Granto, Inc. - FORM 10-Q/A - December 29, 2010

Attached files

file	filename
EX-31.1 - Granto, Inc.	v206493_ex31-1.htm
EX-32.1 - Granto, Inc.	v206493_ex32-1.htm
EX-32.2 - Granto, Inc.	v206493_ex32-2.htm
EX-31.2 - Granto, Inc.	v206493_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(MARK ONE)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2010.

¨	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

Guangzhou 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 ¨

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 ¨ No ¨

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

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

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

The number of shares of Common Stock of the Registrant, par value $.001 per share, outstanding on March 31, 2010 was 21,286,789.

EXPLANATORY NOTE

This Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 which was filed with the Securities and Exchange Commission (the “SEC”) on May 28, 2010 (the “Original Filing”) is being filed to include in an amended Item 1. Financial Statements, restated financial statements as described in Note 18 to the accompanying consolidated financial statements. This Form 10-Q/A also amends the following items in the Original Filing to reflect the changes in accounting treatment:

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

Part I, Item 4. Controls and Procedures

Part II, Item 6. Exhibits

Other than as described above, none of the other disclosures in the Original Filing have been amended or updated. Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the Original Filing, and such forward-looking statements should be read in their historical context. Accordingly, this Annual Report on Form 10-Q/A should be read in conjunction with the Company’s filings with the SEC subsequent to the Original Filing.

We are also contemporaneously filing with the SEC an Amendment No. 2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 which was filed with the SEC on August 23, 2010 to include in an amended Item 1. Financial Statements, restated financial statements as described in Note 17 to those restated financial statements as well as amendments to Items 2, 4 and 6 of such Quarterly Report.

RONGFU AQUACULTURE, INC.

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

		Page Number
Part I - Financial Information		F-1

Item 1 - Financial Statements		F-1

Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009 (restated)		F-1

Consolidated Statements of Income and Comprehensive Income for the Three Months ended March 31, 2010 and 2009 (unaudited and restated)		F-2

Consolidated Statements of Cash Flows for the Three Months ended March 31, 2010 (unaudited and restated) and 2009 (unaudited)		F-3

Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2010 and the Year Ended December 31, 2009 (restated)		F-4

Notes to the Consolidated Financial Statements (unaudited and restated)		F-5

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

Item 3 – Quantitative and Qualitative Disclosures About Market Risk		8

Item 4 - Controls and Procedures		8

Part II - Other Information		9

Item 6 - Exhibits		9

Signature Page		10

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/A 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

RONGFU AQUACULTURE, INC.

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2010 AND DECEMBER 31, 2009

	3/31/2010			12/31/2009
	(unaudited and restated)			(audited & restated)
ASSETS
Current Assets
Cash	$	1,594,034		$	3,194,248
Accounts receivable		2,473,454			236,374
Inventories		5,159,849			2,979,753
Due from shareholders		-			4,008,659
Other receivable		21,211			21,208
Trade deposit		-			121,224
Prepaid expenses		217,199			230,247
Financial receivable		6,561,077			-
Escrow account		100,000			-
Total Current Assets		16,126,824			10,791,713
Fixed assets		395,941			405,147
Biological assets		474,349			432,808
Total Assets	$	16,997,114		$	11,629,668
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	4,832,915		$	-
Other payable		255,035			2,743,960
Advance from clients		-			498,785
Short-term bank loan		1,023,976			380,273
Dividend payable		-			3,466,331
Income tax payable		236,483			995,313
Derivative liability		7,830,045			-
Total Current Liabilities		14,178,454		$	8,084,662

Long-term bank loan		-			1,170,070
Total liabilities		14,178,454			9,254,732
Temporary equity
Redeemable preferred stock, par value $0.001 per share, 2,768,721 issued at March 31, 2010 and 0 at December 31, 2009		7,700,000			-
Stockholders’ Equity
Common stock, par value, $0.001 per share, 90,000,000 shares authorized, 21,286,789 and 19,623,889 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively		21,287			19,624
Additional paid in capital		1,056,365			797,808
Statutory reserve		1,076,488			1,051,089
Other comprehensive income		863,248			866,699
Accumulated deficit		(7,898,728	)		(360,284	)
Total Stockholders’ Equity		(4,881,340	)		2,374,936
Total Liabilities and Stockholders’ Equity	$	16,997,114		$	11,629,668

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

F-1

RONGFU AQUACULTURE, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(UNAUDITED AND RESTATED)

	2010			2009

Revenue, net	$	9,923,527		$	9,406,428
Cost of goods sold		6,719,795			6,266,745
Gross profit		3,203,732			3,139,683

Operating expenses:
Selling expenses		285,932			87,591
General and administrative expenses		579,413			661,871
Research and development expenses		19,836			18,835
Total operating expenses		885,181			768,297

Net income from operations		2,318,551			2,371,386

Other income (expenses)
Loss on fair value of derivative liability		(4,562,248	)		-
Interest income		2,762			11,847
Interest expense		(17,394	)		(209	)

Total other (expenses) income		(4,576,880	)		11,638

Net income (loss) before income taxes		(2,258,329	)		2,383,024

Income taxes		236,486			201,527

Net (loss) income	$	(2,494,815	)	$	2,181,497
Deemed dividend from beneficial conversion feature of
Series A preferred stock		(4,374,579	)		-
Dividends paid or declared		(643,651	)		-
Net income (loss) available to common shareholders	$	(7,513,045	)	$	2,181,497

Net income per common share
Earnings per share – Basic	$	(0.38	)	$	0.11
Earnings per share – Diluted	$	(0.38	)	$	0.11
Weighted average common shares outstanding
Basic		19,679,319			19,623,889
Diluted		19,679,319			19,623,889

Net (loss) income	$	(2,494,815	)	$	2,181,497
Other comprehensive income (loss)		(3,451	)		28,158
Comprehensive income (loss)	$	(2,498,266	)	$	2,209,655

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

F-2

RONGFU AQUACULTURE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(UNAUDITED)

	2010 (Restated)			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(2,494,815	)	$	2,181,497
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		27,946			26,860
Amortization of biological assets		115,352			81,742
Change in derivative liability value		4,562,248			-
Professional fee in connection with the issuance of shares		192,361			-
(Increase) / decrease in assets:
Accounts receivables		(2,237,074	)		3,169,097
Inventories		(2,179,648	)		2,243,115
Prepaid expense and other receivables		12,356			159,710
Trade deposit		121,246			-
Due from shareholder		4,009,362			(1,460,583	)
Escrow account		(100,000	)		-
Increase / (decrease) in current liabilities:
Accounts payable		4,832,987			(205,118	)
Other payable		(2,489,402	)		(732,600	)
Advances from clients		(498,873	)		-
Income taxes payable		(759,002	)		(52,193	)
Net cash provided by operating activities		3,115,044			5,411,527

CASH FLOWS FROM INVESTING ACTIVITIES
Purchased fixed assets		(18,740	)		(52,820	)
Purchased biological assets		(156,892	)		-
Net cash used by investing activities		(175,632	)		(52,820	)

CASH FLOWS FROM FINANCING ACTIVITIES
Due to shareholder		-			(6,322,573	)
Borrowings (payment) of short-term loan, net		(380,339	)		730,292
Borrowings (payment) of long-term bank loan		(146,284	)		1,752,700
Dividend paid		(4,110,591	)		(1,388,026	)
Proceeds from issuance of preferred stock		100,000			-
Net cash (used) by financing activities		(4,537,214	)		(5,227,607	)

Effect of exchange rate changes on cash and cash equivalents		(2,412	)		(2,686	)

Net change in cash and cash equivalents		(1,600,214	)		128,414

Cash and cash equivalents, beginning balance		3,194,248			14,823,476
Cash and cash equivalents, ending balance	$	1,594,034		$	14,951,890

SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Income tax payments	$	995,488		$	254,112
Interest payments	$	17,393		$	209

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

F-3

RONGFU AQUACULTURE, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND THE YEAR ENDED DECEMBER 31, 2009

(UNAUDITED AND RESTATED)

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

Balance December 31,, 2009		19,623,889	$	19,624	$	797,808		$	866,699		$	1,051,089	$	(360,284	)	$	2,374,936

Foreign currency translation adjustments									(3,451	)							(3,451	)
Issuance of warrants						(3,267,797	)										(3,267,797	)
Syndication costs associated with preferred stock purchase agreement						(1,038,923	)										(1,038,923	)
Stock based compensation –issued in conjunction with professional services rendered		1,662,900		1,663		191,174											191,174
Stock based compensation –issued in conjunction with financing						927,872											929,535
Syndication costs associated with financing						(928,348	)										(928,348	)
Dividends Paid or Declared														(643,651	)		(643,651	)
Transferred to Statutory reserve												25,399		(25,399	)		-
Deemed dividend						4,374,579								(4,374,579	)		-
Income for the three months ended March 31, 2009														(2,494,815	)		(2,494,815	)

Balance March 31, 2010		21,286,789	$	21,287	$	1,056,365		$	863,248		$	1,076,488	$	(7,898,728	)	$	(4,881,340	)

Balance December 31, 2008		19,623,889	$	19,624	$	797,808		$	861,166		$	665,852	$	12,653,251		$	14,997,701
Foreign currency translation adjustments									5,533								5,533
Transferred to Statutory reserve												385,237		(385,237	)		-
Dividend paid or declared														(25,704,486	)		(25,704,486	)
Income for the year ended December 31, 2009														13,076,088			13,076,088

Balance December 31, 2009		19,623,889	$	19,624	$	797,808		$	866,699		$	1,051,089	$	(360,284	)	$	2,374,936

The accompanying notes are an integral part of these financial statements

F-4

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

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 18,623,889 newly issued shares of our Common Stock held by them (the “Share Exchange Transaction”). 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 People’s Republic of China (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 WFOE.

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.

F-5

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 1 – ORGANIZATION –continued

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

In the opinion of the management of the Company, the accompanying consolidated interim financial statements contain all material adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company at March 31, 2010 and the results of its operations for the three-month periods ended March 31, 2010 and 2009 and its cash flows for the three-month periods March 31, 2010 and 2009. Actual results may differ from these estimates as a result of different assumptions or conditions.

These consolidated financial statements have been prepared on a historical pro-forma basis.

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 (“Codification”) on July 1, 2009. For the three months ended March 31, 2010, all reference for periods subsequent to January 1, 2010 is based on the Codification. The Company's functional currency is the Chinese Renminbi, however the accompanying consolidated financial statements have been translated and presented in United States Dollars.

Principles of Consolidation

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

Translation Adjustment

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

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.

F-6

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

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 March 31, 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 March 31, 2010 and December 31, 2009.

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

Cash and Cash Equivalents

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

Accounts Receivable

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

F-7

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Inventories

Inventory includes breeding and growing cost; these costs include feed, direct cost and fixed and variable overhead costs. Inventories are valued at the lower of cost (determined on a weighted average basis) or market. As of March 31, 2010 and December 31, 2009, inventories consist of the following:

	3/31/2010		12/31/2009
Raw materials	$	74,974	$	47,185
Work in process and finished goods		5.084,875		2,932,568
Total	$	5,159,849	$	2,979,753

Property, Plant & Equipment

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

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

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

	3/31/2010			12/31/2009
Buildings	$	73,631		$	73,631
Fishing gear		424,938			424,938
Transportation equipment		37,330			37,330
Office equipment		40,102			40,102
Construction in progress		18,740			-
Total		594,741			576,001
Accumulated depreciation		(198,800	)		(170,854	)
	$	395,941		$	405,147

Depreciation expense for the three months ended March 31, 2010 and 2009 was $27,946 and $26,860 respectively.

F-8

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 March 31, 2010, there were no impairments of its long-lived assets.

Derivative Liability

The Company issued warrants in connection with the Share Exchange Agreement and Series A Preferred Stock Purchase Agreement dated March 29, 2010 (the “Stock Purchase Agreement”).

The Company determined that the warrants did not qualify for a scope exception under ASC 815 as they were determined to not be indexed to the Company’s stock as prescribed by ASC 815. The warrants, under ASC 815, were classified as derivative liability for the then relative fair market value of $3,267,797 and marked to market. For the three months ended March 31, 2010, the Company recorded a loss on change in fair value of derivative liability of $4,562,248 to mark to market for the increase in fair value of the warrants through March 31, 2010. Under ASC 815, the warrants will be carried at fair value and adjusted at each reporting period.

Fair Value of Financial Instruments

In accordance with FASB ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value.

As of March 31, 2010 and December 31, 2009, the derivative liabilities amounted to $7,830,045 and $0. In accordance with the accounting standards, the Company determined that the carrying value of these derivatives approximated the fair value using the level 1 inputs.

F-9

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

The Company records revenues for goods shipped at the time of shipment. For goods delivered by the Company to a customer’s site, revenues are recognized at time of delivery.

The Company believes that recognizing revenue at these times is appropriate because the Company’s sales policies meet the four criteria of the SEC’s staff Accounting Bulletin No. 104, which are: (i) persuasive evidence that an arrangement exists, (ii) service has occurred, (iii) the seller’s price to the buyer is fixed and determinable and (iv) collection is reasonably assured.

Research and development cost

Research and development costs are expensed in the period when they are incurred. During three months ended March 31, 2010 and 2009, research and development costs were $ 19,836 and $ 18,835, respectively.

Advertising

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company expenses all advertising costs as incurred. Advertising expense for the three months ended March 31, 2010 and 2009 were $ 7,599 and $ 2,026, respectively.

Shipping and handling fees

The Company follows ASC 605-45, “Handling Costs, Shipping Costs”. The Company does not charge its customers for shipping and handling. The Company classifies shipping and handling costs as part of general and administrative expense. Shipping and handling fees for the three months ended March 31, 2010 and 2009 were $64,442 and $1,758, respectively.

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 metho758d, 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 March 31, 2010 and December 31, 2009.

Concentration of Credit Risk

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

F-10

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 3 –OTHER RECEIVABLES

Other receivables mainly consist of cash advances to rent deposit. As of March 31, 2010 and December 31, 2009, the other receivables were $21,211 and $21,208, respectively.

Note 4 – BIOLOGICAL ASSETS

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

	3/31/2010			12/31/2009
Carp	$	20,562		$	20,562
Tilapia		959,561			959,561
Yellow bone fish		54,807			-
California bass		15,832			-
Snakeheads		264,457			178,204
Total		1,315,219			1,158,327
Accumulated amortization		(840,870	)		(725,519	)
	$	474,349		$	432,808

Amortization expense for the three months ended March 31, 2010 and 2009 was $115,352 and $ 81,742, respectively

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

Carp	5 years
Tilapia	3 years
Snakeheads	3 years

Note 5 – RELATED PARTY

The Company buys fish feed from a related party supplier. As of and for the three months ended March 31, 2010, such vendor accounted for approximately 50% of the Company’s purchases and 30% of accounts payable.

Note 6 – DUE FROM/TO SHAREHOLDER

The Company has a receivable due from shareholder. As of March 31, 2010, due from shareholder was $21,211. Amount due are receivable upon demand with no stated interest.

During the fourth quarter of 2009, the Company loaned an aggregate of RMB 21,900,000 ($3,201,343 translated at $1=RMB 6.8372) to a shareholder. He invested the entire proceeds of the loan in the construction of Foshan Nanhai Guanyao Processing Industrial Park, which has a total area of 108,000 square meters with the construction area of 85,000 square meters. The loan does not bear interest and may be paid off by deducting the shareholder’s allocation of shareholders’ dividends or other means. After the construction has been completed, the Company has a first option to rent Foshan Nanhai Guanyao Processing Industrial Park on terms to be determined. During the three months ended March 31, 2010 this loan was repaid in full.

F-11

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 7 – ESCROW DEPOSITS

Pursuant to the Stock Purchase Agreement entered into on March 29, 2010, the Company received a $100,000 deposit in an escrow account. The remaining net proceeds of $6,561,077 had not been received as of March 31, 2010 and are shown on balance sheet as receivable. The escrow balance was collected by the Company on April 1, 2010.

Note 8 – CONCENTRATIONS

As of March 31, 2010, one customer accounted for 48% of accounts receivable. For the three months ended March 31, 2010, the Company had three vendors who accounted for 83% of total purchases. As of December 31, 2009, two customers accounted for 20% of accounts receivable. For the three months ended March 31, 2009, the Company had two vendors who accounted for 73% of total purchases and one related party vendor who accounted for 13% of total purchases.

Note 9 – COMPENSATED ABSENCES

Regulation 45 of the local labor law of the 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. The Company’s management estimated that there is insignificant unutilized leave as at March 31, 2010 and March 31, 2009.

Note 10 – COMMON STOCK

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

On March 29, 2010, the Company entered into the Stock 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 “Series A Issue Price”). The shares are convertible into shares of the Company’s common stock, par value $0.001 per share. In connection with the Stock Purchase Agreement the Company incurred offering costs of $1,038,923, which are subtracted from the total proceeds and recorded in additional paid in capital.

The Series A Stock, in preference to the holders of common stock, shall be entitled to receive, when and as declared by the Board of Directors out of funds that are legally available therefore, cumulative dividends at the rate of six percent (6%) per annum of the original Series A Issue Price on each outstanding of Series A Preferred payable semi-annually on each February 28 and August 31. Payment of these dividends shall be made, at the Company’s option, in cash or shares of common stock. Each holder of the Series A Stock shall be entitled to one vote for each whole share of common stock into which such shares of Series A Stock could be converted in accordance with the agreement.

The Company has agreed to pay liquidated damages to its warrant holders if the Registration Statement is not filed by May 13, 2010 and/or not declared effective by the SEC on or before October 25, 2010. The liquidated damages are equal to 1% of the purchase price of the purchased shares owned by investors. The maximum aggregate liquidated damages payable to the investors under this Agreement shall be 6% of the aggregated purchase price paid by the investors pursuant to this Purchase Agreement. The Company must pay the liquidated damages in cash.

Pursuant to the Stock 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.

F-12

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 10 – COMMON STOCK (CONTINUED)

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.

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. 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. On March 29, 2010, the warrants were classified as a derivative liability for the then fair market value and marked to market.

Aggregate

Exercise

Remaining

Intrinsic

Total

Price

Life

Value

Outstanding, December 31, 2009

Granted in 2010

- in connection with exchange agreement

666,666

2.44-2.93

4.5 years

- in connection with Series A preferred

3,460,902

3.47-4.17

4.5 years

Exercised in 2010

Outstanding, March 31, 2010

4,127,568

Note 11 –DERIVATIVE FINANCIAL INSTRUMENTS

The balance sheet caption derivative liabilities consist of warrants to purchase 4,127,568 shares of the Company’s common stock, issued to consultants and investor relations in connection with the merger agreements and in connection with the Stock Purchase Agreement. These derivative financial instruments are indexed to an aggregate of 4,127,568 and 0 shares of the Company’s common stock as of March 31, 2010 and December 31, 2009, respectively, and are carried at fair value. The following tabular presentations sets forth information about the derivative instruments for the periods March 31, 2010 and December 31, 2009:

Derivative income (expense)	Three Months Ended March 31, 2010			Year Ended December 31, 2009

Warrant derivative	$	(4,562,248	)		-

Liabilities		March 31, 2010				December 31, 2009
Warrant derivative			7,830,045				-

Freestanding derivative instruments, consisting of warrants are valued using the Black-Scholes-Merton valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in the Black Scholes models included: conversion or strike prices ranging from $2.44-$4.17; volatility 73.27% based upon forward terms of instruments; terms-remaining life of 5 years ; and a risk free rate ranging from 1.79%-2.5%.

F-13

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 12- DEBT

As of March 31, 2010 and December 31, 2009, the Company had debt as follows:

As of 3/31/2010 Credit Union –Foshan Naihai Branch		Amount				Interest rate			Due
Short term bank loan		$	1,023,976				4.50	%	Feb 13 and 14, 2011

As of 12/31/2009 Credit Union –Foshan Naihai Branch	Amount		Interest rate			Due
Short tem bank loan	$	380,273		4.425	%	Feb 13, 2010
Long term bank loan	$	1,170,070		4.50	%	Feb 13 and 14, 2011

The Company is using these loans for working capital purposes and secured by certain real estate and property insurance.

Note 13 - INCOME TAXES

Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (“EIT”) is at a statutory rate of 25%. The Company is an agriculture enterprise and under PRC Income Tax Laws, it is entitled to have new PRC tax policy for the agriculture enterprise. The Company’s income is derived from three areas including fish breeding, fish cultivation and selling adult fish. For income from fish breeding, it is entitled to an exemption. For income from fish cultivation, EIT is a discount rate of 12.5%. For income from selling adult fish, EIT is a rate of 25%.

The following is a reconciliation of income tax expense:

March 31, 2010	International		Total
Current	$	236,486	$	236,486
March 31, 2009	International		Total
Current	$	201,527	$	201,527

	Three Months Ended March 31,
	2010			2009
Reconciliation of Effective tax rate

Statutory tax rate		25	%		25	%
Non deductibility of permanent items		48	%		0	%
Tax benefits from discounts and exemption		(9	)%		17	%
Others		(74	)%		(34	)%
Effective tax rate		(10	)%		8	%

If the Company were subject to the standard 25% EIT, it would have incurred $394,449 and $406,285 of income tax expense for the three months ended March 31, 2010 and 2009, respectively. The standard income tax rate would have caused the Company to incur an additional expense of $0.02 and $0.02 per share for the three months ended March 31, 2010 and 2009, respectively.

F-14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 14– COMMITMENTS & CONTINGENCIES

The Company leases facilities under operating leases, which expire on different dates. It pays for on an annual basis and accrues for throughout the year. For the three months ended March 31, 2010 and 2009, rent expense was $ 137,485 and $ 209,348. Future payments under these leases are as follows as of March 31:

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

Note 15– EARNINGS PER SHARE

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

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

	2010			2009

Basic and diluted earnings per share:
Numerator:
(Loss)/Income used in computing	$	(7,513,045	)	$	2,181,497
Denominator:
Weighted average common shares outstanding		19,679.379			19,623,889
Basic and diluted earnings per share	$	(0.38	)	$	0.11

Note 16 – STATUTORY RESERVE

In accordance with the laws and regulations of the PRC, a WFOE’s income, after the payment of the PRC income taxes, shall be allocated to the statutory surplus reserves and statutory public welfare fund. Prior to January 1, 2006 the proportion of allocation for reserve was 10 percent of the profit after tax to the surplus reserve fund and additional 5-10 percent to the public affair fund. The public welfare fund reserve was limited to 50 percent of the registered capital. Effective January 1, 2006, there is now only one fund requirement. The reserve should be 10 percent of income after tax, not to exceed 50 percent of registered capital. Statutory Reserve funds are restricted for set off against losses, expansion of production and operation or increase in register capital of the respective company. Statutory public welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves are not transferable to the Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except in liquidation. As of March 31, 2010 and December 31, 2009, the Company had allocated $1,076,488 and $1,051,089, to these non-distributable reserve funds.

F-15

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 17- OTHER COMPREHENSIVE INCOME

Balances of related after-tax components comprising accumulated other comprehensive income, included in stockholders’ equity, at March 31, 2010 and December 31, 2009, are as follows:

	Foreign Currency Translation Adjustment			Accumulated Other Comprehensive Income
Balance at December 31, 2008	$	861,166		$	861,166
Change for 2009		5,533			5,533
Balance at December 31, 2009	$	866,699		$	866,699
Change for three months ended 3/31/2010		(3,451	)		(3,451	)
Balance at March 31, 2010	$	863,248			863,248

Note 18- RESTATEMENT

The accompanying consolidated balance sheets as of December 31, 2009 and March 31, 2010, consolidated statements of income and comprehensive income for the three months ended March 31, 2010 and March 31, 2009, consolidated statement of cash flows for the three months ended March 31, 2010 and consolidated statement of stockholders’ equity for the three months ended March 31, 2010 and the year ended December 31, 2009 have been restated for the following reasons:

1. The number of shares of the Company’s common stock outstanding as of December 31, 2008 and December 31, 2009 and the weighted average common shares outstanding for the three months ended March 31, 2009 and March 31, 2010 were overstated in such financial statements.

2. The value attributed to shares of the Company’s common stock which were issued for prior services on March 29, 2010 should have been expensed in the Company’s income statement for the quarter ended March 31, 2010.

3. $7,700,000 of Preferred Stock included under Stockholders’ Equity on the Company’s balance sheet as of March 31, 2010 should be classified as Temporary Equity.

Therefore, we have restated our financial statements to correct these errors as follows:

(i) We restated our financial statements to decrease the number of shares of the Company’s common stock outstanding as of December 31, 2008 and December 31, 2009 from 20,810,713 to 19,623,889, to decrease the weighted average common shares outstanding for the three months ended March 31, 2010 from 21,286,789 to 19,679,319 and to decrease the weighted average common shares outstanding for the three months ended March 31, 2009 from 20,810,713 to 19,623,889 shares. The effect of the reduction in the number of outstanding shares of common stock was to decrease Common Stock on the balance sheet as of December 31, 2009 by $1,187 from $20,811 to $19,624 and to increase additional paid-in capital as of December 31, 2009 by the same amount.

(ii) We restated our financial statements to treat the preferred stock as of March 31, 2010 as Temporary Equity (see Note 18(3)). We previously accounted for the preferred stock in equity. The restatement had the effect of decreasing our equity by $7,700,000.

(iii) We restated our financial statements to treat the value assigned to the shares issued in connection with certain professional services as expenses on the income statement (see Note 18(2)). This restatement had the effect of increasing the loss by $192,361, or $0.01 per share. The following table illustrates this restatement and the restatement as a result in the correction for the weighted average common shares outstanding for the three months ended March 31, 2010:

		Net Loss			Loss per Common Share
Net loss, as reported	$	(7,320,684	)	$	(0.34	)
Correction for common stock issued for services		(192,361	)		(0.01	)
Correction for weighted average shares					(.03	)
Net loss, as restated	$	(7,513,045	)	$	(0.38	)

(iv) We restated the consolidated statement of stockholders’ equity for the three months ended March 31, 2010 and the year ended December 31, 2009 to eliminate preferred stock, change the number of outstanding common shares and related amounts of capital and change the amounts of additional paid-in capital, retained earnings and total stockholders equity as a result of the changes discussed above.

F-16

RONGFU AQUACULTURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED AND RESTATED)

Note 18- RESTATEMENT (CONTINUED)

Note 19- SUBSEQUENT EVENTS

From April 1, 2010, the Company has evaluated subsequent events for potential recognition and disclosure through December 29, 2010, the date of the restated financial statement issuance. Based upon this evaluation management has concluded that the Company did not have any material recognizable subsequent events during this period.

F-17

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

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).

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

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

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

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

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

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

Three Months Ended March 31, 2010 and 2009					%
	2010		2009		Change

Farm growing	$	7,212,246	$	7,062,036		2	%

Breeding	$	1,188,523	$	1,069,961		11	%

Trading	$	1,522,758	$	1,274,431		19	%

Consolidated	$	9,923,527	$	9,406,428		5	%

Revenue for the three months ended March 31, 2010 were $9,923,527, an increase of $517,099 or 5.5%, when compared to the same period in 2009. Such increase was mainly attributed to the increase in sales of adult fish purchased by farmers, which increased $248,327, and the sales of adult fish, which increased $150,210 compared to the same period of 2009 .For the three months ended March 31, 2010, the sales of fish fry increased $118,562 compared to the same period of the prior year.

Cost of goods sold for the three months ended March 31, 2010 were $6,719,795, an increase of $453,050 or 7.2%, when compared to the same sales period of the prior year, which consisted of an increase of $148,485 for breeding adult fish, an increase of $218,498 for trading business, and an increase of $86,067 for breeding fish fry. The percentage increase in cost of goods sold is higher than that of the percentage increase in revenue mainly because the revenues of the trading segment, with relatively higher costs of sales increased proportionately more than revenues of the breeding segment.

Gross profit for the three months ended March 31, 2010 was $3,203,732, an increase of $64,049 or 2%, when compared to the same period in 2009. The increase in gross profit consisted of an increase of $1,726 for breeding adult fish, an increase of $29,828 for the Company’s trading business, and an increase of $32,495 for breeding fish fry. The reason for the increase of gross profit for the three months ended March 31, 2010 was the increase in sales. The percentage increase in gross profit for the three months ended March 31, 2010 over the three months ended March 31, 2009 is lower than the percentage increase in revenues for the same periods due to higher costs of goods sold in the three months ended March 31, 2010 as a result of changes in the product mix.

Selling, general and administrative expenses for the three months ended March 31, 2010 were $865,345, an increase of $115,883 or 13%, when compared to the same period in 2009, mainly due to a $192,361 increase in professional fees in connection with the issuance of shares, and an increase in selling expenses by $191,341. These increases were partially offset by the decrease in general and administrative expenses of $274,820 for breeding adult fish and fish fry breeding business due to less maintenance fees and security fees incurred in the first quarter of 2009 that did not recur in the first quarter of 2010.

Research and development expenses for the three months ended March 31, 2010 were $19,836, an increase of $1,000 or 5%, when compared to the same period in 2009.

Income from operations for the three months ended March 31, 2010 was $2,318,551, a decrease of $52,835 or 2%, when compared to the same period in 2009. The main reason for the decrease in income from operations was the increase in selling, general and administrative expenses offset by the increase in sales of adult fish and fish fry.

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

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

The Company recorded a loss on fair value of derivative liability of $4,562,248 for the three months ended March 31, 2010. This loss on fair value was recorded to mark to market for the increase in fair value of the warrants through March 31, 2010. Under ASC 815, the warrants will be carried at fair value and adjusted at each reporting period.

Net loss for the three months ended March 31, 2010 was $2,494,815 as compared to net income of $2,181,497 for the three months ended March 31, 2009. The $4,676,312 difference is attributable to the loss of $4,562,248 on fair value of derivative liability in the three months ended March 31, 2010.

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

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

At March 31, 2010, the accounts receivable balance increased by $2,237,080, or 946.4.%, from the balance at December 31, 2009. The increase is due to the increase in revenue in the three months ended March 31, 2010. In addition, we have granted our customers a longer credit period as a strategy to increase our market share.

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

The Company has typically financed its operations and expansion from cash flows from operations and loans from 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 with credit lines of RMB 7,000,000 (approximately $ 1,029,000 based on the conversion rate as of March 31, 2010) and RMB 5,000,000 (approximately $735,000 based on the conversion rate as of March 31, 2010), respectively. The two credit lines are secured by real estate owned by the sister-in-law of Chen Zhisheng, our Chairman of the Board. The agreements were entered into on January 14, 2009 and January 13, 2009, respectively, for two-year terms expiring in January 2011. Outstanding loans under the two credit lines bear interest at a rate of 5.4% per year. Interest is payable monthly. As of March 31, 2010, there were outstanding loans payable at the amount of $1,023,936.

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 2 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.

Principles of Consolidation

The consolidated financial statements include the accounts of Rongfu Aquaculture, Inc (formerly, Granto, Inc.) and its wholly owned subsidiaries, Flourishing HK, the WOFE, 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.

Use of Estimates

Inventories

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

Derivative Liability

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

Adoption of the Derivative and Hedging Topic of the FASB Accounting Standards Codification (“ASC 815”), the Company determined that the warrants did not qualify for a scope exception under ASC 815 as they were determined to not be indexed to the Company’s stock as prescribed by ASC 815. The warrants, under ASC 815, were classified as derivative liability for the then relative fair market value of $ 3,267,797 and marked to market. For the three months ended March 31, 2010, the Company recorded a loss on change in fair value of derivative liability of $4,562,248[not correct] to mark to market for the increase in fair value of the warrants through March 31, 2010. Under ASC 815, the warrants will be carried at fair value and adjusted at each reporting period.

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.

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

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

The Company’s management, with participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by a company in reports, such as this report, that it files, or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, management concluded that, as of March 31, 2010, the Company’s disclosure controls and procedures were not effective at that reasonable assurance level to satisfy the objectives for which they are intended.

Changes in Internal Control over Financial Reporting

On March 29, 2010 the Company completed the acquisition of Rongfu Aquaculture, Inc. (“Rongfu”) pursuant to a share exchange agreement. The acquisition was accounted for as a recapitalization effected by a share exchange. Rongfu is considered the acquirer for accounting and financial reporting purposes. Prior to the acquisition the Company was a shell company.

During the preparation of our financial statements for the quarter ended September 30, 2010, we determined that there existed deficiencies in controls relating to the following and that it was necessary for the Company to restate to its previously issued financial statements as of December 31, 2009 and for the quarters ended March 31, 2009 and March 31, 2010 and June 30, 2009 and June 30, 2010 for the following reasons:

1. The number of shares of the Company’s common stock outstanding as of December 31, 2009 and the weighted average common shares outstanding for the quarters ended March 31, 2009, June 30, 2009 and March 31, 2010 were overstated in such financial statements and earnings per share for the quarters ended March 31, 2009, June 30, 2009 and March 31, 2010 were understated in such financial statements.

2. The value attributed to shares of the Company’s common stock which were issued for prior services on March 29, 2010 should have been expensed in the Company’s income statements for the quarter ended March 31, 2010 and for the six months ended June 30, 2010.

3. $7,700,000 of Preferred Stock included under Stockholders’ Equity on the Company’s balance sheets as of March 31, 2010 and June 30, 2010 should be reclassified as Temporary Equity.

We have further concluded that such deficiencies represented material weaknesses. As a result, we concluded that the Company’s internal controls over financial reporting were not effective at March 31, 2010.

The Company is in the process of enhancing its financial reporting by implementation of stronger internal controls through the recruitment of high caliber personnel with strong financial reporting backgrounds and the establishment of effective checking and reviewing procedures. In 2011 we plan to enrich the accounting knowledge of all of our financial and accounting personnel by holding training to increase the awareness and use of controls and transparency by all staff and by redesigning document flows and establishing strong control points.

PART II. OTHER INFORMATION

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.

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: December 29, 2010	By:	/s/ Kelvin Chan
		Kelvin Chan
		Chief Executive Officer

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