UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q/A


(MARK
ONE)





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








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







COMMISSION
FILE NUMBER: 333-150388





Rongfu
Aquaculture, Inc.


(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)





NEVADA
            
            98-0655634(STATE
      OR OTHER JURISDICTION OF
            
            (I.R.S.
      EMPLOYER IDENTIFICATION NO.)INCORPORATION
      OR ORGANIZATION




Dongdu
Room 321, No. 475 Huanshidong Road


Gaungzhou
City, People’s Republic of China 510075


(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)





REGISTRANT’S
TELEPHONE NUMBER, INCLUDING AREA CODE:011-86-20-8762-1778





Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x  No o .





Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
Registrant was required to submit and post such files). Yes o  No o





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




Large
      accelerated filero
            Accelerated
      fileroNon-accelerated
      filero
            Smaller
      reporting companyx




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




The
number of shares of Common Stock of the Registrant, par value $.001 per share,
outstanding on May 15, 2010 was 21,286,789.










RONGFU
AQUACULTURE, INC.





INDEX
TO MARCH 31, 2010 FORM 10-Q/A




Page
              NumberPart
      I - Financial Information
            
            
            3Item
      1 - Financial Statements
            
            
            F-1Report
      of Independent Registered Public Accounting Firm
            
            
            F-1Consolidated
      Balance Sheets as of March 31, 2010 (unaudited) and December 31,
      2009
            
            
            F-2Consolidated
      Statements of Income for the Three Months ended March 31, 2010 and 2009
      (unaudited)
            
            
            F-3Consolidated
      Statements of Cash Flows for the Three Months ended March 31, 2010 and
      2009 (unaudited)
            
            
            F-4Consolidated
      Statements of Stockholders’ equity for the Three Months Ended March 31,
      2010 and the Year Ended December 31, 2009
            
            
            F-5Notes
      to the Consolidated Financial Statements (unaudited)
            
            
            F-6Item
      2 - Management’s Discussion and Analysis of Results of Operations and
      Financial Condition
            
            
            4Item
      4 - Controls and Procedures
            
            
            7Part
      II - Other Information
            
            
            7Item
      2 - Unregistered Sales of Equity Securities and Use of
      Proceeds
            
            
            7Item
      6 - Exhibits
            
            
            7Signature
      Page
            
            
            8




2




PART
I - FINANCIAL INFORMATION





FORWARD-LOOKING
STATEMENTS





The
discussions of the business and activities of Granto, Inc. or 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.




3





Item
1. Financial Statements


ACSBAcquavella, Chiarelli, Shuster, Berkower & Co.,
      LLP517 Route
      one
                Iselin,
      New Jersey, 08830
                732.855.9600
              1 Penn
Plaza
                36th  Floor
                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 March 31, 2010, and the related statements of income,
stockholders’ equity and comprehensive income, and cash flows for the
three-month period ended March 31, 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.
  Acquavella,
Chiarelli, Shuster, Berkower & Co., LLP
  
  Certified
Public Accountants
 
 New York,
N.Y.
 May 24,
2010
 
 F-1
  RONGFU
AQUACULTURE, INC
 CONSOLIDATED BALANCE SHEETS
 AS
OF MARCH 31, 2010 AND DECEMBER 31, 2009
  3/31/2010
              
              
              12/31/2009ASSETSCurrent
      AssetsCash
              
              $
              1,594,034
              
              
              $
              3,194,248Accounts
      receivable
              
              
              2,473,454
              
              
              
              236,374Inventories
              
              
              5,159,849
              
              
              
              2,979,753Due
      from shareholders
              
              
              -
              
              
              
              4,008,659Other
      receivable
              
              
              21,211
              
              
              
              21,208Trade
      deposit
              
              
              -
              
              
              
              121,224Prepaid
      expenses
              
              
              217,199
              
              
              
              230,247Financial
      receivable
              
              
              6,561,077
              
              
              
              -Escrow
      account
              
              
              100,000
              
              
              
              -Total
      Current Assets
              
              
              16,126,824
              
              
              
              10,791,713Fixed
      assets
              
              
              395,941
              
              
              
              405,147Biological
      assets
              
              
              474,349
              
              
              
              432,808Total
      Assets
              
              $
              16,997,114
              
              
              $
              11,629,668LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable
              
              $
              4,832,915
              
              
              $
              -Other
      payable
              
              
              255,035
              
              
              
              2,743,960Advance
      from clients
              
              
              -
              
              
              
              498,785Short-term
      bank loan
              
              
              1,023,976
              
              
              
              380,273Dividend
      payable
              
              
              -
              
              
              
              3,466,331Income
      tax payable
              
              
              236,483
              
              
              
              995,313Total
      Current Liabilities
              
              
              6,348,409
              
              
              $
              8,084,662Derivative
      liability
              
              
              7,830,045
              
              
              
              -Long-term
      bank loan
              
              
              -
              
              
              
              1,170,070Total
      liabilities
              
              
              14,178,454
              
              
              
              9,254,732Stockholders’EquityCommon
      stock, par value, $0.001 per share, 90,000,000 shares authorized,
      21,286,789 and 20,810,713 shares issued and outstanding at March 31, 2010
      and December 31, 2009
              
              
              21,287
              
              
              
              20,811Preferred
      stock, par value, $0.001 per share, 10,000,000 shares authorized,
      2,768,721 shares issued and outstanding at March 31, 2010
              
              
              2,769
              
              
              
              -Additional
      paid in capital
              
              
              8,561,235
              
              
              
              796,621Subscription
      receivables
              
              
              -
              
              
              
              -Statutory
      reserve
              
              
              1,076,488
              
              
              
              1,051,089Other
      comprehensive income
              
              
              863,248
              
              
              
              866,699Retained
      earnings
              
              
              (7,706,367
              )
              
              
              (360,284
              )Total
      Stockholders’ Equity
              
              
              2,818,660
              
              
              
              2,374,936Total
      Liabilities and Stockholders’ Equity
              
              $
              16,997,114
              
              
              $
              11,629,668
 
 The
accompanying notes are an integral part of these financial
statements.
 F-2
 
 RONGFU
      AQUACULTURE, INC.CONSOLIDATED
      STATEMENTS OF INCOMEFOR
      THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
                (UNAUDITED)
 
 2010
                    
                    
                    2009Revenue
                    
                    $
                    9,923,527
                    
                    
                    $
                    9,406,428Cost
      of goods sold
                    
                    
                    6,719,795
                    
                    
                    
                    6,266,745Gross
      profit
                    
                    
                    3,203,732
                    
                    
                    
                    3,139,683Operating
      expenses:Selling,
      general and administrative expenses
                    
                    
                    672,984
                    
                    
                    
                    749,462Research
      and development cost
                    
                    
                    19,836
                    
                    
                    
                    18,835Total
      operating expenses
                    
                    
                    692,820
                    
                    
                    
                    768,297Net
      income (loss) from operations
                    
                    
                    2,510,912
                    
                    
                    
                    2,371,386Other
      income (expenses)Loss
      on  Fair value of derivative liability
                    
                    
                    (4,562,248
                    )Interest
      income
                    
                    
                    2,762
                    
                    
                    
                    11,847Interest
      expense
                    
                    
                    (17,394
                    )
                    
                    
                    (209
                    )Total
      other (expenses) income
                    
                    
                    (4,576,880
                    )
                    
                    
                    11,638Net
      income before income taxes
                    
                    
                    (2,065,968
                    )
                    
                    
                    2,383,024Income
      taxes
                    
                    
                    236,486
                    
                    
                    
                    201,527Net
      (loss) income
                    
                    $
                    ($2,302,454
                    )
                    
                    $
                    2,181,497Deemed
      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
                    
                    $
                    (7,320,684
                    )
                    
                    $
                    2,181,497Net
      income for common shareEarnings
      per share – Basic
                    
                    $
                    (0.34
                    )
                    
                    $
                    0.10Earnings
      per share – Diluted
                    
                    $
                    (0.34
                    )
                    
                    $
                    0.10Weighted
      average common shares outstandingBasic
                    
                    
                    21,286,789
                    
                    
                    
                    20,810,713Diluted
                    
                    
                    21,334,742
                    
                    
                    
                    20,810,713Net
      income
                    
                    $
                    (2,302,454
                    )
                    
                    $
                    2,181,497Other
      comprehensive income (loss)
                    
                    
                    (3,451
                    )
                    
                    
                    28,158Comprehensive
      income (loss)
                    
                    $
                    (2,305,905
                    )
                    
                    $
                    2,209,655
 
 The
accompanying notes are an integral part of these financial
statements.
  F-3
  RONGFU
      AQUACULTURE, INC.
                CONSOLDIATED
      STATEMENTS OF CASH FLOWS
                FOR
      THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
                (UNAUDITED)
  2010
              
              
              2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income
              
              $
              (2,302,454
              )
              
              $
              2,181,497Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
              
              
              27,946
              
              
              
              26,860Amortization
      of biological assets
              
              
              115,352
              
              
              
              81,742Change
      in Derivative liability value
              
              
              4,562,248
              
              
              
              -(Increase)
      / decrease in assets:Accounts
      receivables
              
              
              (2,237,074
              )
              
              
              3,169,097Inventories
              
              
              (2,179,648
              )
              
              
              2,243,115Prepaid
      expense and other receivables
              
              
              12,356
              
              
              
              159,710Trade
      deposit
              
              
              121,246
              
              
              
              -Due
      from shareholder
              
              
              4,009,362
              
              
              
              (1,460,583
              )Escrow
      account
              
              
              (100,000
              )
              
              
              -Increase
      / (decrease) in current liabilities:Accounts
      payable
              
              
              4,832,987
              
              
              
              (205,118
              )Other
      payable
              
              
              (2,489,402
              )
              
              
              (732,600
              )Advances
      from clients
              
              
              (498,873
              )
              
              
              -Income
      taxes payable
              
              
              (759,002
              )
              
              
              (52,193
              )Net
      cash provided by operating activities
              
              
              3,115,044
              
              
              
              5,411,527CASH
      FLOWS FROM INVESTING ACTIVITIESPurchased
      fixed assets
              
              
              (18,740
              )
              
              
              (52,820
              )Biological
      assets
              
              
              (156,892
              )
              
              
              -Net
      cash used by investing activities
              
              
              (175,632
              )
              
              
              (52,820
              )CASH
      FLOWS FROM FINANCING ACTIVITIESDue
      to shareholder
              
              
              -
              
              
              
              (6,322,573
              )Borrowings
      (payment) of short-term loan, net
              
              
              (380,339
              )
              
              
              730,292Borrowings
      (payment) of long-term bank loan
              
              
              (146,284
              )
              
              
              1,752,700Dividend
      paid
              
              
              (4,110,591
              )
              
              
              (1,388,026
              )Proceeds
      from issuance of preferred stock
              
              
              100,000
              
              
              
              -Net
      cash used by financing activities
              
              
              (4,537,214
              )
              
              
              (5,227,607
              )Effect
      of exchange rate changes on cash and cash equivalents
              
              
              (2,412
              )
              
              
              (2,686
              )Net
      change in cash and cash equivalents
              
              
              (1,600,214
              )
              
              
              128,414Cash
      and cash equivalents, beginning balance
              
              
              3,194,248
              
              
              
              14,823,476Cash
      and cash equivalents, ending balance
              
              $
              1,594,034
              
              
              $
              14,951,890SUPPLEMENTAL
      DISCLOSURES:Cash
      paid during the year for:Income
      tax payments
              
              $
              995,488
              
              
              $
              254,112Interest
      payments
              
              $
              17,393
              
              
              $
              209
  The
accompanying notes are an integral part of these financial
statements.
  F-4
  RONGFU
      AQUACULTURE, INC.
                CONSOLIDATED STATEMENT OF STOCKHOLDERS’
      EQUITY
                FOR
      THE THREE MONTHS ENDED MARCH 31, 2010 AND THE YEAR ENDED DECEMBER
      31,2009
                (UNAUDITED)
  Additional
              
              
              Other
              
              
              
              
              
              
              
              
              TotalPreferred
      Shares
              
              
              Common
      Stock
              
              
              Paid-in
              
              
              Comprehensive
              
              
              Statutory
              
              
              Retained
              
              
              StockholdersShares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              Income
              
              
              Reserves
              
              
              Earnings
              
              
              EquityBalance
      December 31, 2009
              
              
              -
              
              
              $
              -
              
              
              
              20,180,713
              
              
              $
              20,811
              
              
              $
              796,621
              
              
              $
              866,699
              
              
              $
              1,051,089
              
              
              $
              (360,284
              )
              
              $
              2,374,936Foreign
      currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,451
              )
              
              
              
              
              
              
              
              
              
              
              (3,451
              )Issuance
      preferred Stock
              
              
              2,768,721
              
              
              
              2,769
              
              
              
              
              
              
              
              
              
              
              
              3,390,511
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,393,280Stock
      Based Compensation – issued in conjunction with financing
              
              
              
              
              
              
              
              
              
              
              476,076
              
              
              
              476
              
              
              
              (476
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Dividends
      Paid or Declared
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (643,651
              )
              
              
              (643,651
              )Transferred
      to Statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              25,399
              
              
              
              (25,399
              )
              
              
              -Deemed  dividend
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,374,579
              
              
              
              
              
              
              
              
              
              
              
              (4,374,579
              )
              
              
              -Income
      for the three months ended March 31, 2009
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,302,454
              )
              
              
              (2,302,454
              )Balance
      March 31, 2010
              
              
              2,768,721
              
              
              $
              2,769
              
              
              
              21,286,789
              
              
              $
              21,287
              
              
              $
              8,561,235
              
              
              $
              863,248
              
              
              $
              1,076,488
              
              
              $
              (7,706,367
              )
              
              $
              2,818,660Balance
      December 31, 2008
              
              
              -
              
              
              $
              -
              
              
              
              20,810,713
              
              
              $
              20,811
              
              
              $
              796,621
              
              
              $
              861,166
              
              
              $
              665,852
              
              
              $
              12,653,251
              
              
              $
              14,997,701Foreign
      currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,533
              
              
              
              
              
              
              
              
              
              
              
              5,533Transferred
      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
              
              
              
              13,076,088Balance
      December 31, 2009
              
              
              -
              
              
              $
              -
              
              
              
              20,810,713
              
              
              $
              20,811
              
              
              $
              796,621
              
              
              $
              866,699
              
              
              $
              1,051,089
              
              
              $
              (360,284
              )
              
              $
              2,374,936
  The
accompanying notes are an integral part of these financial
statements
 
 F-5
  RONGFU AQUACULTURE, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
1 - ORGANIZATION
 
 Rongfu
Aquaculture, Inc.(the “Company”) was incorporated
in Nevada on February 29, 2008. The Company changed its name from Granto, Inc.
to Rongfu Aquaculture, Inc. on May 19, 2010. 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.
 
 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.
 
 Rongfu
was incorporated in Delaware on January 13, 2009. Flourishing Blessing (Hong
Kong) Co., Ltd. (“Hong Kong Rongfu”) was incorporated on November 11, 2008.
Pursuant to a Share Exchange Agreement, dated as of December 29, 2009, (the”
December 2009 Agreement”) all of the shareholders of Hong Kong Rongfu exchanged
all of the outstanding shares of Hong Kong Rongfu for shares of common stock of
Rongfu and Rongfu became the owner of 100% of the outstanding capital stock of
Hong Kong Rongfu. Hong Kong Rongfu owns 100% of the capital stock of Guangzhou
Flourishing Blessing Hansen Agriculture Technology Limited (“Guangzhou
Flourishing”). Guangzhou Flourishing is a wholly foreign-owned enterprise, or
“WFOE,” under the laws of the PRC by virtue of its status as a wholly-owned
subsidiary of a non-PRC company, Hong Kong Rongfu.  In connection with
the closing of the December 2009 Agreement, Guangzhou
Flourishing  entered into and consummated a series of agreements, (the
“Contractual Agreements “),with Chen Zhisheng and Foshan Nanhai Ke Da Heng Sheng
Aquatic Co., Ltd. (“Nanhai Ke Da Heng Sheng”).  Under the Contractual
Agreements, Guangzhou Flourishing agreed to assume control of the operations and
management of Nanhai Ke Da Heng Sheng in exchange for a management fee equal to
Nanhai Ke Da Heng Sheng’s earnings before taxes. As a result, the business of
Nanhai Ke Da Heng Sheng  and Hainan Ke Da Heng Sheng Aquit Germchit
Co., Ltd., a PRC corporation (“Hainan Ke Da Heng Sheng”) , 70% of the
outstanding stock of which is owned by Nanhai Ke Da Heng Sheng,  will
be conducted by Guangzhou Flourishing. We anticipate that Nanhai Ke Da Heng
Sheng and Hainan Ke Da Heng Sheng will continue to be the contracting
parties under their customer contracts, bank loans and certain other assets
until such time as those may be transferred to Guangzhou Flourishing. Nanhai Ke
Da Heng Sheng was formed in the PRC on April 30, 2003 as a limited liability
company (a company solely owned by a natural person). Hainan Ke Da Heng Sheng
was formed in the PRC on August 6, 2007 as a limited liability company.
Guangzhou Flourishing was incorporated in the PRC on January 9, 2009 as a wholly
owned foreign enterprise.
 
 F-6
  RONGFU
AQUACULTURE, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
1 – ORGANIZATION
–continued
 
 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 March 31, 2010 and the results of its operations for
the three- month periods ended March 31, 2010 and 2009 and its cash flows for
the three month periods March 31, 2010 and 2009. Actual results may differ from
these estimates as a result of different assumptions or conditions.
 
 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.
The Company adopted the new accounting guidance (“Codification”) on July 1,
2009. For the three months ended March 31, 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 Granto ,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
March 31, 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.
  F-7
  RONGFU
AQUACULTURE, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 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.
 
 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 March 31, 2010 and December 31,
2009.
 
 F-8
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 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 March 31, 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 March 31, 2010 and December 31,
2009.
 
 Inventories
 
 Inventory
includes breeding and growing cost; these costs include feed, direct cost and
fixed and variable overhead costs. Inventories are valued at the lower of cost
(determined on a weighted average basis) or market, if lower. As of March 31,
2010 and December 31, 2009, inventories consist of the following:
  3/31/2010
                  
                  
                  12/31/2009Raw
      materials
                  
                  $
                  74,974
                  
                  
                  $
                  47,185Work in process and finished
      goods
                  
                  
                  5.084,875
                  
                  
                  
                  2,932,568Total
                  
                  $
                  5,159,849
                  
                  
                  $
                  2,979,753
  F-9
 RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 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
      yearsFishing
      gear
              5-10yearsTransportation
      equipment
              5-10
      yearsOffice
      equipment
              3-5
      years
 
 As of
March 31, 2010 and December 31, 2009, Property, Plant & Equipment consist of
the following:
 
 3/31/2010
              
              
              12/31/2009Buildings
              
              $
              73,631
              
              
              $
              73,631Fishing
      gear
              
              
              424,938
              
              
              
              424,938Transportation
      equipment
              
              
              37,330
              
              
              
              37,330Office
      equipment
              
              
              40,102
              
              
              
              40,102Construction
      in progress
              
              
              18,740
              
              
              
              -Total
              
              
              594,741
              
              
              
              576,001Accumulated
      depreciation
              
              
              (198,800
              )
              
              
              (170,854
              )$
              395,941
              
              
              $
              405,147
 
 Depreciation
expense for the three months ended March 31, 2010 and 2009 was $27,946 and
$26,860 respectively.
 
 Long-Lived
Assets
  Since
April 30, 2003, 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 March 31, 2010, there were no
impairments of its long-lived assets.
 
 F-10
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 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.
 
 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
three months ended March 31, 2010, the Company recorded a loss on change in fair
value of derivative liability of $ 684,605 to mark to market for the increase in
fair value of the warrants through ended March 31, 2010.   Under
ASC 815, the warrants will be carried at fair value and adjusted at each
reporting period.
 
 The
Company determined the fair value of the reset provisions at March 29, 2009 was
$5,817,810 as the initial fair value at the adoption date of EITF No.
07-05.  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: 2.6%, expected term: 5
years.
 
 The
Company determined the fair value of the reset provisions at March 31, 2010 was
$ 6,502,414. 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.
 
 Pursuant
to a Share exchange agreement daste March 29, 2010, the Company issued 666,666
to the former shareholder of Rongfu. The Company determined the fair value of
the reset provisions at March 31, 2010 was $ 1,327,630. 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.
 
 The
Company has three types of revenue streams from its three line of business,
namely 1) Fish breeding; 2) Fish growing; 3) Fish trading.
 
 F-11
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  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 three months ended March 31, 2010 and
2009,  research and development costs were $ 19,836 and $ 18,835,
respectively.
 
 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 three months ended March 31, 2010
and 2009 were $ 7,599 and $ 2,026, 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.
 
 F-12
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 There
were no deferred tax difference as of March 31, 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.
 
 Recent Accounting
Pronouncements
 
 In
June 2008, the FASB ratified the consensus reached on Emerging Issues Task
Force (“EITF”) Issue No. 07-05, 05”). EITF No. 07-05 clarifies the
determination of whether an instrument (or an embedded feature) is indexed to an
entity’s own stock, which would qualify as a scope exception under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. EITF
No. 07-05 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. EITF No. 07-05 was superseded by the
Derivative and Hedging Topic of FASB Accounting Standards Codification (“ASC
815”). Based on the Company’s evaluation of this issue, the adoption of this
accounting requirement has a material effect on the Company’s consolidated
financial statements, please see note above under “Derivative
Liability”.
 
 In May
2009, the FASB issued accounting guidance for “Subsequent Events”, which is
included in ASC Topic 855, Subsequent Events. ASC Topic 855 established
principles and requirements for evaluating and reporting subsequent events and
distinguishes which subsequent events should be recognized in the financial
statements versus which subsequent events should be disclosed in the financial
statements. ASC Topic 855 also required disclosure of the date through which
subsequent events are evaluated by management.  ASC Topic 855 was
effective for interim periods ending after June 15, 2009 and applies
prospectively.  Because ASC Topic 855 impacted the disclosure
requirements, and not the accounting treatment for subsequent events, the
adoption of ASC Topic 855 did not impact our results of operations or financial
condition.
 
 In June
2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent Events),
which establishes general standards of accounting for and disclosures of events
that occur after the balance sheet date but before the financial statements are
issued or available to be issued. It is effective for interim and annual periods
ending after June 15, 2009. There was no material impact upon the adoption of
this standard on the Company’s consolidated financial statements.
 
 Effective
July 1, 2009, the Company adopted the Codification as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC accounting
and reporting standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative. The FASB will
not issue new standards in the form
of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not
consider ASUs as authoritative in their own right. ASUs will serve only to
update the Codification, provide background information about the guidance and
provide the bases for conclusions on the change(s) in the Codification.
References made to FASB guidance throughout this document have been updated for
the Codification.
  F-13
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 In
August 2009, the FASB issued, Measuring Liabilities at Fair
Value, which provides additional guidance on how companies should measure
liabilities at fair value under ASC 820. The ASU clarifies that the quoted price
for an identical liability should be used. However, if such information is not
available, an entity may use, the quoted price of an identical liability when
traded as an asset, quoted prices for similar liabilities or similar liabilities
traded as assets, or another valuation technique (such as the market or income
approach). The ASU also indicates that the fair value of a liability is not
adjusted to reflect the impact of contractual restrictions that prevent its
transfer and indicates circumstances in which quoted prices for an identical
liability or quoted price for an identical liability traded as an asset may be
considered level 1 fair value measurements. This ASU is effective
October 1, 2009. The Company is currently evaluating the impact of this
standard, but would not expect it to have an impact on the Company’s
consolidated results of operations or financial condition.
 
 In
January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU
2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820,
adding new requirements for disclosures for Levels 1 and 2, separate disclosures
of purchases, sales, issuances, and settlements relating to Level 3 measurements
and clarification of existing fair value disclosures.  ASU 2010-06 is
effective for interim and annual periods beginning after December 15, 2009,
except for the requirement to provide Level 3 activity of purchases, sales,
issuances, and settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010 (the Company’s fiscal year 2012); early
adoption is permitted.  The Company is currently evaluating the impact
of adopting ASU 2009-14 on its financial statements.
 
 Note
3 –OTHER
RECEIVABLES
  Other
receivables mainly consist of cash advances to rent deposit. As of March 31,
2010 and December 31, 2009, the other receivables were $21,211 and $21,208,
respectively.
 
 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
      yearsTilapia
              3
      yearsSnakeheads
              3
      years
  F-14
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
4 – BIOLOGICAL
ASSETS (Continued)
 
 As of
March 31, 2010 and December 31, 2009, Biological assets at cost consist of the
following:
  3/31/2010
                
                
                12/31/2009Carp
                
                $
                20,562
                
                
                $
                20,562Tilapia
                
                
                959,561
                
                
                
                959,561Yellow
      bone fish
                
                
                54,807
                
                
                
                -California
      bass
                
                
                15,832
                
                
                
                -Snakeheads
                
                
                264,457
                
                
                
                178,204Total
                
                
                1,315,219
                
                
                
                1,158,327Accumulated
      amortization
                
                
                (840,870
                )
                
                
                (725,519
                )$
                474,349
                
                
                $
                432,808
 
 Amortization
expense for the three months ended March 31, 2010and 2009 was $ 115,352 and $
81,742 respectively.
 
 Note
5 – RELATED
PARTY
 
 The
Company buys fish feed from a related party supplier.
 
 Note
6 – DUE FROM/TO
SHAREHOLDER
 
 The
Company has a receivable due from shareholder. As of March 31, 2010, due from
shareholder was $21,211. Amount due are receivable upon demand with no stated
interest.
 
 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 . He 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.  During the three months ended Mrach 31, 2010 this
loan was repaid.
  Note
7 – ESCROW
DEPOSITS
 
 Pursuant
to the Purchase Agreement entered into on March 29, 2010, the Company received a
$100,000 deposit in an escrow account. The remaining net proceeds of $6,561,077
had not been received as of March 31, 2010 and are shown on balance sheet as
receivable. The escrow balance was collected by the company on April 1,
2010.
 
 Note
8 – CONCENTRATIONS
 
 As of
March 31, 2010, one customer accounted for 48% of accounts receivable. For the
three months ended March 31, 2010, the Company had three vendors who accounted
for 83% of total purchases. At of December 31, 2010, two customers accounted for
20% of accounts receivable. For the three months ended March 31, 2009, the
Company had two vendors who accounted for 73% of total purchased and one related
party vendor who accounted for 13%.
  F-15
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
9 – 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
10 – 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.
 
 On March
29, 2010 the Company also entered into and consummated the Purchase Agreement
with 18 investors pursuant to which the investors agreed to and did purchase for
an aggregate of $7.7 million an aggregate of (a) 2,768,721 shares of our Series
A Stock, (b) five year (“Series A Warrants”) to purchase an aggregate of
1,730,451 shares of our Common Stock for $3.47 per share and (c) five year
(“Series B Warrants”) to purchase an aggregate of 1,730,451shares of our Common
Stock for $4.17 per share. Each share of Series A Stock will automatically
convert into one share of our Common Stock, subject to adjustment in certain
circumstances to protect the holder against dilution.
 
 The
Company measured and recognized an aggregate of $ 3,267,797 of the proceeds 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).
 
 AggregateExercise
              
              
              Remaining
              
              
              IntrinsicTotal
              
              
              Price
              
              
              Life
              
              
              ValueOutstanding,
      December 31, 2009
              
              
              -Granted
      in 2010
              
              
              4,127,568
              
              
              $
              2.44-4.17
              
              
              5
      yearsExercised
      in 2010Outstanding,
      March 31, 2010
              
              
              4,127,568
 
 F-16
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
  Note
11 – 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 $ 7,700,00, of the
Company’s convertible, redeemable Series A Preferred Stock, $0.001 par value per
share (the “Series A Preferred 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 cost of $1,038,923, which are subtracted from the
total proceeds and against additional paid in capital. The shares are not
entitled to any dividends. 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 purchases 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 Preferred
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).
 
 Note
12- DEBT
 
 As of
March 31, 2010 and December 31, 2009, the Company had debt as
follows:
  As
      of 3/31/2010
                Credit
      Union –Foshan Naihai  Branch
              
              Amount
              
              
              Interest
      rate
              
              DueShort
      term bank loan
              
              $
              1,023,976
              
              
              
              4.50
              %
              Feb
      13 and 14, 2011As
      of 12/31/2009
                Credit
      Union –Foshan Naihai  Branch
              
              Amount
              
              
              Interest
      rate
              
              DueShort
      tem bank loan
              
              $
              380,273
              
              
              
              4.425
              %
              Feb
      13,2010Long
      term bank loan
              
              $
              1,170,070
              
              
              
              4.50
              %
              Feb
      13 and 14, 2011
 
 The
Company is using these loans for working capital purposes and secured by certain
real estate and property insurance.
 
 Note
13 - INCOME
TAXES
 
 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.
 
 F-17
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
13 - INCOME TAXES –
(CONTINUED)
 
 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:March
      31, 2010
              
              United
      States
              
              International
              
              TotalCurrent
              
              $
              -
              
              
              $
              236,486
              
              
              $
              236,4863/31/2009
              
              United
      States
              
              
              International
              
              
              TotalCurrent
              
              $
              -
              
              
              $
              201,527
              
              
              $
              201,527
 
 Note
14– 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 three months ended March 31, 2010 and 2009, rent
expense was $ 137,485  and $ 209,348.  Future payments under
these leases are as follows as of March 31:
 
 2011
              
              $
              52,3392012
              
              $
              52,3392013
              
              $
              52,3392014
              
              $
              18,9032015
              
              $
              13,035Thereafter
              
              $
              31,256Total
              
              $
              220,211
 
 F-18
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
15– 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:
  three
      months ened
                  March
      31,2010
                
                
                2009Basic
      earnings  from continuing operations per share:Numerator:Income
      from operations  used in computing basic earnings  per
      share
                
                $
                (7,320,684
                )
                
                $
                2,181,497Income  from
      operations applicable to common shareholders
                
                $
                (7.320,684
                )
                
                $
                2,181,497Denominator:Weighted
      average common shares outstanding
                
                
                21,286,789
                
                
                
                20,810,713Basic
      earnings per share from continuing operations
                
                $
                (0.34
                )
                
                $
                0.10Diluted
      earnings (losses) per share from  operations:Numerator:Income  from
      operations used in computing diluted earnings  per
      share
                
                $
                (7,320,684
                )
                
                $
                2,181,497Income
      (loss) from  operations applicable to common
      shareholders
                
                $
                (7,320,684
                )
                
                $
                2,181,497Denominator:Weighted
      average common shares outstanding
                
                
                21,286,789
                
                
                
                20.810,713Weighted
      average effect of dilutive securities:Stock
      options and warrants
                
                
                47,953
                
                
                
                -Shares
      used in computing diluted net income  per share
                
                
                21,331,742
                
                
                
                20,810,713Diluted
      earnings  per share from operations
                
                $
                (0.34
                )
                
                $
                0.10
  Note
16 – 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 March 31, 2010 and December 31, 2009, the Company had
allocated $ 1,076,488 and $1,051,089, to these non-distributable reserve
funds.
  F-19
  RONGFU
AQUACULTURE, INC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
31, 2010
 (UNAUDITED)
 
 Note
17- OTHER
COMPREHENSIVE INCOME
 
 Balances
of related after-tax components comprising accumulated other comprehensive
income, included in stockholders’ equity, at March 31, 2010 and December 31,
2009, are as follows:
 
 Foreign
      Currency Translation Adjustment
              
              
              Accumulated
      Other Comprehensive IncomeBalance
      at December 31, 2008
              
              $
              861,166
              
              
              $
              861,166Change
      for 2009
              
              
              5,533
              
              
              
              5,533Balance
      at December 31, 2009
              
              $
              866,699
              
              
              $
              866,699Change
      for three months ended 3/31/2010
              
              
              (3,451
              )
              
              
              (3,451
              )Balance
      at March 31, 2010
              
              $
              863,248
              
              
              
              863,248
 
 Note
18- SUBSEQUENT
EVENTS
 
 For the
three months ended March 31, 2010, the Company has evaluated subsequent events
for potential recognition and disclosure through the date of the financial
statement issuance. Based upon this evaluation management has concluded that
none existed as of March 31, 2010.
 
 F-20




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





The
following discussion and analysis of the consolidated financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and related notes of Rongfu Aquaculture, Inc. appearing
elsewhere in this report. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Actual results may
differ materially from those anticipated in these forward-looking
statements.





Overview





The Company is engaged in commercial
freshwater aquaculture in the PRC. It sells fish and fish fry and also acts as a
freshwater fish dealer (generating trading profits from the purchase of fish
from third party farmers and the immediate sale of such fish to
wholesalers).





During the fiscal year ended December
31, 2009 (“fiscal 2009”)  the Company sold more than 27,000 tons of
adult fish to frozen fish processors and wholesalers in Guangdong Province and
Hainan Province, PRC and sold approximately 360 million fry to distributors,
which in turn sold such fry to other farmers to cultivate.





Approximately 74.0% of the Company’s
revenues for fiscal 2009 were from the sale of adult fish farmed by the Company,
approximately 13.7% of the Company’s 2009 revenues were from the re-sale of fish
purchased by the Company from farmers and approximately 12.3% of the Company’s
2009 revenues were generated from the sale of fish fry. Approximately 67.9% of
the Company’s net income for fiscal 2009 was from the cultivation and sale of
adult fish, approximately 30.3% of the Company’s 2009 net income were from
the breeding, incubation and sale of fish fry and approximately 1.8% of the
Company’s 2009 net income was profit from the Company’s trading of freshwater
adult fish. According to China Agriculture Magazine, the Company is currently
the largest seller of tilapia fry in the PRC and the Company believes that it is
also one of the three largest sellers of adult tilapia in the PRC.





The Company operates 13 adult fish
breeding farms, covering a total area of 8,249 mu Three of the Company’s farms
are located in Hainan Province, two in the town of Wenchang and one in
Nanling. The other 10 farms are located in Guangdong Province in the towns
or villages of Nanhai, Qinyuan, Taishan, Yangdong  and Gaoyao. 9 of
the farms consist of a series of man-made ponds. Each pond is outfitted with one
or more oxygen aeration machines which float on the surface and one or more
feeding machines which provide food to the fish twice per day. The aeration
machines provide oxygen to the fish and enable the natural removal of fish
wastes so that the water does not become toxic for the fish.





4 of the Company’s farms are each
comprised of a single lake created by damming a river. Oxygen aeration equipment
is not needed since the lakes have a much larger area than the ponds dug by the
Company. The land on which the farms are located is leased by the Company from
the village under leases for terms of 4 to 30 years.





In addition to its adult fish breeding
farms, the Company operates a breeding farm in Wenchang, Hainan Province in
which tilapia fry are produced from brood stock.





At its facilities in Nanhai (at which
the Company’s fish clinic is also located) and Wenchang, the Company also has
constructed and maintains concrete tanks where the Company incubates tilapia.
The Company also incubates snakehead and crucian carp fry in its tank in Nanhai.
After the incubation period the Company sells approximately 95% of the fry to
distributors.





Approximately 45.9% of the Company’s
revenues from the sale of Company grown adult fish in fiscal 2009 were from the
sale of tilapia, approximately 21.2% was from the sale of grass carp,
approximately 9.6% was from the sale of snakehead, approximately 8.3% was from
the sale of bighead and the balance of the Company’s revenues from the sale of
adult fish during fiscal 2009 were from sales of other varieties of freshwater
fish, including catfish, bream, black carp and crucian carp.





Approximately 77.6%, 15.9% and 6.5% of
the Company’s revenues during fiscal 2009 from sales of fish fry were from the
sale of tilapia, snakehead and crucian carp fry, respectively. The Company does
not incubate fry of the other adult fish that it cultivates. Rather it purchases
the fry for such fish from distributors.





In conjunction with Professor Sifa Li
and his team from Shanghai Fisheries University, during the period
from 1994 to 2006 the Company developed a strain of Nile tilapia called New Jifu
which has received the approval and recommendation the PRC Ministry of
Agriculture. The Company currently produces approximately 17,000 tons of tilapia
per year, approximately 60% of which is of the New Jifu variety and 40% of which
is oreochromis tilapia.





The Company sells approximately 90% of
its tilapia to the owners of 28 processing plants in Guangdong and
Hainan Provinces. The processors generally require that the tilapia be of a
standard weight of .75 kiligrams. (Because of such weight requirement, the
Company generally sells most of its tilapia in the fourth quarter since the
growing season of approximately 6 months commences in March of each year.)
The processors freeze the tilapia and sell the frozen product for distribution
domestically in China and internationally. The balance of the Company’s tilapia,
as well as all of the other fish the Company sells, is sold under the Company’s
Hengshen brand name to fish brokers located in wholesale markets in
Guangdong Province, Hainan Province, Fujian, Xinjiang Province etc. which
in turn market the fresh fish nationwide in China though other wholesalers or at
retail.




4





Comparison
of three months ended March 31, 2010 and March 31, 2009





The following table presents the
Company’s consolidated net sales for its lines of business for the three months
ended March 31, 2010 and three months ended March 31, 2009,
respectively:




Three Months Ended
      March 31, 2010 and 2009
            
            
            
            
            
            
            
            
            %2010
            
            
            
            2009
            
            ChangeFarm
      growing
            
            $
            7,212,246
            
            
            $
            7,062,036
            
            2.1%Breeding
            
            $
            1,188,523
            
            
            $
            1,069,961
            
            11.1%Trading
            
            $
            1,522,758
            
            
            $
            1,274,431
            
            19.5%Consolidated
            
            $
            9,923,527
            
            
            $
            9,406,428
            
            5.5%




Net sales for the three months ended
March 31, 2010 were $9,923,527, an increase of $517,099 or 5.5%, when compared
to the same period in 2009. Such increase was mainly attributed to the increase
in sales of adult fish purchased by farmers, which increased $248,327, and the
sales of adult fish, which increased $150,210 compared to the same period of
2009 .For the three months ended March 31, 2010, the sales of fish fry
increased $118,562 compared to the same period of the prior year.  Cost of
goods sold for the three months ended March 31, 2010 were $6,719,795, an
increase of $453,050 or 7.2%, when compared to the same sales period of the
prior year, which consisted of an increase of $148,485 for breeding adult fish,
an increase of $218,498 for trading business, and an increase of $86,067 for
breeding fish fry.   Gross profit for the three months ended
March 31, 2010 was $3,203,732, an increase of $64,049 or 2%, when compared to
the same period in 2009. The increase in gross profit  consisted of an
increase of $1,726 for breeding adult fish, an increase of $29,828 for the
Company’s trading business, and an increase of $32,495 for breeding fish fry.
The reason for the increase of gross profit for the three months ended March 31,
2010 was the increase of sales.





Selling, general and administrative
expenses for the three months ended March 31, 2010 were $672,984, a decrease of
$76,478 or 10.2%, when compared to the same period in 2009, mainly attributed to
the decrease of general and administrative expenses of $274,820 for breeding
adult fish and fish fry breeding business due to decreased maintenance and
security fees incurred in the first quarter of 2010.  This decrease in
general and administrative expenses was partially offset by a $198,341 increase
in selling expense in the first quarter of 2010.





For the three months ended March
31, 2010, research and development expenses were $19,836, an increase of $1,001
or 5.3% when compared to the three months ended March 31,
2009.





Income from operations for the three
months ended March 31, 2010 was $2,510,911, an increase of $139,526 or 5.9%,
when compared to the same period in 2009. The main reason for the increase in
income from operations was the increase in sales of adult fish and fish
fry.





Interest income for the three months
ended March 31, 2010 was $2,762, a decrease of $9,085 or 76.7%, when compared to
the same period in 2009, primarily because the Company used a part of its
interest earning funds to pay dividends and income tax of the fourth quarter in
2009, which decreased the Company’s interest income as a
consequence.  Interest expense for the three months ended March 31,
2010 was $17,394, an increase of $17,185 or 8,222.0% due to the increase in the
Company’s short term bank loans, when compared to the same period in
2009.





Income taxes for the three months ended
March 31, 2010 was $236,486, an increase of $34,959, or 17.3%, when compared to
the same period in 2009.  In 2010 more fry was sold and fry was tax
exempt while farmed fish was subject to a 12.5% income tax. Trading revenue from
grown fish was taxed at a rate of 25%. In 2010 more revenue was contributed by
farming and trading and therefore the income taxes was higher than that of
2009.





The Company recorded a loss on fair
value of derivative liability of $4,562,248 for the three months ended March 31,
2010.





Net loss for the three months ended
March 31, 2010 was $2,302,454 as compared to net income of $2,181,497 for the
three months ended March 31, 2009. The $4,483,951 difference is attributable to
the loss of $4,562,248 on fair value of derivative liability in the three months
ended March 31, 2010.





During three months ended March 31,
2010, total assets decreased by $1,293,631, or 11.1%, from $11,629,668 at
December 31, 2009 to $10,336,037 at March 31, 2009.  The majority of
the decrease was in cash and due from shareholders, which decreases were
partially offset by an increase in inventories.




5





During three months ended March 31,
2010, cash decreased by $1,600,214, or 50.1%, to $1,594,034 as compared to
$3,194,248 as of December 31, 2009. This is mainly attributed to the payment of
dividends to shareholders and income tax of the fourth quarter in
2009.





At March 31, 2010, the accounts
receivable balance increased by $2,237,080, or 946.4.9%, from the balance at
December 31, 2009 because there was advance from clients in the fish farming
segment that reduced the accounts receivable for the fiscal year ended
December 31,2009,while there was no advance from clients for the three months
ended March 31, 2010.





At March 31, 2010, due from
shareholders was 0, as compared to due from shareholder of $4,008,659 as of
December 31, 2009. This is attributed to the repayment from shareholders during
the first quarter of 2010.





The Company’s inventory as of March 31,
2010 was $5,159,849, an increase of $2,180,096, or 73.1%, compared to inventory
at December 31, 2009. Inventory mainly consists of adult tilapia, snakehead,
crucian carp and other varieties of freshwater fish. The main reason of the
increase of inventory is the Company increased its breeding capacity in the
three months ended March 31, 2010.





At March 31, 2010 fixed assets was
$377,201, mainly consisting of aerators, feeding machine and other equipments
used in fish farms, representing a decrease of $27,946, or 6.9%, compared to
fixed assets as of December 31, 2009.





At March 31, 2010 biological assets was
$474,349, an increase of $41,541, or 9.6%, compared to biological assets as of
December 31, 2009. The increase in biological assets was due to the Company
purchasing certain breeding fish during the first quarter of
2010.  Biological assets consist of tilapia, snakehead, crucian carp,
yellow catfish and black bass.





At March 31, 2010 construction in
progress were $18,740, as compared to construction in progress of $0 as of
December 31, 2009. The increase was due to the fish equipment built for fish fry
breeding.





At March 31, 2010 accounts payable were
$4,832,916, as compared to accounts payable of $0 as of December 31, 2009. The
increase in accounts payable was due to purchases by the Company of fish food
used in fish farm and fish fry breeding.





At March 31, 2010 other payables were
$255,035, a decrease of $2,488,925, or 90.7%, compared to other payables as of
December 31, 2009. The main item included in other payables is personal income
tax payable, and the high personal income tax payable was due to the dividend
payable in the fiscal year ended December 31, 2009, which was paid in
the first quarter of 2010.





At March 31, 2010 advance from clients
was $0, as compared to the advance from clients of $498,785 as of December 31,
2009. Because goods were distributed to clients in the first quarter of 2010,
there was no advance from clients as of March 31, 2010.





At March 31, 2010 current portion of
bank loan was $1,023,976, as compared to current portion of bank loan of
$380,273 as of December 31, 2009.  Since this loan will be due within a
year, the Company reclassified it as a short-term loan from a
long-term loan.





At March 31, 2010 dividend payable was
$1,023,976, as compared to a dividend payable of $3,466,331 as of December 31,
2009 since the dividend was paid in the three months ended March 31, 2010.





At March 31, 2010 income tax payable
was $236,483, a decrease of $758,830, or 76.2%, compared to income tax payable
as of December 31, 2009. This is mainly because the fourth quarter is the peak
season of sales normally, and therefore the income tax for the three months
ended March 31, 2010 is lower than the income tax for the whole 2009 fiscal
year.





Liquidity
and Capital Resources





The Company has typically financed its
operations and expansion from cash flows from operations and loans from our
shareholders and banks. We consummated the reverse merger transaction and raise
approximately $7.7 million in gross proceeds in a private placement financing on
March 29, 2010.





Nanhai Ke Da Heng Sheng has entered
into two credit line agreements with Foshan Nanhai Allied Rural Credit Union
Danzhao Credit Association, one with a credit line of RMB 5,000,000
(approximately $735,000 based on the conversion rate as of June 30, 2010) and
the other with a credit line of RMB 14,800,000 000 (approximately $2,175,600
based on the conversion rate as of June 30, 2010). The credit lines are secured
by real estate owned by the sister-in-law of Chen Zhisheng, our Chairman of the
Board.. As of March 29, 2010, an aggregate principal amount of RMB 9,400,000
(approximately $1,382,000 based on the conversion rate as of June 30, 2010) of
loans were outstanding under the two credit lines. The outstanding loans are all
due in January 2011. Outstanding loans under the credit lines bear interest at a
rate of 5.4% per year. Interest is payable monthly.




6





Item
3. Quantitative and Qualitative Disclosure About Market Risk





Not applicable.





Item
4. Controls and Procedures.




Disclosure
Controls and Procedures




The Company’s management, with
participation of the Company’s Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company’s disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the
end of the period covered by this report. The term “disclosure controls and
procedures” as defined in Rules 13a-15(e) and 15d-15(e) means controls and other
procedures of the Company that are designed to ensure that information required
to be disclosed by a company in reports, such as this report, that it files, or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the U.S. Securities and Exchange
Commission’s (“SEC”) rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
company’s management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on that evaluation, management concluded that, as of March 31, 2010, the
Company’s disclosure controls and procedures were effective at that reasonable
assurance level to satisfy the objectives for which they are
intended.





Changes
in Internal Control over Financial Reporting





On March 29, 2010 the Company completed
the acquisition of Rongfu Aquaculture, Inc. (“Rongfu”) pursuant to a share
exchange agreement. The acquisition was accounted for as a recapitalization
effected by a share exchange. Rongfu is considered the acquirer for accounting
and financial reporting purposes.  Prior to the acquisition the Company was
a shell company. Management is evaluating the Company’s internal control over
financial reporting in connection with the transition of the Company to one with
significant operations as a result of the acquisition.




PART
II - OTHER INFORMATION




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





On March 29, 2010, we entered into a
Share Exchange Agreement with Rongfu,, certain stockholders and warrantholders
of Rongfu (the “Rongfu Stockholders”) and Janet Gargiulo, a stockholder of
Granto, Inc (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, Janet Gargiulo agreed to and did cancel 1,150,000 of the
1,200,000 shares of Granto, Inc. Common Stock held by her. In connection with
the Share Exchange Agreement we also issued to three persons an aggregate of
1,662,900 for services rendered in connection with the Share Exchange Agreement.
All of the shares of Common Stock referred to in this paragraph were issued
under exemptions from the registration provisions of the Securities Act of 1933,
as amended (the “Securities Act”), pursuant to Section 4(2) of the Securities
Act or were not subject to the registration provisions of the Securities Act
pursuant to Regulation S promulgated under the Securities Act.





On March 29, 2010 we entered into and
consummated a Series A Preferred Stock Purchase Agreement (the “Purchase
Agreement”) with 18 investors pursuant to which the investors agreed to and did
purchase for an aggregate of $7.7 million an aggregate of (a) 2,768,721 shares
of our Series A Preferred Stock, (b) five year warrants (“Series A Warrants”) to
purchase an aggregate of 1,730,451 shares of our Common Stock for $3.47 per
share and (c) five year warrants (“Series B Warrants”) to purchase an aggregate
of 1,730,451 shares of our Common Stock for $4.17 per share. All of the shares
of Common Stock referred to in this paragraph were issued under exemptions from
the registration provisions of the Securities Act pursuant to Section 4(2) of
the Securities Act. The net proceeds of the sale of the securities will be used
by us for working capital.




Item
6. Exhibits





(a)
            Exhibits




31.1 -
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.


31.2 -
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.


32.1 -
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.


32.2 -
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.




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SIGNATURES





Pursuant
to the requirements of the Securities Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned there unto duly
authorized.




RONGFU
      AQUACULTURE, INC.Date:
      August 13, 2010
              By:
              /s/
      Kelvin ChanKelvin
      ChanChief
      Executive Officer




8




INDEX TO
EXHIBITS




EXHIBIT
                              NUMBER
                            
                            DESCRIPTION31.1
                            
                            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
                            
                            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
                            
                            Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.32.2
                            
                            Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of
2002.





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