UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2008

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

Commission file number 000-27487

US FARMS, INC.

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


Nevada	88-0350156
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1635 Rosecrans Street, Suite C

San Diego, CA 92106

(Address of principal executive offices)

(858) 488-7775

(Issuer’s telephone number)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.


Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 12, 2008, the issuer had 13,789,420 shares of its common stock issued and outstanding.

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements


US Farms, Inc. and Subsidiaries
Consolidated Balance Sheets
			September 30,	December 31,
			2008	2007
			Unaudited
Assets
Current Assets
	Cash		$ 55,246	$ 24,487
	Accounts Receivable		797,112	1,797,045
	Inventories		690,406	781,243
	Prepaid Expenses & Other Assets		52,980	115,890
		Total Current Assets	1,595,744	2,718,665

Property & Equipment, Net			319,744	363,237
Other Assets			608,807	565,436

Total Assets			$ 2,524,295	$ 3,647,338


Liabilities & Stockholders' Equity (Deficit)
Current Liabilities
	Accounts Payable		$ 2,575,399	$ 2,495,895
	Accrued Expenses		783,990	759,010
	Accrued Interest Payable		321,339	246,733
	Derivative Liability		241,802	662,088
	Convertible Debenture		500,000	500,000
	Notes Payable		967,039	592,663
		Total Current Liabilities	5,389,569	5,256,389

Notes Payable			-	111,289

Total Liabilities			5,389,569	5,367,678

Commitments & Contingencies			-	-

Stockholders' Equity (Deficit)
	Series B Preferred Stock, $0.001 par value, 1,000,000 shares		89	89
		authorized, 88,500 shares issued and outstanding
	Series C Preferred Stock, $0.001 par value, 13,000,000 shares		12,500	-
		authorized, 12,500,000 and 0 shares issued and
		outstanding, respectively
	Common Stock, $0.001 par value, 500,000,000 shares		5,053	1,583
		authorized, 5,052,870 and 1,583,201 sharers issued
		and 3,032,870 and 1,583,201 outstanding, respectively
	Additional Paid-in Capital		23,673,350	21,693,189
	Subscriptions Payable		12,050	-
	Other Comprehensive Loss		(18,000)	(18,000)


	Treasury Stock, at cost		(280)	(280)
	Accumulated Deficit		(26,550,036)	(23,396,921)
		Total Stockholders' Equity (Deficit)	(2,865,274)	(1,720,340)

Total Liabilities & Stockholders' Equity (Deficit)			$ 2,524,295	$ 3,647,338

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


US Farms, Inc. and Subsidiaries
Consolidated Statements of Operations
Unaudited
			For the Three Months Ended		For the Nine Months Ended
			September 30,		September 30,
			2008	2007	2008	2007

Sales, net			$ 238,892	$ 226,873	$ 597,172	$ 669,145

Cost of Goods Sold			129,673	167,188	449,047	419,612

Gross Profit			109,219	59,685	148,125	249,533

Operating Expenses
	Selling, General and Administrative		425,159	717,445	1,320,158	1,590,842
	Stock Compensation Expense		688,707	305,413	1,448,084	2,518,211
	Depreciation and Amortization		16,440	17,834	49,320	34,450
	Total Operating Expenses		1,130,306	1,040,692	2,817,562	4,143,503

Income (Loss) from Operations			(1,021,087)	(981,007)	(2,669,437)	(3,893,970)

Other Income (Expense)
	Derivative Expense		(241,802)	-	420,286	-
	Interest Expense		(34,419)	(29,536)	(99,837)	(75,684)
		Total Other Income (Expense)	(276,221)	(29,536)	320,449	(75,684)

Income (Loss) Before Discontinued Operations			(1,297,308)	(1,010,543)	(2,348,988)	(3,969,654)

Income (Loss) From Discontinued Operations			(54,943)	(274,127)	(804,127)	(11,415)

Income (Loss) Before Income Taxes			(1,352,251)	(1,284,670)	(3,153,115)	(3,981,069)

Provision for Income Taxes			-	-	-	-

Net Income (Loss)			$ (1,352,251)	$ (1,284,670)	$ (3,153,115)	$ (3,981,069)

Net Income per Share
	Basic		$ (0.25)	$ (1.14)	$ (0.95)	$ (3.26)
	Diluted		$ (0.25)	$ (1.14)	$ (0.95)	$ (3.26)

Number of Shares Used in Per Share Calculations
	Basic		5,455,259	1,127,779	3,318,036	1,219,916
	Diluted		5,455,259	1,127,779	3,318,036	1,219,916

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

US Farms, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Unaudited


		For the Nine Months Ended
		September 30,
		2008	2007
Cash Flows from Operating Activities
Net Loss		$ (3,153,115)	$ (3,981,069)

Adjustments to reconcile net loss to net cash used in operating activities:

	Common Stock Issued for Services	1,448,084	2,518,211
	Depreciation & Amortization	49,320	34,450
	Derivative Expense	(420,286)	-
	Reserve for Uncollectible Receivables	350,000	-
	Non-Cash Loss on Marketable Equity Securities	-	4,000

	Changes in operating assets and liabilities:
	Accounts Receivable	649,933	(1,438,843)
	Inventories	90,837	(728,610)
	Prepaid Expenses & Other Current Assets	62,910	(100,334)
	Other Assets	(43,371)	(500,627)
	Accounts Payable	79,504	877,912
	Accrued Expenses	24,980	163,100
	Accrued Interest Payable	74,606	(337,694)
	Total adjustments	2,366,517	491,565

Net Cash Used in Operating Activities		(786,598)	(3,489,504)

Cash Flows from Investing Activities
Purchase of Property and Equipment		(5,827)	(387,455)

Net Cash Used in Investing Activities		(5,827)	(387,455)

Cash Flows from Financing Activities
Net Proceeds (Payments) from Promissory Notes		392,587	235,845
Stock Issued for Cash		418,547	3,923,049
Cash Received for Stock Subscriptions		12,050	-

Net Cash Provided by Financing Activities		823,184	4,158,894

Net Increase (Decrease) in Cash		30,759	281,935

Cash Beginning of Period		24,487	2,468

Cash at End of Period		$ 55,246	$ 284,403

Supplemental Disclosure of Cash Flow Information:
	Cash Paid during the period for interest	$ -	$ -


	Cash Paid during the period for Income Taxes	-	-

Supplemental Disclosure of Non-Cash Items:
	Notes Payable Issued for Inventory and Equipment	$ -	$ 250,000
	Preferred Stock-Series C Issued for Loan Collateral	12,500	-
	Common Stock Issued for Conversion of Debt	117,000	362,791

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

US FARMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 1 – Organization, Business & Operations

Business

US Farms, Inc. (OTCBB: USFI) is a diversified commercial Farming, Nursery and Brokerage company based in Southern California. The Company’s principal operations are located in Southern California in the Imperial Valley, North County San Diego and Los Angeles.

Organization

US Farms, Inc. grows, markets and distributes horticultural products through a number of wholly owned subsidiaries which include: American Nursery Exchange, Inc. (ANE); California Management Solutions, Inc. (CMS); California Produce Exchange, Inc. (CPE); American Aloe Vera Growers, Inc. (AAVG); Imperial Ethanol, Inc. (IE); Sammy’s Produce, Inc. (SPI); US Ag Transportation, Inc (USAT); US Produce, Inc. (USPI); Texas Garlic & Spice, Inc. (TGS); US Trading Group, Inc. (USTG); and World Garlic & Spice, Inc. (WGS).

On June 10, 2008, the Company announced that it was divesting itself of non-performing units of its produce brokerage segment which includes tomatoes, asparagus and garlic operations. Therefore, the following financial statements and exhibits have been stated (restated) for discontinued operations which include: Sammy’s Produce, Inc. (SPI), US Trading Group, Inc. (USTG); World Garlic & Spice, Inc. (WGS); and California Produce Exchange, Inc. (CPE).

History

US Farms, Inc. (formerly International Sports and Media Group, Inc. from December 19, 2003 through July 14, 2006 and formerly San Diego Soccer Development Corporation from December 12, 1995 through December 18, 2003), (“the Company”) was incorporated on December 12, 1995, under the laws of the state of Nevada under the name Roller Coaster, Inc. The Company engaged in no operations prior to February 10, 2000.

On February 10, 2000, the Company issued 52,844 shares (post reverse split) of its previously un-issued common stock to the shareholders of San Diego Soccer Development Corporation, a California company (SDSDC) in exchange for all of the issued and outstanding shares of SDSDC. Immediately following the acquisition of SDSDC, the Company changed its name to San Diego Soccer Development Corporation, and changed its state of domicile from California to Nevada.

At the time of acquisition of SDSDC, the Company was completely inactive, with no operations, assets, or liabilities. Additionally, the exchange of the Company’s common stock for the common stock of SDSDC resulted in the former shareholders of SDSDC obtaining control of the Company. Accordingly, SDSDC was treated as the continuing entity for accounting purposes, and the Company being the continuing entity for legal purposes. The transaction was accounted for as a recapitalization of SDSDC, with no adjustment to the basis of SDSDC’s assets acquired or liabilities assumed.

SDSDC was incorporated on August 22, 1997 in the state of California, and was engaged for a time in the management and marketing of professional soccer teams, as well as the publication of a soccer magazine. The majority of the Company’s revenues have been generated from corporate sponsorships, ticket sales, and advertising.

On December 19, 2003, shareholders of the Company elected to change the Company’s corporate name to International Sports and Media Group, Inc.

On July 14, 2006, shareholders of the Company elected to change the Company’s corporate name to US Farms, Inc., to adequately reflect the Company’s current business model.

Reverse Split and New Symbol

Effective July 18, 2008, its new quotation symbol on the Over-the-Counter Bulletin Board will be USFM as a result of a 1-for 25 reverse split of its common stock. The Board of Directors approved the 1-for-25 reverse split of its common stock on June 30, 2008. Pursuant to the reverse split, holders of the Company's common stock are deemed to hold one (1) post-split share of the Company's common stock for ever twenty-five (25) shares of the Company's issued and outstanding common stock as classified immediately prior to the close of business on the Effective Date. No fractional shares of the Company's common stock will be issued in connection with the reverse split.

Note 2 - Going Concern and Management's Plans

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the company as a going concern. As of September 30, 2008, the Company has working capital and accumulated deficits of $3,793,825 and $25,650,036, respectively. For the nine months ended September 30, 2008, the company had a loss totaling $3,153,115. In addition, the Company is in default on certain of its promissory notes, is in litigation with a Convertible Debenture holder and a secured note holder, and is in default and in the litigation process with multiple vendors with respect to the Perishable Agricultural Commodities Act (PACA). In addition, on June 10, 2008, the Company announced that it was divesting itself of non-performing segments of its CPE Produce Brokerage Segment which includes tomatoes, asparagus and garlic operations.

In order to continue as a going concern and achieve a profitable level of operations, the Company will require, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (1) raising additional capital through the sale of common stock; (2) continuing the practice of issuing common stock as consideration for certain employee and marketing services; and (3) converting promissory notes into common stock. Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

During the next twelve months the Company’s plan of operation is to raise approximately $5,000,000 which the Company intends to invest in its farming and nursery operations, which includes acquiring plant inventory, hiring staff and for sales and marketing purposes.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraphs and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 3 - Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of US Farms, Inc. and its wholly owned subsidiaries (collectively the “Company”). All significant inter-company accounts and transactions have been eliminated in consolidation.

Cash and cash equivalents

The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.

Inventories

Inventories are stated at the lower of cost or market. Cost is computed on a weighted-average basis, which approximates the first-in, first-out method; market is based upon estimated replacement costs. Costs included in inventory primarily include the following: vegetable or plant, picking and hauling, overhead, labor, materials and freight.

Use of estimates

The preparation of financial statements in conformity with 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.

Property & equipment

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over useful lives of 3 to 20 years. The cost of assets sold or retired and the related amounts of accumulated depreciation are removed from the accounts in the year of disposal. Any resulting gain or loss is reflected in current operations. Assets held under capital leases are recorded at the lesser of the present value of the future minimum lease payments or the fair value of the leased property. Expenditures for maintenance and repairs are charged to operations as incurred.

Impairment of long-lived assets

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

Basic and Diluted Net Income per Share

Basic earnings per share is calculated using the weighted-average number of common shares outstanding during the period without consideration of the dilutive effect of stock warrants and convertible notes. Diluted earnings per share is calculated using the weighted-average number of common shares outstanding during the period after consideration of the dilutive effect of stock warrants and convertible notes.

The components of basic and diluted earnings per share are as follows:


	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007

Net Loss	$ (1,352,251)	$ (1,284,670)	$ (3,153,115)	$ (3,981,069)

Weighted Average Outstanding Shares of Common Stock	5,455,259	1,127,779	3,318,036	1,219,916

Earnings Per Share Basic and Diluted	$ (0.25)	$ (1.14)	$ (0.95)	$ (3.26)

For the periods ended September 30, 2008 and 2007, the following preferred stock, warrants and convertible debt were excluded from the calculation of diluted earnings per share as they would be anti-dilutive as their conversion would increase EPS or decrease the loss from ordinary operations:


	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
Preferred Stock	12,588,500	88,500	12,588,500	88,500
Warrants	614,136	614,136	614,136	614,136
Convertible Debt	1,817,571	1,446,154	1,817,571	1,446,154
Total	15,020,207	2,148,790	15,020,207	2,148,790

Stock-based compensation

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-Based Payment. This pronouncement amends SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes

APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires that companies account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations. Under SFAS No. 123(R), we are required to measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest.

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of SFAS 123(R) and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Common stock issued to non-employees in exchange for services is accounted for based on the fair value of the services received.

Fair value of financial instruments

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

Revenue recognition

Sales of products and related costs of products sold are recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. These terms are typically met upon shipment of product to the customer. Service revenue, including freight, storage and distribution charges are recorded when services are performed and sales of the related products are delivered.

Shipping and Handling

In accordance with Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs, we include shipping and handling fees billed to customers in net revenues. Amounts incurred by us for freight are included in cost of goods sold.

Allowance for doubtful accounts

We provide an allowance for estimated uncollectible accounts receivable balances based on historical experience and the aging of the related accounts receivable. As of September 30, 2008 and December 31, 2007, the Company has reserved $500,000 and $150,000 for doubtful accounts, respectively.

Advertising

The Company expenses advertising costs as incurred. Advertising costs for the six months ended September 30, 2008 and 2007 were $41,093 and $82,016 respectively.

Income Taxes

The Company accounts for income taxes using the liability method as required by Statement of Financial Accounting Standards ("FASB") No. 109, Accounting for Income Taxes ("SFAS 109"). Under this method, deferred tax assets and liabilities are determined based on differences between their financial reporting and tax basis of assets and liabilities. The Company was not required to provide for a provision for income taxes for the periods ended September 30, 2008 and December 31, 2007, as a result of net operating losses incurred during the periods. As of September 30, 2008 the Company has available approximately $26,600,000 of net operating losses ("NOL") available for income tax purposes that may be carried forward to offset future taxable income, if any. These carryforwards expire in various years through 2026. At September 30, 2008 and December 31, 2007, the Company has a deferred tax asset of approximately $10,400,000 and $9,100,000, relating to the Company's net operating losses, respectively. The Company's deferred tax asset has been fully reserved by a valuation allowance since realization of its benefit is uncertain. The Company's ability to utilize its NOL carryforwards may be subject to an annual limitation in future periods pursuant to Section 382 of the Internal Revenue Code of 1986, as amended.

The provision for income taxes using the federal and state tax rates as compared to the Company's effective tax rate is summarized as follows:


	September 30,	December 31,
	2008	2007
	Unaudited

Statutory Federal Tax (Benefit) Rate	-34%	-34%
Statutory State Tax (Benefit) Rate	-5%	-5%
Effective Tax (Benefit) Rate	-39%	-39%

Valuation Allowance	39%	39%

Effective Income Tax	0%	0%

Significant components of the Company's deferred tax assets at September 30, 2008 and December 31, 2007 are as follows:


	September 30,	December 31,
	2008	2007
	Unaudited

Net Operating Loss Carryforward	$ 10,354,514	$ 9,124,799

Valuation Allowance	(10,354,514)	(9,124,799)

Net Deferred Tax Asset	$ -	$ -

Shares issued to acquire goods and services from non-employees

The Company accounts for the issuance of equity instruments to acquire goods and services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably measurable.

Research and development costs

Expenditures for research & development are expensed as incurred. Such costs are required to be expensed until the point that technological feasibility is established. The Company incurred approximately $0 and $27,000 in research and development costs for the nine months ended September 30, 2008 and 2007, respectively. These expenses related to feasibility studies prepared regarding the building of an ethanol facility in the Imperial Valley, California for the wholly-owned Imperial Ethanol, Inc. subsidiary.

Reclassifications

Certain items in the prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current period’s presentation. These reclassifications have no effect on the previously reported income (loss).

Recently Issued Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (FAS 141(R)). This Statement provides greater consistency in the accounting and financial reporting of business combinations. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose the nature and financial effect of the business combination. FAS 141(R) is effective for fiscal years beginning after December 15, 2008. We will adopt FAS 141(R) no later than the first quarter of fiscal 2010 and are currently assessing the impact the adoption will have on our financial position and results of operations.

In December 2007, the FASB issued SFAS No. 160. Noncontrolling Interests in Consolidated Financial Statements (FAS 160). This Statement amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 is effective for fiscal years beginning after December 15, 2008. We will adopt FAS 160 no later than the first quarter of fiscal 2010 and are currently assessing the impact the adoption will have on our financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure at fair value eligible financial instruments and certain other items that are not currently required to be measured at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We will adopt SFAS No. 159 no later than the first quarter of fiscal 2009. We are currently assessing the impact the adoption of SFAS No. 159 will have on our financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) . SFAS No. 158 requires company plan sponsors to display the net over- or under-funded position of a defined benefit postretirement plan as an asset or liability, with any unrecognized prior service costs, transition obligations or actuarial gains/losses reported as a component of other comprehensive income in shareholders’ equity. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. We adopted the recognition provisions of SFAS No. 158 as of the end of fiscal 2007. The adoption of SFAS No. 158 did not have an effect on the Company’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. However, the application of SFAS No. 157 may change current practice for some entities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We will adopt SFAS No. 157 in the first quarter of fiscal 2009. We are currently assessing the impact that the adoption of SFAS No. 157 will have on our financial position and results of operations.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). This interpretation clarifies the application of SFAS No. 109, Accounting for Income Taxes, by defining a criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements and also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006, but earlier adoption is permitted. The Company is in the process of evaluating the impact of the application of the Interpretation to its financial statements.

Note 4 – Discontinued Operations

On June 10, 2008, the Company announced that it was divesting itself of non-performing units of its produce brokerage segment which includes tomatoes, asparagus and garlic operations. Therefore, the following financial statements and exhibits have been stated (restated) for the discontinued operations of: Sammy’s Produce, Inc. (SPI), US Trading Group, Inc. (USTG); World Garlic & Spice, Inc. (WGS); and California Produce Exchange, Inc. (CPE).


	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
Sales, net	$ (50,794)	$ 2,490,118	$ 2,227,792	$ 6,124,898
Cost of Good Sold	-	2,389,763	2,336,635	5,443,653
Gross Profit	(50,794)	100,355	(108,843)	681,245
Operating Expenses	4,149	374,482	695,284	692,660
Loss from Discontinued Operations	$ (54,943)	$ (274,127)	$ (804,127)	$ (11,415)

Note 5- Inventories

At September 30, 2008 and December 31, 2007, inventories are comprised of the following:


	September 30,	December 31,
	2008	2007
	Unaudited
Nursery Palms & Cycads and Nursery Materials	$ 440,157	$ 451,157
Potted Aloe Plants and Potting Materials	250,249	176,636
Tomatoes	-	11,907
Garlic	-	141,543
Total Inventories	$ 690,406	$ 781,243

Note 6 - Property and Equipment

At September 30, 2008 and December 31, 2007, property and equipment are comprised of the following:


	September 30,	December 31,
	2008	2007
	Unaudited
Machinery & Equipment	$ 53,563	$ 51,459
Vehicles	62,333	62,333
Office Furniture & Equipments	18,798	18,798
Leasehold Improvements	7,969	7,969
Buildings & Greenhouses	119,593	118,418
Capitalized Aloe Crop Costs	159,137	159,137
Accumulated Depreciation and Amortization	(101,649)	(54,877)
Net Property and Equipment	$ 319,744	$ 363,237

We capitalize the crop costs incurred prior to the aloe crop becoming productive. These costs consist primarily of expenditures related to the acquisition of pups and the labor and materials to prepare the land. Amortization of such costs is done over the straight line basis estimated over 5 years. During the nine months ended September 30, 2008 and 2007, the Company recorded depreciation and amortization expenses of $49,320 and $34,450, respectively.

Note 7 - Accrued Expenses

At September 30, 2008 and December 31, 2007, accrued expenses consist of the following:


	September 30,	December 31,
	2008	2007
	Unaudited
Accrued Payroll and Payroll Taxes	$ 463,458	$ 357,560
Accrued Legal & Audit Fees	25,000	50,000
Accrued IRS Penalties and Interest	158,199	158,199
Other Accrued Expenses	137,333	193,251
Total Accrued Expenses	$ 783,990	$ 759,010

Note 8 – Convertible Debentures and Promissory Notes

As of September 30, 2008 the Company had convertible and other third party debt obligations, excluding related accrued interest, totaling $1,467,039 as follows:

On October 7, 2004 the Company issued a Convertible Debenture of $500,000, bearing 5% interest per annum repayable in cash or shares of the Company at the option of the note holder. As of September 30, 2006, this bond has matured and is in default. On March 11, 2008, the debenture holder filed an Application For and Notice of Default in the Superior Court of Arizona.

Multiple unsecured convertible notes of $772,300, bearing various annual interest rates repayable in cash or shares of the Company at the option of the note holders. As of September 30, 2008, $160,600 of these notes have matured and are in default.

On March 22, 2007 the Company, through its wholly owned subsidiary American Nursery, Exchange, Inc., issued a $250,000 promissory note payable to Kurth Nurseries, Inc. for the acquisition of all of the existing plant inventory and equipment of Palm Mountain Nursery located in Vista, California. The four year note bears interest at the rate of 7% per annum with interest and principal due and payable monthly. As of September 30, 2008 the balance due on this note is $155,239. On February 20, 2008, a lawsuit for non-payment had been filed in a Superior Court in California and the Company has since filed a counter law suit against Donald Kurth for $58,000, plus damages.

Non-convertible note payable of $42,500, bearing 10% interest per annum. As of September 30, 2007, this note has matured and is in default.

Accrued interest on all notes is included in Accounts Payable and Accrued Interest line item in the financial statements.

Note 9 – Derivative Liability

As of September 30, 2008, the Company has $1,272,300 in convertible loan agreements (see Note 8) in which the note holder has the ability to convert their notes into common stock at a discount to market on the date of conversion. The fair value of the beneficial conversion of these instruments as of September 30, 2008 was $241,802, which was determined using the Black-Scholes option value model with the following assumptions:


Expected Dividend Yield			0.00%
Risk Free Interest Rate			3.00%
Expected Volatility			66.00%
Expected Option Life (in years average)			1.16

Note 10 – Warrants

During 2007 the Company entered into private placement agreements in which each unit purchased entitled the holder to one common share and one share purchase warrant exercisable at $12.50 per share. A total of 614,136 share purchase warrants were provided.

At September 30, 2008, the share purchase warrants were outstanding as follows:



	Number of Warrants			614,136
	Exercise Price			$ 12.50
	Expiry Date			28-Nov-09

The fair value of the share purchase warrants as of September 30, 2008 was $0, which was determined using the Black-Scholes option value model with the following assumptions:


Expected Dividend Yield			0.00%
Risk Free Interest Rate			3.00%
Expected Volatility			66.00%
Expected Option Life (in years average)			1.16

No warrants were issued, exercised or cancelled during the nine months ended September 30, 2008.

Note 11 - Stockholders’ Deficit

Preferred Stock

Our Articles of Incorporation designate the issuance of 50,000,000 shares of Preferred Stock-Series B with a par value of $0.001. The Board of Directors has sole discretion in designating the preferences, limitations and relative rights of the Preferred Stock. As of September 30, 2008, the Company had 1,000,000 shares of Series B Preferred Stock authorized and 88,500 shares of Series B Preferred Stock outstanding. The Series B preferred stockholders have additional voting rights as long as at least 500,000 shares of the Series B Preferred Stock remain outstanding. If there are 500,000 shares of Series B Preferred Stock outstanding then the separate consent of the holders of at least 51% of the outstanding Series B Shares shall be required for any action which (i) alters or changes the rights, preferences or privileges of the Series B Shares, or (ii) increases or decreases the authorized number of Series B Shares. On all other matters, the Series B Shares shall vote with the Common Stock. Each share of Series B Preferred Stock shall carry with it one vote in all matters to be placed before the Company's stockholders. The Board further resolved to create the preferred stock such that in the event of liquidation, the Series B Holders would be entitled to convert their respective shares, at any time, into three shares of the Company’s common stock.

The Company’s Board of Directors have created and authorized the issuance of up to 13,000,000 shares of Series C preferred stock, at $0.001 par value. During the period ended September 30, 2008, the Company issued 500,000 shares at par as pledged loan collateral totaling $12,500. The holders of the outstanding Series C Preferred Stock shall not be entitled to receive dividends. The Series C Preferred Stock does have conversion rights and at the option of the holder, the shares may be converted into that number of fully paid and non-assessable shares of common stock equal to the number of shares of Series C Preferred Stock being converted. Upon submittal of a written notice to the Registrant or its transfer agent with the surrender of the certificates representing the shares, the Series C Preferred Stock may be converted In the event of any liquidation, dissolution or winding up of this corporation, either voluntary or involuntary, subject to the rights of series of preferred stock that may from time to time come into existence, the holders of Series C Preferred Stock shall not be entitled to receive preference to any distribution of any of the assets of the Registrant to the holders of Common Stock or any other class or series of preferred stock. Rather, the Series C Preferred Stock shall automatically be converted into common stock at the conversion rate. Each share of the Series C Preferred Stock is entitled to one vote and is entitled to vote together with the Common Stock as a single class.

Reverse Split and New Symbol

Common Stock

During the nine months ended, September 30, 2008, the Company issued 3,469,669 post reverse split shares of which 375,631 shares were issued for cash totaling $418,547, 26,000 shares were issued to Officers and Directors of the Company for services totaling $104,000, 1,021,097 shares were issued to non-affiliated parties for services totaling $1,344,084, and 46,941 shares were issued for the conversion of promissory notes and associated interest totaling $117,000. In addition, pursuant to an Escrow Agreement detailed in Note 12, 2,000,000 shares were issued for $0.

During 2007, the Company issued 632,670 post reverse split shares for cash totaling $4,092,049, 45,000 to Officers and Directors of the Company for services totaling $551,250, 139,051 shares were issued to non-affiliated parties for services totaling $2,139,711 and 59,056 shares were issued for the conversion of promissory notes and associated interest totaling $379,182.

Non-Cash stock transactions are recorded based on fair value which was determined by the closing price of the Company’s stock on the date of stock issuance.

Note 12 – Supplemental Disclosure of Cash Flows

The Company prepares its statements of cash flows using the indirect method as defined under the Financial Accounting Standard No. 95.

The Company paid $0 for income tax and $0 in interest for the nine months ended September 30, 2008.

During the nine months ended September 30, 2008, 12,500,000 Preferred Series C shares were issued at par as pledged loan collateral totaling $12,500.

During the nine months ended September 30, 2008, 46,941 Common shares were issued for the conversion of promissory notes and associated interest totaling $117,000.

Note 13 – Segment Information

The Company adopted SFAS No.131 “Disclosures About Segments of an Enterprise and Related Information” in respect of its operating segments. The Company’s reportable segments, their subsidiaries, are managed separately because each segment requires different technology and marketing strategies. The Company evaluates performance based on operating earnings of the respective business units. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The corporate assets consist of cash, accounts receivable, inventory, other assets and fixed assets. In determining operating income and loss by reportable segment, general corporate expenses and other income and expense items of a non reporting nature are not considered; as such items are not allocated to the Company’s segments.

The Company’s summarizes its financial reporting in segments which include:

California Produce Exchange- Grows and distributes produce (Asparagus, Tomatoes and Garlic) through retail and wholesale distribution channels in the Continental United States. CPE produce is sold in supermarkets and to restaurant suppliers and food processors. This segment includes the wholly owned subsidiaries of CPE, USTG, SPI and WGS. On June 10, 2008, the Company announced that it was divesting itself of this non-performing segment. Therefore, the following financial statements and exhibits have been stated (restated) for discontinued operations which include: Sammy’s Produce, Inc. (SPI), US Trading Group, Inc. (USTG); World Garlic & Spice, Inc. (WGS); and California Produce Exchange, Inc. (CPE).

American Nursery Exchange – A floriculture supplier of select ornamental shrubs, color plants, container grown plants, and exotic palms and cycads. Live foliage and trees are sold through wholesale distribution to landscapers, nurseries, supermarkets, and large retailers, and through direct mail covering North America. This segment includes the wholly owned subsidiary ANE.

American Aloe Vera Growers - Domestic grower of Aloe Vera. The Company grows, packs and ships Aloe Vera plants, produce and bulk leaves through wholesale and retail channels throughout North America. AAVG products are sold in supermarkets, garden and home improvement centers, landscapers and retail outlets. This segment includes the wholly owned subsidiary AAVG.

Subsidiaries that are not included in these segments provide support and corporate services to the operating segments or are currently not operational. Segment information at September 30, 2008 is as follows:


	For the Nine Months Ended
	September 30, 2008
	AAVG	ANE	CPE (A)	Corporate	Total
Sales, net	$ 307,011	$ 264,800	$ -	$ 25,361	$ 597,172
Cost of Good Sold	138,377	339,925	-	(29,255)	449,047
Gross Profit	168,634	(75,125)	-	54,616	148,125
Operating Expenses	104,183	112,716	-	2,600,663	2,817,562
Operating Income (Loss)	64,451	(187,841)	-	(2,546,047)	(2,669,437)
Other Income (Expense)	-	-	-	320,449	320,449
Loss from Discontinued Operations	-	-	(804,127)	-	(804,127)
Net Loss	$ 64,451	$ (187,841)	$ (804,127)	$ (2,225,598)	$ (3,153,115)

	September 30, 2008
	AAVG	ANE	CPE (A)	Corporate	Total
Cash	$ 3,297	$ 6,399	$ 43,795	$ 1,755	$ 55,246
Accounts Receivable	93,615	34,039	669,458	-	797,112
Inventories	250,250	440,156	-	-	690,406
Other Current Assets	2,353	8,878	16,030	25,719	52,980
Property and Equipment, net	113,300	188,187	2,103	16,154	319,744
Other Assets	-	-	608,807	-	608,807
Total Assets	$ 462,815	$ 677,659	$ 1,340,193	$ 43,628	$ 2,524,295

Accounts Payable & Accrued Expenses	$ 79,285	$ 199,485	$ 1,967,365	$ 1,676,395	$ 3,922,530
Notes Payable	-	152,239	-	1,314,800	1,467,039
Net Equity	383,530	325,935	(627,172)	(2,947,567)	(2,865,274)
Total Liabilities and Stockholders' Deficit	$ 462,815	$ 677,659	$ 1,340,193	$ 43,628	$ 2,524,295
Note-The CPE segment was discontinued during the quarter ended June 30, 2008.

The following table summarizes individual customer revenues in excess of 10% of total revenues for each Consolidated Statement of Operations period presented:


	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
Customers in Excess of 10% of Total Revenues
Sorrensons Greenhouses, Inc. (AAVG)	$ 44,125	$ -	$ 97,063	$ -
Western Cactus (AAVG)	31,066	44,710	99,086	108,229
Nurserymen's Exchange (AAVG)	33,876	65,213	-	-
Morgan Creek (ANE)	102,099	-	214,007	-

Note 14 – Commitments & Contingencies

Legal Proceedings

In December 2004, collection attorneys for a former law firm of the Company contacted the Company regarding an unpaid balance of $22,774 for legal services. The Company has worked out a payment plan of $250 per month. This amount is included in accounts payable and accrued expenses in the financial statements.

The Company has a judgment from one of its note holders in the amount of $6,000. This amount is included in notes payable in the financial statements.

The Company also has a judgment filed against it by AA One Litho in San Diego Superior Court for services rendered in the amount of $15,523, including interest and related costs at December 31, 2005. The Company has made payments on this judgment and currently owes approximately $3,000. This amount is included in accounts payable and accrued expenses in the financial statements.

The Company also has a judgment filed against it by Fox Sports World for services rendered in the amount of $11,000. This amount is included in accounts payable and accrued expenses in the financial statements.

During the third quarter of 2005, a judgment was filed in San Diego Superior Court in the amount of $33,747, including interest and related costs by McCullough and Associates, the Company's former counsel. This amount is included in accounts payable and accrued expenses in the financial statements.

On March 11, 2008, Romona Button, holder of a Convertible Debenture, filed an Application For and Notice of Default in the Superior Court of Arizona. The $500,000 Convertible Debenture was issued on October 7, 2004 and bears 5% interest per annum repayable in cash or shares of the Company at the option of the note holder. This Debenture has been in default since September 2006.

The Company’s subsidiary, Sammy’s Produce, Inc, is currently in default and in the litigation process with eight vendors with respect to the Perishable Agricultural Commodities Act (PACA) for produce supplied to them totaling $832,244. These amounts are included in accounts payable.

On September 3, 2008, the Registrant received a default notice from Centaur Farms of Southern California, Inc. ("Centaur"), a California corporation, with respect to the promissory note and security agreement executed on May 1, 2008. Pursuant to the Secured Promissory Note, the Registrant has agreed to repay $125,000 plus any accrued interest at the rate of 20% per annum to Centaur on September 1, 2008. The notice relates to the occurrence of a default arising from the Registrant's failure to pay the principal and interest owing under the promissory note. Additionally, pursuant to the loan agreement Centaur will be entitled to recover $50,000 in liquidated damages as well as all of its costs and expenses, including reasonable attorney's fees, in connection with the enforcement of its rights. As a part of the security agreement with Centaur, the Company's CEO, Mr. Yan Skwara, pledged as a security for the Company's promissory note 12,500,000 shares of Series C Convertible Preferred Stock into escrow on May 1, 2008. As of the date of this report, the Company placed a stop order on the 12,500,000 Series C Preferred Shares at par as pledged loan collateral totaling $12,500 due to ongoing litigation.

The Company has started legal proceedings against several of its customers for failure to make payment for produce received which total $512,270. These amounts are included in accounts receivable.

American Nursery Exchange Leases

In June 2006, the Company entered into a one year lease agreement for a 5 acre nursery/greenhouse facility for its ANE potted plants in Valley Center, California at $4,500 per month. This agreement is currently operating on a month to month basis at a monthly rate of $4,500.

In February 2007, the Company entered into a five year lease agreement for 13.5 acres of nursery land for its ANE palms, cycads and jade plants in Rainbow, California at $1,200 per month for its first year with annual increases up to $1,500 per month by the final year of the lease.

In March 2007, the Company entered into a one year lease agreement for a 1,440 square foot office trailer in Rainbow, California at $700 per month. This space provides accounting and other support services to the Company and its subsidiaries. The agreement is currently operating on a month to month basis.

In October, 2007, the Company executed a five year lease for five acres in Fallbrook, California, which will be dedicated to jade production and distribution. The Company agreed to pay $900 a month for the first year and with annual rental increases up to $1,100 per month on the last year of the lease.

American Aloe Vera Growers Leases

In May 2007, the Company renewed a one year lease agreement for 70 acres of farm land for its aloe vera crop in Calipatria, California at $1,750 per month. The Company anticipates a renewal lease will be executed.

Rent Expense

Rent expense for the nine months ended September 30, 2008 and 2007 was $109,506 and $112,142, respectively. Rent expense for the three months ended September 30, 2008 and 2007 was $32,210 and $35,563, respectively.

Imini Enterprises Corp Stock Escrow Agreement

On September 2, 2008, the Registrant executed an escrow agreement with Imini Enterprises Corp, (“Advisor”), a Panamanian entity, who will act as an advisor and assist in the sale of up to $3,000,000 of the Registrant’s restricted common stock and Savoy Advisors LLC, a Florida limited liability company, who will serve as the escrow agent (‘Escrow Agent”). The Registrant has agreed to sell its restricted common stock in denominations of $5,000 at a price of 70% discount to the market. However, such price, after taking into consideration the discount, shall not be less than $0.18 per share. Pursuant to the escrow agreement, the Escrow Agent will hold and disburse the Registrant’s common stock as necessary. The Registrant upon signing the agreement, agreed to deposit two million (2,000,000) shares of its restricted common stock with the Escrow Agent and the Registrant will send additional shares to the Escrow Agent when needed to maintain an appropriate number of shares to satisfy anticipated subscriptions.

The shares to be sold under this agreement are to be in compliance with Regulation S and will not be sold to any person that is, or could be expected to be, a “U.S. Person” as defined in Regulation S. Pursuant to the agreement, the Escrow Agent will be entitled to an escrow fee of 5% of the purchase price of shares payable concurrently with the disbursement of shares by the Escrow Agent. The offering will be terminated on December 31, 2008 subject to earlier termination. The Advisor has also agreed to reimburse the Escrow Agent for any reasonable expenses incurred in connection with the escrow agreement. Additionally, the Registrant has the option to extend the termination, which will not be longer than 45 days from December 31, 2008.

Note 15 - Subsequent Events

Notes

Subsequent to the quarter ended September 30, 2008, the Company received $12,500 in cash from two individuals in exchange for promissory notes and the Company repaid $1,000 to one promissory note holder.

Equity

Subsequent to the quarter ended September 30, 2008, the Company issued 8,736,550 shares of common stock of which 3,000,000 was issued in connection with the Energy Aloe, Inc. acquisition (see note below) totaling $1,347,000, 35,000 shares were issued for cash totaling $7,000, 428,000 shares were issued for services totaling $195,000, and 5,273,550 shares were issued for conversion of debt totaling $105,471.

Subsequent to the quarter ended September 30, 2008, the Company placed a stop order on the 12,500,000 Series C Preferred Shares at par as pledged loan collateral totaling $12,500.

The transactions for services were recorded based on fair value which was determined by the closing price of the Company’s stock on the date of issuance of the stock.

EnergyAloe, Inc. Letter of Intent

Subsequent to the quarter ended September 30, 2008, we executed a letter of intent with EnergyAloe, Inc. (“EnergyAloe”), a Nevada corporation, to purchase 100% of the issued and outstanding shares of Energy Aloe through a merger transaction. Pursuant to the letter of intent, the Registrant has agreed to issue 19% of the total issued and outstanding shares of their capital stock in exchange for 100% of EnergyAloe’s capital stock. On October 31, 2008, the Company’s Board of Directors approved the issuance of 3,000,000 non-refundable shares of the Company’s common stock to EnergyAloe.

We believe that the issuance of shares was exempt from registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2) and/or Regulation D, Rule 506. The shares were issued directly by us and did not involve a public offering or general solicitation. The recipients of the shares were afforded an opportunity for effective access to files and records of our company that contained the relevant information needed to make their investment decision, including our financial statements and 34 Act reports. We reasonably believed that the recipients, who are our consultants, employees, officers and/or directors, immediately prior to receiving the shares, had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The recipients had the opportunity to speak with our management on several occasions prior to their investment decision.

Subsequent Issuances of Securities Registered Pursuant to Form S-8

Subsequent to the quarter ended September 30, 2008, the Company issued 373,000 shares for services valued at $169,050. These shares were issued under an S-8 registration statement.

FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-KSB, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

our ability to successfully compete in the agricultural products industry;

unexpected natural disasters such as fires or earthquakes that may delay or impact operations and/or facilities located in Southern California;

actions and initiatives taken by both current and potential competitors;

our current deficiency in working capital;

inability to raise additional financing for working capital;

loss of customers or sales weakness;

deterioration in general or regional economic conditions;

the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain;

adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

inability to efficiently manage our operations;

inability to achieve future sales levels or other operating results;

the unavailability of funds for capital expenditures;

the ability of our management to implement our business strategy;

our ability to recruit and hire key employees; and

the other risks and uncertainties detailed in this report.

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see Item 1A – Risk Factors in this document and in our Annual Report on Form 10-KSB for the year ended December 31, 2007.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW AND OUTLOOK

US Farms, Inc. is a diversified commercial Farming, Nursery and Brokerage company based in Southern California. The Company’s principal operations are located in Southern California in the Imperial Valley, North County San Diego and Los Angeles. US Farms, Inc. grows, markets and distributes horticultural products through a number of wholly owned subsidiaries which include: American Nursery Exchange, Inc. (ANE); California Management Solutions, Inc. (CMS); California Produce Exchange, Inc. (CPE); American Aloe Vera Growers, Inc. (AAVG); Imperial Ethanol, Inc. (IE); Sammy’s Produce, Inc. (SPI); US Ag Transportation, Inc (USAT); US Produce, Inc. (USPI); Texas Garlic & Spice, Inc. (TGS); US Trading Group, Inc. (USTG); and World Garlic & Spice, Inc. (WGS).

On June 10, 2008, the Company announced that it was divesting itself of non-performing segments of its produce brokerage segment which includes tomatoes, asparagus and garlic operations. Therefore, the following financial statements and exhibits have been stated (restated) for discontinued operations which include: Sammy’s Produce, Inc. (SPI), US Trading Group, Inc. (USTG); World Garlic & Spice, Inc. (WGS); and California Produce Exchange, Inc. (CPE).

CURRENT OPERATIONS

In order to simplify our operations and accurately describe our business we have divided operations into 3 reportable business segments (American Aloe Vera Growers, American Nursery Exchange, and California Produce Exchange) which are described below in greater detail. We believe separating the business segments better aligns our operations with other food and agricultural companies as well as assists in the internal management reporting procedures and practices.

California Produce Exchange (CPE) – Discontinued operations during the second quarter of 2008.

American Aloe Vera Growers (AAVG) – is a domestic grower of aloe vera. The Company grows, packs and ships aloe vera plants, produce and bulk leaves through wholesale and retail channels throughout North America. AAVG products are sold in supermarkets, garden and home improvement centers, landscapers and retail outlets. This segment includes the wholly owned subsidiary AAVG.

Subsidiaries that are not included in these segments provide support and corporate services to the operating segments or are currently not operational.

Results of Operations for the three months ended September 30, 2008 and 2007

US Farms, Inc. entered the farming and agricultural industry in the second quarter of 2006 and experienced revenues from its agricultural operations in the third quarter of 2006 through is AAVG business segment. During 2007, the Company expanded operations through the acquisition of Kurth Nursery’s’ assets, which was the foundation of the ANE business segment.

Revenue

The following table summarizes the Revenue by Operating Segment for the three months ended September 30, 2008 and 2007:


	For the Three Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Revenue by Operating Segment	Unaudited	Unaudited	$	%
American Aloe Vera Growers	122,628	217,447	(94,819)	-44%
American Nursery Exchange	116,264	10,008	106,256	1062%
Corporate	-	(582)	582	-100%
Total	$ 238,892	$ 226,873	$ 12,019	5%

Revenues for the three months ended September 30, 2008, excluding the discontinued operations of CPE, when compared to 2007, increased by $12,019, or 5%, due primarily to:

A decrease in Aloe Vera sales, which include potted aloe plants, bulk leaf and produce totaled $122,628, or 51% of consolidated revenues, versus $217,447 in 2007. This decrease of $94,819 was due to the Company’s inability to implement sales and marketing initiatives due to cash constraints.

Palms and cycads sales totaled $116,264, or 49% of consolidated revenues, versus $10,008 in 2007. This increase of $106,265 was due to sales associated with a new contract with Morgan Creek to source and distribute products to IKEA stores in the Southwest U.S.

Cost of Goods Sold

The following table summarizes the cost of goods sold for each operating business segment, excluding the discontinued operations of CPE, for the three months ended September 30, 2008 and 2007:


	For the Three Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Cost of Goods Sold by Operating Segment	Unaudited	Unaudited	$	%
American Aloe Vera Growers	31,086	149,684	(118,598)	-79%
American Nursery Exchange	156,601	17,504	139,097	795%
Corporate	(58,014)	-	(58,014)	na
Total	$ 129,673	$ 167,188	$ (37,515)	-22%
Cost of Goods Sold by Operating Segment %
American Aloe Vera Growers	25.3%	68.8%
American Nursery Exchange	134.7%	174.9%
Other	na	0.0%
Total	54.3%	73.7%

The cost of goods sold, decreased by $37,515, due mainly to the change in the mix of products sold and a reclassification of cost of goods sold to operating expenses in the Corporate business segment.

Gross Margins

The following table summarizes the gross margins for each operating business segment, excluding the discontinued operations of CPE, for the three months ended September 30, 2008 and 2007:


	For the Three Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Gross Margin by Operating Segment	Unaudited	Unaudited	$	%
American Aloe Vera Growers	91,542	67,763	23,779	35%
American Nursery Exchange	(40,337)	(7,496)	(32,841)	438%
Corporate	58,014	(582)	58,596	-10068%
Total	$ 109,219	$ 59,685	$ 49,534	83%
Gross Margin by Operating Segment %
American Aloe Vera Growers	74.7%	31.2%
American Nursery Exchange	-34.7%	-74.9%
Corporate	na	100.0%
Total	45.7%	26.3%

The gross margin, increased by $49,534 or 83%, due mainly to reductions in the aloe vera farming overhead for the period and a reclassification of cost of goods sold to operating expenses in the corporate business segment.

Operating Expenses

The following table summarizes the operating expenses for the three months ended September 30, 2008 and 2007:


	For the Three Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Operating Expenses by Category	Unaudited	Unaudited	$	%
Sales, General and Administrative	$ 425,159	$ 717,445	$ (292,286)	-41%
Stock Compensation Expense	688,707	305,413	383,294	126%
Depreciation and Amortization	16,440	17,834	(1,394)	-8%
Total Operating Expenses	$ 1,130,306	$ 1,040,692	$ 89,614	9%

Total operating expenses were $1,130,306 for the three months ended September 30, 2008 versus $1,040,692 for the same period in 2007, which is an increase of $89,614 or 9%. Sales, general and administrative expenses decreased $292,286 or $41% due to the elimination of the CPE business segment and other Company wide staff deductions. The Company paid its consultants and employees more though stock issuances resulting in a $383,294 increase in Stock Compensation Expense.

Other Income and Expense

The following table summarizes the Other Income (Expense) by category for the three months ended September 30, 2008 and 2007:


	For the Three Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Other Income (Expenses)	Unaudited	Unaudited	$	%
Derivative Expense	$ (241,802)	$ -	$ 241,802	na
Interest Expense	(34,419)	(29,536)	4,883	-17%
Total	$ (276,221)	$ (29,536)	$ 246,685	-835%

Other expenses increased $246,685, due mainly to an increase in the fair value of the beneficial conversion liability for the Company’s convertible debt instruments.

Discontinued Operations

The loss from discontinued operations for the three months ended September 30, 2008 was $54,943 versus a restated $274,127 for the same period in 2007.

Net Loss

The net loss for the three months ended September 30, 2008 was $1,352,251 versus a net loss of $1,284,670 for the same period in 2007, which was an increase of $67,581. This increase in net loss is primarily attributable to the winding down of losses associated with the discontinued CPE business segment and an increase in the fair value of the beneficial conversion liability for the Company’s convertible debt instruments.

Results of Operations for the nine months ended September 30, 2008 and 2007

Revenue

The following table summarizes the Revenue by Operating Segment for the nine months ended September 30, 2008 and 2007:


	For the Nine Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Revenue by Operating Segment	Unaudited	Unaudited	$	%
American Aloe Vera Growers	307,011	542,099	(235,088)	-43%
American Nursery Exchange	264,800	127,046	137,754	108%
Corporate	25,361	-	25,361	na
Total	$ 597,172	$ 669,145	$ (71,973)	-11%

Revenues for the nine months ended September 30, 2008 and 2007, excluding the discontinued operations of CPE, when compared to 2007, decreased by $71,973, or 11%, due primarily:

A decrease in Aloe Vera sales, which include potted aloe plants, bulk leaf and produce totaled $307,011, or 51% of consolidated revenues, versus $542,099 in 2007. This decrease of $235,088 was due to the Company’s inability to implement sales and marketing initiatives due to cash constraints.

Palms and cycads sales totaled $264,800, or 44% of consolidated revenues, versus $127,046 in 2007. This increase of $137,754 was due to sales associated with a new contract with Morgan Creek to source and distribute products to IKEA stores in the Southwest U.S.

Cost of Goods Sold

The following table summarizes the cost of goods sold for each operating business segment, excluding the discontinued operations of CPE, for the nine months ended September 30, 2008 and 2007:


	For the Nine Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Cost of Goods Sold by Operating Segment	Unaudited	Unaudited	$	%
American Aloe Vera Growers	138,377	362,170	(223,793)	-62%
American Nursery Exchange	339,925	57,442	282,483	492%
Corporate	(29,255)	-	(29,255)	na
Total	$ 449,047	$ 419,612	$ 29,435	7%
Cost of Goods Sold by Operating Segment %
American Aloe Vera Growers	45.1%	66.8%
American Nursery Exchange	128.4%	45.2%
Corporate	-115.4%	na
Total	75.2%	62.7%

The cost of goods, increased by $29,435, due mainly to sales mix changes between the aloe and nursery products.

Gross Margins

The following table summarizes the gross margins for each operating business segment, excluding the discontinued operations of CPE, for the nine months ended September 30, 2008 and 2007:


	For the Nine Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Gross Margin by Operating Segment	Unaudited	Unaudited	$	%
American Aloe Vera Growers	168,634	179,929	(11,295)	-6%
American Nursery Exchange	(75,125)	69,604	(144,729)	-208%
Corporate	54,616	-	54,616	na
Total	$ 148,125	$ 249,533	$ (101,408)	-41%
Gross Margin by Operating Segment %
American Aloe Vera Growers	54.9%	33.2%
American Nursery Exchange	-28.4%	54.8%
Corporate	215.4%	na
Total	24.8%	37.3%

The gross margin, decreased by $101,408 or 41%, due mainly to the startup costs associated with the Morgan Creek contract and the sales mix change from aloe products to nursery products.

Operating Expenses

The following table summarizes the operating expenses for the nine months ended September 30, 2008 and 2007:


	For the Nine Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Operating Expenses by Category	Unaudited	Unaudited	$	%
Sales, General and Administrative	$ 1,320,158	$ 1,590,842	$ (270,684)	-17%


Stock Compensation Expense	1,448,084	2,518,211	(1,070,127)	-42%
Depreciation and Amortization	49,320	34,450	14,870	43%
Total Operating Expenses	$ 2,817,562	$ 4,143,503	$ (1,325,941)	-32%

Total operating expenses were $2,817,562 for the nine months ended September 30, 2008 versus $4,143,503 for the same period in 2007, which is a decrease of $1,325,941 or 32% due mainly to a reduction in Stock Compensation Expense as the Company issued less stock for consulting and other services and the decrease in Sales, General and Administrative expenses due to Company overhead reductions.

Other Income and Expense

The following table summarizes the Other Income (Expense) by category for the nine months ended September 30, 2008 and 2007:


	For the Nine Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Other Income (Expenses)	Unaudited	Unaudited	$	%
Derivative Expense	$ 420,286	$ -	$ (420,286)	na
Interest Expense	(99,837)	(75,684)	24,153	-32%
Total	$ 320,449	$ (75,684)	$ (396,133)	523%

Other expenses decreased $320,449, due primarily to the reversal of the derivative expense associated with the issuance of warrants due to the decrease of the Company’s stock price.

Discontinued Operations

On September 10, 2008, the Company announced that it was divesting itself of non-performing segments of its produce brokerage segment which includes tomatoes, asparagus and garlic operations. Therefore, the following financial statements and exhibits have been stated (restated) for discontinued operations which include: Sammy’s Produce, Inc. (SPI), US Trading Group, Inc. (USTG); World Garlic & Spice, Inc. (WGS); and California Produce Exchange, Inc. (CPE).

The loss from discontinued operations for the nine months ended September 30, 2007 was $804,127 versus a restated profit of $11,415 for the same period in 2007. In 2007, the CPE business segment had a very profitable asparagus harvest in the first quarter of 2007 which offset losses from other CPE operations. In 2008, the asparagus harvest was not profitable.

Net Loss

The net loss for the nine months ended September 30, 2008 was $3,153,115 versus a net loss of $3,981,069 for the same period in 2007, which was a decrease of $827,954. The decrease in the net loss is primarily attributable the reversal of the Derivative Liability/Expense, the reduction in Stock Based Compensation and the increased loss on Discontinued Operations. Management expects that operating losses may continue as it refocuses its efforts on its continuing operations.

Liquidity and Capital Resources

The following table summarizes total current assets, liabilities and working capital at September 30, 2008 compared to December 31, 2007.


	September 30,
	2008	2007	Increase/(Decrease)
Working Capital Analysis	Unaudited		$	%
Current Assets	1,595,744	2,718,665	$ (1,122,921)	-70%
Current Liabilities	5,389,569	5,256,389	133,180	2%
Working Capital Surplus (Deficit)	$ (3,793,825)	$ (2,537,724)	$ (1,256,101)	-33%


	For the Nine Months Ended
	September 30,
	2008	2007	Increase/(Decrease)
Cash Flow Analysis	Unaudited	Unaudited	$
Net Cash Used in Operating Activities	(786,598)	(3,489,504)	$ 2,702,906
Net Cash Used in Investing Activities	(5,827)	(387,455)	381,628
Net Cash Used in Financing Activities	823,184	4,158,894	(3,335,710)
Net Increase (Decrease) in Cash	$ 30,759	$ 281,935	$ (251,176)

As of September 30, 2008, the Company had total cash and current assets of $1,595,744, and current liabilities of $5,389,569 resulting in a working capital deficit of $3,793,825. The Company’s available sources for generating cash for working capital is through the issuance of common stock and notes payable and, eventually, through the development of profitable operations.

Management expects capital expenditures to be approximately $100,000 during the next fiscal year.

Our future capital requirements will depend on many factors, including the expansion of our business in the agriculture industry; increased sales in our business segments; the cost and availability of third-party financing for development; addition of new revenue sources; and administrative and legal expenses. During the first nine months of 2008, the Company raised approximately $418,547 from the sale of 375,631 post reverse shares of restricted common stock.

As of September 30, 2008, the Company had convertible and other third party debt obligations in default, excluding related accrued interest, totaling $1,467,039. Of those in default was a convertible debenture of $500,000, bearing 5% interest per annum repayable in cash or shares of the Company at the option of the note holder. Additionally, there were multiple unsecured convertible notes of $772,300, bearing various annual interest rates repayable in cash or restricted common shares of the Company at the option of the note holders. There was also a non-convertible note payable of $42,500, bearing 10% interest per annum.

On February 13, 2008, a lawsuit was filed by Donald Kurth claiming breach of contract and recovery of damages on account stated against American Nursery Exchange, a subsidiary of the Company. The complaint was filed in the Superior Court of California and the complaint alleges material breach of contract for the sale of goods and for non-payment of a promissory note to Kurth Nurseries, Inc. This amount is included in notes payable in the financial statements. The company has since filed a counter law suit against Donald Kurth for $58,000, plus damages.

On March 11, 2008, the Convertible Debenture holder filed an Application For and Notice of Default in the Superior Court of Arizona. This $500,000 Convertible Debenture was issued on October 7, 2004 and bears 5% interest per annum repayable in cash or shares of the Company at the option of the note holder. This Debenture has been in default since September 2006. This amount is included in the convertible debenture in the financial statements.

During the period ended September 30, 2008, the Company has started legal proceedings against several of its customers for failure to make payment for produce received which total $512,270. These amounts are included in accounts receivable in the financial statements.

There is no assurance that we will be able to raise any additional funds through the issuance of convertible debentures, equity issuances or that any funds made available will be adequate for us to continue as a going concern. Management is presently negotiating with the various debt holders of the Company to restructure the amounts and terms of repayment. Management believes that there is a reasonable likelihood that a significant portion of our debts can be settled through such negotiation; however, there is no assurance that these efforts will be successful. If we are not able to restructure the debt obligations, there is doubt that the Company can continue as a going concern. Further, if we are not able to generate positive cash flow from operations, or unable to secure adequate funding under acceptable terms, there is substantial doubt that the Company can continue as a going concern.

We anticipate that we will incur operating losses in the next twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks, we must, among other things, expand our customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

Critical Accounting 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 financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we re-evaluate all of our estimates, including those related to the areas of customer and grower receivables, inventories, useful lives of property, plant and equipment, promotional allowances, income taxes, retirement benefits, and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions as additional information becomes available in future periods.

Allowance for accounts receivable. We provide an allowance for estimated uncollectible accounts receivable balances based on historical experience and the aging of the related accounts receivable. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Stock-based compensation. In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-Based Payment. This pronouncement amends SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires that companies account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations. Under SFAS No. 123(R), we are required to measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest.

Inventory. The Company values its inventory under the average method costing under the lower of cost or market method. Inventory consisted of finished goods and raw materials.

Revenue recognition. Sales of products and related costs of products sold are recognized when persuasive evidence of an arrangement exists, shipment has been made, title passes, the price is fixed or determinable and collectibility is reasonably assured.

Property and equipment. Is recorded at cost. Major additions and improvements are capitalized. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the un-depreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment. Depreciation is computed using the straight-line method over the estimated useful life of the assets.

Advertising and Promotion. We follow the policy of charging the costs of advertising and promotion expenses as incurred.

Going Concern

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.

Impact of Recently Issued Accounting Pronouncements

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

This item in not applicable as we are currently considered a smaller reporting company.

Item 4T.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Principal Financial Officer, Mr. Yan Skwara, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this annual report. Based on the evaluation, Mr. Skwara concluded that our disclosure controls and procedures are not effective, for the reasons discussed below, in timely alerting him to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings, for the following reasons:

Certain control procedures were unable to be verified due to performance of the procedure not being sufficiently documented. As an example, some procedures requiring review of certain reports could not be verified due to there being no written notation on the report by the reviewer. Because we were unable to verify these procedures, we conclude that as of September 30, 2008 there were control deficiencies related to the preparation and review of our interim and annual consolidated financial statements, in particular with respect to certain account reconciliations, journal entries and spreadsheets, and the authorization of sales transactions and customer billing rates.

Certain of our personnel had access to various financial application programs and data that was beyond the requirements of their individual job responsibilities.

We did not maintain a level of personnel sufficient to execute certain computing controls over our information technology structure.

We did not maintain adequate segregation of duties within certain areas impacting our financial reporting.

To the extent reasonably possible given our resources, we will seek the advice of outside consultants and utilize internal resources to implement additional internal controls to address the above identified material weaknesses. We are taking steps to implement additional review and approval procedures applicable to our financial reporting process, and are in the planning phase of creating and implementing new information technology policies and procedures related to controls over information technology operations, security and change management.

Through these steps, we believe that we are addressing the deficiencies that affected our internal control over financial reporting as of September 30, 2008. Because the remedial actions require upgrading certain of our information technology systems, relying extensively on manual review and approval processes, and possibly hiring of additional personnel, we may not be able to conclude that these material weaknesses have been remedied until these controls have been successfully operation for some period of time.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II--OTHER INFORMATION

Item 1.

Legal Proceedings

On February 13, 2008, a lawsuit was filed by Donald Kurth claiming breach of contract and recovery of damages on account stated against American Nursery Exchange, a subsidiary of the Company. The complaint was filed in the Superior Court of California and the complaint alleges material breach of contract for the sale of goods and for non-payment of a promissory note to Kurth Nurseries, Inc. The company has since filed a counter law suit against Donald Kurth for $58,000, plus damages.

On September 3, 2008, the Registrant received a default notice from Centaur Farms of Southern California, Inc. (“Centaur”), a California corporation, with respect to the promissory note and security agreement executed on May 1, 2008. Pursuant to the Secured Promissory Note, the Registrant has agreed to repay $125,000 plus any accrued interest at the rate of 20% per annum to Centaur on September 1, 2008. The notice relates to the occurrence of a default arising from the Registrant’s failure to pay the principal and interest owing under the promissory note. Additionally, pursuant to the loan agreement Centaur will be entitled to recover $50,000 in liquidated damages as well as all of its costs and expenses, including reasonable attorney’s fees, in connection with the enforcement of its rights. As a part of the security agreement with Centaur, the Company’s CEO, Mr. Yan Skwara, pledged as a security for the Company’s promissory note 12,500,000 shares of Series C Convertible Preferred Stock into escrow on May 1, 2008. As of the date of this report, the Company placed a stop order on the 12,500,000 Series C Preferred Shares at par as pledged loan collateral totaling $12,500 due to ongoing litigation.

The Company has started legal proceedings against several of its customers for failure to make payment for produce received which total $512,270. These amounts are included in accounts receivable.

Item 1A. Risk Factors

FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS

Risks Relating To Our Business and Marketplace

If we are unable to obtain additional funding, our business operations will be harmed and if we do obtain additional financing our then existing stockholders may suffer substantial dilution.

We will require additional funds to expand our operations. We anticipate that we will require up to approximately $5,000,000 to fund our continued operations for the next twelve months, depending on revenue from operations. Additional capital will be required to effectively support the operations and to otherwise implement our overall business strategy. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations. Any additional equity financing may involve substantial dilution to our then existing stockholders.

An inability to access capital readily or on terms favorable to us could impair our ability to fund operations and could jeopardize our financial condition.

Access to funds is essential to our anticipated agricultural business. In the future we may need to incur debt or issue equity in order to fund our working capital requirements, as well as to make acquisitions and other investments. Our access to funding sources could be hindered by many factors. Those factors that are specific to our anticipated line of business include the fact that our operations and products are regulated in the areas of food safety and protection of human health and the environment.

If a catastrophe were to strike our facilities in Southern California, we may be unable to operate our business competitively.

Our facilities in Southern California may be affected by catastrophes such as fires, earthquakes, or sustained interruptions in electrical service. Earthquakes and fires are of particular significance to us because our facilities are located in earthquake and fire prone areas of Southern California. Some of our facilities were located a short distance from the recent wildfires in Southern California that destroyed many homes and businesses. In the event any of our existing facilities, products, or equipment are affected by man-made or natural disasters, we may be unable to process our customers’ requests and deliveries in a timely manner and cause us to incur additional expenses. Additionally, we may be unable to operate our business in a commercially competitive manner.

Our ability to competitively serve our customers is a function of reliable and low cost transportation. Disruption of the supply of these services and/or significant increases in the cost of these services could impact our operating income.

We use multiple forms of transportation to bring our products to market. They include ocean, truck, and air-cargo. Disruption to the timely supply of these services or dramatic increases in the cost of these services for any reason including availability of fuel for such services, labor disputes, or governmental restrictions limiting specific forms of transportation could have an adverse effect on our ability to serve our customers and consumers and could have an adverse effect on our financial performance.

We have limited operating history in the agricultural products industry and there can be no assurance that we will be successful in this industry.

Our proposed operations are subject to all of the risks inherent in the establishment of a new business, including insufficient capital, unforeseen problems, and expenses and complications encountered with the early phases of operations in a business. Moreover, our lack of an operating history in the agricultural products industry makes it impossible to predict whether or not we will operate profitably in the industry. While we have brought on management that is familiar with this industry, there can be no assurances that we will be able to locate, hire and retain the necessary personnel to initiate, manage and operate this line of business, develop and implement necessary systems, obtain contracts and obtain financing as contemplated in our business strategy.

We may not be able to retain our key personnel or hire the personnel we need to sustain and grow our business.

We face intense competition for qualified employees from businesses in the agricultural products industry. Our performance is highly dependent upon our ability to attract, retain, and motivate highly skilled, talented employees. These professionals are regularly recruited by other firms and may choose to change firms, in which case their clients may choose to move their clients and assets. Given our relatively small size compared to some of our anticipated competitors, the performance of our business may be more adversely affected than our competitors would be if we lose well-performing employees and are unable to attract new ones.

Risks Relating To Our Common Stock

If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. More specifically, FINRA has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC Bulletin Board by requiring an issuer to be current in its filings with the Commission. Pursuant to Rule 6530(e), if we file our reports late with the Commission three times in a two-year period or our securities are removed from the OTC Bulletin Board for failure to timely file twice in a two-year period then we will be ineligible for quotation on the OTC Bulletin Board. We have not been late in our reports to the Commission through the period ended September 30, 2008. If we do meet the obligations of this rule, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Because our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

Deliver to the customer, and obtain a written receipt for, a disclosure document;

Disclose certain price information about the stock;

Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

Send monthly statements to customers with market and price information about the penny stock; and

In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of US Farms; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of US Farms are being made only in accordance with authorizations of management and directors of US Farms, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of US Farms’ assets that could have a material effect on the financial statements.

We have a limited number of personnel that are required to perform various roles and duties. Furthermore, we have one individual, our CEO, who is responsible for monitoring and ensuring compliance with our internal control procedures. As a result, our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.

FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

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

Non-Cash stock transactions are recorded based on fair value which was determined by the closing price of the Company’s stock on the date of stock issuance.

Issuer’s Repurchases during the Quarter

We did not repurchase any of our securities during the quarter ended September 30, 2008.

Subsequent to the quarter ended September 30, 2008, the Company cancelled 12,500,000 shares at par as pledged loan collateral totaling $12,500.

The transactions for services were recorded based on fair value which was determined by the closing price of the Company’s stock on the date of issuance of the stock.

EnergyAloe, Inc. Letter of Intent

Subsequent Issuances of Securities Registered Pursuant to Form S-8

Subsequent to the quarter ended September 30, 2008, the Company issued 373,000 shares for services valued at $169,050. These shares were issued under an S-8 registration statement.

Item 3.

Defaults Upon Senior Securities

As of September 30, 2008, we had convertible and other third party debt obligations, excluding related accrued interest, which are in default:

A convertible debenture of $500,000, bearing 5% interest per annum repayable in cash or shares of the Company at the option of the note holder.

Multiple unsecured convertible notes totaling $772,300, bearing various annual interest rates repayable in cash or shares of the Company at the option of the note holder.

A non-convertible note payable of $42,500, bearing 10% interest rate per annum.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

None.

Item 6. Exhibits


			Incorporated by reference
Exhibit	Exhibit Description	Filed herewith	Form	Period ending	Exhibit	Filing date
3(i)a	Articles of Incorporation		10-SB		3.3	10/29/99
3(i)b	Amendment to Articles of Incorporation		10-KSB	12/31/02	3.1	05/27/03
3(i)(c)	Amendment to Articles of Incorporation		10-KSB	12/31/03	3.5	04/13/04
3(i)(d)	Amendment to Articles of Incorporation		10-KSB	12/31/04	3.6	04/14/05
3(i)(e)	Amendment to Articles of Incorporation		8-K		3.7	07/17/06
3(ii)a	Bylaws of SDSDC		10-SB		3.4	10/29/99
3(ii)b	Bylaws and Amended Bylaws		10-KSB	12/31/02	3.2	05/27/03
4.4	Securities Purchase Agreement		8-K		4.4	06/12/07
4.5	Subscription Agreement		8-K		4.5	06/12/07
4.6	Securities Purchase Agreement with Westcap as the Placement Agent		8-K		4.6	06/12/07
4.7	Subscription Agreement in conjunction with Westcap offering		8-K		4.7	06/12/07
10.11	Employment Agreement with Iradjemr Shadfar		10-QSB	06/30/07	10.11	8/20/07
31	Certification of Yan K. Skwara, Chief Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act	X
32	Certification of Yan K. Skwara, Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act	X

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.

US Farms, Inc.

(Registrant)

By: /s/ Yan K. Skwara

Yan K. Skwara, Chief Executive Officer

(On behalf of the Registrant and

as Principal Financial Officer)

Date: November 18, 2008

US FARMS, INC. 10-Q