UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(MARK
ONE)




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2010.





o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE TRANSITION PERIOD FROM ________ TO
  __________





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 Nox




The
number of shares of Common Stock of the Registrant, par value $.001 per share,
outstanding on June 30, 2010 was 21,286,789.











RONGFU
AQUACULTURE, INC.





INDEX
TO JUNE 30, 2010 FORM 10-Q




Page
                NumberPart
      I - Financial Information
              
              3Item
      1 - Financial Statements
              
              F-1Report
      of Independent Registered Public Accounting Firm
              
              F-1Consolidated
      Balance Sheets as of June 30, 2010 (unaudited) and December 31,
      2009(Audited)
              
              F-2Consolidated
      Statements of Income for the Three Months and Six Months ended June 30,
      2010 and 2009 (unaudited)
              
              F-3Consolidated
      Statements of Cash Flows for the Three Months ended June 30, 2010 and 2009
      (unaudited)
              
              F-4Consolidated
      Statements of Stockholders’ Equity for the Six Months Ended June 30,
      2010 and the Year Ended December 31, 2009
              
              F-5Notes
      to the Consolidated Financial Statements (unaudited)
              
              F-6-16Item
      2 - Management's Discussion and Analysis of Results of Operations and
      Financial Condition
              
              4Item
      4 - Controls and Procedures
              
              12Part
      II - Other Information
              
              12Item
      2 - Unregistered Sales of Equity Securities and Use of
      Proceeds
              
              12Item
      6 - Exhibits
              
              12Signature
      Page
              
              13


2




PART
I - FINANCIAL INFORMATION





FORWARD-LOOKING
STATEMENTS





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




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





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


3





Item
1. Financial Statements




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


517
      Route one
            1
      Penn PlazaIselin,
      New Jersey, 08830
            36th  Floor732.855.9600
            New
      York, NY 10119





Report of
Independent Registered Public Accounting Firm





Board of
Directors and Stockholders of


Rongfu
Aquaculture, Inc.




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




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




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




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





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





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





Certified
Public Accountants





New York,
N.Y.


August
23 , 2010




F-1




RONGFU
AQUACULTURE, INC


CONSOLIDATED
BALANCE SHEETS


AS
OF JUNE 30, 2010 AND DECEMBER 31, 2009





6/30/2010
                
                
                12/31/2009(Unaudited)
                
                
                (Audited)ASSETSCurrent
      AssetsCash
                
                $
                7,125,477
                
                
                $
                3,194,248Accounts
      receivable
                
                
                2,043,325
                
                
                
                236,374Inventories
                
                
                8,987,628
                
                
                
                2,979,753Due
      from shareholders
                
                
                -
                
                
                
                4,008,659Other
      receivable
                
                
                27,149
                
                
                
                21,208Trade
      deposit
                
                
                -
                
                
                
                121,224Prepaid
      expenses
                
                
                679,301
                
                
                
                230,247Total
      Current Assets
                
                
                18,862,880
                
                
                
                10,791,713Fixed
      assets
                
                
                905,285
                
                
                
                405,147Biological
      assets
                
                
                366,200
                
                
                
                432,808Total
      Assets
                
                $
                20,134,365
                
                
                $
                11,629,668LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable
                
                $
                5,361,607
                
                
                $
                -Other
      payable
                
                
                264,575
                
                
                
                2,743,960Advance
      from clients
                
                
                -
                
                
                
                498,785Short-term
      bank loan
                
                
                -
                
                
                
                380,273Dividend
      payable
                
                
                -
                
                
                
                3,466,331Income
      tax payable
                
                
                251,866
                
                
                
                -Derivative
      liability
                
                
                8,575,785
                
                
                
                -Total
      Current liabilities
                
                
                14,453,833
                
                
                
                8,084,662Long-term
      bank loan
                
                
                -
                
                
                
                1,170,070Total
      liabilities
                
                
                14,453,833
                
                
                
                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 June 30, 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 June 30, 2010
                
                
                2,769
                
                
                
                -Additional
      paid in capital
                
                
                8,561,235
                
                
                
                796,621Subscription
      receivables
                
                
                -
                
                
                
                -Statutory
      reserve
                
                
                1,076,310
                
                
                
                1,051,089Other
      comprehensive income
                
                
                768,203
                
                
                
                866,699Retained
      earnings
                
                
                (4,749,272
                )
                
                
                (360,284
                )Total
      Stockholders' Equity
                
                
                5,680,532
                
                
                
                2,374,936Total
      Liabilities and Stockholders' Equity
                
                $
                20,134,365
                
                
                $
                11,629,668





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


F-2




RONGFU,
INC.


CONSOLIDATED
STATEMENTS OF INCOME


(UNAUDITED)





Six Months Ended June 30,
                    
                    
                    Three Months Ended June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)Revenue,
      net
                    
                    $
                    22,553,424
                    
                    
                    $
                    16,968,277
                    
                    
                    $
                    12,629,897
                    
                    
                    $
                    7,561,849Cost
      of goods sold
                    
                    
                    14,446,385
                    
                    
                    
                    10,188,007
                    
                    
                    
                    7,726,590
                    
                    
                    
                    3,921,262Gross
      profit
                    
                    
                    8,107,039
                    
                    
                    
                    6,780,270
                    
                    
                    
                    4,903,307
                    
                    
                    
                    3,640,587Operating
      expenses:Selling
      expenses
                    
                    
                    841,731
                    
                    
                    
                    290,081
                    
                    
                    
                    555,799
                    
                    
                    
                    202,490General
      and administrative expenses
                    
                    
                    747,403
                    
                    
                    
                    1,075,070
                    
                    
                    
                    360,352
                    
                    
                    
                    413,198Research
      and development cost
                    
                    
                    38,643
                    
                    
                    
                    35,142
                    
                    
                    
                    18,807
                    
                    
                    
                    16,307Total
      operating expenses
                    
                    
                    1,627,777
                    
                    
                    
                    1,400,293
                    
                    
                    
                    934,958
                    
                    
                    
                    631,995Net
      income (loss) from operations
                    
                    
                    6,479,262
                    
                    
                    
                    5,379,977
                    
                    
                    
                    3,968,349
                    
                    
                    
                    3,008,592Other
      income (expenses)Loss
      on Fair value of derivative liability
                    
                    
                    (5,307,988
                    )
                    
                    
                    -
                    
                    
                    
                    (745,740
                    )
                    
                    
                    -Interest
      income
                    
                    
                    6,614
                    
                    
                    
                    20,840
                    
                    
                    
                    3,852
                    
                    
                    
                    8,993Interest
      expense
                    
                    
                    (34,841
                    )
                    
                    
                    (450
                    )
                    
                    
                    (17,447
                    )
                    
                    
                    (241
                    )Total
      other (expenses) income
                    
                    
                    (5,336,215
                    )
                    
                    
                    20,390
                    
                    
                    
                    (759,335
                    )
                    
                    
                    8,751Net
      income before income taxes
                    
                    
                    1,143,047
                    
                    
                    
                    5,400,367
                    
                    
                    
                    3,209,014
                    
                    
                    
                    3,017,343Income
      taxes
                    
                    
                    488,584
                    
                    
                    
                    378,905
                    
                    
                    
                    252,098
                    
                    
                    
                    177,378Net
      (loss) income
                    
                    
                    654,463
                    
                    
                    
                    5,021,462
                    
                    
                    
                    2,956,916
                    
                    
                    
                    2,839,965Deemed
      dividend from beneficial conversion feature ofSeries
      A preferred stock
                    
                    
                    (4,374,579
                    )
                    
                    
                    -Dividends
      paid or declared
                    
                    
                    (643,651
                    )Net
      income (loss) available to common shareholders
                    
                    
                    (4,363,767
                    )
                    
                    
                    5,021,462
                    
                    
                    
                    2,956,916
                    
                    
                    
                    2,839,965Net
      income for common shareEarnings
      per share – Basic
                    
                    
                    (0.21
                    )
                    
                    
                    0.24
                    
                    
                    
                    0.14
                    
                    
                    
                    0.14Earnings
      per share – Diluted
                    
                    
                    (0.21
                    )
                    
                    
                    0.24
                    
                    
                    
                    0.14
                    
                    
                    
                    0.14Weighted
      average common shares outstandingBasic
                    
                    
                    21,286,789
                    
                    
                    
                    20,810,713
                    
                    
                    
                    21,286,789
                    
                    
                    
                    20,810,713Diluted
                    
                    
                    21,286,789
                    
                    
                    
                    20,810,713
                    
                    
                    
                    21,286,789
                    
                    
                    
                    20,810,713Net
      income
                    
                    $
                    654,463
                    
                    
                    $
                    5,021,462
                    
                    
                    $
                    2,956,916
                    
                    
                    $
                    2,839,965Other
      comprehensive income (loss)
                    
                    
                    (98,496
                    )
                    
                    
                    (177,809
                    )
                    
                    
                    (95,045
                    )
                    
                    
                    (179,891
                    )Comprehensive
      income (loss)
                    
                    $
                    555,967
                    
                    
                    $
                    4,843,653
                    
                    
                    $
                    2,861,871
                    
                    
                    $
                    2,660,074





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


F-3




RONGFU
AQUACULTURE INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED JUNE 30, 2010 AND 2009


(UNAUDITED)





2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income
                
                $
                654,463
                
                
                $
                5,021,462Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                
                
                54,726
                
                
                
                54,369Amortization
      of biological assets
                
                
                231,601
                
                
                
                204,339Change
      in Derivative liability value
                
                
                5,307,988
                
                
                
                -(Increase)
      / decrease in assets:Accounts
      receivables
                
                
                (1,800,409
                )
                
                
                3,145,234Inventories
                
                
                (5,971,204
                )
                
                
                1,018,118Prepaid
      expense and other receivables
                
                
                (434,732
                )
                
                
                67,534Trade
      deposit
                
                
                121,718
                
                
                
                -Due
      from shareholder
                
                
                4,024,965
                
                
                
                (1,461,298
                )Increase
      / (decrease) in current liabilities:Accounts
      payable
                
                
                5,346,962
                
                
                
                536,363Other
      payable
                
                
                (2,499,717
                )
                
                
                462,675Advances
      from clients
                
                
                (500,814
                )
                
                
                -Income
      taxes payable
                
                
                (748,185
                )
                
                
                (52,193
                )Net
      cash provided by operating activities
                
                
                3,787,362
                
                
                
                8,996,603CASH
      FLOWS FROM INVESTING ACTIVITIESPurchased
      fixed assets
                
                
                (554,863
                )
                
                
                (69,175
                )Biological
      assets
                
                
                (164,993
                )
                
                
                -Net
      cash used by investing activities
                
                
                (719,856
                )
                
                
                (69,175
                )CASH
      FLOWS FROM FINANCING ACTIVITIESDue
      to shareholder
                
                
                -
                
                
                
                (8,517,615
                )Borrowings
      (payment) of short-term loan, net
                
                
                (381,870
                )
                
                
                730,649Borrowings
      (payment) of long-term bank loan
                
                
                (1,174,985
                )
                
                
                1,753,558Dividend
      paid
                
                
                (4,110,591
                )
                
                
                (14,024,570
                )Proceeds
      from issuance of preferred stock
                
                
                6,561,077
                
                
                
                -Net
      cash used by financing activities
                
                
                893,631
                
                
                
                (20,057,978
                )Effect
      of exchange rate changes on cash and cash equivalents
                
                
                (29,908)
                
                
                
                (553,287
                )Net
      change in cash and cash equivalents
                
                
                3,931,229
                
                
                
                (11,683,837
                )Cash
      and cash equivalents, beginning balance
                
                
                3,194,248
                
                
                
                14,823,476Cash
      and cash equivalents, ending balance
                
                $
                7,125,477
                
                
                $
                3,139,639SUPPLEMENTAL
      DISCLOSURES:Cash
      paid during the year for:Income
      tax payments
                
                $
                1,236,768
                
                
                $
                981,540Interest
      payments
                
                $
                34,841
                
                
                $
                450





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


F-4




RONGFU
AQUACULTURE, INC.


CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY


FOR
THE SIX MONTHS ENDED JUNE 30, 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
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    20,810,713
                    
                    
                    $
                    20,811
                    
                    
                    $
                    796,621
                    
                    
                    $
                    866,699
                    
                    
                    $
                    1,051,089
                    
                    
                    $
                    (360,284
                    )
                    
                    $
                    2,374,936Foreign
      currency translation adjustments
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (98,496)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (98,496)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
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    25,221
                    
                    
                    
                    (25,221
                    )
                    
                    
                    -Deemed dividend
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    4,374,579
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (4,374,579
                    )
                    
                    
                    -Income
      for the six months ended June 30,2010
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    654,463
                    
                    
                    
                    654,463Balance
      June 30, 2010
                    
                    
                    2,768,721
                    
                    
                    $
                    2,769
                    
                    
                    
                    21,286,789
                    
                    
                    $
                    21,287
                    
                    
                    $
                    8,561,235
                    
                    
                    $
                    768,203
                    
                    
                    $
                    1,076,310
                    
                    
                    $
                    (4,,749,272
                    )
                    
                    $
                    5,680,532Balance
      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


JUNE
30, 2010


(UNAUDITED)





Note
1 - ORGANIZATION





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





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.





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




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





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


F-6




RONGFU
AQUACULTURE, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(UNAUDITED)





Note
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis of
Presentation





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




Principles
of Consolidation





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





Translation
Adjustment





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





Statement
of Cash Flows





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





Use of
Estimates




The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.





Comprehensive
Income




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





Use of
Estimates




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.


F-7




RONGFU
AQUACULTURE, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(UNAUDITED)





Note
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





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 June 30, 2010 and December 31,
2009.




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





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





Cash and
Cash Equivalents





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





Accounts
Receivable




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


F-8




RONGFU
AQUACULTURE, INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(UNAUDITED)





Note
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Inventories




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




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





Property,
Plant & Equipment




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





Buildings
              10-20
      yearsFishing
      gear
              5-10 yearsTransportation
      equipment
              5-10
      yearsOffice
      equipment
              3-5
      years




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





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





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




Long-Lived
Assets




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


F-9




RONGFU
AQUACULTURE, INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 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.





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





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





Fair
Value of Financial Instruments




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




Revenue
Recognition




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





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





Fish
breeding





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





Fish
growing





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





Fish
trading





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





Research
and development cost





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


F-10


RONGFU
AQUACULTURE, INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(UNAUDITED)





Note
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Advertising





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




Shipping
and handling fees





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





Income
Taxes





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




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





Concentration
of Credit Risk





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





Note
3 –OTHER RECEIVABLES





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


F-11


RONGFU
AQUACULTURE, INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(UNAUDITED)





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





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





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





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





Note
5 – RELATED PARTIES




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





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





Note
6 – DUE FROM/TO SHAREHOLDER





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





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




Note 7–CONCENTRATIONS





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


F-12


RONGFU
AQUACULTURE, INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(UNAUDITED)




Note
8 – COMPENSATED ABSENCES





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





Note
9 – COMMON STOCK




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





Note
10 – SERIES A CONVERTIBLE PREFERRED STOCK





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





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





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





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





AggregateExercise
                    
                    Remaining
                    
                    IntrinsicTotal
                    
                    
                    Price
                    
                    Life
                    
                    ValueOutstanding,
      December 31, 2009
                    
                    
                    -Granted
      in 2010
                    
                    
                    4,127,568
                    
                    
                    $
                    2.44-4.17
                    
                    4.75
      yearsExercised
      in 2010Outstanding,
      March 31, 2010
                    
                    
                    4,127,568


F-13


RONGFU
AQUACULTURE, INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(UNAUDITED)


Note
11 - 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.




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




The
following is a reconciliation of income tax expense:


June
      30, 2010
                            
                            International
                            
                            
                            TotalCurrent
                            
                            $
                            488,584
                            
                            
                            $
                            488,584June
      30, 2009
                            
                            International
                            
                            
                            TotalCurrent
                            
                            $
                            378,950
                            
                            
                            $
                            378,950





Note
12– COMMITMENTS & CONTINGENCIES





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





2011
                  
                  $
                  52,3392012
                  
                  $
                  52,3392013
                  
                  $
                  52,3392014
                  
                  $
                  18,9032015
                  
                  $
                  13,035Thereafter
                  
                  $
                  31,256Total
                  
                  $
                  220,211


F-14


RONGFU
AQUACULTURE, INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(UNAUDITED)


Note
13– EARNINGS PER SHARE





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




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


Six
      months ended June 30,2010
                                
                                
                                2009Basic
      earnings from continuing operations per share:Numerator:Income
      from operations  used in computing basic earnings per
      share
                                
                                $
                                (4,466,576
                                )
                                
                                $
                                5,021,462Income
      from operations applicable to common shareholders
                                
                                $
                                (4,466,577
                                )
                                
                                $
                                5,021,462Denominator:Weighted
      average common shares outstanding
                                
                                
                                21,286,789
                                
                                
                                
                                20,810,713Basic
      earnings per share from continuing operations
                                
                                $
                                (0.21
                                )
                                
                                $
                                0.24Diluted
      earnings (losses) per share from operations:Numerator:Income
      from operations used in computing diluted earnings per
    share
                                
                                $
                                (4,446,576
                                )
                                
                                $
                                5,021,462Income
      (loss) from operations applicable to common shareholders
                                
                                $
                                (4,446,576
                                )
                                
                                $
                                5,021,462Denominator:Weighted
      average common shares outstanding
                                
                                
                                21,286,789
                                
                                
                                
                                20.810,713Weighted
      average effect of dilutive securities:Stock
      options and warrants
                                
                                
                                -
                                
                                
                                
                                -Shares
      used in computing diluted net income per share
                                
                                
                                21,286,789
                                
                                
                                
                                20,810,713Diluted
      earnings per share from operations
                                
                                $
                                (0.21
                                )
                                
                                $
                                0.24




Note14–STATUTORY
RESERVE





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


F-15


RONGFU
AQUACULTURE, INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(UNAUDITED)





Note
15- OTHER COMPREHENSIVE INCOME





Balances
of related after-tax components comprising accumulated other comprehensive
income, included in stockholders’ equity, at June 30, 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 six months ended 6/30/2010
                  
                  
                  (98,496)
                  
                  
                  
                  (98,496)Balance
      at June 30, 2010
                  
                  $
                  768,203
                  
                  
                  
                  768,203





Note
16- SUBSEQUENT EVENTS




For the
six months ended June 30, 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 June 30, 2010.


F-16


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.


4


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.


5


Comparison
of three months ended June 30, 2010 and June 30, 2009





The
following table presents the Company’s consolidated net sales for its lines of
business for the three months ended June 30, 2010 and three months ended June
30, 2009, respectively:




Three Months Ended
      June 30, 2010 and 2009
                          
                          
                          
                          
                          
                          
                          
                          %2010
                          
                          
                          2009
                          
                          
                          ChangeFarm
      growing
                          
                          $
                          6,803,184
                          
                          
                          $
                          4,114,201
                          
                          
                          
                          65
                          %Breeding
                          
                          $
                          2,799,043
                          
                          
                          $
                          2,462,782
                          
                          
                          
                          14
                          %Trading
                          
                          $
                          3,027,670
                          
                          
                          $
                          984,866
                          
                          
                          
                          207
                          %Consolidated
                          
                          $
                          12,629,897
                          
                          
                          $
                          7,561,849
                          
                          
                          
                          67
                          %




Net sales
for the three months ended June 30, 2010 were $12,629,897, an increase of
$5,068,048 or 67%, when compared to the same period in 2009. Such increase was
mainly attributed to the increase in sales of the trading business of adult
fish, particularly snakehead which increased $2.1 million, and the farm
growing of adult fish, particularly black fish, which increased $2.7 million
compared to the same period of 2009 .For the three months ended June
30, 2010, the sales of fish fry increased $336,260 compared to the same period
of the prior year.





Cost of
goods sold for the three months ended June 30, 2010 were $7,726,590 an increase
of $3,805,328 or 97%, when compared to the same sales period of the prior year,
which consisted of an increase of $2,202,850 for breeding adult fish and an
increase of $1,813,881 for the trading business, offset by a decrease of $31,359
for breeding fish fry.





Gross
profit for the three months ended June 30, 2010 was $4,903,307, an increase of
$1,262,720 or 35%, when compared to the same period in 2009. The increase in
gross profit  comprised of an increase of $666,177 for breeding adult
fish, an increase of $228,924 for the Company’s trading business and an increase
of $367,619 for breeding fish fry. The reason for the increase of gross profit
for the three months ended June 30, 2010 was the increase in sales.





Selling,
general and administrative expenses for the three months ended June 30, 2010
were $916,151, an increase of $300,463 or 49%, when compared to the same period
in 2009, mainly attributed to the increase of selling expenses of $353,309
relating to the increase in sales and the increase in general and administrative
expenses of $76,962 mainly due to increase in professional fees associated with
the public company in second quarter in fiscal year 2010.





Research
and development expenses for the three months ended June 30, 2010 were $18,807,
an increase of $2,500 or 15%, when compared with $16,307 in the same period in
2009.





Income
from operations for the three months ended June 30, 2010 was $3,968,349, an
increase of $959,757 or 32%, 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 breeding and fish fry.





Interest
income for the three months ended June 30, 2010 was $3,852, a decrease of $5,141
or 57%, 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 in the
fourth quarter in 2009, which decreased the Company’s interest income as a
consequence.  Interest expense for the three months ended June 30,
2010 was $17,447, an increase of $17,656 due to the increase in the Company’s
short term bank loans, when compared to the same period in
2009.


6


Income
taxes for the three months ended June 30, 2010 was $252,098, an increase of
$74,720, or 42%, 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 were higher than that of 2009.





The
Company recorded a loss on fair value of derivative liability of  $
745,740  for the three months ended June 30 , 2010.





Net
income for the three months ended June 30, 2010 was $2,956,916 as compared to
net income of $2,839,965 for the three months ended June 30, 2009 mainly due to
the non-cash item of loss on fair value of derivative liability of $745,740 in
the second quarter in fiscal year 2010.





Comparison
of six months ended June 30, 2010 and June 30, 2009





The
following table presents the Company’s consolidated net sales for its lines of
business for the six months ended June 30, 2010 and six months ended June 30,
2009, respectively:




Six Months Ended
      June 30, 2010 and 2009
                          
                          
                          
                          
                          
                          
                          
                          %2010
                          
                          
                          2009
                          
                          
                          ChangeFarm
      growing
                          
                          $
                          14,015,430
                          
                          
                          $
                          11,176,237
                          
                          
                          
                          25
                          %Breeding
                          
                          $
                          3,987,566
                          
                          
                          $
                          3,532,743
                          
                          
                          
                          13
                          %Trading
                          
                          $
                          4,550,428
                          
                          
                          $
                          2,259,297
                          
                          
                          
                          101
                          %Consolidated
                          
                          $
                          22,553,424
                          
                          
                          $
                          16,968,277
                          
                          
                          
                          33
                          %




Net sales
for the six months ended June 30, 2010 were $22,553,424, an increase of
$5,585,147 or 33%, 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 $2,291,131, and the sales of adult fish, which increased
$2,839,193 compared to the same period of 2009 .For the
six months ended June 30, 2010, the sales of fish fry increased
$454,822 compared to the same period of the prior year.





Cost of
goods sold for the six months ended June 30, 2010 were $14,446,385, an increase
of $4,258,378 or 42%, when compared to the same sales period of the prior year,
which consisted of an increase of $2,171,290 for breeding adult fish, an
increase of $2,032,380 for trading business, and an increase of $54,708 for
breeding fish fry.





Gross
profit for the six months ended June 30, 2010 was $8,107,039, an increase of
$1,326,769 or 20%, when compared to the same period in 2009. The increase in
gross profit comprised of an increase of $667,903 for breeding adult fish,
an increase of $258,751 for the Company’s trading business, and an increase of
$400,115 for breeding fish fry. The reason for the increase of gross profit for
the six months ended June 30, 2010 was the increase in sales.





Selling,
general and administrative expenses for the six months ended June 30, 2010 were
$1,589,134, an increase of $223,983 or 16%, when compared to the same period in
2009, mainly attributed to the increase of selling expenses of $551,650 for
expansion of business.  The increase in selling expenses was offset by
a decrease in general and administrative expenses by $327,667.





Income
from operations for the six months ended June 30, 2010 was $6,479,262, an
increase of $1,099,285 or 20%, 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 six months ended June 30, 2010 was $6,614, a decrease of $14,226
or 68%, 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 six months ended June 30, 2010
was $34,841, an increase of $34,841 due to the increase in the Company’s short
term bank loans, when compared to the same period in 2009.


7


Income
taxes for the six months ended June 30, 2010 were $488,584, an increase of
$109,679, or 29%, 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 were higher than that of 2009.





The
Company recorded a loss on fair value of derivative liability of $5,307,988 for
the six months ended June 30, 2010.





Net
income for the six months ended June 30, 2010 was $654,463 as compared to net
income of $5,021,462 for the six months ended June 30, 2009. The $4,366,999
difference is attributable to the loss of $5,307,988 on fair value of derivative
liability offset by the improvement in net income from operations in the six
months ended June 30, 2010.





During
the six months ended June 30, 2010, total assets increased by $8,504,697, or
73%, from $11,629,668 at December 31, 2009 to $20,134,365 at June 30,
2010.  The majority of the increase was in cash, accounts receivable
and inventories, which was partially offset by a decrease in amount due
from shareholders.





During
the six months ended June 30, 2010, cash increased by $3,931,229, or 123%, to
$7,125,477 as compared to $3,194,248 as of December 31, 2009. This is mainly
attributed to the funding from investors of net proceeds amounting to $6,561,077
in second quarter this year, offset by the increase in inventories, payment of
dividends to shareholders in 2009.





At June
30, 2010, the accounts receivable balance increased by $1,806,951, or 764%, from
the balance at December 31, 2009 because there were advances 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 six months ended June 30, 2010.





At June
30, 2010, there were no amounts due from shareholders, as compared to due
from shareholders 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 June 30, 2010 was $8,987,628, an increase of
$6,007,875, or 202%, compared to inventory at December 31, 2009. Inventories
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 six months ended June 30,
2010.





At June
30, 2010 fixed assets was $905,285, mainly consisting of aerators, feeding
machine and other equipments used in fish farms, representing an increase of
$500,138, or 123%, compared to fixed assets as of December 31,
2009.





At June
30, 2010 biological assets was $366,200, a decrease of $66,608, or 15%, compared
to biological assets as of December 31, 2009. The increase in biological assets
was due to the amortization for the six months in 2010, offset by the
procurement of certain breeding fish during the 2010.  Biological
assets consist of tilapia, snakehead, crucian carp, yellow catfish and
black bass.


8





At June
30, 2010 accounts payable were $5,361,607, as compared to $0 as of December 31,
2009. The increase in accounts payable was due to the procurement of fish food
used in fish farm and fish fry breeding.





At June
30, 2010 other payables were $264,575, a decrease of $2,479,385, or 90%,
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 June
30, 2010, there was no advance from clients, 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 June
30, 2010, there was no bank loan, as compared to current portion of bank loan of
$380,273 as of December 31, 2009.  The loan was fully repaid in the first
half year ended June 30, 2010.





At June
30, 2010, there was no dividend payable, as compared to a dividend payable of
$3,466,331 as of December 31, 2009 since the dividend was fully paid in the six
months ended June 30, 2010.




At June
30, 2010 income tax payable was $251,866, a decrease of $743,447, or 75%,
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 six months ended June 30, 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 its shareholders and banks. The Company consummated a
reverse merger transaction and raised 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 (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 Zhishen, our
Chairman of the Board.  As of March 29, 2010, an aggregate principal
amount of RMB 9,400,000 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


9


Critical
Accounting Policies and Estimates





Management's
discussion and analysis of its financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
Our financial statements reflect the selection and application of accounting
policies which require management to make significant estimates and judgments.
See note 3 to our consolidated financial statements, "Summary of Significant
Accounting Policies." Management bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. We believe that the following reflect the more
critical accounting policies that currently affect our financial condition and
results of operations.





Inventories





Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market, if lower.





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 U.S.
Accordingly no domestic deferred income tax provision has been made for U.S.
income tax which could result from paying dividends to the Company.





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.


10


Revenue
Recognition





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





Off-Balance
Sheet Arrangements





The
Company does not have any off-balance sheet arrangements.


11


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, the Company’s disclosure controls and
procedures were effective at that reasonable assurance level as of June 30,
2010, to satisfy the objectives for which they are intended.





Changes
in Internal Control over Financial Reporting





There
have not been any changes in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) under the Exchange Act) during our most
recently completed fiscal quarter which is the subject of this report that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.




PART
II - OTHER INFORMATION




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





The
Company did not sell any of its securities during the three months ended June
30, 2010.




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 23, 2010
                BY:
                /s/
      Kelvin ChanKelvin
      ChanChief
      Executive OfficerDate:
      August 23, 2010
                BY:
                /s/ Keith
      HorKeith
      HorChief
      Financial Officer




13


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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