Rongfu Aquaculture Announces Strong Second Quarter 2010 Results

GUANGZHOU, China, Aug. 25 /PRNewswire-FirstCall/ -- Rongfu Aquaculture, Inc. (OTC Bulletin Board: RNFU) ("Rongfu" ), a leading company in the business of cultivating, harvesting, and trading of fish in People's Republic of China today reported higher revenues and net income for the second quarter of fiscal year 2010 ended June 30, 2010.

Second Quarter 2010 Highlights

• Net Revenues increased 67%
• Gross Profits increased 35%.
• Adjusted Net Income Increased 30%.
• Adjusted EPS, excluding the impact of the derivative liability from the warrants, increased 27%.
• The new logistics center was opened, providing a base for the expansion of trading.
• A new sales center was opened in Hangzhou, providing a foothold for sales expansion in eastern China.
• Rongfu was appointed as the only company in Guangzhou authorized to utilize the new "Live Fish Transportation from Southern China to Northern China by Train" technology, which should enable the company to vastly expand its distribution in Northern China
• Rongfu received a contract to manage the 3,300 acre Qingqi aquatic park, the first implementation of its co-op model.
• New fish breeds were developed to expand the company's product offerings

Financial Summary

Net revenue was $12.6 million, and increase of 67% from the same quarter of the previous year.

Sales of farm grown fish increased 65% to $6.8 million from $4.1 million. The growth was attributable to the expansion of the company's sales network and the development of new breeds. Gross margins declined slightly as the company sought to increase its share in new markets.

Sales of fish fry increased 14%. During the quarter, Rongfu launched new product lines, including yellow bone fish and California bass. In addition, it expanded its production of snakehead and carp. Gross margins of fry increased to 91% from 89%.

Trading revenues increased by 207% to $3 million from $1 million. The increase was the result of the opening of the logistics center, the new sales office in Hangzhou, and the expansion of new breeds. Rongfu expects its growing sales network will enable it to continue to increase its trading business in the second half of the year. Gross margins in trading were 11% compared to 12% in the previous year.

Overall, gross margins declined from 39% to 48%. The major contributor to the decline was the change in mix. Fish fry, the highest margin business, grew the most slowly, because this is not the big season for selling baby fish.

Selling, general and administrative (SG&A) expenses increased 48% to $916,151 from $615,688. in the second quarter of 2009. Higher selling expenses related to the new sales and logistics offices as well as the higher level of sales, contributed to the increase.

Operating income in the second quarter of 2010 was $4 million, with operating margin of 31%, an 32% increase from $3 million in the same period of last year.

Net income was $3 million, or $0.13 cents per basic and diluted share, compared to a net income of $2.8 million, or $0.14 per diluted share, second quarter last year, mainly due to the non cash charge of loss on fair value of derivative liability arising from the issuance of warrants this year.

GAAP net income for the quarter ended June 30, 2010 was $3 million, compared to $2.8 million in the same quarter of 2009.  Excluding mainly the non-cash item of loss on fair value of derivative liability of $0.6 million, adjusted non-GAAP net income for the second quarter of 2010 was $4.1 million, a 30% increase year over year. Earnings per weighted average diluted shares were $0.14 based on 21.3 million diluted shares, while adjusted earnings were $0.19 per share.

For the six months, Rongfu generated cash flow from operations of $3.78 million. Including investing activities, Rongfu generated free cash flow of $3.1 million.

Financial Condition

As of June 30, 2010, the Company had $7.1 million in cash compared to $3.2 million as of December 31, 2009, which included cash from the Company's $6.4 million net proceeds from preferred stock secured in April 2010. Current assets was $18.9 million, up from $10.8 million as of December 31, 2009. Accounts receivable were $2 million, compared to $263,000 as of December 31, 2009. Inventories were $9 million, compared to $3 million as of December 31, 2009 and were driven by increased inventories for adult fish for the cultivating to be launched to market in harvesting period in third quarter.

Current liabilities were $14.5 million as of June 30, 2010, compared to $8.1 million as of December 31, 2009.  The significant increase was mainly attributable to the derivative liability on warrants amounting to $8.6 million as of June 30, 2010. The Company fully repaid its short-term bank borrowings  and dividend in the first half of 2010. On the other hand, accounts payable was $ 5.4 million as of June 30, 2010 , compared with zero balance as of December 31, 2009.  The increase was due to the procurement of due to the procurement of fish food used in fish farm and fish fry breeding. Stockholder equity  increased 139% to $5.7 million for the period ended June 30, 2010.

"We are very pleased with our second quarter results, which was driven by the organic growth in adult fish breeding and trading business by 65% and 207% respectively.  We continued our marketing strategy to expand our sales network and experienced year over year growth in major locations for our core product line," Mr. Zhisheng Chen commented , Chairman of Rongfu. "Since the inception of sales center in Hangzhou, Zhejiang province in May this year, we have enhanced our foothold and successfully delivered the snakehead to the distributors on daily basis. We expect continued sales growth for our trading segment in the second half of this year and roll out to various regions.

"Our recent opening of new logistics center in Shunde can strengthen our supply chain and effectively meet our customers' needs," Chairman Chen continued." In addition, following our enhancement of breeding capacities, we can operate more effectively and so increased our number of adult fish growing."

"We also laid the ground work for long-term future growth," Chairman Chen stated. "We believe our program with the railroad gives us a unique competitive advantage in selling to northern China. Our initial co-op program, which we believe could be significantly expanded, will enable us to become the low cost producer in our market. Finally, our new breed will enable us to expand each of our business segments. We are very excited about the prospects for our future."

About Rongfu Aquaculture, Inc.

Founded in 2003, Rongfu Aquaculture, Inc., is headquartered in Fushan, Guangdong Province in the PRC. Through its subsidiaries and the contractual agreements, Rongfu is engaged in commercial freshwater aquaculture in the PRC. Rongfu cultivates its fish, mostly tilapia and snakehead, in fresh water, sells fish and fish fry, and also acts as a dealer of freshwater fish. Rongfu operates 13 adult fish breeding farms, three of them located in Hainan Province, and the other ten in Guangdong Province.

Safe Harbor Statements

This press release contains forward-looking statements made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward looking statements are based upon the current plans, estimates and projections of Diguang's management and are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. Therefore, you should not place undue reliance on these forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions in China, weather and natural disasters, changing interpretations of generally accepted accounting principles; outcomes of government reviews; inquiries and investigations and related litigation; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which Diguang is engaged; fluctuations in customer demand; management of rapid growth; intensity of competition from other providers of backlights; timing approval and market acceptance of new product introductions; general economic conditions; geopolitical events and regulatory changes, as well as other relevant risks, including but not limited to risks outlined in the Company's periodic filings with the U.S. Securities and Exchange Commission. Diguang does not assume any obligation to update the information contained in this press release.

SOURCE Rongfu Aquaculture, Inc.