UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, 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: December 31, 2009

[   ] 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: 001-34440

CHINA NUTRIFRUIT GROUP
LIMITED(Exact Name of Registrant as Specified in Its
Charter)

|Nevada                                        | 87-0395695                          
|--------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation | (I.R.S. Employer Identification No.)
|or organization)                              |                                     

5th Floor, Chuangye Building, Chuangye Plaza Industrial
Zone 3, Daqing Hi-Tech Industrial Development Zone Daqing, Heilongjiang
163316 Peoples Republic of China(Address of principal executive
offices, Zip Code)

(+86) 459-8972870(Registrants
telephone number, including area code)

_____________________________________________________(Former
name, former address and former fiscal year, if changed since last report)

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
Data 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 filer  o                                                  | Accelerated filer  o            
|--------------------------------------------------------------------------- | --------------------------------
|Non-accelerated filer  o(Do not check if a smaller reporting
      company) | 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
o No x

The number of shares outstanding of each of the issuers
classes of common stock, as of February 8, 2010 is as follows:

Class of
      Securities
    
    Shares OutstandingCommon Stock, $0.001 par value
    
    36,125,754


---



|CHINA NUTRIFRUIT GROUP LIMITED                     
|---------------------------------------------------
|                                                   
|                                                   
|Quarterly Report on FORM 10-Q                      
|Three and
      Nine Months Ended December 31, 2009

TABLE OF CONTENTS

|PART I                |                                                                                                      | 2 
|--------------------- | ---------------------------------------------------------------------------------------------------- | --
|FINANCIAL INFORMATION | 2                                                                                                   
|ITEM 1.               | FINANCIAL STATEMENTS.                                                                                | 2 
|**ITEM 2.**           | **MANAGEMENTS DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS** **OF OPERATIONS.** | 27
|ITEM 3.               | QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK.                                    | 36
|ITEM 4.               | CONTROLS AND PROCEDURES.                                                                             | 36
|PART II               |                                                                                                      | 36
|OTHER INFORMATION     | 36                                                                                                  
|ITEM 1.               | LEGAL PROCEEDINGS.                                                                                   | 36
|ITEM 1A.              | RISK FACTORS.                                                                                        | 36
|ITEM 2.               | UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF PROCEEDS.                                   | 36
|ITEM 3.               | DEFAULTS UPON SENIOR SECURITIES.                                                                     | 36
|ITEM 4.               | SUBMISSION OF MATTERS TO A
      VOTE OF SECURITY HOLDERS.                                           | 36
|ITEM 5.               | OTHER INFORMATION.                                                                                   | 37
|ITEM 6.               | EXHIBITS.                                                                                            | 37

---

PART IFINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS.

CHINA NUTRIFRUIT GROUP LIMITED AND SUBSIDIARIES CONDENSED
CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 ANDFOR THE THREE MONTHS ENDED DECEMBER 31, 2009

|Contents                                                                                                                      | Page
|----------------------------------------------------------------------------------------------------------------------------- | ----
|Condensed Consolidated Balance Sheets as of
      December 31, 2009 (unaudited) and March 31, 2009                            | 3   
|Condensed Consolidated Statements of Income for the three
      and nine months ended December 31, 2009 and 2008 (unaudited)  | 4   
|Condensed Consolidated Statements of Cash Flows for the
      nine months ended December 31, 2009 and 2008 (unaudited)        | 5   
|Condensed Consolidated Statements of
      Shareholders Equity for the nine months ended December 31, 2009
      (unaudited) | 6   
|Notes to the Condensed Consolidated Financial Statements
      (unaudited)                                                    | 7   

2

---

CHINA NUTRIFRUIT GROUP LIMITED AND
SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Stated in US Dollars)

|                                                             |   |              |  |   |            | 
|------------------------------------------------------------ | - | ------------ |  | - | ---------- | 
|                                                             |   | December 31, |  |   | March 31,  | 
|                                                             |   | 2009         |  |   | 2009       | 
|ASSETS                                                       |   |              |  |   |            | 
|Current assets:                                              |   |              |  |   |            | 
|Cash and
      cash equivalents                              | $ | 19,135,592   |  | $ | 4,768,542  | 
|Proceeds from private
      placement held in escrow account |   | 931,630      |  |   | -          | 
|Trade
      receivables, net of allowance                    |   | 8,284,033    |  |   | 11,423,996 | 
|Inventories, net                                             |   | 13,706,578   |  |   | 3,692,892  | 
|Other
      current assets                                   |   | 191,365      |  |   | 481,679    | 
|Total current assets                                         |   | 42,249,198   |  |   | 20,367,109 | 
|Property and equipment,
      net                            |   | 18,253,354   |  |   | 16,614,930 | 
|Deferred tax assets                                          |   | 1,241,881    |  |   | 1,406,814  | 
|Land use rights,
      net                                   |   | 186,563      |  |   | 189,303    | 
|TOTAL ASSETS                                                 | $ | 61,930,996   |  | $ | 38,578,156 | 
|                                                             |   |              |  |   |            | 
|LIABILITIES AND SHAREHOLDERS
      EQUITY                   |   |              |  |   |            | 
|Current
      liabilities:                                   |   |              |  |   |            | 
|Other payables and accrued
      expenses                    | $ | 929,175      |  | $ | 2,675,983  | 
|Trade
      payables                                         |   | 507,906      |  |   | 260,322    | 
|Income taxes
      payable                                   |   | 1,554,027    |  |   | 1,416,835  | 
|Total current
      liabilities                              |   | 2,991,108    |  |   | 4,353,140  | 
|Non-current liabilities:                                     |   |              |  |   |            | 
|Amounts
      due to shareholders                            |   | -            |  |   | 7,407,748  | 
|TOTAL LIABILITIES                                            |   | 2,991,108    |  |   | 11,760,888 | 

|                                                                                                                   |   |            |  |   |            | 
|------------------------------------------------------------------------------------------------------------------ | - | ---------- |  | - | ---------- | 
|Commitments and
      Contingencies                                                                                |   |            |  |   |            | 
|                                                                                                                   |   |            |  |   |            | 
|Shareholders'
      equity                                                                                         |   |            |  |   |            | 
|Preferred stock                                                                                                    |   |            |  |   |            | 
|Authorized: 5,000,000
      shares, par value $0.001                                                               |   |            |  |   |            | 
|Issued and outstanding 403,418 shares as at
      December 31, 2009; (nil as at March 31, 2009)                    |   | 403        |  |   | -          | 
|Common stock                                                                                                       |   |            |  |   |            | 
|Authorized: 120,000,000 shares, par
      value $0.001                                                             |   |            |  |   |            | 
|Issued and outstanding:

      36,125,754 shares as at December 31, 2009; (36,125,754 shares as at March 31, 2009) |   | 36,126     |  |   | 36,126     | 
|Additional paid-in-capital                                                                                         |   | 36,376,516 |  |   | 16,746,971 | 
|Noncontrolling
      interests                                                                                     |   | -          |  |   | -          | 
|Statutory reserves - restricted                                                                                    |   | 4,563,920  |  |   | 2,873,880  | 
|Accumulated other
      comprehensive income                                                                       |   | 406,223    |  |   | 425,675    | 
|Retained earnings                                                                                                  |   | 17,556,700 |  |   | 6,734,616  | 
|TOTAL SHAREHOLDERS
      EQUITY                                                                                   |   | 58,939,888 |  |   | 26,817,268 | 
|TOTAL LIABILITIES AND SHAREHOLDERS
      EQUITY                                                                   | $ | 61,930,996 |  | $ | 38,578,156 | 

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

3

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CHINA NUTRIFRUIT GROUP LIMITED AND
SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(Stated in US Dollars)

|                                                                |   |                          |   |   |                         |  
|--------------------------------------------------------------- | - | ------------------------ | - | - | ----------------------- | -
|                                                                |   | Three months
      ended |   |   | Nine months
      ended |  
|                                                                |   | December
      31,       |   |   | December
      31,      |  
|                                                                |   | 2009                     |   |   | 2008                    |  
|                                                                |   |                          |   |   |                         |  
|Net sales                                                       | $ | 17,816,916               |   | $ | 13,873,857              |  
|                                                                |   |                          |   |   |                         |  
|Cost of sales                                                   |   | (9,680,959               | ) |   | (7,836,719              | )
|                                                                |   |                          |   |   |                         |  
|Gross profit                                                    |   | 8,135,957                |   |   | 6,037,138               |  
|                                                                |   |                          |   |   |                         |  
|Selling expenses                                                |   | (1,094,111               | ) |   | (945,802                | )
|General and
      administrative expenses                       |   | (816,069                 | ) |   | (664,202                | )
|                                                                |   |                          |   |   |                         |  
|Operating earnings                                              |   | 6,225,777                |   |   | 4,427,134               |  
|                                                                |   |                          |   |   |                         |  
|Other income
      (expenses)                                   |   |                          |   |   |                         |  
|Interest expense                                                |   | -                        |   |   | (128,455                | )
|Other
      income                                              |   | 9,204                    |   |   | 6,555                   |  
|Total other income (expenses)                                   |   | 9,204                    |   |   | (121,900                | )
|                                                                |   |                          |   |   |                         |  
|Earnings before noncontrolling
      interests and income taxes |   | 6,234,981                |   |   | 4,305,234               |  
|                                                                |   |                          |   |   |                         |  
|Provision for income taxes                                      |   | (1,609,004               | ) |   | (1,107,292              | )
|                                                                |   |                          |   |   |                         |  
|Earnings before
      noncontrolling interests                  |   | 4,625,977                |   |   | 3,197,942               |  
|                                                                |   |                          |   |   |                         |  
|Noncontrolling interests                                        |   | -                        |   |   | -                       |  
|                                                                |   |                          |   |   |                         |  
|Net earnings                                                    |   | 4,625,977                |   |   | 3,197,942               |  
|Other comprehensive income                                      |   |                          |   |   |                         |  
|Foreign
      currency translation                              |   | (39,255                  | ) |   | (34,698                 | )

|Comprehensive
      income                                | $ | 4,586,722  |  | $ | 3,163,244  |  | $ | 12,492,672 |  | $ | 9,555,643  | 
|--------------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- |  | - | ---------- | 
|                                                          |   |            |  |   |            |  |   |            |  |   |            | 
|Earnings per share                                        |   |            |  |   |            |  |   |            |  |   |            | 
|Basic                                                     | $ | 0.1210     |  | $ | 0.0887     |  | $ | 0.3393     |  | $ | 0.5116     | 
|Diluted                                                   | $ | 0.1088     |  | $ | 0.0886     |  | $ | 0.3268     |  | $ | 0.5116     | 
|                                                          |   |            |  |   |            |  |   |            |  |   |            | 
|Weighted average number
      of common outstanding stock |   |            |  |   |            |  |   |            |  |   |            | 
|Basic                                                     |   | 36,125,754 |  |   | 36,061,476 |  |   | 36,125,754 |  |   | 19,463,339 | 
|Diluted                                                   |   | 40,167,345 |  |   | 36,091,242 |  |   | 37,507,917 |  |   | 19,465,518 | 

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

4

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CHINA NUTRIFRUIT GROUP LIMITED AND
SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(Stated in US Dollars)

|                                                                                                                      |   |                         |  
|--------------------------------------------------------------------------------------------------------------------- | - | ----------------------- | -
|                                                                                                                      |   | Nine months
      ended |  
|                                                                                                                      |   | December
      31,      |  
|                                                                                                                      |   | 2009                    |  
|Operating activities:                                                                                                 |   |                         |  
|Net
      earnings                                                                                                    | $ | 12,512,124              |  
|Adjustments to reconcile net earnings to net
      cash used in operating activities                                  |   |                         |  
|Noncontrolling interests                                                                                              |   | -                       |  
|Depreciation and amortization                                                                                         |   | 1,120,793               |  
|Benefit for deferred income taxes                                                                                     |   | 164,934                 |  
|Loss
      on disposal of property and equipment                                                                      |   | -                       |  
|Changes in operating
      assets and liabilities:                                                                    |   |                         |  
|Trade
      receivables                                                                                               |   | 3,149,316               |  
|Inventories                                                                                                           |   | (10,010,662             | )
|Prepayments                                                                                                           |   | 291,788                 |  
|Other current assets                                                                                                  |   | (1,462                  | )
|Trade
      payables                                                                                                  |   | 247,371                 |  
|Income taxes payable                                                                                                  |   | 136,031                 |  
|Advances from customers                                                                                               |   | -                       |  
|Consideration payables                                                                                                |   | -                       |  
|Amount due to a director                                                                                              |   | -                       |  
|Amount due to an affiliate                                                                                            |   | -                       |  
|Other
      payables and accrued expenses                                                                             |   | (1,908,952              | )
|Net cash provided
      by/(used in) operating activities                                                             |   | 5,701,281               |  
|                                                                                                                      |   |                         |  
|Investing
      activities:                                                                                           |   |                         |  
|Cash outflow from acquisition of
      subsidiaries                                                                   |   | -                       |  
|Purchases of property
      and equipment                                                                             |   | (2,577,984              | )
|Proceeds from disposal of property and
      equipment                                                                |   | -                       |  
|Net cash used in
      investing activities                                                                           |   | (2,577,984              | )
|                                                                                                                      |   |                         |  
|Financing
      activities:                                                                                           |   |                         |  
|Proceeds from borrowings                                                                                              |   | -                       |  
|Repayment of
      borrowings                                                                                         |   | -                       |  
|Amounts due to shareholders                                                                                           |   | -                       |  
|Proceeds from issue of
      common stock                                                                             |   | -                       |  
|Proceeds from issuances of preferred
      stocks                                                                     |   | 12,006,646              |  
|Proceeds from issuances
      of warrants                                                                             |   | 1,302,354               |  
|Cost of raising capital                                                                                               |   | (1,094,047              | )
|Net cash provided by
      financing activities                                                                       |   | 12,214,953              |  
|                                                                                                                      |   |                         |  
|Increase in cash and
      cash equivalents                                                                           |   | 15,338,250              |  
|                                                                                                                      |   |                         |  
|Effect of exchange rate
      on cash and cash equivalents                                                            |   | (39,570                 | )
|                                                                                                                      |   |                         |  
|Cash and cash
      equivalents at beginning of the period                                                            |   | 4,768,542               |  
|                                                                                                                      |   |                         |  
|Cash and cash equivalents and
      proceeds from private placement held in escrow account
      at end of the period | $ | 20,067,222              |  
|                                                                                                                      |   |                         |  
|Analysis of
      balances:                                                                                           |   |                         |  
|Proceeds from private placement held in
      escrow account                                                          | $ | 931,630                 |  
|Cash and cash
      equivalents                                                                                       |   | 19,135,592              |  

|                                                         | $ | 20,067,222 |  | $ | 8,396,925 | 
|-------------------------------------------------------- | - | ---------- |  | - | --------- | 
|                                                         |   |            |  |   |           | 
|Supplemental disclosure
      of cash flows information: |   |            |  |   |           | 
|Cash paid for:                                           |   |            |  |   |           | 
|Interest                                                 | $ | -          |  | $ | 318,050   | 
|Income taxes                                             | $ | 4,078,629  |  | $ | 2,818,381 | 
|                                                         |   |            |  |   |           | 
|Supplemental disclosure of non-cash
      information:   |   |            |  |   |           | 
|Issuance of warrants                                     | $ | 367,156    |  | $ | -         | 
|Purchases of property and equipment                      | $ | 160,183    |  | $ | -         | 

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

5

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CHINA NUTRIFRUIT GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (UNAUDITED)

(Stated in US Dollars)

|                                             |  |                 |  |   |              |  |  |            |  |   |        |  |   |            |   |   |               |   |   |            |  |   |            |  
|-------------------------------------------- |  | --------------- |  | - | ------------ |  |  | ---------- |  | - | ------ |  | - | ---------- | - | - | ------------- | - | - | ---------- |  | - | ---------- | -
|                                             |  | Preferred stock |  |   | Common stock |  |  |            |  |   |        |  |   |            |   |   |               |   |   |            |  |   |            |  
|                                             |  |                 |  |   |              |  |  |            |  |   |        |  |   |            |   |   | Accumulated   |   |   |            |  |   |            |  
|                                             |  |                 |  |   |              |  |  |            |  |   |        |  |   | Additional |   |   | other         |   |   | Statutory  |  |   |            |  
|                                             |  |                 |  |   |              |  |  |            |  |   |        |  |   | paid-in    |   |   | comprehensive |   |   | reserves  |  |   | Retained   |  
|                                             |  | Shares          |  |   | Amount       |  |  | Shares     |  |   | Amount |  |   | capital    |   |   | income        |   |   | restricted |  |   | earnings   |  
|Balance at March 31, 2009                    |  | -               |  | $ | -            |  |  | 36,125,754 |  | $ | 36,126 |  | $ | 16,746,971 |   | $ | 425,675       |   | $ | 2,873,880  |  | $ | 6,734,616  |  
|Capital contribution                         |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | 7,414,995  |   |   | -             |   |   | -          |  |   | -          |  
|Preferred stocks issued in private placement |  | 403,418         |  |   | 403          |  |  | -          |  |   | -      |  |   | 12,006,243 |   |   | -             |   |   | -          |  |   | -          |  
|Warrants issued in
      private placement   |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | 1,302,354  |   |   | -             |   |   | -          |  |   | -          |  
|Cost of raising capital                      |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | (1,094,047 | ) |   | -             |   |   | -          |  |   | -          |  
|Transfer to reserve                          |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | -          |   |   | -             |   |   | 1,690,040  |  |   | (1,690,040 | )
|Comprehensive income                         |  |                 |  |   |              |  |  |            |  |   |        |  |   |            |   |   |               |   |   |            |  |   |            |  
|Net earnings                                 |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | -          |   |   | -             |   |   | -          |  |   | 12,512,124 |  
|Translation adjustments                      |  | -               |  |   | -            |  |  | -          |  |   | -      |  |   | -          |   |   | (19,452       | ) |   | -          |  |   | -          |  
|Balance at December 31, 2009                 |  | 403,418         |  | $ | 403          |  |  | 36,125,754 |  | $ | 36,126 |  | $ | 36,376,516 |   | $ | 406,223       |   | $ | 4,563,920  |  | $ | 17,556,700 |  

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

6

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China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 1. NATURE OF BUSINESS AND SUMMARY OF PRINCIPAL
ACCOUNTING POLICIES

Nature of Business

China Nutrifruit Group Limited (the Company) was originally
incorporated in the state of Utah on April 22, 1983 and changed its domicile
from Utah to Nevada in April 1999. The Company was not engaged in any business
activities and had no meaningful operations, income producing assets or
significant operating capital since at least 1989 until it acquired Fezdale
Investments Limited (Fezdale) on August 14, 2008.

On August 14, 2008, the Company acquired all of the equity
interests of Fezdale, a British Virgin Islands corporation, through a share
exchange transaction (the Share Exchange Transaction), with the result that
the shareholders of Fezdale became the beneficial owners of approximately 86.59%
of the Companys common stock. As a result of such Share Exchange Transaction,
Fezdale became a wholly-owned subsidiary of the Company and the former
shareholders of Fezdale became the Companys controlling shareholders.
Accordingly, all references to shares of Fezdales ordinary shares have been
restated to reflect the equivalent numbers of the common stock of China
Nutrifruit Group Limited.

The share exchange resulted in Fezdales former shareholder
obtaining a majority voting interest in the Company. Accounting principles
generally accepted in the United States of America (US GAAP) require that a
company whose shareholders retain the majority interest in a combined business
be treated as the acquirer for accounting purposes. As a result, in the Share
Exchange Transaction, Fezdale is treated as the accounting acquirer and China
Nutrifruit Group Limited is treated as the acquired party for accounting
purpose. Accordingly, the Share Exchange Transaction has been accounted for a
recapitalization of the Company. The equity section of the accompanying
financial statements have been restated to reflect the recapitalization of the
Company due to the Share Exchange Transaction as of the first day of the first
period presented. The assets and liabilities acquired that, for accounting
purposes, were deemed to have been acquired by Fezdale were not significant.

Also, on August 14, 2008, our majority shareholder, Yiu Fai
Kung (Mr. Kung), entered into escrow agreements with the private placement
investors and HFG International, Limited (HFG). Mr. Kung will deliver a
certain number of shares of our common stock owned by him to the investors and
HFG pro-rata in accordance with their respective investment amount for no
additional consideration if:

|(i) | Our after tax net income for our fiscal year ending on
      March 31, 2009 is less than $13,919,707 and fiscal year ending on March
      31, 2010 is less than $18,495,315;
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The return to Mr. Kung of any of the make good shares placed in
escrow by him is considered to be a separate compensatory arrangement because
Mr. Kung is a director of the Companys subsidiary Fezdale. Accordingly, if any
of the required earnings targets are met and shares are returned to Mr. Kung,
the Company will recognize a non-cash compensation cost at that time equal to
the then fair value of the shares returned (up to a total of 5,599,598 shares).
For the year ended March 31, 2009, the earnings target for 2009 of net income of
$13,955,178 (before any charges related to the release of any shares from
escrow) was met. Accordingly, the Company has recorded a non-cash charge to
compensation cost of $9,519,316.6 in the fourth quarter of 2009 related to the
release from escrow to Mr. Kung of 2,799,799 shares.

7

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 1. NATURE OF BUSINESS AND SUMMARY OF PRINCIPAL
ACCOUNTING POLICIES (CONTD)

On September 30, 2009, the Company entered into a securities
purchase agreement (the "Private Placement Transaction") with certain accredited
investors and effected the initial closing of the purchase and sale of 359,502
units (the "Unit") at a purchase price of $33.00 per Unit. Each Unit consists of
one share of the Companys newly-designated Series A Convertible Preferred
Stock, par value $0.001 per share ("Series A Preferred Stock") and one warrant
(the "Warrant") to purchase the Companys common stock, par value $.001 per
share. The Series A Preferred Stock is convertible into ten shares of the
Companys Common Stock (subject to customary adjustments) and the Company is
obligated to register the underlying shares of Common Stock within a pre-defined
period. In connection with the initial closing of the offering, the Company
raised approximately $11.86 million.

On October 8, 2009, the Company effected the second and final
closing of the private placement transaction and issued 43,916 Units under the
same terms. In connection with the initial closing of the offering, the Company
raised approximately $1.45 million.

The Warrants are immediately exercisable at a per share price
of $3.30 (subject to customary adjustments) and have a term of four years

On November 5, 2009, the Company has authorized and reserved
30,000 shares of Common Stock for issuance to a director under a restricted
stock grant agreement.

Fezdale Investments Limited

Fezdale is a private limited liability company incorporated in
the British Virgin Islands on August 22, 2007.

In October 2007, Solar Sun Holdings Limited (Solar Sun), a
subsidiary of Fezdale, entered in a share purchase agreement with six owners of
Daqing Longheda Food Company Limited (Longheda) under which the six owners of
Longheda agreed to transfer an aggregate of 75% equity interests in Longheda to
Solar Sun for a total consideration of RMB40,000,000. In May 2008, the six
founders of Longheda transferred the remaining 25% equity interests in Longheda
to Solar Sun. After the transfer, Longheda became the wholly owned subsidiary of
Solar Sun.

Solar Sun Holdings Limited

Solar Sun is a private limited liability company incorporated
in Hong Kong on September 12, 2007. Solar Sun is a holding company and has no
assets or operations other than its ownership of Longheda.

Daqing Longheda Food Company Limited

Longheda was incorporated in Heilongjiang province of Peoples
Republic of China in June 2004. Longheda manufactures and sells a variety of
food products processed from specialty premium fruits that grow in Northeast
China. Currently, Longheda processes 4 types of premium specialty fruits,
including golden berry, crab apple, blueberry and raspberry, and sells fresh
fruits. Longheda currently has 5 types of fruit based products, including fruit
concentrate, nectar, glazed fruits, concentrate pulp and fruit beverage.
Longheda sells its products through an extensive sales and distribution network
covering 20 provinces in China. The fresh fruits are mainly sold to fruit
supermarkets and stores while the processed fruit products are mainly sold to
manufacturers for further processing into fruit juice and other fruit related
products.

8

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 1. NATURE OF BUSINESS AND SUMMARY OF PRINCIPAL
ACCOUNTING POLICIES (CONTD)

Jumbo Gloss Limited

Jumbo Gloss Limited (Jumbo Gloss) is a private limited
liability company incorporated in the British Virgin Islands on October 13,
2009. Jumbo Gloss is a dormant company and has no assets or operations.

Basis of presentation

The interim condensed consolidated financial statements include
the accounts of China Nutrifruit Group Limited and its subsidiaries (the
Group). The interim condensed consolidated financial statements have been
prepared in accordance with the US GAAP. All significant intercompany
transactions and balances have been eliminated.

The interim condensed consolidated financial statements are
unaudited and, in our opinion, include all adjustments, consisting of normal
recurring adjustments and accruals necessary for a fair representation of our
condensed consolidated balance sheets, operating results, and cash flows for the
periods presented. Operating results for the periods presented are not
necessarily indicatives of the annual results for the year ending March 31,
2010. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with the US GAAP have been condensed
or omitted in accordance with the rules and regulations of the Securities and
Exchange Commission (the SEC).

Use of estimates

The preparation of the interim condensed consolidated financial
statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from these estimates.

Segment information

The Group identifies and classifies its operating segment based
on the nature of the products with similar economic characteristics. No segment
information is provided as the Group only has one business and geographical
segment. The Groups reportable segment is the manufacture and sell of food
products, which the operations are located in the PRC and sales were
predominately made to customers located in the PRC.

Economic and political risks

The Groups operations are conducted in the PRC. According the
Groups business, financial position maybe influenced by the political, economic
and legal environment in the PRC, and by the general state of the PRC economy.

The Groups operations in the PRC are subject to special
considerations and significant risk not typically associated with companies in
North America. These include risks associated with, among others, the political,
economic and legal environmental and foreign currency exchange. The Groups
results may be adversely affected by changes in the political and social
conditions in the PRC, and by changes in governmental policies with respect to
laws and regulations, anti-inflationary measures, currency conversion,
remittances abroad, and rates and methods of taxation, among other things.

9

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

Earnings per share

Basic earnings per share is computed by dividing net operating
results for the reporting period attributable to common shareholders by the
weighted average number of common stocks outstanding during the period. Diluted
earnings per share is calculated by dividing net operating results for the
reporting period attributable to common shareholders by the weighted average
number of common stocks outstanding and the dilutive effect of common stock
equivalents.

Cash and cash equivalents

The Group considers all highly liquid investments with an
original maturity date of three months or less to be cash equivalents.

Trade accounts receivable

In the normal course of business, the Group extends credit to
customers. Trade accounts receivable, less allowance for doubtful accounts,
reflect the net realizable value of receivables, and approximate fair value. On
a regular basis, the Group evaluates its trade accounts receivable and
establishes an allowance for doubtful accounts based on a combination of
specific customer circumstances, credit conditions, and payment history. A
receivable is considered past due if payments have not been received within the
agreed upon invoice terms. No allowance for doubtful accounts at December 31,
2009 was recorded. Trade accounts receivable is charged off against the
allowance after management determines the potential for recovery is remote.

Inventories

The cost of finished products inventories includes raw
materials, direct labor and indirect production costs. Inventories are stated at
the lower of cost or market. The Group uses first-in, first-out methods to value
its inventories. During the idle production period, overhead costs include
depreciation are treated as current-period charges, which charge directly to
general and administrative expense instead of costs of inventories.

Fair value of financial instruments

The carrying amount of certain of the Groups financial
instruments, including cash and cash equivalents, trade receivable, trade
payable, other current assets, other payables and accrued expenses, approximates
fair value due to the relatively short maturity.

Property and equipment, net

Property and equipment are recorded at cost and are depreciated
on a straight-line basis over the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred. The principal estimated useful
lives generally are: buildings  20 years; leasehold improvements  10 years;
machinery - 10 years, furniture, fixture and office equipment  5 years; motor
vehicles  5 years. Depreciation of property, plant and equipment were $372,668,
$1,118,780, $380,012 and $660,769 for the three and nine months period ended
December 31, 2009 and 2008 respectively.

10

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

Negative goodwill

Negative goodwill represents the excess fair value of the net
tangible and identifiable intangible assets acquired in a business combination
over the purchase price. The negative goodwill is allocated as a pro rata
reduction of the amounts assigned to the assets acquired excluding financial
assets, deferred taxes and other current assets. If negative goodwill exceeds
the amount of those assets, the remaining excess shall be recognized as an
extraordinary gain in the period which the business combination is completed.

Comprehensive income

Comprehensive income is comprised of net income and other
comprehensive income.

Revenue recognition

The Group recognizes revenue from sales of products, where
persuasive evidence of an arrangement exists, delivery has occurred, the
sellers price is fixed or determinable and collectibility is reasonably
assured. This generally occurs when the customer receives the product or at the
time title passes to the customer. Customers generally do not have the right to
return product unless damaged or defective. Net sales are comprised of gross
sales reduced by customer returns, trade promotions and discounts.

Shipping and handling costs

Shipping and handling costs are included in selling expenses.
The shipping and handling costs for the three months and nine months ended
December 31, 2009 and 2008 were $907,934, $2,125,427, $767,316 and $1,464,741
respectively.

Impairment of long-lived assets

Long-lived assets, except indefinite-lived intangible assets,
are reviewed for impairment when circumstances indicate the carrying value of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to future net cash
flows estimated by the Group to be generated by such assets. If such assets are
considered to be impaired, the impairment to be recognized is the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of by sale are recorded as held for sale at the lower of
carrying value or estimated net realizable value. During the period, no
impairment on long-lived assets was recorded by the Group.

All land in the PRC is owned by the PRC government. The
government in the PRC, according to the relevant PRC law, may sell the right to
use the land for a specific period of time. Thus, all of the Groups land
located in the PRC is considered to be leasehold land and is stated at cost less
accumulated amortization and any recognized impairment loss. Amortization is
provided over the term of the land use right agreements on a straight-line
basis, which is 50 years and they will expire in 2055.

Other income recognition

Other income comprised of interest income and others.

Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate applicable, which is
the rate that exactly discounts the estimated future cash receipts through the
expected life of the loan to the loans net carrying amount.

11

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

Advertising costs

Advertising costs are expensed as incurred. The total
advertising costs were $24,633, $35,511, nil and $9,359 for the three months and
nine months ended December 31, 2009 and 2008 respectively.

Foreign currency translation

The accompanying financial statements are presented in United
States dollars. The functional currency of the Group is Renminbi, RMB. The
financial statements are translated into United States dollars from RMB at
year-end exchange rates as to assets and liabilities and average exchange rates
as to revenues and expenses. Capital accounts are translated at their historical
exchange rates when the capital transactions occurred.

|December 31, 2009                                  |                     
|-------------------------------------------------- | --------------------
|Balance sheet                                      | RMB6.8400 to US$1.00
|Statement of income and
      comprehensive income | RMB6.8400 to US$1.00
|                                                   |                     
|March 31, 2009                                     |                     
|Balance sheet                                      | RMB6.8456 to US$1.00
|Statement of income and
      comprehensive income | RMB6.8805 to US$1.00

As at December 31, 2009, RMB120,841,143 equivalents to
US$17,666,834 (March 31, 2009: RMB32,611,383 equivalents to US$4,763,846) is not
freely convertible into foreign currency and all foreign exchange transactions
must take place through authorized institutions. No representation is made that
the RMB amounts could have been, or could be, converted into US$ at the rates
used in translation.

Statutory reserves

The laws and regulations of the PRC require that before an
enterprise distributes profits to its owners, it must first satisfy all tax
liabilities, provide for losses in previous years, and make allocations. The
statutory reserves include a surplus reserve fund and a common welfare fund.
These statutory reserves represent restricted retained earnings. The details of
surplus reserve fund and common welfare fund are as follows:

Surplus reserve fund

The Companys subsidiary in PRC is required, as necessary, to
transfer 10 percent of its net income, as determined in accordance with the PRC
accounting rules and regulations, to a statutory surplus reserve fund until such
reserve balance reaches 50 percent of that subsidiarys paid-in capital.

The transfer to this reserve must be made before distribution
of any dividends to owners. The surplus reserve fund is non-distributable other
than during liquidation and can be used to fund previous years' losses, if any,
and may be utilized for business expansion or converted into equity by raising
equity from existing owners in proportion to their equity holdings.

12

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

Statutory reserves (Continued)

Common welfare fund

The Companys subsidiary in PRC is required, as necessary, to
transfer 5 percent to 10 percent of its net income, as determined in accordance
with the PRC accounting rules and regulations, to the statutory common welfare
fund. This fund can only be utilized on capital items for the collective benefit
of that subsidiarys employees, such as construction of dormitories, cafeteria
facilities, and other staff welfare facilities. This fund is non-distributable
other than upon liquidation. The transfer to this fund must be made before
distribution of any dividends to owners.

Related party transactions

A related party is generally defined as (i) any person that
holds 10% or more of the Groups securities and their immediate families, (ii)
the Groups management, (iii) someone that directly or indirectly controls, is
controlled by or is under common control with the Group, or (iv) anyone who can
significantly influence the management or operating decisions of the Group. A
transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties.

Income taxes

The Group accounts for income taxes under the provision of
Accounting Standards Codification 740 (ASC 740) (formerly Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes and
related interpretations and guidance including FIN 48, Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109),
resulting in two components of income tax expense: current and deferred. Current
income tax expense approximates taxes to be paid or refunded for the relevant
periods. Deferred income tax expense results from changes in deferred tax assets
and liabilities between periods. Deferred income tax assets and liabilities are
computed for differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities that will result in taxable or
deductible amounts in the future, as well as from net operating loss and tax
credit carryforwards, and are measured at the enacted tax laws and rates
applicable in the years which the differences are expected to be recovered or
settled. A deferred tax asset is recognized if it is more likely than not that a
benefit will be realized. The Groups operations are primarily located in PRC
and subject to PRC profits tax.

13

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (the
FASB) issued the FASB Accounting Standards Codification (the Codification)
as the source of authoritative accounting principles recognized by the FASB to
be applied by nongovernmental entities in the preparation of financial
statements in conformity with Generally Accepted Accounting Principles (GAAP).
Rules and interpretative releases of the Securities and Exchange Commission are
also sources of authoritative GAAP for SEC registrants. As a result of the
Codification, all changes to GAAP originating from the FASB will now be issued
in Accounting Standards Updates. These changes and the Codification do not
change GAAP. The Company adopted the changes resulting from the Codification,
effective September 30, 2009. Other than the manner in which new accounting
guidance is referenced, the adoption of these changes had no impact on the
Companys results of operations, financial position or notes to the condensed
consolidated financial statements.

In August 2009, the FASB issued Accounting Standards Update
(ASU)
2009-05, Fair Value Measurements and Disclosures (Topic 820)Measuring
Liabilities at Fair Value (ASU 2009-05). ASU 2009-05 provides clarification in
measuring the fair value of a liability. ASU 2009-05 is effective beginning
October 1, 2009. The Company currently does not expect ASU 2009-05 to have a
significant impact on its financial statements.

In September 2009, the FASB issued ASU 2009-12, Investments in Certain Entities That Calculate Net
Asset Value per Share (or its Equivalent) which amends FASB ASC Topic Fair Value Measurements and Disclosures. ASU 2009-12 provides
additional guidance on estimating the fair value of certain alternative
investments, such as hedge funds, private equity investments and venture capital
funds. The updated guidance allows the fair value of such investments to be
determined using the net asset value (NAV) as a practical expedient, unless it
is probable the investment will be sold at a value other than the NAV. In
addition, the guidance requires disclosures by major category of investment
regarding the attributes of the investments within the scope of the guidance,
regardless of whether the fair value of the investment is measured using the NAV
or other fair value technique. ASU 2009-12 shall be effective for interim and
annual periods ending after December 15, 2009. Early application is permitted in
financial statements for earlier interim and annual periods that have not been
issued. If an entity elects to early adopt the measurement amendments in this
update, the entity is permitted to defer the adoption of the disclosure
provisions until periods ending after December 15, 2009. The Company is
currently evaluating the potential impacts of adoption of ASU 2009-12 on its
financial statements.

Other recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force (EITF)), the American Institute of
Certified Public Accountants (AICPA), and the SEC did not or are not believed
by management to have a material impact on the Company's present or future
financial statements.

14

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 3. EARNINGS PER SHARE

The computations of basic and diluted earnings per share for
the three months and nine months ended December 31 are as follows:

|                                                                  |   | Three
      months ended |   |   | Nine months ended  | 
|----------------------------------------------------------------- | - | ------------------------ | - | - | ------------------ | 
|                                                                  |   | December
      31,       |   |   | December
      31, | 
|                                                                  |   | 2009                     |   |   | 2008               | 
|Numerator:                                                        |   |                          |   |   |                    | 
|Net earnings                                                      | $ | 4,625,977                |   | $ | 3,197,942          | 
|Less:
    dividends on preferred stock                            |   | (253,780                 | ) |   | -                  | 
|Net earnings available to common shareholders                     | $ | 4,372,197                |   | $ | 3,197,942          | 
|Denominator:                                                      |   |                          |   |   |                    | 
|Weighted average common stock outstanding                         |   | 36,125,754               |   |   | 36,061,476         | 
|Effect of
    dilutive warrant                                    |   | 41,193                   |   |   | 29,786             | 
|Effect of
    dilutive preferred stock                            |   | 4,000,398                |   |   | -                  | 
|Weighted average common stock and dilutive potential common stock |   | 40,167,345               |   |   | 36,091,262         | 
|                                                                  |   |                          |   |   |                    | 
|Basic net earnings per
      share                                | $ | 0.1210                   |   | $ | 0.0887             | 
|                                                                  |   |                          |   |   |                    | 
|Diluted net earnings
      per share                              | $ | 0.1088                   |   | $ | 0.0886             | 

NOTE 4. INVENTORY, NET

At December 31, 2009 and March 31, 2009 inventory is comprised
of the following:

|               |   | December 31, |  |   | March 31, | 
|-------------- | - | ------------ |  | - | --------- | 
|               |   | 2009         |  |   | 2009      | 
|Finished goods | $ | 13,467,660   |  | $ | 3,578,680 | 
|Raw material   |   | 238,918      |  |   | 114,212   | 
|               | $ | 13,706,578   |  | $ | 3,692,892 | 



15

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 5. PROPERTY AND EQUIPMENT, NET

Property and equipment, net, at December 31, 2009 and March 31,
2009 are summarized as follows:

|                                         |   | December 31, |   |   | March 31,  |  
|---------------------------------------- | - | ------------ | - | - | ---------- | -
|                                         |   | 2009         |   |   | 2009       |  
|                                         |   |              |   |   |            |  
|Buildings                                | $ | 5,043,654    |   | $ | 5,038,316  |  
|Leasehold improvement                    |   | 1,338,780    |   |   | 1,337,685  |  
|Machinery                                |   | 15,115,861   |   |   | 12,361,774 |  
|Furniture, fixtures and office equipment |   | 13,720       |   |   | 13,690     |  
|Motor vehicles                           |   | 6,174        |   |   | 6,144      |  
|                                         |   |              |   |   |            |  
|Total                                    | $ | 21,518,189   |   | $ | 18,757,609 |  
|Less: accumulated depreciation           |   | (3,264,835   | ) |   | (2,142,679 | )
|                                         | $ | 18,253,354   |   | $ | 16,614,930 |  

NOTE 6. PROCEEDS FROM PRIVATE PLACEMENT HELD IN ESCROW
ACCOUNT

The balance represents the 7% of net proceeds raised in the
Private Placement Transaction (Note 1), which will be deposited in an escrow
account and be distributed to the Investors for the payment of dividend on
September 1, 2010, subject to terms in the closing escrow agreement.

NOTE 7. OTHER PAYABLES AND ACCRUED EXPENSES

Other payables and accrued expenses by major categories are
summarized as follows:

|                         |   | December 31, |  |   | March 31, | 
|------------------------ | - | ------------ |  | - | --------- | 
|                         |   | 2009         |  |   | 2009      | 
|Accruals                 | $ | 369,131      |  | $ | 586,782   | 
|Value added tax payables |   | 18,145       |  |   | 1,034,195 | 
|Other payables           |   | 541,899      |  |   | 1,055,006 | 
|                         | $ | 929,175      |  | $ | 2,675,983 | 

The other payables mainly comprised the amount payable to the
suppliers of property and equipment, amounting to $397,829 and $960,544 as of
December 31, 2009 and March 31, 2009 respectively.

16

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 8. PROVISION FOR INCOME TAXES

The provision for income tax is as follows:

|                    |   | For the nine months
      period ended | 
|------------------- | - | -------------------------------------- | 
|                    |   | December 31,                           | 
|                    |   | 2009                                   | 
|                    |   |                                        | 
|Current:            |   |                                        | 
|PRC                 | $ | 4,214,660                              | 
|Other jurisdictions |   | -                                      | 
|Deferred:           |   |                                        | 
|PRC                 |   | 164,934                                | 
|Other jurisdictions |   | -                                      | 
|                    | $ | 4,379,594                              | 

Deferred tax assets

The source of significant temporary difference that gives rise
to the deferred tax asset is as follows:

|                                                                                         |   | December 31, |  |   | March 31, | 
|---------------------------------------------------------------------------------------- | - | ------------ |  | - | --------- | 
|                                                                                         |   | 2009         |  |   | 2009      | 
|Deferred tax assets:                                                                     |   |              |  |   |           | 
|Difference between book and tax basis
      of land use right and property and equipment | $ | 1,241,881    |  | $ | 1,406,814 | 
|Less: valuation
      allowance                                                          |   | -            |  |   | -         | 
|Net deferred tax assets                                                                  | $ | 1,241,881    |  | $ | 1,406,814 | 

In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that all of the assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income in each tax jurisdiction
during the periods in which temporary differences in those jurisdictions become
deductible. Management considers the projected future taxable income and tax
planning strategies in making this assessment.

With regard to the US deferred tax assets, the Company believes
that it is more likely than not that results of future operations will generate
sufficient taxable income to realize the deferred tax assets, and therefore no
valuation allowance has been provided for these assets.

17

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

Income taxes

The Groups operations are conducted in the PRC and are subject
to PRCs enterprise income tax. Pursuant to the PRC Income Tax Law prior to
January 1, 2008, enterprise income taxes were generally imposed at a statutory
rate of 33%, which comprised 30% national income tax and 3% local income tax.
However, the Group has been granted preferential tax treatment by the State
Tax Bureau of the PRC as the Group was considered  a hi-tech enterprise in the
Heilongjiang province. According to the PRC Income Tax Law and various approval
documents issued by the Tax Bureau, the Groups profits for the period prior to
2008 were taxed at a rate of 15%.

On March 16, 2007, the Fifth Plenary Session of the Tenth
National Peoples Congress passed the Corporate Income Tax Law of the PRC which
will take effect on January 1, 2008. According to the new tax law, the
applicable corporate income tax rate for domestically-owned enterprises and
foreign-invested enterprises are subject to a uniform tax rate of 25%. While the
new tax law equalizes the tax rates for domestically-owned and foreign-invested
companies, preferential tax treatment would continue to be given to companies in
certain encouraged sectors and to enterprises classified as high and new
technology companies, whether domestically-owned or foreign-invested
enterprises. The new tax law also provides a five-year transition period
starting from its effective date for those enterprises which were established
before the promulgation date of the new tax law and which were entitled to a
preferential tax treatment. The tax rate of such enterprises will transition to
the uniform tax of 25% within a five-year transition period.

In July 2006, the FASB clarified the accounting and disclosure
for uncertainty in tax positions, as defined in ASC 740. ASC 740 prescribes a
more-likely-than-not threshold for financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
This interpretation also provides guidance on de-recognition of income tax
assets and liabilities, classification of current and deferred income tax assets
and liabilities, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods and income tax
disclosures.

The Group adopted the provisions of ASC 740 effective August
22, 2007. Based on its ASC 740 analysis, the Group concluded that the adoption
of ASC 740 did not have any impact on the Groups total liabilities or owners
equity. The Group classifies interests and/or penalties related to income tax
matters as income tax expenses. As of September 30, 2009, the Group did not have
interests and penalties related to uncertain tax positions. The Group does not
anticipate any significant increases or decrease to its liabilities for
unrecognized tax benefits within the next twelve months.

18

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

The provision for income taxes appearing in the consolidated
statement of income represents the current tax expenses. A reconciliation of the
provision for income tax calculated using the statutory federal income tax rate
and state and local income tax rate to the Companys provision for income taxes
for the six months ended September 30 is as follows:

|                                                          |   | For the nine months
      period |  
|--------------------------------------------------------- | - | -------------------------------- | -
|                                                          |   | ended December 31,               |  
|                                                          |   | 2009                             |  
|Provision for income taxes at
      statutory rate of 35% | $ | 5,912,101                        |  
|Chinese tax rate difference                               |   | (1,644,633                       | )
|Non-deductible expenses and
      non-assessable profits  |   | (65,973                          | )
|Tax losses not yet recognized                             |   | 178,099                          |  
|Income taxes                                              | $ | 4,379,594                        |  

NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties. The carrying amounts of financial assets and liabilities, such as cash
and cash equivalents, trade receivables, trade payables, other payables and
accrued expenses, approximate their fair values because of the short maturity of
these instruments and market rates of interest.

NOTE 10. SHAREHOLDERS EQUITY

General

The Companys total authorized capital at December 31, 2009, is
125,000,000 shares of which 120,000,000 shares are common stock of par value
$0.001 and 5,000,000 shares are preferred stock of par value $0.001. At December
31, 2009, 36,125,754 shares of common stock and 403,418 shares of Series A Preferred
Stock, respectively, were issued and outstanding.

The Companys total authorized capital at March 31, 2009, is
125,000,000 shares of which 120,000,000 shares are common stock of par value
$0.001 and 5,000,000 shares are preferred stock of par value $0.001. At March
31, 2009, 36,125,754 shares of common stock and nil shares of Series A Preferred
Stock, respectively, were issued and outstanding.

19

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 10. SHAREHOLDERS EQUITY (CONTD)

Additional paid-in capital

On September 7, 2009, Mr. Kung  agreed to capitalize his
loan, amounting to HK$40,109,986, equivalents to US$5,190,497, by issuing 7
fully paid shares of par value US$1.00 in Fezdale to the Company.

On September 7, 2009, Mr. Kwan Ho Ng  agreed to capitalize
his loan, amounting to HK$17,189,994, equivalents to US$2,224,498, by issuing 3
fully paid shares of par value US$1.00 in Fezdale to the Company.

Series A Preferred Stock

In connection with the first closing of Private Placement
Transaction which closed on September 30, 2009, certain investors received
359,502 shares of Series A Preferred Stock.

In connection with the second and final closing of Private
Placement Transaction which closed on October 8, 2009, certain investors
received 43,916 shares of Series A Preferred Stock. A summary of terms of Series
A Preferred Stock as follows:

Ranking

With respect to rights upon liquidation, winding-up or
dissolution, the Series A Preferred Stock ranks senior to the Companys Common
Stock and any other classes or series of stock of the Company not designated as
ranking senior to or pari passu with the Series A Preferred Stock.

Voting

The holders of the Series A Preferred Stock will vote on an "as
converted" basis, together with the Common Stock, as a single class, in
connection with any proposal submitted to the Companys stockholders, except as
required by Nevada law.

Conversion

Shares of the Series A Preferred Stock are optionally
convertible into fully paid and non-assessable shares of Common Stock at a
conversion rate calculated by dividing (A) $33.00 per share (the "Liquidation
Preference Amount") by (B) the conversion price, which is initially $3.30 per
share, subject to adjustment as provided in the Certificate of Designation.
Initially, each share of Series A Preferred Stock is convertible into 10 shares
of Common Stock.

20

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 10. SHAREHOLDERS EQUITY (CONTD)

Non-redeemable preferred stock (Continued)

Mandatory Conversion

The Company has the right to convert outstanding Series A
Preferred Stock into shares of Common Stock upon (i) the closing of a sale by
the Company of shares of the Common Stock in a registered public offering in
which the Company sells shares of its stock in exchange for at least $10 million
in gross proceeds and the holders of the Series A Convertible Preferred Stock
are able to offer and sell at least 50% of the Common Stock that would be
received upon such mandatory conversion ("Qualified Sale") or (ii) when the
average of the daily closing price of the Common Stock for at least 30
consecutive trading days is not less than $4.25 and the daily trading volume
during each of those 30 trading days exceeds 75,000 shares (a "Market Forced
Conversion," and collectively with a Qualified Sale, a "Forced Conversion"). The
conversion rate to be applied in effecting a Forced Conversion is calculated by
dividing the Liquidation Preference Amount per share by $2.75 (in the event of a
Qualified Sale) or $3.30 (in the event of a Market Forced Conversion), as the
case may be, subject to adjustment as provided in the Certificate of
Designation. In addition, in connection with a Qualified Sale Forced Conversion,
the Company will pay to the holder for each share of Series A Preferred Stock so
converted a per share amount equal to seven percent (7%) of the original issue
price plus all accrued and unpaid dividends

Dividends

Each share of Series A Preferred Stock will be entitled to
receive cumulative dividends at the annual rate of 7% on the Liquidation
Preference Amount thereof. Such dividends will be payable annually on September
1 beginning with the first such date after December 31, 2009 and any optional
conversion date in cash.

Liquidation

In the event of the liquidation, dissolution or winding
up of the affairs of the Company, whether voluntary or involuntary, the holders
of the Series A Preferred Stock then outstanding will be entitled to receive,
out of the assets of the Company available for distribution to its stockholders,
an amount equal to $33.00 per share plus accrued but unpaid dividends, before
any payment shall be made or any assets distributed to the holders of the Common
Stock or any other class or series of stock issued by the Company not designated
as ranking senior to or pari passu with the Series A Preferred Stock in
respect of the right to participate in distributions or payments upon a
liquidation event.

Redemption

At any time on or after less than 10% of the originally issued
shares of Series A Preferred Stock shall remain outstanding and subject to the
satisfaction of certain conditions, the Company has the option to redeem all
shares of Series A Preferred Stock then outstanding at a price equal to one
hundred and one percent (101%) of the Liquidation Preference Amount, plus any
accrued and unpaid dividends. A holder of then outstanding Series A Preferred
Stock may also, upon the satisfaction of the foregoing conditions and at the
option of such holder, request the Company to redeem all or any of its shares of
Series A Preferred Stock at the same price.

21

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 10. SHAREHOLDERS EQUITY (CONTD)

Warrants

In connection with the private placement which closed on
October 10, 2008, WLT Brothers Capital, Inc., Wentworth Securities, Inc. and
Euro Pacific Capital, Inc., the Companys placement agents, received, as partial
compensation, warrants to purchase 66,171, 95,781 and 54,057 shares of the
Companys common stock, respectively. The warrants have a term of 3 years and
are immediately exercisable at $2.78 per share, subject to the usual adjustments
for certain corporate events.

The Company valued the warrants by Trinomial option pricing
model with the amount of $331,357 which recorded as cost of raising capital
against additional paid-in-capital. The Company estimated the fair value of each
warrant award on the date of grant using the Trinomial option pricing model and
the assumption noted in the following table. Expected volatility is based on the
historical and implied volatility of a peer group of publicly traded entities.
The expected term of options gave consideration to historical exercises,
post-vesting cancellations and the options contractual term. The risk-free rate
for the expected term of the option is based on the U.S. Treasury Constant
Maturity at the time of grant. The assumptions used to value options granted
were as follows:

|Risk-free interest rate | 3.479%
|----------------------- | ------
|Expected volatility     | 59.92%
|Expected dividend rate  | -%    
|Expected life (years)   | 3     

In connection with the first closing of Private Placement
Transaction which closed on September 30, 2009, certain investors received
359,502 warrants to purchase 898,777 shares of the Companys common stock. The
warrants have a term of 4 years and are immediately exercisable at $3.30 per
share, subject to customary adjustments.

The Company valued the warrants by Trinomial Option Pricing
Model with the amount of $1,361,295 which was used to calculate the portion of
proceeds from private placement transaction arising from warrants to record as
additional paid-in capital. The Company estimated the fair value of each warrant
award on the date of grant using the Trinomial Option Pricing Model and the
assumption noted in the following table. Expected volatility is based on the
historical and implied volatility of a peer group of publicly traded entities.
The expected term of options gave consideration to historical exercises,
post-vesting cancellations and the options contractual term. The risk-free rate
for the expected term of the option is based on the U.S. Government Bond at the
time of grant. The assumptions used to value options granted were as follows:

22

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 10. SHAREHOLDERS EQUITY (CONTD)

|Warrants (Continued)    |       
|----------------------- | ------
|                        |       
|Risk-free interest rate | 2.264%
|Expected volatility     | 56.03%
|Expected dividend rate  | -%    
|Expected life (years)   | 4     

In connection with the first closing of Private Placement
Transaction which closed on September 30, 2009, WLT Brothers Capital, Inc. and
Euro Pacific Capital, Inc., the Companys placement agents, received, as partial
compensation, 86,281 warrants to purchase 215,703 shares of the Companys common
stock. The warrants have a term of 4 years and are immediately exercisable at
$3.30 per share, subject to customary adjustments.

The Company valued the warrants by Trinomial Option Pricing
Model with the amount of $326,705 which recorded as cost of raising capital
against additional paid-in capital. The Company estimated the fair value of each
warrant award on the date of grant using the Trinomial Option Pricing Model and
the assumption noted in the following table. Expected volatility is based on the
historical and implied volatility of a peer group of publicly traded entities.
The expected term of options gave consideration to historical exercises,
post-vesting cancellations and the options contractual term. The risk-free rate
for the expected term of the option is based on the U.S. Government Bond at the
time of grant. The assumptions used to value options granted were as follows:

|Risk-free interest rate | 2.264%
|----------------------- | ------
|Expected volatility     | 56.03%
|Expected dividend rate  | -%    
|Expected life (years)   | 4     

In connection with the second and final closing of Private
Placement Transaction which closed on October 8, 2009, certain investors
received 43,916 warrants to purchase 109,790 shares of the Companys common
stock. The warrants have a term of 4 years and are immediately exercisable at
$3.30 per share, subject to customary adjustments.

The Company valued the warrants by Trinomial Option Pricing
Model with the amount of $168,549 which was used to calculate the portion of
proceeds from private placement transaction arising from warrants to record as
additional paid-in capital. The Company estimated the fair value of each warrant
award on the date of grant using the Trinomial Option Pricing Model and the
assumption noted in the following table. Expected volatility is based on the
historical and implied volatility of a peer group of publicly traded entities.
The expected term of options gave consideration to historical exercises,
post-vesting cancellations and the options contractual term. The risk-free rate
for the expected term of the option is based on the U.S. Government Bond at the
time of grant. The assumptions used to value options granted were as follows:

23

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 10. SHAREHOLDERS EQUITY (CONTD)

|Risk-free interest rate | 2.324%
|----------------------- | ------
|Expected volatility     | 51.62%
|Expected dividend rate  | -%    
|Expected life (years)   | 4     

In connection with the second and final closing of Private
Placement Transaction which closed on October 8, 2009, WLT Brothers Capital,
Inc. and Euro Pacific Capital, Inc., the Companys placement agents, received,
as partial compensation, 10,540 warrants to purchase 26,349 shares of the
Companys common stock. The warrants have a term of 4 years and are immediately
exercisable at $3.30 per share, subject to customary adjustments.

The Company valued the warrants by Trinomial Option Pricing
Model with the amount of $40,451 which recorded as cost of raising capital
against additional paid-in capital. The Company estimated the fair value of each
warrant award on the date of grant using the Trinomial Option Pricing Model and
the assumption noted in the following table. Expected volatility is based on the
historical and implied volatility of a peer group of publicly traded entities.
The expected term of options gave consideration to historical exercises,
post-vesting cancellations and the options contractual term. The risk-free rate
for the expected term of the option is based on the U.S. Government Bond at the
time of grant. The assumptions used to value options granted were as follows:

|Risk-free interest rate | 2.324%
|----------------------- | ------
|Expected volatility     | 51.62%
|Expected dividend rate  | -%    
|Expected life (years)   | 4     

NOTE 11. PRC CONTRIBUTION PLAN

Employees of the Group are entitled to retirement benefits
calculated with reference to their salaries basis upon retirement and their
length of service in accordance with a PRC government-managed retirement plan.
The PRC government is directly responsible for the payments of the benefits to
these retired employees. The Group is required to make contributions to the
government-managed retirement plan based on certain percentages of the
employees monthly salaries. The amounts contributed by the Group were
approximately $219,567, $92,945, $209,591 and $73,433 for the nine months and
three months ended December 31, 2009 and 2008 respectively.

24

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 12. SIGNIFICANT CONCENTRATIONS AND RISK

(a) Credit Risk

Financial instruments that potentially subject the Group to
significant concentration of credit risk consist primarily of cash and cash
equivalents. As of December 31, 2009, substantially all of the Groups cash and
cash equivalents were held by major financial institutions located in the PRC,
which management believes are of high credit quality.

(b) Groups operations are in China

All of the Groups products are produced in China. The Groups
operations are subject to various political, economic, and other risks and
uncertainties inherent in China. Among other risks, the Groups operations are
subject to the risks of transfer of funds; domestic and international customs
and tariffs; changing taxation policies; foreign exchange restrictions; and
political conditions and governmental regulations.

25

---

China Nutrifruit Group Limited and Subsidiaries Notes to
Condensed Consolidated Financial Statements For the three and nine
months ended December 31, 2009 and 2008 (Unaudited) (Stated in U.S.
Dollars)

NOTE 13. COMMITMENTS AND CONTINGENT LIABILITIES

Operating Lease Commitments

The Group leases certain office premises and buildings under
non-cancellable leases. Minimum future rental payments required under
non-cancellable operating leases in effect as of December 31, 2009 are as
follows:

|Not later than 1 year                        | $ | 4,571 | 
|-------------------------------------------- | - | ----- | 
|Later than 1 year and not later than 5 years |   | -     | 
|                                             | $ | 4,571 | 

Rent expenses for the three months and nine months ended
December 31, 2009 and 2008 were $4,386, $19,141, $8,890 and $25,877,
respectively.

NOTE 14. COMPREHENSIVE INCOME

The Companys comprehensive income is comprised of net
operating results and translation adjustments. Comprehensive income for the
three months and nine months ended December 31 are as follows:

|                                               |   | Three months
      ended |   |   | Nine months
      ended |  
|---------------------------------------------- | - | ------------------------ | - | - | ----------------------- | -
|                                               |   | December
      31,       |   |   | December
      31,      |  
|                                               |   | 2009                     |   |   | 2008                    |  
|                                               |   |                          |   |   |                         |  
|Comprehensive income :                         |   |                          |   |   |                         |  
|Net earnings                                   | $ | 4,625,977                |   | $ | 3,197,942               |  
|Translation
    adjustments                    |   | (39,255                  | ) |   | (34,698                 | )
|Total comprehensive income, net of
      taxes | $ | 4,586,722                |   | $ | 3,163,244               |  

End of condensed consolidated financial statements.

26

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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------------

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the following
Managements Discussion and Analysis of Financial Condition and Results of
Operations, contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements include, among others, those
concerning our expected financial performance and strategic and operational
plans, as well as all assumptions, expectations, predictions, intentions or
beliefs about future events. You are cautioned that any such forward-looking
statements are not guarantees of future performance and that a number of risks
and uncertainties could cause actual results of the Company to differ materially
from those anticipated, expressed or implied in the forward-looking statements.
The words believe, expect, anticipate, project, targets, optimistic,
intend, aim, will or similar expressions are intended to identify
forward-looking statements. All statements other than statements of historical
fact are statements that could be deemed forward-looking statements. Risks and
uncertainties that could cause actual results to differ materially from those
anticipated include risks related to new and existing products; any projections
of sales, earnings, revenue, margins or other financial items; any statements of
the plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; uncertainties
related to conducting business in China; any statements of belief or intention;
any of the factors mentioned in the Risk Factors section of our Annual Report
on Form 10-K for the year ended March 31, 2009, and other risks and
uncertainties mentioned in this Form 10-Q or our other reports filed with the
Securities and Exchange Commission. The Company assumes no obligation and does
not intend to update any forward-looking statements, except as required by law.

Use of Terms

Except as otherwise indicated by the context, all references in
this Quarterly Report to: (i) we, the Company, us, our company, our,
and China Nutrifruit are to the combined businesses of China Nutrifruit Group
Limited and its consolidated subsidiaries; (ii) Fezdale are to Fezdale
Investments Limited, a British Virgin Islands corporation, our direct,
wholly-owned subsidiary; (iii) Solar Sun are to Solar Sun Holdings Limited, a
Hong Kong corporation, our indirect, wholly-owned subsidiary; (iv) Jumbo Gloss
are to Jumbo Gloss Limited, a British Virgin Islands corporation, our direct
wholly-owned subsidiary; (v) Longheda are to Daqing Longheda Food Company
Limited, a Chinese corporation, our indirect, wholly-owned subsidiary; (vi)
Securities Act are to the Securities Act of 1933, as amended; (vii) Exchange
Act are to the Securities Exchange Act of 1934, as amended; (viii) RMB are to
Renminbi, the legal currency of China; (ix) U.S. dollar, $ and US$ are to
the legal currency of the United States; (x) China, Chinese and PRC are to
the Peoples Republic of China; and (xi) BVI are to the British Virgin
Islands.

Overview

We are a holding company and conduct all our operations through
our indirect, wholly owned subsidiary Longheda, which is a leading producer of
premium specialty fruit based products in China. We develop, process, market and
distribute a variety of food products processed primarily from premium specialty
fruits grown in Northeast China, including golden berries, crab apple,
blueberries and raspberries. Our products include fruit concentrate, nectar,
glazed fruits, and fruit beverages as well as fresh fruits.

We sell our products through an extensive nationwide sales and
distribution network covering 20 provinces throughout China. Our processed fruit
products are mainly sold to food and beverage producers for further processing
into fruit juice and other fruit related products. Our fresh fruits are mainly
sold to supermarkets.

Our manufacturing facility is located in Daqing City and Mu Dan
Jiang City, Heilongjiang Province, China where abundant supply of various
premium specialty fruits is readily available. We have four fruit processing
lines with an aggregate capacity of 15,960 tons and one beverage production
line with a 10,800 ton capacity.

Third Fiscal Quarter Highlights

We experienced strong demand for our products and significant
growth in our revenues during the third fiscal quarter. The processed fruit
product market in China continued to expand during the quarter, due in part to
the economic stimulus program initiated by the Chinese government which
stimulated consumer demand and spending in China. We also benefited from the increase in urban population and per capita
disposable income in China which helped to drive demand for natural fruit and
beverage products like ours. In December 2009, our new glazed fruit production
line with an annual production capacity of 1,200 metric tons started production
at Daqing facility. It will be mainly used for producing golden berry and
blueberry glazed fruit products. As we expect the demand for our fruit products
will continue to grow, we plan to use a portion of the $13.31 million in gross
proceeds received in our 2009 private placement financing transaction to further
increase our production capacity, among other things. We believe that the
financing proceeds, combined with our operating cash flows, will provide
sufficient working capital and allow us to take advantage of the growth in
market demand in the future.

27

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The following are some of our financial results for the third
fiscal quarter of 2010 in comparison to our financial results for the third
fiscal quarter of 2009.

- Net Sales: Net sales increased $3.9 million, or 28.4%, to
  $17.8 million for the third fiscal quarter of 2010 from $13.9 million for the
  same period last year, primarily as a result of increased sales volume.
- Gross Margin: Gross margin was 45.7% for the third fiscal
  quarter of 2010, as compared to 43.5% for the same period last year.
- Net Income: Net income increased $1.4 million, or 44.7%, to
  $4.6 million for the third fiscal quarter of 2010, from $3.2 million for the
  same period last year.
- Fully diluted earnings per share: Fully diluted earnings per
  share were $0.12 for the third fiscal quarter of 2010, as compared to $0.09
  for the same period last year.

On September 30, 2009, we completed the initial closing of a
financing transaction in which we sold shares of Series A Convertible Preferred
Stock for aggregate gross proceeds of approximately $11.9 million. On October 8,
2009, we effected the second and last closing of the sale of Series A
Convertible Preferred Stock for gross proceeds of approximately $1.4 million.
The shares of common stock issuable upon conversion of the Series A Convertible
Preferred Stock have been registered on a registration statement on Form S-3
which was declared effective on January 27, 2010.

Taxation

United States

China Nutrifruit Group Limited is subject to United States
income tax at a tax rate of 35%. No provision for income taxes in the United
States has been made as China Nutrifruit had no income taxable in the United
States during the three months ended December 31, 2009.

PRC

A company registered in China used to be subject to national
and local income taxes within China at the applicable tax rate on the taxable
income as reported in its PRC statutory financial statements in accordance with
relevant income tax laws.

Under the Provisional Regulation of the Peoples Republic of
China on Enterprise Income Tax effective as from January 1, 1994, income tax was
generally payable by enterprises at a rate of 33% of their taxable income.

In 2007, China passed the new Enterprise Income Tax Law (the
New EIT Law) and its implementing rules, both of which became effective on
January 1, 2008. The New EIT Law significantly curtails tax incentives granted
to foreign-invested enterprises under the previous law. The New EIT Law,
however, (i) reduces the statutory rate of enterprise income tax from 33% to
25%, (ii) permits companies to continue to enjoy their existing tax incentives,
adjusted by certain transitional phase-out rules, and (iii) introduces new tax
incentives, subject to various qualification criteria. Longheda has been subject
to a tax rate of 25% since 2008. We expect that the tax rate of 25% currently
applicable to Longheda will remain unchanged in fiscal year 2009.

Substantially all of our income may be derived from dividends
received from our PRC operating subsidiary Longheda. The New EIT Law and its
implementing rules generally, for PRC enterprise income tax purposes, provide
that a 10% withholding tax applies to China-sourced income derived by
non-resident enterprises whose jurisdiction of incorporation has signed a tax
treaty with China. Since China and the U.S. have signed a tax treaty to avoid
double taxation, we expect that such 10% withholding tax will apply to dividends paid to
us by our PRC subsidiary but this treatment will depend on our status as a
non-resident enterprise.

28

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Results of Operations

Comparison of Three Months Ended December 31, 2009 and
December 31, 2008

The following table sets forth key components of our results of
operations for the periods indicated, in dollars and as a percentage of sales
revenue.

(All amounts, other than percentages and per share number, in
thousands of U.S. dollars)

|                                                        |   | Three Months Ended |  |  | Three Months Ended | 
|------------------------------------------------------- | - | ------------------ |  |  | ------------------ | 
|                                                        |   | December 31, 2009  |  |  | December 31, 2008  | 
|                                                        |   |                    |  |  | As a               | 
|                                                        |   | In                 |  |  | Percentage         | 
|                                                        |   | Thousands          |  |  | of Net Sales       | 
|Net Sales                                               | $ | 17,817             |  |  | 100.0%             | 
|Costs of Sales                                          |   | 9,681              |  |  | 54.3%              | 
|Gross profit                                            |   | 8,136              |  |  | 45.7%              | 
|Selling expenses                                        |   | 1,094              |  |  | 6.1%               | 
|General and administrative expenses                     |   | 816                |  |  | 4.6%               | 
|Interest expenses                                       |   | -                  |  |  | -                  | 
|Other income                                            |   | 9                  |  |  | 0.0%               | 
|Income before noncontrolling interests and income taxes |   | 6,235              |  |  | 35.0%              | 
|Provision for Income taxes                              |   | 1,609              |  |  | 9.0%               | 
|Net income                                              |   | 4,626              |  |  | 26.0%              | 
|Earnings per share:                                     |   |                    |  |  |                    | 
|Basic                                                   | $ | 0.1210             |  |  |                    | 
|Diluted                                                 | $ | 0.1088             |  |  |                    | 

The functional currency of the Company is RMB, however, our
financial information is expressed in USD. The results of operations reported in
the table above is based on the exchange rate of RMB 6.84 to $1 for the three
months ended December 31, 2009 and the rate of RMB 6.85 to $1 for the three
months ended December 31, 2008.

Net Sales

Net sales consist of revenue derived from the sale of our fruit
and fruit based products. Net sales increased $3.9 million, or 28.4%, to $17.8
million for the three months ended December 31, 2009 from $13.9 million for the
three months ended December 31, 2008. Market demand for our products was strong
in this quarter, due, in part, to the Chinese governments economic stimulus
program which stimulated domestic demand and consumer spending. We also
continued to benefit from growth of a health conscious urban population in China
and increased per capita disposable income which helped to drive demand for
natural healthy beverages and fruit products. Sales of our glazed fruit products
increased significantly during the three months ended December 31, 2009,
resulting in $5.4 million in net sales as compared to approximately $0.8 million
the same period last year. We launched the new blueberry glazed fruit products
in September 2009 which were well received by our customers and contributed $2.4
million, or 13.3%, of net sales. In addition, our new glazed fruit production
line started production in December, which increased our glazed fruit production
and sales for the three months period ended December 31, 2009. Sales of nectar
and beverage products decreased in this quarter as compared to the same quarter
last year as a result of the timing of the 2010 Chinese New Year. Demand for our
products are generally higher in the month right before the Chinese New Year and
because the 2010 Chinese New Year is in February 2010, one month later than in 2009,
holiday demand for our products shifted to the fourth fiscal quarter this year. We
expect a significant growth in demand for our products in the fourth fiscal
quarter.

The following table sets forth percentage of net sales
generated by each product for the three months ended December 31, 2009 and
2008:

29

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(All amounts, other than percentages, in thousands of U.S.
dollars)

|                  |   | Three Months Ended |  |  | Three Months Ended | 
|----------------- | - | ------------------ |  |  | ------------------ | 
|                  |   | December 31, 2009  |  |  | December 31, 2008  | 
|                  |   |                    |  |  | As a               | 
|                  |   | In                 |  |  | Percentage         | 
|Products          |   | Thousands          |  |  | of Net Sales       | 
|Fresh fruit       | $ | 545                |  |  | 3.1%               | 
|Glazed fruit      |   | 5,355              |  |  | 30.1%              | 
|Nectar            |   | 862                |  |  | 4.8%               | 
|Concentrate juice |   | 8,415              |  |  | 47.2%              | 
|Concentrate pulp  |   | 1,876              |  |  | 10.5%              | 
|Beverage          |   | 764                |  |  | 4.3%               | 
|Total             | $ | 17,817             |  |  | 100.0%             | 

Cost of Sales

Cost of sales is primarily comprised of the costs of our raw
materials, labor, overhead and sales tax. Cost of sales increased $1.8 million,
or 23.5%, to $9.7 million for the three months ended December 31, 2009 from $7.8
million for the three months ended December 31, 2008. We believe that this
increase was primarily due to, and consistent with, the increase in sales
volume.

Gross Profit

Gross profit is equal to net sales less cost of sales. Gross
profit increased by $2.1 million to $8.1 million for the three months ended
December 31, 2009 from $6.0 million for the three months ended December 31,
2008. Gross profit as a percentage of net sales was 45.7% for the three months
ended December 31, 2009 as compared to 43.5% for the same period last year. The
increase in gross margin was mainly because in the three months period ended
December 31, 2009, we sold a higher percentage of glazed fruit products which
have a relatively higher profit margin as compared to our fruit concentrate and
concentrate pulp products. In addition, the gross margin for fruit concentrate
products increased in this quarter because the average sales price of raspberry
concentrate products increased approximately 100% in this quarter as compared to
the same period last year. The gross margin for fruit concentrate, glazed fruit,
nectar and concentrate pulp products for the three months period ended December
31, 2009 were 44.4%, 51.9%, 69.7% and 28.3%, as compared to 39.0%, 65.3%, 70.1%
and 41.4% for the same period last year, respectively.

On a product basis, our gross margin of glazed fruit decreased
approximately 13% for the three months period ended December 31, 2009 in compare
with the same period last year. We used frozen blueberries during the
non-harvest season to process new blueberry glazed fruit in order to maximize
the utilization rate of our glazed fruit production line and increase sales
volume to distributors. The cost of frozen blueberries is relatively higher than
fresh blueberries.

Selling and General and Administrative
Expenses

Selling and general and administrative expenses increased $0.3
million, or 18.6%, to $1.9 million for the three months ended December 31, 2009
from $1.6 million for the three months ended December 31, 2008.

Selling expenses include sales commissions, the cost of
advertising and promotional materials, salaries and fringe benefits of sales
personnel and other sales related costs. Selling expenses increased $148,309, or
15.7%, to $1.1 million for the three months ended December 31, 2009 from
$945,802 for the three months ended December 31, 2008. As a percentage of net
sales, selling expenses decreased 0.7% from 6.8% for three months ended December
31, 2008 to 6.1% for the three months ended December 31, 2009. Due to well
established relationship with our existing customers, we received repeat orders
with higher volume from our existing clients, which led to lower sales related
travel expenses in this quarter. We plan to continue to spend more efforts on
identifying new distributors in regions where we have no or limited sales to
further expand our customer base and market share.

General and administrative expenses include the costs
associated with staff and support personnel who manage our business activities
and professional fees paid to third parties. Our general and administrative
expenses increased $151,867, or 22.9%, to $816,069 for the three months ended
December 31, 2009 from $664,202 for the three months ended December 31, 2008.

30

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As a percentage of net sales, general and administrative
expenses for the three months ended December 31, 2009 decreased by 0.2% to 4.6%,
as compared to 4.8% for the three months ended December 31, 2008.

Interest Expenses

We did not have any interest expenses for the three months
ended December 31, 2009 because we repaid all outstanding bank loans on March
26, 2009.

Income before Noncontrolling Interests and Income
Taxes

Income before noncontrolling interests and income taxes
increased $1.9 million, or 44.8%, to $6.2 million for the three months ended
December 31, 2009 from $4.3 million for the three months ended December 31,
2008. Income before noncontrolling interests and income taxes as a percentage of
net sales increased from 31.0% for the three months ended December 31, 2008 to
35.0% for the three months ended December 31, 2009. The percentage increase was
primarily attributable to the increased gross margin. In addition, we incurred
no interest expense in this quarter because we repaid in full all of our bank
loans on March 26, 2009.

Provision for Income Taxes

The provision for income taxes increased $0.5 million, or
45.3%, to $1.6 million for the three months ended December 31, 2009 from $1.1
million for the three months ended December 31, 2008. The increase in the
provision for income taxes is mainly attributed to the increase in net income
before income taxes.

Net Income

Net income increased $1.4 million or 44.7%, to $4.6 million for
the three months ended December 31, 2009 from $3.2 million for the three months
ended December 31, 2008, mainly as a result of the increase in sales revenue and
gross margin as discuss above.

Comparison of Nine Months Ended December 31, 2009 and
December 31, 2008

The following table sets forth key components of our results of
operations for the periods indicated, in dollars and as a percentage of sales
revenue.

(All amounts, other than percentages and per share number, in
thousands of U.S. dollars)

|                                                        |   | Nine Months Ended |  |  | Nine Months Ended | 
|------------------------------------------------------- | - | ----------------- |  |  | ----------------- | 
|                                                        |   | December 31, 2009 |  |  | December 31, 2008 | 
|                                                        |   |                   |  |  | As a              | 
|                                                        |   | In                |  |  | Percentage        | 
|                                                        |   | Thousands         |  |  | of Net Sales      | 
|Net Sales                                               | $ | 46,503            |  |  | 100.0%            | 
|Costs of Sales                                          |   | 24,734            |  |  | 53.2%             | 
|Gross profit                                            |   | 21,769            |  |  | 46.8%             | 
|Selling expenses                                        |   | 2,592             |  |  | 5.6%              | 
|General and administrative expenses                     |   | 2,333             |  |  | 5.0%              | 
|Interest expenses                                       |   | -                 |  |  | -                 | 
|Other income                                            |   | 48                |  |  | 0.1%              | 
|Income before noncontrolling interests and income taxes |   | 16,892            |  |  | 36.3%             | 
|Provision for Income taxes                              |   | 4,380             |  |  | 9.4%              | 
|Noncontrolling interests                                |   | -                 |  |  | -                 | 
|Net income                                              |   | 12,512            |  |  | 26.9%             | 
|Earnings per share:                                     |   |                   |  |  |                   | 
|Basic                                                   | $ | 0.3393            |  |  |                   | 
|Diluted                                                 | $ | 0.3268            |  |  |                   | 

31

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The functional currency of the Company is RMB, however, our
financial information is expressed in USD. The results of operations reported in
the table above is based on the exchange rate of RMB 6.84 to $1 for the nine
months ended December 31, 2009 and the rate of RMB 6.89 to $1 for the nine
months ended December 31, 2008.

Net Sales

Net sales increased $10.3 million, or 28.4% to $46.5 million
for the nine months ended December 31, 2009 from $36.2 million for the same
period in 2008. The increase was mainly attributable to the increased sales
volume of our products, especially our concentrated pulp and glazed fruit
products. Sales of concentrated pulp grew significantly from $2.2 million during
the nine months ended December 31, 2008 to $6.4 million during the nine months
ended December 31, 2009 and sales of glazed fruit grew from $4.8 million to
$10.2 million during those periods. Market demand for our products was strong in
the nine months ended December 31, 2009, due, in part, to the Chinese
governments economic stimulus program, growth in a health conscious urban
population and a rise in per capita disposable income in China. We launched the
new blueberry glazed fruit products in September 2009 which were well
received by our customers and our new glazed fruit production line started
production in December, both of which increased our glazed fruit production and
sales for the nine months period ended December 31, 2009. Sales of nectar and
beverage products decreased in the nine months period ended December 31, 2009 as
compared with the same period last year due to the timing of the 2010 Chinese
New Year which occurs one fiscal quarter later in 2010. We expect a significant
growth in demand for our products in the fourth fiscal quarter.

The following table sets forth percentage of net sales
generated by each product for the nine months ended December 31, 2009 and
2008:

(All amounts, other than percentages, in thousands of U.S.
dollars)

|                  |   | Nine Months Ended |  |  | Nine Months Ended | 
|----------------- | - | ----------------- |  |  | ----------------- | 
|                  |   | December 31, 2009 |  |  | December 31, 2008 | 
|                  |   |                   |  |  | As a              | 
|                  |   | In                |  |  | Percentage        | 
|Products          |   | Thousands         |  |  | of Net Sales      | 
|Fresh fruit       | $ | 2,220             |  |  | 4.8%              | 
|Glazed fruit      |   | 10,202            |  |  | 21.9%             | 
|Nectar            |   | 4,809             |  |  | 10.3%             | 
|Concentrate juice |   | 20,089            |  |  | 43.2%             | 
|Concentrate pulp  |   | 6,370             |  |  | 13.7%             | 
|Beverage          |   | 2,813             |  |  | 6.0%              | 
|Total             | $ | 46,503            |  |  | 100.0%            | 

Cost of Sales

Cost of sales increased $5.7 million, or 30.0%, to $24.7
million for the nine months ended December 31, 2009 from $19.0 million for the
nine months ended December 31, 2008. This increase was primarily due to, and
consistent with, the increase in our sales volume. In the nine months period
ended December 31, 2009, we sold a higher percentage of glazed fruit products
which generally have a lower per unit cost as compared to concentrate juice and
concentrated pulp products. Therefore, the overall percentage increase in cost
of sales is lower than the overall percentage increase in sales.

Gross Profit

Gross profit increased by $4.6 million to $21.8 million for the
nine months ended December 31, 2009 from $17.2 million for the nine months ended
December 31, 2008. Gross profit as a percentage of net sales was 46.8% for the
nine months ended December 31, 2009 as compared to 47.5% for the same period
last year. The modest decrease in gross margin was mainly because in the nine
months period ended December 31, 2009, we used frozen blueberries as our raw
material to process new blueberry glazed fruit and the cost of frozen
blueberries is relatively higher than fresh blueberries. We used frozen
blueberries during the non-harvest season in order to maximize the utilization
rate of our glazed fruit production line and increase sales to distributors. In
addition, the gross margin for concentrate pulp products decreased in the nine
months ended December 31, 2009, mainly because sales price for apple concentrate
pulp in the international market decreased significantly during the nine months
ended December 31, 2009 as compared to the same period last year due to the
general economic climate. However, price of apple, the main raw material for
apple concentrate pulp, in international market was stable, even increased moderately. We were able to increase the
gross margin for fruit concentrate products during the recent quarters because
the average sales price of raspberry concentrate products increased
approximately 100% as compared to the same period last year. The gross margin
for fruit concentrate, glazed fruit, nectar and pulp concentrate products for
the nine months period ended December 31, 2009 were 43.5%, 57.6%, 68.1% and
33.8%, as compared to 39.9%, 65.6%, 70.6% and 41.0% for the same period last
year, respectively.

32

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Selling and General and Administrative
Expenses

Selling and general and administrative expenses increased $1.4
million, or 39.1%, to $4.9 million for the nine months ended December 31, 2009
from $3.5 million for the nine months ended December 31, 2008.

Selling expenses increased $0.6 million, or 27.3%, to $2.6
million for the nine months ended December 31, 2009 from $2.0 million for same
period last year. As a percentage of net sales, selling expenses did not have
any change for nine months ended December 31, 2009 in compare with the nine
months ended December 31, 2009, both were 5.6% . Our selling expenses were
generally in line with the increase in sales volume.

General and administrative expenses increased $0.8 million, or
54.9%, to $2.3 million for the nine months ended December 31, 2009 from $1.5
million for the nine months ended December 31, 2008. As a percentage of net
sales, general and administrative expenses for the nine months ended December
31, 2009 increased by 0.8% to 5.0%, as compared to 4.2% for same period last
year. This percentage increase was primarily attributable to higher professional
fees and other expenses incurred by the company due to its U.S. public company
status.

Interest Expenses

We did not have any interest expenses for the nine months ended
December 31, 2009 because we repaid all outstanding bank loans on March 26,
2009.

Income before Noncontrolling Interests and Income
Taxes

Income before noncontrolling interests and income taxes
increased $3.5 million, or 26.5%, to $16.9 million for the nine months ended
December 31, 2009 from $13.4 million for the nine months ended December 31,
2008. Income before noncontrolling interests and income taxes as a percentage of
net sales decreased from 36.9% for the nine months ended December 31, 2008 to
36.3% for the nine months ended December 31, 2009. The percentage decrease was
primarily attributed to the decrease in gross margin and increase in general and
administrative expenses as discuss above.

Provision for Income Taxes

Our provision for income taxes was $4.4 million and $3.2
million during the nine months ended December 31, 2009 and 2008, respectively.
The increase was mainly due to increase in net income before income tax. As a
percentage of net sales, provision for income taxes increased from 8.8% for the
nine months ended December 31, 2008 to 9.4% for the nine months ended December
31, 2009. The increase was mainly due to the deferred tax of $0.7 million
arising from the temporary difference recognized from the 25% of equity interest
of Longheda acquired by Solar Sun in May 2008.

Net Income

Our net income increased $2.6 million, or 25.7%, to $12.5
million for the nine months ended December 31, 2009 from $10.0 million for the
nine months ended December 31, 2008, mainly as a result of the increase in sales
revenue as discuss above.

Liquidity and Capital Resources

As of December 31, 2009, we had cash and cash equivalents of
$20.1 million. The following table sets forth a summary of our cash flows for
the periods indicated.

33

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Cash Flow (All amounts in thousands of U.S. dollars)

|                                                           |   | Nine Months Ended December
      31 |  
|---------------------------------------------------------- | - | ----------------------------------- | -
|                                                           |   | (in thousands)                      |  
|                                                           |   | 2009                                |  
|Net cash provided by (used in) operating activities        | $ | 5,701                               |  
|Net cash used in investing activities                      |   | (2,578                              | )
|Net cash provided by financing activities                  |   | 12,215                              |  
|Effect of exchange rate on cash and cash equivalents       |   | (40                                 | )
|Cash and cash equivalents at beginning of
      the period |   | 4,769                               |  
|Cash and cash equivalents at end of period                 |   | 20,067                              |  

Operating Activities

Net cash provided by operating activities was $5.7 million for
the nine months ended December 31, 2009, a decrease of $8.1 million from $2.4
million net cash used in operating activities for the nine months ended
December 31, 2008. Net cash provided by operating activities for the nine months
ended December 31, 2009 was mainly attributable to a $13.8 million of net
earning after adjustments to reconcile net earnings to net cash and $3.1 million
of net cash received from trade debtors which more than offset the $10.0 million
used to increase our inventory during our production season.

Investing Activities

Our cash used in investing activities during the nine months
ended December 31, 2009 was primarily for the purchase of a new glazed fruit
production line in December 2009 for approximately $2.6 million. Our cash used
in investing activities for nine months ended December 31, 2008 primarily
related to our acquisition of the 25% of minority interest in Longheda for $1.4
million and the purchase of property, plant and equipment for the new
concentrated fruit juice production line in Mu Dan Jiang for $13 million.

Financing Activities

For the nine months ended December 31, 2009, the cash provided
by financing activities was mainly attributable to the receipt of $12.2 million
in net proceeds from a private placement financing transaction closed in 2009.
For the nine months ended December 31, 2008, the $18.6 million cash provided by
financing activities was mainly attributable to the receipt of $6.8 million in
net proceeds from the issuance of stock in a private placement and a $4.4
million draw down of new bank loans.

On October 8, 2009, we completed a private placement and issued
403,418 units at a purchase price of $33.00 per unit for gross proceeds of
$13,309,000. Each unit consists of one share of our newly-designated Series A
Convertible Preferred Stock, par value $0.001 per share, and one warrant to
purchase 2.5 shares of our common stock. The warrants are immediately
exercisable at a per share price of $3.30 (subject to customary adjustments) and
have a term of four years. The total net proceeds from the private placement
were approximately $12.2 million.

As of December 31, 2009, we did not have any outstanding bank
loans. We believe that our currently available working capital, after receiving
the aggregate proceeds of our capital raising activities referred to above,
should be adequate to sustain our operations at our current levels through at
least the next twelve months. We may require additional cash resources due to
changed business conditions, implementation of our strategy to expand our
production capacity or other investments or acquisitions we may decide to
pursue. If our own financial resources are insufficient to satisfy our capital
requirements, we may seek to sell additional equity or debt securities or obtain
additional credit facilities. The sale of additional equity securities could
result in dilution to our stockholders. The incurrence of indebtedness would
result in increased debt service obligations and could require us to agree to
operating and financial covenants that would restrict our operations. Financing
may not be available in amounts or on terms acceptable to us, if at all. Any
failure by us to raise additional funds on terms favorable to us, or at all,
could limit our ability to expand our business operations and could harm our
overall business prospects.

34

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Critical Accounting Policies

Critical accounting policies are those we believe are most
important to portraying our financial conditions and results of operations and
also require the greatest amount of subjective or complex judgments by
management. Judgments and uncertainties regarding the application of these
policies may result in materially different amounts being reported under various
conditions or using different assumptions. There have been no material changes
to the critical accounting policies previously disclosed in our Annual Report on
Form 10-K for the fiscal yearended March 31, 2009.

Recently Issued Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (the
FASB) issued the FASB Accounting Standards Codification (the Codification)
as the source of authoritative accounting principles recognized by the FASB to
be applied by nongovernmental entities in the preparation of financial
statements in conformity with Generally Accepted Accounting Principles (GAAP).
Rules and interpretative releases of the Securities and Exchange Commission are
also sources of authoritative GAAP for SEC registrants. As a result of the
Codification, all changes to GAAP originating from the FASB will now be issued
in Accounting Standards Updates. These changes and the Codification do not
change GAAP. The Company adopted the changes resulting from the Codification,
effective December 31, 2009. Other than the manner in which new accounting
guidance is referenced, the adoption of these changes had no impact on our
results of operations, financial position or notes to the condensed consolidated
financial statements.

In August 2009, the FASB issued Accounting Standards Update
(ASU) 2009-05, Fair Value Measurements and Disclosures (Topic 820)Measuring
Liabilities at Fair Value (ASU 2009-05). ASU 2009-05 provides clarification
in measuring the fair value of a liability. ASU 2009-05 is effective beginning
October 1, 2009. We currently do not expect ASU 2009-05 to have a significant
impact on our financial statements.

In September 2009, the FASB issued ASU 2009-12, Investments in Certain Entities That Calculate Net
Asset Value per Share (or its Equivalent) which amends FASB ASC Topic Fair Value Measurements and Disclosures. ASU 2009-12 provides
additional guidance on estimating the fair value of certain alternative
investments, such as hedge funds, private equity investments and venture capital
funds. The updated guidance allows the fair value of such investments to be
determined using the net asset value (NAV) as a practical expedient, unless it
is probable the investment will be sold at a value other than the NAV. In
addition, the guidance requires disclosures by major category of investment
regarding the attributes of the investments within the scope of the guidance,
regardless of whether the fair value of the investment is measured using the NAV
or other fair value technique. ASU 2009-12 shall be effective for interim and
annual periods ending after December 15, 2009. Early application is permitted in
financial statements for earlier interim and annual periods that have not been
issued. If an entity elects to early adopt the measurement amendments in this
update, the entity is permitted to defer the adoption of the disclosure
provisions until periods ending after December 15, 2009. We are currently
evaluating the potential impacts of adoption of ASU 2009-12 on our financial
statements.

Other recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the SEC) did not or are not believed by management to
have a material impact on our present or future financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Seasonality

The harvest season for our source fruits is generally from mid
July to mid November every year. As fruits collected cannot be stored at room
temperature for a long time, they must be processed as soon as they are
harvested. Our fruit processing production is generally from mid July to mid
November every year. Our fruit beverage production lasts throughout the year
since the raw materials we use are not subject to seasonal effect.

We will generally experience higher sales in the second and
third fiscal quarters mainly due to distributors (i) efforts to obtain adequate
supply of our fruit processing products before the fruit supply diminishes after
production ceases in November; and (ii) anticipation of higher demand for fruit
processed products as a result of festive seasons at the end of the year and
beginning of the following year such as Christmas and the Chinese spring
festival.

35

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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
      ABOUT MARKET RISK.
|------- | -----------------------------------------------------------------

Not Applicable.

|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) that are designed to ensure that
information that would be required to be disclosed in Exchange Act reports is
recorded, processed, summarized and reported within the time period specified in
the SECs rules and forms, and that such information is accumulated and
communicated to our management, including to our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.

As required by Rule 13a-15 under the Exchange Act, our
management, including our Chief Executive Officer, Mr. Jinglin Shi, and Chief
Financial Officer, Mr. Colman Cheng, evaluated the effectiveness of the design
and operation of our disclosure controls and procedures as of December 31, 2009.
Based on our assessment, Mr. Shi and Mr. Cheng determined that, as of December
31, 2009, and as of the date that the evaluation of the effectiveness of our
disclosure controls and procedures was completed, our disclosure controls and
procedures were effective to satisfy the objectives for which they are intended.

Changes in Internal Control Over Financial Reporting

During the quarter ended December 31, 2009, there were no
changes in our internal control over financial reporting identified in
connection with the evaluation performed during the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits
and legal proceedings, which arise, in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these,
or other matters, may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will
have a material adverse affect on our business, financial condition or operating
results.

ITEM 1A. RISK FACTORS.

Not Applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On September 29, 2009, stockholders owning the majority of the
our issued and outstanding shares of Common Stock, constituting the sole class
of our voting securities, executed and delivered to us their written consent
approving the issuance of a certain amount of shares of our Series A Convertible
Preferred Stock, par value $0.001 per share (the Series A Preferred Stock) and
warrants in connection with an equity financing transaction that may eventually
result in the issuance of shares of Common Stock in an amount equal to or
greater than 20% of our issued and outstanding Common Stock, or 7,225,150 shares
as of September 29, 2009 (the Share Issuance).

36

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Because our Common Stock is listed on the NYSE Amex Market, we
are subject to NYSE Amex rules and regulations. NYSE Amex Company Guide Section
713 (a)(ii) requires each company listed on NYSE Amex to obtain shareholder
approval when additional shares will be issued in connection with a transaction
involving the sale, issuance, or potential issuance by the company of common
stock (or securities convertible into common stock) equal to 20% or more of
presently outstanding stock for less than the greater of book or market value of
the stock.

As of September 29, 2009, there were 36,125,754 shares of our
Common Stock issued and outstanding. In connection with our private placement
transaction completed on October 8, 2009, we issued 403,418 shares of our Series
A Preferred Stock, initially convertible into 4,034,180 shares of our Common
Stock, and warrants to purchase an aggregate of 1,008,567 shares of our Common
Stock. We also issued to certain designees of the placement agents in connection
with the private placement transaction warrants to purchase an aggregate of
242,052 shares of our Common Stock. Therefore, the aggregate number of shares of
Common Stock initially issuable upon conversion of the Series A Preferred Stock
and exercise of the warrants is 5,284,799 shares, which is less than 20% of our
issued and outstanding Common Stock, or 7,225,150 shares as of September 29,
2009. However, because both the conversion of the Series A Preferred Stock and
the exercise of the warrants are subject to customary stock split,
recapitalization and other anti-dilution protection, the number of shares of
Common Stock to be issuable in connection with this private placement
transaction may potentially reach or exceed 20% of our total issued and
outstanding Common Stock as of September 29, 2009. Therefore, we decided to seek
approval of the Share Issuance from our stockholders in order to comply with the
relevant NYSE Amex rules.

The following stockholders executed and delivered to us their
written consent approving the Share Issuance on September 29, 2009. On such
date, we had 36,125,754 shares of Common Stock issued and outstanding with the
holders thereof being entitled to cast one vote per share.

|Name of Consenting Stockholder | Number of Shares Owned | Percentage
|------------------------------ | ---------------------- | ----------
|Honouryear Limited             | 15,517,217             | 42.95%    
|Bestsucceed Limited            | 9,050,063              | 25.05%    
|TOTAL                          | 24,567,280             | 68.00%    

Stockholder approval of the Share Issuance became effective on
February 2, 2010, twenty days following our filing and mailing of an information
statement to our stockholders complying with the requires of Section 14(c) of
the Exchange Act and Regulation 14c promulgated thereunder.

No other matters were submitted to a vote of security holders
during the period covered by this report, through the solicitation of proxies or
otherwise.

ITEM 5. OTHER INFORMATION.

We have no information to disclose that was required to be in a
report on Form 8-K during the period covered by this report, but was not
reported. There have been no material changes to the procedures by which
security holders may recommend nominees to our board of directors.

ITEM 6. EXHIBITS.

The following exhibits are filed as part of this report or
incorporated by reference:

|Exhibit No. | Description                                                                                                                                                                  
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                                              
|31.1        | Certifications of Principal
      Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002.                                                   
|31.2        | Certifications of Principal Financial Officer
      filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|32.1        | Certifications of Principal
      Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2        | Certifications of Principal Financial Officer
      furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.

37

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SIGNATURES

In accordance with Section 13 or 15(d)
of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|Date: February 8, 2010 | CHINA NUTRIFRUIT GROUP LIMITED
|---------------------- | ------------------------------
|                       |                               
|                       | By:                           
|                       |                               
|                       |                               
|                       |                               
|                       | By:                           
|                       |                               
|                       |                               
|                       |                               

38

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