**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**


(Mark
      One)





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





**For
      the quarterly period ended June 30, 2008**





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





For
      the
      transition period from ________________ to _______________





**001-33674**


(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.)




**Rm.
      A1001-1002, Tower 16**


**Hengmao
      Int'l Center**


**333
      S. Guangchang Rd.**


**Nanchang,
      Jiangxi Province**


**China
      330003**


(Address
      of principal executive offices)





**011-86-0791-6669099**


**** (Issuer’s
      telephone number)





**N/A**


(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
x No
       o





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


Large
                  accelerated filer o
              Accelerated
                  filer  oNon-accelerated
                  filer o
              Smaller
                  reporting company x(Do
                  not check if a smaller reporting company)




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




As
      of
      August 7, 2008 there were 33,295,406  shares
      of
      common stock were outstanding.










**AGFEED
      INDUSTRIES, INC.**


**Index**


PageNumberPART
                  I.
              FINANCIAL
                  INFORMATIONItem
                  1.
              Financial
                  StatementsConsolidated
                  Balance Sheets as of June 30, 2008 (unaudited)and
                  December 31, 2007
              2Consolidated
                  Statements of Income and Other Comprehensive Incomefor
                  the three and six months ended June 30, 2008 and 2007
                  (unaudited)
              3Consolidated
                  Statements of Cash Flows for thesix
                  months ended June 30, 2008 and 2007 (unaudited)
              4Notes
                  to Consolidated Financial Statements (unaudited)
              5Item
                  2.
              Management’s
                  Discussion and Analysis or Plan of Operations
              27Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              35Item
                  4.
              Controls
                  and Procedures
              35PART
                  II.
              OTHER
                  INFORMATION
              36Item
                  1.
              Legal
                  Proceedings
              36Item
                  1A.
              Risk
                  Factors
              36Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              36Item
                  3.
              Defaults
                  Upon Senior Securities
              36Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              36Item
                  5.
              Other
                  Information
              36Item
                  6.
              Exhibits
              37SIGNATURES
              38





1


**AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **AS
        OF JUNE 30, 2008 AND DECEMBER 31, 2007**
 
 
 **June 30,**
              
              **December 31,****2008**
              
              **2007**(unaudited)**ASSETS****CURRENT
                  ASSETS:**Cash
                  and cash equivalents
              
              $
              31,267,717
              
              $
              7,696,209Accounts
                  receivable, net of allowance for doubtful accountsof
                  $235,702 and $191,497
              
              
              8,322,615
              
              
              6,107,491Advances
                  to suppliers
              
              
              1,206,924
              
              
              442,851Other
                  receivable
              
              
              688,185
              
              
              459,034Due
                  from former stockholders
              
              
              320,799
              
              
              -Inventory
              
              
              17,834,531
              
              
              2,728,160Prepaid
                  expense
              
              
              818,299
              
              
              644,183Debt
                  issue costs
              
              
              423,808
              
              
              -Other
                  current assets
              
              
              491,144
              
              
              -Total
                  current assets
              
              
              61,374,022
              
              
              18,077,928**PROPERTY
                  AND EQUIPMENT, net**
              
              
              17,526,028
              
              
              3,930,715**CONSTRUCTION-IN-PROGRESS**
              
              
              4,272,102
              
              
              221,819**INTANGIBLE
                  ASSETS**
              
              
              40,639,331
              
              
              839,802**OTHER
                  ASSETS**
              
              
              1,629,286
              
              
              -**TOTAL
                  ASSETS**
              
              $
              125,440,769
              
              $
              23,070,264**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES:**Accounts
                  payable
              
              $
              3,644,225
              
              $
              1,458,010Other
                  payables
              
              
              3,972,003
              
              
              705,150Unearned
                  revenue
              
              
              72,975
              
              
              99,848Accrued
                  expenses
              
              
              438,385
              
              
              18,223Accrued
                  payroll
              
              
              340,877
              
              
              168,560Short
                  term loans
              
              
              -
              
              
              1,110,413Tax
                  and welfare payable
              
              
              135,415
              
              
              9,534Interest
                  payable
              
              
              296,033
              
              
              -Acquisitons
                  payable
              
              
              12,630,425
              
              
              -Total
                  current liabilities
              
              
              21,530,338
              
              
              3,569,738CONVERTIBLE
                  NOTES, net of debt discount of $997,362 and $0
              
              
              4,302,638
              
              
              -TOTAL
                  LIABILITIES
              
              
              25,832,976
              
              
              3,569,738MINORITY
                  INTEREST
              
              
              1,354,069
              
              
              -**STOCKHOLDERS'
                  EQUITY:**Common
                  stock, $0.001 per share; 75,000,000 shares authorized;33,143,326
                  and 27,026,756 shares issued and outstanding
              
              
              33,143
              
              
              27,027Additional
                  paid-in capital
              
              
              81,212,239
              
              
              10,094,095Other
                  comprehensive income
              
              
              3,569,035
              
              
              780,907Statutory
                  reserve
              
              
              1,601,048
              
              
              752,225Retained
                  earnings
              
              
              11,838,259
              
              
              7,846,272Total
                  stockholders' equity
              
              
              98,253,724
              
              
              19,500,526**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              125,440,769
              
              $
              23,070,264
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
 
 2
  **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME**
 **FOR
        THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007**
  **Three Months Ended June 30,**
                
                **Six Months Ended June 30,****2008**
                
                **2007**
                
                **2008**
                
                **2007**(unaudited)
                
                (unaudited)
                
                (unaudited)
                
                (unaudited)**Net
                    Revenue**
                
                $
                35,635,327
                
                $
                6,891,153
                
                $
                47,782,411
                
                $
                11,869,448**Cost
                    of Revenue**
                
                
                24,600,502
                
                
                4,881,227
                
                
                33,314,625
                
                
                8,316,316**Gross
                    profit**
                
                
                11,034,825
                
                
                2,009,926
                
                
                14,467,786
                
                
                3,553,132Operating
                    expensesSelling
                    expenses
                
                
                873,580
                
                
                529,625
                
                
                1,627,202
                
                
                873,016General
                    and administrative expenses
                
                
                1,389,088
                
                
                259,777
                
                
                2,343,309
                
                
                481,701Total
                    operating expenses
                
                
                2,262,668
                
                
                789,402
                
                
                3,970,511
                
                
                1,354,717**Income
                    from operations**
                
                
                8,772,157
                
                
                1,220,524
                
                
                10,497,275
                
                
                2,198,415Non-operating
                    income (expense):Other
                    income (expense)
                
                
                (10,999
                )
                
                1,652
                
                
                (25,570
                )
                
                10,722Interest
                    income
                
                
                76,060
                
                
                44,023
                
                
                126,235
                
                
                54,190Interest
                    and financing costs
                
                
                (4,312,559
                )
                
                (20,956
                )
                
                (4,639,201
                )
                
                (63,605
                )Foreign
                    currency transaction loss
                
                
                (319,273
                )
                
                -
                
                
                (543,746
                )
                
                -Total
                    non-operating income (expense)
                
                
                (4,566,771
                )
                
                24,719
                
                
                (5,082,282
                )
                
                1,307Income
                    before minority interest and provision for income taxes
                
                
                4,205,386
                
                
                1,245,243
                
                
                5,414,993
                
                
                2,199,722Minority
                    Interest in Subsidiaries
                
                
                (167,047
                )
                
                -
                
                
                (361,094
                )
                
                -Income
                    before provision for income taxes
                
                
                4,038,339
                
                
                1,245,243
                
                
                5,053,899
                
                
                2,199,722Provision
                    (benefit) for income taxes
                
                
                116,826
                
                
                (215,759
                )
                
                213,089
                
                
                (40,461
                )**Net
                    income**
                
                $
                3,921,513
                
                $
                1,461,002
                
                $
                4,840,810
                
                $
                2,240,183Other
                    comprehensive incomeForeign
                    currency translation gain
                
                
                1,776,427
                
                
                92,277
                
                
                2,788,128
                
                
                143,183**Comprehensive
                    Income**
                
                $
                5,697,940
                
                $
                1,553,279
                
                $
                7,628,938
                
                $
                2,383,366**Weighted
                    average shares outstanding :**Basic
                
                
                32,054,366
                
                
                25,935,813
                
                
                29,928,503
                
                
                25,144,526Diluted
                
                
                32,404,339
                
                
                25,959,272
                
                
                30,233,681
                
                
                25,144,526**Earnings
                    per share:**Basic
                
                $
                0.12
                
                $
                0.06
                
                $
                0.16
                
                $
                0.09Diluted
                
                $
                0.12
                
                $
                0.06
                
                $
                0.16
                
                $
                0.09
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
 
 3
 
 **AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**
  **Six Months Ended June 30,****2008**
              
              **2007**(unaudited)
              
              (unaudited)**CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  income
              
              $
              4,840,810
              
              $
              2,240,183Adjustments
                  to reconcile net income to net cashprovided
                  in (used in) operating activities:Depreciation
              
              
              548,435
              
              
              77,897Amortization
              
              
              26,297
              
              
              48,981Loss
                  on disposal of assets
              
              
              16,774
              
              
              -Stock
                  based compensation
              
              
              30,882
              
              
              -Amortization
                  of debt issuance costs
              
              
              1,292,858
              
              
              -Amortization
                  of discount on convertible debt
              
              
              3,042,523
              
              
              -Gain
                  attributed to minority interest in subsidiaries
              
              
              361,094
              
              
              -(Increase)
                  / decrease in assets:Accounts
                  receivable
              
              
              (1,181,173
              )
              
              (3,412,186
              )Other
                  receivable
              
              
              (261,770
              )
              
              (53,432
              )Inventory
              
              
              (6,734,125
              )
              
              (118,418
              )Due
                  from related party
              
              
              -
              
              
              100,703Due
                  from former stockholders
              
              
              (320,799
              )
              
              -Advances
                  to suppliers
              
              
              (716,690
              )
              
              (40,399
              )Prepaid
                  expense
              
              
              (152,899
              )
              
              (86,241
              )Other
                  assets
              
              
              (1,714,363
              )
              
              (666,903
              )Increase
                  / (decrease) in current liabilities:Accounts
                  payable
              
              
              1,752,653
              
              
              476,037Other
                  payables
              
              
              2,754,802
              
              
              (29,166
              )Unearned
                  revenue
              
              
              (32,436
              )
              
              (24,259
              )Accrued
                  expenses
              
              
              385,186
              
              
              101,000Accrued
                  payroll
              
              
              157,328
              
              
              55,832Tax
                  and welfare payable
              
              
              122,047
              
              
              (59,307
              )Interest
                  payable
              
              
              296,033
              
              
              -Net
                  cash provided by (used in) operating activities
              
              
              4,513,467
              
              
              (1,389,678
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of property and equipment
              
              
              (3,097,732
              )
              
              (52,656
              )Acquisition
                  of intangible assets
              
              
              (71,646
              )
              
              -Cash
                  paid for purchase of hog farms, net
              
              
              (47,798,825
              )
              
              -Net
                  cash used in investing activities
              
              
              (50,968,203
              )
              
              (52,656
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Repayment
                  to shareholders
              
              
              -
              
              
              (746,645
              )Proceeds
                  from loans
              
              
              -
              
              
              1,086,646Proceeds
                  from the sale of common stock
              
              
              57,200,058
              
              
              9,830,259Offering
                  costs
              
              
              (5,908,325
              )
              
              (822,756
              )Proceeds
                  from exercise of warrants
              
              
              2,061,760
              
              
              -Payment
                  on note payable
              
              
              (1,110,413
              )
              
              (1,102,004
              )Collection
                  of subscription receivable
              
              
              -
              
              
              226,083Collection
                  from related parties
              
              
              -
              
              
              935,859Proceeds
                  from the issuance of convertible notes
              
              
              19,000,000
              
              
              -Issuance
                  costs for convertible notes
              
              
              (1,716,666
              )
              
              -Net
                  cash provided by financing activities
              
              
              69,526,414
              
              
              9,407,442Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              499,830
              
              
              30,779**NET
                  INCREASE IN CASH & CASH EQUIVALENTS**
              
              
              23,571,508
              
              
              7,995,887**CASH
                  & CASH EQUIVALENTS, BEGINNING BALANCE**
              
              
              7,696,209
              
              
              1,204,100**CASH
                  & CASH EQUIVALENTS, ENDING BALANCE**
              
              $
              31,267,717
              
              $
              9,199,987**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Interest
                  paid
              
              $
              40,696
              
              $
              33,602Income
                  taxes paid
              
              $
              90,878
              
              $
              53,982
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
 
 4




**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





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





The
      unaudited consolidated financial statements have been prepared by AgFeed
      Industries, Inc. pursuant to the rules and regulations of the Securities
      Exchange Commission (“SEC”). 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-K. The results for the six months ended June 30, 2008 are
      not
      necessarily indicative of the results to be expected for the full year ending
      December 31, 2008.





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 a
      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.





As
      a
      result of the reverse merger transactions described above the historical
      financial statements presented are those of Nanchang Best and Shanghai Best,
      the
      operating entities.





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


5


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





The
      Company obtained the funds for the acquisition of the Guangxi Huijie shares
      by
      borrowing 8,600,000 RMB 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.





On
      November 6, 2007, the Company entered into a Stock Purchase Agreement with
      Lushan Breeder Pig Farm Co., Ltd. (“Lushan”), a Peoples Republic of China
      company located in HuaLin Town of XingZi County in Jiangxi Province, Peoples
      Republic of China, Huaping Yang and Hongyun Luo, the holders of ninety percent
      (90%) of the issued and outstanding capital stock of Lushan.





In
      2008,
      the Company has purchased an additional 24 hog farms and one feed company.
      The
      Company’s ownership interest in these hog farms range from 55% to
      100%.





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 as well as raising,
      breeding and sale of pigs. The Company operates production plants in Nanchang
      City, Shanghai City, Nanning City and Haikou City and has swine farms located
      in
      the southern provinces of China. The Company 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 wholly-owned and majority-owned subsidiaries.  All
      significant inter-company accounts and transactions have been eliminated in
      consolidation.





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





Foreign
      Currency Translation





The
      accounts of the Company were maintained, and their consolidated financial
      statements were expressed in RMB. Such consolidated financial statements were
      translated into USD in accordance with Statement of Financial Accounting
      Standards ("SFAS") No. 52, "Foreign Currency Translation," with the RMB 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”.


6


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


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





Reclassification





Certain
      prior period amounts have been reclassified to conform to the period ended
      June
      30, 2008 presentation.





Cash
      and Cash Equivalents





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





Accounts
      Receivable





The
      Company maintains reserves for potential credit losses on accounts receivable.
      Management reviews the composition of accounts receivable and analyzes
      historical bad debts, customer concentrations, customer credit worthiness,
      current economic trends and changes in customer payment patterns to evaluate
      the
      adequacy of these reserves.





Advances
      to Suppliers





The
      Company makes advances to certain vendors for purchase of its materials. The
      advances to suppliers are interest free and unsecured.





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


7


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





Property
      & Equipment





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





Office
                equipment
            
            
            5
                yearsOperating
                equipment
            
            
            10
                yearsVehicles
            
            
            5
                yearsBuildings
            
            
            20
                yearsSwine
                for reproduction
            
            
            3.5
                years





The
      following are the details of the property and equipment at June 30, 2008 and
      December 31, 2007:




June 30, 2008
            
            December 31, 2007Office
                equipment
            
            $
            292,414
            
            $
            100,072Operating
                equipment
            
            
            1,550,460
            
            
            547,560Vehicles
            
            
            486,394
            
            
            271,652Buildings
            
            
            5,042,292
            
            
            1,568,816Swines
                for reproduction
            
            
            11,238,401
            
            
            1,940,784Total
            
            
            18,609,961
            
            
            4,428,884Less
                accumulated depreciation
            
            
            (1,083,933
            )
            
            (498,169
            )$
            17,526,028
            
            $
            3,930,715





Depreciation
      expense for the three and six months ended June 30, 2008 and 2007 was $362,682
      and $548,435 and $38,052 and $77,897, respectively.





Long-Lived
      Assets





The
      Company applies the provisions of SFAS 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 June 30, 2008
      there were no significant impairments of its long-lived assets.


8


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





Intangible
      Assets





Intangible
      assets consist of the right to use land and computer software. Net intangible
      assets at June 30, 2008 and December 31, 2007 are as follows:





June 30, 2008
            
            December 31, 2007Right
                to use land
            
            $
            759,332
            
            $
            589,489Customer
                list
            
            
            291,800
            
            
            274,176Computer
                software
            
            
            81,137
            
            
            -Intangible
                related to hog farm acquisitions
            
            
            39,563,961
            
            
            15,366Total
            
            
            40,696,230
            
            
            879,031Less
                Accumulated amortization
            
            
            (56,899
            )
            
            (39,229
            )Intangibles,
                net
            
            $
            40,639,331
            
            $
            839,802





Per
      the
      People's Republic of China's (“PRC”) governmental regulations, the Government
      owns all land. The Company leases land per real estate contracts with the
      government of the PRC for fifty years. Accordingly, the right to use land for
      the Company's feed companies is amortized over a period of 50 years and the
      computer software is amortized over six years. For hog farms, the Company
      generally signed land leasing contracts with original owners of the farms.





Revenue
      Recognition




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




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





Sales
      returns and rebates included in the Company's revenues were $338,452 and
      $103,482 for the six month periods ended June 30, 2008 and 2007,
      respectively.





Advertising
      Costs





The
      Company expenses the cost of advertising as incurred or, as appropriate, the
      first time the advertising takes place.  Advertising costs for the
      three and six months ended June 30, 2008 and 2007, were not
      significant.




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. There were 45,000 options outstanding at June 30,
      2008.


9


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





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.





The
      Company adopted the provisions of FASB Interpretation No. 48, Accounting for
      Uncertainty in Income Taxes, on January 1, 2007. As a result of the
      implementation of FIN 48, the Company made a comprehensive review of its
      portfolio of tax positions in accordance with recognition standards established
      by FIN 48. As a result of the implementation of Interpretation 48, the Company
      recognized no material adjustments to liabilities or stockholders’ equity. When
      tax returns are filed, it is highly certain that some positions taken would
      be
      sustained upon examination by the taxing authorities, while others are subject
      to uncertainty about the merits of the position taken or the amount of the
      position that would be ultimately sustained. The benefit of a tax position
      is
      recognized in the financial statements in the period during which, based on
      all
      available evidence, management believes it is more likely than not that the
      position will be sustained upon examination, including the resolution of appeals
      or litigation processes, if any. Tax positions taken are not offset or
      aggregated with other positions. Tax positions that meet the
      more-likely-than-not recognition threshold are measured as the largest amount
      of
      tax benefit that is more than 50 percent likely of being realized upon
      settlement with the applicable taxing authority. The portion of the benefits
      associated with tax positions taken that exceeds the amount measured as
      described above is reflected as a liability for unrecognized tax benefits in
      the
      accompanying balance sheets along with any associated interest and penalties
      that would be payable to the taxing authorities upon examination. Interest
      associated with unrecognized tax benefits are classified as interest expense
      and
      penalties are classified in selling, general and administrative expenses in
      the
      statements of income. The adoption of FIN 48 did not have a material impact
      on
      the Company’s financial statements.





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 the RMB.
      Translation gains of $3,569,035 and $780,907 at June 30, 2008 and December
      31,
      2007, respectively, are classified as an item of other comprehensive income
      in
      the stockholders’ equity section of the consolidated balance sheet. During the
      three and six months ended June 30, 2008 and 2007, other comprehensive income
      in
      the consolidated statements of income and other comprehensive income included
      translation gains of $1,776,427 and $2,788,128, $92,277 and $143,183,
      respectively.


10


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





Basic
      and Diluted Earnings Per Share





Earnings
      per share is calculated in accordance with 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 earnings per share is based upon the weighted
      average number of common shares outstanding. Diluted earnings per share is
      based
      on the assumption that all dilutive convertible shares and stock 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 22,000 options outstanding at June 30,
      2007
      and at June 30, 2008, there were 45,000 options outstanding and 531,935 warrants
      outstanding.





The
      following is a reconciliation of the number of shares (denominator) used in
      the
      basic and diluted earnings per share computations for the three and six months
      ended June 30, 2008 and 2007:








**Three
                Months Ended:**
            
            June
                30, 2008
            
            June
                30, 2007Per
                Share
            
            
            
            Per
                ShareShares
            
            Amount
            
            Shares
            
            AmountBasic
                earnings per share
            
            
            32,054,366
            
            $
            0.12
            
            
            25,935,813
            
            $
            0.06Effect
                of dilutive stock options/warrants
            
            
            344,167
            
            
            -
            
            
            23,459
            
            
            -Diluted
                earnings per share
            
            
            32,398,533
            
            $
            0.12
            
            
            25,959,272
            
            $
            0.06





**Six
                Months Ended:**
            
            June
                30, 2008
            
            June
                30, 2007Per
                Share
            
            
            
            Per
                ShareShares
            
            Amount
            
            Shares
            
            AmountBasic
                earnings per share
            
            
            29,928,503
            
            $
            0.16
            
            
            25,144,526
            
            $
            0.07Effect
                of dilutive stock options/warrants
            
            
            298,627
            
            
            -
            
            
            -
            
            
            -Diluted
                earnings per share
            
            
            30,227,130
            
            $
            0.16
            
            
            25,144,526
            
            $
            0.07





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.





Minority
      Interest





The
      Company purchased interest in 24 hog farms and one feed company ranging from
      55%
      to 100%. As a result of these purchases, the Company recognized initial minority
      interest on its consolidated balance sheet in the amount of $917,079. The income
      (loss) attributed to minority interest has been separately designated in the
      accompanying statement of operations.


11


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





Segment
      Reporting





SFAS
      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. The Company has determined that it has four
      reportable segments (See Note 12).





Fair
      Value of Financial Instruments





On
      January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements.
      SFAS
      No. 157 defines fair value, establishes a three-level valuation hierarchy for
      disclosures of fair value measurement and enhances disclosures requirements
      for
      fair value measures. The carrying amounts reported in the balance sheets for
      receivables and current liabilities each qualify as financial instruments and
      are a reasonable estimate of fair value because of the short period of time
      between the origination of such instruments and their expected realization
      and
      their current market rate of interest. The three levels are defined as
      follow:





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





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





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





As
      of
      June 30, 2008, the Company did not identify any assets and liabilities that
      are
      required to be presented on the balance sheet at fair value.





Recent
      Pronouncements





In
      June
      2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
      Nonrefundable Advance Payments for Goods or Services Received for use in Future
      Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
      nonrefundable advance payments for goods or services that used or rendered
      for
      research and development activities should be expensed when the advance payment
      is made or when the research and development activity has been
      performed.  Management is currently evaluating the effect of this
      pronouncement on financial statements.





In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
      Combinations.” SFAS No. 141R changes how a reporting enterprise accounts
      for the acquisition of a business. SFAS No. 141R requires an acquiring
      entity to recognize all the assets acquired and liabilities assumed in a
      transaction at the acquisition-date fair value, with limited exceptions, and
      applies to a wider range of transactions or events. SFAS No. 141R is
      effective for fiscal years beginning on or after December 15, 2008 and
      early adoption and retrospective application is prohibited.


12


**AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**
 **(UNAUDITED)**


In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements”, which is an amendment of Accounting Research
      Bulletin (“ARB”) No. 51.  SFAS 160 clarifies that a noncontrolling
      interest in a subsidiary is an ownership interest in the consolidated entity
      that should be reported as equity in the consolidated financial
      statements.  SFAS 160 changes the way the consolidated income
      statement is presented, thus requiring consolidated net income to be reported
      at
      amounts that include the amounts attributable to both parent and the
      noncontrolling interest.  SFAS 160 is effective for the fiscal years,
      and interim periods within those fiscal years, beginning on or after December
      15, 2008.  Based on current conditions, the Company does not expect
      the adoption of SFAS 160 to have a significant impact on its results of
      operations or financial position.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities an amendment of FASB
      Statement No. 133 .”
SFAS
      161 changes the disclosure requirements for derivative instruments and hedging
      activities. Entities are required to provide enhanced disclosures about (a)
      how
      and why an entity uses derivative instruments, (b) how derivative instruments
      and related hedged items are accounted for under SFAS 133 and its related
      interpretations, and (c) how derivative instruments and related hedged items
      affect an entity’s financial position, financial performance, and cash flows.
      Based on current conditions, the Company does not expect the adoption of SFAS
      161 to have a significant impact on its results of operations or financial
      position.





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” SFAS 162 identifies the sources of accounting principles
      and the framework for selecting the principles to be used in the preparation
      of
      financial statements of nongovernmental entities that are presented in
      conformity with generally accepted accounting principles (GAAP) in the United
      States (the GAAP hierarchy). SFAS 162 will not have an impact on the Company’s
      financial statements.





In
      May
      2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
      Insurance Contracts, an interpretation of FASB
      Statement No. 60 .”
The
      scope of SFAS 163 is limited to financial guarantee insurance (and reinsurance)
      contracts, as described in this Statement, issued by enterprises included within
      the scope of Statement 60. Accordingly, SFAS 163 does not apply to financial
      guarantee contracts issued by enterprises excluded from the scope of Statement
      60 or to some insurance contracts that seem similar to financial guarantee
      insurance contracts issued by insurance enterprises (such as mortgage guaranty
      insurance or credit insurance on trade receivables). SFAS 163 also does not
      apply to financial guarantee insurance contracts that are derivative instruments
      included within the scope of FASB
      Statement No. 133 ,
      “Accounting for Derivative Instruments and Hedging Activities.” SFAS 163 will
      not have an impact on the Company’s financial statements.


13


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





**Note
      3 – Short Term Loans**





Short
      term loans at December 31, 2007 are follows:





December 31,
              2007Short-term
                bank loan; interest rate of 7.884% and 7.02% payable monthly. The
                term of
                the loan is from May 28, 2007 to May 27, 2008 and May 18, 2006 to
                May 17,
                2007. This loan was collateralized by the Company’s office building,
                workshop, employee dorms and use right of land.This
                loan was repaid on May 28, 2008.
            
            $
            822,528Short-term
                bank loan; interest rate of 6.57% and 6.12%.  The term of the
                loan was from May 25, 2007 to May 24, 2008 and December 5, 2006 to
                December 4, 2007.  This loan was collateralized by the Company’s
                right to use land, machinery and equipment. This loan was repaid
                on May
                25, 2008.
            
            
            287,885$
            1,110,413





**Note
      4 – Convertible Notes**





On
      February 25, 2008, the Company entered into a Securities Purchase Agreement
      with
      Apollo Asia Opportunity Master Fund, L.P., Jabcap Multi-Strategy Master Fund
      Limited, J-Invest Ltd., and Deutsche Bank AG London Branch (the “Investors”) in
      connection with a private placement transaction providing for, among other
      things, the issuance of senior convertible notes for aggregate gross proceeds
      of
      $19 million (the “Notes”)and warrants to purchase up to an aggregate of 380,000
      shares (the “Warrants”) of the Company’s $0.001 par value per share common
      stock. The notes mature on the third anniversary of the issuance date, bear
      interest at 7% per annum and are convertible into shares of the Company’s common
      stock at an initial conversion price of $10.00 per share. The conversion price
      is subject to a “weighted average ratchet” anti-dilution adjustment. The
      conversion price is also subject to adjustment on a proportional basis, to
      the
      extent that the Company’s audited net income for the fiscal years ending 2008
      and 2009 is less than $30 million and $40 million, respectively; subject to
      a
      per share floor price of $5.00.





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





In
      connection with the issuance of the Notes and the Warrants issued to the
      Investor on February 25, 2008, the Company paid $1,716,666 in debt issuance
      cost
      which is being amortized over the life of the Notes. For the three and six
      months ended June 30, 2008, the Company amortized $1,238,037 and $1,292,858,
      respectively of the aforesaid issuance costs as interest and financing costs
      in
      the accompanying consolidated statements of operations.





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


14


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





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





The
      exercise price of the Warrants is subject to a “weighted average ratchet”
anti-dilution adjustment. The exercise price is also subject to adjustment,
      on a
      proportional basis, to the extent that the Company’s audited net income for the
      fiscal years ending 2008 and 2009 is less than $30 million and $40 million,
      respectively; subject to a per share floor price of $5.00.





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





The
      Warrants granted to the Investor on February 25, 2008 and conversion feature
      in
      the above Notes are not considered derivative instruments that need to be
      bifurcated from the original security since the Warrants and the Notes since
      the
      conversion price of the Notes have a floor of $5.00, which means the Company
      can
      determine the maximum shares that could be issued upon conversion. The Company
      determined the fair value of the detachable warrants issued in connection with
      the Notes to be $1,269,442, using the Black-Scholes option pricing model and
      the
      following assumptions:  expected life of 1 year, a risk free
      interest rate of 2.10%, a dividend yield of 0% and volatility of 70%.
      In addition, the Company determined the value of the beneficial conversion
      feature to be $2,770,442. The combined total discount for the Notes
      is $4,039,885 and is being amortized over the term of the Notes. For the
      three and six months ended June 30, 2008, the Company amortized $2,913,512
      and
      $3,042,523, respectively, of the aforesaid discounts as interest and financing
      costs in the accompanying consolidated statements of operations.





During
      the three months ended June 30, 2008, $13,700,000 of the Notes were converted
      into 1,370,000 shares of common stock.





**Note
      5 – Stockholders’ Equity**





In
      February 2008, the Company entered into a Securities Purchase Agreement with
      Focus Trading Investments Limited, Advantage Consultants Limited, and CD Capital
      Investments, Ltd. In connection with a registered direct offering of securities
      providing for the issuance of 2,444,448 shares of the Company’s common stock at
      price of $9.00 per share for aggregate gross proceeds of $22,000,032. The
      Company paid commissions and expenses associated with this offering of
      $3,432,670.





The
      Common Stock for the registered offering was issued pursuant to a prospectus
      supplement filed with the Commission on February 26, 2008, in connection with
      a
      shelf takedown from the Company’s Registration Statement on Form S-3 (File No.
      333-144386) which was declared effective by the Commission on January 11,
      2008.





On
      April
      16, 2008, the Company entered into a Securities Purchase Agreement (“Securities
      Purchase Agreement”) with two institutional investors (collectively, the
“Investors”) in connection with a registered direct offering of securities
      providing for the issuance of 625,000 shares of the Company’s Common Stock at
      price of $16.00 per share for aggregate gross proceeds of $10,000,000.


15


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





The
      Common Stock for the registered offering was issued pursuant to a prospectus
      supplement filed with the Commission on April 21, 2008, in connection with
      a
      shelf takedown from the Company’s Registration Statement on Form S-3 (File No.
      333-144386) which was declared effective by the Commission on January 11, 2008.





The
      closing under the Securities Purchase Agreement took place on April 21, 2008.
      The placement agent for this transaction was Rodman & Renshaw, LLC, which
      received a fee of six percent (6%) of the gross proceeds, or $600,000.





The
      Securities Purchase Agreement contains representations, warranties, and
      covenants of the Company and the Investors which are typical for transactions
      of
      this type.





On
      April
      22, 2008, the Company entered into Securities Purchase Agreements (collectively,
      the “Securities Purchase Agreements”) with a group of 14 institutional investors
      (collectively, the “Investors”) in connection with a registered direct offering
      of securities providing for the issuance of 1,322,836 shares of the
      Company’s Common Stock at price of $19.05 per share for aggregate gross proceeds
      of $25,200,026.





The
      Common Stock for the registered offering was issued pursuant to a prospectus
      supplement filed with the Commission on April 24, 2008, in connection with
      a
      shelf takedown from the Company’s Registration Statement on Form S-3 (File No.
      333-148386) which was declared effective by the Commission on January 11, 2008.





The
      closing under the Securities Purchase Agreements took place on April 24, 2008.
      The placement agent for the sale of 797,901 shares of Common Stock at an
      aggregate purchase price of $15,200,014.05 was Rodman & Renshaw, LLC, which
      received a fee of $638,401 (4.2% of the gross proceeds). Additionally, the
      Company paid a finders fee of $350,000 to Advantage Consultants Limited in
      connection with the offering.





The
      Securities Purchase Agreements contain representations, warranties, and
      covenants of the Company and the Investors which are typical for transactions
      of
      this type.





During
      the six months ended June 30, 2008 the Company issued 91,934 shares upon the
      cashless exercise of 197,500 warrants. In addition, the Company received
      proceeds of $2,061,760 upon the exercise of 262,352 warrants.





**Note
      6 – Employee Welfare Plan**





The
      Company had its own employee welfare plan in accordance with Chinese law and
      regulations before all six subsidiaries in China became Sino-foreign joint
      ventures. The Company made annual contributions of 14% of all employees’
salaries to the employee welfare plan. The total expense for the above plan
      was
      $(2,856) and $35,172, and $24,664 and $29,076 for the three and six months
      ended
      June 30, 2008 and 2007, respectively. In accordance with Chinese law, a
      Sino-foreign joint venture is not required to accrue welfare payable in advance.
      All six subsidiaries have stopped accruing such payable since each changed
      into
      a Sino-foreign company. Instead, welfare expense is recorded as incurred.


16


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





**Note
      7 - Statutory Common Welfare Fund**





As
      stipulated by the Company Law of the PRC, net income after taxation can only
      be
      distributed as dividends after appropriation has been made for the
      following:





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





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 $789,263 and $848,823, and $90,810 and $177,801 as
      reserve for the statutory surplus reserve and welfare fund for the three and
      six
      months ended June 30, 2008 and 2007, respectively.





**Note
      8 – Stock Options and Warrants**





Stock
      Options





Following
      is a summary of the stock option activity:





Options
              outstanding
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              average
              remaining
              contractual life
            
            Aggregate
              Intrinsic ValueOutstanding,
                December 31, 2007
            
            
            42,000
            
            $
            7.00
            
            
            
            
            
            -Granted
            
            
            25,000
            
            $
            9.31Forfeited
            
            
            (22,000
            )
            $
            5.30Exercised
            
            
            -
            
            
            -Outstanding,
                June 30, 2008
            
            
            45,000
            
            $
            9.11
            
            
            4.49
            
            $
            263,900Exercisable,
                June 30, 2008
            
            
            -


17


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





The
      assumptions used in calculating the fair value of options granted using the
      Black-Scholes option- pricing model are as follows:





Risk-free
                interest rate
            
            
            2.5
            %Expected
                life of the options
            
            
            4
                yearsExpected
                volatility
            
            
            72
            %Expected
                dividend yield
            
            
            0
            %





Warrants





The
      following is a summary of the warrant activity:





Outstanding,
                December 31, 2007
            
            
            611,787Granted
            
            
            380,000Forfeited
            
            
            -Exercised
            
            
            (459,852
            )Outstanding,
                June 30, 2008
            
            
            531,935





**Note
      9 - Related Party Transactions**





Sales
      to
      related parties amounted to $0 and $0, and $0 and $77,054 for the three and
      six
      months ended June 30, 2008 and 2007, respectively.





Purchases
      from related parties amounted to $0 and $0, and $0 and $9,284 for the three
      and
      six months ended June 30, 2008 and 2007, respectively.





Due
      from
      former stockholder of $320,799 as of June 30, 2008 was repaid in full in July
      2008.





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




**Note
      10 - 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%.





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 six years. Concurrent
      with the exemption, the tax authorities waived approximately RMB 3,400,000
      ($425,429) in taxes due.





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


18


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





On
      April
      25, 2007, Guangxi Huijie also received an exemption from income tax for the
      period from January 1, 2006 to December 31, 2008. The exemption was issued
      by
      the local government because Guangxi Huijie is located in a zone where the
      federal government encourages the establishment of new entities.





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
      and
      six months ended June 30, 2008 would have been approximately $1,370,000 and
      $1,700,000 and earnings per share would have been reduced by approximately
      $0.05
      and $0.05 per share, respectively.





**Note
      11 – Acquisitions**





Purchase
      of Hog Farms





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





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





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


19


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





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





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




In
      April
      2008, the Company acquired all of the equity interest, as well as the inventory
      of hogs, feed and veterinary drugs, in the Guangxi Nanning Wanghua Hog Farm,
      located at Jinhu Road, Nanning City, Guangxi Province, PRC, from Fan Xianfang
      and Wu Yuhua for a purchase price of RMB26,030,000 (USD$3,722,300). Guangxi
      Nanning Wanghua Hog Farm has annual hog production capability of 36,000 hogs
      and
      has estimated sales of approximately 26,000 hogs through the remainder of
      2008.




In
      April
      2008, the Company acquired all of the equity interest, together with all of
      their assets, including existing rights for land use, pig houses, office
      buildings, power and water supply facilities, existing inventory of hogs, feed
      and veterinary drugs, in the Guangxi Guigang Gangda Hog Farm, located at No.9
      Xijiang Hog Farm, Guigang City, Guangxi Province, PRC, from Su Zhenxue for
      a
      purchase price of RMB14,520,000 (USD$2,076,400). Guangxi Guigang Gangda Hog
      Farm
      has annual hog production capability of approximately 12,000 hogs and has
      estimated sales of approximately 8,400 hogs through the remainder of
      2008.




In
      April
      2008, the Company acquired all of the equity interest, together with all of
      their assets, including existing rights for land use, pig houses, office
      buildings, power and water supply facilities, existing inventory of hogs, feed
      and veterinary drugs, in the Guangxi Xingye Guihong Hog Farm, located at Xicun
      Village, Kuiyang Town, Xingye County, Yulin City, Guangxi Province, PRC, from
      Lin Weicai for a purchase price of RMB42,500,000 (USD$6,077,500). Guangxi Xinye
      Guihong Hog Farm has annual hog production capability of approximately 50,000
      hogs and has estimated sales of approximately 35,000 hogs through the remainder
      of 2008.




In
      April
      2008, the Company acquired all of the equity interest, together with all of
      their assets, including existing rights for land use, pig houses, office
      buildings, power and water supply facilities, existing inventory of hogs, feed
      and veterinary drugs, in the Hainan Haikou Meilan Hog Farm, located at Xianlai
      Village, Dazhipo Town, Haikou City, Hainan Province, PRC, from Zeng Niangou
      for
      a purchase price of RMB14,700,000 (USD$2,102,100). Hainan Haikou Meilan Hog
      Farm
      has annual hog production capability of approximately 21,500 hogs and has
      estimated sales of approximately 15,000 hogs through the remainder of
      2008.


20


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**




In
      April
      2008, the Company acquired all of the equity interest, together with all of
      their assets, including existing rights for land use, pig houses, office
      buildings, power and water supply facilities, existing inventory of hogs, feed
      and veterinary drugs, in the Hainan Haikou Wohao Hog Farm, located at Fuan
      Village, Shishan Town, Xiuying District, Haikou City, Hainan Province, PRC,
      from
      Wang Ruiying and Xu Dongqiong for a purchase price of RMB15,200,000
      (USD$2,173,600). Hainan Haikou Wohao Hog Farm has annual hog production
      capability of approximately 20,000 hogs and has estimated sales of approximately
      14,000 hogs through the remainder of 2008.




In
      April
      2008, the Company acquired sixty percent (60%) of the equity interest, as well
      as the inventory of hogs, feed and veterinary drugs, in the Guangxi Guilin
      Fuzhi
      Hog Farm, located at Sujia Village, Zhalin Town, Yanshan District, Guilin City,
      Guangxi Province, PRC, from Liu Fuzhi for a purchase price of RMB12,000,000
      (USD$1,716,000). Guangxi Guilin Fuzhi Hog Farm has annual hog production
      capability of approximately 20,000 hogs and has estimated sales of approximately
      14,000 hogs through the remainder of 2008.




In
      April
      2008, the Company acquired eighty percent (80%) of the equity interest, as
      well
      as the inventory of hogs, feed and veterinary drugs, in the Guangdong Lianjiang
      Xinfa Hog Farm, located at Lianjiang City, Guangdong Province, PRC, from Chen
      Shou for a purchase price of RMB11,000,000 (USD$1,573,000). Guangdong Lianjiang
      Xinfa Hog Farm has annual hog production capability of approximately 22,000
      hogs
      and has estimated sales of approximately 16,000 hogs through the remainder
      of
      2008.




In
      April
      2008, the Company acquired all of the equity interest, as well as the inventory
      of hogs, feed and veterinary drugs, in the Zhejiang Pinghu Yongxin Hog Farm,
      located at Pinghu City, Zhejiang Province, PRC, from Nie Yongqing for a purchase
      price of RMB10,480,000 (USD$1,498,600). Zhejiang Pinghu Yongxin Hog Farm has
      annual hog production capability of approximately 11,000 hogs and has estimated
      hog sales of approximately 7,500 hogs through the remainder of
      2008.




In
      April
      2008, the Company acquired all of the equity interest, as well as the inventory
      of hogs, feed and veterinary drugs, in the Shanghai Fengxian Hog Farm, located
      at Yuantong Village, Qianqiao Town, Fengxian District, Shanghai City, PRC,
      from
      Tu Yaoliang andYang Yongan for a purchase price of RMB35,000,000
      (USD$5,005,000). Shanghai Fengxian Hog Farm has annual hog production capability
      of approximately 32,000 hogs and has estimated sales of approximately 21,500
      hogs through the remainder of 2008.




In
      April
      2008, the Company acquired all of the equity interest, as well as the inventory
      of hogs, feed and veterinary drugs, in the Shanghai Tuanxi Hog Farm, located
      at
      Tuanxi Village, Datuan Town, Nanjiang District, Shanghai, PRC, from Cheng Longde
      for a purchase price of RMB7,000,000 (USD$1,001,000). Shanghai Tuanxi Hog Farm
      has annual hog production capability of approximately 8,500 hogs and has
      estimated sales of approximately 5,600 hogs through the remainder of
      2008.




In
      April
      2008, the Company acquired all of the equity interest, as well as the inventory
      of hogs, feed and veterinary drugs, in the Shanghai Senrong Hog Farm, located
      at
      Wanglong Village, Xinnong Town, Jinshan District, Shanghai, PRC, from Jin
      Shunyun, Shen Peitao, Shen Yazhen, Jin Zhigang and Jin Zhixian for a purchase
      price of RMB30,000,000 (USD$4,290,000). Shanghai Senrong Hog Farm has annual
      hog
      production capability of approximately 30,000 hogs and has estimated sales
      of
      approximately 20,500 hogs through the remainder of 2008.


21


**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**




In
      April
      2008, the Company acquired all of the equity interest, as well as the inventory
      of hogs, feed and veterinary drugs, in the Fujian Xiamen Muxin Hog Farm, located
      at Tongan District, Xiamen City, PRC, from Li Mingxing, Chen Shuilu, Zhang
      Guohua and Wu Xiaoyan for a purchase price of RMB29,320,000 (USD$4,192,800).
      Fujian Xiamen Muxin Hog Farm has annual hog production capability of
      approximately 50,000 hogs and has estimated sales of approximately 35,000 hogs
      through the remainder of 2008.




In
      April
      2008, the Company acquired all of the equity interest, as well as the inventory
      of hogs, feed and veterinary drugs, in the Xiamen Yuanshengtai Food Co.,Ltd.,
      a
      hog farm located at No.55 Binlang Road, Xiamen, Fujian Province, PRC, from
      Li
      Mingxing, Wu Xiaoyan and Hong Xiaoling for a purchase price of RMB26,200,000
      (USD$3,746,600). Xiamen Yuanshengtai Food Co. has annual hog production
      capability of approximately 38,000 hogs and has estimated sales of approximately
      25,000 hogs through the remainder of 2008.




In
      April
      2008, the Company acquired all of the equity interest, as well as the inventory
      of hogs, feed and veterinary drugs, in the Fujian Jianhua Hog Farm, located
      at
      Xudun Town, Jian’ou City, Fujian Province, PRC, from Fan Dehe and Pan Shengliang
      for a purchase price of RMB32,000,000 (USD$4,576,000). Fujian Jianhua Hog Farm
      has annual hog production capability of approximately 34,000 hogs and has
      estimated sales of approximately 23,000 hogs through the remainder of
      2008.




In
      April
      2008, the Company acquired all of the equity interest, as well as the inventory
      of hogs, feed and veterinary drugs, in Fujian Fengxiang Agribusiness Co., Ltd.,
      a hog farm located at Mawei District, Fuzhou City, Fujian Province, PRC, from
      Zhu Zuzhong for a purchase price of RMB8,100,000 (USD$1,158,300). Fujian
      Fengxiang Agribusiness has annual hog production capability of approximately
      10,000 hogs and has estimated sales of approximately 7,000 hogs through the
      remainder of 2008.




In
      April
      2008, the Company acquired all of the equity interest, as well as the inventory
      of hogs, feed and veterinary drugs, in the Jiangxi Zhiliang Hog Farm, located
      at
      Gancaoqian Village, Dayangzhou, Xingan County, Jiangxi Province, PRC, from
      Xie
      Zhiliang, Yang Guoqiang and Zeng Xiaohui for a purchase price of RMB8,000,000
      (USD$1,144,000). Jiangxi Zhiliang Hog Farm has annual hog production capability
      of approximately 10,000 hogs and has estimated sales of approximately of 6,500
      hogs through the remainder of 2008.





In
      May
      2008, the Company acquired all of the equity interest in Nanping Kangda Animal
      Husbandry Co., Ltd., a hog farm located at Yanping District, Nanping City,
      Fujian Province, PRC, from Chen Qingwen and Chen Jianming for a purchase price
      of RMB5,821,000 (USD$838,664). Nanping Kangda Animal Husbandry Co., Ltd. has
      annual hog production capability of approximately 12,000 hogs and has estimated
      sales of approximately 6,000 hogs through the remainder of 2008.




In
      May
      2008, the Company acquired all of the equity interest in Fujian Jianxi Breeder
      Hog Farm Co., Ltd., a breeder hog farm located at Zhishan District, Jianou
      City,
      Fujian Province, PRC, from Weng Lizhu and Zhang Yachui for a purchase price
      of
      RMB16,338,166 (USD$2,353,931). Fujian Jianxi Breeder Hog Farm Co., Ltd. has
      annual hog production capability of approximately 8,000 breeder hogs and 13,000
      meat hogs, with estimated sales of approximately 10,500 hogs through the
      remainder of 2008.





In
      June
      2008, the Company completed the acquisition of all of the equity interest in
      Shanghai WeiSheng Hog Raising Co., Ltd.(“Shanghai Weisheng”), a hog farm located
      in the Jinshan District, Shanghai City, PRC, for a negotiated purchase price
      of
      RMB12,820,000 (USD$1.87 million). Shanghai Weisheng has annual hog production
      capability of approximately 15,000 hogs and has estimated sales of approximately
      7,500 hogs through the remainder of 2008.


22




**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





Acquisition
      of Feed Company





In
      June
      2008, the Company completed the acquisition of premix feed company, Hainan
      HopeJia Feed Co., Ltd. ("HopeJia"), located in the Hainan province of the
      PRC.  The Company acquired all of the equity interest in HopeJia for a
      negotiated purchase price of RMB28,600,000 or approximately US$4.16
      million.





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





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





Cash
            
            $
            95,573Accounts
                receivable
            
            
            388,384Other
                receivables
            
            
            20,795Inventory
            
            
            8,640,797Other
                assets
            
            
            353,753Property
                and equipment
            
            
            13,117,529Construction
                in progress
            
            
            1,270,322Intangible
                assets
            
            
            38,029,108Accounts
                payable
            
            
            (318,197
            )Other
                paybles
            
            
            (389,602
            )Minority
                Interest
            
            
            (917,079
            )$
            60,291,383





The
      intangible asset related to the purchase of the hog farms is a preliminary
      allocation that is subject to change upon the completion of a formal
      appraisal.





The
      following pro forma financial information presents the consolidated operations
      of the Company as if the 25 above mentioned acquisitions had occurred on January
      1, 2007.




For
      the
      six months ended June 30, 2008 and 2007:





2008
            
            2007Net
                Revenue
            
            $
            51,993,600
            
            $
            21,799,848Gross
                profit
            
            $
            15,507,912
            
            $
            5,825,795Income
                from operations
            
            $
            11,196,727
            
            $
            3,893,313Minority
                Interest in Subsidiaries
            
            $
            361,094
            
            $
            73,925Net
                income
            
            $
            5,469,584
            
            $
            3,761,863Basic
                earnings per share
            
            $
            0.18
            
            $
            0.15




**Note
      12 – Segment Information**





The
      Company’s predominant businesses are 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 and the
      raising, breeding, and selling of pigs.  The Company operates in four
      segments: Shanghai, Guangxi, Nanchang, and hog farms.




23


**AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**
 **(UNAUDITED)**


Shanghai
      is located in the Nanxiang, Jia Ding district, Shanghai and sells its products
      to approximately 360 customers, consisting of 170 local distributors and 190
      large scale pig farms.  Guangxi is located in Coastal Industrial Park,
      Liangqin district, Nanning city, Guangxi Province and sells its products to
      approximately 325 customers, consisting of 140 local distributors and 185 large
      scale pig farms.  Nanchang is located in Chang Bei District Industrial
      Park, in Nanchang, Jiangxi province and sells its products to approximately
      300
      customers, consisting of 90 local distributors and 210 large scale pig
      farms.  Lushan is located in HuaLin Town of XingZi County in
      Jiangxi Province and is a mid-scale swine farm engaged mainly in raising,
      breeding, and sale of pigs all over the country.





The
      following tables summarize segment information for the three and six months
      ended June 30, 2008 and 2007:





**Three**
            
            **Three**
            
            **Six**
            
            **Six****Months**
            
            **Months**
            
            **Months**
            
            **Months****Ended**
            
            **Ended**
            
            **Ended**
            
            **Ended****6/30/2008**
            
            **6/30/2007**
            
            **6/30/2008**
            
            **6/30/2007****Revenues
                from unrelated entities**Shanghai
            
            $
            5,176,236
            
            $
            598,220
            
            $
            8,680,037
            
            $
            1,982,145Guangxi
            
            
            1,952,261
            
            
            2,099,446
            
            
            3,221,739
            
            
            3,643,339Nanchang
            
            
            5,088,775
            
            
            4,193,487
            
            
            9,327,797
            
            
            6,243,964Hog
                farms
            
            
            23,418,055
            
            
            -
            
            
            26,552,838
            
            
            -$
            35,635,327
            
            $
            6,891,153
            
            $
            47,782,411
            
            $
            11,869,448**Intersegment
                revenues**Shanghai
            
            $
            211,246
            
            $
            851,791
            
            $
            360,137
            
            $
            1,348,778Guangxi
            
            
            413,917
            
            
            -
            
            
            413,917
            
            
            -Nanchang
            
            
            624,927
            
            
            5,230
            
            
            1,066,492
            
            
            5,230Hog
                farms
            
            
            1,490
            
            
            -
            
            
            5,982
            
            
            -$
            1,251,580
            
            $
            857,021
            
            $
            1,846,528
            
            $
            1,354,008**Total
                Revenues**Shanghai
            
            $
            5,387,482
            
            $
            1,450,011
            
            $
            9,040,174
            
            $
            3,330,923Guangxi
            
            
            2,366,178
            
            
            2,099,446
            
            
            3,635,656
            
            
            3,643,339Nanchang
            
            
            5,713,702
            
            
            3,701,730
            
            
            10,394,289
            
            
            6,249,194Hog
                farms
            
            
            23,419,545
            
            
            -
            
            
            26,558,820
            
            
            -Less
                Intersegment revenues
            
            
            (1,251,580
            )
            
            (857,021
            )
            
            (1,846,528
            )
            
            (1,354,008
            )$
            35,635,327
            
            $
            6,394,166
            
            $
            47,782,411
            
            $
            11,869,448**Income
                from operations**Shanghai
            
            
            1,020,044
            
            
            341,015
            
            $
            1,666,733
            
            
            575,402Guangxi
            
            
            397,753
            
            
            386,547
            
            
            585,785
            
            
            779,569Nanchang
            
            
            740,541
            
            
            546,580
            
            
            1,445,445
            
            
            967,063Hog
                farms
            
            
            6,859,564
            
            
            -
            
            
            7,363,212
            
            
            -Holding
                Company
            
            
            (245,745
            )
            
            (54,618
            )
            
            (563,900
            )
            
            (123,619
            )$
            8,772,157
            
            
            1,219,524
            
            $
            10,497,275
            
            
            2,198,415




24


**AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**
 **(UNAUDITED)**




**Interest
                income**Shanghai
            
            $
            540
            
            $
            413
            
            $
            1,270
            
            $
            627Guangxi
            
            
            1,174
            
            
            673
            
            
            2,212
            
            
            837Nanchang
            
            
            36,384
            
            
            3,083
            
            
            49,670
            
            
            4,021Hog
                farms
            
            
            6,783
            
            
            -
            
            
            7,400
            
            
            -Holding
                Company
            
            
            31,179
            
            
            39,854
            
            
            65,683
            
            
            48,705$
            76,060
            
            $
            44,023
            
            $
            126,235
            
            
            54,190**Interest
                and financing costs**Shanghai
            
            $
            -
            
            $
            -
            
            $
            -
            
            
            -Guangxi
            
            
            2,950
            
            
            10,324
            
            
            7,785
            
            
            12,209Nanchang
            
            
            (12,566
            )
            
            10,632
            
            
            
            
            
            20,816Hog
                farms
            
            
            2
            
            
            30,580
            
            
            2
            
            
            30,580Holding
                Company
            
            
            4,322,173
            
            
            (30,580
            )
            
            4,631,414
            
            
            -$
            4,312,559
            
            $
            20,956
            
            $
            4,639,201
            
            $
            63,605**Income
                tax expense (benefit)**Shanghai
            
            $
            -
            
            $
            (78,736
            )
            $
            -
            
            $
            -Guangxi
            
            
            60,576
            
            
            (137,023
            )
            
            113,501
            
            
            (40,461
            )Nanchang
            
            
            56,250
            
            
            -
            
            
            99,588
            
            
            -Hog
                farms
            
            
            -
            
            
            -
            
            
            -
            
            
            -$
            116,826
            
            $
            (215,759
            )
            $
            213,089
            
            $
            (40,461
            )**Net
                Income**Shanghai
            
            $
            1,024,197
            
            $
            421,176
            
            $
            1,675,165
            
            $
            581,032Guangxi
            
            
            179,827
            
            
            514,919
            
            
            310,756
            
            
            808,658Nanchang
            
            
            537,582
            
            
            539,671
            
            
            974,400
            
            
            955,987Hog
                farms
            
            
            6,717,580
            
            
            -
            
            
            7,012,283
            
            
            -Holding
                Company
            
            
            (4,537,673
            )
            
            (14,764
            )
            
            (5,131,794
            )
            
            (105,494
            )$
            3,921,513
            
            $
            1,461,002
            
            $
            4,840,810
            
            $
            2,240,183**Provision
                for depreciation**Shanghai
            
            $
            21,373
            
            $
            5,215
            
            $
            42,746
            
            $
            13,911Guangxi
            
            
            12,991
            
            
            13,329
            
            
            25,982
            
            
            21,989Nanchang
            
            
            6,216
            
            
            19,508
            
            
            12,432
            
            
            41,997Hog
                farms
            
            
            322,102
            
            
            -
            
            
            467,275
            
            
            -$
            362,682
            
            $
            38,052
            
            $
            548,435
            
            $
            77,897




**As of
                6/30/08****Total
                Assets**Shanghai
            
            
            
            
            
            
            
            $
            4,562,519Guangxi
            
            
            
            
            
            
            
            
            7,304,711Nanchang
            
            
            
            
            
            
            
            
            8,464,856Hog
                farms
            
            
            
            
            
            
            
            
            85,568,653Holding
                Company
            
            
            
            
            
            
            
            
            19,540,030$
            125,440,769




25


**AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**
 **(UNAUDITED)**


**Note
      13 - Subsequent Event**




In
      July
      2008, certain convertible note holders converted $1,500,000 of their principal
      note balances into 150,000 shares of the Company’s common stock.




26




**CAUTIONARY
      STATEMENT FOR FORWARD-LOOKING STATEMENTS**




*This
      Quarterly Report on Form 10-QSB includes forward-looking statements within
      the
      meaning of Section 27A of the Securities Act of 1933, as amended, and Section
      21E of the Securities Exchange Act of 1934, as amended.  We have based
      these forward-looking statements on our current expectations and projections
      about future events.  These forward-looking statements are subject to
      known and unknown risks, uncertainties and assumptions about us that may cause
      our actual results, levels of activity, performance or achievements to be
      materially different from any future results, levels of activity, performance
      or
      achievements expressed or implied by such forward-looking
      statements.  In some cases, you can identify forward-looking
      statements by terminology such as “may,” “will,” “should,” “could,” “would,”
“expect,” “plan,” anticipate,” believe,” estimate,” continue,” or the negative
      of such terms or other similar expressions.  Factors that might cause
      or contribute to such a discrepancy include, but are not limited to, those
      listed under the heading “Risk Factors” and those listed  in our other
      Securities and Exchange Commission filings.  The following discussion
      should be read in conjunction with our Financial Statements and related Notes
      thereto included elsewhere in this report. Throughout this Quarterly Report
      we
      will refer to AgFeed Industries, Inc. as "AgFeed," the "Company," "we," "us,"
      and "our."*





**Item
      2.  Management’s Discussion and Analysis or Plan of
      Operations**





**Overview**





We
      are a
      leading producer of premix animal feed and commercial hog production in the
      People’s Republic of China (“China” or the “PRC”). Our premix feed segment
      consists of the research and development, manufacture, marketing and sale of
      premix feed for use in the domestic animal husbandry markets, primarily the
      hog
      raising markets in the PRC.  Premix is an animal feed additive that is
      broadly used in commercial animal production worldwide. The use of premix feed
      can significantly reduce an animal’s growth cycle to market size. We have been
      in the premix feed business since 1995. As of June 30, 2008, the Company owned
      25 operating hog farms located in Jiangxi, Shanghai, Hainan, Guangxi and Fujian
      province.





As
      a
      result of the acquisition of Lushan Breeder Hog Farm on November 9, 2007,
      we entered the hog breeding and production business. In addition to  premix
      feed business, we also engage in the business of raising, breeding and selling
      hogs for use in China’s pork production and hog breeding markets.





According
      to the China Feed Industry Association, the PRC has the world’s largest and most
      profitable markets for hog production with approximately 600 million hogs
      produced annually, compared to approximately 100 million in the US. More than
      1.2 billion Chinese consume pork as their primary source of meat. 65% of all
      meat consumed in China is pork. Chinese consumers consume more pork each year
      than the rest of the world combined. Due to hog shortages, hog production in
      China enjoys favorable tax and other benefits from the Chinese government.
      Hog
      production is exempt from all taxes and sow owners receive government grants
      and
      subsidies.





We
      operate through five premix feed manufacturing plants and 25 commercial hog
      farms in the PRC.





Nanchang
      Best located in Jiangxi Province - Nanchang Best is primarily engaged 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.  As of November 9, 2007, through the acquisition of Lushan,
      Nanchang Best is also in the business of raising, breeding and selling hogs
      for
      use in China’s pork production and hog breeding markets.  Nanchang
      Best’s hog operations are located in Jiangxi Province and conducted solely
      through Lushan until early 2008.




27




Shanghai
      Best located in Shanghai - Shanghai Best is also in the business of the
      manufacture, marketing and sale of fodder and blended feed for use in the PRC’s
      domestic animal husbandry markets.





Guangxi
      Huijie located in Guangxi Province - Guangxi Huijie is engaged in the research
      and development, manufacture, marketing, distribution and sale of premix fodder,
      blended feed and feed additives primarily for use in China’s domestic pork
      husbandry markets.





On
      June
      24, 2008, we completed the acquisition of premix feed company, Hainan HopeJia
      Feed Co., Ltd. ("HopeJia"), located in the Hainan province of the
      PRC.  We acquired all of the equity interest in HopeJia for a
      negotiated purchase price of RMB28,600,000 or approximately US$4.16
      million.




In
      our
      premix feed segment, we operate each subsidiary independently with regard to
      manufacturing and local marketing and sales efforts.  We do have some
      sharing of sales referrals and leads amongst the subsidiaries, but they do
      not
      compete against each other for new sales. Most of our research and development
      occurs at Nanchang Best and Guangxi Huijie and each shares their efforts with
      the other and Shanghai Best. In addition, many of the administrative duties
      are
      performed by Nanchang Best for Shanghai Best.





We
      target
      growth in premix feed sales through three main channels: (i) organic growth
      through increasing sales at each of our current operating subsidiaries, (ii)
      the
      distribution of our products through new franchise chain stores, and (iii)
      an
      aggressive acquisition program to increase the number of provinces in China
      in
      which we do business.





As
      of
      June 30, 2008, we had established relationships with over 800 independently
      owned feed distribution chain stores that sell our products exclusively
      targeting backyard individual hog farmers to complement our existing more than
      600 wholesale premix feed distribution channels that target large size
      commercial hog farms with average annual hog production of no less than 10,000
      hogs each. We will continue to market our products to the operators of large
      swine farms and large distributors. We rely on the franchisees to market and
      sell our products to the smaller swine farms.  Approximately 75% of
      China’s total annual hog production is supplied by backyard individual hog
      farmers that raise less than 10 hogs per year per family. Even though the number
      of these small individual swine farms in China is declining due to the country’s
      rapid urbanization process which causes farmers to leave their land and seek
      out
      better paying manufacturing and construction jobs in the cities, we believe
      it
      will take at least several decades for China’s vast domestic hog production
      market to shift to dominance by large commercial hog farm operators. We believe
      significant revenue potentials currently exist in serving the highly fragmented
      retail hog farmers markets. We determined that the best and most efficient
      use
      of our resources is to concentrate on the larger customers and allow the
      franchisees to sell to the smaller farmers.





In
      our
      premix feed segment, in order to provide excellent customer service and
      differentiate ourselves from our competition, at our customers’ request, we
      supply them with customized “AgFeed” brand formulations of our
      products.  To maintain reasonable profits, we increased our sale price
      for the three months ended June 30, 2008 in the midst of the rising and
      uncertain raw material market. The cost of R&D and technical upgrading of
      premix feed for better competitive in the market may cause our short-term
      profits to fluctuate.  . However, we believe that in the long-term
      this cost will help us to increase our customer loyalty and further build the
      AgFeed brand.  The increase in our revenues during the six months
      ended June 30, 2008 was mostly due to increases in the volume of products sold
      as a direct result of new products launched and our expansion into new markets.
      Due to a stronger AgFeed brand name, we were able to raise our premix feed
      prices twice in our second quarter and successfully passed along the higher
      prices to our customers.




In
        the
        first two quarters of 2008, we acquired a majority interest in 24 hog farms:
        five located in Jiangxi Province in January 2008; 16 located in several southern
        provinces of the PRC in April 2008 and 3 located in Fujian province and the
        Shanghai region in May and June 2008. As of the end of June 30, 2008, we
        operated a total of 25 hog farms. We sell live hogs in two of China’s wealthiest
        regions - Shanghai and Guangdong, both of which have China’s highest hog prices
        as well as deep pork consuming cultures.




28




In
      our
      hog production segment, we grow our business primarily through strategic
      acquisitions of current producing commercial hog farms. All of our acquisitions
      are immediately accretive to earnings. We own and operate 25 hog farms with
      a
      total of 30,000 sows.




Throughout
      all of our operations, we use centralized systems for raw material purchases,
      accounting and internal control management, corporate marketing strategies
      and
      brand building, and animal disease control response which consists of hog
      industry veterans. Our increased size and economies of scale through successful
      strategic acquisitions have benefited us greatly in both raw materials cost
      savings and administrative efforts.





AgFeed
      had revenues of $47.78 million for the six months ended June 30, 2008, an
      increase of 303% over revenues of $11.9 million for the six months ended June
      30, 2007.  The increases we experienced in this period were the result
      of our organic growth at each operating subsidiary.  In addition, the
      growth reflects the acquisitions of Lushan in late 2007 and the 24 hog farms
      purchased in 2008.  We have effectively marketed our products through
      a team-based approach, sharing sales leads and referrals.





**Critical
      Accounting Policies**





In
      presenting our financial statements in conformity with accounting principles
      generally accepted in the United States, we are required to make estimates
      and
      assumptions that affect the amounts reported therein. These estimates and
      assumptions are based on information available as of the date of the financial
      statements. Accounting measurements at interim dates inherently involve greater
      reliance on estimates than at year-end. The results of operations for the
      quarter ended June 30, 2008 are not necessarily indicative of results that
      can
      be expected for the full year. Please refer to the section entitled “Critical
      Accounting Estimates and Assumptions” of “Management's Discussion and Analysis
      of Financial Condition and Results of Operations” in our annual report on Form
      10-K for the year ended December 31, 2007 for a discussion of our critical
      accounting estimates and assumptions.





**Recent
      Accounting Pronouncements**





In
      June
      2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
      Nonrefundable Advance Payments for Goods or Services Received for Use in Future
      Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
      nonrefundable advance payments for goods or services used or rendered for
      research and development activities should be expensed when the advance payment
      is made or when the research and development activity has been
      performed.  Management is currently evaluating the effect of this
      pronouncement on our financial statements.





In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
      Combinations.” SFAS  141R changes how a reporting enterprise accounts for
      the acquisition of a business. SFAS 141R requires an acquiring entity to
      recognize all the assets acquired and liabilities assumed in a transaction
      at
      the acquisition-date fair value, with limited exceptions, and applies to a
      wider
      range of transactions or events. SFAS 141R is effective for fiscal years
      beginning on or after December 15, 2008. Early adoption and retrospective
      application is prohibited.




29




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements,” which is an amendment of ARB No.
      51.  SFAS 160 clarifies that a noncontrolling interest in a subsidiary
      is an ownership interest in the consolidated entity that should be reported
      as
      equity in the consolidated financial statements.  SFAS 160 changes the
      way the consolidated income statement is presented, thus requiring consolidated
      net income to be reported at amounts that include the amounts attributable
      to
      both parent and the noncontrolling interest.  SFAS 160 is effective
      for the fiscal years, and interim periods within those fiscal years, beginning
      on or after December 15, 2008.  Based on current conditions, we do not
      expect the adoption of SFAS 160 to have a significant impact on our results
      of
      operations or financial position.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities an amendment of FASB
      Statement No. 133 .”
SFAS
      161 changes the disclosure requirements for derivative instruments and hedging
      activities. Entities are required to provide enhanced disclosures about (a)
      how
      and why an entity uses derivative instruments, (b) how derivative instruments
      and related hedged items are accounted for under Statement 133 and its related
      interpretations, and (c) how derivative instruments and related hedged items
      affect an entity’s financial position, financial performance, and cash flows.
      Based on current conditions, we do not expect the adoption of SFAS 161 to have
      a
      significant impact on our results of operations or financial
      position.





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” SFAS 162 identifies the sources of accounting principles
      and the framework for selecting the principles to be used in the preparation
      of
      financial statements of nongovernmental entities that are presented in
      conformity with GAAP in the United States. SFAS 162 will not have an impact
      on
      our financial statements.





In
      May
      2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
      Insurance Contracts, an interpretation of FASB
      Statement No. 60 .”
The
      scope of SFAS 163 is limited to financial guarantee insurance (and reinsurance)
      contracts, as described in this Statement, issued by enterprises included within
      the scope of Statement 60. Accordingly, SFAS 163 does not apply to financial
      guarantee contracts issued by enterprises excluded from the scope of Statement
      60 or to some insurance contracts that seem similar to financial guarantee
      insurance contracts issued by insurance enterprises (such as mortgage guaranty
      insurance or credit insurance on trade receivables). SFAS 163 also does not
      apply to financial guarantee insurance contracts that are derivative instruments
      included within the scope of FASB
      Statement No. 133 ,
      “Accounting for Derivative Instruments and Hedging Activities.” SFAS 163 will
      not have an impact on our financial statements.





**Results
      of Operations**





*Three
      Months Ended June 30, 2008 Compared to Three Months Ended June 30,
      2007*





**Three
                Months Ended June 30,**
            
            **$**
            
            **%****2008**
            
            **2007**
            
            **Change**
            
            **Change**Net
                revenue
            
            $
            35,635,327
            
            $
            6,891,153
            
            
            28,744,174
            
            
            417.1
            %Cost
                of revenue
            
            
            24,600,502
            
            
            4,881,227
            
            
            19,719,275
            
            
            404.0
            %Gross
                profit
            
            
            11,034,825
            
            
            2,009,926
            
            
            9,024,899
            
            
            449.0
            %Operating
                expenses
            
            
            2,262,668
            
            
            789,402
            
            
            1,473,266
            
            
            186.6
            %Interest
                and financing costs
            
            
            4,312,559
            
            
            20,956
            
            
            4,291,603
            
            
            20,479.1
            %Net
                income
            
            
            3,921,513
            
            
            1,461,002
            
            
            2,460,511
            
            
            168.4
            %




30




*Revenues* .  The
        increase in revenues was due to an increase in the volume of feed products
        that
        we sold and the acquisition of 24 hog farms and one feed
        company.  The increase in feed product sales was a result of the
        expansion of our distribution channels through the opening of additional
        exclusive feed outlets.  We experienced favorable market conditions
        which increased the demand for our feed products.  A stronger “AgFeed”
brand name allowed us to successfully pass two price increases on to our
        premix
        feed customers. Due to an anticipated rise in hog prices, we have kept our
        hogs
        longer than normal which has increased the weight of the hogs that bring
        a
        higher sales price.





*Cost
      of Goods Sold* .
      We
      experienced moderate increases in the unit cost of goods sold for both business
      segments during the three month period ended June 30, 2008 as compared to the
      same period in 2007. The cost of goods sold included costs on both premix
      feed and hog production. The cost of corn stayed relatively flat while soybean
      meal prices increased approximately 20% from the end of the first quarter of
      2008.  These raw materials constitute approximately 70% of our raw
      material costs.  We are presently experiencing stable pricing in corn
      and declining prices in soybean meal.





*Gross
      Profit* .  Gross
      margins increased to 31.0% during the three months ended June 30, 2008 as
      compared to 29.2% for the same period last year.  The increase in
      gross margin can be attributed to several factors: (i) a stronger “AgFeed” brand
      name allowed us to increase the sale price of our premix feed; (ii) expanded
      product distribution channels allowed us to open up new markets and offer
      products at higher prices; (iii) our increased economies of scale in both feed
      segment and hog production produced lower overall raw materials input costs;
      (iv) long term contracts for key product ingredients entered into in early
      2008
      locked in favorable cost savings; and (v) we experienced higher gross margins
      from our hog production.





*Selling,
      General and Administrative Expenses* .  The
      increase in our selling, general and administrative expense reflects the
      addition of our new subsidiaries, which had approximately $950,000 in selling,
      general and administrative expenses during the three months ended June 30,
      2008.  General and administrative expenses include overhead expenses
      such as rent, management and staff salaries, general insurance, marketing,
      accounting, legal and offices expenses.  Compared to the 2 nd quarter
      in 2007, selling expenses for the period increased by 64.9% due to the 417%
      increase in revenues and the costs associated with entering markets in
      neighboring provinces, as well as the addition of our new
      subsidiaries.  We attempted to control our selling expenses through
      the use of strict cost controls and efficient use of our distribution
      channels.





*Interest
      and Financing Costs* .
      We
      incurred interest and financing costs of $4,312,559 during the three months
      ended June 30, 2008, principally as a result of the $19 million of convertible
      debentures issued during March 2008. During the three months ended June 30,
      2007, $13.7 million of the convertible notes were converted into shares of
      common stock that resulted in accelerated amortization of the debt issuance
      costs and debts discounts amounting to $4,151,550 during the three months ended
      June 30, 2008. These are non-recurring charges.





Due
      to
      continued appreciation in RMB against the US dollar, we incurred a loss on
      foreign translation of $319,273 during the three months ended June 30, 2008,
      as
      we could not timely convert USD deposits into RMB as a result of bank policies
      and related banking rules in China. This is a one time, non-recurring charge.





As
      a
      result of Nanchang Best becoming a Sino Foreign Joint Venture due to an
      investment by a foreign investor in July 2006, Nanchang Best receives favorable
      tax status and is exempt from all income tax through July 14, 2008. Thereafter,
      Nanchang Best will pay a reduced rate of 15% for the next three years. Hog
      production is an income tax exempt sector in China and sow owners receive
      government grants and subsidies. Our feed manufacturing companies continue
      to
      benefit from government preferential tax policies.




31




*Net
      Income* .  
      The increase in our net income was due to higher sales and significant benefits
      from greater economies of scale in our business and increased operating
      efficiency as described above, offset by one time, non-operational related
      charges and interest expense associated with the $19 million of convertible
      note
      conversion by investors during the three months ended June 30, 2008. Hog
      production is an income tax exempt sector in China.





*Six
      Months Ended June 30, 2008 Compared to Six Months Ended June 30,
      2007*





**Six
                Months Ended June 30,**
            
            **$**
            ****
            **%****2008**
            
            **2007**
            
            **Change**
            
            **Change**Net
                revenue
            
            $
            47,782,411
            
            $
            11,869,448
            
            
            35,912,963
            
            
            302.6
            %Cost
                of revenue
            
            
            33,314,625
            
            
            8,316,316
            
            
            24,998,309
            
            
            300.6
            %Gross
                profit
            
            
            14,467,786
            
            
            3,553,132
            
            
            10,914,654
            
            
            307.2
            %Operating
                expenses
            
            
            3,970,511
            
            
            1,354,717
            
            
            2,615,794
            
            
            193.1
            %Interest
                and financing costs
            
            
            4,639,201
            
            
            63,605
            
            
            4,575,596
            
            
            7,193.8
            %Net
                income
            
            
            4,840,810
            
            
            2,240,183
            
            
            2,600,627
            
            
            116.1
            %




*Revenues.* The
      increase in revenues was due to an increase in the volume of feed products
      that
      we sold and the acquisition of 24 hog farms and one feed
      company.  The increase in feed product sales was a result of the
      expansion of our distribution channels through the opening of additional
      exclusive outlets.  We experienced favorable market conditions which
      increased the demand for our feed products.  Due to an anticipated
      rise in hog prices, we have kept our hogs longer than normal which has increased
      the weight of the hogs that bring a higher sales price.





While
      the
      increase in the average sales price of our blended products also contributed
      to
      our increase in revenues, this effect was offset by the decrease in the average
      sales price of our other products category.  Due to a strong “AgFeed”
brand name, we were able to increase prices on premix feed products several
      times during the first six months.





*Cost
      of Goods Sold.* We
      experienced moderate increases in the unit cost of goods sold for both business
      segments, during the six month period ended June 30, 2008 compared to the same
      period in 2007. The cost of goods sold included costs on both premix feed
      and hog production. During the six month period ended June 30, 2008, the cost
      of
      corn increased approximately 15% and soybean meal prices increased approximately
      45% compared to the same period in 2007. These raw materials constitute
      approximately 70% of our raw material costs.  We are presently
      experiencing flat pricing in corn and declining prices in soybean
      meal.





*Gross
      Profit.* Gross
      margins increased to 30.3% during the six months ended June 30, 2008 as compared
      to 29.9% the same period last year.  The increase in gross margin can
      be attributed to several factors: (i) a stronger “AgFeed” brand name allowed us
      to increase the sale price for our premix feed during the second quarter of
      2008; (ii) expanded product distribution channels allowed us to open up new
      markets and offer products at higher prices; (iii) our increased economies
      of
      scale in both feed segment and hog production produced lower overall raw
      materials input costs; (iv) long term contracts for key product ingredients
      entered into in early 2008 locked in favorable cost savings; and (v) we
      experienced higher gross margins from our hog production.




32




*Selling,
      General and Administrative Expenses.* The
      increase in our selling, general and administrative expense also reflects the
      addition of our new subsidiaries, which had a total of approximately $1,392,000
      in selling, general and administrative expenses during the six months ended
      June
      30, 2008.  General and administrative expense includes overhead
      expenses such as rent, management and staff salaries, general insurance,
      marketing, accounting, legal and offices expenses.  Selling expenses
      for the period increased by 86.4% due to the 303% increase in revenues and
      the
      costs associated with entering markets in neighboring provinces, as well as
      the
      addition of our new subsidiaries. We attempt to control our selling
      expenses through the use of strict cost controls and efficient use of our
      distribution channels.





*Interest
      and Financing Costs.* We
      incurred interest and financing costs of $4,639,201 during the six months ended
      June 30, 2008, principally as a result of the $19 million of convertible
      debentures issued during February 2008. $13.7 million of the convertible notes
      were converted into shares of common stock during the second quarter of 2008,
      resulting in accelerated amortization of the debt issuance costs and debts
      discounts amounting to $4,335,382 during the six months ended June 30, 2008.
      These are non-recurring charges.





Due
      to
      continued appreciation in RMB against the USD, we incurred a loss on foreign
      translation of $543,746 during the six months ended June 30, 2008, as we could
      not timely convert USD deposits into RMB as a result of bank policies and
      banking rules in China. This was a one time, non-recurring charge.





As
      a
      result of Nanchang Best becoming a Sino Foreign Joint Venture due to an
      investment by a foreign investor in July 2006, Nanchang Best receives favorable
      tax status and is exempt from all income tax through July 14, 2008. Thereafter,
      Nanchang Best will pay a reduced rate of 15% for the next three years. Hog
      production is an income tax exempt sector in China and sow owners receive
      government grants and subsidies. Our feed manufacturing companies continue
      to
      benefit from government preferential tax policies.





*Net
      Income* .  
      The increase in our net income was due to higher sales and significant benefits
      from greater economies of scale in our business and increased operating
      efficiency as described above, offset by one time, non-operational charges
      and
      interest expense associated with the $19 million of convertible note conversion
      by investors during the three months ended June 30, 2008. We benefited from
      tax
      exempt status for our hog production business.





**Off-Balance
      Sheet Arrangements**





There
      were no off-balance sheet arrangements during the six months ended June 30,
      2008
      that have, or are reasonably likely to have, a current or future affect on
      our
      financial condition, revenues or expenses, results of operations, liquidity,
      capital expenditures or capital resources that is material to our
      interests.





**Liquidity
      and Capital Resources**





*Recent
      financing*





At
      June
      30, 2008, we had $31,267,717 cash and cash equivalents on hand.





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




33




On
      April
      22, 2008, we entered into Securities Purchase Agreements with institutional
      investors in connection with a registered direct offering of securities
      providing for the issuance of 1,322,836 shares of the Company’s Common
      Stock at price of $19.05 per share for aggregate gross proceeds of
      $25,200,026.





During
      first quarter of 2008, we completed our $41,000,000 financing.  We
      received aggregate gross proceeds of $22,000,032 through the sale of 2,444,448
      shares of common stock at $9 per share.  We received aggregate
      proceeds of $19,000,000 through the issuance of three year convertible notes
      bearing interest at 7% per annum and convertible into common stock at $10 per
      share.  In connection with the convertible notes, we issued 380,000
      warrants which are exercisable immediately and have a $10 strike
      price.  We paid commissions
      and fees of $3,432,670 related to the sale of shares and $1,716,666
      related to the issuance of the convertible notes.





During
      the year ended December 31, 2007, we completed two private placement offerings
      of our securities.  Through the final closing of the first private
      placement offering on April 29, 2007, we received aggregate gross proceeds
      of
      $6,830,259 from the sale of an aggregate of 2,276,753 units to 37 accredited
      investors. Each unit was priced at $3.00 and represented one share of our common
      stock and a warrant to purchase eight percent of one share of common
      stock.  Accordingly, we issued an aggregate of 2,276,753 shares of our
      common stock and warrants to purchase an aggregate of 182,146 shares of our
      common stock to the 37 accredited investors who participated in this
      offering.  In connection with the private placement, fees of eight
      percent of the securities placed were paid in cash and a number of common stock
      purchase warrants equal to eight percent of the units placed were paid to
      participating dealers and one finder.  Accordingly, we paid $546,421
      and issued warrants to purchase 182,141 shares of our common stock to the
      participating dealers and finder.  All of the common stock purchase
      warrants issued have a three-year term and have an initial exercise price of
      $5.00.  We received net proceeds from the private placement of
      $6,247,503, after deduction of the costs associated with the financing of
      $582,756.





On
      June
      22, 2007, we completed a second private placement offering pursuant to which
      we
      sold 750,000 units at an offering price of $4.00 per unit for gross proceeds
      of
      $3,000,000.  Each unit sold consisted of one share of common stock and
      one warrant to purchase 25 percent of one share of common
      stock.  Accordingly, we issued 750,000 shares of our common stock and
      warrants to purchase 187,500 shares of our common stock to the one accredited
      investor that participated in this offering.  In connection with this
      private placement offering, a fee of eight percent of the securities placed
      was
      paid in cash and a number of common stock purchase warrants equal to eight
      percent of the units placed were paid to a finder.  Accordingly, we
      paid $240,000 in cash and issued warrants to purchase 60,000 shares of our
      common stock to the finder.  All stock purchase warrants are
      exercisable for a period of three years at an exercise price of $5.60 per
      share.  We received net proceeds from the private placement of
      $2,760,000, after deduction of costs associated with the financing.





As
      of
      June 30, 2008, we had no notes payable outstanding. The loans that were
      outstanding were paid in full during the second quarter of 2008.





During
      the six months ended June 30, 2008, we generated $4,513,467 of cash from our
      operating activities. The cash was generated was primarily due to net income
      of
      $4,840,810, non-cash expenses of $4,335,381 offset by an increase in operating
      assets, net of $5,646,206.





We
      used
      $50,968,203 in investing activities during the six month period ended June
      30,
      2008; of which $3,097,732 was for the acquisition of property and equipment,
      and
      $47,798,825 for the acquisition of the 24 hog farms and one feed
      company.





We
      received $69,526,414 in cash from financing activities.  During the
      six months ended June 30, 2008, we received $57,200,058 from the sale of our
      securities and paid $5,908,325 in offering costs. We also received $19,000,000
      from the issuance of convertible notes and warrants, of which the Company paid
      $1,716,666 for the cost of issuing the convertible notes and warrants. In
      addition, warrants holders exercised 262,352 warrants resulting in gross
      proceeds to us of $2,061,760.




34




At
      June
      30, 2008, our accounts receivable balance was approximately $8.3 million. There
      are no accounts receivable for hog sales as this is generally a cash business.





Our
      principal demands for liquidity are to increase capacity, raw materials
      purchase, sales distribution, and the possible acquisition of producing hog
      farms or joint ventures in our industry as opportunities present themselves,
      as
      well as general corporate purposes.  We anticipate that the amount of
      cash we have on hand as of the date of this report as well as the cash that
      we
      will generate from operations will satisfy these requirements.  We may
      seek additional funds from the capital markets as we identify additional
      acquisition candidates.





We
      expect
      all of our hog farm acquisitions to be immediately accretive to
      earnings.





We
      intend
      to meet our liquidity requirements, including capital expenditures related
      to
      the purchase of equipment, purchase of raw materials, and the expansion of
      our
      business, through cash flow provided by operations and funds raised through
      cash
      investments.




The
      majority of the Company’s revenues and expenses were denominated primarily in
      RMB, the currency of the PRC.  There is no assurance that exchange
      rates between the RMB and the USD will remain stable. We do not engage in
      currency hedging. Inflation has not had a material impact on our
      business.




**Item
      3.**  **Quantitative
      and Qualitative Disclosures About Market Risk**





Not
      required





**Item
      4. Controls and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**




As
      of
      June 30, 2008, we carried out an evaluation of the effectiveness of the design
      and operation of our “disclosure controls and procedures” (as defined in the
      Exchange Act Rules 13a-15(e) and 15d-15(e)) under the supervision and with
      the
      participation of our management, including Junhong Xiong, our Chief Executive
      Officer and Liangfan Yan, our Chief Financial Officer. Based upon that
      evaluation, Mr. Xiong and Mr. Yan concluded that our disclosure controls and
      procedures are effective.





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in our reports filed or
      submitted under the Exchange Act are recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed in our reports filed under the Exchange Act is
      accumulated and communicated to management to allow timely decisions regarding
      required disclosure.




During
      the quarter ended June 30, 2008, there were no changes in our internal control
      over financial reporting that have materially affected our internal control
      over
      financial reporting.




35




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





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





We
      know
      of no pending legal proceedings to which we are a party which are material
      or
      potentially material, either individually or in the aggregate. We are from
      time
      to time, during the normal course of our business operations, subject to various
      litigation claims and legal disputes. We do not believe that the ultimate
      disposition of any of these matters will have a material adverse effect on
      our
      consolidated financial position, results of operations or
      liquidity.




**Item
      1A..**  **Risk
      Factors**





There
      have been no material changes from the disclosure provided in Part 1, Item
      1A of
      our Annual Report on Form 10-K for the year ended December 31,
      2007.





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





None.





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





None.





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





On
      June
      3, 2008, the Company held its Annual Meeting of Stockholders at The TimesCenter
      Hall located at 242 West 41st Street, New York, New York 10018.  At
      the meeting, the following actions were taken:





1.
            To
                elect five directors to hold office for a one-year term expiring
                at the
                annual meeting in 2009 and until their respective successors are
                elected
                and qualified:





**Director
                Name**
            
            **For**
            
            **Withheld**Songyan
                Li
            
            
            14,947,931
            
            
            2,300Junhong
                Xiong
            
            
            14,947,931
            
            
            2,300Lixiang
                Zhang
            
            
            14,949,991
            
            
            240Frederic
                W. Rittereiser
            
            
            14,949,993
            
            
            238Arnold
                Staloff
            
            
            14,950,231
            
            
            0





2.
            To
                approve the Company's 2008 Long-Term Incentive Plan:





For:
            
            
            11,884,295Against:
            
            
            63,738Abstained:
            
            
            7,070Non
                Votes:
            
            
            3,022,721





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





None.




36




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





**Exhibit
                Number**
            
            **Description
                of Exhibit**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
                amended.31.2
            
            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
                amended.32.1
            
            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).





37


**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.August
                11, 2008
            By:
            /s/ Xiong
                JunhongXiong
                Junhong
              Chief
                Executive Officer (PrincipalExecutive
                Officer)August
                11, 2008
            By:
            /s/ Liangfan
                YanLiangfan
                Yan
              Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)




38