMB20,112,020, equivalent to $2,699,600. In addition, under
the terms of the Stock Purchase Agreement, the Company assumed RMB4,919,980
equivalent to $660,400 of indebtedness owed by Lushan.  The Company
assigned the Shares to Nan Chang Best Animal Husbandry Co., Ltd, its wholly
owned subsidiary.  The Company purchased Lushan to expand its
operations into the pre-mix fodder blended feed and feed additives for use in
the pork husbandry market as well as raising, breeding and the sale of
pigs.





The
operating results of Lushan are included in the accompanying consolidated
statements of operations from the acquisition date. For convenience of reporting
the acquisition for accounting purposes, November 1, 2007 has been designated as
the acquisition date.





The
following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition.





Cash
                    
                    $
                    661,216Accounts
      receivable
                    
                    
                    7,663Other
      receivables
                    
                    
                    11,544Inventory
                    
                    
                    896,848Advances
      to related parties
                    
                    
                    190Other
      current assets
                    
                    
                    611Property
      and equipment
                    
                    
                    1,784,049Construction-in-process
                    
                    
                    709,563Intangible
      assets
                    
                    
                    2,513Accounts
      payable
                    
                    
                    (106,070
                    )Other
      payables
                    
                    
                    (597,603
                    )Unearned
      revenue
                    
                    
                    (7,468
                    )Tax
      and welfare payable
                    
                    
                    (3,056
                    )Purchase
      price
                    
                    $
                    3,360,000





Note
13 – Subsequent Events





On
January 4, 2010, the Company issued a total of 760,000 shares of common stock to
certain officers, directors and key employees.  The shares that were issued
are restricted with the restrictions lapsing ranging from 1 to 3
years.





On
January 10, 2010, AgFeed acquired the remaining 10% equity interest of Lushan
for RMB15,682,539 (approximately $2.3 million) and On January 14, 2010, AgFeed
acquired the remaining 20% equity interest of Lianjiang for RMB1,200,000
(approximately $175,200). Following completion of these transactions, AgFeed
owns 100% of all of its 29 meat producing hog farms.




F-28




AgFeed
Industries, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


For
the Years Ended December 31, 2009, 2008, and 2007





The
Company has begun a strategic internal reorganization of its corporate structure
to more efficiently align its business platforms in order to maximize the
results of its anticipated growth in the Chinese hog and animal nutrients
markets. The Company believes that the development of two strong, parallel
business operations is a key to its continued growth in 2010 and beyond. The
Company announced on February 9, 2009 the proposed sale of a maximum of 20% of
its animal nutrients feed subsidiary via a listing and initial public offering
("IPO") of the subsidiary's common stock. The IPO is anticipated to raise $20-25
million and will be effected through the filing of a registration statement with
the SEC that the SEC must declare effective before any common stock sales may
occur.





Note
14 – Selected Quarterly Data (unaudited)





Quarterly Periods EndedMarch 31,
                
                
                June 30,
                
                
                September 30,
                
                
                December 31,2009
                
                
                2009
                
                
                2009
                
                
                2009Net
      Revenue
                
                $
                33,429,274
                
                
                $
                38,527,770
                
                
                $
                45,115,442
                
                
                $
                56,130,785Gross
      Profit
                
                $
                5,803,405
                
                
                $
                5,221,659
                
                
                $
                7,561,164
                
                
                $
                8,048,927Income
      from operation
                
                $
                3,182,366
                
                
                $
                2,261,797
                
                
                $
                3,711,745
                
                
                $
                3,436,180Other
      income (expense)
                
                $
                98,498
                
                
                $
                (756,032
                )
                
                $
                (523,719
                )
                
                $
                (88,933
                )Net
      income
                
                $
                3,018,840
                
                
                $
                1,226,252
                
                
                $
                2,896,341
                
                
                $
                3,206,933Earnings
      per shares (basic)
                
                $
                0.08
                
                
                $
                0.03
                
                
                $
                0.07
                
                
                $
                0.07





Quarterly Periods EndedMarch 31,
                
                
                June 30,
                
                
                September 30,
                
                
                December 31,2008
                
                
                2008
                
                
                2008
                
                
                2008Net
      Revenue
                
                $
                12,147,084
                
                
                $
                35,635,327
                
                
                $
                49,426,274
                
                
                $
                46,452,800Gross
      Profit
                
                $
                3,432,961
                
                
                $
                11,034,825
                
                
                $
                12,302,216
                
                
                $
                7,666,918Income
      from operation
                
                $
                1,725,118
                
                
                $
                8,772,157
                
                
                $
                9,310,399
                
                
                $
                4,933,257Other
      income (expense)
                
                $
                (515,511
                )
                
                $
                (4,566,771
                )
                
                $
                (828,031
                )
                
                $
                (873,062
                )Net
      income
                
                $
                919,297
                
                
                $
                3,921,513
                
                
                $
                8,216,155
                
                
                $
                3,891,850Earnings
      per shares (basic)
                
                $
                0.03
                
                
                $
                0.12
                
                
                $
                0.25
                
                
                $
                0.13




Note
15 – Valuation and Qualifying Accounts





Allowance
for Doubtful Accounts





Balance
                      at
                    
                    
                    Charged
                      to
                    
                    
                    Deductions
                    
                    
                    Balance atBeginning
                    
                    
                    Costs and
                    
                    
                    From
                    
                    
                    Endof Year
                    
                    
                    Expenses
                    
                    
                    Reserves
                    
                    
                    of YearYears Ended December 31,2007
                    
                    $
                    49,845
                    
                    
                    $
                    146,517
                    
                    
                    $
                    4,865
                    
                    
                    $
                    191,4972008
                    
                    
                    191,497
                    
                    
                    
                    201,309
                    
                    
                    
                    127,607
                    
                    
                    
                    520,4132009
                    
                    
                    520,413
                    
                    
                    
                    196,005
                    
                    
                    
                    300,653
                    
                    
                    
                    415,765




F-29


SIGNATURES





Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this
Annual Report to be signed on our behalf by the undersigned, thereunto duly
authorized on the 8th day of March, 2010.





AgFeed
      Industries Inc.By:
              /s/ Junhong
    XiongJunhong
      XiongChief
      Executive Officer, President,Director
      and Vice Chairman





Pursuant
to the requirements of the Securities Exchange Act of 1934, this Annual Report
has been signed below by the following persons on behalf of AgFeed and in the
capacities and on the dates indicated.  The undersigned hereby
appoints Songyan Li and Junhong Xiong, each with full power of substitution, as
his true and lawful attorney-in-fact and agent, for him and in his name and
place, to sign the name of the undersigned in the capacity or capacities
indicated below to the Annual Report of AgFeed Industries, Inc. on Form 10-K for
the year ended December 31, 2009 and any and all amendments to such Form 10-K
and to file the same, with all exhibits thereto and other documents in
connection therewith, with all necessary or appropriate governmental or other
entities, including, but not limited to, the Securities and Exchange Commission
and the NASDAQ Stock Market LLC, granting to such attorney-in-fact and agent
full power and authority to perform each act necessary to be done as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that such attorney-in-fact and agent may lawfully do or cause to
be done by virtue hereof.





Signature
                                  
                                  Title
                                  
                                  Date/s/ Junhong Xiong
                                  
                                  Director,
      President, Chief Executive Officerand Vice Chairman
                                  
                                  March
      8, 2010Junhong
      Xiong/s/ Selina Jin
                                  
                                  Chief
      Financial Officer and ChiefAccounting Officer
                                  
                                  March
      8, 2010Selina
      Jin/s/ Songyan Li
                                  
                                  Chairman
      of the Board and Director
                                  
                                  March
      8, 2010Songyan
      Li/s/ Lixiang Zhang
                                  
                                  Director
                                  
                                  March
      8, 2010Lixiang
      Zhang/s/ K. Ivan F. Gothner
                                  
                                  Director
                                  
                                  March
      8, 2010K.
      Ivan F. Gothner/s/ Arnold Staloff
                                  
                                  Director
                                  
                                  March
      8, 2010Arnold
      Staloff







EXHIBIT
INDEX




Exhibit No.
                
                Description2.1
                
                Share
      Purchase Agreement with Nanchang Best and each of Nanchang Best’s
      shareholders (incorporated by reference to Exhibit 2.1 of AgFeed's Current
      Report on Form 8-K (Commission File No. 001-33674) filed with the SEC on
      November 6, 2006)2.2
                
                Share
      Purchase Agreement with Shanghai Best and each of Shanghai Best’s
      shareholders (incorporated by reference to Exhibit 2.2 of AgFeed's Current
      Report on Form 8-K (Commission File No. 001-33674) filed with the SEC on
      November 6, 2006)3(i).1
                
                Articles
      of Incorporation (incorporated by reference to Exhibit 3.1 of AgFeed's
      Registration Statement on Form SB-2 (Commission File No. 333-126674) filed
      with the SEC on July 18, 2005)3(i).2
                
                Articles
      of Merger dated November 14, 2006 pursuant to which AgFeed Industries,
      Inc. was merged into Wallace Mountain Resources Corp. and the name of the
      surviving entity was changed to AgFeed Industries, Inc. (incorporated by
      reference to Exhibit 3.3 of AgFeed's Registration Statement on Form SB-2
      (Commission File No. 333-144131), filed with the SEC on June 28,
      2007)3(ii).1
                
                Amended
      and Restated Bylaws (incorporated by reference to Exhibit 3.2 of AgFeed's
      Current Report on Form 8-K (Commission File No. 001-33674) filed with the
      SEC on May 15, 2007)4.1
                
                Specimen
      common stock certificate (incorporated by reference to Exhibit 4 of
      AgFeed's Annual Report on Form 10-KSB (Commission File No. 001-33674)
      filed with the SEC on March 13, 2007)4.2
                
                Form
      of Common Stock Purchase Warrant forming part of units sold, and also
      issued as compensation to selected dealers in our private placement
      offering that had a final closing in April 2007 (incorporated by reference
      to Exhibit 4.2 of AgFeed's Amended Registration Statement on Form SB-2
      (Commission File No. 333-144131) filed with the SEC on August 17,
      2007)4.3
                
                Form
      of Registration Rights Agreements dated February 2007 (incorporated by
      reference to Exhibit 4.3 of AgFeed's Amended Registration Statement on
      Form SB-2 (Commission File No. 333-144131) filed with the SEC on August
      17, 2007)4.4
                
                Form
      of Common Stock Purchase Warrant forming part of units sold and also
      issued as compensation to selected dealers in our June 2007 private
      placement offering (incorporated by reference to Exhibit 4.4 of AgFeed's
      Registration Statement on Form SB-2 (Commission File No. 333-144131) filed
      with the SEC on June 28, 2007)4.5
                
                Registration
      Rights Agreement dated as of June 22, 2007 by and between AgFeed and
      Apollo Asia Opportunity Master Fund, L.P. (incorporated by reference to
      Exhibit 4.5 of AgFeed's Registration Statement on Form SB-2 (Commission
      File No. 333-144131) filed with the SEC on June 28,
  2007)10.1
                
                Share
      Purchase Agreement dated December 20, 2006 among AgFeed, Guangxi Huijie
      and the shareholders of Guangxi Huijie (incorporated by reference to
      Exhibit 10.1 of AgFeed's Current Report on Form 8-K (Commission File No.
      001-33674) filed with the SEC on December 20, 2006)10.2
                
                Promissory
      Note of AgFeed payable to order of Sunrise Capital International, Inc. in
      the amount of 8,600,000 RMB (incorporated by reference to Exhibit 10.2 of
      AgFeed's Current Report on Form 8-K (Commission File No. 001-33674) filed
      with the SEC on December 26,
2006)










10.3
              
              Form
      of Subscription Package for private placement offering that had final
      closing on April 29, 2007 (incorporated by reference to Exhibit 10.5 of
      AgFeed's Amended Registration Statement on Form SB-2 (Commission File No.
      333-144131) filed with the SEC on August 17, 2007)10.4
              
              Subscription
      Agreement by and between AgFeed and Apollo Asia Opportunity Master Fund,
      L.P. dated June 22, 2007 (incorporated by reference to Exhibit 10.6 of
      AgFeed's Amended Registration Statement on Form SB-2 (Commission File No.
      333-144131) filed with the SEC on August 17, 2007)10.5
              
              Stock
      Purchase Agreement as of November 6, 2007 by and among AgFeed, Lushan and
      Huaping Yang and Hongyun Luo, being the holders of ninety percent of the
      issued and outstanding shares of Lushan (incorporated by reference to
      Exhibit 10.1 of AgFeed's Current Report on Form 8-K (Commission File No.
      001-33674) filed with the SEC on November 9, 2007)10.6
              
              Securities
      Purchase Agreement, dated February 25, 2008, by and among Agfeed and the
      certain investors listed on the Schedule of Buyers to such Securities
      Purchase Agreement (incorporated by reference to Exhibit 10.1 of AgFeed's
      Current Report on Form 8-K (Commission File No. 001-33674) filed with the
      SEC on February 28, 2008)10.7
              
              Form
      of Registration Rights Agreement dated February 2008 (incorporated by
      reference to Exhibit 10.2 of AgFeed's Current Report on Form 8-K
      (Commission File No. 001-33674) filed with the SEC on February 28,
      2008)10.8
              
              Form
      of Senior Convertible Note dated February 2008 (incorporated by reference
      to Exhibit 10.3 of AgFeed's Current Report on Form 8-K (Commission File
      No. 001-33674) filed with the SEC on February 28, 2008)10.9
              
              Form
      of Warrant dated February 2008 (incorporated by reference to Exhibit 10.4
      of AgFeed's Current Report on Form 8-K (Commission File No. 001-33674)
      filed with the SEC on February 28, 2008)10.10
              
              Equity
      Securities Purchase Agreement, dated February 25, 2008, by and among
      Agfeed and the certain investors listed on the Exhibit A to such Equity
      Securities Purchase Agreement (incorporated by reference to Exhibit 10.5
      of AgFeed's Current Report on Form 8-K (Commission File No. 001-33674)
      filed with the SEC on February 28, 2008)10.11
              
              Securities
      Purchase Agreement, dated April 16, 2008, by and between AgFeed and
      certain investors named on Exhibit A thereto (incorporated by
      reference to Exhibit 10.13 of AgFeed's Current Report on Form 8-K
      (Commission File No. 001-33674) filed with the SEC on April 22,
      2008)10.12
              
              Securities
      Purchase Agreement, dated April 22, 2008, by and between AgFeed and
      certain investors named on Exhibit A thereto (incorporated by
      reference to Exhibit 10.14 of AgFeed's Current Report on Form 8-K
      (Commission File No. 001-33674) filed with the SEC on April 29,
      2008)10.13
              
              Securities
      Purchase Agreement, dated April 22, 2008, by and between AgFeed and
      certain investors named on Exhibit A thereto (incorporated by
      reference to Exhibit 10.15 of AgFeed's Current Report on Form 8-K
      (Commission File No. 001-33674) filed with the SEC on April 29,
      2008)10.14
              
              Employment
      Agreement, dated as of the 19th
      day of August, 2008, by and between Nanchang Best Animal Husbandry Co.,
      Ltd. and Gerard Daignault (incorporated by reference to Exhibit 10.16 of
      AgFeed's Current Report on Form 8-K (Commission File No. 001-33674) filed
      with the SEC on August 20,
2008)










10.15
              
              AgFeed
      Industries, Inc. 2008 Long-Term Incentive Plan (incorporated by reference
      to Appendix A of AgFeed's Definitive Proxy Statement filed with the
      SEC on April 29, 2008 (Commission File No. 001-33674))10.16
              
              Securities
      Purchase Agreement, dated as of December 28, 2008, by and between AgFeed
      and each of certain Investors (incorporated by reference to Exhibit 10.18
      of AgFeed's Current Report on Form 8-K (Commission File No. 001-33674)
      filed with the SEC on January 9, 2009)10.17
              
              Form
      of Common Stock Purchase Warrant, dated December 31, 2008 (incorporated by
      reference to Exhibit 10.19 of AgFeed's Current Report on Form 8-K
      (Commission File No. 001-33674) filed with the SEC on January 9,
      2009)10.18
              
              Employment
      Agreement between AgFeed and Selina Jin (incorporated by references to
      Exhibit 10.18 of AgFeed's Current Report on Form 8-K (Commission File No.
      001-33674) filed with the SEC on April 17, 2009)10.19
              
              Securities
      Purchase Agreement, dated May 6, 2009, between AgFeed and each of certain
      Investors (incorporated by reference to Exhibit 10.01 of AgFeed's Current
      Report on Form 8-K (Commission File No. 001-33674) filed with the SEC on
      May 12, 2009)10.20
              
              Registration
      Rights Agreement between AgFeed Industries, Inc. and each of certain
      Investors (incorporated by reference to Exhibit 10.02 of AgFeed's Current
      Report on Form 8-K (Commission File No. 001-33674) filed with the SEC on
      May 12, 2009)10.21
              
              Form
      of Warrant dated May 2009 (incorporated by reference to Exhibit 10.02 of
      AgFeed's Current Report on Form 8-K (Commission File No. 001-33674) filed
      with the SEC on May 12,2 009)10.22
              
              Employment
      Agreement by and between Nanchang Best Animal Husbandry Co., Ltd. and
      Songyan Li dated June 25, 2009 (incorporated by reference to Exhibit 10.18
      of AgFeed's Current Report on Form 8-K (Commission File No. 001-33674)
      filed with the SEC on July 8, 2009)10.23
              
              Employment
      Agreement by and between Nanchang Best Animal Husbandry Co., Ltd. and
      Junhong Xiong dated June 25, 2009 (incorporated by reference to Exhibit
      10.18 of AgFeed's Current Report on Form 8-K (Commission File No.
      001-33674) filed with the SEC on July 8, 2009)10.24
              
              Equity
      Credit Agreement by and between AgFeed and Southridge Partners II, LP,
      dated September 9, 2009 (incorporated by reference to Exhibit 10.20 of
      AgFeed's Current Report on Form 8-K (Commission File No. 001-33674) filed
      with the SEC on September 10, 2009)10.25
              
              Registration
      Rights Agreement between AgFeed and Southridge Partners II, LP, dated
      September 9, 2009 (incorporated by reference to Exhibit 10.21 of AgFeed's
      Current Report on Form 8-K (Commission File No. 001-33674) filed with the
      SEC on September 10, 2009)10.26
              
              Form
      of Common Stock Purchase Warrant, dated September 2009 (incorporated by
      reference to Exhibit 10.22 of AgFeed's Current Report on Form 8-K
      (Commission File No. 001-33674) filed with the SEC on September 10,
      2009)10.27
              
              Shareholders
      Agreement of Hypor Agfeed Breeding Company Inc., dated as of December 11,
      2009 (incorporated by reference to Exhibit 10.23 of AgFeed's Current
      Report on Form 8-K (Commission File No. 001-33674) filed with the SEC on
      December 17, 2009)10.28
              
              Production
      and Distribution Agreement by and among Hypor B.V, AgFeed, and Hypor
      Agfeed Breeding Company, Inc., dated December 11, 2009 (incorporated by
      reference to Exhibit 10.24 of AgFeed's Current Report on Form 8-K
      (Commission File No. 001-33674) filed with the SEC on December 17,
      2009)










10.29
              
              Facilities
      Lease Agreement between AgFeed and Hypor Agfeed Breeding Company, Inc.,
      dated December 11, 2009 (incorporated by reference to Exhibit 10.25 of
      AgFeed's Current report on Form 8-K (Commission File No. 001-33674) filed
      with the SEC on December 17, 2009)10.30
              
              Intra
      Group Loan Agreement between AgFeed and Hypor Agfeed Breeding Company,
      Inc., dated December 11, 2009 (incorporated by reference to Exhibit 10.26
      of AgFeed's Current report on Form 8-K (Commission File No. 001-33674)
      filed with the SEC on December 17, 2009)10.31
              
              Intra
      Group Loan Agreement between Hypor B.V. and Hypor Agfeed Breeding Company,
      Inc., dated December 11, 2009 (incorporated by reference to Exhibit 10.27
      of AgFeed's Current report on Form 8-K (Commission File No. 001-33674)
      filed with the SEC on December 17, 2009)21.1
              
              List
      of Subsidiaries (filed herewith)23.1
              
              Consent
      of Independent Registered Public Accounting Firm (filed
      herewith)24.1
              
              Power
      of Attorney (included in signature page)31.1
              
              Certification
      of the Company’s Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
              
              Certification
      of the Company’s Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
              
              Certification
      of the Company’s Chief Executive Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
              
              Certification
      of the Company’s Chief Financial Officer Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.