**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**


(Mark
      One)





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





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





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





For
      the
      transition period from ________________ to _______________





**001-33674**


(Commission
      file number)





**AGFEED
      INDUSTRIES, INC.**


(Exact
      name of registrant as specified in its charter)





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





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


**Hengmao
      Int'l Center**


**333
      S. Guangchang Rd.**


**Nanchang,
      Jiangxi Province**


**China
      330003**


(Address
      of principal executive offices)





**011-86-0791-6669099**


**** (Issuer’s
      telephone number)





**N/A**


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





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


Yes xNo  ̈





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


Large
      accelerated filer  ̈  Accelerated
      filer  ̈


Non-accelerated
      filer  ̈  Smaller
      reporting company x


(Do
      not
      check if a smaller reporting company)





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


Yes   ̈  No  x




As
      of
      October 30, 2008 there were 32,933,135  shares
      of
      common stock were outstanding.









**AGFEED
      INDUSTRIES, INC.**


**Index**





PageNumberPART
                I.
            FINANCIAL
                INFORMATIONItem
                1.
            Financial
                StatementsConsolidated
                Balance Sheets as of September 30, 2008 (unaudited)and
                December 31, 2007
            2Consolidated
                Statements of Income and Other Comprehensive Incomefor
                the three and nine months ended September 30, 2008 and 2007
                (unaudited)
            3Consolidated
                Statements of Cash Flows for thenine
                months ended September 30, 2008 and 2007 (unaudited)
            4Notes
                to Consolidated Financial Statements (unaudited)
            5Item
                2.
            Management’s
                Discussion and Analysis or Plan of Operations
            26Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            37Item
                4.
            Controls
                and Procedures
            37PART
                II.
            OTHER
                INFORMATION
            37Item
                1.
            Legal
                Proceedings
            37Item
                1A.
            Risk
                Factors
            37Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            37Item
                3.
            Defaults
                Upon Senior Securities
            37Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            38Item
                5.
            Other
                Information
            38Item
                6.
            Exhibits
            38SIGNATURES
            39




1




**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**AS
      OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007**





**September 30,**
            
            **December 31,****2008**
            
            **2007**(unaudited)**ASSETS****CURRENT
                ASSETS:**Cash
                and cash equivalents
            
            $
            15,565,123
            
            $
            7,696,209Accounts
                receivable, net of allowance for doubtful accountsof
                $265,908 and $191,497
            
            
            10,464,047
            
            
            6,107,491Advances
                to suppliers
            
            
            960,924
            
            
            442,851Other
                receivable
            
            
            2,385,897
            
            
            459,034Inventory
            
            
            19,788,337
            
            
            2,728,160Prepaid
                expense
            
            
            926,688
            
            
            644,183Debt
                issue costs
            
            
            275,042
            
            
            -Total
                current assets
            
            
            50,366,058
            
            
            18,077,928**PROPERTY
                AND EQUIPMENT, net**
            
            
            19,936,841
            
            
            3,930,715**CONSTRUCTION-IN-PROCESS**
            
            
            9,651,723
            
            
            221,819**INTANGIBLE
                ASSETS**
            
            
            42,751,424
            
            
            839,802**OTHER
                ASSETS**
            
            
            1,946,002
            
            
            -**TOTAL
                ASSETS**
            
            $
            124,652,048
            
            $
            23,070,264**LIABILITIES
                AND STOCKHOLDERS' EQUITY****CURRENT
                LIABILITIES:**Accounts
                payable
            
            $
            5,375,370
            
            $
            1,458,010Other
                payables
            
            
            4,055,621
            
            
            705,150Unearned
                revenue
            
            
            227,509
            
            
            99,848Accrued
                expenses
            
            
            626,203
            
            
            18,223Accrued
                payroll
            
            
            561,634
            
            
            168,560Short
                term loans
            
            
            -
            
            
            1,110,413Tax
                and welfare payable
            
            
            227,694
            
            
            9,534Interest
                payable
            
            
            251,319
            
            
            -Total
                current liabilities
            
            
            11,325,350
            
            
            3,569,738CONVERTIBLE
                NOTES, net of debt discount of $647,266 and $0
            
            
            3,152,734
            
            
            -TOTAL
                LIABILITIES
            
            
            14,478,084
            
            
            3,569,738MINORITY
                INTEREST
            
            
            1,957,197
            
            
            -**STOCKHOLDERS'
                EQUITY:**Common
                stock, $0.001 per share; 75,000,000 shares authorized;33,300,430
                and 27,026,756 shares issued and outstanding
            
            
            33,300
            
            
            27,027Additional
                paid-in capital
            
            
            82,643,045
            
            
            10,094,095Other
                comprehensive income
            
            
            3,884,960
            
            
            780,907Statutory
                reserve
            
            
            1,897,893
            
            
            752,225Retained
                earnings
            
            
            19,757,569
            
            
            7,846,272Total
                stockholders' equity
            
            
            108,216,767
            
            
            19,500,526**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            124,652,048
            
            $
            23,070,264





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




2





**AGFEED
      INDUSTRIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME**


**FOR
      THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
      2007**




**Three Months Ended September 30,**
              
              **Nine Months Ended September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**(unaudited)
              
              (unaudited)
              
              (unaudited)
              
              (unaudited)**Net
                  Revenue**
              
              $
              49,426,274
              
              $
              11,888,283
              
              $
              97,208,685
              
              
              23,757,731**Cost
                  of Revenue**
              
              
              37,124,058
              
              
              8,645,218
              
              
              70,438,683
              
              
              16,961,534**Gross
                  profit**
              
              
              12,302,216
              
              
              3,243,065
              
              
              26,770,002
              
              
              6,796,197Operating
                  expensesSelling
                  expenses
              
              
              970,268
              
              
              714,152
              
              
              2,597,470
              
              
              1,587,168General
                  and administrative expenses
              
              
              2,021,549
              
              
              471,549
              
              
              4,364,858
              
              
              953,250Total
                  operating expenses
              
              
              2,991,817
              
              
              1,185,701
              
              
              6,962,328
              
              
              2,540,418**Income
                  from operations**
              
              
              9,310,399
              
              
              2,057,364
              
              
              19,807,674
              
              
              4,255,779Non-operating
                  income (expense):Other
                  income (expense)
              
              
              (257,493
              )
              
              3,289
              
              
              (283,063
              )
              
              14,011Interest
                  income
              
              
              44,860
              
              
              45,283
              
              
              171,095
              
              
              99,473Interest
                  and financing costs
              
              
              (605,391
              )
              
              (31,057
              )
              
              (5,244,592
              )
              
              (94,662
              )Foreign
                  currency transaction loss
              
              
              (10,007
              )
              
              -
              
              
              (553,753
              )
              
              -Total
                  non-operating income (expense)
              
              
              (828,031
              )
              
              17,515
              
              
              (5,910,313
              )
              
              18,822Income
                  before minority interest and provision for income taxes
              
              
              8,482,368
              
              
              2,074,879
              
              
              13,897,361
              
              
              4,274,601Minority
                  Interest in Subsidiaries
              
              
              (64,309
              )
              
              -
              
              
              (425,403
              )
              
              -Income
                  before provision for income taxes
              
              
              8,418,059
              
              
              2,074,879
              
              
              13,471,958
              
              
              4,274,601Provision
                  (benefit) for income taxes
              
              
              201,904
              
              
              (295
              )
              
              414,993
              
              
              (40,756
              )**Net
                  income**
              
              $
              8,216,155
              
              $
              2,075,174
              
              $
              13,056,965
              
              $
              4,315,357Other
                  comprehensive incomeForeign
                  currency translation gain
              
              
              315,925
              
              
              178,887
              
              
              3,104,053
              
              
              322,070**Comprehensive
                  Income**
              
              $
              8,532,080
              
              $
              2,254,061
              
              $
              16,161,018
              
              $
              4,637,427**Weighted
                  average shares outstanding :**Basic
              
              
              33,267,815
              
              
              27,026,756
              
              
              31,049,732
              
              
              25,778,831Diluted
              
              
              33,557,457
              
              
              27,194,479
              
              
              31,377,267
              
              
              25,799,624**Earnings
                  per share:**Basic
              
              $
              0.25
              
              $
              0.08
              
              $
              0.42
              
              $
              0.17Diluted
              
              $
              0.24
              
              $
              0.08
              
              $
              0.42
              
              $
              0.17




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




3


**AGFEED
        INDUSTRIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**





**Nine Months Ended September 30,****2008**
            
            **2007**(unaudited)
            
            (unaudited)**CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                income
            
            $
            13,056,965
            
            $
            4,315,357Adjustments
                to reconcile net income to net cashprovided
                in (used in) operating activities:Depreciation
            
            
            973,164
            
            
            118,038Amortization
            
            
            35,240
            
            
            51,715Loss
                on disposal of assets
            
            
            16,774
            
            
            -Stock
                based compensation
            
            
            55,962
            
            
            -Amortization
                of debt issuance costs
            
            
            1,441,624
            
            
            -Amortization
                of discount on convertible debt
            
            
            3,392,619
            
            
            -Gain
                attributed to minority interest in subsidiaries
            
            
            425,403
            
            
            -(Increase)
                / decrease in assets:Accounts
                receivable
            
            
            (3,439,556
            )
            
            (4,470,647
            )Other
                receivable
            
            
            (1,837,551
            )
            
            (93,489
            )Inventory
            
            
            (8,312,612
            )
            
            (410,529
            )Due
                from related party
            
            
            -
            
            
            101,436Due
                from former stockholders
            
            
            -
            
            
            -Advances
                to suppliers
            
            
            (478,535
            )
            
            5,404Prepaid
                expense
            
            
            (261,938
            )
            
            (274,268
            )Other
                assets
            
            
            (1,552,469
            )
            
            3,252Increase
                / (decrease) in current liabilities:Accounts
                payable
            
            
            3,454,401
            
            
            769,627Other
                payables
            
            
            2,849,755
            
            
            (14,795
            )Unearned
                revenue
            
            
            118,530
            
            
            (13,558
            )Accrued
                expenses
            
            
            571,447
            
            
            189,348Accrued
                payroll
            
            
            374,101
            
            
            120,822Tax
                and welfare payable
            
            
            213,163
            
            
            (76,094
            )Interest
                payable
            
            
            251,319
            
            
            -Net
                cash provided by (used in) operating activities
            
            
            11,347,806
            
            
            321,619**CASH
                FLOWS FROM INVESTING ACTIVITIES**Acquisition
                of property and equipment
            
            
            (9,052,476
            )
            
            (117,485
            )Deposit
                of potential acquisition
            
            
            -
            
            
            (620,000
            )Acquisition
                of intangible assets
            
            
            (72,262
            )
            
            -Cash
                paid for purchase of hog farms, net
            
            
            (65,134,359
            )
            
            -Net
                cash used in investing activities
            
            
            (74,259,097
            )
            
            (737,485
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Repayment
                to shareholders
            
            
            -
            
            
            (752,084
            )Proceeds
                from loans
            
            
            -
            
            
            977,008Proceeds
                from the sale of common stock
            
            
            57,200,058
            
            
            9,830,259Offering
                costs
            
            
            (6,079,530
            )
            
            (1,062,756
            )Proceeds
                from exercise of warrants
            
            
            2,138,848
            
            
            -Payment
                on note payable
            
            
            (1,161,297
            )
            
            (1,102,004
            )Collection
                of subscription receivable
            
            
            -
            
            
            226,083Collection
                from related parties
            
            
            -
            
            
            942,676Proceeds
                from the issuance of convertible notes
            
            
            19,000,000
            
            
            -Issuance
                costs for convertible notes
            
            
            (1,716,666
            )
            
            -Capital
                contributed by minority interest holders
            
            
            936,320
            
            
            -Net
                cash provided by financing activities
            
            
            70,317,733
            
            
            9,059,182Effect
                of exchange rate changes on cash and cash equivalents
            
            
            462,472
            
            
            160,487**NET
                INCREASE IN CASH & CASH EQUIVALENTS**
            
            
            7,868,914
            
            
            8,803,803**CASH
                & CASH EQUIVALENTS, BEGINNING BALANCE**
            
            
            7,696,209
            
            
            1,204,100**CASH
                & CASH EQUIVALENTS, ENDING BALANCE**
            
            $
            15,565,123
            
            $
            10,007,903**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:**Interest
                paid
            
            $
            164,810
            
            $
            62,602Income
                taxes paid
            
            $
            209,582
            
            $
            53,982





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




4


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




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





The
      unaudited consolidated financial statements have been prepared by AgFeed
      Industries, Inc. pursuant to the rules and regulations of the Securities
      Exchange Commission (“SEC”). The information furnished herein reflects all
      adjustments (consisting of normal recurring accruals and adjustments) which
      are,
      in the opinion of management, necessary to fairly present the operating results
      for the respective periods. Certain information and footnote disclosures
      normally present in annual consolidated financial statements prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America have been omitted pursuant to such rules and regulations. These
      consolidated financial statements should be read in conjunction with the audited
      consolidated financial statements and footnotes included in the Company’s Annual
      Report on Form 10-K. The results for the nine months ended September 30, 2008
      are not necessarily indicative of the results to be expected for the full year
      ending December 31, 2008.





Organization
      and Line of Business





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





On
      October 31, 2006, the Company entered into and closed a share purchase agreement
      with Nanchang Best Animal Husbandry Co., Ltd. (“Nanchang Best”), a corporation
      formed under the laws of the People's Republic of China ("PRC"), 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 PRC ("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**
 **FOR
        THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
        2007**
 **(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 PRC (“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 (8,600,000 RMB), equivalent to approximately U.S. $1,100,420 based
      on
      exchange rates reported in the Wall Street Journal for December 20,
      2006.





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





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





In
      2008,
      the Company has purchased an additional 29 hog farms and one feed company.
      The
      Company’s ownership interest in these hog farms range from 55% to
      100%.





The
      Company is engaged in the research and development, manufacturing, marketing,
      distribution and sale of pre-mix fodder blended feed and feed additives
      primarily for use in China's domestic pork husbandry market as well as raising,
      breeding and sale of pigs. The Company operates production plants in Nanchang
      City, Shanghai City Nanning City and Haikou City and has swine farms located
      in
      the southern provinces ofthe PRC. The Company sells to distributors and
      large-scale swine farms.





Stock
      Splits




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




Basis
      of Presentation





The
      accompanying consolidated financial statements include the accounts of AgFeed
      Industries, Inc. and its wholly-owned and majority-owned subsidiaries.  All
      significant inter-company accounts and transactions have been eliminated in
      consolidation.





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





Foreign
      Currency Translation





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




6


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




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





Use
      of
      Estimates





The
      preparation of financial statements in conformity with United States generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Actual results could differ from those estimates. Areas that
      require estimates and assumptions include valuation of accounts receivable
      and
      inventory, determination of useful lives of property and equipment, estimation
      of certain liabilities and sales returns.





Reclassification





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





Cash
      and Cash Equivalents





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





Accounts
      Receivable





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





Advances
      to Suppliers





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





Inventories





Inventory
      is stated at the lower of cost, as determined by weighted-average method, or
      market. Management compares the cost of inventories with the market value,
      and
      allowance is made for writing down the inventories to their market value, if
      lower. Costs of
      raised animals include proportionate costs of breeding, including depreciation
      of the breeding herd, plus the costs of maintenance through the balance sheet
      date. Purchased hogs are carried at purchase cost plus costs of maintenance
      through the balance sheet date.




7


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





Property
      & Equipment





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





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





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




September 30, 2008
            
            December 31, 2007(unaudited)Office
                equipment
            
            $
            423,679
            
            $
            100,072Operating
                equipment
            
            
            1,737,290
            
            
            547,560Vehicles
            
            
            531,307
            
            
            271,652Buildings
            
            
            6,401,247
            
            
            1,568,816Swines
                for reproduction
            
            
            12,358,817
            
            
            1,940,784Total
            
            
            21,452,341
            
            
            4,428,884Less
                accumulated depreciation
            
            
            (1,515,500
            )
            
            (498,169
            )$
            19,936,841
            
            $
            3,930,715





Depreciation
      expense for the three and nine months ended September 30, 2008 and 2007 was
      $424,729 and $40,141 and $973,164 and $118,038, respectively.





Long-Lived
      Assets





The
      Company applies the provisions of SFAS No. 144, “Accounting for the Impairment
      or Disposal of Long-Lived Assets” which addresses financial accounting and
      reporting for the impairment or disposal of long-lived assets and supersedes
      SFAS 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, 2008 there
      were no significant impairments of its long-lived assets.




8


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


Intangible
      Assets





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





September 30, 2008
            
            December 31, 2007(unaudited)Right
                to use land
            
            $
            773,637
            
            $
            589,489Customer
                list
            
            
            292,600
            
            
            274,176Computer
                software
            
            
            81,360
            
            
            -Intangible
                related to hog farm acquisitions
            
            
            41,682,001
            
            
            15,366Total
            
            
            42,829,598
            
            
            879,031Less
                Accumulated amortization
            
            
            (78,174
            )
            
            (39,229
            )Intangibles,
                net
            
            $
            42,751,424
            
            $
            839,802





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





Revenue
      Recognition




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




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





Sales
      returns and rebates included in the Company's revenues were $542,261 and
      $272,503 for the nine month periods ended September 30, 2008 and 2007,
      respectively.





Advertising
      Costs





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




9


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





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 205,000 options outstanding at September 30,
      2008.





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





Foreign
      Currency Transactions and Comprehensive Income





Accounting
      principles generally require that recognized revenue, expenses, gains and losses
      be included in net income. Certain statements, however, require entities to
      report specific changes in assets and liabilities, such as gain or loss on
      foreign currency translation, as a separate component of the equity section
      of
      the balance sheet. Such items, along with net income, are components of
      comprehensive income. The functional currency of the Company is the RMB.
      Translation gains of $3,884,960 and $780,907 at September 30, 2008 and December
      31, 2007, respectively, are classified as an item of other comprehensive income
      in the stockholders’ equity section of the consolidated balance sheet. During
      the three and nine months ended September 30, 2008 and 2007, other comprehensive
      income in the consolidated statements of income and other comprehensive income
      included translation gains of $315,925 and $178,887, $3,104,06 and $322,070,
      respectively.




10


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




Basic
      and Diluted Earnings Per Share





Earnings
      per share is calculated in accordance with SFAS No. 128, “Earnings Per Share”
SFAS 128 superseded Accounting Principles Board Opinion No.15. Net earnings
      per
      share for all periods presented has been restated to reflect the adoption of
      SFAS 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. At September 30, 2007 there were 32,000 options outstanding and
      611,787 warrants outstanding and at September 30, 2008, there were 205,000
      options outstanding and 524,831 warrants outstanding.





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








**Three
                Months Ended:**
            
            September
                30, 2008
            
            September
                30, 2007Per
                Share
            
            
            
            Per
                ShareShares
            
            Amount
            
            Shares
            
            AmountBasic
                earnings per share
            
            
            33,267,815
            
            $
            0.25
            
            
            27,026,756
            
            $
            0.08Effect
                of dilutive stock options/warrants
            
            
            289,642
            
            
            -
            
            
            167,723
            
            
            -Diluted
                earnings per share
            
            
            33,557,457
            
            $
            0.24
            
            
            27,194,479
            
            $
            0.08





**Nine
                Months Ended:**
            
            September
                30, 2008
            
            September
                30, 2007Per
                Share
            
            
            
            Per
                ShareShares
            
            Amount
            
            Shares
            
            AmountBasic
                earnings per share
            
            
            31,049,732
            
            $
            0.42
            
            
            25,778,831
            
            $
            0.17Effect
                of dilutive stock options/warrants
            
            
            327,535
            
            
            -
            
            
            20,793
            
            
            -Diluted
                earnings per share
            
            
            31,377,267
            
            $
            0.42
            
            
            25,799,624
            
            $
            0.17





Statement
      of Cash Flows





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





Minority
      Interest





The
      Company purchased interest in 28 hog farms and one feed company ranging from
      55%
      to 100%. As a result of these purchases, the Company recognized initial minority
      interest on its consolidated balance sheet in the amount of $508,150. The income
      (loss) attributed to minority interest has been separately designated in the
      accompanying statement of operations.




11


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




Segment
      Reporting





SFAS
      No.
      131), “Disclosure About Segments of an Enterprise and Related Information”
requires use of the “management approach” model for segment reporting. The
      management approach model is based on the way a company’s management organizes
      segments within the company for making operating decisions and assessing
      performance. The Company has determined that it has four reportable segments
      (See Note 12).





Fair
      value of financial instruments





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





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





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





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





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





Recent
      Pronouncements





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





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




12


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




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





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





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





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




**Note
      3 – Short Term Loans**





Short
      term loans at December 31, 2007 were follows:





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




13


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


**Note
      4 – Convertible Notes**





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





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





In
      connection with the issuance of the Notes and the Warrants issued to the
      Investor on February 25, 2008, the Company paid $1,716,666 in debt issuance
      cost
      which is being amortized over the life of the Notes. For the three and nine
      months ended September 30, 2008, the Company amortized $148,766 and $1,441,624,
      respectively of the aforesaid issuance costs as interest and financing costs
      in
      the accompanying consolidated statements of operations.





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





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





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





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




14


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


The
      Warrants granted to the Investor on February 25, 2008 and conversion feature
      in
      the above Notes are not considered derivative instruments that need to be
      bifurcated from the original security since the Warrants and the Notes since
      the
      conversion price of the Notes have a floor of $5.00, which means the Company
      can
      determine the maximum shares that could be issued upon conversion. The Company
      determined the fair value of the detachable warrants issued in connection with
      the Notes to be $1,269,442, using the Black-Scholes option pricing model and
      the
      following assumptions:  expected life of 1 year, a risk free
      interest rate of 2.10%, a dividend yield of 0% and volatility of 70%.
      In addition, the Company determined the value of the beneficial conversion
      feature to be $2,770,442. The combined total discount for the Notes
      is $4,039,885 and is being amortized over the term of the Notes. For the
      three and nine months ended September 30, 2008, the Company amortized $350,096
      and $3,392,619, respectively, of the aforesaid discounts as interest and
      financing costs in the accompanying consolidated statements of
      operations.





During
      the six months ended September 30, 2008, $15,200,000 of the Notes were converted
      into 1,520,000 shares of common stock.





**Note
      5 – Stockholders’ Equity**





February
      26, 2008 Closing





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





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





April
      16, 2008 Closing





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





The
      Common Stock for the registered offering was issued pursuant to a prospectus
      supplement filed with the Commission on April 21, 2008, in connection with
      a
      shelf takedown from the Company’s Registration Statement on Form S-3 (File No.
      333-148386) which was declared effective by the Commission on January 11, 2008.




15


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


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





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





April
      22, 2008 Closing





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





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





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





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





During
      the nine months ended September 30, 2008 the Company issued 91,934 shares upon
      the cashless exercise of 197,500 warrants. In addition, the Company received
      proceeds of $2,097,405 per bank statements upon the exercise of 269,456
      warrants.





**Note
      6 - Employee Welfare Plan**





The
      Company had its own employee welfare plan in accordance with PRC law and
      regulations before all 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
      $101,426, and $36,673 and $130,502 for the three and nine months ended September
      30, 2008 and 2007, respectively. In accordance with PRC law, a Sino-foreign
      joint venture is not required to accrue welfare payable in advance. All
      subsidiaries have stopped accruing such payable since each changed into a
      Sino-foreign company. Instead, welfare expense is recorded as incurred.


**Note
      7 - Statutory Common Welfare Fund**





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




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




16


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




ii.
            Allocations
                to the “Statutory surplus reserve” of at least 10% of income after tax, as
                determined under PRC accounting rules and regulations, until the
                fund
                amounts to 50% of the Company’s registered capital;





iii.
            Allocations
                of 5-10% of income after tax, as determined under PRC accounting
                rules and
                regulations, to the Company’s “Statutory common welfare fund,” which is
                established for the purpose of providing employee facilities and
                other
                collective benefits to the Company’s employees; and





iv.
            Allocations
                to the discretionary surplus reserve, if approved in the stockholders’
                general meeting.





Pursuant
      to the new Corporate Law effective on January 1, 2006, there is now only one
      "Statutory surplus reserve" requirement. The reserve is 10 percent of income
      after tax, not to exceed 50 percent of registered capital.





The
      Company has appropriated $296,845 and $98,734, and $1,145,668 and $276,535
      as
      reserves for the Statutory surplus reserve and Statutory common welfare fund
      for
      the three and nine months ended September 30, 2008 and 2007,
      respectively.





**Note
      8 – Stock Options and Warrants**





Stock
      Options





Following
      is a summary of the stock option activity:





Options
              outstanding
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              average
              remaining
              contractual life
            
            Aggregate
              Intrinsic ValueOutstanding,
                December 31, 2007
            
            
            42,000
            
            $
            7.00
            
            
            
            
            
            -Granted
            
            
            185,000
            
            $
            9.32Forfeited
            
            
            (22,000
            )
            $
            5.30Exercised
            
            
            -
            
            
            -Outstanding,
                September 30, 2008
            
            
            205,000
            
            $
            9.27
            
            
            4.83
            
            $
            0Exercisable,
                September 30, 2008
            
            
            -





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





Risk-free
                interest rate
            
            
            3.09
            %Expected
                life of the options
            
            
            5
                yearsExpected
                volatility
            
            
            76
            %Expected
                dividend yield
            
            
            0
            %




17


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




Warrants





The
      following is a summary of the warrant activity:





Outstanding,
                December 31, 2007
            
            
            611,787Granted
            
            
            380,000Forfeited
            
            
            -Exercised
            
            
            (468,576
            )Outstanding,
                September 30, 2008
            
            
            523,211





**Note
      9 - Related Party Transactions**





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





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





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




**Note
      10 - Taxes**





Local
      PRC
      Income Tax





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





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





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


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





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





If
      the
      Company’s subsidiary had not been exempt from paying income taxes due to the
      Sino-Foreign Joint Venture described above, income tax expense for the three
      and
      nine months ended September 30, 2008 would have been approximately $2,711,000
      and $4,309,000 and earnings per share would have been reduced by approximately
      $0.08 and $0.13 per share, respectively.




18


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


**Note
      11 – Acquisitions**





Purchases
      of Hog Farms





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





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





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





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





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




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




19


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




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




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




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





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




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




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




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




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




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




20
 
 **AGFEED
          INDUSTRIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
          2007**
 **(UNAUDITED)**




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




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




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




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




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




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





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




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





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




21


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


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





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




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





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





Acquisition
      of Feed Company





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





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





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





Cash
            
            $
            95,573Accounts
                receivable
            
            
            388,384Other
                receivables
            
            
            20,795Inventory
            
            
            8,993,814Other
                assets
            
            
            353,753Property
                and equipment
            
            
            15,186,526Construction
                in process
            
            
            1,310,623Intangible
                assets
            
            
            40,096,413Accounts
                payable
            
            
            (318,197
            )Other
                payables
            
            
            (389,602
            )Minority
                Interest
            
            
            (508,150
            )$
            65,229,932





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




22


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


The
      following pro forma financial information presents the consolidated operations
      of the Company as if the 28 above mentioned acquisitions had occurred on January
      1, 2007.





For
      the
      nine months ended September 30, 2008 and 2007:





**2008**
            
            **2007**Net
                Revenue
            
            $
            102,628,025
            
            $
            40,740,260Gross
                profit
            
            $
            28,105,218
            
            $
            10,748,060Income
                from operations
            
            $
            20,762,915
            
            $
            7,245,471Minority
                Interest in Subsidiaries
            
            $
            425,403
            
            $
            73,925Net
                income
            
            $
            13,921,249
            
            $
            7,052,939Basic
                earnings per share
            
            $
            0.45
            
            $
            0.27





**Note
      12 – Segment Information**





The
      Company’s predominant businesses are the research and development, manufacture,
      marketing, distribution, and sale of pre-mix fodder blended feed and feed
      additives primarily for use in China’s domestic pork husbandry market and the
      raising, breeding, and selling of pigs.  The Company operates in four
      segments: Shanghai, Guangxi, Nanchang, and hog farms.





Shanghai
      is located in the Nanxiang, Jia Ding district, Shanghai and sells its products
      to approximately 360 customers, consisting of 170 local distributors and 190
      large scale pig farms.  Guangxi is located in Coastal Industrial Park,
      Liangqin district, Nanning city, Guangxi Province and sells its products to
      approximately 325 customers, consisting of 140 local distributors and 185 large
      scale pig farms.  Nanchang is located in Chang Bei District Industrial
      Park, in Nanchang, Jiangxi province and sells its products to approximately
      300
      customers, consisting of 90 local distributors and 210 large scale pig farms.
      The hog farms are engaged mainly in raising, breeding, and sale of pigs all
      over the country and are located in the PRC provinces of Jiangxi, Shanghai,
      Hainan, Guangxi and Fujian.





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





**Three**
            
            **Three**
            
            **Nine**
            
            **Nine****Months**
            
            **Months**
            
            **Months**
            
            **Months****Ended**
            
            **Ended**
            
            **Ended**
            
            **Ended****9/30/2008**
            
            **9/30/2007**
            
            **9/30/2008**
            
            **9/30/2007****Revenues
                from unrelated entities**Shanghai
            
            $
            5,093,382
            
            $
            4,479,754
            
            $
            13,773,419
            
            $
            6,461,899Guangxi
            
            
            1,798,166
            
            
            3,711,887
            
            
            5,019,905
            
            
            7,355,226Nanchang
            
            
            5,542,958
            
            
            3,696,642
            
            
            14,870,755
            
            
            9,940,606Hog
                farms
            
            
            36,991,768
            
            
            -
            
            
            63,544,606
            
            
            -$
            49,426,274
            
            $
            11,888,283
            
            $
            97,208,685
            
            $
            23,757,731**Intersegment
                revenues**Shanghai
            
            
            462,892
            
            $
            -
            
            $
            823,029
            
            $
            -Guangxi
            
            
            1,850,944
            
            
            -
            
            
            2,264,861
            
            
            -Nanchang
            
            
            961,184
            
            
            589,493
            
            
            2,027,676
            
            
            1,943,501Hog
                farms
            
            
            659,209
            
            
            -
            
            
            665,191
            
            
            -3,934,229
            
            $
            589,493
            
            $
            5,780,757
            
            $
            1,943,501




23


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




**Total
                Revenues**Shanghai
            
            $
            5,556,274
            
            $
            3,130,976
            
            $
            14,596,448
            
            $
            6,461,899Guangxi
            
            
            3,649,110
            
            
            3,711,887
            
            
            7,284,766
            
            
            7,355,226Nanchang
            
            
            6,504,142
            
            
            5,634,913
            
            
            16,898,431
            
            
            11,884,107Hog
                farms
            
            
            37,650,977
            
            
            -
            
            
            64,209,797
            
            
            -Less
                Intersegment revenues
            
            
            (3,934,229
            )
            
            (589,493
            )
            
            (5,780,757
            )
            
            (1,943,501
            )$
            49,426,274
            
            $
            11,888,283
            
            $
            97,208,685
            
            $
            23,757,731**Income
                from operations**Shanghai
            
            $
            1,240,705
            
            $
            504,091
            
            $
            2,907,438
            
            $
            1,079,493Guangxi
            
            
            496,574
            
            
            708,695
            
            
            1,082,357
            
            
            1,488,264Nanchang
            
            
            884,460
            
            
            991,429
            
            
            2,329,905
            
            
            1,958,492Hog
                farms
            
            
            6,913,471
            
            
            -
            
            
            14,276,685
            
            
            -Holding
                Company
            
            
            (224,811
            )
            
            (146,851
            )
            
            (788,711
            )
            
            (270,470
            )$
            9,310,399
            
            $
            2,057,364
            
            $
            19,807,674
            
            $
            4,255,779**Interest
                income**Shanghai
            
            $
            1,002
            
            $
            87
            
            $
            2,272
            
            $
            714Guangxi
            
            
            17,244
            
            
            1,078
            
            
            19,456
            
            
            1,915Nanchang
            
            
            9,126
            
            
            8,630
            
            
            58,796
            
            
            12,651Hog
                farms
            
            
            5,420
            
            
            -
            
            
            12,820
            
            
            -Holding
                Company
            
            
            12,068
            
            
            35,488
            
            
            77,751
            
            
            84,193$
            44,860
            
            $
            45,283
            
            $
            171,095
            
            $
            99,473**Interest
                and financing costs**Shanghai
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Guangxi
            
            
            67
            
            
            14,678
            
            
            7,852
            
            
            26,887Nanchang
            
            
            27,203
            
            
            16,379
            
            
            27,203
            
            
            37,195Hog
                farms
            
            
            209
            
            
            -
            
            
            211
            
            
            -Holding
                Company
            
            
            577,912
            
            
            -
            
            
            5,209,326
            
            
            30,580$
            605,391
            
            $
            31,057
            
            $
            5,244,592
            
            $
            94,662**Income
                tax expense (benefit)**Shanghai
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Guangxi
            
            
            128,545
            
            
            (40,756
            )
            
            242,046
            
            
            (40,756
            )Nanchang
            
            
            73,359
            
            
            40,461
            
            
            172,947
            
            
            -Hog
                farms
            
            
            -
            
            
            -
            
            
            -
            
            
            -Holding
                Company
            
            
            -
            
            
            -
            
            
            -$
            201,904
            
            $
            (295
            )
            $
            414,993
            
            $
            (40,756
            )




24


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


**Net
                Income**Shanghai
            
            $
            1,243,767
            
            $
            509,889
            
            $
            2,918,932
            
            $
            1,090,921Guangxi
            
            
            383,863
            
            
            695,390
            
            
            694,619
            
            
            1,504,048Nanchang
            
            
            811,992
            
            
            981,344
            
            
            1,786,392
            
            
            1,937,331Hog
                farms
            
            
            6,564,762
            
            
            (86
            )
            
            13,577,045
            
            
            (86
            )Holding
                Company
            
            
            (788,229
            )
            
            (111,363
            )
            
            (5,920,023
            )
            
            (216,857
            )$
            8,216,155
            
            $
            2,075,174
            
            $
            13,056,965
            
            $
            4,315,357**Provision
                for depreciation**Shanghai
            
            $
            21,373
            
            $
            5,797
            
            $
            64,119
            
            $
            19,708Guangxi
            
            
            12,991
            
            
            11,891
            
            
            38,973
            
            
            33,880Nanchang
            
            
            28,016
            
            
            22,453
            
            
            40,448
            
            
            64,450Hog
                farms
            
            
            362,349
            
            
            -
            
            
            829,624
            
            
            -$
            424,729
            
            $
            40,141
            
            $
            973,164
            
            $
            118,038


**As
                of****9/30/08****Total
                Assets**Shanghai
            
            
            
            
            
            
            
            $
            5,774,828Guangxi
            
            
            
            
            
            
            
            
            7,042,114Nanchang
            
            
            
            
            
            
            
            
            7,846,003Hog
                farms
            
            
            
            
            
            
            
            
            99,910,957Holding
                Company
            
            
            
            
            
            
            
            
            4,078,146$
            124,652,048





**Note
      13 - Subsequent Events**





On
      October 28, 2008, the Company, through its operating subsidiary Guangxi Nanning
      Wanghua Hog Farm Co., Ltd., completed the acquisition of all of the equity
      interest in a commercial producing hog farm located in the Guangxi Province,
      PRC
      for a negotiated purchase price of RMB7,850,000 (US$1,147,913).





On
      October 29, 2008, the Company, through Nanning Wanghua, completed the
      acquisition of all of the equity interest in a second commercial producing
      hog
      farm located in the Guangxi Province, PRC for a negotiated purchase price of
      RMB8,260,000 (US$1,207,777).





These
      farms have an aggregate annual hog production capability of approximately 29,000
      hogs, with existing facilities for additional expansion.





In
      connection with the Company’s stock buyback program, from October 6, 2008 to
      October 30, 2008, the Company purchased a total of 367,295 shares of its common
      stock at a cost of $1,793,330.




25




**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 the “Securities
      Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the
      “Exchange Act”.  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 SEC filings.  The following discussion should
      be read in conjunction with our Financial Statements and related Notes thereto
      included elsewhere in this report. Throughout this Quarterly Report we will
      refer to Agfeed Industries, Inc., together with its subsidiaries, as “AgFeed,”
the “Company,” “we,” “us,” and “our.”*





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





**Overview**





We
      are a
      leading producer of premix animal feed and commercial hog production in the
      PRC.
      Our premix feed segment consists of the research and development, manufacture,
      marketing and sale of premix feed for use in the domestic animal husbandry
      markets, primarily the hog raising markets in the PRC.  Premix is an
      animal feed additive that is broadly used in commercial animal production
      worldwide. The use of premix feed can significantly reduce an animal’s growth
      cycle , enabling the animal to reach market size sooner. We have been in the
      premix feed business since 1995 and currently operate five premix feed
      manufacturing facilities.





As
      a
      result of the acquisition of Lushan Breeder Hog Farm on November 9, 2007,
      we entered the hog breeding and production business. In addition to our premix
      feed business, we are also engaged in the business of raising, breeding and
      selling hogs for use in PRC’s pork production and hog breeding markets. As of
      September 30, 2008, the Company owned 28 operating hog farms located in Jiangxi,
      Shanghai, Hainan, Guangxi and Fujian provinces, whichare in or near the largest
      pork consumption areas in the PRC. The 28 hog farms are well-structured and
      well-managed through five hog production management branches featuring
      centralized resources including sales, human resources, purchasing and finance
      departments in Jiangxi, Shanghai, Guangxi and Fujian provinces.





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





Nanchang
      Best located in Jiangxi Province - Nanchang Best is primarily engaged in the
      business of the researching and developing, manufacturing, marketing and selling
      premix and blended feed for use in the PRC’s domestic animal husbandry
      markets.


26





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





Guangxi
      Huijie located in Guangxi Province - Guangxi Huijie is engaged in the
      researching and developing, manufacturing, marketing, distributing and selling
      of premix and blended feed primarily for use in the PRC’s domestic pork
      husbandry markets.





On
      June
      24, 2008, we completed the acquisition an additional premix feed company HopeJia
      located in the Hainan province. Hopejia is engaged in researching and
      developing, manufacturing, marketing, distributing and selling of premix and
      blended feed primarily for use in the PRC’s domestic pork husbandry markets.





Through
      the acquisition of Lushan in November 2007 and subsequent acquisition of a
      number of other hog farms in southern China, we are also in the business of
      raising, breeding and selling hogs for use in China’s pork production and hog
      breeding markets.





PREMIX
      FEED BUSINESS





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





We
      target
      growth in premix feed sales through three main channels: (i) organic growth
      through increasing sales at each of our current operating subsidiaries, (ii)
      the
      distribution of our products through new franchise chain stores .





As
      of
      September 30, 2008, we had established relationships with over 900 independently
      owned feed distribution chain stores that sell our products exclusively
      targeting backyard individual hog farmers. These complement our more than 600
      wholesale premix feed distribution channels targeting large size commercial
      hog
      farms with average annual hog production of no less than 10,000 hogs each.
      We
      will continue to market our products to the operators of large swine farms
      and
      large distributors. We rely on the franchisees to market and sell our products
      to the smaller swine farms.  Approximately 75% of China’s total annual
      hog production is supplied by backyard individual hog farmers that raise less
      than 10 hogs per year per family. Even though the number of these small
      individual swine farms in China is declining due to the country’s rapid
      urbanization process which causes farmers to leave their land and seek out
      better paying manufacturing and construction jobs in the cities, we believe
      it
      will take at least several decades for China’s vast domestic hog production
      market to shift to dominance by large commercial hog farm operators. We believe
      significant revenue potentials currently exist in serving the highly fragmented
      retail hog farmers markets. We determined that the best and most efficient
      use
      of our resources is to concentrate on the larger customers and allow the
      franchisees to sell to the smaller farmers.





In
      our
      premix feed segment, in order to provide excellent customer service and
      differentiate ourselves from our competition, at our customers’ request, we
      supply them with customized “AgFeed” brand formulations of our products. 
To maintain reasonable profit, we increased our selling price for the three
      months ended June 30, 2008 in the midst of the rising and uncertain raw material
      market. The cost of R&D and technical upgrading of premix feed for better
      competitive in the market may cause our short-term profits to fluctuate. We
      believe in spite of this, we take the long-term view that it increases customer
      loyalty and builds the AgFeed brand.  We have succeeded in
      establishing five bases in China’s largest corn production provinces to
      eliminate commissions, maintain sufficient supply, and reduce purchase coast.
      We
      are also in talks with the largest soybean meal suppliers in China to enter
      into
      long-term contracts.


27





The
      increase in our revenues during the nine months ended September 30, 2008 was
      mostly due to increases in the volume of products sold as a direct result of
      new
      products launched and our expansion into new markets. Due to a stronger AgFeed
      brand name, we were able to raise our premix feed prices several times in our
      second quarter and successfully passed along the higher prices to our customers.





HOG
      PRODUCTION BUSINESS





In
      our
      hog production segment, we grow our business primarily through strategic
      acquisitions of current producing commercial hog farms. We operate approximately
      33,000 sows located in 28 hog farms which we own and manage.





In
      the
      three quarters of 2008, we acquired a majority interest in 27 hog farms: five
      located in Jiangxi province in January; 16 located in several southern provinces
      of the PRC in April and three located in Fujian province and the Shanghai region
      in May and June; and two located in the Guangxi region and one , in the Fujian
      province in September. We also purchased the remaining interest in a farm,
      we
      had earlier acquired a majority stake in. As of the end of September 30, 2008,
      AgFeed operated a total of 28 hog farms. All of the Company’s acquired hog farms
      are immediately accretive to earnings. We sell live hogs in two of China’s
      wealthiest regions - Shanghai and Guangdong, both of which have China’s highest
      hog prices as well as deep pork consuming cultures.





In
      all of
      our subsidiaries and business segments, we apply centralized raw materials
      purchases, centralized accounting and internal control management, centralized
      corporate marketing strategies and brand building, as well as centrally managed
      animal disease control response team which consists of hog industry veterans.
      Our increased size and economies of scale through successful strategic
      acquisitions have benefited us greatly in both raw materials cost savings and
      administrative efforts.





AgFeed
      had revenues of $97.21 million for the nine months ended September 30, 2008,
      an
      increase of 309% over revenues of $23.76 million for the nine months ended
      September 30, 2007.  The increases we experienced in this period were
      the result of our organic growth at each operating subsidiary.  In
      addition, the growth reflects the acquisitions of Lushan in late 2007 and the
      27
      hog farms purchased in 2008.





We
      have
      effectively marketed our products through a team-based approach, sharing sales
      leads and referrals. Due to centralized procurement of corn, soybean meal,
      veterinary drugs, animal health products and hog production machinery apart
      from
      raw materials, hog production costs are expected to be reduced by 5% to 8%.
      In
      addition, AgFeed is currently reviewing a genetics program that can potentially
      significantly improve hog productivity and profitability through higher number
      of piglets born per sow and lower feed costs due to improved feed to meat
      conversion ratios as better hog types grow faster while consume less feed.
      With
      genetics programs, we expect to produce 2,830 additional pigs for every 1,000
      sows.





**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.


28





*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 144, “Accounting for the Impairment
      or Disposal of Long-Lived Assets.” SFAS 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.


29





*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)
      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.





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.





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.





**Recent
      Accounting Pronouncements**





In
      February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities." SFAS 159 permits entities to choose to
      measure many financial assets and financial liabilities at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported in earnings. SFAS 159 is effective for fiscal years
      beginning after November 15, 2007. We are currently assessing the impact of
      SFAS
      159 on our financial position and results of operations.





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





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


30





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





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





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





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





**Results
      of Operations**





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





**Three
                Months Ended**
              **September
                30,**
            
            $
            
            %**2008**
            
            **2007**
            
            **Change**
            
            **Change**Net
                revenue
            
            $
            49,426,274
            
            $
            11,888,283
            
            
            37,537,991
            
            
            315.8
            %Cost
                of revenue
            
            
            37,124,058
            
            
            8,645,218
            
            
            28,478,840
            
            
            329.4
            %Gross
                profit
            
            
            12,302,216
            
            
            3,243,065
            
            
            9,059,151
            
            
            279.3
            %Operating
                expenses
            
            
            2,991,817
            
            
            1,185,701
            
            
            1,806,116
            
            
            152.32
            %Interest
                and financing costs
            
            
            605,391
            
            
            31,057
            
            
            574,334
            
            
            1,849.3
            %Net
                income
            
            
            8,216,155
            
            
            2,075,174
            
            
            6,140,981
            
            
            295.9
            %


31





*Revenues.* The
      increase in revenues was due to an increase in the volume and price of feed
      products that we sold and the acquisition of the 28 hog farms.  The
      increase in feed product sales was a result of expanding our distribution
      channels by the opening of additional exclusive distribution stores for our
      products.  We experienced favorable market conditions which increased
      the demand for our feed products.   Due to softening in the market for
      hog prices, we experienced a decrease in the selling price for our hogs during
      the quarter ended September 30, 2008. However, as a result of economies of
      scale, we are able to reduce hog production cost through centralized raw
      materials purchases, sales and marketing channel, and finance and internal
      control management.





*Cost
      of Goods Sold.* We
      experienced an increase in the unit cost of goods sold during the three month
      period ended September 30, 2008 compared to the same period in 2007. The
      cost of goods sold included costs on both premix feed and hog production. During
      the three month period ended September 30, 2008, the costs of corn stayed
      relatively flat compared to the end of the second quarter of 2008 while soybean
      meal prices increased approximately 20% compared to the end of the second
      quarter.  These raw materials constitute approximately 70% of our raw
      material costs.  We continue to experience stable pricing in corn and
      declining prices in soybean meal.





*Gross
      Profit.* Our
      gross margins decreased to 24.89% from 27.28% during the three months ended
      September 30, 2008 as compared to the same period last year. The decrease
      in gross margin can be attributed to the increase in the cost of hog feed during
      the 2008 third quarter, coupled with falling sales price of hogs in the same
      period. However, we promptly reacted to these developments in an effort to
      effectively maintain and strengthen our positions in the soft market. The
      following summarizes the measures adopted by the management: (i) a stronger
      “AgFeed” brand name allowed us to increase our feed selling prices twice during
      the second quarter to offset the negative effect of higher prices; (ii) expanded
      product distribution channels allowed us to open up new markets and offer
      products at higher prices; (iii) our increased economies of scale in both feed
      segment and hog production produced lower overall raw materials input costs;
      (iv) certain long-term contracts for key product ingredients entered in early
      2008 locked in favorable cost savings; and (v) advancement and customization
      of
      our production management software in operation for all acquired hog farms
      enabled the production managers to track, monitor and control the entire
      production process on a daily basis, thus increasing operating
      efficiencies.





*Selling,
      General and Administrative Expenses.* General
      and administrative expenses include overhead expenses such as rent, management
      and staff salaries, general insurance, marketing, accounting, legal and offices
      expenses.  The increase in our selling, general and administrative expenses
      reflects the addition of our new subsidiaries, which had approximately
      $2,991,817 in selling, general and administrative expenses during the three
      months ended September 30, 2008. Prepaid rent of land, property, plant and
      equipment for acquired hog farms represents the majority of the general and
      administrative expenses for the three months ended September 30,
      2008.  Compared
      to the third quarter in 2007, selling expenses for the period increased by
      35.86% due to the 316% increase in revenues and the costs associated with
      entering markets in neighboring provinces, as well as the addition of our new
      subsidiaries.  We attempted to control our selling expenses through
      the use of strict cost controls and efficient distribution channels.





*Interest
      and Financing Costs* .
      We
      incurred interest and financing costs of $605,391 during the three months ended
      September 30, 2008, principally as a result of the $19 million of convertible
      debentures issued during March 2008. During the three months ended September
      30,
      2008, $1.5 million of the convertible notes were converted into shares of common
      stock which resulted in accelerated amortization of the debt issuance costs
      and
      debts discounts amounting to $498,861 during the three months ended September
      30, 2008. These are non-recurring charges.


32





Due
      to
      continual appreciation in RMB against the USD, we incurred a loss on foreign
      translation of $10,007 during the three months ended September 30, 2008, as
      we
      could not timely convert USD deposits into RMB as a result of bank policies
      and
      related banking rules in the PRC. This is a one time, non-recurring charge.





Hog
      production is an income tax exempt sector in the PRC and sow owners receive
      government grants and subsidies. Some of our feed manufacturing companies
      continue to benefit from government preferential tax policies.





*Net
      Income* .  
      The increase in our net income was due to higher sales and significant benefits
      from greater economies of scale in our expanded business and increased operating
      efficiency as described above. This increase was offset by one time,
      non-operational related charges and interest expenses associated with the
      conversion of a portion of the $19 million of convertible note conversion by
      investors during the three months ended September 30, 2008.





*Nine
      Months Ended Sept 30, 2008 Compared to Nine Months Ended September 30,
      2007*





**Nine
                Months Ended**
              **September
                30,**
            
            $
            
            %**2008**
            
            **2007**
            
            **Change**
            
            **Change**Net
                revenue
            
            $
            97,208,685
            
            $
            23,757,731
            
            
            73,450,954
            
            
            309.2
            %Cost
                of revenue
            
            
            70,438,683
            
            
            16,961,534
            
            
            53,477,149
            
            
            315.3
            %Gross
                profit
            
            
            26,770,002
            
            
            6,796,197
            
            
            19,973,805
            
            
            293.9
            %Operating
                expenses
            
            
            6,962,328
            
            
            2,540,418
            
            
            4,421,910
            
            
            174.1
            %Interest
                and financing costs
            
            
            5,244,592
            
            
            94,662
            
            
            5,149,930
            
            
            5,440.3
            %Net
                income
            
            
            13,056,965
            
            
            4,315,357
            
            
            8,741,608
            
            
            202.6
            %





*Revenues.* The
      increase in revenues was due to an increase in the volume of feed products
      that
      we sold and the acquisition of the 28 hog farms.  The increase in feed
      product sales was a result of expanding our distribution channels by the opening
      of additional exclusive distribution stores for our products.  We
      experienced favorable market conditions which increased the demand for our
      feed
      products.  We experienced favorable market conditions that increased
      the demand for our feed products.  A stronger “AgFeed” brand name
      allowed us to successfully pass through two price increases to premix feed
      customers in the second quarter of 2008. Due to softening in the market for
      hog
      prices, we experienced a decrease in the selling price for our hogs during
      the
      quarter ended September 30, 2008. However, as a result of economies of scale,
      we
      were able to reduce hog production cost through centralized raw materials
      purchases, sales and marketing channel, and finance and internal control
      management.





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





*Gross
      Profit.* Gross
      margins decreased to 27.54% from 28.61% during the nine months ended September
      30, 2008 as compared to the same period last year.  The decrease in gross
      margin can be attributed to the increase in the cost of hog feed during the
      2008
      third quarter, coupled with falling sales price of hogs in the same period,
      offset by key developments in the first half of 2008, including and expansion
      of
      our product distribution channels, increased economies of scale in both feed
      and
      hog production, and our entry into long term contracts for key product
      ingredients which locked in favorable cost savings.


33





*Selling,
      General and Administrative Expense* *s.* General
      and administrative expense includes overhead expenses such as rent, management
      and staff salaries, general insurance, marketing, accounting, legal and offices
      expenses. The increase in our selling, general and administrative expense
      also reflects the addition of out new subsidiaries, which had a total of
      approximately $2,971,042 in selling, general and administrative expenses during
      the nine months ended September 30, 2008. Prepaid rent of land, property, plant
      and equipment for acquired hog farms represents the majority of the general
      and
      administrative expenses for the three months ended September
      30,2008. Selling expenses for the period increased by 63.65% due to the
      309.17% increase in revenues and the costs associated with entering markets
      in
      neighboring provinces, as well as the addition of our new subsidiaries. We
      attempted to control our selling expenses through the use of strict cost
      controls and efficient use of our distribution channels.





*Interest
      and Financing Costs.* We
      incurred interest and financing costs of $5,244,592 during the nine months
      ended
      September 30, 2008, principally as a result of the issuance of $19 million
      principal amount of convertible notes issued during February 2008. $15.2 million
      of the convertible notes were converted into shares of common stock during
      the
      nine months ended September 30, 2008, resulting in accelerated amortization
      of
      the debt issuance costs and debts discounts amounting to $4,834,242 during
      the
      nine months ended September 30, 2008. These are non-recurring
      charges.





Due
      to
      continual appreciation in RMB against the USD, we incurred a loss on foreign
      translation of $553,753 during the nine months ended September 30, 2008, as
      we
      could not timely convert USD deposits into RMB as a result of bank policies
      and
      banking rules in the PRC. This was a one time, non-recurring charge.





Hog
      production is an income tax exempt sector in China and sow owners receive
      government grants and subsidies. Some of our feed manufacturing companies
      continue to benefit from government preferential tax policies.





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





The
      current decline in hog pricea is likely to drive smaller competitors out of
      the
      business while enhancing the position of AgFeed as the largest hog farm owner
      in
      terms of hog production. We currently estimate that the hog prices will recover
      and experience a steady rise in 2009.





**Off-Balance
      Sheet Arrangements**


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


34





**Liquidity
      and Capital Resources**





*Recent
      financing*





At
      September 30, 2008, we had $15,565,123 in cash and cash equivalents on
      hand.





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





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





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





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





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





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


35





During
      the nine months ended September 30, 2008, we generated $11,347,806 of cash
      from
      our operating activities. The cash was generated was primarily due to net income
      of $13,056,965, non-cash expenses of $4,834,243 offset by an increase in
      operating assets, net of $8,049,945.





We
      used
      $74,259,097 in investing activities during the nine month period ended September
      30, 2008; of which $9,052,476 was for the acquisition of property and equipment,
      and $65,134,359 for the acquisition of the 28 hog farms and one feed
      company.





We
      received $70,317,733 in cash from financing activities.  During the
      nine months ended September 30, 2008, we received $57,200,058 from the sale
      of
      our securities and paid $6,079,530 in offering costs. We also received
      $19,000,000 from the issuance of convertible notes and warrants, of which the
      Company paid $1,716,666 for the cost of issuing the convertible notes and
      warrants. In addition, warrants holders exercised 269,456 warrants resulting
      in
      gross proceeds to us of $2,138,848 and minority interest holders contributed
      $936,320.





At
      September 30, 2008, our accounts receivable balance was approximately $10.5
      million. There are no accounts receivable for hog sales because the farmers
      purchasing hogs from us generally pay cash.





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





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





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


36


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





Not
      required





**Item
      4. Controls and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**




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





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in our reports filed or
      submitted under the Exchange Act are recorded, processed, summarized and
      reported, within the time periods specified in the SECs 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.




**Changes
      in Internal Controls Over Financial Reporting**




During
      the quarter ended September 30, 2008, 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
      1A..**  **Risk
      Factors**





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





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





None.





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





None.


37


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





None





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





None.





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





**Exhibit
                Number**
            **Description
                of Exhibit**31.1
            Certification
                of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
                promulgated under the Securities and Exchange Act of 1934, as
                amended.31.2
            Certification
                of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d
                14(a),
                promulgated under the Securities and Exchange Act of 1934, as
                amended.32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Executive
                Officer).32.2
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Financial
                Officer).


38


**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.November
                13, 2008
            By:
            /s/ Xiong
                JunhongXiong
                Junhong
              Chief
                Executive Officer (Principal Executive Officer)November
                13, 2008
            By:
            /s/ Liangfan
                YanLiangfan
                Yan
              Chief
                Financial Officer
              (Principal
                Financial and Accounting
                Officer)


39