**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-QSB**
 **** (Mark
        One)
 
 xQUARTERLY
            REPORT UNDER SECTION
            13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 **For
        the quarterly period ended March 31, 2007**
 
 oTRANSITION
        REPORT UNDER SECTION
        13 OR 15(d) OF THE EXCHANGE ACT
 
 For
        the
        transition period from ________________ to _______________
 
 **000-28195**
 (Commission
        file number)
 
 **AGFEED
        INDUSTRIES, INC.**
 (Exact
        name of small business issuer as specified in its charter)
 
 **Nevada**
              
              **20-2597168**(State
                  or other jurisdiction
              
              (IRS
                  Employerof
                  incorporation or organization)
              
              Identification
                  No.)
  **1095
        Qing Lan Avenue**
 **Economic
        and Technical Development Zone**
 **Nan
        Chang City, Jiangxi Provence**
 **China,
        330013**
 (Address
        of principal executive offices)
 
 **86-0791-2189878**
 (Issuer's
        telephone number)
 
 **N/A**
 (Former
        name, former address and former fiscal year, if changed since last
        report)
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days. Yes x No o
 
 State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practicable date: As of May 11, 2007 - 26,276,756 shares
        of
        common stock
 
 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
 
 
 Transitional
        Small Business Disclosure Format (check one): Yes o No x
 
 
 
 **AGFEED
        INDUSTRIES, INC.**
 **Index**
 
 PageNumberPART
                  I.
              FINANCIAL
                  INFORMATIONItem
                  1.
              Financial
                  StatementsConsolidated
                  Balance Sheet as of March 31, 2007 (unaudited)
              F-1Consolidated
                  Statements of Income and Other Comprehensive Income for the three
                  months
                  ended March 31, 2007 and 2006 (unaudited)
              F-2Consolidated
                  Statements of Cash Flows for the three months ended March 31, 2007
                  and
                  2006 (unaudited)
              F-3Notes
                  to Consolidated Financial Statements (unaudited)
              F-4Item
                  2.
              Management's
                  Discussion and Analysis or Plan of Operations
              2Item
                  3.
              Controls
                  and Procedures
              8PART
                  II.
              OTHER
                  INFORMATION
              8Item
                  1.
              Legal
                  Proceedings
              8Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              8Item
                  3.
              Defaults
                  Upon Senior Securities
              8Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              9Item
                  5.
              Other
                  Information
              9Item
                  6.
              Exhibits
              9SIGNATURES
              9
  1
 **AGFEED
                    INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                    BALANCE SHEET****AS
                    OF MARCH 31,
                    2007**
 **March
                  31,****2007**(unaudited)**ASSETS****CURRENT
                  ASSETS:**Cash
                  & cash equivalents
              
              $
              2,672,889Accounts
                  receivable, net of allowance for doubtful accounts of $55,507
              
              
              3,445,680Advances
                  to suppliers
              
              
              244,826Other
                  receivable
              
              
              87,234Due
                  from related parties
              
              
              93,187Inventory
              
              
              930,526Prepaid
                  expense
              
              
              162,215Other
                  current assets
              
              
              1,739Total
                  current assets
              
              
              7,638,296**PROPERTY
                  AND EQUIPMENT, net**
              
              
              1,372,149**INTANGIBLE
                  ASSETS**
              
              
              542,752**TOTAL
                  ASSETS**
              
              $
              9,553,197**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES:**Accounts
                  payable
              
              $
              1,339,353Other
                  payables
              
              
              44,458Unearned
                  revenue
              
              
              50,875Accrued
                  expenses
              
              
              49,084Accrued
                  payroll
              
              
              24,179Short
                  term loans
              
              
              699,192Due
                  to related party
              
              
              4,661Tax
                  and welfare payable
              
              
              411,816Total
                  current liabilities
              
              
              2,623,618**STOCKHOLDERS'
                  EQUITY:**Common
                  stock, $0.001 per share; 75,000,000 shares authorized;25,000,003
                  shares issued and outstanding
              
              
              25,000Additional
                  paid-in capital
              
              
              4,022,044Other
                  comprehensive income
              
              
              167,752Statutory
                  reserve
              
              
              328,733Retained
                  earnings
              
              
              2,386,050Total
                  stockholders' equity
              
              
              6,929,579**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              9,553,197




The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-1





**AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006**
   **Three
                  Months Ended March 31,****2007**
              
              **2006**(unaudited)
              
              (unaudited)**Net
                  Revenue**
              
              $
              4,978,295
              
              $
              2,094,289**Cost
                  of Revenue**
              
              
              3,435,089
              
              
              1,305,090**Gross
                  profit**
              
              
              1,543,206
              
              
              789,199Operating
                  expensesSelling
                  expenses
              
              
              343,391
              
              
              265,512General
                  and administrative expenses
              
              
              221,924
              
              
              109,471Total
                  operating expenses
              
              
              565,315
              
              
              374,983**Income
                  from operations**
              
              
              977,891
              
              
              414,216Non-operating
                  income (expense):Other
                  income (expense)
              
              
              9,070
              
              
              948Interest
                  income
              
              
              10,167
              
              
              181Interest
                  expense
              
              
              (42,649
              )
              
              -Total
                  non-operating income (expense)
              
              
              (23,412
              )
              
              1,129Income
                  before income tax
              
              
              954,479
              
              
              415,345Income
                  tax
              
              
              175,298
              
              
              136,963**Net
                  income**
              
              $
              779,181
              
              $
              278,382Other
                  comprehensive incomeForeign
                  currency translation gain
              
              
              50,906
              
              
              11,132**Comprehensive
                  Income**
              
              $
              830,087
              
              $
              289,514**Weighted
                  average shares outstanding :**Basic
              
              
              24,344,447
              
              
              15,006,723Diluted
              
              
              24,344,447
              
              
              15,006,723**Earnings
                  per share:**Basic
              
              $
              0.03
              
              $
              0.02Diluted
              
              $
              0.03
              
              $
              0.02




The
            accompanying notes are an integral part of these consolidated financial
            statements.
  F-2
  **AGFEED
          INDUSTRIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENT OF CASH FLOWS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006**
  **Three
                    Months Ended March 31,****2007**
                
                **2006**(unaudited)
                
                (unaudited)**CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    income
                
                $
                779,181
                
                $
                278,382Adjustments
                    to reconcile net income to net cashprovided
                    in operating activities:Depreciation
                
                
                39,845
                
                
                25,608Amortization
                
                
                46,360
                
                
                1,217(Increase)
                    / decrease in assets:Accounts
                    receivable
                
                
                (1,626,525
                )
                
                (523,979
                )Other
                    receivable
                
                
                117,454
                
                
                13,680Inventory
                
                
                (143,070
                )
                
                (54,143
                )Due
                    from related party
                
                
                7,336
                
                
                (80,235
                )Advances
                    to suppliers
                
                
                (165,678
                )
                
                (5,887
                )Prepaid
                    expense
                
                
                (150,247
                )
                
                12,771Other
                    assets
                
                
                535
                
                
                (3,728
                )Increase
                    / (decrease) in current liabilities:Accounts
                    payable
                
                
                519,177
                
                
                176,736Unearned
                    revenue
                
                
                (31,388
                )
                
                (3,857
                )Other
                    payables
                
                
                (12,995
                )
                
                1,910Due
                    to related party
                
                
                -
                
                
                (180,566
                )Accrued
                    expenses
                
                
                (44,618
                )
                
                56,969Accrued
                    payroll
                
                
                (13,371
                )
                
                5,736Tax
                    and welfare payable
                
                
                128,147
                
                
                122,427Net
                    cash provided by operating activities
                
                
                (549,857
                )
                
                (156,959
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Acquisition
                    of property and equipment
                
                
                (24,125
                )
                
                (32,490
                )Net
                    cash used in investing activities
                
                
                (24,125
                )
                
                (32,490
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Repayment
                    on advances from stockholders
                
                
                (753,521
                )
                
                -Advances
                    from related parties
                
                
                -
                
                
                108,449Collections
                    on advances to related parties
                
                
                930,623
                
                
                193,992Proceeds
                    from the sale of common stock
                
                
                3,000,000
                
                
                -Offering
                    costs
                
                
                (276,335
                )
                
                -Payment
                    on note payable
                
                
                (1,102,004
                )
                
                -Collection
                    on subscription receivable
                
                
                226,083
                
                
                -Net
                    cash provided by financing activities
                
                
                2,024,846
                
                
                302,441Effect
                    of exchange rate changes on cash and cash equivalents
                
                
                17,925
                
                
                (21,197
                )**NET
                    INCREASE IN CASH & CASH EQUIVALENTS**
                
                
                1,468,789
                
                
                91,795**CASH
                    & CASH EQUIVALENTS, BEGINNING BALANCE**
                
                
                1,204,100
                
                
                136,406**CASH
                    & CASH EQUIVALENTS, ENDING BALANCE**
                
                $
                2,672,889
                
                $
                228,201**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:**Interest
                    paid
                
                $
                42,649
                
                $
                2,280Income
                    taxes paid
                
                $
                -
                
                $
                13,831
  The
        accompanying notes are an integral part of these consolidated financial
        statements.




F-3





**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**Note
      1 - Organization and Basis of Presentation**








The
      unaudited consolidated financial statements have been prepared by Agfeed
      Industries, Inc. (the “Company”), pursuant to the rules and regulations of the
      Securities Exchange Commission. The information furnished herein reflects all
      adjustments (consisting of normal recurring accruals and adjustments) which
      are,
      in the opinion of management, necessary to fairly present the operating results
      for the respective periods. Certain information and footnote disclosures
      normally present in annual consolidated financial statements prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America have been omitted pursuant to such rules and regulations. These
      consolidated financial statements should be read in conjunction with the audited
      consolidated financial statements and footnotes included in the Company’s Annual
      Report on Form 10-KSB. The results for the three months ended March 31, 2007
      are
      not necessarily indicative of the results to be expected for the full year
      ending December 31, 2007.








Organization
      and Line 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.





On
      October 31, 2006, the Company entered into and closed a share purchase agreement
      with Nanchang Best Animal Husbandry Co., Ltd., a corporation formed under the
      laws of the People's Republic of China ("Nanchang Best"), and each of Nanchang
      Best's shareholders (the "Nanchang Purchase Agreement"). Pursuant to the
      Nanchang Purchase Agreement, the Company acquired all of the issued and
      outstanding capital stock of Nanchang Best from the Nanchang Best shareholders
      in exchange for 16,128,000 shares of common stock.





Contemporaneously,
      on October 31, 2006, the Company entered into and closed a share purchase
      agreement with Shanghai Best Animal Husbandry Co., Ltd., a corporation formed
      under the laws of the People's Republic of China ("Shanghai Best"), and each
      of
      Shanghai Best's shareholders (the "Shanghai Purchase Agreement"). Pursuant
      to
      the Shanghai Purchase Agreement, the Company acquired all of the issued and
      outstanding capital stock of Shanghai Best from the Shanghai Best shareholders
      in exchange for 3,072,000 shares of common stock.





The
      exchanges of shares with Nanchang Best and Shanghai Best were accounted for
      as
      reverse acquisition under the purchase method of accounting since the
      stockholders of Nanchang Best and Shanghai Best obtained control of the Company.
      On November 17, 2006, Wallace Mountain Resources Corp. changed its name to
      AgFeed Industries, Inc. Accordingly, the merger of Nanchang Best and Shanghai
      Best into the Company were recorded as a recapitalization of Nanchang Best
      and
      Shanghai Best, with Nanchang Best and Shanghai Best being treated as the
      continuing entities. Nanchang Best and Shanghai Best had common shareholders
      and
      common management. The historical financial statements presented are the
      combined financial statements of both Nanchang Best and Shanghai Best. The
      share
      exchange agreements have been treated as a recapitalization and not as a
      business combination; therefore, no pro forma information is disclosed. At
      the
      date of this transaction, the net assets of the legal acquirer were
      $59,762.




F-4
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
  On
      December 20, 2006, the Company entered into and closed a share purchase
      agreement with Guangxi Huijie Sci. & Tech. Feed Co, Ltd., a company formed
      pursuant to the laws of the People's Republic of China (“Guangxi Huijie”), and
      the shareholders of Guangxi Huijie pursuant to which the Company acquired all
      the outstanding shares of Guangxi Huijie for a total purchase price of eight
      million six hundred thousand Chinese Renminbi (8,600,000 CNY), equivalent to
      approximately U.S. $1,100,420 based on exchange rates reported in the Wall
      Street Journal for December 20, 2006.





The
      Company obtained the funds for the acquisition of the Guangxi Huijie shares
      by
      borrowing 8,600,000 CNY from Sunrise Capital International, Inc. The proceeds
      of
      the loan from Sunrise Capital International, Inc. were paid directly to the
      selling shareholders of Guangxi Huijie as consideration and as provided by
      the
      share purchase agreement. The Company's repayment obligation is evidenced by
      a
      promissory note bearing interest at the rate of seven percent per annum (7%)
      and
      maturing in six months. This loan was repaid in March 2007.





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 City, Shanghai City and Nanning City
      and
      sells to distributors and large-scale swine farms.





Stock
      Splits




On
      November 17, 2006, the Company declared a stock dividend of two additional
      shares of common stock for each share of common stock outstanding (effectively
      a
      three for one stock split). All share information for common shares has been
      retroactively restated for this stock split.




Basis
      of Presentation





The
      accompanying consolidated financial statements include the accounts of AgFeed
      Industries, Inc. and its 100% wholly-owned subsidiaries Nanchang Best and
      Shanghai Best (for all periods presented) and Guangxi Huijie (from the date
      of
      acquisition, December 20, 2006).   All significant inter-company accounts
      and transactions have been eliminated in consolidation.





The
      accompanying consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of America.
      The Company’s functional currency is the Chinese Yuan Renminbi (CNY); however
      the accompanying consolidated financial statements have been translated and
      presented in United States Dollars ($).





Foreign
      Currency Translation





As
      of
      March 31, 2007, the accounts of the Company were maintained, and their
      consolidated financial statements were expressed in the Chinese Yuan Renminbi
      (CNY). Such consolidated financial statements were translated into U.S. Dollars
      (USD) in accordance with Statement of Financial Accounts Standards ("SFAS")
      No.
      52, "Foreign Currency Translation," with the CNY as the functional currency.
      According to the Statement, all assets and liabilities were translated at the
      exchange rate on the balance sheet date, stockholder's equity are translated
      at
      the historical rates and statement of operations items are translated at the
      weighted average exchange rate for the year. The resulting translation
      adjustments are reported under other comprehensive income in accordance with
      SFAS No. 130, "Reporting Comprehensive Income”.


F-5
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
  **Note
      2 - Summary of Significant Accounting Policies**








Use
      of
      Estimates





The
      preparation of financial statements in conformity with United States generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Actual results could differ from those estimates.





Cash
      and Cash Equivalents





Cash
      and
      cash equivalents include cash in hand and cash in time deposits, certificates
      of
      deposit and all highly liquid debt instruments with original maturities of
      three
      months or less.





Accounts
      Receivable





The
      Company maintains reserves for potential credit losses on accounts receivable.
      Management reviews the composition of accounts receivable and analyzes
      historical bad debts, customer concentrations, customer credit worthiness,
      current economic trends and changes in customer payment patterns to evaluate
      the
      adequacy of these reserves. The allowance for doubtful debts amounted to $55,507
      as of March 31, 2007.





Advances
      to Suppliers





The
      Company makes advances to certain vendors for purchase of its materials. The
      advances to suppliers are interest free and unsecured. At March 31, 2007, the
      Company had advances to suppliers in the amount of $244,826.





Inventories





Inventory
      is stated at the lower of cost, as determined by weighted-average method, or
      market. Management compares the cost of inventories with the market value,
      and
      allowance is made for writing down the inventories to their market value, if
      lower.





Prepaid
      expenses





Included
      in prepaid expenses is $160,000
      for a good faith deposit with a company that the Company is in negotiations
      to
      acquire.








Property
      & Equipment





Property
      and equipment are stated at cost. Expenditures for maintenance and repairs
      are
      charged to earnings as incurred; additions, renewals and betterments are
      capitalized. When property and equipment are retired or otherwise disposed
      of,
      the related cost and accumulated depreciation are removed from the respective
      accounts, and any gain or loss is included in operations. Depreciation of
      property and equipment is provided using the straight-line method for
      substantially all assets with estimated lives as follows:


F-6
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


Office
                equipment
            
            
            5
                yearsOperating
                equipment
            
            
            10
                yearsVehicles
            
            
            5
                yearsBuildings
            
            
            20
                years





The
      following are the details of the property and equipment at March 31,
      2007:




Office
                equipment
            
            $
            73,101Operating
                equipment
            
            
            498,167Vehicles
            
            
            237,666Buildings
            
            
            935,848Total
            
            
            1,744,782Less
                accumulated depreciation
            
            
            (372,633
            )$
            1,372,149





Depreciation
      expense for the three months ended March 31, 2007 and 2006 was $39,845 and
      $25,608, respectively.





Long-Lived
      Assets





Effective
      January 1, 2002, the Company adopted Statement of Financial Accounting Standards
      No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
      144”), which addresses financial accounting and reporting for the impairment or
      disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
      Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
      the Results of Operations for a Disposal of a Segment of a Business.” The
      Company periodically evaluates the carrying value of long-lived assets to be
      held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
      to be recorded on long-lived assets used in operations when indicators of
      impairment are present and the undiscounted cash flows estimated to be generated
      by those assets are less than the assets’ carrying amounts. In that event, a
      loss is recognized based on the amount by which the carrying amount exceeds
      the
      fair market value of the long-lived assets. Loss on long-lived assets to be
      disposed of is determined in a similar manner, except that fair market values
      are reduced for the cost of disposal. Based on its review, the Company believes
      that, as of March 31, 2007 there were no significant impairments of its
      long-lived assets.




Intangible
      Assets


Intangible
      assets consist of the right to use land and computer software. Net intangible
      assets at March 31, 2007 are as follows:





Right
                to use land
            
            $
            556,773Computer
                software
            
            
            11,312Total
            
            
            568,085Less
                Accumulated amortization
            
            
            (25,333
            )Intangibles,
                net
            
            $
            542,752


F-7
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


Per
      the
      People's Republic of China's governmental regulations, the Government owns
      all
      land. The Company leases land per a real estate contract with the government
      of
      the People's Republic of China for a period from November 2006 through October
      2056. The Company obtained possession of the land in July of 2005. Accordingly,
      the Company is amortizing the cost of the right to use land from that
      date.




The
      right
      to use land is amortized over a period of 50 years and the computer software
      is
      amortized over three years.





Fair
      Value of Financial Instruments





Statement
      of financial accounting standard No. 107, Disclosures about fair value of
      financial instruments, requires that the Company disclose estimated fair values
      of financial instruments. The carrying amounts reported in the statements of
      financial position for current assets and current liabilities qualifying as
      financial instruments are a reasonable estimate of fair value.





Revenue
      Recognition




The
      Company's revenue recognition policies are in compliance with Staff accounting
      bulletin (SAB) 104. Revenue is recognized when services are rendered to
      customers when a formal arrangement exists, the price is fixed or determinable,
      the delivery is completed, no other significant obligations of the Company
      exist
      and collectibility is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are satisfied are recorded as unearned
      revenue. The Company is not subject to VAT withholdings.




The
      Company gives volume rebates to certain customers based on volume achieved.
      The
      Company accrues sales rebates based on actual sales volume.




Stock-Based
      Compensation





The
      Company accounts for its stock-based compensation in accordance with SFAS No.
      123R, “Share-Based Payment, an Amendment of FASB Statement No. 123.” The Company
      recognizes in the statement of operations the grant-date fair value of stock
      options and other equity-based compensation issued to employees and
      non-employees. No options were outstanding at March 31, 2007 nor had any options
      been granted in prior periods.





Income
      Taxes





The
      Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax bases of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized.





Foreign
      Currency Transactions and Comprehensive Income





Accounting
      principles generally require that recognized revenue, expenses, gains and losses
      be included in net income. Certain statements, however, require entities to
      report specific changes in assets and liabilities, such as gain or loss on
      foreign currency translation, as a separate component of the equity section
      of
      the balance sheet. Such items, along with net income, are components of
      comprehensive income. The functional currency of the Company is Chinese
      Renminbi. The unit of Renminbi is in Yuan. Translation gains of $167,753 at
      March 31, 2007 are classified as an item of other comprehensive income in the
      stockholders’ equity section of the consolidated balance sheet. During the three
      months ended March 31, 2007 and 2006, other comprehensive income in the
      consolidated statements of income and other comprehensive income included
      translation gains of $50,907 and $11,132, respectively.


F-8
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


Basic
      and Diluted Earnings Per Share





Earnings
      per share is calculated in accordance with the Statement of financial accounting
      standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
      Accounting Principles Board Opinion No.15 (APB 15). Net earnings per share
      for
      all periods presented has been restated to reflect the adoption of SFAS No.
      128.
      Basic net earnings per share is based upon the weighted average number of common
      shares outstanding. Diluted net earnings per share is based on the assumption
      that all dilutive convertible shares and stock options were converted or
      exercised. Dilution is computed by applying the treasury stock method. Under
      this method, options and warrants are assumed to be exercised at the beginning
      of the period (or at the time of issuance, if later), and as if funds obtained
      thereby were used to purchase common stock at the average market price during
      the period. There were no options, warrants or dilutive securities outstanding
      during the three months ended March 31, 2006 and during the three months ended
      March 31, 2007, there were 160,000 warrants outstanding, but the exercise price
      was greater than the Company average stock price for the quarter; therefore,
      the
      basic and diluted earnings per shares for both the three months ended March
      31,
      2007 and 2006 are the same.




Statement
      of Cash Flows





In
      accordance with Statement of Financial Accounting Standards No. 95, “Statement
      of Cash Flows,” cash flows from the Company’s operations are calculated based
      upon the local currencies. As a result, amounts related to assets and
      liabilities reported on the statement of cash flows will not necessarily agree
      with changes in the corresponding balances on the balance sheet.





Segment
      Reporting





Statement
      of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
      Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
      is based on the way a company’s management organizes segments within the company
      for making operating decisions and assessing performance. Reportable segments
      are based on products and services, geography, legal structure, management
      structure, or any other manner in which management disaggregates a company.
      SFAS
      131 has no effect on the Company’s consolidated financial statements as the
      Company consists of one reportable business segment.





Recent
      Pronouncements




Fair
      Value Measurements




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


F-9
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
  Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans, an
      Amendment of FASB Statements No. 87, 88, 106, and 132R




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







Fair
      Value Option for Financial Assets and Financial Liabilities





In
      February of 2007 the FASB issued SFAS 159, “ The
      Fair
      Value Option for Financial Assets and Financial Liabilities —Including
      an amendment of FASB Statement No. 115.” The statement permits entities to
      choose to measure many financial instruments and certain other items at fair
      value. The objective is to improve financial reporting by providing entities
      with the opportunity to mitigate volatility in reported earnings caused by
      measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. The statement is effective as of the
      beginning of an entity’s first fiscal year that begins after November 15, 2007.
      The Company is analyzing the potential accounting treatment.





Other-Than-Temporary
      Impairment




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


F-10
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
  FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
      interpretation of FASB Statement No.109.”




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




Considering
      the Effects of Prior Year Misstatements in Current Year Financial
      Statements




In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements,” (“SAB
      108”),which provides interpretive guidance on the consideration of the effects
      of prior year misstatements in quantifying current year misstatements for the
      purpose of a materiality assessment. The Company adopted SAB 108 in the fourth
      quarter of 2006 with no impact on its consolidated financial
      statements.




**Note
      3 - Notes Payable**





Notes
      payable at March 31, 2007 were as follows:




Short-term
                bank loan; interest rate of 7.02% payable monthly.
              The
                term of the loan is from May 18, 2006 to May 17, 2007.
              This
                loan is collateralized by the Company’s office building,
              workshop,
                employee dorms and use right of land.
            
            $
            582,660Short-term
                bank loan; interest rate of 6.125% at March 31,
              2007.
                The term of the loan is from December 5, 2006 to
              December
                4, 2007, has an interest rate between 5.58% and
              6.125%,
                and is payable monthly. This loan is collateralized by
              the
                Company’s machinery and equipment.
            
            
            116,532$
            699,192


F-11
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
  **Note
      4 - Stockholders’ Equity**





On
      February 6, 2007, the Board of Directors approved the sale of 2,750,000 units
      in
      a private placement offering. Each unit consists of one share of common stock
      and warrants to purchase shares of
      common
      stockequal 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
      (there were two additional closings through April 29, 2007-See Note 11). 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 have not been
      registered under the Securities Act, or any state securities laws, and unless
      so
      registered, may not be sold in the United States except pursuant to an exemption
      from, or in a transaction not subject to, the registration requirements of
      the
      Securities Act and applicable state securities laws. In connection with the
      above mentioned private placement offering , the Company paid commissions and
      fees totaling $276,335.





The
      value
      of the 160,000 warrants (80,000 to the investor and 80,000 to the placement
      agent) of $226,610 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 is 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 plans to file
      the
      registration statement within 60 days of the final closing (April 29, 2007
      - see
      note 11) related to this private placement.





**Note
      5 - Employee Welfare Plan**





The
      Company has established its own employee welfare plan in accordance with Chinese
      law and regulations. The Company makes annual contributions of 14% of all
      employees’ salaries to the employee welfare plan. The total expense for the
      above plan was $4,412 and $16,081 for the three months ended March 31, 2007
      and
      2006, respectively. The Company has recorded welfare payable of $78,610 at
      March
      31, 2007 which is included in tax and welfare payable in the accompanying
      consolidated balance sheet.




**Note
      6 - Statutory Common Welfare Fund**




As
      stipulated by the Company Law of the People’s Republic of China (PRC), net
      income after taxation can only be distributed as dividends after appropriation
      has been made for the following:








i.
            Making
                up cumulative prior years’ losses, if any;


F-12
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**


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” (“SCWF”),
                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 has appropriated $86,991 and $31,209 as reserve for the statutory
      surplus reserve for the three months ended March 31, 2007 and 2006,
      respectively.





**Note
      7 -**  **Earnings
      Per Share**





Earnings
      per share for the three months ended March 31, 2007 and 2006 were determined
      by
      dividing net income for the periods by the weighted average number of both
      basic
      and diluted shares of common stock and common stock equivalents outstanding.
      At
      March 31, 2007 and 2006, there were no dilutive securities.





**Note
      8 - Related Party Transactions**





During
      the three months ended March 31, 2007, the Company repaid $742,468 in advances
      from related parties.




Due
      to
      related parties and due from related parties represent amounts payable and
      receivable from related partiesarising from purchases and sales transactions.





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





Sales
      to
      related parties amounted to $77,054 and $25,746 for the three months ended
      March 31, 2007 and 2006, respectively.





Due
      from
      related parties amounted to $93,187 as of March 31, 2007.





Purchases
      from related parties amounted to $9,284 and $4,928 for the three months ended
      March 31, 2007 and 2006, respectively.




F-13
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
  Due
      to
      related party amounted to $4,661 as of March 31, 2007.





The
      parties are related through one common shareholder who is a majority shareholder
      in all the related entities.





**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 33%.





A
      reconciliation of tax at United States federal statutory rate to provision
      for
      income tax recorded in the financial statements is as follows:





For
                the Three MonthsEnded
                March 31,2007
            
            2006Tax
                provision (credit) at statutory rate
            
            
            34%
            
            
            34%Foreign
                tax rate difference
            
            
            (1%)
            
            
            (1%)Effect
                of tax holiday and waiver ofcurrent
                tax liability
            
            
            (15%)
            
            
            -18%
            
            
            33%





In
      July
      2006, as a result of an investment by a foreign investor in one of the Company’s
      subsidiaries, the Company’s subsidiary became a Sino-Foreign Joint Venture.
      Pursuant to the Chinese income tax law, the Company’s subsidiary became fully
      exempt from income tax for a period of two years from July 14, 2006 to July
      14,
      2008, followed by a reduced tax rate of 15% for the next three years. Concurrent
      with the exemption, the tax authorities waived approximately CNY 3,400,000
      ($425,429) in taxes due.




The
      effect of the change of tax status has been accounted for in accordance with
      SFAS No. 109, par. 28, which states that the effect of a change in tax status
      is
      computed as of the date of change and is included in the tax provision for
      continuing operations. Management believes that the local tax authorities would
      not have waived past taxes had it not been for the change in the Company’s
      subsidiary’s tax status.





If
      the
      Company’s subsidiary had not been exempt from paying income taxes due to the
      Sino-Foreign Joint Venture described above, income tax expense for the three
      months ended March 31, 2007 would have been approximately $313,000 and earnings
      per share would have been reduced to $0.01.








**Note
      10 - Acquisition of**  **Guangxi
      Huijie Sci. & Tech. Feed Co, Ltd**





On
      December 20, 2006, the Company completed its acquisition of Guangxi Huijie.
      The
      Company acquired 100% of Guangxi Huijie’s issued and outstanding shares of
      common stock for $1,100,420 which was paid in cash. Guangxi Huijie is engaged
      in
      the research and development, manufacture, marketing, distribution and sale
      of
      pre-mix fodder blended feed and feed additives primarily for use in China’s
      domestic pork husbandry market. Guangxi Huijie operates a production plant
      in
      Nanning City and sells to distributors and large-scale swine farms. The Company
      acquired Guangxi Huijie as part of its strategic growth plan.


F-14
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
  The
      operating results of Guangxi Huijie are included in the accompanying
      consolidated statements of operations from the acquisition date.




The
      following table summarizes the fair values of the assets acquired and
      liabilities assumed at the date of acquisition.  The fair values are
      based on third-party valuation.






Cash
            
            $
            151,990Accounts
                receivable
            
            
            473,976Other
                receivables
            
            
            166,741Inventory
            
            
            290,184Other
                current assets
            
            
            57,809Property
                and equipment
            
            
            614,510Intangible
                assets
            
            
            464,246Accounts
                payable
            
            
            (218,131
            )Notes
                payable
            
            
            (115,326
            )Advances
                from related party
            
            
            (737,827
            )Other
                current liabilities
            
            
            (47,752
            )Purchase
                price
            
            $
            1,100,420





The
      intangible assets, which is principally land rights, is being amortized over
      50
      years.





The
      pro
      forma financial information that the consolidated operations of the Company
      as
      if the Guangxi Huijie acquisition had occurred as of the beginning of the
      periods presented is presented below.








**For
                the three months ended March 31, 2006**




**As
                Reported****by
                the**
            
            **Guangxi****Company**
            
            **Huijie**
            
            **Adjustments**
            
            
            
            **Pro
                forma**Net
                Revenue
            
            $
            2,094,289
            
            $
            1,543,893
            
            $
            -
            
            
            
            
            $
            3,638,182Cost
                of Revenue
            
            
            1,305,090
            
            
            1,068,569
            
            
            -
            
            
            
            
            
            2,373,659Gross
                Profit
            
            
            789,199
            
            
            475,324
            
            
            -
            
            
            
            
            
            1,264,523Operating
                expenses:Selling
                expenses
            
            
            265,512
            
            
            39,178
            
            
            -
            
            
            
            
            
            304,690General
                and administrative expenses
            
            
            109,471
            
            
            44,124
            
            
            1,356
            
            
            a.
            
            
            154,951Total
                operating expenses
            
            
            374,983
            
            
            83,302
            
            
            1,356
            
            
            
            
            
            459,641Income
                from operations
            
            
            414,216
            
            
            392,022
            
            
            (1,356
            )
            
            
            
            
            804,882Non-operating
                income (expense):Other
                income (expense)
            
            
            948
            
            
            (129
            )Interest
                income
            
            
            181
            
            
            164
            
            
            -
            
            
            
            
            
            345Interest
                expense
            
            
            -
            
            
            (1,756
            )
            
            (19,423
            )
            
            b.
            
            
            (21,179
            )Total
                non-operating income (expense)
            
            
            1,129
            
            
            (1,721
            )
            
            (19,423
            )
            
            
            
            
            (20,834
            )Income
                before income tax
            
            
            415,345
            
            
            390,301
            
            
            (20,779
            )
            
            
            
            
            784,048Income
                tax
            
            
            136,963
            
            
            96,562
            
            
            -
            
            
            
            
            
            233,525Net
                income
            
            $
            278,382
            
            $
            293,739
            
            $
            (20,779
            )
            
            
            
            $
            550,523Earnings
                per share
            
            $
            0.02
            
            
            
            
            
            
            
            
            
            
            $
            0.04Weighted
                average shares outstanding
            
            
            15,006,723
            
            
            
            
            
            
            
            
            
            
            
            15,006,723





a.
            to
                record additional amortization for the increase in basis of the land
                use
                rights as a result of the purchase.


b.
            to
                record interest expense on the acquisition
                note.


F-15
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
  **Note
      11 - Subsequent Event**




In
      connection with the private placement offering of units of one share of our
      common stock and a warrant to purchase our common stock (8% coverage) for $3USD
      approved by our Board of Directors on February 6, 2007 (see Note 4), subsequent
      to the initial closing of $3,000,000 on February 28, 2007, the Company sold
      (i)
      an additional 712,753 units for proceeds of $2,138,259 on April 6, 2007 and
      (ii)
      a further additional 564,000 units on April 29, 2007 for proceeds of $1,692,000.
      Total proceeds from the offering were $6,830,259 on the sale of 2,276,753 units.
      Fees of (i) 8% of the securities in cash and (ii) a number of common stock
      purchase warrants equal to 8% of the units placed were paid to participating
      selected dealers and a finder. The securities offered in the private placement
      have not been registered under the Securities Act, or any state securities
      laws,
      and unless so registered, may not be sold in the United State 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-16
  **Item
      2.**  **Management's
      Discussion and Analysis or Plan of Operations**




**INTRODUCTION**





The
      following discussion should be read in conjunction with the Audited Financial
      Statements and Notes thereto included in Form 10-KSB for the year ended December
      31, 2006. This document contains certain forward-looking statements including,
      among others, anticipated trends in our financial condition and results of
      operations and our business strategy. These forward-looking statements are
      based
      largely on our current expectations and are subject to a number of risks and
      uncertainties. Actual results could differ materially from these forward-looking
      statements. Important factors to consider in evaluating such forward-looking
      statements include (i) changes in external factors or in our internal budgeting
      process which might impact trends in our results of operations; (ii)
      unanticipated working capital or other cash requirements; (iii) changes in
      our
      business strategy or an inability to execute our strategy due to unanticipated
      changes in the industries in which the Company operates; and (iv) various
      competitive market factors that may prevent us from competing successfully
      in
      the marketplace.







**Overview**





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




**Critical
      Accounting Policies**




USE
      OF
      ESTIMATES: Our discussion and analysis of our financial condition and results
      of
      operations are based upon our consolidated financial statements, which have
      been
      prepared in accordance with accounting principles generally accepted in the
      United States of America. The preparation of these consolidated financial
      statements requires us to make estimates and judgments that affect the reported
      amounts of assets, liabilities, revenues and expenses, and related disclosures
      of contingent assets and liabilities. On an ongoing basis, we evaluate our
      estimates, including those related to impairment of long-lived assets, and
      allowance for doubtful accounts. We base our estimates on historical experience
      and on various other assumptions that we believe to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying value of assets and liabilities that are not readily apparent
      from
      other sources. Actual results may differ from these estimates under different
      assumptions or conditions; however, we believe that our estimates, including
      those for the above-described items, are reasonable.




FOREIGN
      CURRENTY TRANSLATION: Our accounts are maintained and our consolidated financial
      statements were expressed in the Chinese Yuan Renminbi (CNY). Such consolidated
      financial statements are translated into U.S. Dollars (USD) in accordance with
      Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency
      Translation," with the CNY as the functional currency. According to the
      Statement, all assets and liabilities are translated at the exchange rate on
      the
      balance sheet date, stockholder's equity are translated at the historical rates
      and statement of operations items are translated at the weighted average
      exchange rate for the year. The resulting translation adjustments are reported
      under other comprehensive income in accordance with SFAS No. 130, "Reporting
      Comprehensive Income.”


2





REVENUE
      RECOGNITION: Our revenue recognition policies are in compliance with Staff
      accounting bulletin (SAB) 104. Revenue is recognized when services are rendered
      to customers when a formal arrangement exists, the price is fixed or
      determinable, the delivery is completed, no other significant obligations exist
      and collectibility is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are satisfied are recorded as unearned
      revenue. We are not subject to VAT withholdings. We give volume rebates to
      certain customers based on volume achieved. We accrue sales rebates based on
      actual sales volume.




STOCK
      BASED COMPENSATION: We account for stock-based compensation in accordance with
      SFAS No. 123R, “Share-Based Payment, an Amendment of FASB Statement No. 123.” We
      recognize in the statement of operations the grant-date fair value of stock
      options and other equity-based compensation issued to employees and
      non-employees.






For
      a
      description of these and other generally accepted accounting policies that
      we
      follow, see note 2, *Summary
      of Significant Accounting Policies* ,
      contained in the explanatory notes to our annual consolidated financials
      statements included with our Annual Report on Form 10KSB for the year ended
      December 31, 2006.






**Recent
      Accounting Pronouncements**





Fair
      Value Measurements


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





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




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







Fair
      Value Option for Financial Assets and Financial Liabilities




3




In
      February of 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities—Including an amendment of FASB Statement No.
      115.” The statement permits entities to choose to measure many financial
      instruments and certain other items at fair value. The objective is to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reported earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions. The statement is effective as of the beginning of an entity’s first
      fiscal year that begins after November 15, 2007. We are analyzing the potential
      accounting treatment.





Other-Than-Temporary
      Impairment





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





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





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




4


Considering
      the Effects of Prior Year Misstatements in Current Year Financial
      Statements


In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements,” (“SAB
      108”),which provides interpretive guidance on the consideration of the effects
      of prior year misstatements in quantifying current year misstatements for the
      purpose of a materiality assessment. The Company adopted SAB 108 in the fourth
      quarter of 2006 with no impact on its consolidated financial
      statements.





*Three
      Months Ended March 31, 2007 compared to Three Months Ended March 31,
      2006*





Revenues.
      We generated revenues of $4,978,295 for the three months ended March 31, 2007,
      an increase of $2,884,006 or 137.71%, compared to $2,094,289 for the three
      months ended March 31, 2006. The increase in revenue was due to an increase
      in
      all feed products sold by us, the acquisition of the Guangxi Huijie subsidiary
      and the introduction of the Airubao
      Series, a new
      special blended feed product formulated especially for baby pigs. We sold
      4,330.5 metric tons (MT) of pre-mix sold for the three months ended March 31,
      2007, an increase of 418.5 metric tons or 10.7%, versus 3,912 MT for the three
      months ended March 31, 2006. Blended feed (not including 1,900 MT of Airubao
      Series) sold during the three months ended March 31, 2007 was 1128.3 MT, an
      increase of 530.2 MT or 88.6%, versus 598.1 MT for the three months ended March
      31, 2006. In addition, sales of other feeds increased from 161.4 MT for the
      three months ended March 31, 2006 to 272 MT during the three months ended
      March 31, 2007, an increase of110.6 MT or 68.5%.





During
      March 2007, we launched a new special blended feed designed specifically for
      baby pigs, called the Airubao Series. The Airubao Series is intended to be
      used four days after weaning. Its main ingredients are amino acids, vitamins,
      feed additives and minerals. It is intended to maximize the baby pig’s feed
      intake, help the baby pig adapt to corn feeding, enhance immunity and
      digestibility, and reduce post-weaning syndrome. The large pig farms are
      expected to be the largest users of the Airubao Series although we have
      introduced the Series to the small individual farmers as well. We have gained
      immediate acceptance from our customers, signing sales contracts for
      approximately $2,000,000 as of mid April 2007. We delivered approximately
      $1.2million of this new product during the three month period ended March 31,
      2007. This product line consists of a series of three distinct formulations,
      the
      average gross margin is approximately 24%, and the average selling price is
      approximately $670 per MT. The Annual Report on China’s Feed Industry, published
      by the Chinese government, estimates that the market for premium baby pig feed
      is approximately $3.8 billion per year.





Gross
      Profit. Gross profit for the three months period ended March 31, 2007 was
      $1,543,206, an increase of $754,007 or 95.54% compared to $789,199 for the
      same
      period ended March 31, 2006. Gross margins decreased to 31.00% from 37.68%
      for
      the same period last year. The decrease in gross margin can be attributed to
      several factors: (i) the cost of introducing the Airubao Series, which we
      believe is a great introductory product with a gross profit margin of
      approximately 24% in comparison to our blended feed products which during
      the three month period ended March 31, 2007 had a gross profit margin of
      approximately 17.0%; (ii) we experienced approximately a 37.8% increase in
      the
      unit cost of goods sold of blended feed during the three months ended March
      31,
      2007 compared to the same period in 2006; (iii) the unit cost of goods sold
      for
      premix products increased approximately 5.9% during the three months ended
      March
      31, 2007 compared to the same period in 2006.





Costs
      and
      Expenses. The cost of sales in the three month period ended March 31, 2007
      was
      $3,435,089, an increase of $2,129,999 or 163.21% compared to $1,305,090 for
      the
      same period ended March 31, 2006. We experienced approximately 37.8% and 5.9%
      increase in the unit cost of goods sold for blended feed and premix products,
      respectively, during the three month period ended March 31, 2007 compared to
      the
      same period in 2006. In order to provide excellent customer service and
      differentiate ourselves from our competition, at our customer’s request we
      supply to them customized formulations of our products. In any given month,
      the
      cost of the various additives used fluctuates, which can be reflected in
      temporary increases in unit cost of goods sold. We believe even though this
      may
      have an effect on our short term profits, we take the long term view that it
      builds customer loyalty and builds the AgFeed brand.





5


Selling,
      General and Administrative Expenses. Our expenses for the three month
      period ended March 31, 2007 were $565,315 compared to $374,983 for the three
      month period ended March 31, 2006, an increase of $190,332 or 50.76%. Our
      general and administrative expense increased by 102.72% or $112,453 to $221,924
      for the three month period ended March 31, 2007 compared to $109,471 for the
      three month period ended March 31, 2006. We incurred legal and audit expense
      in
      the three month period ended March 31, 2007 associated with being a publicly
      listed company that we did not incur during the same period in 2006. General
      and
      administrative expense includes the overhead expenses of our office (rent,
      management and staff salaries, general insurance, marketing, accounting and
      legal). Selling expenses for the period increased by 29.33% and is due to the
      137.71% increase in revenues and the costs associated with entering markets
      in
      neighboring provinces. We attempted to control our selling expenses through
      the
      use of strict cost controls and efficient use of our distribution
      channels.





Net
      Income. Our net income for the three month period ended March 31, 2007 was
      $779,181 compared to $278,382 for the three month period ended March 31, 2006,
      an increase of $500,799 or 179.90%, resulting from the $563,675 or 136.08%
      increase in income from operations, during the three month period ended March
      31, 2007 our income from operations was $977,891 compared to $414,216 for the
      three month period ended March 31, 2006. Non operating expense was $23,412
      during the three month period ended March 31, 2007, compared to $1,129 of non
      operating income for the three month period ended March 31, 2006. The major
      reason for the expense during this period in 2007 was interest paid in
      connection with the acquisition of Guangxi Huijie. In addition, our Nanchang
      Best subsidiary became a Sino Foreign Joint Venture due to an investment by
      a
      foreign investor in July of 2006. Nanchang Best receives favorable tax status
      and is exempt from income tax through July 14, 2008 and will pay a reduced
      rate
      of 15% for the next three years. As a result income taxes were only paid by
      our
      Shanghai Best and Guangxi Huijie subsidiaries during the three month period
      ended March 31, 2007.





**Liquidity
      and Capital Resources**





At
      March
      31, 2007, we had $2,672,889 cash and cash equivalents on hand. During the three
      month period ending March 31, 2007, we initiated an offering of our securities
      in a private placement. On February 28, 2007, we received $3,000,000 for the
      sale of our securities. We extended the offering through April 29, 2007. Our
      principal demands for liquidity are to increase capacity, raw materials
      purchase, sales distribution, and the possible acquisition of new subsidiaries
      in our industry as opportunities present themselves, as well as general
      corporate purposes.





At
      the
      close of the private placement on April 29, 2007, we received a total of
      $6,830,259 for the sale of our securities to accredited investors. A total
      of
      2,276,753 units were sold, each unit represented one share of our common stock
      and a three year common stock purchase warrant. Each unit was priced at $3.00
      per unit, each stock purchase warrant provided for 8% warrant coverage of the
      number of units purchased. In connection with the private placement, fees of
      8%
      of the securities placed was payable in cash and a number of common stock
      purchase warrants equal to 8% of the units placed were paid to participating
      dealers and a finder. All stock purchase warrants have a three year term and
      have an initial exercise price of $5.00. We received net proceeds from the
      private placement of $6,231,602.28 after deduction of costs associated with
      the
      financing of $598,656.72. We used $1,131,000 of the net proceeds to repay the
      short term bank loan we had in connection with our acquisition Guangxi Huijie.
      We also used $160,000 to make a good faith deposit with a company that we are
      in
      negotiations to acquire.





As
      of
      March 31, 2007, we had total loans payable of $699,192, comprised of two loans.
      A short term bank loan of $582,660, with an interest rate of 7.02% payable
      monthly, and due May 17, 2007, collateralized by our office building, workshop,
      employee dorms, and use right of land. A short term bank loan of $116,532,
      payable December 4, 2007, with an interest rate between 5.58% and 6.125%,
      payable monthly, and is collateralized by our machinery and equipment.





We
      have
      purchased and sold products to other business entities that our President,
      Mr.
      Xiong Junhong has an ownership stake.




6




As
      of
      March 31, 2007 these other entities have a balance due to us in the amount
      of
      $93,187 for products that we sold to them. The following chart provides the
      amount due from each entity and the percentage ownership of Mr. Xiong in each
      entity.





Name
                of Business Entity
            
            Amount
                due to AgFeed
            
            Percentage
                ownership of Mr. XiongBeijing
                Best Animal Husbandry Co., Ltd.
            
            $
            21,728
            
            
            51
            %Nanchang
                Tiandiren Tech. Development Co., Ltd.
            
            
            37
            
            
            73
            %Xiamen
                Best Animal Husbandry Co., Ltd
            
            
            5,338
            
            
            52
            %Guangzhou
                Best Animal Husbandry Co., Ltd.
            
            
            20,670
            
            
            78.5
            %Jiujiang
                Best Hog Farm
            
            
            45,414
            
            
            87
            %Total
                Amount Due
            
            $
            93,187





As
      of
      March 31, 2007 we owe Nanchang Tiandiren Technology Development Co., Ltd $4,661
      for products that we purchased from them. Mr. Xiong owns 73% of this
      entity.








At
      March
      31, 2007 our accounts payable was $1,339,353 and other payables was $44,458.
      The
      Company's accounts receivable increased by $1,655,257 for the three months
      ended
      March 31, 2007. Other receivables decreased by $115,817. Advances to
      suppliers increased $167,177 while inventory increased $127,704 during the
      period.





Our
      accounts payable increased $529,770, other payables decreased $12,453, unearned
      revenues decreased $30,666 and accrued expenses decreased $43,655. Tax and
      welfare payable increased $131,608, for the three months ended March 31, 2007.





We
      used
      $24,125 in investing activities during the three month period ended March 31,
      2007 for the acquisition of property and equipment.





We
      received $2,024,846 in cash from financing activities. We received $2,723,665,
      net of offering costs, from the sale of our securities during the three months
      ended March 31, 2007. We used $1,102,004 to repay the note payable associated
      with the acquisition of Guangxi Huijie. We used $160,000 to make a good faith
      payment to a company that we are in
      negotiations to acquire. We also
      received $226,083 on the collection of a subscription receivable, and $930,623
      was received from advances that were made to related parties. During the three
      month period ended March 31, 2007 we used $753,521 to pay advances from
      shareholders.





We
      intend
      to meet our liquidity requirements, including capital expenditures related
      to
      the purchase of equipment, purchase of raw materials, and the expansion of
      our
      business, through cash flow provided by operations and funds raised through
      cash
      investments. On February 28, 2007, we closed the first round of a private
      placement to an accredited investor. We sold $3,000,000 of units of our
      securities, each unit consisting of one share of common stock and a warrant
      to
      purchase .08 share of common stock.  Each unit was priced at
      $3.00. Fees of (i) 8% of the securities placed payable in cash, and (ii) a
      number of common stock purchase warrants equal to 8% of the number of units
      placed were paid to participating selected dealers. The stock purchase warrants
      have a term of three years and are exercisable at an initial exercise price
      of
      $5.00 per share.





On
      April
      6, 2007 we closed on the second round of the private placement. We received
      $2,138,259 for the sale of 712,753 units of our securities, before deductions
      of
      offering expenses. We closed the third round of the private placement on April
      29, 2007 and we received $1,692,000 for the purchase of 564,000 units of our
      securities, before deductions of offering expenses. The terms of these two
      rounds of the private placement were the same as the first described
      above.





We
      believe that adequate cash flow will be available to fund our operations,
      although we may raise additional funds in the future





The
      majority of the Company's revenues and expenses were denominated primarily
      in
      Renminbi ("RMB"), the currency of the People's Republic of China.




7




There
      is
      no assurance that exchange rates between the RMB and the U.S. Dollar will remain
      stable. The Company does not engage in currency hedging. Inflation has not
      had a
      material impact on the Company's business.




**Item
      3.****Controls
      and Procedures**





The
      Chief
      Executive Officer and Chief Financial Officer conducted an evaluation of the
      effectiveness of the design and operation of the Company's disclosure controls
      and procedures (as defined in Rule 13a-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. Based on that evaluation, the Chief Executive Officer and Chief
      Financial Officer concluded that the Company's disclosure controls and
      procedures were effective as of the end of the period covered by this report.
      There were no significant changes in internal control over financial reporting
      (as defined in Rule 13a-15f under the Exchange Act) that occurred during the
      three months ended March 31, 2007 that have materially affected, or are
      reasonably likely to materially affect, the Company's internal control over
      financial reporting.




**Part
      II.**  **OTHER
      INFORMATION**





**Item
      1.**  **Legal
      Proceedings**





None.





**Item
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**





As
      part
      of a private placement of up to 2,750,000 units of its securities, each unit
      consisting of one share of common stock and a warrant to purchase shares of
      common stock equal to 8% of the number of shares purchased (the “Private
      Placement”), on February 28, 2007 the Company sold one million units, at a price
      per unit of $3.00, for a total price of $3,000,000 to an “accredited investor”,
      as that term is defined in Regulation D adopted pursuant to the Securities
      Act
      of 1933, as amended. The Company paid to a selected dealer a placement fee
      (i)
      in cash of 8% of the sales price of the units sold and (ii) a number of common
      stock purchase warrants equal to 8% of the number of units sold.





The
      warrants have a term of three years and an exercise price of five dollars.
      The
      issuance of the shares of common stock and warrants sold in the Private
      Placement was exempt from registration under the Securities Act of 1933, as
      amended, pursuant to the provisions of Regulation 506 adopted by the Securities
      Exchange Commission.





The
      shares of common stock sold in the Private Placement and the shares of common
      stock issuable upon exercise of the warrants sold in the Private Placement
      are
      covered by a Registration Rights Agreement entered into by the Company in
      connection with the Private Placement.





Subsequent
      to March 31, 2007, in April 2007, as part of the Private Placement, the Company
      sold an aggregate of an additional 1,276,753 units on the terms and conditions
      set forth above.





**Item
      3.**  **Defaults
      Upon Senior Securities**





None.




8




**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**





None.





**Item
      5.**  **Other
      Information**





None.





**Item
      6.**  **Exhibits**





(a)
            Exhibits





**Exhibit
                Number**
            **Description
                of Exhibit**4.1
            Form
                of Common Stock Purchase Warrant forming part of units sold, and
                also
                issued as compensation to selected dealers.4.2
            Form
                of Registration Rights Agreement.31.1
            Certification
                of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
                promulgated under the Securities and Exchange Act of 1934, as
                amended31.2
            Certification
                of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d
                14(a),
                promulgated under the Securities and Exchange Act of 1934, as
                amended32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Executive
                Officer)32.2
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Financial
                Officer)





**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Agfeed
                Industries, Inc.May
              14,
              2007
            By:
            /s/ Xiong
              JunhongXiong
                Junhong
              Chief
                Executive Officer (Principal Executive
                Officer)  May
                14,
                2007
              By:
              /s/ Yan
                Laing
                FanYan
                    Laing Fan
                  Chief
                    Financial Officer
                  (Principal
                    Financial and Accounting
                    Officer)





9