Item 405 of Regulation S-B contained in this form and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  ¨

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

Issuer’s revenues for the fiscal year ended December 31, 2007: $9,460,585.

As of April 14, 2008, the aggregate market value of the voting  and non-voting  common equity held by non-affiliates was $4,879,531, based on based upon the average bid and ask price of $0.12 reported for such date on The OTC Bulletin Board.

The number of shares of Common Stock, $0.001 par value, outstanding on April 14, 2008, was 44,848,733 shares.

Transitional Small Business Disclosure Format (check one):  Yes ¨ No x

2

TABLE OF CONTENTS

PART I
Item 1.	Description of Business	5
Item 2.	Description of Property	10
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matter to a Vote of Security Matters	11
PART II
Item 5.	Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities	11
Item 6.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	14
Item 7.	Financial Statements	25
Item 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	25
Item 8A.	Controls and Procedures	25
Item 8A. (T).	Management’s Report on Internal Control Over Financial Reporting.	26
Item 8B.	Other Information	27
PART III
Item 9.	Directors, Executive Officers, Promoters and Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act	27
Item 10.	Executive Compensation	30
Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 12.	Certain Relationships and Related Transactions and Director Independence	32
Item 13.	Exhibits	33
Item 14.	Principal Accountant Fees and Services	35
	Signatures	36

3

FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Except for the ongoing securities laws, we do not intend and undertake no obligation to update forward-looking statements 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-QSB 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.

4

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 “Factors That May Affect Our Results of Operation” in this document.

In this form 10-KSB references to “US Farms”, “the Company”, “we,” “us,” and “our” refer to US FARMS, INC. and all of its wholly owned subsidiaries.

AVAILABLE INFORMATION

We file annual, quarterly and special reports and other information with the SEC that can be inspected and copied at the public reference facility maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549-0405. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330. The Company’s filings are also available through the SEC’s Electronic Data Gathering Analysis and Retrieval System which is publicly available through the SEC’s website (www.sec.gov). Copies of such materials may also be obtained by mail from the public reference section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549-0405 at prescribed rates.

PART  I

ITEM 1.

DESCRIPTION OF BUSINESS

(a) Business Development

US Farms, Inc. (“US Farms”) was originally incorporated on December 12, 1995, under the laws of the state of Nevada under the name Roller Coaster, Inc.  Since its incorporation, the Company has held multiple corporate names such as San Diego Soccer Development Corporation and International Sports and Media Group.  However, we did not engage in any operations prior to February 10, 2000.  In July of 2006, we obtained majority shareholders consent to change our corporate name to US Farms, Inc., which indicated our change in our business model and transition into the industry of agricultural business.  

(b) Our Business

US Farms is a diversified commercial farming, nursery and brokerage company based in Southern California. Currently, the Company’s principal operations are located in Southern California in the Imperial Valley, North County San Diego and Los Angeles.

Principal Products and Services

US Farms presently has eleven wholly-owned subsidiaries of which nine are currently operational at this point in time.  However, in order to simplify our operations and accurately describe our business segments we have divided operations into 4 reportable business segments (American Aloe Vera Growers, American Nursery Exchange, California Produce Exchange, and Imperial Ethanol).  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.

Through our subsidiaries we offer various agricultural products and services.  Through American Aloe Vera Growers (“AAVG”), we grow aloe vera potted plants, aloe vera boxed produce and bulk aloe vera leaves to brokers, wholesalers and directly to retailers.  American Nursery Exchange (“ANE”) grows and sells palms, jade, cycads and other potted plants to grocery stores, garden centers, landscapers, home improvement centers and via mail order.  California Produce Exchange (“CPE”) distributes a variety of bulk vegetables and fruits to brokers, distributors, food converters and grocery stores.       

5

AAVG

Our AAVG business segment incorporates our subsidiary, American Aloe Vera Growers, which is a domestic grower of aloe vera.  Aloe vera is a semi-tropical plant that has thick, tapered spiny leaves that grow from a short stalk near the ground.  Aloe vera cannot survive freezing temperatures and thereby making Southern California a great location to harvest this crop.  The biochemical products of aloe such as moisturizing and penetrating properties are well known, but it also thought to have analgesic properties that have not been clearly defined through controlled research and testing.

AAVG grows, packs and ships 3”, 4” and 6” potted plants for houseplants.  Aloe leaves are picked, cleaned, packaged, and transported to market daily.  The products are most often available in health food retailers and grocery stores.  We also sell bulk leaves which are also picked, cleaned, packaged, and transported to processors.  This product is sold by the ton to customers in the nutraceutical and cosmetic industries for use in dietary supplements, gels, creams, and other personal care products.

ANE

Our business segment of ANE is a floriculture supplier of select ornamental shrubs, color plants, container grown plants, and exotic palms and cycads.  Our subsidiary of American Nursery Exchange, Inc. is the subsidiary located in this business segment.  Two of the main products sold under this subsidiary is jade and our exotic palms and cycads.  Jade are succulent plants that sometimes have pink or white flowers and are popular as house plants around the world.  Cycads are tropical or subtropical that has a restricted geographical range.  The plants become salable in 1 to 3 years and are a high-dollar and high-margin product.

 

CPE

The CPE business segment includes our wholly-owned subsidiaries of: California Produce Exchange, Inc., US Trading Group, Inc., Sammy’s Produce, Inc. and World Garlic and Spice, Inc.  Through this business segment we grow and distribute fresh produce such as asparagus, tomatoes, and garlic.

Fresh market asparagus is a high-value, labor intensive perennial vegetable crop, which is harvested primarily in January through June.  About 74% of asparagus produced in the United States is intended for fresh market uses and the remainder of the crop is frozen or canned.  The Company hand picks, packs, and ships fresh “early season” asparagus between the months of January through March.  

Garlic falls into three broad product segments, fresh market, dehydrating and seed stock, with each differentiated by the way the crop is grown, handled, and used.   Nearly all commercial garlic production is grown under contract between grower and buyers while much of the commercial product is shipped to specific locations from which the garlic is either processed for dehydration or moved to fresh market retail sales.  Towards the end of 2007, the Company sourced and began distributing fresh garlic to grocery stores, food processors, and wholesalers.

Tomatoes are the second highest ranked fresh market vegetable behind lettuce.  Florida and California are the two top fresh-tomato producing states in the United States and can be grown in California during most seasons except the winter season.  Imports compliment the seasonal production differences within the United States thereby enabling fresh market tomatoes to be sold in grocery stores year-round.  The Company sources and distributes fresh market tomatoes to grocery stores, food processors, and wholesalers throughout Southern California.  The Company intends to expand its distribution through the entire Southwest United States.

6

Distribution Methods of the Products

AAVG

The potted aloe vera plants, product and bulk leaves are sold directly through regional retailers or brokered to other regional and national wholesalers and retailers throughout North America.  

ANE

ANE markets and sells to independent or chain garden centers, home centers, mass merchants, drug and grocery chains, wholesalers, landscapers, and large end-users like hotels, office parks, and golf courses.  Sales are usually through a direct sales force.  Marketing is also done through trade shows, advertising, catalogs, and direct mail.   

CPE

Some of the products under the CPE business segment are farmed under contract with the remainder of the products being purchased from growers and large distributors.  The produce is sold in bulk to supermarkets, restaurant suppliers, and food processors.

Competition and Market Overview

The United States agriculture industry is a diverse economic sector accounting for nearly one-fifth of the U.S. gross national product, employing close to one-fourth of the U.S. labor force and operates in a highly competitive global context. The following are select statistics for the market segments in which US Farms competes.

AVVG

Aloe has one of the highest levels of recognition for herbs among the public and has a wide range of applications.  Continuing research on aloe’s medicinal properties has raised consumer awareness but a large population is still unaware of aloe’s benefits as a neutraceutical or functional food.  Products containing aloe vera represent in excess of $110 billion in annual revenues globally with approximately $34 billion in the U.S. alone.  Industries utilizing aloe include those of pharmaceutical, cosmetics, dietary supplements, and cleaning products.

Competition for aloe products is competitive with small growers in Texas and Florida as the only domestic competition.  Currently, our subsidiary of AVVG is the largest California grower and we are positioning ourselves to be one of the larger domestic aloe vera growers.

ANE

The United States is the world’s largest producer and market for nursery and greenhouse crops.  Nursery and greenhouse crops represent the third most important sector in U.S. crop agriculture, ranking seventh among all commodities in cash receipts, and among the highest in net farm income.  California leads the industry in floriculture sales with $1 billion and the nursery business is comprised of approximately 60,000 primarily small and regionally based growers.  Domestic consumption reached $6.2 billion in 2005, representing a wholesale consumption of $56 of floriculture (flowering plants) per domestic household.  The fastest growing crop group was potted foliage plants for indoor or patio use, maintaining a 5% increase in 2005 and has averaged 5% increase since 2003.  

7

Competition for ANE’s nursery products is very competitive with their main competitors being Hines Horticulture, Inc., Nurserymen’s Exchange, Monrovia Nurseries, and Color Spot Nurseries.  Recent trends in the retail distribution channel, such as the expansion of large “big box” retailers emphasizing the lawn and garden category have increased consumer exposure.  However, the production of floral and nursery crops is increasingly capital-intensive.  This is a result of the mass-market sales in big discount stores and supermarkets as well as the switching of growers traditionally producing agricultural commodities to floriculture products.  ANE believes it does have a competitive position or niche in having products that are not as widely grown such as the exotic palms and cycads.   

CPE

The competition for our products under this business segment is intense and local, regional and international in scope.  Competition for fresh produce in California wholesale market is fragmented and highly price sensitive.  The main competitors for this business segment are Melissa’s Inc. and Fridas, Inc. With that being said, U.S. markets for fresh fruits and vegetables have been transformed in the past decade. Consumers are purchasing more produce, more exotic varieties, and more convenient portions and packaging. The implications of consumer demand filter through the marketing chain.  The foodservice sector has also increased as buyers of fresh fruits and vegetables, although merchant wholesalers have somewhat declined.  Retail companies have grown larger with mass merchandisers becoming more active in food marketing.  

In 2006, California fresh market asparagus production was $71 million which was down 12% from 2005 due to weather and a reduction in harvested acreage from the 2005 season.  Essentially all of the U.S. commercial production of asparagus occurs in California, Michigan, and Washington.    

Globally, China is by far the largest producer of garlic, producing over 75 percent of world tonnage. The United States ranks fourth behind India and the Republic of Korea. In the United States, the majority of fresh and processing garlic production and acreage is concentrated in California. At the farm level, the U.S. garlic crop is valued at about $200 million.  Changes in relative market prices and stock levels can prompt some shifting of sales between the three segments of fresh-market, dehydrating, and seed stock.  

In 2006, nearly 2 million tons of commercial fresh-market tomatoes were produced in the United States with production valued at $1.4 billion, the second highest ranked fresh market vegetable behind lettuce at $2.1 billion.  In 2006, nearly 10.7 million tons of processing tomatoes were produced in the United States with production valued at $758 million.

 

Seasonality

AVVG and ANE business segments have significant seasonality in both growing operations and demand with the first and fourth quarters of a given year being the more profitable.  The second and third quarters are expected to have significantly lower revenues.

Our CPE business segment has a large degree of seasonality in the growing seasons and procurement of our produce.  However, the overall demand for our produce does not have significant seasonal variation.

8

Sources and Availability of Raw Material and Principal Suppliers

Our CPE business segment purchases bulk tomatoes and garlic as well as other materials used in our agricultural operations either directly from farmers or indirectly from large brokers.  Typically our materials are purchased on the open market and we are not a party to any annual or long term contracts. On a consolidated basis, our top 5 vendors accounted for 57% of the Company’s total purchase in 2007 with the top vendor, Expo Fresh, LLC accounting for 19%.

Dependence on One or Few Major Customers

US Farms main customers on a revenue basis were food processors, supermarkets, and restaurant suppliers.  On a consolidated basis our top 10 customers accounted for 49% of our total revenue in 2007.

Intellectual Property

We regard the protection of copyrights, service marks, trademarks, trade dress and trade secrets as critical to our future success and will rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to establish and protect our proprietary rights in products and services. We have not filed trademark applications for our brand and logos, which include our subsidiaries: American Nursery Exchange, California Management Solutions, California Produce Exchange, American Aloe Vera Growers, Imperial Ethanol, Sammy’s Produce, US Ag Transportation, US Produce, Texas Garlic & Spice, US Trading Group, and World Garlic & Spice.  However, we do anticipate filing for the trademarks of these names during the 2008 and consider the marks important to the marketing of our business.      

Governmental Approval and Regulation

The California State Department of Food and Agriculture oversees the packing and processing of California produce and conducts tests for quality and packaging standards.  Various states have also instituted regulations providing differing levels of oversight with respect to weights and measures and quality standards.

As a result of our agricultural and food processing activities, we are subject to numerous environmental laws and regulations that govern the treatment, handling, storage, and disposal of materials and waste as well as the remediation of contaminated properties.

We seek to comply at all times with such laws and regulations and to obtain all necessary permits and licenses.  We believe our facilities and practices are sufficient to maintain compliance with applicable governmental laws, regulations, permits and licenses.  Nevertheless, there is no guarantee that we will be able to comply with all future laws and regulations or requirements for necessary permits and licenses.  Our failure to comply with applicable laws and regulations or obtain any necessary permits and licenses could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions.  In the event, any of these items occurred, our operations could be materially and adversely affected.

Research and Development

US Farms incurred approximately $60,000 and $10,000 in research and development costs during the years ended December 31, 2007 and 2006, respectively.  These expenses related to feasibility studies prepared regarding the building of an ethanol facility in the Imperial Valley of California for our wholly-owned subsidiary, Imperial Ethanol, Inc.

9

Costs and Effects of Compliance with Environmental Laws

We are subject to various environmental protection and occupational health and safety laws and regulations in the State of California. Our operations may emit or release certain substances, which may be regulated or limited by applicable laws and regulations. In addition, we handle and dispose of materials and wastes classified as hazardous or toxic by one or more regulatory agencies in our business. Handling hazardous or toxic materials and wastes is often subject to regulations and we incur costs to comply with health, safety and environmental regulations applicable to those activities. Compliance with environmental laws and regulations did not materially affect our capital expenditures or earnings in 2007, and, based on current laws and regulations, we do not expect that they will do so in 2008.

Personnel

As of December 31, 2007, we had approximately 37 employees.  Of those employees, 2 were officers, approximately 20 are salaried employees, and approximately 15 are hourly employees.  All of our employees are located in California and there are no organized labor agreements or union agreements between us and our employees.   We believe that our relations with our employees are good.  As we continue to expand and in the event we are able to achieve capital funding, we may experience increased growth as well as a significant change in the number of employees.  Additionally, we believe the use of third-party service providers may enhance our ability to contain general and administrative expenses.

ITEM 2.

DESCRIPTION OF PROPERTY

Corporate

Our corporate headquarters are located in San Diego, California, whereby we lease approximately 900 square feet for approximately $1,550 a month.  The Company entered into a three year lease that expires in May,2010.

In May 2007, the Company entered into a master lease agreement for trucks and trailers for its US Ag Transportation, Inc. subsidiary at $3,000 per month.  

American Nursery Exchange

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

10

American Aloe Vera Growers

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.

California Produce Exchange

In April 2007, the Company entered into a verbal month-to-month agreement for a warehouse in Vista, California, for $4,500 a month.  This facility supports produce distribution for our Sammy’s Produce subsidiary.

In May 2007, the Company entered into a one year lease agreement for 140 acres of farm land for our winter asparagus crop in Calipatria, California at $3,500 per month.  The Company does not intend to renew this lease.

In October 2007, the Company’s subsidiary, CPE executed a sublease with U.S.A. Garlic & Spices, Inc. (“USA Garlic”).  USA Garlic executed a lease, (“Master Lease”) dated October 16, 2006 for approximately 14,500 square feet of cooler, dry storage, and office space within a larger facility in Los Angeles, California.  The term of the Master Lease was for five years and CPE has agreed to sublease for the remaining term of the Master Lease, which will expire on October 31, 2011.  Additionally, CPE paid USA Garlic $30,000 as a security deposit, which will be returned after the conditions specified in the Master Lease are satisfied at the expiration of the lease.  USA Garlic agreed to pay $16,000 a month as well as any additional cost over $60,000, which the landlord agreed to cover, to update the refrigeration on the leased premises.  CPE has agreed to pay the same monthly rental terms to USA Garlic as described in the Master Lease.  A guaranty was also executed on the Master Lease by Mr. Shadfar, who previously served as the Vice President of Marketing for CPE.     

ITEM 3.

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.  

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 07, 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.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not submit any matters to a vote of our security holders during the fiscal year ended December 31, 2007.

PART II

ITEM  5.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

11

 

(a) Market Information

The Company’s Common Stock is traded on the Over-The-Counter Bulletin Board (OTC:BB) under the symbol “USFI”.  Our common stock has traded infrequently on the OTC:BB, which severely limits our ability to locate accurate high and low bid prices for each quarter within the last two fiscal years.  The following table sets forth the trading history of our common stock on the Bulletin Board for each quarter of the years ended December 31, 2007 and 2006, as reported by Dow Jones Interactive. The quotations reflect inter-dealer prices without retail mark-up, markdown or commission and may not represent actual transactions.  

Quarter Ending		Quarterly High		Quarterly Low		Quarterly Close
3/31/2006		0.34		0.26		0.31
6/30/2006		0.40		0.32		0.39
9/30/2006		0.48		0.40		0.45
12/31/2006		0.50		0.45		0.49
3/31/2007		0.46		0.43		0.46
6/30/2007		0.67		0.61		0.64
9/30/2007		0.62		0.55		0.60
12/31/2007		0.48		0.44		0.47

(b) Holders of Common Stock      

As of December 31, 2007 there were approximately 996 shareholders of record of US Farms’ 39,580,035 outstanding shares of common stock.  

(c)  Dividends

The Company has never paid a cash dividend on its common stock.  We intend to follow a policy of retaining earnings, if any, to finance the growth of the business and do not anticipate paying any cash dividends in the foreseeable future.   Payment of dividends is at the discretion of the Board of Directors and will depend on our profitability and financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors deemed relevant.  .

(d) Securities Authorized for Issuance under Equity Compensation Plans

We currently do not maintain any equity compensation plans.

Recent Sales of Unregistered Securities

Private Placements

The following table summarizes the shares sold pursuant to the private placement during the three months ended December 31, 2007 at a share price of $0.40 per share.  We believe the issuance of the shares described below were 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 our files and records 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, immediately prior to granting 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.  

12

Date Range	Number of Shares Sold	Number of Investors	Gross Proceeds	Sales Commissions
10/01/07- 12/31/07	422,500	19	$169,000	$0

Services

During the three months ended December 31, 2007, we issued a total of 356,000 shares of our common stock in exchange for consulting services rendered and to be rendered to the Company.

Name	Number of Shares	Value	Per Share Value	Type of Services
John Brosky	25,000	$10,750	$0.43	Consulting
Alan Klitenic	25,000	$130,000	$0.48	Consulting
Don Hejmanowski	100,000	$49,000	$0.49	Director compensation
Yan Skwara	100,000	$49,000	$0.49	Director compensation
Darin Pines	100,000	$49,000	$0.49	Director compensation
Richard Hon	6,000	$3,000	$0.50	Consulting

Promissory Notes

During the three months ended December 31, 2007, we issued 40,983 shares of our common stock to the following persons who held convertible promissory notes for a total of approximately $16,393.

Name	Dollar Amount Converted	Number of Shares	Date of Conversion
CRI Lighting	$6,393	15,983	10/9/2007
Alan Klitenic	$10,000	25,000	10/22/2007

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). 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

Subsequent to the year ended December 31, 2007, we issued a total of 1,522,000 shares of our common stock to 23 accredited individuals for $159,700 in cash received.  

13

Subsequent to the year ended December 31, 2007, we issued a total of 2,346,698 shares of our common stock to 36 individuals for $487,676 in services rendered.  

Subsequent to the year ended December 31, 2007, we issued a total of 1,000,000 shares of our common stock to 1 individual for debt reduction of $100,000 ($0.10 per share) and 100,000 shares of our common stock to 1 individual for debt reduction of $15,000 ($0.15 per share).  

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

The following list shows the shares issued from a Registration Statement on Form S-8 filed on April 4, 2008.

Issuer Purchases of Equity Securities

We did not repurchase any of our securities during the year ended December 31, 2007.

ITEM 6

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONIDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Consolidated Financial Data” and our consolidated financial statements and notes thereto that appear elsewhere in this Annual Report.

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).

 

 

 

 

 

 

 

 

 

 

 

 

 

14

CURRENT OPERATIONS

In order to simplify our operations and accurately describe our business we have divided operations into 4 reportable business segments (American Aloe Vera Growers, American Nursery Exchange, California Produce Exchange, and Imperial Ethanol) 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) - grows and distributes produce such as asparagus, tomatoes and garlic, through retail and wholesale distribution channels in the continental United States.  CPE produce is sold in supermarkets, restaurant suppliers and food processors. This business segment includes the wholly owned subsidiaries of CPE, USTG, SPI and WGS.

American Nursery Exchange (ANE) – is 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 (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 years ended December 31, 2007 and 2006

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 a nursery which was the foundation of the ANE business segment.  The expansion was also a result of the startup of the CPE business segment with the formation of Sammy’s Produce, Inc. and World Garlic and Spice, Inc. Therefore, the numbers for 2006 and 2007 are not directly comparable, as the Company was in the formative stage in 2006 versus a growth stage in 2007.

Revenue

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.

The following table summarizes the Revenue by Operating Segment for the years ended December 31, 2007 and 2006:

		For the Year Ended
		December 31,		Increase/(Decrease)
Revenue by Operating Segment		2007	2006	$	%
California Produce Exchange		$    8,628,922	$            -	$8,628,922	--

American Aloe Vera Growers		677,840	361,414	316,426	88%
American Nursery Exchange		126,409	-	126,409	--
Other		27,414	-	27,414	--
Total		$    9,460,585	$    361,414	$9,099,171	2,518%

 

15

Revenues for the year ended December 31, 2007, when compared to 2006, increased by $9,099,171, or 2,518%, due primarily to the revenues generated from the California Produce Exchange segment.  As can be seen from the table below, tomatoes, which we began selling in April 2007, accounted for $6,526,779, or 69.0%, of consolidated revenues.  The winter asparagus harvest which ran from January through March 2007 accounted for $1,495,506, or 15.8% of consolidated revenues.  Palms and cycad sales which began in March of 2007 totaled $126,409, or 1.3 % of consolidated sales.  Aloe vera, which includes potted aloe plants, bulk leaf and produce totaled $677,840, or 7.2% of consolidated revenues, which was an increase $316,426 or 87.6% over the previous year. In contrast, during the year ended December 31, 2006, aloe vera under our AAVG business segment had been our only revenue producing product.  

Gross Margin

The following table summarizes the gross profit by each operating business segment for the years ended December 31, 2007 and 2006:

		For the Year Ended
		December 31,		Increase/(Decrease)
Gross Profit by Operating Segment		2007	2006	$	%
California Produce Exchange		$    595,496	$                -	$ 595,496	--
American Aloe Vera Growers		141,075	36,141	104,934	290%
American Nursery Exchange		41,955	-	41,955	--
Other		(6,825)	-	(6,825)	--
Total		$    771,701	$     36,141	$ 735,560	2035%

 

16

The majority of our gross profit increase of $735,560 was due to produce sales from the newly formed CPE business segment as well as having a full year’s activity of the AAVG business segment.  As previously mentioned for the year ended December 31, 2006, we did not have products of tomatoes, asparagus, garlic, palms and cycads so the gross profit received was from our aloe vera products.    The following table summarizes the gross profit by product category for the year ended December 31, 2007.  

Gross profit as a percentage of net sales decreased from 10.0% to 8.2% for years ended December 31, 2006 and 2007, respectively. This decrease is attributable to the sales mix change between the periods and the fact that the majority of the Company’s business segments were not operational in 2006.

Operating Expenses

The following table summarizes the operating expenses for the years ended December 31, 2007 and 2006:

		For the Year Ended
		December 31,		Increase/(Decrease)
Operating Expenses by Category		2007	2006	$	%
Sales, General and Administrative		$     3,034,486	$     1,176,252	$     1,858,234	158%
Stock Compensation Expense		2,690,961	3,307,740	(616,779)	(19%)
Bad Debt Reserve Expense		150,000	-	150,000	--
Depreciation and Amortization		53,544	1,333	52,211	3,917%
Total Operating Expenses		$     5,928,991	$     4,485,325	$     1,443,666	32%

Total operating expenses were $5,928,991 for the year ended December 31, 2007 versus $4,485,325 from 2006, which is an increase of $1,443,666 or 32%.  The majority of this increase, or $1,858,234, was in the sales, general and administrative category due to the Company’s expansion into the agricultural business and the addition of sales and corporate staff and consulting services that support current and future operations. Offsetting this increase in sales, general and administrative expense increase was a reduction in our stock compensation expense, of $616,779.  During the year ended December 1, 2007, the Company paid its consultants and employees less though stock issuances and more directly in cash.

In 2007, the Company reserved $150,000 for uncollectible accounts receivable primarily relating to the California Produce Exchange Segment. Depreciation and amortization expense increased $52,211 due to the Company’s purchases of machinery equipment, vehicles, a shade house and the aloe crop to support current and future operations.

17

Other Income and Expense

The following table summarizes the Other Income (Expense) by category for the years ended December 31, 2007 and 2006:

		For the Year Ended
		December 31,		Increase/(Decrease)
Other Income (Expenses)		2007	2006	$	%
Gain on Extinguishment of Debt		$                 -	$        98,256	$        (98,256)	(100%)
Derivative Expense		(662,088)