**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**




(Mark
      One)





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





**For
      the quarterly period ended September 30, 2007**





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





For
      the
      transition period from ________________ to _______________





**000-28195**


(Commission
      file number)





**AGFEED
      INDUSTRIES, INC.**


(Exact
      name of small business issuer as specified in its charter)


**Nevada**
              
              **20-2597168**(State
                  or other jurisdiction
              
              (IRS
                  Employerof
                  incorporation or organization)
              
              Identification
                  No.)




**1095
      Qing Lan Avenue**


**Economic
      and Technical Development Zone**


**Nan
      Chang City, Jiangxi Provence**


**China,
      330013**


(Address
      of principal executive offices)





**86-0791-2189878**


(Issuer’s
      telephone number)





**N/A**


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





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes xNo o





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: As of October 29, 2007 - 27,026,756 shares
      of
      common stock





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
oNo
x





Transitional
      Small Business Disclosure Format (check one): Yes oNo x








**AGFEED
      INDUSTRIES, INC.**


**Index**


Page
                NumberPART
                  I.
              
              FINANCIAL
                  INFORMATIONItem
                  1.
              
              Financial
                  StatementsConsolidated
                  Balance Sheet as of September 30, 2007 (unaudited)
              
              2Consolidated
                  Statements of Income and Other Comprehensive Incomefor
                  the three and nine months ended September 30, 2007 and 2006
                  (unaudited)
              
              3Consolidated
                  Statements of Cash Flows for thenine
                  months ended September 30, 2007 and 2006 (unaudited)
              
              4Notes
                  to Consolidated Financial Statements (unaudited)
              
              5Item
                  2.
              
              Management’s
                  Discussion and Analysis or Plan of Operations
              
              20Item
                  3.
              
              Controls
                  and Procedures
              
              43PART
                  II.
              
              OTHER
                  INFORMATIONItem
                  1.
              
              Legal
                  Proceedings
              
              44Item
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              44Item
                  3.
              
              Defaults
                  Upon Senior Securities
              
              44Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              44Item
                  5.
              
              Other
                  Information
              
              44Item
                  6.
              
              Exhibits
              
              45SIGNATURES
              
              46





1


**AGFEED
                  INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                  BALANCE SHEET****AS
                  OF SEPTEMBER 30, 2007**
  **September
                  30,****2007**(unaudited)**ASSETS****CURRENT
                  ASSETS:**Cash
                  and cash equivalents
              
              $
              10,007,903Accounts
                  receivable, net of allowance for doubtful accounts of $192,555
              
              
              6,346,163Advances
                  to suppliers
              
              
              75,352Other
                  receivables
              
              
              307,008Inventory
              
              
              1,230,528Prepaid
                  expense and other current assets
              
              
              907,545Total
                  current assets
              
              
              18,874,499**PROPERTY
                  AND EQUIPMENT, net**
              
              
              1,419,649**INTANGIBLE
                  ASSETS**
              
              
              554,584**TOTAL
                  ASSETS**
              
              $
              20,848,732**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES:**Accounts
                  payable
              
              $
              1,567,214Other
                  payables
              
              
              44,158Unearned
                  revenue
              
              
              71,073Accrued
                  expenses
              
              
              290,245Accrued
                  payroll
              
              
              162,215Notes
                  payable
              
              
              1,718,978Tax
                  and welfare payable
              
              
              214,092Total
                  current liabilities
              
              
              4,067,975**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              -**STOCKHOLDERS'
                  EQUITY:**Common
                  stock, $0.001 per share; 75,000,000 shares authorized;27,026,756
                  shares issued and outstanding
              
              
              27,027Additional
                  paid-in capital
              
              
              10,063,855Other
                  comprehensive income
              
              
              438,916Statutory
                  reserve
              
              
              547,650Retained
                  earnings
              
              
              5,703,309Total
                  stockholders' equity
              
              
              16,780,757**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              20,848,732
  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 NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
                    2006**
  **Three
                    Months Ended September 30,**
                
                **Nine
                    Months Ended September 30,****2007**
                
                **2006**
                
                **2007**
                
                **2006**(unaudited)
                
                (unaudited)
                
                (unaudited)
                
                (unaudited)**Net
                    Revenue**
                
                $
                11,888,283
                
                $
                2,022,233
                
                $
                23,757,731
                
                $
                6,209,023**Cost
                    of Revenue**
                
                
                8,645,218
                
                
                1,255,536
                
                
                16,961,534
                
                
                3,854,934**Gross
                    profit**
                
                
                3,243,065
                
                
                766,697
                
                
                6,796,197
                
                
                2,354,089Operating
                    expensesSelling
                    expenses
                
                
                714,152
                
                
                299,895
                
                
                1,587,168
                
                
                879,297General
                    and administrative expenses
                
                
                471,549
                
                
                127,770
                
                
                953,250
                
                
                381,786Total
                    operating expenses
                
                
                1,185,701
                
                
                427,665
                
                
                2,540,418
                
                
                1,261,083**Income
                    from operations**
                
                
                2,057,364
                
                
                339,032
                
                
                4,255,779
                
                
                1,093,006Non-operating
                    income (expense):Other
                    income (expense)
                
                
                3,289
                
                
                12,969
                
                
                14,011
                
                
                28,457Interest
                    income
                
                
                45,283
                
                
                201
                
                
                99,473
                
                
                201Interest
                    expense
                
                
                (31,057
                )
                
                (9,611
                )
                
                (94,662
                )
                
                (11,425
                )Total
                    non-operating income (expense)
                
                
                17,515
                
                
                3,559
                
                
                18,822
                
                
                17,233Income
                    before income tax
                
                
                2,074,879
                
                
                342,591
                
                
                4,274,601
                
                
                1,110,239Income
                    tax
                
                
                (295
                )
                
                (386,657
                )
                
                (40,756
                )
                
                (136,849
                )**Net
                    income**
                
                $
                2,075,174
                
                $
                729,248
                
                $
                4,315,357
                
                $
                1,247,088Other
                    comprehensive incomeForeign
                    currency translation gain
                
                
                178,887
                
                
                29,259
                
                
                322,070
                
                
                46,250**Comprehensive
                    Income**
                
                
                2,254,061
                
                
                758,507
                
                
                4,637,427
                
                
                1,293,338**Weighted
                    average shares outstanding :**Basic
                
                
                27,026,756
                
                
                19,154,424
                
                
                25,778,831
                
                
                16,404,483Diluted
                
                
                27,194,479
                
                
                19,154,424
                
                
                25,799,624
                
                
                16,404,483**Earnings
                    per share:**Basic
                
                $
                0.08
                
                $
                0.04
                
                $
                0.17
                
                $
                0.08Diluted
                
                $
                0.08
                
                $
                0.04
                
                $
                0.17
                
                $
                0.08
  The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.
  3
 **AGFEED
                    INDUSTRIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENT OF CASH FLOWS****FOR
                    THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
                    2006**
  **Nine
                    Months Ended September 30,****2007**
                
                **2006**(unaudited)
                
                (unaudited)**CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    income
                
                $
                4,315,357
                
                $
                1,247,088Adjustments
                    to reconcile net income to net cashprovided
                    by (used in) operating activities:Depreciation
                
                
                118,038
                
                
                75,368Loss
                    on disposal of property and equipment
                
                
                -
                
                
                455Amortization
                
                
                51,715
                
                
                3,666(Increase)
                    / decrease in assets:Accounts
                    receivable
                
                
                (4,470,647
                )
                
                (907,022
                )Other
                    receivable
                
                
                (93,489
                )
                
                39,341Inventory
                
                
                (410,529
                )
                
                (76,492
                )Due
                    from related party
                
                
                101,436
                
                
                (5,806
                )Advances
                    to suppliers
                
                
                5,404
                
                
                (46,465
                )Prepaid
                    expense
                
                
                (274,268
                )
                
                (22,659
                )Other
                    assets
                
                
                3,252
                
                
                -Increase
                    / (decrease) in current liabilities:Accounts
                    payable
                
                
                769,627
                
                
                101,446Unearned
                    revenue
                
                
                (13,558
                )
                
                (47,572
                )Other
                    payables
                
                
                (14,795
                )
                
                (6,841
                )Due
                    to related party
                
                
                -
                
                
                (9,247
                )Accrued
                    expenses
                
                
                189,348
                
                
                67,557Accrued
                    payroll
                
                
                120,822
                
                
                -Tax
                    and welfare payable
                
                
                (76,094
                )
                
                (201,936
                )Net
                    cash provided by operating activities
                
                
                321,619
                
                
                210,881**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Acquisition
                    of property and equipment
                
                
                (117,485
                )
                
                (88,844
                )Deposit
                    for potential acquisition
                
                
                (620,000
                )
                
                -Acquisition
                    of intangible assets
                
                
                -
                
                
                (1,783
                )Net
                    cash used in investing activities
                
                
                (737,485
                )
                
                (90,627
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Repayment
                    to shareholders
                
                
                (752,084
                )
                
                (24,974
                )Advances
                    from related parties
                
                
                -
                
                
                103,605Repayment
                    to related parties
                
                
                -
                
                
                (139,935
                )Advance
                    to related parties
                
                
                -
                
                
                (421,573
                )Proceeds
                    from loans
                
                
                977,008
                
                
                561,917Proceeds
                    from the sale of common stock
                
                
                9,830,259
                
                
                -Offering
                    costs
                
                
                (1,062,756
                )
                
                -Payment
                    on note payable
                
                
                (1,102,004
                )
                
                -Collection
                    of subscription receivable
                
                
                226,083
                
                
                -Collection
                    from related parties
                
                
                942,676
                
                
                114,556Net
                    cash provided by financing activities
                
                
                9,059,182
                
                
                193,596Effect
                    of exchange rate changes on cash and cash equivalents
                
                
                160,487
                
                
                4,624**NET
                    INCREASE IN CASH & CASH EQUIVALENTS**
                
                
                8,803,803
                
                
                318,474**CASH
                    & CASH EQUIVALENTS, BEGINNING BALANCE**
                
                
                1,204,100
                
                
                136,406**CASH
                    & CASH EQUIVALENTS, ENDING BALANCE**
                
                $
                10,007,903
                
                $
                454,880**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:**Interest
                    paid
                
                $
                32,602
                
                $
                12,382Income
                    taxes paid
                
                $
                53,982
                
                $
                70,801
  The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.
  4




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


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





The
      unaudited consolidated financial statements have been prepared by AgFeed
      Industries, Inc. (the “Company”), pursuant to the rules and regulations of the
      Securities Exchange Commission. The information furnished herein reflects all
      adjustments (consisting of normal recurring accruals and adjustments) which
      are,
      in the opinion of management, necessary to fairly present the operating results
      for the respective periods. Certain information and footnote disclosures
      normally present in annual consolidated financial statements prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America have been omitted pursuant to such rules and regulations. These
      consolidated financial statements should be read in conjunction with the audited
      consolidated financial statements and footnotes included in the Company’s Annual
      Report on Form 10-KSB. The results for the nine months ended September 30,
      2007
      are not necessarily indicative of the results to be expected for the full year
      ending December 31, 2007.





Organization
      and Line of Business




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





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





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





The
      exchanges of shares with Nanchang Best and Shanghai Best were accounted for
      as 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.




5


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


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





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





The
      Company is engaged in the research and development, manufacturing, marketing,
      distribution and sale of pre-mix fodder blended feed and feed additives
      primarily for use in China’s domestic pork husbandry markets. The Company
      operates production plants in Nanchang City, Shanghai City and Nanning City
      and
      sells to distributors and large-scale swine farms.





Stock
      Splits




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




Basis
      of Presentation





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





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





Foreign
      Currency Translation





As
      of
      September 30, 2007, the accounts of the Company were maintained, and their
      consolidated financial statements were expressed in the Chinese Yuan Renminbi
      (CNY). Such consolidated financial statements were translated into U.S. Dollars
      (USD) in accordance with Statement of Financial Accounting Standards (“SFAS”)
      No. 52, “Foreign Currency Translation,” with the CNY as the functional currency.
      According to the Statement, all assets and liabilities were translated at the
      exchange rate on the balance sheet date, stockholder’s equity are translated at
      the historical rates and statement of operations items are translated at the
      weighted average exchange rate for the year. The resulting translation
      adjustments are reported under other comprehensive income in accordance with
      SFAS No. 130, “Reporting Comprehensive Income”.





6


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


**Note
      2 - Summary of Significant Accounting Policies**





Use
      of
      Estimates





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





Cash
      and Cash Equivalents





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





Accounts
      Receivable





The
      Company maintains reserves for potential credit losses on accounts receivable.
      Management reviews the composition of accounts receivable and analyzes
      historical bad debts, customer concentrations, customer credit worthiness,
      current economic trends and changes in customer payment patterns to evaluate
      the
      adequacy of these reserves. The allowance for doubtful debts amounted to
      $192,555 as of September 30, 2007.





Advances
      to Suppliers





The
      Company makes advances to certain vendors for purchase of its materials. The
      advances to suppliers are interest free and unsecured. At September 30, 2007,
      the Company had advances to suppliers in the amount of $75,352.





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.





Property
      & Equipment





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





Office
                equipment
            
            
            5
                yearsOperating
                equipment
            
            
            10
                yearsVehicles
            
            
            5
                yearsBuildings
            
            
            20
                years




7


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




The
      following are the details of the property and equipment at September 30,
      2007:




Office
                equipment
            
            $
            83,830Operating
                equipment
            
            
            517,572Vehicles
            
            
            286,557Buildings
            
            
            964,621Total
            
            
            1,852,580Less
                accumulated depreciation
            
            
            (432,931
            )$
            1,419,649





Depreciation
      expense for the nine months ended September 30, 2007 and 2006 was $118,038
      and
      $75,368, respectively.





Long-Lived
      Assets





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


Intangible
      Assets





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





Right
                to use land
            
            $
            573,893Computer
                software
            
            
            11,660Total
            
            
            585,553Less
                Accumulated amortization
            
            
            (30,969
            )Intangibles,
                net
            
            $
            554,584




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




8


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


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





Prepaid
      Expenses and Other Current Assets





Included
      in prepaid expenses and other current assets is $620,000 for a good faith
      deposit with a company that the Company is in negotiations to acquire (see
      Note
      11).





Fair
      Value of Financial Instruments





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





Revenue
      Recognition




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




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




Stock-Based
      Compensation





The
      Company accounts for its stock-based compensation in accordance with SFAS No.
      123R, “Share-Based Payment, an Amendment of FASB Statement No. 123.” The Company
      recognizes in the statement of operations the grant-date fair value of stock
      options and other equity-based compensation issued to employees and
      non-employees. There were 32,000 options outstanding at September 30,
      2007.





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.




9


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


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 Chinese
      Renminbi. The unit of Renminbi is in Yuan. Translation gains of $438,916 at
      September 30, 2007 are classified as an item of other comprehensive income
      in
      the stockholders’ equity section of the consolidated balance sheet. During the
      nine months ended September 30, 2007 and 2006, other comprehensive income in
      the
      consolidated statements of income and other comprehensive income included
      translation gains of $322,070 and $46,250, respectively.





Basic
      and Diluted Earnings Per Share





Earnings
      per share is calculated in accordance with the Statement of financial accounting
      standards No. 128 (SFAS No. 128), “Earnings Per Share”. SFAS No. 128 superseded
      Accounting Principles Board Opinion No.15 (APB 15). Net earnings per share
      for
      all periods presented has been restated to reflect the adoption of SFAS No.
      128.
      Basic 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 no options, warrants or dilutive securities outstanding during the
      nine months ended September 30, 2006 and during the nine months ended September
      30, 2007, there were 32,000 options outstanding and 611,787 warrants
      outstanding. For the three and nine months ended September 30, 2007, the
      Company’s average stock price was greater than some of the exercise prices which
      resulted in additional common stock equivalents of 167,723 and 20,793 shares,
      respectively.




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.




10


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


Segment
      Reporting





Statement
      of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
      Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
      is based on the way a company’s management organizes segments within the company
      for making operating decisions and assessing performance. The Company has
      determined that it has three reportable segments (See Note 10).





Recent
      Pronouncements




Fair
      Value Measurements




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




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




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




Fair
      Value Option for Financial Assets and Financial Liabilities





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




11


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


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




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




**Note
      3 - Notes Payable**





Notes
      payable at September 30, 2007 were as follows:




Short-term
                bank loan; interest rate of 7.44% payable monthly.The
                term of the loan is from May 28, 2007 to May 27, 2008.This
                loan is collateralized by the Company’s office building,workshop,
                employee dorms and use right of land.
            
            $
            800,766Short-term
                bank loan; interest rate of 6.57% payable monthly. The term of the
                loan is
                from May 25, 2007 to May 24, 2008. This loan is collateralized by
                the
                Company’s right to use land.
            
            
            280,268Short-term
                bank loan; interest rate of 5.67% payable monthly. The term of the
                loan is
                from April 11, 2007 to October 11, 2007. This loan is collateralized
                by
                the officer’s bank deposits. This loan was repaid at
                maturity.
            
            
            637,944$
            1,718,978




**Note
      4 - Stockholders’ Equity**





On
      February 6, 2007, the Company’s Board of Directors approved the sale of
      2,750,000 units in a private placement offering. Each unit consisted of one
      common share and warrants to purchase common shares equal to 8% of the number
      of
      common shares subscribed. The warrants expire in three years and have an
      exercise price of $5.00 per share. On February 28, 2007, the Company received
      the minimum required placement of $3,000,000 USD of units of its securities
      consisting of shares of common stock and stock purchase warrants (8% warrant
      coverage) in a private placement exempt from registration under the Securities
      Act. A total of 1,000,000 units, each unit representing one share of the
      Company’s common stock and a three year common stock purchase warrant, were sold
      through the end of business February 28, 2007. Each unit was priced at $3.00
      with $3,000,000 in total having been received. Fees of (i) 8% of the securities
      placed payable in cash, and (ii) a number of common stock purchase warrants
      equal to 8% of the number of units placed were paid to participating selected
      dealers. The stock purchase warrants have a term of three years and are
      exercisable for one share of common stock at an initial exercise price of $5.00.
      The securities offered in the private placement were not registered under the
      Securities Act, or any state securities laws, and until so registered, could
      not
      be sold in the United States except pursuant to an exemption from, or in a
      transaction not subject to, the registration requirements of the Securities
      Act
      and applicable state securities laws. In connection with the above mentioned
      private placement offering, the Company paid commissions and fees totaling
      $276,335.




12


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


On
      April
      6, 2007, the Company sold an additional 712,753 units for $3.00 per unit for
      total proceeds of $2,138,259. Each unit represents one share of the Company’s
      common stock and a three year common stock purchase warrant 8% coverage or
      (57,020 warrants). Fees of (i) 8% of the securities placed payable in cash,
      and
      (ii) a number of common stock purchase warrants equal to 8% of the number of
      units placed were paid to participating selected dealers and a finder. The
      stock
      purchase warrants have a term of three years and are exercisable for one share
      of common stock at an initial exercise price of $5.00. The securities offered
      in
      the private placement were not registered under the Securities Act, or any
      state
      securities laws, and unless so registered, could not be sold in the United
      States except pursuant to an exemption from, or in a transaction not subject
      to,
      the registration requirements of the Securities Act and applicable state
      securities laws.





On
      April
      29, 2007, the Company sold an additional 564,000 units for $3.00 per unit for
      total proceeds of $1,692,000. Each unit represents one share of the Company’s
      common stock and a three year common stock purchase warrant 8% coverage or
      45,120 warrants). Fees of (i) 8% of the securities placed payable in cash,
      and
      (ii) a number of common stock purchase warrants equal to 8% of the number of
      units placed were paid to participating selected dealers and a finder. The
      stock
      purchase warrants have a term of three years and are exercisable for one share
      of common stock at an initial exercise price of $5.00. The securities offered
      in
      the private placement were not registered under the Securities Act, or any
      state
      securities laws, and unless so registered, could not be sold in the United
      States except pursuant to an exemption from, or in a transaction not subject
      to,
      the registration requirements of the Securities Act and applicable state
      securities laws.





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





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





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





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




13


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


**Note
      5 - Employee Welfare Plan**





The
      Company had its own employee welfare plan in accordance with Chinese law and
      regulations before all three 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
      $12,009 and $137,474 for the nine months ended September 30, 2007 and 2006,
      respectively. In accordance with Chinese law, a Sino-foreign joint venture
      is
      not required to accrue welfare payable in advance. All three subsidiaries have
      stopped accruing such payable since each changed into a Sino-foreign company.
      Instead, welfare expense is recorded as incurred. As of September 30, 2007,
      welfare payable has a balance of $56,165, which is included in tax and welfare
      payable in the accompanying consolidated balance sheet.




**Note
      6 - Statutory Common Welfare Fund**




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





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





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.





Pursuant
      to the “Circular of the Ministry of Finance ( MOF) on the Issue of Corporate
      Financial Management after the Corporate Law Enforced” (No.67 [2006]), effective
      on April 1, 2006, issued by the MOF, the companies will transfer the balance
      of
      SCWF as of December. 31, 2005 to Statutory Surplus Reserve. Any deficit in
      the
      SCWF will be charged in turn to Statutory Surplus Reserve, additional paid-in
      capital and undistributed profit of previous years. If a deficit still remains,
      it should be transferred to retained earnings and be reduced to zero by a
      transfer from after tax profit of following years. At September 30, 2007, the
      Company did not have a deficit in the SCWF.





The
      Company has appropriated $276,535 and $84,106 as reserve for the statutory
      surplus reserve and welfare fund for the nine months ended September 30, 2007
      and 2006, respectively.





**Note
      7 - Related Party Transactions**





During
      the nine months ended September 30, 2007, the Company repaid $752,084 in
      advances from the companies that were related to the Company prior to the second
      quarter of 2007. All these companies were related to the Company through one
      common shareholder. In the
      second quarter of 2007, the shareholder sold his shares in all related entities
      to the third parties.




14


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


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





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





Sales
      to
      related parties amounted to $77,054 and $202,325 for the nine months ended
      September 30, 2007 and 2006, and $0 and $95,910 for the three months ended
      September 30, 2007 and 2006 respectively.





Purchases
      from related parties amounted to $9,284 and $96,694 for the nine months ended
      September 30, 2007 and 2006 and $0 and $41,239 for the three months ended
      September 30, 2007 and 2006, respectively.





**Note
      8 - Taxes**





Local
      PRC
      Income Tax





Pursuant
      to the tax laws of China, general enterprises are subject to income tax at
      an
      effective rate of 33%.





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





For
                the Nine MonthsEnded
                September 30,2007
            
            2006Tax
                provision at statutory rate
            
            
            34
            %
            
            34
            %Foreign
                tax rate difference
            
            
            (1
            %)
            
            (1
            %)Effect
                of tax holiday and waiver of current tax liability
            
            
            (34
            %)
            
            (45
            %)(1
            %)
            
            (12
            %)





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





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




On
      April
      25, 1007, 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.




15


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


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 nine
      months ended September 30, 2007 would have been approximately $1,411,000 and
      earnings per share would have been reduced by approximately $0.05 per
      share.





The
      Company also has approximately $545,000 in net operating loss carryforwards
      for
      United States tax purposes that begin to expire in 2021.





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





On
      December 20, 2006, the Company completed its acquisition of Guangxi
      Huijie.





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





**For
                the nine months ended September 30, 2006****As
                Reported****by
                the**
            
            **Guangxi****Company**
            
            **Huijie**
            
            **Adjustments**
            
            **Pro
                forma**Net
                Revenue
            
            $
            6,209,023
            
            $
            1,863,035
            
            $
            -
            
            $
            8,072,058Cost
                of Revenue
            
            
            3,854,934
            
            
            1,283,629
            
            
            -
            
            
            5,138,563Gross
                Profit
            
            
            2,354,089
            
            
            579,406
            
            
            -
            
            
            2,933,495Operating
                expenses:Selling
                expenses
            
            
            879,297
            
            
            113,957
            
            
            -
            
            
            993,254General
                and administrative expenses
            
            
            381,786
            
            
            79,532
            
            
            4,069
            a.
            
            465,387Total
                operating expenses
            
            
            1,261,083
            
            
            193,489
            
            
            4,069
            
            
            1,458,641Income
                from operations
            
            
            1,093,006
            
            
            385,917
            
            
            (4,069
            )
            
            1,474,854Non-operating
                income (expense):Other
                income (expense)
            
            
            28,457
            
            
            31
            
            
            -
            
            
            28,488Interest
                income
            
            
            201
            
            
            
            
            
            -
            
            
            201Interest
                expense
            
            
            (11,425
            )
            
            (6,000
            )
            
            (58,268)
            b.
            
            (75,693
            )Total
                non-operating income (expense)
            
            
            17,233
            
            
            (5,969
            )
            
            (58,268
            )
            
            (47,004
            )Income
                before income tax
            
            
            1,110,239
            
            
            379,948
            
            
            (62,337
            )
            
            1,427,850Income
                tax
            
            
            (136,849
            )
            
            103,866
            
            
            -
            
            
            (32,983
            )Net
                income
            
            $
            1,247,088
            
            $
            276,082
            
            $
            (62,337
            )
            $
            1,460,833Earnings
                per share
            
            $
            0.08
            
            
            
            
            
            
            
            $
            0.90Weighted
                average shares outstanding
            
            
            16,404,843
            
            
            
            
            
            
            
            
            16,404,483





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


b.
            to
                record interest expense on the acquisition
                note.




16


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




**Note
      10 - Segment Information**





The
      Company’s predominant business is 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. The
      Company is organized into three wholly owned subsidiaries: Shanghai Best Animal
      Husbandry Co., LTD. (“Shanghai”), Nanchang Best Animal Husbandry Co., LTD.
      (“Nanchang”), and Guangxi Huijie Sci. & Tech. Feed Co., LTD.
      (“Guangxi”).





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. 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.
      Guangxi is located in Coastal Industrial Park, Liangquin district, Nanning
      city,
      Guangxi Province and sells its products to approximately 325 customers,
      consisting of 140 local distributors and 185 large scale pig farms.





The
      following tables summarize segment information:





**9/30/2007**
            
            **9/30/2006****Revenues
                from unrelated entities**Shanghai
            
            $
            6,461,899
            
            $
            2,454,423Guangxi
            
            
            7,355,226
            
            
            -Nanchang
            
            
            9,940,606
            
            
            3,754,60023,757,731
            
            
            6,209,023**Intersegment
                revenues**Shanghai
            
            
            -
            
            
            -Guangxi
            
            
            -
            
            
            -Nanchang
            
            
            1,943,501
            
            
            -1,943,501
            
            
            -**Total
                Revenues**Shanghai
            
            
            6,461,899
            
            
            2,454,423Guangxi
            
            
            7,355,226
            
            
            -Nanchang
            
            
            11,884,107
            
            
            3,754,600Less
                Intersegment revenues
            
            
            (1,943,501
            )
            
            -23,757,731
            
            
            6,209,023




17


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




**Income
                from operations**Shanghai
            
            
            1,079,493
            
            
            410,424Guangxi
            
            
            1,488,264
            
            
            -Nanchang
            
            
            1,958,492
            
            
            682,582Holding
                Company
            
            
            (270,470
            )
            
            -4,255,779
            
            
            1,093,006**Interest
                income**Shanghai
            
            
            714
            
            
            201Guangxi
            
            
            1,915
            
            
            -Nanchang
            
            
            12,651
            
            
            -Holding
                Company
            
            
            84,193
            
            
            -99,473
            
            
            201**Interest
                Expense**Shanghai
            
            
            -
            
            
            -Guangxi
            
            
            26,887
            
            
            -Nanchang
            
            
            37,195
            
            
            11,425Holding
                Company
            
            
            30,580
            
            
            -94,662
            
            
            11,425**Income
                tax expense (benefit)**Shanghai
            
            
            -
            
            
            136,430Guangxi
            
            
            (40,756
            )
            
            -Nanchang
            
            
            -
            
            
            (273,279
            )(40,756
            )
            
            (136,849
            )**Net
                Income**Shanghai
            
            
            1,090,921
            
            
            287,651Guangxi
            
            
            1,504,048
            
            
            -Nanchang
            
            
            1,937,331
            
            
            959,437Holding
                Company
            
            
            (216,943
            )
            
            -4,315,357
            
            
            1,247,088**Provision
                for depreciation**Shanghai
            
            
            19,708
            
            
            14,663Guangxi
            
            
            33,880
            
            
            -Nanchang
            
            
            64,450
            
            
            60,705118,038
            
            
            75,368




18


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




**Total
                Assets**Shanghai
            
            
            2,673,859
            
            
            1,238,523Guangxi
            
            
            4,632,414
            
            
            -Nanchang
            
            
            9,117,301
            
            
            3,368,651Holding
                Company
            
            
            4,425,158
            
            
            -20,848,732
            
            
            4,607,174




**Note
      11 - Subsequent Event**





The
      Company previously made a $620,000 good faith deposit with an agricultural
      feed
      company located in China that its was in
      negotiations to acquire. As a result of the Company’s due
      diligence investigation of this company, it has decided not to pursue this
      acquisition at this time and has signed a termination consent with this company
      on October 11, 2007. The
      deposit is fully refundable
      and the Company expects to receive a full refund of the $620,000 on or before
      November 15, 2007.




19




**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.*





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




**Overview**





We
      are
      incorporated under the laws of the state of Nevada. We engage in the business
      of
      the research and development, manufacture, marketing and sale of fodder and
      blended feed for use in China’s domestic animal husbandry markets. Our chief
      source of revenues is the sale of feed products for pigs, however, we do produce
      other feed products for chickens and cows. We sell our products in approximately
      ten provinces within the People’s Republic of China.





We
      currently conduct our business through the following three operating
      subsidiaries in China:





·
            Nanchang
                Best is located in the province of
                Jiangxi,


·
            Shanghai
                Best is located in Shanghai City, and


·
            Guangxi
                Huijie is located in the province of
                Guangxi.





We
      operate each subsidiary independently with regard to manufacturing and marketing
      and sales efforts. We share 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 and Guangxi, and each shares their efforts
      with the other and Shanghai. In addition, many of the administrative duties
      are
      performed by Nanchang for Shanghai, and we are attempting to study the
      feasibility of centralizing more administrative functions.





We
      are
      targeting growth through three main channels: (i) organic growth through
      increasing sales at each of our current operating subsidiaries, (ii) the
      distribution of our products through approximately 368 new franchise chain
      stores (as of October 25, 2007), and (iii) an aggressive acquisition program
      to
      increase the number of provinces in China in which we do business.





Our
      revenues increased 12.9% in 2006 as compared to 2005 and our net income
      increased 110% in 2006 as compared to 2005. Similarly, in the nine month period
      ended September 30, 2007, our revenues increased approximately 282.6% and our
      net income increased approximately 246.0% compared to the nine month period
      ended September 30, 2006. The increases we experienced in both periods are
      the
      result of our organic growth at each operating subsidiary. In addition, the
      growth in the first nine months of fiscal 2007 reflects the acquisition of
      our
      Guangxi Huijie subsidiary in December 2006. Since we acquired Nanchang Best
      and
      Shanghai Best in October 2006, we have effectively marketed our products through
      a team based approach, sharing sales leads and referrals. We also developed
      the
      new Arubao Series of product at Nanchang Best and introduced the product in
      our
      three current subsidiaries.




20





Since
      January 2007, we established approximately 368 franchise chain stores to
      complement our existing distribution channels. We will continue to market our
      products to the operators of large swine farms and large distributors. We will
      now rely on the franchisees to market and sell our products to the smaller
      swine
      farms. Even though the number of small swine farms in China is declining, we
      did
      not want to lose revenues by forgoing sales to this market segment. 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
      order
      to provide excellent customer service and differentiate ourselves from our
      competition, at our customer’s request, we supply to them customized
      formulations of our products. In any given month, the cost of the various
      additives used in these customized formulations fluctuates, which can result
      in
      temporary increases in unit cost of goods sold. We believe even though this
      may
      have an effect on our short term profits, we take the long term view that it
      increases customer loyalty and builds the AgFeed brand. The increase in our
      revenues during the nine months ended September 30, 2007 were mostly due to
      increases in the volume of products sold as a direct result of new products
      launched and our expansion to new markets. We also experienced increases in
      our
      cost of goods sold during the nine months ended September 30, 2007. The costs
      of
      corn and soybean meal, which are two of our main raw materials, increased
      approximately 12% and 20%, respectively, over their levels from the quarter
      ended June 30, 2007. In order to remain competitive in our markets, we have
      resisted increasing our prices through the first six months of 2007. However,
      during the three month period ended September 30, 2007 we did pass some of
      these
      cost increases on to our customers. Accordingly, our revenues have not increased
      during the three and nine month periods ended September 30, 2007 in proportion
      to our cost of goods sold. We believe that this competitive pricing strategy
      has
      and will continue to increase our sales volume and ultimately increase our
      long-term revenue growth.





We
      also
      continue to aggressively search throughout China for acquisition targets in
      our
      industry and in related industries such as pig breeding and commercial hog
      farms. In light of surging pork prices in China due to rising consumer demand
      and severe pork supply shortages, we have been exploring opportunities to enter
      China’s commercial hog farm business through acquisition of existing commercial
      hog farms as well as building new hog farms. We believe the commercial hog
      farm
      business would contribute significant revenues to our financial performance
      in
      2008 and beyond.





The
      growth in sales and net revenues we experienced in the first nine months of
      fiscal 2007 compared to the first nine months of 2006 was due in part to our
      acquisition of Guangxi Huijie late in December 2006.





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




21





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





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





***Allowance
      For Doubtful Accounts***




The
      Company continually monitors customer payments and maintains a reserve for
      estimated losses resulting from its customers’ inability to make required
      payments. In determining the reserve, the Company evaluates the collectibility
      of its accounts receivable based upon a variety of factors. In cases where
      the
      Company becomes aware of circumstances that may impair a specific customer’s
      ability to meet its financial obligations, the Company records a specific
      allowance against amounts due. For all other customers, the Company recognizes
      allowances for doubtful accounts based on its historical write-off experience
      in
      conjunction with the length of time the receivables are past due, customer
      creditworthiness, geographic risk and the current business environment. Actual
      future losses from uncollectible accounts may differ from the Company’s
      estimates.





***Inventories***




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





***Long-Lived
      Assets***




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




22





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




REVENUE
      RECOGNITION: Our revenue recognition policies are in compliance with Staff
      accounting bulletin (SAB) 104. Revenue is recognized when services are rendered
      to customers when a formal arrangement exists, the price is fixed or
      determinable, the delivery is completed, no other significant obligations exist
      and collectibility is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are satisfied are recorded as unearned
      revenue. We are not subject to VAT withholdings. We give volume rebates to
      certain customers based on volume achieved. We accrue sales rebates based on
      actual sales volume. Sales rebates for the year ended December 31, 2005 and
      2006
      and the nine months ended September 30, 2006 and 2007 were $74,046 and $258,503
      and $46,111 and $280,983 respectively. Sales returns for the nine months ended
      September 30, 2006 and 2007 were $59,155 and $56,470 respectively.





We
      make
      estimates and judgments when determining whether the collectibility of revenue
      from customers is reasonably assured. Management estimates regarding
      collectibility impact the actual revenues recognized each period and the timing
      of the recognition of revenues. Our assumptions and judgments regarding future
      collectibility could differ from actual events, thus materially impacting our
      financial position and results of operations.





Sales
      returns and allowances have historically been insignificant. Accordingly,
      estimating returns is not critical. However, if circumstances change, returns
      and allowance may impact the company’s earnings.





The
      Company gives volume rebates to certain customers based on volume achieved.
      Sales rebates are accrued based on actual sales volume. The Company does not
      offer any of its customers the unconditional right to return purchased products.
      Customers are only permitted to return defective products. In addition, the
      Company does not provide any price protection or similar rights to its
      customers.





There
      are
      no differences in the Company’s arrangements with its different types of
      customers. Accordingly, the Company does not have different revenue recognition
      policies for different types of customers.





The
      Company offers credit terms ranging from 30 to 90 days for most customers.
      For
      some large customers, the Company may extend these terms beyond 90
      days.





**Recent
      Accounting Pronouncements**





Fair
      Value Measurements





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




23





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




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





Fair
      Value Option for Financial Assets and Financial Liabilities





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





Other-Than-Temporary
      Impairment





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





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.




24




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





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





**Results
      of Operations**





*Three
      Months Ended September 30, 2007 Compared to Three Months Ended September 30,
      2006*




Three
                Months ended September 30, 2007
            
            Three
                Months ended September 30, 2006
            
            $
                Change
            
            %
                ChangeRevenues
            
            $
            11,888,283
            
            $
            2,022,233
            
            $
            9,866,050
            
            
            487.88
            %Cost
                of Sales
            
            
            8,645,218
            
            
            1,255,536
            
            
            7,389,682
            
            
            588.57Gross
                Profits
            
            
            3,243,065
            
            
            766,697
            
            
            2,476,368
            
            
            322.99Selling,
                General and Administrative Expenses
            
            
            1,185,701
            
            
            427,665
            
            
            758,036
            
            
            177.25Net
                Income
            
            
            2,075,174
            
            
            729,248
            
            
            1,345,926
            
            
            184.56





Revenues.
      The increase in revenues was due to an increase in the volume of feed products
      that we sold, the acquisition of the Guangxi Huijie subsidiary and the
      introduction in the first quarter of 2007 of the Airubao Series, a new special
      blended feed product formulated especially for baby pigs. Guangxi sold
      approximately 2,697 metric tons (MT) of premix volume during the three month
      period ended September 30, 2007, Nanchang experienced an increase of
      approximately 358 MT and Shanghai experienced an increase of approximately
      1,514
      MT of premix during the three month period ended September 30, 2007 compared
      to
      the three month period ended September 30, 2006 to account for the increase
      in
      premix sales volume. For comparative purposes, we analyze the blended feed
      and
      Airubao Series together. The blended category sold 8,186 MT compared to only
      344
      MT during the same period a year ago. This increase was due to the new Airubao
      sales, approximately 1,342 MT of blended feed sold by Guangxi, and an increase
      of approximately 151 MT of blended sales at Nanchang. Shanghai sold no blended
      feed in all of 2006 and only sells the Airubao Series in the blended feed
      category. Guangxi accounted for approximately 1,188MT, Nanchang contributed
      an
      approximate increase of 43MT, and Shanghai had an approximate decrease of 23
      MT
      of other feed products sold during the three month period ended September 30,
      2007 compared to the three month period ended September 30, 2006. Overall,
      the
      Guangxi acquisition provided approximately 29.4% of our revenues while Nanchang
      provided 45.8% and Shanghai provided 24.8% of our total revenues during the
      three month period ended September 30, 2007. Guangxi contributed approximately
      30.3%, Nanchang approximately 47.7% and Shanghai approximately 22% of the total
      volume of feed sold during the three month period ended September 30,
      2007.  Nanchang’s
      revenues increased approximately 357% during the three months ended September
      30, 2007 compared to the same period in 2006. Shanghai’s revenues increased
      approximately 265% during the three months ended September 30, 2007 compared
      to
      the same period in 2006.




25





During
      the 3 month period ended September 30, 2007 we increased the average price
      of
      all of our products primarily as result of the increasing costs of raw
      materials. We strategically did not seek to maximize our sales prices earlier
      in
      the year in order to remain competitive in our markets. However rising costs
      of
      goods sold experienced throughout our industry have caused us to increase our
      pricing during this period.





Feed
                Type
            
            Metric
                Tons Sold
              3
                months ended September 30, 2007
            
            Metric
                Tons Sold
              3
                months ended September 30, 2006
            
            Difference
            
            %
                changePremix
            
            
            7,673
            
            
            3,104
            
            
            4,569
            
            
            147.2
            %Blended
            
            
            1,837
            
            
            344
            
            
            1,493
            
            
            434.0Airubao
            
            
            6,349
            
            
            0
            
            
            6,349
            
            
            N/AOther
            
            
            1,380
            
            
            172
            
            
            1,208
            
            
            702.3Total
            
            
            17,239
            
            
            3,620
            
            
            13,619
            
            
            376.2




The
      average sale price/MT during the three months ended September 30, 2007 and
      September 30, 2006 of each of our product classes is set forth
      below.





Feed
                Type
            
            Average
                Price/MT 3 Months Ended
              September
                30, 2007
            
            Average
                Price/MT 3 Months Ended
              September
                30, 2006
            
            Difference
            
            %
                changePremix
            
            $
            725
            
            $
            630
            
            $
            95
            
            
            15.1
            %Blended
            
            
            737
            
            
            518
            
            
            219
            
            
            42.3Other
            
            
            890
            
            
            692
            
            
            198
            
            
            28.6





The
      average sale price/MT was calculated in U.S. Dollars using a conversion factor
      of 0.1335 **** US
      Dollar **** to
      1 RMB.
      The average price for each product category was calculated by multiplying the
      prices charged in each product category at each operating subsidiary by a
      weighted average of revenues generated in each product category at each
      operating subsidiary as compared to total revenues generated by that product
      by
      all operating subsidiaries for the period. The Airubao Series is included in
      the
      calculations for blended feed.





During
      the first quarter of 2007, we launched the Airubao Series, a new special blended
      feed designed specifically for baby pigs. The Airubao Series is meant to be
      used
      four days after weaning. The main ingredients used in these products are amino
      acids, vitamins, feed additives and minerals. These products are intended to
      maximize the baby pig’s feed intake, help the baby pig adapt to corn feeding,
      enhance immunity and digestibility and reduce post-weaning syndrome. We
      anticipate that the large pig farms will be the largest users of the Airubao
      Series although we have also introduced the Series to the small individual
      farmers. We have gained immediate acceptance from our customers. We shipped
      approximately $4.9 million of this new product to customers during the three
      month period ended September 30, 2007. This product line consists of a series
      of
      three distinct formulations, the average gross margin is approximately 26.4%,
      and the average selling price is approximately $754 per MT. The Annual Report
      on
      China’s Feed Industry, published by the Chinese government, estimates that the
      market for premium baby pig feed is approximately $3.8 billion per
      year.




26





Cost
      of
      Goods Sold. We experienced approximately 10.3% and 41% increases in the unit
      cost of goods sold for blended feed and premix products, respectively, during
      the three month period ended September 30, 2007 compared to the same period
      in
      2006. In order to provide excellent customer service and differentiate ourselves
      from our competition, at our customer’s request, we supply customized
      formulations of our products. In any given period, the cost of the various
      additives used as raw materials in our products fluctuates, which can result
      in
      increases in unit cost of goods sold. During the three month period ended
      September 30, 2007, the costs of corn and soybean meal increased approximately
      12% and 20%, respectively over their levels during the three month period ended
      June 30, 2007. These additives constitute approximately 70% of our raw material
      costs. These increased costs offset our increases in revenues. Even though
      this
      may have an adverse effect on our short term profits, we take the long term
      view
      that this practice results in customer loyalty, builds the AgFeed brand and
      will
      ultimately lead to increased sales and gross profits. Nanchang experienced
      a
      422.2% increase in cost of goods sold during the three month period ended
      September 30, 2007 compared to the same period in 2006. Shanghai experienced
      a
      349% increase in cost of goods sold during the three month period ended
      September 30, 2007 compared to the same period in 2006.





Gross
      Profit. Gross margins decreased to 27.28% from 37.91% during the three months
      ended September 30, 2007 as compared to the same period last year. The decrease
      in gross margin can be attributed to several factors: (i) the cost of
      introducing the Airubao Series; (ii) we experienced an approximate 10.3%
      increase in the unit cost of goods sold of blended feed during the three months
      ended September 30, 2007 compared to the same period in 2006; and (iii) the
      unit
      cost of goods sold for premix products increased approximately 41% during the
      three months ended September 30, 2007 compared to the same period in
      2006.





Gross
      margins at Nanchang for the three month period ended September 30, 2007 were
      approximately 27.3% compared to 36.4% for the same period in 2006. Gross margins
      at Shanghai for the three month period ended September 30, 2007 were 26.6%
      compared to 39.1% for the same period in 2006. Gross margins at Guangxi for
      the
      three month period ended September 30, 2007 were approximately 26.7%. 
Gross margin calculations for each subsidiary are calculated prior to any
      adjustments for intercompany sales, which are reflected in the consolidated
      financial statements.





Selling,
      General and Administrative Expenses. During the three month period ended
      September 30, 2007, we incurred expenses for professional services associated
      with being a publicly traded United States reporting company of approximately
      $150,000. We did not incur these expenses during the same period in 2006. The
      increase in our general and administrative expense also reflects the addition
      of
      our Guangxi subsidiary, which had approximately $71,400 of general and
      administrative expenses during the three months ended September 30, 2007.
      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 138.1% due
      to
      the 487.88% increase in revenues and the costs associated with entering markets
      in neighboring provinces, as well as the addition of our Guangxi subsidiary,
      which had approximately $223,200 of selling expenses during the three months
      ended September 30, 2007. We attempted to control our selling expenses through
      the use of strict cost controls and efficient use of our distribution
      channels.




27





Net
      Income. Our increase in net income was due to an increase in income from
      operations and an increase in non-operating income due to net interest income
      of
      approximately $17,600. The major reason for the increase in non-operating
      expense during this period in 2007 was interest earned on the net proceeds
      of
      our financings of approximately $45,000 and other income of approximately $3,400
      offset by interest paid in connection with short term loans of approximately
      $31,000. In addition, our Nanchang Best subsidiary became 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 and then will pay a reduced rate of 15% for the next three
      years.





*Nine
      Months Ended September 30, 2007 Compared to Nine Months Ended September 30,
      2006*





Nine
                Months ended September 30, 2007
            
            Nine
                Months ended September 30, 2006
            
            $
                Change
            
            %
                ChangeRevenues
            
            $
            23,757,731
            
            $
            6,209,023
            
            
            17,548,708
            
            
            282.63Cost
                of Sales
            
            
            16,961,534
            
            
            3,854,934
            
            
            13,106,600
            
            
            340.00Gross
                Profits
            
            
            6,796,197
            
            
            2,354,089
            
            
            4,442,108
            
            
            188.70Selling,
                General and Administrative Expenses
            
            
            2,540,418
            
            
            1,261,083
            
            
            1,279,335
            
            
            101.45Net
                Income
            
            
            4,315,357
            
            
            1,247,088
            
            
            3,068,269
            
            
            246.03





Revenues.
      The increase in revenues was due to an increase in the volume of feed products
      that we sold, the acquisition of the Guangxi Huijie subsidiary and the
      introduction in early 2007 of the Airubao Series, a new special blended feed
      product formulated especially for baby pigs. Guangxi contributed approximately
      6,019 MT of premix volume during the nine month period ended September 30,
      2007,
      Nanchang experienced a decrease of approximately 70 MT and Shanghai experienced
      an increase of approximately 1,335 MT of premix during the nine month period
      ended September 30, 2007 compared to the nine month period ended September
      30,
      2006 to account for the increase in premix volume. We focused on increasing
      sales of the Airubao Series, which is a special blended feed product. For
      comparative purposes, we will analyze the blended feed and Airubao Series
      together. This increase was due primarily to the new Airubao sales and
      approximately 2,922 MT of blended feed sold by Guangxi. Nanchang sold 12,165
      MT
      during the nine months ended September 30, 2007 compared to 1,097 MT during
      the
      same period in 2006. Guangxi also accounted for 1,581 MT of other feed products,
      Nanchang sold 226 MT and Shanghai sold 231 MT of other feed products during
      the
      nine months ended September 30, 2007. Overall, the Guangxi acquisition provided
      approximately 28.4% of our revenues while Nanchang provided 46.6% and Shanghai
      provided 25.0% of our total revenues during the nine month period ended
      September 30, 2007. Guangxi contributed approximately 28.1%, Nanchang
      approximately 48.4% and Shanghai approximately 23.5% of the total volume of
      feed
      sold during the nine month period ended September 30, 2007. Nanchang’s revenues
      increased approximately 197.5% during the nine months ended September 30, 2007
      compared to the same period in 2006. Shanghai’s revenues increased approximately
      151.1% during the nine months ended September 30, 2007 compared to the same
      period in 2006.





The
      increase in the average sales price of our blended products during the nine
      months ended September 30, 2007 compared to the same period during 2006
      contributed to our increase in revenues, as well as the growth in sales volume
      in all of our product categories.




28




Feed
                Type
            
            Metric
                Tons Sold Nine Months Ended September 30, 2007
            
            Metric
                Tons Sold Nine Months Ended September 30, 2006
            
            Difference
            
            %
                changePremix
            
            
            17,210
            
            
            9,926
            
            
            7,284
            
            
            73.4Blended
            
            
            4,141
            
            
            1,097
            
            
            3,044
            
            
            277.5Airubao
            
            
            14,065
            
            
            0
            
            
            14,065
            
            
            N/AOther
            
            
            2,038
            
            
            348
            
            
            1,690
            
            
            485.6Total
            
            
            37,454
            
            
            11,371
            
            
            26,083
            
            
            229.4





The
      average sale price/MT during the nine months ended September 30, 2007 and
      September 30, 2006 of each of our product classes is set forth
      below.





Feed
                Type
            
            Average
                Price/MT Nine Months Ended September 30, 2007
            
            Average
                Price/MT Nine Months Ended September 30, 2006
            
            Difference
            
            %
                changePremix
            
            $
            674
            
            $
            601
            
            $
            73
            
            
            12.1
            %Blended
            
            
            709
            
            
            474
            
            
            235
            
            
            49.6Other
            
            
            946
            
            
            823
            
            
            123
            
            
            14.9





The
      average sale price/MT was calculated in U.S. Dollars using a conversion factor
      of one US dollar to 0.1335 RMB. The average price for each product category
      was
      calculated by multiplying the prices charged in each product category at each
      operating subsidiary by a weighted average of revenues generated in each product
      category at each operating subsidiary as compared to total revenues generated
      by
      that product by all operating subsidiaries for the period. The Airubao
      Series is included in the calculations for blended feed.





During
      the first quarter of 2007, we launched the Airubao Series, a new special blended
      feed designed specifically for baby pigs. We have gained immediate acceptance
      of
      this product from our customers. We shipped approximately $10.2 million of
      this
      new product to customers during the nine month period ended September 30, 2007.
      This product line consists of a series of three distinct formulations, the
      average gross margin is approximately 23.76% and the average selling price
      is
      approximately $725 per MT. The Annual Report on China’s Feed Industry, published
      by the Chinese government, estimates that the market for premium baby pig feed
      is approximately $3.8 billion per year.





Cost
      of
      Goods Sold. We experienced an approximate 26.33% and 24.68% increase in the
      unit
      cost of goods sold for blended feed and premix products, respectively, during
      the nine month period ended September 30, 2007 compared to the same period
      in
      2006. In order to provide excellent customer service and differentiate ourselves
      from our competition, at our customer’s request, we supply to them customized
      formulations of our products. In any given month, the cost of the various
      additives used fluctuates, which can result in temporary increases in unit
      cost
      of goods sold. We experienced an increase in the costs of corn and soybean
      meal
      of approximately 12% and 20%, respectively over their levels during the six
      month period ended June 30, 2007. These additives constitute approximately
      70%
      of our raw material costs. These increased costs offset our increases in
      revenues. Even though this may have an adverse effect on our short term profits,
      we take the long term view that this practice results in increased customer
      loyalty, builds the AgFeed brand and will ultimately lead to increased sales
      and
      gross profits. In addition, we are presently experiencing more stable pricing
      in
      these additives, which we anticipate will stabilize our cost of goods
      sold.




29




Nanchang
      experienced a 247.11% increase in cost of goods sold during the nine month
      period ended September 30, 2007 compared to the same period in 2006. Shanghai
      experienced a 203.57% increase in cost of goods sold during the nine month
      period ended September 30, 2007 compared to the same period in
      2006.





Gross
      Profit. Gross margins decreased to 28.61% from 37.91% for the same period last
      year. The decrease in gross margin can be attributed to several factors: (i)
      the
      cost of introducing the Airubao Series; (ii) we experienced an approximate
      26.33% increase in the unit cost of goods sold of blended feed during the nine
      months ended September 30, 2007 compared to the same period in 2006; (iii)
      the
      unit cost of goods sold for premix products increased approximately 24.68%
      during the nine months ended September 30, 2007 compared to the same period
      in
      2006.





Gross
      margins at Nanchang for the nine month period ended September 30, 2007 were
      approximately 25.84% compared to 36.44% for the same period in 2006. Gross
      margins at Shanghai for the nine month period ended September 30, 2007 were
      27.33% compared to 39.89% for the same period in 2006. Gross margins at Guangxi
      for the nine month period ended September 30, 2007 were approximately
      28.30%.  Gross margin calculations for each subsidiary are calculated prior
      to any adjustments for intercompany sales, which are reflected in the
      consolidated financial statements.





Selling,
      General and Administrative Expenses. We incurred legal and audit expense in
      the
      nine month period ended September 30, 2007 of approximately $219,000 associated
      with being a publicly traded United States reporting company that we did not
      incur during the same period in 2006. The increase in our general and
      administrative expense also reflects the addition of our Guangxi subsidiary,
      which had approximately $183,400 of general and administrative expenses during
      the nine months ended September 30, 2007. General and administrative expense
      includes overhead expenses such as rent, management and staff salaries, general
      insurance, marketing, accounting and legal and office expenses. Selling expenses
      for the period increased by 80.5% due to the 282.63% increase in revenues and
      the costs associated with entering markets in neighboring provinces as well
      as
      the addition of our Guangxi subsidiary, which had approximately $423,000 of
      selling expenses during the nine months ended September 30, 2007. We attempted
      to control our selling expenses through the use of strict cost controls and
      efficient use of our distribution channels.





Net
      Income. Our increase in net income was due to an increase in income from
      operations offset by an increase in non-operating income due to net interest
      expense offset by other income of approximately $19,000. The major reason for
      the increase in non-operating income during this period in 2007 was interest
      earned on the net proceeds of our financings of approximately $99,500 and other
      income of approximately $14,000 offset by interest paid in connection with
      short
      term loans of approximately $95,000. In addition, our Nanchang Best subsidiary
      became 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 and then will pay a reduced rate of 15% for
      the
      next three years.





**Off-Balance
      Sheet Arrangements**





There
      were no off-balance sheet arrangements during the nine months ended September
      30, 2007 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.




30





**Liquidity
      and Capital Resources**





At
      September 30, 2007, we had $10,007,903 cash and cash equivalents on hand. During
      the nine month period ending September 30, 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 8% 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 8% of the securities placed were paid in
      cash and a number of common stock purchase warrants equal to 8% of the units
      placed were paid to participating dealers and a finder. Accordingly, we paid
      $546,421 and issued warrants to purchase 182,141 shares of our common stock
      to
      the participating dealers and a finder. All stock purchase warrants have a
      three
      year term and have an initial exercise price of $5.00. We received net proceeds
      from the private placement of $6,247,503, after deduction of 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 consisted of one share of common stock and a warrant
      to
      purchase 25% 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 8% of the securities placed
      was
      paid in cash and a number of common stock purchase warrants equal to 8% 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.





We
      used
      $1,131,000 of the net proceeds from these private placement offerings to repay
      the short term bank loan we had in connection with our acquisition Guangxi
      Huijie. We also used $620,000 to make a good faith deposit with an agricultural
      feed company located in China that we were in negotiations to acquire. We
      conducted a due diligence investigation of this company and have subsequently
      decided not to pursue this acquisition. We have signed a termination consent
      with this company and fully expect that we will receive a full refund of the
      $620,000 on or before November 15, 2007.





As
      of
      September 30, 2007, we had total loans payable of $1,718,878, comprised of
      three
      loans. There was one short term bank loan to Nanchang of $800,766, with an
      interest rate of 7.44% per annum payable monthly. This loan matures on May
      27,
      2008, and is collateralized by our office building, workshop, employee dorms,
      and use right of land. There are two short term bank loans to Guangxi Huijie
      totaling $918,212 as follows:





**Remaining
                Balance Due**
            
            **Maturity
                Date**
            
            **Interest
                Rate**
            
            **Collateral**$637,944
            
            October
                11, 2007
            
            5.67%
            
            Officer’s
                Bank Deposits$280,268
            
            May
                24, 2008
            
            6.57%
            
            Company
                Use Right of Land





During
      the three months ended September 30, 2007 we repaid a bank loan to Guangxi
      in
      the amount of $118,235. On October 11, 2007, we repaid the bank loan to
      Guangxi that matured on that date.




31




During
      the nine months ended September 30, 2007, we repaid advances totaling $746,645
      to entities in which Mr. Junhong Xiong, our President and Chief Executive
      Officer, had an equity interest. Mr. Xiong sold his interest in all of these
      entities.





During
      the nine months ended September 30, 2007, our operating activities provided
      cash
      of $321,619. This provision of cash was primarily due to net income of
      $4,315,443, depreciation of $118,038, amortization of $51,715, an increase
      of
      accounts payable of $769,627, an increase of accrued expenses of $189,348,
      a
      decrease of $101,436 in due from a related party and an increase of accrued
      payroll of $120,822, all offset by an increase of 4,470,647 in accounts
      receivable, an increase of $93,489 in other receivables, an increase in
      inventory in the amount of $410,529, an increase in prepaid expenses of $274,268
      and a decrease in tax and welfare payable in the amount $76,094.





We
      used
      $117,485 in investing activities during the nine month period ended September
      30, 2007 for the acquisition of property and equipment and
      $620,000 as a deposit for a potential acquisition that we subsequently
      abandoned.





We
      received $9,059,182 in cash from financing activities. We received $8,767,503,
      net of $1,062,756 of offering costs, from the sale of our securities during
      the nine months ended September 30, 2007. We also received $977,008 from the
      proceeds of loans. We collected $226,083 for subscription receivables and
      $942,676 from related parties due to us. These amounts were offset by the
      following payments we made: $752,084 repayment to shareholders and the payment
      of $1,102,004 on the note receivable associated with the acquisition of
      Guangxi.





At
      September 30, 2007, our accounts receivable balance was approximately $6.3
      million, which was approximately 53% of our net revenues for the three months
      ended September 30, 2007. The reason for the large increase in our accounts
      receivable at September 30, 2007 is that our sales increased due to the
      introduction of our Airubao series of products during the first quarter of
      2007.
      Approximately $9.7 million or 75% of our sales during the quarter ended
      September 30, 2007 occurred in August and September 2007. Given that our
      credit terms range from 30-90 days and in certain cases exceed 90 days, a
      significant portion of these sales remained in accounts receivable at
      September 30, 2007. Through October 30, 2007, we had collected
      approximately $4.6 million of the approximately $5.3 million of accounts
      receivable at June 30, 2007, of which approximately $488,000 of the amount
      collected was greater than 90 days old at June 30, 2007. We anticipate
      collecting approximately 85% of this remaining balance of accounts receivable
      that were greater than 90 days old at June 30, 2007 in 2007 and a substantial
      portion of the remaining balance during 2008. ****





Our
      principal demands for liquidity are to increase capacity, raw materials
      purchase, sales distribution, and the possible acquisition of new subsidiaries
      or joint ventures in our industry as opportunities present themselves, as well
      as general corporate purposes. We estimate that we will require approximately
      $6,200,000 to maintain our current operations and achieve these goals in 2007,
      which include a potential joint venture outside of China and an additional
      acquisition that we are presently budgeting. We will also require an additional
      $3,000,000 that we are budgeting for a potential acquisition in 2008. 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. In light of surging pork prices in China due to rising consumer
      demand and severe pork supply shortages, we have been exploring opportunities
      to
      enter China’s commercial hog farm business through acquisition of existing
      commercial hog farms as well as building new hog farms. We believe the
      commercial hog farm business would contribute significant revenues to our
      financial performance in 2008 and beyond. In the event we determine to pursue
      an
      aggressive acquisition program to meet this goal in 2008, we will need to raise
      additional funds from the sale of our securities in order to have sufficient
      funds to complete these acquisitions.





32


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. We may also use short term loans bank loans to meet our liquidity
        requirements.
 
 The
        majority of the Company’s revenues and expenses were denominated primarily in
        Renminbi (“RMB”), the currency of the People’s Republic of China. There is no
        assurance that exchange rates between the RMB and the U.S. Dollar will remain
        stable. The Company does not engage in currency hedging. Inflation has not
        had a
        material impact on the Company’s business.
 
 **RISK
        FACTORS**
 
 *You
        should carefully consider the risks described below in evaluating our business
        and future prospects. The risks described below are not the only ones facing
        our
        company. Additional risks not presently known to us or that we currently
        believe
        are immaterial may also impair our business operations. Our business could
        be
        harmed by any of these risks. The trading price of our common stock could
        decline due to any of these risks and you may lose all or part of your
        investment. In assessing these risks, you should also refer to the other
        information contained in this reports, including our consolidated financial
        statements and related notes.*
 
 **Risks
        Related to Our Business**
 
 **We
        cannot be certain that our product innovations and marketing successes will
        continue.**
  We
        believe that our past performance has been based on, and our future success
        will
        depend upon, in part, our ability to continue to improve our existing products
        through product innovation and to develop, market and produce new products.
        We
        cannot assure you that we will be successful in the introduction, marketing
        and
        production of any new products or product innovations, or that we will develop
        and introduce in a timely manner innovations to our existing products which
        satisfy customer needs or achieve market acceptance. Our failure to develop
        new
        products and introduce them successfully and in a timely manner could harm
        our
        ability to grow our business and could have a material adverse effect on
        our
        business, results of operations and financial condition.
 
 **Our
        success depends on our management team and other key personnel, the loss
        of any
        of whom could disrupt our business operations.**
 
 Our
        future success will depend in substantial part on the continued service of
        our
        senior management and founders. The loss of the services of one or more of
        our
        key personnel could impede implementation and execution of our business strategy
        and result in the failure to reach our goals. We do not carry key person
        life
        insurance in respect of any of our officers or employees. Our future success
        will also depend on the continued ability to attract, retain and motivate
        highly
        qualified personnel in many fields of our operations. The rapid growth of
        the
        economy in The People’s Republic of China has caused intense competition for
        qualified personnel. We cannot assure you that we will be able to retain
        our key
        personnel or that we will be able to attract, train or retain qualified
        personnel in the future.
  33
  **Our
        acquisition strategy involves a number of risks and we have a limited history
        of
        successful acquisitions. Even when an acquisition is completed, we may have
        integration issues that may not produce as positive results as management
        may
        have projected.**
  We
        have
        completed one acquisition since 2006 and intend to grow through the acquisition
        of additional companies.
  We
        are
        regularly engaged in acquisition discussions with a number of companies located
        in China and anticipate that one or more potential acquisition opportunities,
        including those that would be material, may become available in the near
        future.
        If and when appropriate acquisition opportunities become available, we intend
        to
        pursue them actively. Acquisitions involve a number of special risks,
        including:
  ·
              
              failure
                  of the acquired business to achieve expected results;
  ·
              
              diversion
                  of management’s attention;
  ·
              
              failure
                  to retain key personnel of the acquired business;
  ·
              
              additional
                  financing, if necessary and available, could increase leverage,
                  dilute
                  equity, or both;
  ·
              
              the
                  potential negative effect on our financial statements from the
                  increase in
                  goodwill and other intangibles; and
  ·
              
              the
                  high cost and expenses of completing acquisitions and risks associated
                  with unanticipated events or liabilities.
  These
        risks could have a material adverse effect on our business, results of
        operations and financial condition.
 
 We
        have
        faced, and expect to continue to face, increased competition for acquisition
        candidates, which may limit our number of opportunities to acquire companies
        and
        may lead to higher acquisition prices. We cannot assure you that we will
        be able
        to identify, acquire, or manage profitably additional businesses or to integrate
        successfully any acquired businesses into our existing business without
        substantial costs, delays or other operational or financial difficulties.
        In
        future acquisitions, we also could incur additional indebtedness or pay
        consideration in excess of fair value, which could have a material adverse
        effect on our business, results of operations and financial condition. In
        addition, we may
        inadvertently assume unknown liabilities in acquisitions that we complete. Assumption
        of unknown liabilities in acquisitions may harm our financial condition and
        operating results. Acquisitions may be structured in such a manner that would
        result in the assumption of unknown liabilities not disclosed by the seller
        or
        uncovered during pre-acquisition due diligence. These obligations and
        liabilities could harm our financial condition and operating
        results.
  **Rising
        energy prices could adversely affect our operating
        results.**
  In
        the
        last few years, energy prices have risen dramatically, which has resulted
        in
        increased fuel costs for our businesses and raw materials costs for our branded
        products. Rising energy prices could adversely affect demand for our products
        and increase our operating costs, both of which would reduce our sales and
        operating income.
  34
 
 **We
        rely on independently owned wholesale distributors who do not exclusively
        offer
        our products to their customers.**
  The
        loss
        of, or significant adverse change in, our relationship with any of our key
        wholesale distributors could cause our net sales, income from operations
        and
        cash flow to decline. The loss of, or reduction in, orders from any significant
        customer, losses arising from customer disputes regarding shipments, fees,
        merchandise condition or related matters, or our inability to collect accounts
        receivable from any major customer could reduce our income from operations
        and
        cash flow.
  **We
        may not be able to reach our revenue and net income targets due to unpredictable
        market conditions.**
  Our
        primary end user customers are commercial hog farms and individual farmers.
        Although hog prices in The People’s Republic of China have reached multi-year
        highs, we cannot predict how long such favorable environment may last or
        predict
        the buying behavior of our customers as they adjust to market conditions.
        Therefore, our market expectations and projections may exceed our actual
        financial performance.
 
 **We
        are a major purchaser of many commodities that we use for raw materials and
        packaging, and price changes for the commodities we depend on may adversely
        affect our profitability.**
 
 We
        enter
        into contracts for the purchase of raw materials at fixed prices, which are
        designed to protect us against raw material price increases during their
        term.
        However, when necessary, we attempt to recover our commodity cost increases
        by
        increasing prices, promoting a higher-margin product mix and creating additional
        operating efficiencies. Nevertheless, the raw materials used in our business
        are
        largely commodities that experience price fluctuations caused by external
        conditions and changes in governmental agricultural programs.
 
 We
        also
        use paper products, such as corrugated cardboard, aluminum products, films
        and
        plastics to package our products. Substantial increases in prices of packaging
        materials or higher prices of our raw materials could adversely affect our
        operating performance and financial results.
 
 Commodity
        price changes may result in unexpected increases in raw material and packaging
        costs, and we may be unable to increase our prices to offset these increased
        costs without suffering reduced volume, revenue and income. In addition,
        any
        substantial fluctuation in the prices of raw materials, if not offset by
        increases in our sales prices, could adversely affect our profitability.
 
 **Outbreaks
        of livestock disease can adversely affect sales of our products.**
 
 Outbreaks
        of livestock diseases can significantly affect demand for our products. An
        outbreak of disease could result in governmental restrictions on the sale
        of
        livestock products to or from customers, or require our customers to destroy
        their flocks. This could result in the cancellation of orders by our customers
        and create adverse publicity that may have a material adverse effect on the
        agricultural products industry and our ability to market our products
        successfully.
 
 **Our
        products and processes can expose us to product liability
        claims.**
 
 Product
        liability claims or product recalls can adversely affect our business reputation
        and expose us to increased scrutiny by local, provincial, and central
        governmental regulators. The packaging, marketing and distribution of
        agricultural feed products entail an inherent risk of product liability and
        product recall and the resultant adverse publicity. We may be subject to
        significant liability if the consumption of any of our products causes injury,
        illness or death of livestock, other animals or humans. We could be required
        to
        recall certain of our products in the event of contamination or damage to
        the
        products. In addition to the risks of product liability or product recall
        due to
        deficiencies caused by our production or processing operations, we may encounter
        the same risks if any third party tampers with our products. We cannot assure
        you that we will not be required to perform product recalls, or that product
        liability claims will not be asserted against us, in the future. Any claims
        that
        may be made may create adverse publicity that would have a material adverse
        effect on our ability to market our products successfully or on our business,
        reputation, prospects, financial condition and results of operations. A
        successful product liability claim in excess of our insurance coverage could
        have a material adverse effect on us and could prevent us from obtaining
        adequate product liability insurance in the future on commercially reasonable
        terms.
  35
 
 **We
        may not be able to obtain regulatory approvals for our
        products.**
 
 The
        manufacture and sale of agricultural products in The People’s Republic of China
        is regulated by The People’s Republic of China and the local provincial
        governments. Although our licenses and regulatory filings are current, the
        uncertain legal environment in The People’s Republic of China and its industry
        may be vulnerable to local government agencies or other parties who wish
        to
        renegotiate the terms and conditions of, or terminate their agreements or
        other
        understandings with us.
 
 **We
        face significant competition in the sales of our agricultural feed
        products.**
 
 Competition
        in the agricultural feed industry, especially with companies with greater
        resources, may make us unable to compete successfully in these industries,
        which
        could adversely affect our business.
 
 In
        general, the competitive factors in the agricultural feed industry in The
        People’s Republic of China include:
 
 ·
              Price;
 
 ·
              Product
                  quality;
 
 ·
              Brand
                  identification;
 
 ·
              Breadth
                  of product line; and
 
 ·
              Customer
                  service.
 
 To
        the
        extent that our products and services do not exhibit these qualities, our
        ability to compete will be hindered.
 
 **Concerns
        with the safety and quality of agricultural feed products could cause customers
        to avoid our products.**
 
 We
        could
        be adversely affected if our customers and the ultimate consumers of our
        products lose confidence in the safety and quality of various feed products.
        Adverse publicity about these types of concerns, such as the recent publicity
        concerning the substance melamine, whether or not valid, may discourage our
        customers from buying our products or cause production and delivery disruptions.
        Any negative change in customer perceptions about the safety and quality
        of our
        products could adversely affect our business and financial
        condition.
  36
 
 **If
        our feed products become adulterated or misbranded, we would need to recall
        those items and may experience product liability claims if consumers are
        injured
        as a result.**
 
 Animal
        feed products occasionally contain contaminants due to inherent defects in
        those
        products or improper storage or handling. Under adverse circumstances, animal
        feed manufacturers may need to recall some of their products if they become
        adulterated or misbranded and may also be liable if the consumption of any
        of
        their products causes injury.
 
 While
        we
        have never been required to recall any of our products and we maintain insurance
        that we believe is adequate to cover this type of loss, a widespread product
        recall could result in changes to one or more of our business processes,
        product
        shortages, a loss of customer confidence in our food or other adverse effects
        on
        our business.
 
 If
        we are
        required to defend against a product liability claim, whether or not we are
        found liable under the claim, we could incur substantial costs, our reputation
        could suffer and our customers might substantially reduce their existing
        or
        future orders from us.
 
 **We
        may not be able to adequately protect and maintain our intellectual property,
        trademark, and brand names.**
 
 Our
        success will depend on our ability to continue to develop and market fodder
        and
        blended feed products. We currently have not applied for patents for our
        products or formulae, as our management believes an application for such
        patents
        would result in public knowledge of our proprietary technology and formulas.
        As
        we do not have patent protection for this technology or formulae, we may
        not be
        able to protect our rights to this intellectual property, if our competitors
        discover or illegally obtain this technology or formulae. Our inability to
        protect our rights to this intellectual property may adversely affect our
        ability to prevent competitors from using our products and
        developments.
 
 **Some
        of our significant customer and supplier contracts are
        short-term.**
 
 Some
        of
        our customers and suppliers operate through purchase orders or short-term
        contracts. Though we have long-term business relationships with many of our
        customers and suppliers and alternative sources of supply for key items,
        we
        cannot be sure that any of these customers or suppliers will continue to
        do
        business with us on the same basis. Additionally, although we try to renew
        these
        contracts as they expire, there can be no assurance that these customers
        or
        suppliers will renew these contracts on terms that are favorable to us, if
        at
        all. The termination of or modification to any number of these contracts
        may
        adversely affect our business and prospects, including our financial performance
        and results of operations.
 
 **Changes
        in the corporate and securities laws and regulations are likely to increase
        our
        costs.**
 
 The
        Sarbanes-Oxley Act of 2002 (SOX), which became law in July 2002, has required
        changes in some of the corporate governance, securities disclosure and
        compliance practices of United States public companies. In response to the
        requirements of SOX, the SEC and major stock exchanges have promulgated new
        rules and listing standards covering a variety of subjects. Compliance with
        these rules and listing standards that are likely to increase our general
        and
        administrative costs, and we expect these costs to continue to increase in
        the
        future. In particular, we will be required to include the management and
        auditor
        reports on internal control as part of our annual report for the year ending
        December 31, 2007 pursuant to Section 404 of SOX. We will shortly begin the
        process of evaluating our internal control systems in order (i) to allow
        management to report on, and our independent auditors to attest to our internal
        controls, as required by these laws, rules and regulations, (ii) to provide
        reasonable assurance that our public disclosure will be accurate and complete,
        and (iii) to comply with the other provisions of Section 404 of SOX. We cannot
        be certain as to the timing of the completion of our evaluation, testing
        and
        remediation actions or the impact these may have on our operations. Furthermore,
        there is no precedent available by which to measure compliance adequacy.
        If we
        are not able to implement the requirements relating to internal controls
        and all
        other provisions of Section 404 in a timely fashion or achieve adequate
        compliance with these requirements or other requirements of SOX, we might
        become
        subject to sanctions or investigation by regulatory authorities such as the
        SEC
        or the Nasdaq Stock Market. Any such action may materially adversely affect
        our
        reputation, financial condition and the value of our securities, including
        our
        common stock. We expect that SOX and these other laws, rules and regulations
        will increase legal and financial compliance costs and will make our corporate
        governance activities more difficult, time-consuming and costly. We also
        expect
        that these new requirements will make it more difficult and expensive for
        us to
        obtain director and officer liability insurance in the United
        States.
  37
 
 **Risks
        Related to Conducting Our Business in The People’s Republic of
        China**
 
 **We
        are subject to international economic and political risks over which we have
        little or no control and may be unable to alter our business practice in
        time to
        avoid the possibility of reduced revenues.**
 
 All
        of
        our business is conducted in The People’s Republic of China. Doing business
        outside the United States, particularly in The People’s Republic of China,
        subjects us to various risks, including changing economic and political
        conditions, major work stoppages, exchange controls, currency fluctuations,
        armed conflicts and unexpected changes in United States and foreign laws
        relating to tariffs, trade restrictions, transportation regulations, foreign
        investments and taxation. We have no control over most of these risks and
        may be
        unable to anticipate changes in international economic and political conditions
        and, therefore, unable to alter out business practice in time to avoid the
        possibility of reduced revenues.
 
 **The
        People’s Republic of China’s economic policies could affect our
        business.**
 
 Substantially
        all of our assets are located in The People’s Republic of China and
        substantially all of our revenue is derived from our operations in The People’s
        Republic of China. Accordingly, our results of operations and prospects are
        subject, to a significant extent, to the economic, political and legal
        developments in The People’s Republic of China.
  While
        The
        People’s Republic of China’s economy has experienced significant growth in the
        past twenty years, such growth has been uneven, both geographically and among
        various sectors of the economy. The Chinese government has implemented various
        measures to encourage economic growth and guide the allocation of resources.
        Some of these measures benefit the overall economy of The People’s Republic of
        China, but they may also have a negative effect on us. For example, operating
        results and financial condition may be adversely affected by the government
        control over capital investments or changes in tax regulations. The economy
        of
        The People’s Republic of China has been changing from a planned economy to a
        more market-oriented economy. In recent years, the Chinese government has
        implemented measures emphasizing the utilization of market forces for economic
        reform and the reduction of state ownership of productive assets, and the
        establishment of corporate governance in business enterprises; however, a
        substantial portion of productive assets in The People’s Republic of China are
        still owned by the Chinese government. In addition, the Chinese government
        continues to play a significant role in regulating industry development by
        imposing industrial policies. It also exercises significant control over
        The
        People’s Republic of China’s economic growth through the allocation of
        resources, the control of payment of foreign currency-denominated obligations,
        the setting of monetary policy and the provision of preferential treatment
        to
        particular industries or companies.
  38
 
 **We
        may have difficulty establishing adequate management, legal and financial
        controls in The People’s Republic of China.**
 
 The
        People’s Republic of China historically has not adopted a Western style of
        management and financial reporting concepts and practices, as well as in
        modern
        banking, computer and other control systems. We may have difficulty in hiring
        and retaining a sufficient number of qualified employees to work in The People’s
        Republic of China. As a result of these factors, we may experience difficulty
        in
        establishing management, legal and financial controls, collecting financial
        data
        and preparing financial statements, books of account and corporate records
        and
        instituting business practices that meet Western standards.
 
 **Our
        bank accounts are not insured or protected against loss.**
 
 We
        maintain our cash with various banks and trust companies located in The People’s
        Republic of China. Our cash accounts are not insured or otherwise protected.
        Should any bank or trust company holding our cash deposits become insolvent,
        or
        if we are otherwise unable to withdraw funds, we would lose the cash on deposit
        with that particular bank or trust company.
 
 **As
        we have limited business insurance coverage in The People’s Republic of China,
        any loss which we suffer may not be insured or may be insured to only a limited
        extent.**
 
 The
        insurance industry in The People’s Republic of China is still in an early state
        of development and insurance companies located in The People’s Republic of China
        offer limited business insurance products. In the event of damage or loss
        to our
        properties, our insurance may not provide as much coverage as if we were
        insured
        by insurance companies in the United States.
 
 **We
        may face judicial corruption in The People’s Republic of
        China.**
 
 Another
        obstacle to foreign investment in The People’s Republic of China is corruption.
        There is no assurance that we will be able to obtain recourse in any legal
        disputes with suppliers, customers or other parties with whom we conduct
        business, if desired, through The People’s Republic of China’s poorly developed
        and sometimes corrupt judicial systems.
 
 **We
        may face obstacles from the communist system in The People’s Republic of
        China.**
 
 Foreign
        companies conducting operations in The People’s Republic of China face
        significant political, economic and legal risks. The Communist regime in
        The
        People’s Republic of China, including a cumbersome bureaucracy, may hinder
        Western investment.
 
 **If
        relations between the United States and The People’s Republic of China worsen,
        investors may be unwilling to hold or buy our stock and our stock price may
        decrease.**
 
 At
        various times during recent years, the United States and The People’s Republic
        of China have had significant disagreements over political and economic issues.
        Controversies may arise in the future between these two countries. Any political
        or trade controversies between the United States and The People’s Republic of
        China, whether or not directly related to our business, could reduce the
        price
        of our common stock.
  39
 
 **The
        government of The People’s Republic of China could change its policies toward
        private enterprise or even nationalize or expropriate private enterprises,
        which
        could result in the total loss of our and your investment.**
 
 Our
        business is subject to significant political and economic uncertainties and
        may
        be affected by political, economic and social developments in The People’s
        Republic of China. Over the past several years, the government of The People’s
        Republic of China has pursued economic reform policies including the
        encouragement of private economic activity and greater economic
        decentralization. The government of The People’s Republic of China may not
        continue to pursue these policies or may significantly alter them to our
        detriment from time to time with little, if any, prior notice.
 
 Changes
        in policies, laws and regulations or in their interpretation or the imposition
        of confiscatory taxation, restrictions on currency conversion, restrictions
        or
        prohibitions on dividend payments to stockholders, or devaluations of currency
        could cause a decline in the price of our common stock, should a market for
        our
        common stock ever develop. Nationalization or expropriation could even result
        in
        the total loss of your investment.
 
 **The
        nature and application of many laws of The People’s Republic of China create an
        uncertain environment for business operations and they could have a negative
        effect on us.**
 
 The
        legal
        system in The People’s Republic of China is a civil law system. Unlike the
        common law system, the civil law system is based on written statutes in which
        decided legal cases have little value as precedents. In 1979, The People’s
        Republic of China began to promulgate a comprehensive system of laws and
        has
        since introduced many laws and regulations to provide general guidance on
        economic and business practices in The People’s Republic of China and to
        regulate foreign investment. Progress has been made in the promulgation of
        laws
        and regulations dealing with economic matters such as corporate organization
        and
        governance, foreign investment, commerce, taxation and trade. The promulgation
        of new laws, changes of existing laws and the abrogation of local regulations
        by
        national laws could cause a decline in the price of our common stock. In
        addition, as these laws, regulations and legal requirements are relatively
        recent, their interpretation and enforcement involve significant
        uncertainty.
 
 **Although
        we do not import goods into or export goods out of The People’s Republic of
        China, fluctuation of the Renminbi may indirectly affect our financial condition
        by affecting the volume of cross-border money flow.**
 
 Although
        we use the United States dollar for financial reporting purposes, all of
        the
        transactions effected by our operating subsidiaries are denominated in The
        People’s Republic of China’s Renminbi. The value of the Renminbi fluctuates and
        is subject to changes in The People’s Republic of China’s political and economic
        conditions. We do not currently engage in hedging activities to protect against
        foreign currency risks. Even if we chose to engage in such hedging activates,
        we
        may not be able to do so effectively. Future movements in the exchange rate
        of
        the Renminbi could adversely affect our financial condition as we may suffer
        financial losses when transferring money raised outside of China into the
        country or paying vendors for services performed outside of China.
 
 **The
        admission of The People’s Republic of China into the World Trade Organization
        could lead to increased foreign competition for us.**
  Domestic
        competition in the animal feed industry is largely fragmented and foreign
        competition is minimal. However, as a result of The People’s Republic of China
        becoming a member of the World Trade Organization (“WTO”), import restrictions
        on agricultural products are expected to be reduced. With the lowering of
        import
        restrictions and the WTO’s requirement for a reduction of import tariffs as
        condition of membership, such reduced import restrictions and tariffs may
        result
        in an increase of foreign products and could in turn lead to increased
        competition in the domestic agricultural market.
  40
 
 **It
        will be extremely difficult to acquire jurisdiction and enforce liabilities
        against our officers, directors and assets based in The People’s Republic of
        China.**
 
 As
        our
        executive officers and several of our directors, including the chairman of
        our
        Board of Directors, are Chinese citizens, it may be difficult, if not
        impossible, to acquire jurisdiction over these persons in the event a lawsuit
        is
        initiated against us and/or our officers and directors by a stockholder or
        group
        of stockholders in the United States. Also, because our operating subsidiaries
        and assets are located in The People’s Republic of China, it may be extremely
        difficult or impossible for you to access those assets to enforce judgments
        rendered against us or our directors or executive offices by United States
        courts. In addition, the courts in The People’s Republic of China may not permit
        the enforcement of judgments arising out of United States federal and state
        corporate, securities or similar laws. Accordingly, United States investors
        may
        not be able to enforce judgments against us for violation of United States
        securities laws.
 
 **Risks
        Related to our Securities**
 
 **Our
        common stock price is subject to significant volatility, which could result
        in
        substantial losses for investors.**
 
 During
        the eight month period ended August 28, 2007, the high and low bid prices
        of our
        common stock on the Over-The-Counter Bulletin Board (“OTCBB”) were $8.25 per
        share and $1.85 per share, respectively. Sine commencing trading on the Nasdaq
        Stock Market on August 29, 2007, the high and low sales prices of our common
        stock were $16.00 and $7.11. Prices for our shares are determined in the
        marketplace and may accordingly be influenced by many factors, including,
        but
        not limited to:
 
 ·
              the
                  depth and liquidity of the market for the
                  shares;
 
 ·
              quarter-to-quarter
                  variations in our operating
                  results;
 
 ·
              announcements
                  about our performance as well as the announcements of our competitors
                  about the performance of their
                  businesses;
 
 ·
              investors’
                  evaluations of our future prospects and the food industry
                  generally;
 
 ·
              changes
                  in earnings estimates by, or failure to meet the expectations of,
                  securities analysts;
 
 ·
              our
                  dividend policy; and
 
 ·
              general
                  economic and market conditions.
 
 In
        addition, the stock market often experiences significant price fluctuations
        that
        are unrelated to the operating performance of the specific companies whose
        stock
        is traded. These market fluctuations could adversely affect the trading price
        of
        our shares.
 
 The
        price
        at which investors purchase shares of our common stock may not be indicative
        of
        the price that will prevail in the trading market. Investors may be unable
        to
        sell their shares of common stock at or above their purchase price, which
        may
        result in substantial losses.
  41
 
 **Shares
        of our common stock lack a significant trading market.**
 
 On
        August
        29, 2007, shares of our common stock began trading on the Nasdaq Capital
        Market.
        On October 12, 2007, shares of our common stock began trading on the Nasdaq
        Global Market. Since August 29, 2007, our average trading volume has been
        less
        than 75,000 shares per day. As with most initial listings on this exchange,
        it
        will take time for a significant active trading market in our common stock
        to
        develop. There can be no assurance that an active trading market in our common
        stock will develop, or if such a market develops, that it will be
        sustained.
 
 **Future
        sales of shares of our common stock by our stockholders could cause our stock
        price to decline.**
 
 We
        cannot
        predict the effect, if any, that market sales of shares of our common stock
        or
        the availability of shares of common stock for sale will have on the market
        price prevailing from time to time. As of October 29, 2007, we had outstanding
        27,026,756 shares of common stock. We have filed a Registration Statement
        on
        Form SB-2 pursuant to which selling stockholders may resell an aggregate
        of
        3,026,753 shares of our common stock and an additional 611,787 shares issuable
        upon the exercise of warrants into the public market. This registration
        statement was declared effective on October 25, 2007. Sales of shares of
        our
        common stock in the public market covered under an effective registration
        statement, or the perception that those sales may occur, could cause the
        trading
        price of our common stock to decrease or to be lower than it might be in
        the
        absence of those sales or perceptions.
 
 **We
        may issue additional shares of our capital stock or debt securities to raise
        capital or complete acquisitions, which would reduce the equity interest
        of our
        stockholders.**
 
 Our
        certificate of incorporation authorizes the issuance of up to 75,000,000
        shares
        of common stock, par value $.001 per share. As of October 29, 2007, 27,026,756
        of these shares of common stock were issued and outstanding, 611,787 shares
        were
        reserved for issuance upon exercise of 611,787 issued and outstanding warrants
        and 32,000 were reserved for issuance upon exercise of 32,000 issued and
        outstanding stock options. There are approximately 47,325,000 authorized
        and
        unissued shares of our common stock which have not been reserved and
        accordingly, are available for future issuance. Although we have not entered
        into any agreements as of the date of this offering to issue our unreserved
        shares of common stock, we may issue a substantial number of additional shares
        of our common stock to complete a business combination or to raise capital.
        The
        issuance of additional shares of our common stock:
 
 ·
              may
                  significantly reduce the equity interest of investors in this offering;
                  and
 
 ·
              may
                  adversely affect prevailing market prices for our common stock.
 
 **The
        elimination of monetary liability against our directors, officers and employees
        under Nevada law and the existence of indemnification rights to our directors,
        officers and employees may cause us to incur substantial expenditures and
        may
        discourage lawsuits against our directors, officers and
        employees.**
 
 Our
        articles of incorporation contain specific provisions that eliminate the
        liability of our directors for monetary damages to our company and shareholders,
        to the extent provided by Nevada law. We may also have or may create contractual
        indemnification obligations under our employment agreements with our officers.
        The foregoing indemnification obligations could result in our company incurring
        substantial expenditures to cover the cost of settlement or damage awards
        against directors and officers, which we may be unable to recoup. These
        provisions and resultant costs may also discourage our company from bringing
        a
        lawsuit against directors and officers for breaches of their fiduciary duties,
        and may similarly discourage the filing of derivative litigation by our
        shareholders against our directors and officers even though such actions,
        if
        successful, might otherwise benefit our company and shareholders.
  42
 
 **Our
        management owns a significant amount of our common stock, giving them influence
        or control in corporate transactions and other matters, and their interests
        could differ from those of other stockholders.**
 
 Our
        principal executive officers and directors, own approximately 29% of our
        outstanding common stock. As a result, they are in a position to significantly
        influence the outcome of matters requiring a stockholder vote, including
        the
        election of directors, the adoption of any amendment to our articles of
        incorporation or bylaws, and the approval of significant corporate transactions.
        Their control may delay or prevent a change of control on terms favorable
        to our
        other stockholders and may adversely affect your voting and other stockholders
        rights.
 
 **Our
        articles of incorporation, our bylaws and provisions of Nevada law could
        make it
        more difficult for a third party to acquire us, even if doing so could be
        in our
        stockholders’ best interest.**
 
 Provisions
        of our articles of incorporation and bylaws could make it more difficult
        for a
        third party to acquire us, even if doing so might be in the best interest
        of our
        stockholders. It could be difficult for a potential bidder to acquire us
        because
        our articles of incorporation and bylaws contain provisions that may discourage
        takeover attempts. These provisions may limit stockholders’ ability to approve a
        transaction that stockholders may think is in their best interests. These
        provisions include a requirement that certain procedures must be followed
        before
        matters can be proposed for consideration at meetings of our
        stockholders.
 
 Provisions
        of Nevada’s business combinations statute also restrict certain business
        combinations with interested stockholders. We have elected not to be governed
        by
        these provisions in our amended and restated articles of incorporation. However,
        this election may not be effective unless we meet certain conditions under
        the
        Nevada statute.
 
 **Capital
        outflow policies in The People’s Republic of China may hamper our ability to
        declare and pay dividends to our shareholders.**
 
 The
        People’s Republic of China has adopted currency and capital transfer
        regulations. These regulations may require us to comply with complex regulations
        for the movement of capital. Although our management believes that we will
        be in
        compliance with these regulations, should these regulations or the
        interpretation of them by courts or regulatory agencies change, we may not
        be
        able to pay dividends to our shareholders outside of The People’s Republic of
        China. In addition, under current Chinese law, we must retain a reserve equal
        to
        10 percent of net income after taxes, not to exceed 50 percent of registered
        capital. Accordingly, this reserve will not be available to be distributed
        as
        dividends to our shareholders. We presently do not intend to pay dividends
        in
        the foreseeable future. Our management intends to follow a policy of retaining
        all of our earnings to finance the development and execution of our strategy
        and
        the expansion of our business.
 
 **Item
        3A(T). Controls and Procedures**
 
 **Evaluation
        of Disclosure Controls and Procedures**
  As
        of
        September 30, 2007, 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 Yan Liang Fan, our Chief Financial Officer. Based upon
        that evaluation, Mr. Xiong and Mr. Yan concluded that our disclosure controls
        and procedures are effective.
  43
 
 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 September 30, 2007, there were no changes in our internal
        control over financial reporting that have materially affected our internal
        control over financial reporting.
  **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
        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**
 
 None.
 
 **Item
        5.**  **Other
        Information**
 
 None.
  44
 
 **Item
        6.**  **Exhibits**
 
 (a)
              Exhibits
 
 **Exhibit
                  Number**
              
              **Description
                  of Exhibit**3.1
              
              The
                  Corporation’s Articles of Incorporation, is incorporated herein by
                  reference to Exhibit 3.1 to the Corporation’s Registration Statement on
                  Form SB-2 dated July 18, 2005.3.2
              
              The
                  Corporation’s Amended and Restated Bylaws, is incorporated herein by
                  reference to Exhibit 3.2 to the Corporation’s Report on Form 8-K dated May
                  15, 2007.4.1
              
              Form
                  of Common Stock Purchase Warrant forming part of units sold, and
                  also
                  issued as compensation to selected dealers.4.2
              
              Form
                  of Registration Rights Agreement.4.3
              
              Specimen
                  common stock certificate, is incorporated herein by reference to
                  Exhibit 4
                  to the Corporation’s Annual Report on Form 10-KSB for the year ended
                  December 31, 2006.4.4
              
              Form
                  of Common Stock Purchase Warrant forming part of units sold, and
                  also
                  issued as compensation to selected dealers in our private placement
                  offering that had a final closing in April 2007, is incorporated
                  herein by
                  reference to Exhibit 4.1 of the Corporation’s Quarterly Report on Form
                  10-QSB for the quarter ended March 31, 2007.4.5
              
              Form
                  of Registration Rights Agreements, is incorporated herein by reference
                  to
                  Exhibit 4.2 of the Corporation’s Quarterly Report on Form 10-QSB for the
                  quarter ended March 31, 2007.4.6
              
              Form
                  of Common Stock Purchase Warrant forming part of units sold and
                  also
                  issued as compensation to selected dealers in our June 2007 private
                  placement offering, is incorporated herein by reference to Exhibit
                  4.4 to
                  the Corporation’s Registration Statement on Form SB-2 dated June 28,
                  2007.4.7
              
              Registration
                  Rights Agreement dated as of June 22, 2007 by and between AgFeed
                  Industries, Inc. and Apollo Asia Opportunity Master Fund, L.P.,
                  is
                  incorporated herein by reference to Exhibit 4.5 to the Corporation’s
                  Registration Statement on Form SB-2 dated June 28,
                  2007.31.1
              
              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).
  45
 
 **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.October
                  31, 2007
              By:
              /s/ Xiong
                  JunhongXiong
                  Junhong
                Chief
                  Executive Officer (Principal Executive Officer) October
                  31, 2007
              By:
              /s/ Yan
                Liang
                FanYan
                  Liang Fan
                Chief
                  Financial Officer
                (Principal
                  Financial and Accounting
                  Officer)
 46