Rongfu Aquaculture 10Q 2010 Q2 Quarterly report

INDEX TO JUNE 30, 2010 FORM 10-Q

		Page Number
Part I - Financial Information		3

Item 1 - Financial Statements		F-1

Report of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009(Audited)		F-2

Consolidated Statements of Income for the Three Months and Six Months ended June 30, 2010 and 2009 (unaudited)		F-3

Consolidated Statements of Cash Flows for the Three Months ended June 30, 2010 and 2009 (unaudited)		F-4

Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2010 and the Year Ended December 31, 2009		F-5

Notes to the Consolidated Financial Statements (unaudited)		F-6-16

Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition		4

Item 4 - Controls and Procedures		12

Part II - Other Information		12

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		12

Item 6 - Exhibits		12

Signature Page		13

PART I - FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

The discussions of the business and activities of Rongfu Aquaculture, Inc. (“we,” “us,” “our” or “the Company”) set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements and assumptions regarding future activities and results of operations of the Company. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words "may," "will," "should," "anticipate," "estimate," "plans," “potential," "projects," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend" or the negative of these words or other variations on these words or comparable terminology. These statements may be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations” as well as in this Form 10-Q generally. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.

Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in the most recent Form 10-K filed by the Company. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.

Item 1. Financial Statements

ACSBAcquavella, Chiarelli, Shuster, Berkower & Co., LLP

517 Route one	1 Penn Plaza
Iselin, New Jersey, 08830	36th Floor
732.855.9600	New York, NY 10119

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

Rongfu Aquaculture, Inc.

We have reviewed the accompanying balance sheet of Rongfu Aquaculture, Inc. (the “Company”) as of June 30, 2010, and the related statements of income, stockholders’ equity and comprehensive income, and cash flows for the three months and six-month period ended June 30, 2010. These financial statements are the responsibility of the company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2009 and the related consolidated statements of income, retained earnings and comprehensive income, and consolidated statement of cash flows for the year then ended; and in our report dated April 30, 2010, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Aquavella, Chiarelli, Shuster, Berkower & Co., LLP

Acquavella, Chiarelli, Shuster, Berkower & Co., LLP

Certified Public Accountants

New York, N.Y.

August 23 , 2010

F-1

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2010 AND DECEMBER 31, 2009

	6/30/2010			12/31/2009
	(Unaudited)			(Audited)
ASSETS
Current Assets
Cash	$	7,125,477		$	3,194,248
Accounts receivable		2,043,325			236,374
Inventories		8,987,628			2,979,753
Due from shareholders		-			4,008,659
Other receivable		27,149			21,208
Trade deposit		-			121,224
Prepaid expenses		679,301			230,247
Total Current Assets		18,862,880			10,791,713
Fixed assets		905,285			405,147
Biological assets		366,200			432,808
Total Assets	$	20,134,365		$	11,629,668
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	5,361,607		$	-
Other payable		264,575			2,743,960
Advance from clients		-			498,785
Short-term bank loan		-			380,273
Dividend payable		-			3,466,331
Income tax payable		251,866			-
Derivative liability		8,575,785			-
Total Current liabilities		14,453,833			8,084,662

Long-term bank loan		-			1,170,070
Total liabilities		14,453,833			9,254,732
Stockholders' Equity
Common stock, par value, $0.001 per share, 90,000,000 shares authorized, 21,286,789 and 20,810,713 shares issued and outstanding at June 30, 2010 and December 31, 2009		21,287			20,811
Preferred stock, par value, $0.001 per share, 10,000,000 shares authorized, 2,768,721 shares issued and outstanding at June 30, 2010		2,769			-
Additional paid in capital		8,561,235			796,621
Subscription receivables		-			-
Statutory reserve		1,076,310			1,051,089
Other comprehensive income		768,203			866,699
Retained earnings		(4,749,272	)		(360,284	)
Total Stockholders' Equity		5,680,532			2,374,936
Total Liabilities and Stockholders' Equity	$	20,134,365		$	11,629,668

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

F-2

RONGFU, INC.

CONSOLIDATED STATEMENTS OF INCOME

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

	Six Months Ended June 30,						Three Months Ended June 30,
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue, net	$	22,553,424		$	16,968,277		$	12,629,897		$	7,561,849
Cost of goods sold		14,446,385			10,188,007			7,726,590			3,921,262
Gross profit		8,107,039			6,780,270			4,903,307			3,640,587

Operating expenses:
Selling expenses		841,731			290,081			555,799			202,490
General and administrative expenses		747,403			1,075,070			360,352			413,198
Research and development cost		38,643			35,142			18,807			16,307
Total operating expenses		1,627,777			1,400,293			934,958			631,995

Net income (loss) from operations		6,479,262			5,379,977			3,968,349			3,008,592

Other income (expenses)
Loss on Fair value of derivative liability		(5,307,988	)		-			(745,740	)		-
Interest income		6,614			20,840			3,852			8,993
Interest expense		(34,841	)		(450	)		(17,447	)		(241	)

Total other (expenses) income		(5,336,215	)		20,390			(759,335	)		8,751

Net income before income taxes		1,143,047			5,400,367			3,209,014			3,017,343

Income taxes		488,584			378,905			252,098			177,378

Net (loss) income		654,463			5,021,462			2,956,916			2,839,965
Deemed dividend from beneficial conversion feature of
Series A preferred stock		(4,374,579	)		-
Dividends paid or declared		(643,651	)
Net income (loss) available to common shareholders		(4,363,767	)		5,021,462			2,956,916			2,839,965

Net income for common share
Earnings per share – Basic		(0.21	)		0.24			0.14			0.14
Earnings per share – Diluted		(0.21	)		0.24			0.14			0.14
Weighted average common shares outstanding
Basic		21,286,789			20,810,713			21,286,789			20,810,713
Diluted		21,286,789			20,810,713			21,286,789			20,810,713

Net income	$	654,463		$	5,021,462		$	2,956,916		$	2,839,965
Other comprehensive income (loss)		(98,496	)		(177,809	)		(95,045	)		(179,891	)
Comprehensive income (loss)	$	555,967		$	4,843,653		$	2,861,871		$	2,660,074

F-3

RONGFU AQUACULTURE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JUNE 30, 2010 AND 2009

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

	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	654,463		$	5,021,462
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		54,726			54,369
Amortization of biological assets		231,601			204,339
Change in Derivative liability value		5,307,988			-
(Increase) / decrease in assets:
Accounts receivables		(1,800,409	)		3,145,234
Inventories		(5,971,204	)		1,018,118
Prepaid expense and other receivables		(434,732	)		67,534
Trade deposit		121,718			-
Due from shareholder		4,024,965			(1,461,298	)
Increase / (decrease) in current liabilities:
Accounts payable		5,346,962			536,363
Other payable		(2,499,717	)		462,675
Advances from clients		(500,814	)		-
Income taxes payable		(748,185	)		(52,193	)
Net cash provided by operating activities		3,787,362			8,996,603

CASH FLOWS FROM INVESTING ACTIVITIES
Purchased fixed assets		(554,863	)		(69,175	)
Biological assets		(164,993	)		-
Net cash used by investing activities		(719,856	)		(69,175	)

CASH FLOWS FROM FINANCING ACTIVITIES
Due to shareholder		-			(8,517,615	)
Borrowings (payment) of short-term loan, net		(381,870	)		730,649
Borrowings (payment) of long-term bank loan		(1,174,985	)		1,753,558
Dividend paid		(4,110,591	)		(14,024,570	)
Proceeds from issuance of preferred stock		6,561,077			-
Net cash used by financing activities		893,631			(20,057,978	)

Effect of exchange rate changes on cash and cash equivalents		(29,908)			(553,287	)

Net change in cash and cash equivalents		3,931,229			(11,683,837	)

Cash and cash equivalents, beginning balance		3,194,248			14,823,476
Cash and cash equivalents, ending balance	$	7,125,477		$	3,139,639

SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Income tax payments	$	1,236,768		$	981,540
Interest payments	$	34,841		$	450

F-4

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND THE YEAR ENDED DECEMBER 31, 2009

The accompanying notes are an integral part of these financial statements

									Additional			Other							Total
	Preferred Shares				Common Stock				Paid-in			Comprehensive		Statutory		Retained			Stockholders
	Shares		Amount		Shares		Amount		Capital			Income		Reserves		Earnings			Equity

Balance December 31, 2009		-	$	-		20,810,713	$	20,811	$	796,621		$	866,699	$	1,051,089	$	(360,284	)	$	2,374,936

Foreign currency translation adjustments													(98,496)							(98,496)
Issuance preferred Stock		2,768,721		2,769						3,390,511										3,393,280
Stock Based Compensation – issued in conjunction with financing						476,076		476		(476	)									-
Dividends Paid or Declared																	(643,651	)		(643,651	)
Transferred to Statutory reserve															25,221		(25,221	)		-
Deemed dividend										4,374,579							(4,374,579	)		-
Income for the six months ended June 30,2010																	654,463			654,463

Balance June 30, 2010		2,768,721	$	2,769		21,286,789	$	21,287	$	8,561,235		$	768,203	$	1,076,310	$	(4,,749,272	)	$	5,680,532

Balance December 31, 2008		-	$	-		20,810,713	$	20,811	$	796,621		$	861,166	$	665,852	$	12,653,251		$	14,997,701
Foreign currency translation adjustments													5,533							5,533
Transferred to Statutory reserve															385,237		(385,237	)		-
Dividend paid or declared																	(25,704,486	)		(25,704,486	)
Income for the year ended December 31, 2009																	13,076,088			13,076,088

Balance December 31, 2009		-	$	-		20,810,713	$	20,811	$	796,621		$	866,699	$	1,051,089	$	(360,284	)	$	2,374,936

F-5

Rongfu Aquaculture, Inc., formerly named Granto, Inc (the “Company”) was incorporated in Nevada on February 29, 2008. On March 29, 2010, the Company entered into a Share Exchange Agreement with Rongfu Aquaculture, Inc. (“Rongfu”), certain stockholders and warrant holders of Rongfu (the “Rongfu Stockholders”) and a stockholder of Granto (the “Share Exchange Agreement”). Pursuant to the Share Exchange Agreement, on March 29, 2010, 9 Rongfu Stockholders transferred 100% of the outstanding shares of common stock and 100% of the warrants to purchase common stock of Rongfu held by them, in exchange for an aggregate of 19,810,713 newly issued shares of our Common Stock. In addition the shareholders received warrants to purchase an aggregate of 666,666 shares of our Common Stock. In connection with the closing of the Share Exchange Agreement, the former principal stockholder agreed to and did cancel 1,150,000 of the 1,200,000 shares of Granto, Inc. Common Stock held by her.

Note 1 - ORGANIZATION

On March 29, 2010, the Company completed its merger with Rongfu in accordance with the share Exchange Agreement. The Share Exchange Transaction is being accounted for as a reverse acquisition. In accordance with the Accounting and Financial Reporting Interpretations and Guidance prepared by the staff of the U.S. Securities and Exchange Commission, the Company (the legal acquirer) is considered the accounting acquiree and Rongfu (the legal acquiree) is considered the accounting acquirer for accounting purposes. Subsequent to the Share Exchange Transaction, the financial statements of the combined entity will in substance be those of Rongfu. The assets, liabilities and historical operations prior to the share exchange transaction will be those of Rongfu. Subsequent to the date of the Share Exchange Transaction, Rongfu is deemed to be a continuation of the business of the Company. Therefore post exchange financial statements will include the combined balance sheet of the Company and Rongfu, the historical operations of Rongfu and the operations of the Company and Rongfu from the closing date of the Share Exchange Transaction forward.

The Contractual Agreements completed in December 2009 provide that Guangzhou Flourishing has controlling interest in Nanhai Ke Da Heng Sheng under FASB Accounting Standards Codification “Consolidation of Variable Interest Entities”, an Interpretation of an Accounting Research Bulletin, which requires Guangzhou Flourishing to consolidate the financial statements of Nanhai Ke Da Heng Sheng and Hainan Ke Da Heng Shen and ultimately consolidate with its parent company, Rongfu Aquaculture, Inc.

The Company, through its subsidiaries, and Contractual Agreements, is engaged in integrated business of aquaculture including Tilapia brood stock, Tilapia fry, Tilapia farming, and marketing for Tilapia. It is specializing in the production of the Hengsheng Brand Nile Tilapia and the new licensed New Jifu Tilapia.

In the opinion of the management of the Company, the accompanying consolidated interim financial statements contain all material adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company at June 30, 2010 and the results of its operations for the six- month periods ended June 30, 2010 and 2009 and its cash flows for the six month periods June 30, 2010 and 2009. Actual results may differ from these estimates as a result of different assumptions or conditions.

F-6

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and represent the pro forma historical results of the consolidated group. The Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification”) on July 1, 2009. For the six months ended June 30, 2010, all reference for periods subsequent to January 1, 2010 is based on the Codification. The Company's functional currency is the Chinese Renminbi, however the accompanying consolidated financial statements have been translated and presented in United States Dollars.

Principles of Consolidation

The consolidated financial statements include the accounts of Rongfu Aquaculture ,Inc. and its wholly owned subsidiaries Hong Kong Rongfu, Guangzhou Flourishing, Nanhai Ke Da Heng Sheng, and Hainan Ke Da Heng Sheng collectively referred to herein as the Company. All material inter-company accounts, transactions and profits have been eliminated in consolidation. The Company has adopted the Consolidation Topic of the FASB Accounting Standards Codification which requires a variable interest entity (“VIE”) to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.

Translation Adjustment

As of June 30, 2010 and December 31, 2009, the accounts of the Company were maintained, and its financial statements were expressed, in Chinese Yuan Renminbi (“CNY”). Such financial statements were translated into U.S. Dollars (“USD”) in accordance with the Foreign Currency Matters Topic of the Codification, with the CNY as the functional currency. According to the Codification, all assets and liabilities were translated at the current exchange rate, stockholders’ equity are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the Comprehensive Income Topic of the Codification, as a component of shareholders’ equity. Transaction gains and losses are reflected in the income statement.

Statement of Cash Flows

In accordance with the Statement of Cash Flows Topic of the Codification, cash flows from the Company’s operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

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.

Comprehensive Income

The Company follows the Comprehensive Income Topic of the Codification. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.

Use of Estimates

F-7

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Comprehensive Income

Risks and Uncertainties

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general state of the PRC’s economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things

The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. There were no contingencies of this type as of June 30, 2010 and December 31, 2009.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. There were no contingencies of this type as of June 30, 2010 and December 31, 2009.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Cash and Cash Equivalents

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

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. There were no allowances for doubtful accounts as of June 30, 2010 and December 31, 2009.

F-8

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Inventories

Inventories are valued at the lower of cost (determined on a weighted average basis) or market, if lower. As of June 30, 2010 and December 31, 2009, inventories consist of the following:

	6/30/2010		12/31/2009
Raw materials	$	106,687	$	47,185
Work in process and finished goods		8,880,941		2,932,568
Total	$	8.,987,628	$	2,979,753

Property, Plant & Equipment

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

Buildings	10-20 years
Fishing gear	5-10 years
Transportation equipment	5-10 years
Office equipment	3-5 years

As of June 30, 2010 and December 31, 2009, Property, Plant & Equipment consist of the following:

	6/30/2010			12/31/2009
Buildings	$	213,538		$	73,631
Fishing gear		756,152			424,938
Transportation equipment		37,330			37,330
Office equipment		123,845			40,102
Construction in progress		-			-
Total		1,130,865			576,001
Accumulated depreciation		(225,580	)		(170,854	)
	$	905,285		$	405,147

Depreciation expense for the six months ended June 30, 2010 and 2009 was $54,726 and $54,369, respectively.

Long-Lived Assets

The Company adopted the Property, Plant and Equipment Topic of the Codification, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes previous accounting guidance, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and “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, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of June 30, 2010, there were no impairments of its long-lived assets.

F-9

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Derivative Liability

The Company issued warrants in connection with the Purchase Agreement dated March 29, 2010 with certain reset exercise price provisions.

As a result of the adoption of the Derivative and Hedging Topic of the FASB Accounting Standards Codification (“ASC 815”), the Company determined that the warrants did not qualify for a scope exception under ASC 815 as they were determined to not be indexed to the Company’s stock as prescribed by ASC 815. The warrants, under ASC 815, were classified as derivative liability for the then relative fair market value of $ 3,267,797 and marked to market. For the six months ended June 30, 2010, the Company recorded a loss on change in fair value of derivative liability of $5,307,988 to mark to market for the increase in fair value of the warrants through ended June 30, 2010. Under ASC 815, the warrants will be carried at fair value and adjusted at each reporting period.

Pursuant to a Share Exchange Agreement dated March 29, 2010, the Company issued 4,127,568 warrants to purchase an aggregate of 4,127,568 shares of our Common Stock to certain former warrantholders of Rongfu. The Company determined the fair value of the reset provisions at March 31, 2010 was $ 7,830,045. The fair value was determined using the Black Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%; volatility: 73.27%, risk free rate: 2.55%, expected term: 5 years.

Fair Value of Financial Instruments

The Financial Instrument Topic of the Codification requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with the Revenue Recognition Topic of the Codification. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

The Company has three types of revenue streams from its three line of business, namely 1) Fish breeding; 2) Fish growing; 3) Fish trading.

Fish breeding

The Company operates a breeding farm and sells fish fry to local farmers. The Company recognizes sales revenue at the date of shipment or delivery to customers. The Company presents revenues from such transactions in its statements of income.

Fish growing

The Company operates adult fish breeding farms and sells adult fish to fish food manufacturers. The Company recognizes sales revenue at the date of shipment or delivery to customers and presents revenues from such transactions in its statements of income.

Fish trading

The Company deals with local individual farmers. The Company recognizes sales revenue at the date of shipment or delivery to the manufacturer and records revenues from such transactions in its statements of income.

Research and development cost

Research and development costs are expensed in the period when they are incurred. During six months ended June 30, 2010 and 2009, research and development costs were $38,643 and $35,142, respectively.

F-10

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company expenses all advertising costs as incurred. Advertising expense for the six months ended June 30, 2010 and 2009 were $15,688 and $8,636, respectively.

Shipping and handling fees

The Company follows ASC 605-45, “Handling Costs, Shipping Costs”. The Company does not charge its customers for shipping and handling. The Company classifies shipping and handling costs as part of general and administrative expense.

Income Taxes

The Company utilizes the accounting guidance, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. It is the Company’s intention to permanently reinvest earnings from activity with china. And thereby indefinitely postpone repatriation of these funds to the US. Accordingly, no domestic deferred income tax provision has been made fro US income tax which could result from paying dividend to the Company.

There were no deferred tax difference as of June 30, 2010 and December 31, 2009.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, all are in China. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

Note 3 –OTHER RECEIVABLES

Other receivables mainly consist of cash advances to rent deposit. As of June 30, 2010 and December 31, 2009, the other receivables were $27,149 and $21,208, respectively.

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Note 4 – BIOLOGICAL ASSETS

Biological assets are amortized using the straight-line method over their estimated period of benefit, ranging from three to five years. Management evaluate the recoverability of biological assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that any changes exists. All of the Company’s biological assets are subject to amortization with estimated lives of:

Carp	5 years
Tilapia	3 years
Snakeheads	3 years

As of June 30, 2010 and December 31, 2009, Biological assets at cost consist of the following:

	6/30/2010			12/31/2009
Carp	$	28,052		$	20,562
Tilapia		959,561			959,561
Yellow bone fish		55,020			-
California bass		15,894			-
Snakeheads		264,793			178,204
Total		1,323,320			1,158,327
Accumulated amortization		(957,120	)		(725,519	)
	$	366,200		$	432,808

Amortization expense for the six months ended June 30, 2010 and 2009 was $ 231,601 and $ 204,339 respectively.

Note 5 – RELATED PARTIES

One of the Company’s vendors is a related party. As of and for the six months ended June 30, 2010, the vendor accounted for approximately 20% of the Company’s purchases and 31% of accounts payable.

For the six months ended June 30, 2010, the Company collected all amounts previously due from the shareholder.

Note 6 – DUE FROM/TO SHAREHOLDER

As of June 30, 2010, due from shareholder was $0.

During the fourth quarter of 2009, the Company loaned an aggregate of RMB 21,900,000 ($3,201,343 translated at $1=RMB 6.8372) to a shareholder. The shareholder invested the entire proceeds of the loan in the construction of Foshan Nanhai Guanyao Processing Industrial Park, which has a total area of 108,000 square meters with the construction area of 85,000 square meters. The loan bears interest and may be paid off by deducting the shareholder’s allocation of shareholders’ dividends or other means. After the construction has been completed, the Company has a first option to rent Foshan Nanhai Guanyao Processing Industrial Park on terms to be determined. This amount is included in the Due from shareholders of $4,008,659 as of December 31, 2009. During the six months ended June 30, 2010 this loan was repaid.

Note 7 – CONCENTRATIONS

As of June 30, 2010, one customer accounted for 23% of accounts receivable. For the six months ended June 30, 2010, the Company had three vendors who accounted for 66% of total purchases. For the three moths ended June 30, 2009, Two vendors accounted for 78% of total purchase and one is related party vendor accounted for 69% of total purchase. As of December 31, 2009, two customers accounted for 20% of accounts receivable. For the six months ended June 30, 2009, the Company had two vendors who accounted for 59% of total purchases and one related party vendor who accounted for 49%. At June 30, 2010, 78% of accounts payable were due to related parties.

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Note 8 – COMPENSATED ABSENCES

Regulation 45 of the local labor law of the People’s Republic of China (“PRC”) entitles employees to annual vacation leave after 1 year of service. In general, all leave must be utilized annually, with proper notification. Any unutilized leave is cancelled.

Note 9 – COMMON STOCK

On March 29, 2010, the Company entered into the Share Exchange Agreement. Pursuant to the Share Exchange Agreement, on March 29, 2010, 9 Rongfu Stockholders transferred 100% of the outstanding shares of common stock and 100% of the warrants to purchase common stock of Rongfu held by them, in exchange for an aggregate of 18,623,889 newly issued shares of our Common Stock and warrants to purchase an aggregate of 666,666 shares of our Common Stock. In connection with the closing of the Share Exchange Agreement, the former principal stockholder agreed to and did cancel 1,150,000 of the 1,200,000 shares of Rongfu Aquaculture, Inc. Common Stock held by her.

Note 10 – SERIES A CONVERTIBLE PREFERRED STOCK

On March 29, 2010, the Company entered into the Purchase Agreement with eighteen investors. The Company authorized and issued to Investors $7,700,000, of the Company’s convertible, redeemable Series A Preferred Stock, $0.001 par value per share (the “Series A Stock”) at a price of $2.78 per share. The shares are convertible into shares of the Company’s common stock, par value $0.001 per share. In connection with the Purchase Agreement the Company incurred offering costs of $1,038,923, which are subtracted from the total proceeds and against additional paid in capital. The Company has agreed to pay liquidated damages if the Registration Statement is not filed or not declared effective by SEC.

Pursuant to the Purchase Agreement the holders of Series A Stock also received 3,460,902 5 year warrants to purchase common shares. The warrants have an exercise price of $3.47 for 1,730,451 warrants and $4.17 for the remaining 1,730,451 warrants.

Assuming a valuation of $3.10 per share and the conversion of the Series A Stock into 4,221,389 shares of common stock at an effective conversion price of approximately $1.52 per share which is obtained by dividing the amount to be allocated to the BCF by the 2,768,721 common shares, pro forma net income per common share would be $(0.34).

The Company measured and recognized an aggregate of $3,267,797 of the fair value of warrants to additional paid in capital upon issuance of these warrants. The terms of the warrants provide for an adjustment to the exercise price of these warrants if the company closes on the sale or issuance of common stock at a price which is less than the exercise price then in effect for these warrants. Pursuant to EITF No. 07-05 on March 29, 2010, the Company determined that the warrants did not qualify for a scope exception under SFAS No. 133 as they were determined to not be indexed to the Company’s stock as prescribed by EITF No. 07-05. On March 29, 2010, the warrants were reclassified from equity to derivative liability for the then fair market value and marked to market (see Note 2 Derivative Liability).

						Aggregate
			Exercise		Remaining	Intrinsic
	Total		Price		Life	Value

Outstanding, December 31, 2009		-
Granted in 2010		4,127,568	$	2.44-4.17	4.75 years
Exercised in 2010
Outstanding, March 31, 2010		4,127,568

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The Company operates in more than one jurisdiction with complex regulatory environments subject to different interpretations by the taxpayer and the respective governmental taxing authorities, we evaluate our tax positions and establish liabilities, if required. For uncertain tax position which may be challenged by local tax authorities and may not be fully sustained despite our belief that the underlying tax positions maybe be fully supportable. At this time the Company is not able to make a reasonable estimate of the impact on the effective tax rate related these items which could be challenged.

Note 11 - INCOME TAXES

Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (“EIT”) through December 31, 2007 is at a statutory rate of 33%, which is comprised of 30% national income tax and 3% local income tax. As of January 1, 2008, the EIT is at a statutory rate of 25%. The Company is an agriculture enterprise and under PRC Income Tax Laws, it is entitled to an exemption for 2006. Starting from January 1, 2008, it is entitled to have new PRC tax policy for the agriculture enterprise. The Company’s income come from three parts including fish breeding, fish cultivation and selling adult fish. For income from fish breeding, it is entitled to an exemption. For income from fish cultivation, EIT is a discount rate of 12.5%. For income from selling adult fish, EIT is a rate of 25%.

The following is a reconciliation of income tax expense:

June 30, 2010	International		Total
Current	$	488,584	$	488,584
June 30, 2009	International		Total
Current	$	378,950	$	378,950

Note 12– COMMITMENTS & CONTINGENCIES

The Company leases facilities under operating leases, which expire on different dates. It pays for on an annual basis and accrues for throughout the year. For the six months ended June 30, 2010 and 2009, rent expense was $ 165,166 and $ 302,190. Future payments under these leases are as follows as of June 30:

2011	$	52,339
2012	$	52,339
2013	$	52,339
2014	$	18,903
2015	$	13,035
Thereafter	$	31,256
Total	$	220,211

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Note 13– EARNINGS PER SHARE

In accordance with FASB ASC Topic 260-1-50, “Earnings per Share”, and SEC Staff Accounting Bulletin No. 98, basic net income or loss per common share is computed by dividing net income or loss for the period by the weighted - average number of common shares outstanding during the period. Under FASB ASC 260-10-50, diluted income or loss per share is computed by dividing net income or loss for the period by the weighted - average number of common and common equivalent shares, such as stock options, warrants and convertible securities outstanding during the period.

The following table sets forth the computation of basic and diluted earnings per share of common stock:

	Six months ended June 30,
	2010			2009

Basic earnings from continuing operations per share:
Numerator:
Income from operations used in computing basic earnings per share	$	(4,466,576	)	$	5,021,462
Income from operations applicable to common shareholders	$	(4,466,577	)	$	5,021,462
Denominator:
Weighted average common shares outstanding		21,286,789			20,810,713
Basic earnings per share from continuing operations	$	(0.21	)	$	0.24
Diluted earnings (losses) per share from operations:
Numerator:
Income from operations used in computing diluted earnings per share	$	(4,446,576	)	$	5,021,462
Income (loss) from operations applicable to common shareholders	$	(4,446,576	)	$	5,021,462
Denominator:
Weighted average common shares outstanding		21,286,789			20.810,713
Weighted average effect of dilutive securities:
Stock options and warrants		-			-
Shares used in computing diluted net income per share		21,286,789			20,810,713
Diluted earnings per share from operations	$	(0.21	)	$	0.24

Note 14 – STATUTORY RESERVE

In accordance with the laws and regulations of the PRC, a wholly-owned Foreign Invested Enterprises income, after the payment of the PRC income taxes, shall be allocated to the statutory surplus reserves and statutory public welfare fund. Prior to January 1, 2006 the proportion of allocation for reserve was 10 percent of the profit after tax to the surplus reserve fund and additional 5-10 percent to the public affair fund. The public welfare fund reserve was limited to 50 percent of the registered capital. Effective January 1, 2006, there is now only one fund requirement. The reserve should be 10 percent of income after tax, not to exceed 50 percent of registered capital. Statutory Reserve funds are restricted for set off against losses, expansion of production and operation or increase in register capital of the respective company. Statutory public welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves are not transferable to the Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except in liquidation. As of June 30, 2010 and December 31, 2009, the Company had allocated $1,076,310 and $1,051,089, to these non-distributable reserve funds.

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